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TMI Blog2015 (8) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed as deduction, because it tantamounts to paying of sum on account of any rate or tax levied on the profits and gains of any business or profession as stipulated in section 40(a)(ii). Either the assessee pays the income-tax liability of the other person or pays by itself or compensates the same, will not make a difference as there cannot be distinction between such discharge of liability. That it cannot be held to be a allowable expenditure. Thus, the finding of the CIT(A) that income-tax liability cannot be allowed as deduction is upheld. Similarly, regarding payment of excise duty, it has not been rebutted before us that same is not towards penalty for evasion of excise duty and that such a penalty is not “penal” but compensatory in nature. Thus, without any detail to controvert this finding of CIT(A), it can be inferred as relating to the evasion of duties and penal in nature. Accordingly, the said amount of ₹ 15,90,229/- being amount of penalty and additional duty cannot be held to be allowable within the ambit of section 37(1). Thus, on this score also the decision of the Hon’ble CIT(A) is upheld. - Decided against assessee. Determining the ALP u/s 92C(2) af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n competition with the assessee. Not only that, the assessee employed him for carrying on its own business. By this agreement not only assessee-company obtained a restrictive advantage but also employed Mr. Shekhar K Shah to promote and carry on the business of the assessee company which was essentially enhancement of business by it. Mr. Shah was paid non-compete fee of ₹ 50 lakhs, which was capitalized in the books and depreciation was claimed. The claim has been rejected by the Assessing Officer on the ground that non-compete fee cannot be treated as intangible asset for the purpose of claiming deprecation. This action of the Assessing Officer has been affirmed by the CIT(A) also. 5. Before us, the Ld. Counsel submitted that this issue had come up for consideration before the Tribunal in the assessee s own case for AYs 2001-02 to 2005-06, wherein this issue has been allowed in favour of the assessee. 6. On the other hand, Ld. DR relied upon the orders of the Assessing Officer as well as CIT(A). 7. After considering the aforesaid submission, we find that the issue of claim of depreciation on non-compete right as intangible asset has come for consideration in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idea is that by that time, the business would stand firmly on its footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly. 7. This issue is also covered by the decision of Hon ble Madras High Court in the case of Pentasoft Technologies Ltd. vs. DCIT, 264 CTR 187 (Mad HC) wherein the Hon ble Court held as under:- The agreement between the parties is a composite agreement. Under the agreement, the transferor had transferred all its rights, copy rights, trade marks in respect of the trade mark 'Pentasoft' as well as the training and development division exclusively to be exploited by the assessee. In order to strengthen the aforesaid rights, there was a non compete clause by virtue of which the' transferor was restrained from using the same trade mark, copyrights, etc. Therefore, the non compete clause under agreement should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secured Loans GE Countrywide Ltd 29.17 Current liabilities and Provisions - Creditors of goods 428.31 - Balance due to Appellant Co. 173.56 - Creditors for expenses 57.27 - Provisions for gratuity 1.33 - Provisions for taxation 9.29 - Deferred tax liabililty 51.69 - Sales tax liability 7.67 Total liabilities to be transferred 758.29 Value of inventories 485.82 Net transfer of liabilities 272.47 11. The said liability thus, also included income tax payable of ₹ 58.13 lakhs, which was raised upon Xylon during its carrying on the business. Besides this there was a demand of ₹ 15.90 lakhs raised by the Excise Department. The above amounts aggregating to ₹ 74,02,674/- was debited to the profit and loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts joint venture partner amounting to ₹ 58,13,845 and excise duty liability, amounting to ₹ 15,90,229/-, out of which, ₹ 7,94,956/- relates to the penalty paid under Excise Duty Act and invasion of excise duties and further equal amount was imposed as additional duty. Hence same cannot be held to be allowable deductions being penal in nature. He rejected the assessee s contention and held that the Assessing Officer was right in disallowing the said payment towards the income-tax liabilities and also disallowance of excise duties. 14. Before us, the Ld. Counsel besides retreating the submissions made before the authorities below, submitted that what assessee has paid was purely on account of expense on account of discharge of contractual liability and, therefore, the same is allowable as business expense. Apart from relying on the Dashmesh Transport Co P Ltd., reported in 93 ITR 275, further reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Karan Johar vs DCIT reported in [2011] 46 SOT 21. The assessee has not paid its own income tax liability, but has undertaken the liability along with the stock and therefore provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controvert this finding of CIT(A), it can be inferred as relating to the evasion of duties and penal in nature. Accordingly, the said amount of ₹ 15,90,229/- being amount of penalty and additional duty cannot be held to be allowable within the ambit of section 37(1). Thus, on this score also the decision of the Hon ble CIT(A) is upheld. ITA No. 3796/Mum/2011 : Revenue s appeal : 17. Now we will take-up revenue s appeal vide which following grounds have been raised: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in determining the ALP u/s 92C(2) at ₹ 20,42,500/- after granting 5% sale harbour as against ₹ 63,55,322/- determined by the TPO. 2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored . 18. Before us it has been admitted by the Ld. Counsel that this issue is now stands covered against the assessee by virtue of several decision and also by the amendment brought in the Statute by the Finance Act, 2012. 19. Accordingly, we hold that the standard adjustment of 5% as given by the CIT(A) cannot be allowed as this contr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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