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TMI Blog2016 (4) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) confirmed the disallowance in respect of visit to USA where the assessee has not done any export. The CIT(A) has given due justification for the disallowance so made. Accordingly, we do not find any justification for interfering in the order of CIT(A). Addition invoking provisions of Section 41(1) - Held that:- Remission or cessation of a liability is pre-requisite for invoking the provisions of section 41(1) of the Act. In the absence of any such remission/cessation, the liability on the part of the appellant towards a creditor continues to persist, notwithstanding pendency of any dispute . Merely because a liability is outstanding for more than 3 years, the same cannot be added back as the income of the appellant, invoking the provisions of section 41(1) of the act. In this view of the matter the addition in this behalf is deleted. - Decided in favour of assessee MAT computation - Excluding the provisions made for redemption of debentures while calculating book profit u/s.115JB - Held that:- Sum appropriated by the assessee in the P&L account towards @ debentures redemption reserve cannot be held to a reserve within the meaning of clause (b) or amount set apart to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 120 and Hon ble Karnataka High Court in the case of Ingersoll Rand International Ind. Ltd., 48 taxmann.com 349, wherein the Courts have allowed the claim of depreciation on the non-compete fees paid by the assessee. 5. We have considered rival contentions and carefully gone through the orders of the authorities below and found that the Hon ble Madras High Court and Hon ble Karnataka High Court have clearly held that non-compete fee in the nature of commercial rights, therefore, eligible for claim of depreciation. This issue has also been dealt by the coordinate bench in the case of Shreya Life Science Private Limited, ITA No.7071/Mum/2010, order dated 14-1-2016, wherein the Tribunal after relying various judicial pronouncements as well as the decision of Hon ble Supreme Court in the case of Smifs Securities Pvt. Ltd., 327 ITR 323, allowed the depreciation on non-compete fees after having the following observations :- 19. Now coming to the claim for depreciation on non compete fee, we found that after paying the non compete fee the assessee has acquired commercial rights. Commercial right comes into existence whenever the assessee makes payment for non compete fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch applied the decision of the Mumbai Tribunal in the case of Techno Shares and Stocks Ltd. (101 TTJ 349) (Bom) (depreciation on stock exchange membership card) which was confirmed by the Hon‟ble Supreme Court in 327 ITR 323. Recently Hon‟ble Supreme Court in case of Simfs Securities Ltd. held that even goodwill which is a commercial right is eligible for claim of depreciation. 21. In a recent ruling, the Hon‟ble Madras High Court in the case of Pentasoft Technologies Ltd. held that non-compete fee paid to a transferor under a composite agreement for restraining him from entering a similar business for ten years was eligible for depreciation. 22. Recently, the Mumbai Bench of the Income-tax Appellate Tribunal in the case of Ind. Global Corporate Finance Pvt. Ltd. held that the non compete fee is not a deductible expenditure since it is capital in nature. However, the non compete right is an intangible asset‟ eligible for depreciation under the Income-tax Act, 1961. Further, the decision of Real Image Tech (P) Ltd. has been followed by the Mumbai Tribunal in the case of Schott Glass India Pvt. Ltd. and therefore, the depreciation claim is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .A.Builders, 288 ITR 1. Accordingly, the AO is directed to allow the claim of the assessee for depreciation. 9. The assessee is also aggrieved for disallowance of interest at estimated cost of borrowing on the amount given to sister concerns and directors amounting to ₹ 99,49,264/-. This ground relates to the action of the AO in estimating the cost of borrowing at 13% and thereby disallowing the interest of ₹ 99,49,264/- on amount outstanding of ₹ 7,65,32,802/. From Para 4 of Part B of Notes forming part of accounts, it was seen by the AO that ₹ 3 lakhs was outstanding from a Director of the assessee and ₹ 346.433 lakhs was due from companies where Directors of the assessee company were interested as Director. On the other hand, he found that the assessee had claimed huge financial charges towards cash credit, non-convertible debentures, term loans, foreign currency loans, and unsecured loans. He accordingly, asked the assessee to furnish the details of loans and advances recoverable in cash or in kind, and to explain whether any interest has been charged on those advances or not. Assessee was also asked to show cause, if no interest was charged, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved for write off of payments of non-compete fees made to PEL over a period of 18 years. As we have already directed the AO to allow depreciation on the non-compete fees, the ground taken by the revenue has become infructuous. 14. The next grievance of the revenue relates to considering fair market value for depreciation assets acquired on slump sale from NPIL as the actual cost for the purpose of calculating depreciation. This issue is also covered in favour of the assessee by the order of the Tribunal in assessee s own case for the assessment year 1999-2000, wherein the issue has been set aside to the CIT(A) for deciding afresh. Respectfully following the order of the Tribunal for the assessment year 1999-2000, this issue is restored back to the file of AO. 15. With regard to revenue s ground for deleting the addition of ₹ 38,71,638/- invoking provisions of Section 41(1), the AO noted that amounts aggregating to ₹ 39,73,399/- due to thirteen parties, were outstanding for more than 3 years. He therefore, proposed disallowance of those outstanding balances invoking the provisions of section 41(1) , and called for the explanation of the assessee against the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts represent the appropriation of profits and does not effect the book profit of the year. He also did not agree with the contention of the appellant that the debenture redemption reserve is not a reserve as per the definition under part In of the Schedule VI of the companies Act, observing that the assessee is misreading the provisions of the said schedule of the Companies Act. By the impugned order the CIT(A) directed for excluding the amount being provision made for debentures after having the following observations :- 16.4 On a careful consideration of the matter, in the light of the submission of the appellant and the case law noted above, the undersigned finds force in the contentions of the appellant. The Calcutta Bench decision of the Tribunal in the case of IOL Ltd. (supra) , considering identical issue under Income tax Act, following the decisions of the Supreme Court in National Rayon Corporation Ltd. (supra) held as follows:- 16.5 Sum appropriated by the assessee in the P L account towards @ debentures redemption reserve cannot be held to a reserve within the meaning of clause (b) or amount set apart to meet unascertained liabilities within the meaning of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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