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TMI Blog2017 (5) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... d tribunal has treated and considered the payment of ₹ 2.5 Crores paid to sole selling agency - M/s. ATE Marketing (P) Ltd. as revenue expenditure, it cannot be said that the learned tribunal has committed any error. Receipt in lieu of sale of goodwill - LTCG - Held that:- We are in complete agreement with the view taken by the learned tribunal, more particularly when against the total sale consideration of ₹ 15.24 Crores, a sum of only ₹ 10 Lacs only was treated on sale under the head of goodwill and that sale consideration of ₹ 15.24 Crores included the amount of ₹ 10 Lacs under the head of goodwill. It is also required to be noted that in fact, the assessee had offered entire sale consideration as Long Term Capital Gain, however, out of the aforesaid, only ₹ 10 Lacs was claimed on sale under the head of goodwill. Considering the aforesaid facts and circumstances of the case, it cannot be said that the learned tribunal has committed any error in treating the receipt of ₹ 10 Lacs on sale of goodwill and treating the same as Long Term Capital gain. - TAX APPEAL NO. 298 of 2017 - - - Dated:- 4-5-2017 - MR. M.R. SHAH, AND B.N. KARIA, JJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. did not accept the claim of the assessee of ₹ 2.5 Crores as revenue expenditure by observing that the assessee had not shown valid reasons for terminating the agency prematurely. Therefore, the A.O. treated ₹ 2.5 Crores paid to M/s. ATE Marketing (P) Ltd., paid as compensation and disallowed the claim of the assessee of ₹ 2.5 Crores treating as capital expenditure. Similarly, the A.O. did not accept the claim of the assessee treating receipt of ₹ 10 Lacs as receipt in lieu of sale of goodwill and chargeable the same as Long Term Capital Gain and has treated the same as other income. 2.03. Feeling aggrieved by the assessment order passed by the Assessing Officer, treating ₹ 2.5 Crores in respect of payment to sole selling agent as capital expenditure and treating the receipt of ₹ 10 Lacs as income from other source, the assessee preferred appeal before the learned CIT(A). That the learned CIT(A) dismissed the appeal and confirmed the order passed by the A.O. 2.04. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) confirming the Assessment Order passed by the A.O., the assessee preferred appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions it is requested to admit / allow th the present appeal. 4.00. Heard Mr.Mehta, learned counsel appearing on behalf of the revenue at length. 4.00. At the outset, it is required to be noted that as such the assessee was already having a sole selling agency with M/s. ATE Marketing (P) Ltd., which was for a period of five years i.e. for the period from 28/11/2002 to 27/11/2007. The said sole selling agreement with M/s. ATE Marketing (P) Ltd. was for sale of its products namely IMD Products, Screen Division Products, Graphic Division Products. That as the graphic division was running in loss, the assessee sold the graphic division for sale consideration of ₹ 15.24 Crores. The graphic division came to be sold on 30/6/2006. 4.01. It appears that the assessee was of the opinion that the selling agency with M/s. ATE Marketing (P) Ltd. is not viable and therefore, it prematurely terminated the sole selling agreement with M/s. ATE Marketing (P) Ltd. As the agreement was terminated prematurely, as per the terms of the agreement, more particularly clause 11.4.3 of the agreement, the assessee was required to pay compensation to M/s. ATE Marketing (P) Ltd. and that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved by the Central Government, that ATEMPL had offered the compensation received from the assessee in its return of income and thus taxes have been paid for the amount in question, the AO was not factually correct to hold that the agreement was due to expire in five months from the termination, that the agreement in respect of the sale of graphic division products was to expire on 27.11.2007 i.e. 16 months and 27 days after the termination and not five months as worked out by the AO. We find that the AO and FAA have questioned the necessity of the payment. In our opinion it is the assessee who has to decide as to how much and as to when certain expenditure has to be incurred or not. The AO cannot sit in the proverbial armchair of the assessee to decide the incurring of expenditure. It is the prerogative of the assessee to run the business in a particular manner. If the expenditure has been incurred, the AO cannot question the justification of incurring of the expenditure unless and until the said expenditure is incurred for the purposes prohibited by the law. The incurring of expenditure is not in doubt. The assessee took a decision, after selling the graphic division, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r :- 4.3. We have heard the rival submissions and perused the material before us. We find that the assessee had offered the receipt of ₹ 10 Lakhs, on transfer of goodwill, under the head LTCG, that the AO assessed the same as Income from Other Sources, that the assessee was carrying out business of manufacturing and marketing Pre-Sensitised Offset Plates (PS Plates), that on 30.06.2006 it disposed off assets of the PS Plates for a total consideration of ₹ 15.24 Crores, that the breakup of the consideration included and amount of ₹ 10 lakhs under the head Goodwill. Marketing Information, Know-How, and Approvals. Section 55(2)(a)(ii) of the Act deals with the cost of acquisition in respect of Goodwill of business or a right of manufacture, produce or process any article or thing right to carry on business. In our opinion, the assessee had rightly contended that assets under consideration were self-created / generated assets the cost of acquisition was to be taken is nil and the assessee had rightly offered the entire sale consideration as LTCG. It is also a fact that the assessee had not claimed any depreciation under section 32 of the Act with regard to goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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