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TMI Blog2022 (7) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... any consideration paid for acquisition of shares cannot be allowed as revenue deduction while computing the business profits as taxable. This finding made by the Assessing Officer remains uncontroverted by leading necessary evidence on record. Further, admittedly, the expenditure was incurred in terms of the agreement entered between Shri Ajay Pitre and the appellant company on 09.04.2013. Therefore, in terms of the said agreement, the liability had clearly crystallized during the financial year 2013-14 relevant to the assessment year 2014-15 and had not incurred during the assessment year 2017-18. Thus, the assessee company had also failed to satisfy the conditions precedent to claim as revenue expenditure, as the expenditure was incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case and in law, the AO, based on directions of DRP, has erred in assessing total income of the Assessee at Rs 2,14,38,066 as against returned loss of Rs 7,82,44,744. Disallowance of non-compete fee 2. On the facts and in the circumstances of the case and in law, the AO, based on directions of DRP, has erred in holding that the deduction in respect of non-compete fees amounting to Rs 8,26,31,590 claimed by the assessee is not allowable as revenue expenditure, on the grounds that the same is capital in nature. 3. On the facts and in the circumstances of the case and in law, the AO, based on directions of DRP, has failed to appreciate that the entries in books of accounts are not determinative for allowing the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956. The return of income for the assessment year 2017-18 was filed on 20.03.2018 disclosing Rs.Nil income. The assessee also reported some international transactions in the Form No.3CEB. 4. On noticing the said international transactions, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for the purpose of benchmarking the said international transactions. 5. On receipt of the reference from the Assessing Officer, the TPO passed an order u/s 92CA(3) dated 28.01.2021 suggested the upward TP adjustments of Rs.1,70,51,220/-. 6. Pursuant to receipt of the TPO s order, the Assessing Officer passed the draft assessment order dated 22.03.2021 passed u/s 143(3) r.w.s. 144C(1) of the Act wherein, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of Sharp Business System vs. CIT, 254 CTR 233 (Del) is squarely applicable. The Assessing Officer also doubted the true nature of the agreement as it is subsequent/ continuation of the share purchase agreement. This is further corroborated by the fact that there was no evidence or details of services rendered by the said Shri Ajay Pitre. There is a dichotomy in the treatment given in the books of account and the claim made in the return of income as in the books of accounts the non-compete fee was claimed as intangible assets and depreciation thereon was claimed, whereas in the return of income the same is claimed as revenue expenditure. Accordingly, the Assessing Officer disallowed the same as revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consultancy agreement is revenue expenditure as the consideration was paid to Shri Ajay Pitre was not to compete in similar line of business for a period of 3 years. Reliance in this regard was placed on the decision of the Hon ble Bombay High Court in the case of PCIT vs. Six Sigma Gases India Pvt. Ltd. (ITA No.1259 of 2016 dated 28.01.2019 (Bom.) and CIT vs. Everest Advertising Pvt. Ltd. (ITA No.6539 of 2010 dated 04.12.2012 (Bom.). 12. On the other hand, ld. CIT-DR placing reliance on the orders of the lower authorities submitted that the sum and substance transactions is only purchase of share, acquisition of business of the appellant company through purchase of shares from erstwhile promoters of the company. This is nothing but pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alments. The said consideration was stated to have been paid to Shri Ajay Pitre towards not to compete with the business of the appellant company. The Assessing Officer had doubted the sum and substance transactions and held that the payment was made as part and parcel of purchase of shares of the appellant company which entered on 09.04.2013. The Assessing Officer was of the opinion that this non-compete fee was paid as part of obligation stipulated in the agreement to purchase of shares of the appellant company. The Assessing Officer had come to this conclusion based on the Closing Deliverables placed at page no.108 of the Paper Book by clause no.5.3(b) of the Agreement to Sale, reads as under :- 5.3 Closing Deliverables (b) The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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