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2016 (8) TMI 1198 - AT - Income TaxDisallowance under the head payment to sole selling agent - Held that:- 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, to compensate the sole selling agent as per the agreement. It was a pure commercial decision and the AO had no business to question the intelligence of the assessee in that regard. The assessee was suffering losses in the graphic division and had sold the said division. Therefore, if it decided to pay compensation to its agent, in our opinion, it had not contravened the provisions of the Act or the Companies Act. Considering the above, we are of the opinion that the FAA was not justified in confirming the order of the AO. Therefore, reversing his order, we are deciding first effective ground of appeal in favour of the assessee. Sale of goodwill - Long-Term Capital Gain(LTCG) OR income from other sources - Held that:- 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 goodwill. Considering these facts, we are of the opinion that the amount in question was not assessable under the head income from other sources - Decided in favour of assessee Claim of deduction u/s. 35 DDA - VRS expenses - Held that:- FAA had observed that assessee had not filed any details in that regard and the AO had not called for further details before completing the assessment. It had claimed that payment of ₹ 43.87 lakhs was made to the employees that were on its pay roll, that the AO had wrongly picked up only four employees while making the disallowance. We are of the opinion that the issue needs further verification.
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