PCIT’s Revision Order Quashed: AO’s View on Goodwill Depreciation and Loss Carry Forward Upheld
Issue
Scope of Section 263 (Revision): Can the Principal Commissioner of Income Tax (PCIT) invoke Section 263 to set aside an assessment order as “erroneous and prejudicial” if the Assessing Officer (AO) has already conducted inquiries and taken a plausible view?
Depreciation on Goodwill (Amalgamation): Whether depreciation is allowable on goodwill arising from amalgamation for AY 2019-20, considering the 6th proviso to Section 32(1) and the prospective amendment by Finance Act 2021.
Consistency Principle: Can the Department disallow depreciation on an asset (Goodwill/Intangible Rights) in the current year if the claim was accepted in the year of capitalization and subsequent years?
Carry Forward of Losses: Is an assessment order “prejudicial to the interests of revenue” merely because the quantum of carry-forward losses was allegedly not verified, even if there was no tax impact in the current year?
Facts
Assessee: A media company.
Assessment Year: 2019-20.
Assessment History: The assessee filed a return declaring a loss. The case was selected for scrutiny, and the AO completed the assessment under Section 143(3) r.w.s. 144B, accepting the returned loss (with minor variations).
Key Claims by Assessee:
Depreciation on Goodwill: Claimed on goodwill from the acquisition of the S-18 division (capitalized in AY 2008-09) and goodwill from P-TV (amalgamation).
Depreciation on ‘V’ Platform: Claimed on an intangible asset (digital platform) capitalized in AY 2017-18.
Carry Forward of Losses: Claimed carry forward of business losses (~Rs. 1,022 crores).
AO’s Inquiry: During the original assessment, the AO issued notices seeking specific details on goodwill depreciation, valuation reports, and loss computations. The assessee provided all documents, including High Court amalgamation orders and year-wise loss workings. The AO accepted these claims.
PCIT’s Action: The PCIT invoked Section 263, setting aside the assessment order. The PCIT argued that the AO failed to make proper inquiries regarding the goodwill depreciation (citing the 6th proviso to Section 32(1)) and the quantum of carry-forward losses, making the order erroneous and prejudicial to the revenue.
Decision
1. Regarding Validity of Section 263 Revision (General):
Inquiry Conducted: The Tribunal found that the AO had raised specific queries on these exact issues during assessment and the assessee had replied with evidence. The AO’s acceptance of the claim after verification cannot be termed as “lack of inquiry.”
Plausible View: The PCIT cannot use Section 263 merely to substitute their own view for the plausible view taken by the AO.
Verdict: The revision order was unjustified. [In favour of assessee]
2. Regarding Depreciation on Goodwill (S-18 & P-TV):
S-18 Goodwill: This was capitalized in AY 2008-09. The Tribunal held that since the Department accepted the claim in the year of origin and subsequent years, it cannot disturb the claim in a later year (AY 2019-20) without a change in facts or law (Consistency Principle).
P-TV Goodwill (Amalgamation): The Tribunal held that goodwill arising from amalgamation is a “new asset” in the hands of the amalgamated company. The 6th proviso to Section 32(1) (which limits depreciation to the predecessor’s level) applies to assets transferred, not to new assets like goodwill generated upon amalgamation.
Finance Act 2021: The amendment prohibiting depreciation on goodwill is prospective and does not apply to AY 2019-20.
Verdict: The AO’s view allowing depreciation was correct/plausible. [In favour of assessee]
3. Regarding Depreciation on ‘V’ Platform:
Distinct Asset: The ‘V’ platform was a separate intangible asset, not goodwill.
PCIT’s Error: The PCIT factually erred by conflating this asset with goodwill. Since it was accepted in prior years (AY 2016-17, 2017-18), the revision was unsustainable. [In favour of assessee]
4. Regarding Carry Forward of Losses:
No Prejudice: The Tribunal noted that the “actual revenue impact” of a loss occurs only in the year it is set off against profits.
AO’s Action: The AO had allowed set-off where profits were available. Mere allegations of improper verification of the carry-forward quantum (which didn’t reduce tax in the current year) did not make the order “prejudicial to the interests of revenue.”
Verdict: The PCIT’s direction was unwarranted. [In favour of assessee]
Key Takeaways
Bar on Reopening Settled Issues: If an asset’s depreciation is accepted in the year of capitalization, the Department generally cannot challenge the origin of that asset in subsequent years unless the law changes retrospectively.
Amalgamation Goodwill: Prior to the Finance Act 2021 amendment, goodwill generated upon amalgamation was depreciable, and the 6th proviso to Section 32(1) (restricting depreciation) did not apply to such “newly generated” assets.
Prejudice Test for Losses: For Section 263 to apply, there must be a potential loss of tax revenue. Disputes over the quantum of carried forward losses (which are not yet set off) may not always satisfy the “prejudicial to revenue” test for the current year.
IN THE ITAT MUMBAI BENCH ‘F’
Viacom 18 Media (P.) Ltd.
v.
Principle Commissioner of Income-tax
Raj Kumar Chauhan, Judicial Member
and Om Prakash Kant, Accountant Member
and Om Prakash Kant, Accountant Member
IT Appeal No. 2591 (MUM.) of 2025
[Assessment year 2019-2020]
[Assessment year 2019-2020]
NOVEMBER 27, 2025
Madhur Agarwal and Ms. Moksha Mehta for the Appellant. Vivek Perampurna, CIT-DR for the Respondent.
