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2021 (10) TMI 615 - AT - Income TaxDisallowance of depreciation on non-compete fees - Whether it has kind of right which could be owned or transfer to third person similar to rights of any other kind of similar nature as mentioned in section 32(1)(ii).? - HELD THAT:- We are of the considered view that non-compete fee paid by the assessee in terms of Memorandum of Understanding for acquiring trademark is nothing but an intangible asset in the nature of any other business or commercial rights of similar nature which qualifies for depreciation u/s. 32(1)(ii) of the Act. Hence, we direct the AO to delete the additions made towards disallowance of depreciation claimed on non-compete fee. Disallowance of deduction claimed u/s.35 towards expenditure incurred for Research & Development (R&D) purpose - assessee has claimed 100% deduction towards two motor cars purchased and given to two staffs, who are working for R&D unit - AO has denied deduction claimed u/s.35 on the ground that the assessee has failed to prove exclusive use of vehicles for R&D purpose - HELD THAT:- As gone through reasons given by the AO, but could not subscribe to reasons given by the AO for the simple reason that, once having accepted the fact that cars were given to staff who are working for R&D unit, then the AO is erred in denial of deduction only for the reason that log book was not filed to prove use of vehicle exclusively for R&D purpose, because it is irrelevant whether vehicles are exclusively used for R&D purpose or other than R&D purpose, but as long as the staff are working for R&D unit, then it is as good as expenditure was incurred for R&D purpose. Therefore, we are of the considered view that the AO as well as the ld.CIT(A) were erred in denying deduction claimed u/s.35 of the Act, towards motor cars provided to staff and hence, we direct the AO to delete addition made towards disallowance of depreciation. Deemed dividend addition u/s.2(22)(e) - assessee has received loan from its sister concern - HELD THAT:- In this case, loan was subsistence at the end of the financial year and further, the sister company’s accumulated profits was over and above the amount of loan given to the assessee. Therefore, we are of the considered view that amount received by the assessee from sister concern clearly falls within the provision of section 2(22)(e) of the Act and thus, we are inclined to uphold the findings of ld.CIT(A) and reject ground taken by the assessee. Disallowance of expenditure relatable to exempt income u/s 14A - assessee has earned exempt income by way of dividend from mutual funds to the tune of ₹ 11,31,040/-, but did not made any disallowance of expenditure relatable to exempt income - AO has determined disallowance of expenditure relatable to exempt income by disallowing 5% of exempt income as expenditure relatable to exempt income - HELD THAT:- Admittedly, prior to assessment year 2008-09, the provisions of Rule 8D was not applicable for determining disallowance of expenditure u/s.14A of the Act. It is also an admitted fact that prior to assessment year 2008-09, various Courts and Tribunals have directed the AO to estimate 2 - 3% of exempt income towards expenditure relatable to exempt income u/s.14A of the Act, depending upon facts of each case - we direct the AO to restrict disallowance of expenditure relatable to exempt income u/s.14A of the Act, to the extent of 2% of exempt income earned for the year.
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