Dish Infra Services Pvt Ltd vs PCIT-1, New Delhi

PER AMITABH SHUKLA, AM

This appeal filed by the assessee is directed against the order of Ld. Principal Commissioner of Income Tax -1, Delhi, dated 31.03.2025 arising out of assessment order dated 28.09.2022 passed under section u/s 143(3) r.w.s. 144B of the Act for the Assessment Year 2020-21. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

The only issue arising in the present appeal is regarding the maintainability of exercise of revisionary authority u/s 263 vide order dated 31.03.2025 by PCIT-1, Delhi. The ld. Counsel narrated following brief factual matrix of the case. It was submitted that the appellant assessee is inter alia, engaged in the business of providing infrastructure and back and support services to the direct to home (DT) service providers and their subscribers along with other ancillary services. In this case, pursuant to a Return of Income declaring loss of Rs.14,46,15,696/- filed by the assessee, order u/s 143(3) r.w.s. 144B was passed on 28.09.2022 determining total income of the assessee at a loss of Rs.13,90,55,603/-. The ld. Assessing Officer had made an addition of Rs.55,60,093/- u/s 40(a)(ia) of the Act. Later, the ld. PCIT came to the conclusion that the ld. Assessing Officer had failed to conduct any enquiries and allowed depreciation on goodwill without verifying its eligibility. It was concluded that the incorrect allowance of incorrect depreciation of Rs.332.44 Crores resulted in revenue loss of 116.18 Crores. Accordingly, after considering replies of the assessee submitted in response to show-cause notices and concluding that the same were unsatisfactory, the ld. PCIR) proceeded to exercise his revisionary authority is u/s 263. Directions were issued to the ld. Assessing Officer as under:-

The ld. Counsel for the assessee vehemently argued against the exercise of revisionary authority by ld. PCIT-1, Delhi. The ld. Counsel submitted that the solitary reason for invocation of power u/s 263 rests upon arrival of conclusion that the ld. Assessing Officer has not done enquiries on the issue of allowability of depreciation of Rs.332.44 Crores by the assessee which had its linkages to the goodwill. It was argued that the conclusion drawn of no enquiries having been done by the ld. Assessing Officer by the PCIT is patently incorrect and not supported by facts on records. The ld. Counsel informed that as per para-1 of the assessment order, its case was selected for scrutiny for various reasons including verification of claim of depreciation, investments in intangible assets, etc. It was submitted that between the period June, 2021 till September, 2022, the ld. Assessing Officer issued several notices and query letters to the assessee to enquire into reasons for scrutiny, which were duly replied. Details of these were discussed by the ld. Assessing Officer in the assessment order. In support of its contentions, the ld. Counsel has placed on record a voluminous paper book, inter alia, containing show-cause notices issued by the ld. Assessing Officer and the replies given by it. Ld. Counsel invited our attention to Assessing Officer’s notice on pages 235 to 242 of the paper book whereby assessee was required to explain its claim of depreciation. On page-244 of the paper book, the assessee has placed a copy of reply dated 02.02.2021, where justification for queries raised by the was submitted and which inter alia included appellant’s depreciation claim. Again through SCN dated 01.11.2021(page-247 of the paper book), the Assessing Officer had asked for details of depreciation including additional depreciation claim, which was replied vide reply placed on page-250 of the paper book. The ld. Counsel thus argued that its not a case of no enquiries being made in the claims of the assessee by the ld. Assessing Officer. Similarly, further replies of the assessee on the subject have been placed on page-262 to 273 of the paper book. The ld. Counsel further submitted that the Assessing Officer has rightly disallowed the depreciation on the goodwill which was acquired in the historical past through business transfer agreements. The ld. Counsel submitted that section 32(1) permits claim of depreciation on goodwill and that the same has been allowed as permissible claim in various judicial precedents. The ld. Counsel argued that the ld. PCIT does not have any jurisdictional authority in respect o disclosures made under India Accounting Standards. Thus, the assessee contested that veracity of the averments raised by the Ld. PCIT in para 7.10 and 7.16 of the order of ld. PCIT. It was also argued that in the absence of any SCN or queries relating to note-7 of its audited financials, the conclusion drawn by ld. PCIT are patently incorrect and unsustainable. The ld. Counsel further submitted that in earlier years and subsequent years, revenue has allowed its claim of depreciation on goodwill and that therefore adopting the principals of consistency, no addition can be considered on this issue.

The ld. DR vehemently argued in favour of the order ld. PCIT. It was contested that the case was, inter alia, selected for scrutiny to verify depreciation on goodwill and that the assessee did not give any details to the ld. Assessing Officer. The ld. DR accordingly argued that the order of PCIT-1, Delhi, under section 263 is therefore resting on firm legal footings.

We have heard rival submissions in the light of material placed on records. The only issue seminal to the controversy is whether the ld. Assessing Officer had conducted any enquiries into the issue of appellant’s claim of depreciation on goodwill. The ld. PCIT has invoked sub-clause(a) and (b) of Explanation-2 to Section 263 concluding that no enquiries were conducted by the ld. Assessing Officer. We have noted from the paper book filed by the assessee discussed hereinabove, that the ld. Assessing Officer did conduct extensive enquiries into the affairs of the assessee for more than one year by issuing various SCNs on several issues including depreciation. We have also noted that the appellant assessee has replied to the ld. Assessing Officer and no adverse inference was drawn by the ld. Assessing Officer. Thus, clearly it is not a case of no enquiries being done by the ld. Assessing Officer. The allegation of the Revenue of the assessee not providing any details to the ld. Assessing Officer thus, is unsustainable. We have also noted that the Revenue has allowed appellant’s claim of depreciation on goodwill in earlier and subsequent years. Consequently, considering the principles of consistency, there cannot be a case of making any additions in this year. Accordingly, we are of the considered view that the order of PCIT-1, Delhi, dated 31.03.2025 is not based upon firm legal footings. We have noted that the reliance upon sub-clause(a) and (b) of Explanation-2 to Section 263 is thus untenable. We therefore set-aside and quash the order u/s 263 of the Act of PCIT-1, Delhi. The appeal of the assessee is therefore allowed.

In the result, the appeal of the assessee is allowed.