ORDER
Om Prakash Kant, Accountant Member.- This appeal by the assessee is directed against revisional order dated 18/03/2025 passed by the learned Principal Commissioner of Income-tax, Mumbai-8 [in short ‘the learned PCIT’] under section 263 of Income-tax Act, 1961 (in short ‘the Act’) wherein he set aside the assessment order passed by the faceless assessment unit (in short ‘the Assessing Officer’) holding it to be erroneous insofar as prejudicial to the interest of the Revenue. The grounds raised by the assessee in its appeal are reproduced as under:
On the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income tax (‘PCIT’) has:
Order under section 263 is without jurisdiction, unwarranted and bad in law
1. erred in invoking revision proceedings under section 263 of the Income Tax Act, 1961 (‘the Act’) without appreciating that assessment order passed by the National e-Assessment Centre (‘NeAC’) (‘Assessment Order’) was neither erroneous nor prejudicial to the interest of the revenue;
2. failed to appreciate that the Assessment Order was passed after verification of relevant details and documentary evidence and application of mind vis-à-vis issues pertaining to depreciation on goodwill and carry forward of losses;
3. failed to appreciate that the NeAC had taken a plausible view supported by judicial precedents and prospective amendment in Section 32 of the Act and had allowed depreciation on goodwill;
Without prejudice to above, the learned PCIT has:
Disallowance of Depreciation on Goodwill
4. erred in directing the learned Jurisdictional Assessing Officer (‘AO’) to verify and disallow the claim of depreciation on goodwill as consistently disallowed by the Department in other years;
5. failed to appreciate that in view of prospective amendment in Section 32 of the Act, depreciation on goodwill is allowable for and upto AY 2020-21;
6. without prejudice to the above, failed to appreciate that out of total amount of depreciation of Rs. 195,32,57,760, only an Amount of Rs. 1,87,75,81,932 pertains to depreciation on goodwill on merger of Prism TV Pvt. Ltd. and Rs. 85,655 pertains to goodwill on acquisition of Studio 18 and the balance amount of Rs. 7,55,90,173 pertains to depreciation on Voot platform (which is an intangible asset) and not goodwill.
Short-grant of carry forward of losses
7. erred in determining the amount of carried forward losses at Rs. 6,86,23,58,774 instead of Rs. 10,22,35,12,612, as correctly allowed by the NeAC.
2. Briefly stated facts of the case are that the assessee Viacom18 Media Private limited is a company incorporated on 19/12/1995 under the provisions of the Companies Act, 1956. During the year under consideration, the assessee was engaged in business activities inter alia, broadcasting of television channels; marketing and advertising airtime on television channels; distribution of television channels; over-the-top (OTT) and digital content delivery platform; licensing and merchandising products; organising live events and production/distribution of films/programs etc.
2.1 The assessee filed its regular return of income for the assessment year under consideration on 29/11/2019, which was further revised on 30/03/2020 declaring total loss of rupees (-) 289,31,48,390/-. The return filed by the assessee was selected for the scrutiny assessment and statutory notices under the Income-tax Act were issued and complied with. During the scrutiny proceeding transfer pricing reference was also made for determination of the arm’s-length price of the international transactions carried out by the assessee. The faceless assessment unit passed assessment order under section 143(3) read with section 144B of the Act on 26/09/2022 determining total loss at (-) ₹281,32,98,884/- after making variations proposed by the learned Transfer Pricing Officer.
2.2 Subsequently, the learned PCIT called for the assessment records and after examination, he was of the view that the assessment order passed by the Assessing Officer was erroneous insofar as prejudicial to the interest of the Revenue, on following two issues:
| (i) | incorrect allowance of depreciation on ‘goodwill’ acquired on amalgamation which was denied in earlier assessment years 2016-17 and 2017-18 by the Assessing Officer |
| (ii) | incorrect determination of carry-forward of business losses |
2.3 In view of above observations, the learned PCIT issued a show cause notice dated 22/11/2024 calling upon the assessee as why the assessment order should not be revised on above two issues. The Authorised Representative (AR) of the assessee submitted that the faceless assessment unit after due consideration of the submission of the assessee and carrying out required enquiries, accepted the claim of depreciation on goodwill, which arose on amalgamation of ‘Prism TV P Ltd’ with the assessee. It was contended that revisionary proceedings against assessment order cannot be initiated unless conjunctive conditions of section 263 are satisfied. It was further contended that Assessing Officer had duly examined all the records at the time of assessment proceeding with due application of mind and therefore even the deeming conditions under Explanation 2 to section 263 are not fulfilled. The assessee also filed submissions on the merit of the both the issues and submitted that depreciation on goodwill and carry forward losses have been allowed lawfully by the Assessing Officer. The learned PCIT was however not convinced with the reply of the assessee. He accordingly held the assessment order as erroneous insofar as prejudicial to the interest of the Revenue on both the issues and set aside the order with the direction to the Assessing Officer for passing a fresh assessment order after making necessary inquiries. Aggrieved, the assessee is an appeal before the Income-tax Appellate Tribunal (in short the ‘Tribunal’) by way of raising grounds as reproduced above.
3. Before us the assessee filed a paper book containing pages 1-319. In the grounds raised the assessee has challenged onvoking of section 263 by the ld PCIT, both on legal ground as well as ground on merit. As the facts related to both the issues are interconnected, therefore, firstly we decide legal ground and then ground on merit.
3.1 The facts qua the issue in dispute of depreciation on goodwill are that during the year under consideration the assessee claimed depreciation on goodwill and intangible assets having details as under:
| Sr. No | Particulars | Amount (Rs.) | Remarks by the Assessee |
| i | Depreciation on goodwill on acquisition of Studio 18 (a division of Network18 Media & Investments Pvt. Ltd.) in A Y 2008-09 | 85,655 | Hon’ble Mumbai ITAT allowed claim of depreciation in the first year itself, i.e. AY 2008-09. |
| ii | Depreciation on goodwill resulting on account of amalgamation of Prism TV Pvt. Ltd. (‘Prism TV’) into Viacom 18 in AY 2016-17 | 1,87,75,81,932 | Goodwill recognized in view of the scheme of amalgamation approved by Hon’ble Bombay High Court. No Goodwill was existed in the books of amalgamating company and hence, the Goodwill had purely arisen on amalgamation, eligible for depreciation upto 1.4.2021. |
| iii | Depreciation on Intangible Right (Voot Platform) | 7,55,90,173 | There is no Goodwill in this asset. This is an intangible asset capitalized in AY 2017-18 on which depreciation was never disputed by the Department |
| Total | 195,32,57,760 |
3.2 The learned counsel for the assessee referred to paperbook page 1, which is a copy of notice under section 143(2) of the Act and submitted that return of income was selected for the scrutiny for verification of the various issues including one of the issues as depreciation claim of the assessee.
The learned counsel, further referred to paperbook pages 16 to 22, which is a copy of notice under section 142(1) of the Act and submitted that the Assessing Officer vide query No. 8 (Paper Book page-18) asked the details of claim of depreciation. The learned counsel submitted that assessee duly responded to the queries raised by the Assessing Officer. He referred to copy of the reply filed by the assessee which is available on paperbook pages 23-32 along with notes to financial statement available on paperbook page 289.
