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2014 (11) TMI 688 - AT - Income TaxDisallowance u/s 14A r.w Rule 8D 0.5% of average investments interest expenses Held that:- The issue of disallowance u/s 14-A has come up for consideration, the matter has been restored back to the file of the AO for fresh adjudication to work out the some reasonable basis for disallowance - Rule 8-D is not applicable and therefore some reasonable basis has to be adopted as decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - the entire issue of disallowance u/s 14-A is set aside to the file of the AO, to examine and work out some reasonable basis for disallowance having regard to the facts of the case, dehors rule 8D and after giving proper opportunity to the assessee Decided in favour of assessee. Software acquisition expenses Capital expenses or not Held that:- The assessee has debited a sum, being payment made to Clariant International Ltd. for software development and consulting charges as decided in assessees own case for the earlier assessment year, it has been held that the expenditure incurred by the assessee on the software was in the nature of the revenue expenditure - a sum of ₹ 23,30,9261 was claimed by the assessee as software expenses - This amount represent payment made to Clariant International Ltd. Towards acquisition of right to use the software "Lotus Notes" developed by Clariant International Ltd which according to assessee is powerful, multifaceted software that help to wo effectively - if the expenditure incurred on software are to facilitate the assessee's business or enabling the management to conduct the business more efficiently or more profitably then it cannot be said to be in the nature of profit making and has to be treated as 'revenue expenditure - the expenditure incurred by the assessee on the software is to be treated as revenue expenditure Decided against revenue. Non-compete fees paid to Ex-Managing Director disallowed Held that:- The assessee had paid non-compete fee to its Ex-Managing Director for restricting him to share his expertise or to join any other company in a similar line of business of chemicals for a period of three years on a consideration of ₹ 154.20 lakhs - Since the agreement for restrictive covenant was only for the period of three years to ward off a potential threat or completion, we are of the opinion that, there can no question of enduring benefit for a long period - such a payment is also to be seen from the context of commercial and business expediency - If the outgoing expenditure is so inextricably linked or related to carrying on or conduct of the business, that is, it can be regarded as integral part of the profit earning process and not for any acquisition of asset or a right of permanent character and incurring of the expenditure is a condition for carrying on the business, then such an expenditure may be regarded as revenue expenditure - Here the agreement for payment of non-compete fee was only to protect the existing business for a temporary period to ward off completion so that assessee company can get stabilizing period without its long serving MD - If the advantage is not for longer period and not enduring in nature, then such a payment of noncompete fee is nothing but business expenditure which is on revenue account the order of the CIT(A) is upheld Decided against revenue.
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