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2014 (12) TMI 7 - ITAT HYDERABADPrior paid expenses disallowed - Mercantile system of accounting followed by assessee - Held that:- Following the decision in M/s USHODAYA ENTERPRISES LTD Versus DEPUTY COMMISSIONER OF INCOME TAX [2014 (1) TMI 250 - ITAT HYDERABAD] - the prior period adjustment made in that behalf by the assessee, on account of the concerned parties declining to make the payments due to discrepancies in the billing, the same should be allowed as deduction as bad debts – the order of the CIT(A) set aside and the Assessing Officer is directed to restrict the disallowance made - as the assessee has offered the amount as income in the earlier assessment years and has actually written off during the year, assessee will be entitled for deduction u/s 36(1)(vii) – Decided in favour of assessee. Provision for leave encashment disallowed u/s 43B(f) – Held that:- Assessee's claim of deduction cannot be allowed as the Hon'ble Supreme Court has stayed the judgment of the Hon'ble Calcutta High Court in case of Exide Industries Ltd. Vs. Union of India 2007 (6) TMI 175 - CALCUTTA High Court] thus, the matter is to be remitted back to the AO with a direction to decide the same in consonance with the decision of the Hon'ble Supreme Court – Decided in favour of assessee. Depreciation on non-compete fee disallowed – Revenue expenses or not u/s 37(1) – Held that:- AO has treated the agreement entered into between assessee for payment of non-compete fee as a sham transaction as Shri Ramoji Rao is not only the owner of UKT and UKM being the karta of HUF to which these concerns belong but he also in his individual capacity is the Chairman of the assessee company - assessee cannot be considered to be competing with himself – as it is an arrangement between related parties, there is no necessity for payment of noncompete fee. AO further observed that the assessee has entered into agreement for payment of non-compete fee to reduce its tax burden by allowing Shri Ramoji Rao HUF to adjust the non-compete fee against the huge brought forward losses suffered by it - assessee on 25/01/2008 has entered into subscription agreement and share purchase agreement with a domestic company, Viz.; Equator Trading Enterprises Pvt. Ltd. as per which the domestic company agreed to make substantial investment in purchase of equity shares of the assessee company. As a precondition for making such investment, the domestic company required the assessee company to enter into a non-compete agreement with UKT and UKM - assessee has entered into the non-compete agreement with UKT and UKM for a period of 5 years on payment of non-compete fee of ₹ 670 crores, which is also approved by the domestic investor - it cannot be denied that Equator Trading Enterprises Pvt. Ltd is a major stakeholder in assessee company - the transaction entered into by parties for payment of non-compete fee is not genuine or there is no necessity for paying the non-compete fee as the same person is controlling both the assessee company and the two other companies acquired by the assessee, the role of M/s Equator Trading Enterprises Pvt. Ltd. in any decision taken by assessee company has not at all been considered - Neither the AO nor the CIT(A) has examined the effect of acquisition of 39% of equity shares by another entity and whether after such acquisition of shares, it can still be held that Shri Ramoji Rao is the controlling authority of assessee company and it is a transaction between related parties - the inference drawn on mere assumptions and presumptions that the agreement is a colourable device to reduce the tax burden cannot be accepted - without examining the impact of investment made in equity shares to the extent of 39% by the domestic investor and condition imposed by it, the conclusion drawn by the CIT(A) that there is no necessity of payment of non-compete fee as the same person is controlling the assessee company as well as UKT and UKM is without proper appreciation of facts and evidences brought on record cannot be sustained - as the impact of acquisition of 39% of equity shares by M/s Equator Trading Enterprises Pvt. Ltd. has not at all been examined by AO at the time of assessment proceeding or by the CIT(A) while disposing of assessee's appeal and further as the additional evidences produced before us were not examined either by the AO or by CIT(A), which certainly have a crucial bearing on the issue as to whether the payment of non-compete fee is genuine and necessary – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Commission paid to agents on sale of space for advertisement in newspapers and television time slot disallowed u/s 40(a)(ia) – TDS not deducted u/s 194H – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that when the AO raised demand u/s 201 and 201(1A) against assessee for not deducting tax at source u//s 194H on commission paid to agents on sale of space for advertisement in news papers and television time slot, the CIT(A) deleted the demand raised u/s 201 and 201(1A) - there is no liability on the assessee to deduct tax u/s 194H on such payments - while deciding the issue of disallowance made by AO u/s 40(a)(ia) for not deducting tax at source u/s 194H on commission payments made to agents upheld the order of CIT(A) in deleting the addition made by AO – the order of the CIT(A) is upheld – Decided against revenue. Rate of depreciation on computer peripherals to be 60% or not - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that CIT(A) rightly allowed the claim of depreciation at 60% on printers, scanners and modems etc. – Decided against revenue.
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