Further the learned counsel referred to a show cause notice issued by the Assessing Officer, a copy of which is available on paperbook pages 33 to 37 and submitted that the Assessing Officer specifically asked the assessee to support claim of depreciation on goodwill with documentary evidences. The Assessing Officer in said show cause notice also referred to large business loss set off against other heads of income. In the submission filed in response to the show cause notice, a copy of which is available on paperbook pages 38 to 45, the assessee provided complete details of computation of the depreciation on goodwill as well as justification for its claim. It was also submitted that similar claim was allowed by the faceless assessment unit in assessee’s own case for assessment year 201819. The assessee also filed a copy of the order of the Coordinate Bench of Income-tax Appellate Tribunal (in short the ‘Tribunal’) dated 29/01/2016, wherein the claim of depreciation on the goodwill on account of merger of the ‘studio 18’ division in assessment year 2008-09 was allowed to the assessee. The assessee also filed copy of the order of the Hon’ble Bombay High Court approving the scheme of amalgamation with ‘Prism TV private limited’ along with valuation report supporting value of the goodwill arising on amalgamation with the prisoner TV private limited.
3.3. The learned counsel for the assessee referred to paragraph 3 (three) of the assessment order and submitted that Assessing Officer after due examination/verification of the claim of the assessee and after considering the judicial decisions accepted the claim of depreciation on goodwill by way of express finding. Regarding the quantum of business loss to be carried forward, the learned counsel submitted that the Assessing Officer has duly verified the brought forward losses adjusted against profits of earlier years and after verification only he computed the losses of Rs. 1022,35,12,612/- to be carried forward to next assessment year.
4. The learned Departmental Representative (DR) on the other hand submitted that the Assessing Officer has not carried out the inquiries which he ought to have been carried out on the issues of depreciation of the goodwill as well as on the issue of carry forward of business losses and therefore the assessment order is deemed to be erroneous insofar as prejudicial to the interest of the Revenue under Explanation-2 to section 263 of the Act.
5. We have heard rival submission of the parties on the issue of invoking Explanation 2 below section 263 of the Act, deeming the assessment order to be erroneous insofar as prejudicial to the interest of the Revenue. For ready reference, the said explanation as reproduced as under:
[Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous insofar as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,-
| (a) | the order is passed without making inquiries or verification which should have been made48 ; |
| (b) | the order is passed allowing any relief without inquiring into the claim; |
| (c) | the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or |
| (d) | the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] |
5.1 On plain reading of the above provision, we find that clauses (a) and (b) specify that if Assessing Officer fails in carrying out the inquiries, which he ought to have carried out in the facts and circumstances of the case, then the assessment order is deemed to be erroneous insofar as prejudicial to the interest of the revenue. Therefore for invoking of the deeming Explanation, we have to examine whether the Assessing Officer had carried out the inquiries which he ought to have carried out in the facts and circumstances of the case.
As far as the first issue of depreciation on goodwill is concerned, the Assessing Officer in his first notice under section 142(1) of the Act dated 19/08/2021(PB-18) raised following query:
“8. With respect to depreciation claimed during the year, kindly provide the following details:
(i). Detail of the asset/block
(ii) Opening WDV
(iii) Addition and deletion during the year
(iv) Depreciation charged on assets/block T
(v) Detail of additional depreciation claimed, if any along with the justification for the same
(vi) Date of purchase and date of put to use for the assets acquired during the year along with documentary evidence”
5.2. In response to above query, the assessee through reply dated 03/09/2021 filed submission(PB-27) before the Assessing Officer, relevant part of which is reproduced as under:
“8. Depreciation claimed during the year
The details with respect to fixed assets, opening WDV, additions and deletions made during the year and depreciation charged on the assets are enclosed as Annexure 3. The Company has not claimed any additional depreciation during AY 2019-20.”
5.3. Along with the above reply, the assessee enclosed depreciation chart as per the provisions of the in Act along with a note specifying as how in assessment year 2016-17 for the first time the assessee introduced goodwill in its books of account and claimed depreciation thereon. The relevant part of the note appended to the depreciation chart is reproduced as under:
“3. In AY 2016-17, as per the Bombay High Court Order dated 12 August 2016 Prisrn TV Private Limited has merged with Viacom18 Media Private Limited with effect from 1 April 2015 on a going concern basis. As per the said Order, the Company has paid a consideration of Rs 19,340,040,368 for the acquisition of Prism TV Private Limited. Out of the said consideration of Rs. 19,340,040,368, Rs. 1780,22,58,316 was paid towards various intangibles (customer relationship, skilled workforce, business contracts, know-how, business information, trademarks, list of customers, distributors/suppliers, rights, processes, marketing and distribution strategies, commercial rights, intellectual property rights, licenses, permits, trademarks, copyrights, patents, quotas, approvals, lease. tenancy rights, permissions, incentives, grants and various other rights, title, interest, certificates, registrations under various legislations, contracts, agreements, consents) acquired by the Company (reflected as goodwill in the books of the Company). The assessee submits that it is eligible for depreciation @ 25% on the written down value of the aforesaid goodwill based on the following decisions:
| • | CIT, Kolkata v. Smifs Securities (SC)] |
| • | Areva T & D India Ltd v. DCIT ((2012) 345 ITR 421 (Delhi High Court) |
| • | Viacom 18 v. ACIT (Viacom 18 Media (P.) Ltd. v. Addl. CIT [IT Appeal No. 7336/Mum/2012, dated 29.01.2016]/ITA No. 7336/Mum/2012) [Mumbai Tribunal] |
| • | B. Raveendran Pillai v. CIT (Kerala HC)] |
| • | CIT v. Hindustan Coca Cola Beverages Pvt. Ltd (Delhi HC) |
| • | CIT v. Hindustan Coca Cola Beverages Pvt. Ltd [(2009) 34 SOT 171 (Delhi Tribunal) |
| • | Skyline Caterers (P.) Ltd. v. ITO ((2008) 20 SOT 266 (Mumbai Tribunal) |
| • | Bosch Ltd. v. CIT (2009-TIOL-736-ITAT-Bang (Bangalore Tribunal)) |
| • | Kotak Forex Brokerage Ltd. v. ACIT ((2009) (33 SOT 237) (Mumbai Tribunal) |
| • | A.P. Paper Mills Ltd. v. ACIT ((2010) 128 TTJ 596 (Hyderabad Tribunal)]2 |
| • | Mylan Laboratories Limited v. Dy. CIT 16(2) [ITA No. 2335/Hyd./2018] (Hyderabad Tribunal) |
5.4. Thereafter, again the Assessing Officer issued further query on the issue of depreciation of the goodwill in his show cause notice dated 17/09/2022 (PB-34), relevant part of which is reproduced as under:
“1. Depreciation claimed during the year:-
There is a huge addition of Rs. 13,00,40,337/-, In plant and machinery for a period of 180 days or more and addition of Rs. 6,41,38,569/- in plant and machinery for a period of less than 180 days addition of Rs. 3,60,56,776/- in Building for a period of 180 days or more and addition of Rs. 1,08,92,052/- in Building for a period of less than 180 days. Addition of Rs. 33,71,323/- in furniture and Fixture for a period of 180 days or more and addition of Rs.7,58,570/- in furniture and fixture for a period of less than 180 days. Please provide documentary evidence/proof of addition, Please provide details of intangible rights goodwill with in absence of documentary evidences depreciation claimed may be disallowed. Please give your explanation.
