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TMI Blog2023 (10) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is entitled for depreciation u/s.32 (1)(ii) of the Act. We direct the AO to allow depreciation on payments made on non- compete fees and customer and other contracts, backlog orders, customer and suppliers lists u/s.32(1)(ii) of the Act. This issue of the assessee is party allowed as indicated above. Disallowing the provision made towards litigation and sales tax matters - assessee had created a provision towards litigation and sales tax matters - AO disallowed the claim, since assessee neither furnished any satisfactory reply nor submitted any scientific working to the estimate of provision for this expenditure - HELD THAT:- The assessee had filed the complete details and explanation which was not available before with the AO nor the CIT(A). Hence for better adjudication, we remit the issue back to the file of the Assessing Officer who will allow the claim in case assessee files satisfactory reply or produce scientific mode for the estimates. The assessee will file complete details of provisions list before the AO based on scientific basis as held in the case of Rotork Control India Pvt. Ltd. [ 2009 (5) TMI 16 - SUPREME COURT ] Hence, this issue of assessee is remitted bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being payment for customer contracts, backlog orders, customer/ suppliers lists, alleging it to be capital in nature, without appreciating that the expenditure was not incurred for bringing into existence any asset and /or an advantage of enduring nature. 3.2. That on the facts and circumstances of the case and in law, the CIT(A) has erred in summarily upholding the action of the AO in disallowing amount paid towards customer contracts, backlog and customer and supplier list without providing any cogent reasons for such disallowance. 3.3. Notwithstanding and without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) has erred in not directing the AO to allow depreciation considering that the above mentioned expenditure was treated as capital in nature . 3. Brief facts of the case are that the assessee was engaged in the business of manufacturing and selling of fuse and fuse fittings to both export and domestic markets and engaged in trading activities as well. The Assessing Officer during the course of assessment proceedings noted that the assessee company during the previous year 2011-2012 acquired fuse and fuse accessories business from GE India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the entire part of the purchase of business of GE India by the assessee. As relied on by the AO, the decision of the Delhi Special Bench of the Tribunal in the case of Tecumsch India Pvt. Ltd. Vs. Addl.CIT |127 ITD 1| and decision of the Delhi Tribunal in the case of Sharp Business System India Lid. Vs DCIT |133 ITD 275| are squarely applicable to the instant case. Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of Assam Bengal Cement Company Ltd. wherein protection fees by the assessee to prevent Competition for the period of IS was held to be providing enduring advantage to the assessee, and therefore, held to be a capital expenditure. The casc laws relied on by the assessee do not come to its rescue as facts and circumstances are distinguishable. In CIT Vs Coal shipman Pvt. Ltd. [82 ITR 902) and CIT Vs Eicher Ld. |302 ITR 249), the facts of the cases were that there was no certainty of duration of advantage and the sane could be put to an and at any time. Similarly, in Carborandum Universal Ltd. Vs JCIT (26 Taxmann.com 268], the facts of the case were that the expenditure claimed did not result in any enduring benefit to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreements which they have entered into. The asset purchase agreement was entered into for purchase of specific assets whereas the main objective behind entering into the non-compete agreement was to protect the revenues and profitability of its business . In view of the above, ld. Counsel for the assessee stated that the Assessing Officer had totally erred in holding that the non-compete fee paid by the assessee forms part of the initial outlay on acquisition of the business and a part of the consideration for acquisition of the business. It was further stated by the ld. Counsel for the assessee that deductibility of payment made towards non-compete should be evaluated on a stand alone basis. For this, he placed reliance on the non-compete agreement which reads as under:- (1) Acknowledgment: The Sellers and GE acknowledge that the Purchasers will conduct the Business Activities throughout the Territory and that to protect adequately the interest of the Purchasers in the Assets, it is essential that any noncompetition covenant with respect thereto cover all Business Activities and the entire Territory for the duration of the Term. (2) Trade Name: Except as expressly permitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement (i.e 3 years) Solicit business from existing customers in respect of business transferred to the Appellant during the first year of the term Solicit employees transferred to the Appellant during the first year of the term . It was further submitted by the ld. Counsel for the assessee that this issue was covered by the decisions of Hon ble Supreme Court in the case of Empire Jute Company Ltd vs. CIT, 124 ITR 1 and that of CIT vs. Coal Shipments (P) Ltd, (1971) 82 ITR 902. 6. Alternatively ld. Counsel for the assessee requested that in case this Bench is not in agreement with the assessee that non-compete payment is revenue in nature and deductible in the subject year in which it was incurred, it was prayed that since the payment was incurred wholly and exclusively for the purpose of business, the expenditure is to be held as capital in nature, the Assessing Officer may be directed to allow depreciation on such expenditure considering the same as an intangible asset under section 32(1)(ii) of the Act. 7. Similar argument were also made in respect of issue of disallowance of deduction in respect of payment towards customer and other contracts, backlogs orders and customer supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of the assessee is party allowed as indicated above. 10. The next issue in this appeal of the assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing the provision made towards litigation and sales tax matters. For this, the assessee has raised the following grounds. 4. Disallowance of provision towards litigation and sales tax matters: 4.1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in disallowing provision towards litigation and sales tax matters amounting to INR 57,90,464 alleging that the said provision is not based on scientific method . 11. The brief facts of the case are that the assessee had created a provision of ₹70,76,049/- towards litigation and sales tax matters. The ld. Assessing Officer had disallowed the claim, since assessee neither furnished any satisfactory reply nor submitted any scientific working to the estimate of provision for this expenditure. He disallowed the claim of the assessee. Aggrieved, assessee preferred an appeal before the ld. CIT(A). 12. The Ld. CIT(A) after considering the submission of the assessee confirmed the action of the ld. Assessing Officer since assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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