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2020 (11) TMI 809 - AT - Income TaxDisallowance of depreciation on intangible assets i.e. non-compete fees - HELD THAT:- As decided in own case [2018 (8) TMI 1999 - ITAT MUMBAI] assessee acquired 78% of the interest in the partnership firm, we are of the firm view that any payment which is made for not competing with the firm for the period of five years is evidently falls within the ambit of non compete fee as the payment was made to protect the business interest of the assessee as the assessee’s cost of investment in the said firm was ₹ 91.51 crores which was made by way of capital contribution to the tune of ₹ 3.9 crores and ₹ 87.61 for acquiring the rights in the said partnership. Thus finding of the Ld. CIT(A) is fallacious and wrong and can not be sustained. In this case, the assessee has made payment of non compete fee and rightly treated and classified under intangible assets and claimed depreciation thereon @25%. We set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation - Decided in favour of assessee. Disallowance made u/s. 14A - AO rejected the working of the assessee and by invoking provisions of Rule 8D worked out disallowance - HELD THAT:- Since the revenue accepted the decision of the Ld.CIT(A) that the working of the assessee is more scientific than the adhoc estimation made by the Assessing Officer and such working of the assessee since made on scientific basis we do not see any reason to reject the computation of disallowance made by the assessee for the year under appeal. Thus, we direct the Assessing Officer to accept the working made for disallowance u/s. 14A by the assessee and restrict the disallowance u/s. 14A to the amount as adopted by the assessee. However, since the assessee had already made suomoto disallowance we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. This ground is allowed. Disallowance u/s. 35D - expenses towards issue of shares to promoters and also for conversion of warrants and the expenses incurred for issue of shares/warrants - HELD THAT:- In the facts and circumstances of the assessee’s case which is engaged in the business of retailing of readymade garments, other accessories and household items through a chain of retail stores across the country and part of the garments sold are manufactured on job-work basis indicates that the assessee is doing business through all these departmental stores can be held to be an industry where a systematic economic activity is being carried on by the assessee - we direct the Assessing Officer to allow the claim for deduction u/s. 35D of the Act to the assessee. The decision relied by the Assessing Officer in the case of Vita (P.) Ltd. [1994 (11) TMI 117 - BOMBAY HIGH COURT] is not applicable to the facts of the assessee’s case as the same is not dealing with the provisions of section 35D of the Act and distinguishable even on facts. Disallowance towards Employees Stock Option Scheme [ESOP] expenses u/s. 37(1) - HELD THAT:- In this case the assessee has amortized the expenses in connection with Employee Stock Options Scheme as per SEBI guidelines and claimed the same as revenue expenditure which according to the AO was not correct and he disallowed the same by holding that same is of capital in nature which was also affirmed by the CIT(A). We are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue that the amortization of expenditure claimed by the assessee is not admissible as revenue in nature and the issue is settled by the various judicial forums. As decided in own case [2018 (8) TMI 1999 - ITAT MUMBAI] we allow the claim of the assessee for the year under appeal. This ground is allowed. Determination of Annual Letting Value (ALV) of the premises at Taj Building u/s. 23(1)(a) - HELD THAT:- As decided in own case [2018 (8) TMI 1999 - ITAT MUMBAI] we not in agreement with the conclusion drawn by the Ld. CIT(A) holding that the ALV determined on the basis of so called comparable cases which are not at all comparable due to the fact that there is no comparability between the two buildings at all and the locations and also in view of the fact that annual let out value is much lower than the actual rate received. The order of Ld. CIT(A) is set aside and AO is directed to accept the rent as shown by the assessee from the said property. Disallowance of expenditure incurred towards earning exempt income while computing its book profit taxable under section 115JB - HELD THAT:- This issue has been decided by the Hon'ble Special Bench of Delhi in the case of Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] wherein it has been held that computation under clause (f) of explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s. 14A r.w. Rule 8D of the Act. In view of the decision above the claim of disallowance as computed under Rule 8D cannot be made while computing the book profits - assessee himself disallowed an amount of ₹.37,07,020/- as expenditure incurred towards earning exempt income while computing its book profits u/s. 115JB(2) - the assessee while computing the income under normal provisions of the Act had made suomoto disallowance u/s. 14A at ₹.37,66,085/-, as this computation of suomoto disallowance was made on a scientific basis we feel it appropriated to adopt the same even while computing the book profits u/s. 115JB. Disallowance made u/s. 36(1)(ii) - commission paid to the Directors on the ground that they hold equity shares of the company - HELD THAT:- We noticed that Assessing Officer completely ignoring and without going into the submissions of the assessee made disallowance simply relying on the decision in the case of Loyal Motor Service Co. Ltd [1946 (3) TMI 17 - BOMBAY HIGH COURT]. The decision in the case of New Silk Route Advisors Pvt. Ltd., [2018 (8) TMI 384 - BOMBAY HIGH COURT] the Hon'ble Bombay High Court had also considered the decision in the case of CIT v. Shahzada Nand and Sons [1977 (4) TMI 4 - SUPREME COURT] held that the payment made in the form of bonus to the employee Directors of the company is not a payment made in view of the dividend. Thus, following the decision of the Hon'ble Bombay High Court we direct the Assessing Officer to delete the disallowance made u/s. 36(1)(ii).
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