1. Large business loss set off against other head of income.
As per ITR Schedule -CFL details of losses to be carried forward to further years and as per ITR of A.Y. 2012-13 to A.Y. 2019-20 carried forward and set off losses are as under:-
1. As per ITR, Schedule CFL, you have shown carried forward loss of Rs. 3,29,23,489/- whereas you have shown in ITR for the A.Y. 2012-13 in computation of total income. Part-B- it, is losses of current year to be carried forward is Rs. 35,86,04,260/- after set off losses of Rs. 1,64,64,634/-.
2. As per schedule -CFL you have shown carried forward loss of Rs. 28,23,90,284/- whereas you have shown in ITR for the A.Y. 2013-14 in computation of total income, part-B it is Rs. 60,14,50,061/- after setoff of Rs. 2,87,26,469/-.
3. As per ITR Schedule-CFL you have shown carried forward loss of Rs. 32,68,43,710/- whereas you have shown in ITR for the A.Y. 2014-15 in computation of total income. Part-B, it is losses carried forward is Rs. 32,68,43,710/- after set off of losses of Rs. 1,44,60,456/-.
4. As per ITR Schedule -CFL ITR A.Y. 2019-20 you have shown carried forward losses of Rs. 53,86,79,186/- (long term capital loss) whereas you have shown in ITR for the A.Y. 2015-16 in computation of total income Part-B, it is losses carried forward is Rs. 53,86,79,186/- and no set-off of losses during the year.
5. As per ITR Schedule-CFL (ITR-2019-20) you have shown carried forward losses of Rs. 3,27,30,79,767/- whereas you have shown in ITR for the A.Y. 2016-17 in computation of total income, part-B it is Rs. 3,27,30,79,767/- after set-off of losses Rs. 2,86,34,759/-.
6. As per ITR Schedule -CFL ITR-2019-20 you have shown carried forward loss of Rs.2,84,72,69,524/- where as you have shown in ITR for the A.Y. 2017-18 in computation of total income, Part-B, it is Rs. 2,84,72,69,524/- after setoff losses of Rs. 1,63,93,113/-.
7. As per ITR Schedule-CFL ITR -2019-20, you have shown carried forward losses of Rs. 63,45,24,113/- whereas you have shown in ITR for the A.Y. 2018-19 in computation of total income part-B it is Rs. 63,45,24,113/- after set-off of losses Rs. 119148725/- in many years set-off of losses have been taken by you but non reduce this amount and show carried forward and set off losses of Rs. 7,39,70,30,887/- upto assessment year 2018-19 and losses for A.Υ. 2019-20 shown Rs. 2,82,64,81,723/- in CFL. However, no loss shown in computation of ITR 2019-20. Please explain and provide calculation accordingly.”
5.5 In response to above query, the assessee filed a detailed submission on the claim of the depreciation on goodwill, which is available on paperbook pages 42-44, relevant part of which is reproduced as under:
6. Depreciation under Income-tax Act
6.1 Depreciation on assets other than goodwill
The documentary evidence/proof of additions to fixed assets have been furnished on sample basis as Annexure 7 to the submission dated 27 September 2021. Copy of the same is reattached as Annexure 2 for ready reference.
6.2 Depreciation on goodwill
For AY 2019-20, the assessee has claimed depreciation of Rs. 1,87,76,67,587 on consideration paid for acquisition of various intangible assets reflected as “goodwill” in the books of the assessee. The break-up of depreciation on goodwill claimed by the assessee is as under:
| Particulars | Amount (Rs.) | Remarks |
| Depreciation on goodwill resulting on account of acquisition of Studio 18 (a division of Network 18 Media & Investments Pvt. Ltd.) in AY 2008-09 | 85,655 | Refer note A |
| Depreciation on goodwill resulting on account of amalgamation of Prism TV Pvt. Ltd. (‘Prism TV’) into Viacom 18 in AY 2016-17 | 1,87,75,81,932 | Refer note B |
| Total | 1,87,76,67,587 |
Note A
In AY 2008-09, the Company had acquired the Studio 18 division of Network 18 Media & Investments Private Limited (formerly Network 18 Fincap Limited) under the Business Transfer Agreement dated 11 September 2007 on a going concern basis. As per the said agreement, the Company has paid a consideration of Rs. 4,13,53,652 for the Net Current Assets aggregating to Rs. 3,44,00,309 and Rs. 69,53,343 (reflected as goodwill in the books of the Company) was paid towards various rights acquired under the said agreement including the business contracts (distribution, sub-distribution, production, etc.) brand name of Studio 18 and the related intellectual property rights, right to do business in the name of Studio 18. The Company had claimed depreciation on this at 25% on written down value. The assessee humbly submit that the issue relating to allowability of depreciation on goodwill resulting on account of acquisition of Studio 18 is already decided in favour of the assessee by the Hon’ble Mumbai Tribunal in the assessee’s own case for AY 2008-09 (the first year of claim of depreciation on such goodwill). A copy of the said order is attached herewith as Annexure 3. Further, we understand that the Department has accepted the order of the Hon’ble Mumbai Tribunal and not preferred an appeal before the Hon’ble Bombay High Court. Accordingly, the assessee submits that the aforesaid issue is now settled and hence depreciation of Rs.85,655/- should be allowed to the assessee arising on account of acquisition of Studio 18.
