Piem Hotels vs. DCIT (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: September 24, 2010 (Date of publication)

Click here to download the judgement (piem_hotel_revision_intangible_asset_depreciation.pdf)

S. 263 Revision only on ground of non-application of mind by AO not proper. Licenses & Approvals are “intangible asset” u/s 32(1)(ii) & eligible for depreciation

The assessee, a hotel, incurred expenditure on acquiring licenses and permissions from various government bodies. This was classified as “goodwill” in the books and depreciation was claimed on the ground that it was an “intangible asset” u/s 32(1)(ii). The AO allowed the claim. The CIT passed an order u/s 263 in which he took the view that the AO had not applied his mind to the issue and that the order was “erroneous & prejudicial to the interests of the revenue”. The CIT set aside the assessment order and directed the AO to pass a fresh order. On appeal by the assessee, HELD allowing the appeal:

(i) The CIT had not recorded any finding to show how the assessment order was erroneous and prejudicial to the interest of the revenue. Merely because the AO had not examined whether the approvals / registrations etc. amounted to intangible assets and had not applied his mind to the examination and verification of the allowability of depreciation on intangible assets did not mean that the assessment order was erroneous and prejudicial to the interests of the revenue. It was not the case of the CIT that depreciation was not allowable on such items of intangible assets;

(ii) An authority exercising revisional power cannot direct the lower authority to complete the assessment in particular manner. UOI vs. Tata Engineering AIR 1998 SC 287 followed;

(iii) On merits, approvals/registrations etc amount to “intangible assets” and entitled to depreciation u/s 32(1) (ii).

Note: On the scope of revision u/s 263 see CIT vs. Vikas Polymers (Delhi High Court). On the meaning of the term “intangible asset” see Techno Shares vs. CIT (SC)