Note B
In AY 2016-17, as per the Hon’ble Bombay High Court Order dated 12 August 2016 Prism TV Private Limited has merged with Viacom18 Media Private Limited with effect from 1 April 2015 on a going concern basis. The merger was not a tax neutral merger as the consideration i.e. shares were issued to the parent company of Prism TV. As per the said High Court order, the Company has paid a consideration of Rs. 19,340,040,368 for the acquisition of Prism TV Private Limited by issue of shares at fair value. Out of the said consideration of Rs. 19,340,040,368, an amount of Rs 1780,22,58,316 was paid towards various intangibles (customer relationship, skilled workforce, business contracts, know-how, business information, trademarks, list of customers, distributors/suppliers, rights, processes, marketing and distribution strategies, commercial rights, intellectual property rights, licenses, permits, trademarks, copyrights, patents, quotas, approvals, lease, tenancy rights, permissions, incentives, grants and various other rights, title, interest, certificates, registrations under various legislations, contracts, agreements, consents) acquired by the Company (reflected as goodwill in the books) on which depreciation @ 25% was claimed as part of block of intangible assets. The assessee submits that said goodwill was not recorded in the books of Prism TV and no depreciation was claimed thereon by Prism TV (i.e. amalgamating company). Thus, goodwill, a capital right comprising of various intangible rights acquired by amalgamated company, is recorded for the first time in the books of Viacom 18 (i.e. amalgamated company). Viacom 18 has acquired such goodwill consisting of various intangibles from Prism TV and separately discharged consideration for the same, it has recorded the same in accordance with Accounting Standard – 14 on the basis of fair value determined by independent valuer and consequently, claimed depreciation in accordance with provisions of the Act read with decision of Hon’ble Supreme Court in case of Smifs Securities Ltd. A copy of order of the Hon’ble Bombay High Court dated 12 August 2016 approving the merger of Prism TV into Viacom 18 with effect from 1|April 2015 is attached herewith as Annexure 4.
A copy of the valuation report obtained from Ernst & Young Merchant Banking Services Pvt. Ltd. dated 2 February 2016 determining the fair exchange ratio of shares in relation to merger of Prism TV Pvt. Ltd. into Viacom 18 is attached herewith as Annexure 5. Further, we also attach herewith as Annexure 6, an extract (as the size is bulky) of copy of report dated 16 September 2016 obtained by Viacom 18 from KPMG India Pvt. Ltd. in connection with purchase price allocation on account of acquisition of Prism TV as at 1 April 2015.
The assessee humbly submit that the issue relating to allowability of depreciation on goodwill resulting on account of acquisition of Prism TV is decided in favour of the assessee by the Facelsss Assessment Unit in the assessee’s own case for AY 2018-19. A copy of the said order is attached herewith as Annexure 7. Accordingly, the assessee submits that the depreciation of Rs. 1,87,75,81,932/- should be allowed to the assessee arising on account of acquisition of Prism TV.
5.6 In this submission, the assessee explained depreciation on goodwill comprised of two items, firstly, depreciation amounting to Rs. 85,655/- on goodwill resulting on account of acquisition of studio 18 in assessment year 2008-09 with a complete note separately. Secondly, depreciation amounting to Rs. 1,87,75,81,932/- on goodwill resulting on account of amalgamation of ‘Prism TV Pvt Ltd’ with the assessee in assessment year 2016-17 along with a detailed note. Regarding the second item the assessee also enclosed copy of the order of the Hon’ble Bombay High Court dated 12/08/2016 approving the merger of Prism TV Pvt Ltd into the assessee with effect from 01/04/2015; copy of valuation report obtained from Ernst & Young merchant banking services Private Limited dated 02/02/2016 determining the fair exchange ratio of shares in relation to merger and copy of the assessment order for assessment year 2018-19 i.e. immediately prior assessment year, wherein the Assessing Officer allowed the claim of depreciation on goodwill arising from merger of Prism TV.
5.7 After thorough examination of the claim of the assessee and keeping in view such depreciation allowed by the Assessing Officer in immediately preceding assessment year i.e. AY 2018-19, the Assessing Officer accepted the claim of the assessee with the following observation in the assessment order:
“3. In this case, assessee has claimed substantial depreciation/and claimed additional depreciation. For verifying issue questionnaire and show cause notice issue to assessee as per above time line mentioned in above table. Vide reply dated 19.09.2022, assessee company has submitted documentary evidence of addition to fixed assets in Annexure -2 of its reply dated 19.09.2022. On examination of reply of the assessee and on perusal of Annexure-2, submission of assessee company is found considerable and issue of depreciation claimed is examined and found correct.”
5.8 Similarly on the issue of business losses set off and carry forward also the Assessing Officer after verification accepted the claim of the assessee observing as under:
4. During the assessment proceedings, it is found that the assessee has substantial income business loss and set-off the same against income under the other heads. On this issue assessee vide reply dated 19.09.2022, submitted that “
The assessee humbly submit that the losses shown in form ITR 6 for the year under consideration are losses remaining after set of losses claimed in earlier years. The assessee humbly submit that profits of A.Y 2010-11, A.Y. 2011-12 and A.Y. 2015-16 amounting to R.s 3,03,62,15,139/- (refer the break up below) were set off against losses of A.Ys. 2009-10, 2012-13 and 2013-14:
| Assessment year | Profits/ (loss) for the year |
| 2010-11 | 10,49,98.521/- |
| 2011-12 | 92.51,51.908/- |
| 2015-16 | 200,60,64,710/- |
| Total profits | 3,03,62,15,139/- |
| Less: losses of following years set off against above profits | |
| 2009-10 | (2,39,14,74,491/-) |
| 2012-13 | (32,56,80,871) |
| 2013-14 | (31,90,59,777) |
| Total losses set off | 3,03,62,15,139/- |
After setoff of taxable profits the losses remaining for AY 2009-10, A.Ys. 2012-13 and AY 2013-14 is as under and the same are carried forward to subsequent year:
| AY | Total losses as per ITR (A) | Losses set off as above (B) | Net losses available for carry forward (A-B) to subsequent AY |
| 2009-10 | 2,39,14,74,491 | 239,14,74,491 | Nil |
| 2012-13 | 35,86,04,360 | 32,56,80,871 | 3,29,23,489 |
| 2013-14 | 60,14,50,061 | 31,90,59,777 | 28,23,90,284 |
| 2014-15 | 32,68,43,712 | 0 | 32,68,43,712 |
| 2015-16 | 0 | 0 | m |
| 2016-17 | 327,30,79,767 | 0 | 327,30,79,767 |
| 2017-18 | 284,72,69,524 | 0 | 284,72,69,524 |
| 2018-19 | 63,45,24,113 | 0 | 63,45,24,113 |
| Total losses of earlier year b/f (A) | 1043,32,46,028 | 303,62,15,139 | 739,70,30,887 |
| Losses of current year ie. 2019- 20 | 282,64,81,723 | 0 | 282,64,81,723 |
| Total losses c/f as per ITR | 1325,97,27,750 | 303,62,15,138 | 1022,35,12,612 |
On examination of submission of the assessee, reply of the assessee is found considerable hence, accepted.”
5.9. In view of the aforesaid discussion, we are of the opinion that Assessing Officer had thoroughly examined both the issues of depreciation on the goodwill as well as amount of business loss to be carried forward. It is not necessary for the Assessing Officer to mention every reasoning for accepting the view of the assessee and such reasoning is required whenever the Assessing Officer is particularly not accepting the contention of the assessee and making additions. This is the normal practice followed by the Assessing Officer in the Income-tax Department while framing the assessment order. In the instant assessment order however the Assessing Officer even made clear that he has allowed the claim of the assessee after due verification of the submissions of the assessee on various queries raised by him. In such facts and circumstances, we do not have any doubt in our mind that Assessing Officer had carried out the inquiries which he ought to have carried out in the facts and circumstances of the case. Accordingly, we reject the contention of the learned Departmental Representative that the assessment order is deemed to be erroneous insofar as prejudicial to the interest of the Revenue invoking Explanation -2 below section 263 of the Act.
5.10. Another argument advanced by the learned departmental representative is that Assessing Officer has not followed the consistent stand taken by the Department in preceding assessment years 2016-17 and 2017-18. The assessment year 2016-17 being first year of claim of depreciation of the goodwill arising from merger of Prism TV P ltd, the Assessing Officer disallowed the claim of the assessee. In assessment year 2017-18 also such a claim has been disallowed by the Assessing Officer and assessee is in the appeal on this issue. According to the learned departmental representative, as the issue was not accepted by the Department, following the principle of consistency and to keep the matter alive, he was mandatorily required to follow the stand of the Department and disallow such depreciation on the goodwill. According to him this action of the Assessing Officer was prejudicial to the interests of the revenue.
6. We have heard rival submission of the parties on this issue. We are of the opinion that firstly, in assessment year 2018-19, the Assessing Officer accepted the claim of the depreciation of the goodwill and therefore the Assessing Officer cannot be blamed wherein he followed the finding of the Assessing Officer in the immediately prior assessment year. The claim of ld DR of not following consistent stand of Department is fallacious. Further, without prejudice, even if we presume that consistent stand of the department is not followed, we are of the opinion that this action of the AO might be prejudicial to the interest of the Revenue, but it is not erroneous, because in assessment year 2008-09, the Tribunal in the case of the assessee in Viacom 18 Media (P.) Ltd. v. Addl. CIT [IT Appeal No. 7336/Mum/2012, dated 29.01.2016] allowed the depreciation on the goodwill generated on account of merger of the studio 18 division with the assessee as going concern. Said decision has not been reversed by the Hon’ble jurisdiction High Court and therefore the Assessing Officer has followed a binding precedent on the issue in dispute, which action cannot be termed as erroneous. Since for invoking section 263 both the conditions i.e. the assessment order should be erroneous as well as prejudicial to the interest of the Revenue are to be satisfied cumulatively, but on this issue the condition of the assessment order to erroneous is not fulfilled and therefore the learned PCIT cannot invoke revision proceeding on this issue. This argument of the learned Departmental Representative is accordingly rejected.
7. Now we take up the grounds on the merit as to whether the action of the Assessing Officer is erroneous and prejudicial to the interest of Revenue.
8. We have heard rival submissions of the parties on the issue on the merit of the matter. As far as claim of depreciation is concerned it comprises of the three parts. Firstly, depreciation on goodwill in respect of acquisition of Studio 18 amounting to Rs.85,655/- is in dispute. Secondly, depreciation on the goodwill in respect of amalgamation of Prism TV Ltd. amounting to Rs.1,87,75,81,932/- is in dispute. Thirdly, depreciation on Voot Platform is in dispute. Fourthly, dispute is in respect of verification of carry forward of losses to the subsequent assessment years. We take up all these issues one by one.
8.1 Firstly, we take up issue of goodwill in respect of acquisition of Studio 18. Fact qua issue in dispute are that during the financial year 2007-08 relevant to assessment year 2008-09, the assessee had acquired the “Studio 18” division of ‘Network 18 Media & Investments Pvt. Ltd.’ on a going concern basis under slump sale. As per the business transfer agreement, the assessee had acquired the net assets at the value of Rs.3,44,00,309/- against the total consideration of Rs.4,13,53,652/-, thereby recognizing goodwill at Rs.69,55,343/-. The assessee has been claiming depreciation on the said goodwill since assessment year 2008-09. The Co-ordinate Bench of the Tribunal has approved the claim of the assessee in the first year i.e. assessment year 2008-09 itself in its order dated 29.01.2016 passed in Harshadbhai S. Patel v. Dy. CIT [IT Appeal No. 7446/Mum/2012, dated 31-10-2014] and Addl. CIT v. Viacom 18 Media (P.) Ltd. [IT Appeal No. 265/Mum/2013, dated 29.01.2016]. The ld. Counsel submitted that the Income-tax Department has also accepted said order and did not challenge the same before the Hon’ble Bombay High Court. This fact has not been disputed by the ld DR.
8.2 Having considered above submissions of the parties, we are of the opinion that once the Income-tax Department has allowed and accepted the claim of depreciation in the year of capitalization itself, the Department cannot alter the position in subsequent years without any material change in facts and legal position in view of principle of consistency held by the Hon’ble Supreme Court Radhasoami Satsang v. CIT ITR 321. There is no error on the part of the Assessing Officer on accepting the claim of the assessee on this issue. In view of above, the Ld. PCIT is not justified in holding the order of the Assessing Officer as erroneous in so far as depreciation on the goodwill on acquisition of the Studio 18 is concerned.
8.3. The next ground on merit relates to depreciation on the goodwill in respect of amalgamation of Prism TV. The material facts are not in dispute. The assessee amalgamated Prism TV Pvt. Ltd. with effect from 01.04.2015 on a going concern basis pursuant to a scheme duly sanctioned by the Hon’ble Bombay High Court by order dated 12.08.2016. The amalgamation was accounted for in the financial statements for the year ended 31.03.2016, wherein the assessee disclosed, in full transparency, the net assets acquired, the consideration paid, and the resultant goodwill arising as the excess of consideration over the net book value of the assets and liabilities taken over. It is further an admitted position that the amalgamating company, Prism TV Pvt. Ltd., did not have any goodwill recorded in its books, nor had it claimed any depreciation thereon at any time. This fact stands acknowledged by the Assessing Officer himself in the assessment order for A.Y. 2016-17.
8.4. In assessment year 2016-17, The Assessing Officer, however, disallowed depreciation on such goodwill by invoking the sixth proviso to section 32(1) of the Act, on the premise that depreciation in the hands of the amalgamated company cannot exceed what would have been allowable to the amalgamating company had the amalgamation not taken place.
8.5. The assessee contended, that the sixth proviso was enacted only to mitigate situations where both the amalgamating and amalgamated entities could simultaneously claim depreciation on the same asset—resulting in an unintended duplication. The mischief sought to be avoided was the possibility of depreciation exceeding 100% (or 150% in practical scenarios involving mid-year amalgamation). Significantly, the proviso was introduced even before intangible assets, including goodwill, came to be recognised as depreciable assets under section 32(1)(ii). Thus, the legislative intent behind the proviso cannot be stretched to deny depreciation on goodwill that did not exist in the books of the amalgamating company and came into existence solely as a result of amalgamation in the hands of the amalgamated company.
8.6. The assessee further contended that besides, the sixth proviso was inserted into the statute even before the intangible assets were included as depreciable asset u/s 32(1) of the Act and therefore, According to the assessee sixth proviso was not intended to deny depreciation on goodwill arising on amalgamation.
8.7. The learned counsel for the assessee has placed reliance on the decision of the Mumbai Tribunal in Dow Chemical International (P.) Ltd. v. Dy. CIT (Mumbai – Trib.), wherein depreciation on goodwill arising upon amalgamation was held allowable notwithstanding the sixth proviso, on the very ground that the amalgamating entity did not possess or claim depreciation on such goodwill. The ITAT allowed depreciation on Goodwill in the books of amalgamated company by holding that since the amalgamating company did not have any goodwill recorded in its books of accounts or as part of a block of depreciable assets, prior to amalgamation, therefore the question of claim of depreciation on goodwill by the amalgamating company does not arise in the instant case. Accordingly, it was held that the provisions of the sixth proviso to section 32(1) of the Act are not applicable to the facts of the present case since the goodwill did not exist in the books of the amalgamating company but has arisen in the process of amalgamation. The parallel with the present case is complete; the ratio squarely applies.
8.8. Moreover, reliance was placed on the decision of the Hon’ble Supreme Court in CIT v. Smifs Securities Ltd.ITR 302 (SC), holding that goodwill constitutes a “business or commercial right of similar nature” eligible for depreciation under section 32(1)(ii). This principle has been consistently followed in subsequent decisions, including Padmini Products (P.) Ltd. (Karnataka HC), Thermo Fisher Scientific India (P.) Ltd. (ITAT Mumbai), Urmin Marketing (P.) Ltd. (ITAT Ahmedabad), and even in the assessee’s own case for A.Y. 2008-09 relating to depreciation on goodwill arising from the acquisition of Studio18.
8.9. Further, the Ld. counsel for the assessee submitted that moreover, in view of amendments brought in by the Finance Act, 2021, curtailing depreciation on Goodwill w.e.f. 1.4.2021, made it clear that depreciation on goodwill was allowable upto AY 2020-21. Hon’ble Bangalore ITAT in case of I & B Seeds (P.) Ltd. v. Dy. CIT (Bangalore – Trib.) observed that the intention of the Legislature is that depreciation on goodwill is allowable prior to the said amendments, is manifest from the adjustment mechanism. If the legislative intention was to deny depreciation for the past years as well, then there was no need for any adjustment to the cost of acquisition of the goodwill.
9. We have carefully considered the rival submissions, perused the material on record, and examined the statutory framework as well as the judicial precedents governing the allowability of depreciation on goodwill arising upon amalgamation. The depreciation u/s 32(1) of the Act is allowable on building, machinery, plant or furniture being tangible assets and also on intangible assets like know-how, patents, copyrights, trademarks, license, frenchisies or any other business or commercial rights or similar nature acquired on or after 01.04.1998. The issue of goodwill acquired on amalgamation (being access of consideration paid over the value of the net assets acquired) by the amalgamated company came into before Hon’ble Supreme Court in the case of Smifs Securities Ltd. (supra) for assessment year 2003-04 wherein Hon’ble Supreme Court held that goodwill will fall under the expression ‘any other business or commercial right of similar nature and qualify to be treated as an intangible asset eligible for depreciation while computing business income.
9.1. Subsequently, depreciation of the goodwill generated as a result of amalgamation came up before the Co-ordinate Bench of the Bengaluru Tribunal in the case of United Bravery Ltd. v. Addl. CIT (Bangalore – Trib.)/TS- 553-ITAT-2016 (Bang.). In this case, in the previsous year relevant to assessment year 2007-08 a wholly owned subsidiary of assessee namely Karnataka Bereweries and Distilary Ltd. (KBDL) got amalgamated as peer the order of the Hon’ble High Court. The goodwill amounting to Rs.62.30 crores was shown as arising as a result of amalgamation, being the access of purchase consideration paid over the fair value of the tangible assets and other net current assets received from the amalgamating company and depreciation of Rs.15.57 crores was claimed by the assessee. The Tribunal held that by virtue of Sixth Proviso (earlier Fifth Proviso) to section 32(1)(ii) of the Act, the depreciation in the hands of amalgamated company was allowable only to the extent that was otherwise allowable if such succession or amalgamation had not taken place, therefore, the assessee being amalgamated company could not claim or be allowed depreciation on the assets acquired in the scheme of amalgamation of an amount more than the depreciation which was allowable to the amalgamating company. The Tribunal noted that ruling of the Hon’ble Supreme Court in the case of Smif Securities Ltd. (supra) was only on the point whether the goodwill fall in the category of intangible assets and the said judgment would not override the provisions of the said proviso to section 32(1)(ii), which restricted the claim of depreciation in the cases specified there under.
9.2. Subsequently, identical issue came before the Co-ordinate Bench of Hyderabad Tribunal in the case of Mylan Laboratories Ltd. v. Dy. CIT ITD 558 (Hyderabad – Trib.)/TS-691-ITAT-2019 (Hyd). In the case the assessee following the principle of purchase method of accounting, considered the difference between the amount of investment in the fair market value of net assets as goodwill arising of amalgamation. The Assessing Officer disallowed the depreciation on goodwill relying upon the decision of the Bengalurur Bench of the Tribunal in the case of United Breweries Ltd. (supra). The Co-ordinate Bench of the Tribunal after considering the arguments of the both parties held that deduction of depreciation on goodwill could not be denied invoking Sixth Proviso (earlier Fifth Proviso) excepting the plea of the assessee that the Sixth Proviso to section 32(1)(ii) was only a mechanism of allocation of the depreciation otherwise allowable on written down value of assets owned by the amalgamating company, whereby such depreciation got allocated between the amalgamating and amalgamated company in the year of amalgamation and had no applicability for any new asset arising on account of amalgamation in the hands of the amalgamated company. The Tribunal referred to accounting principles laid down in AS-14 and observed that in case of amalgamation in the nature of purchase the consideration paid in access of the net value of assets and liabilities of the amalgamating company was to be treated as goodwill and such goodwill was held to be eligible for depreciation u/s 32(1) by relying upon the decision of the Hon’ble Supreme Court in the case of Smifs Securities Ltd. (supra).
9.3. In view of the above discussion we note existence of two strands of Tribunal jurisprudence prior to the Finance Act, 2021-one taking the restrictive view [e.g., United Breweries Ltd., Bangalore Tribunal (supra)] and another adopting the broader interpretation consistent with Smifs Securities [e.g., Mylan Laboratories Ltd., Hyderabad Tribunal)]. The Assessing Officer in the present case followed the latter view, which is a possible and reasonable interpretation borne out of binding Supreme Court authority and consistent Tribunal decisions. It is trite law that where two views are possible, and the Assessing Officer has adopted one which is not contrary to law, the same cannot be substituted in revision merely because another view is also feasible. The learned PCIT was, therefore, not justified in disturbing the plausible view adopted by the Assessing Officer.
9.4. In view of the above discussion, and applying the binding ratio of the Hon’ble Supreme Court in Smifs Securities Ltd. (supra). as well as the consistent line of authority supporting the allowability of depreciation on goodwill arising upon amalgamation where no such goodwill existed in the books of the amalgamating company, we hold that the sixth proviso to section 32(1) has no application to the present case. The goodwill in question is a new intangible asset that came into existence only upon amalgamation and qualifies for depreciation under section 32(1)(ii). The Assessing Officer has, in our view, correctly appreciated the legal position and allowed depreciation accordingly.
9.5. Further, an amendment brought by the Finance Act, 2021 curtailing depreciation of goodwill is prospective and does not apply in the year under consideration. Thus the Assessing Officer has allowed the depreciation of the goodwill consciously and following the settled legal position. We find no infirmity in the order of the Assessing Officer. The action of the PCIT in seeking to substitute his own interpretation for a legally tenable view adopted by the Assessing Officer is unsustainable. The assessee succeeds on this ground.
10. The third ground on merit is related to depreciation on Voot Platform. The Ld. counsel for the assessee submitted that the Ld. PCIT committed error in setting aside depreciation on intangible assets, being Voot platform, by misunderstanding the same as part of the goodwill. He submitted that depreciation on Voot Platform was not even a subject matter of disallowance in assessment years 2016-17 and 2017-18. In our opinion, without any change in material facts as compared to the assessment years 2016-17 and 2017-18 and particularly the depreciation of the Voot Platform is on the intangible assets other than the goodwill and therefore his finding in relation to depreciation of goodwill does not apply to the depreciation assets in Voot platform. In view of principle of consistency also the action of the Ld. PCIT is not justified.
11. The next issue relate to denying carry forward of losses to subsequent assessment years. The facts qua the dispute are that during the year under consideration, the assessee claimed carry forward of business losses of Rs.1022,35,12,612/- in its return of income. During the course of assessment proceedings vide notice dated 17.09.2022, the Assessing Officer sought explanation on year wise disclosure made in schedule of carry forward losses as per Income-tax Return. In response a detailed reply was filed vide submission dated 22.09.2022 giving year wise utilization of brought forward business losses and balance carry forward business losses. Having gone through the details, the Assessing Officer expressly allowed the carry forward losses. The Ld. PCIT has alleged that no verification has been done with respect to the correctness of the figures of carry forward losses and directed the Assessing Officer to verify and allow as per law. The Ld. counsel for the assessee submitted that eligibility for carry forward losses in the year of incurrence of loss is academic and same has to be decided by the AO in the year in which the set off is claimed. In this respect, reliance is placed on the decision of Hon’ble Supreme Court in case of CIT v. Manmohan Das (Deceased) [1966] 59 ITR 699 (SC); Cargo Service Centre India (P.) Ltd. v. Dy. CIT ITD 392 (Mumbai – Trib.), wherein the AO did not allow carry forward of a business loss claimed by the Assessee, alleging that the same was not a business loss. Before deciding the issue as to whether the loss was business loss or not, the Hon’ble Supreme Court held that it is a statutory right of an assessee to carry forward to the following year and whether or not such loss is eligible to set-off with the income of subsequent year is to be determined by the AO in the year of set-off. The relevant extract of the decision is reproduced as under –
“Whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under section 24(2) has to be determined by the ITO who deals with the assessment of the subsequent year. It is for the ITO dealing with the assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the ITO who computes the loss in the previous year under section 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee”.
Following the above decision, The coordinate Bench of ITAT Mumbai, in case of Cargo Service Centre India (P.) Ltd. (supra), had also quashed revision u/s. 263 denying the carry forward of losses to subsequent year holding that the observations about the eligibility of loss being carried forward do not affect the interests of the assessee.
12. We have heard rival submissions of the parties. We are of the view that actual revenue impact for adjustment of loss arises in the year of set off of such loss against the year in which profit is available and the AO allow set off of such loss against available profit. Thus as far as wrong or unverified of the carry forward losses is concerned, it is not prejudicial to the interest of the Revenue and therefore, one of the condition required for invoking section 253 is not fulfil. Therefore, action of the Ld. PCIT on this issue for setting aside the order is unwarranted. In view of the aforesaid discussion, the order of the Ld. PCIT both on the legal grounds as well as grounds on merit is not sustainable in law. Accordingly, we set aside the order of the Ld. CIT(A).
13. In the result, the appeal of the assessee is allowed.