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TMI Blog2015 (10) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... s an intangible asset (capital expenditure) and thereby further erred in not allowing the depreciation for the current year as well as consequential effect for the future years u/s.32(1)(ii) of the Act. Reliance is placed on the decision in the case of Serum Institute of India ltd. Vs. Addl. CIT[135 ITD 69) (Pune bench) 2. Without prejudice strictly in the alternative the learned CIT(A) ought to have allowed 1/5th of the capital expenditure based on the number of years instead of number of days as computed by the AO. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in not disposing off the ground relating to initiation of the penalty proceedings u/s.271(1)(c) of the Act. 2. Rival contentions have been heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e found that this ground was also raised before the CIT(A), who has rejected the same. Keeping in view the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., 229 ITR 383, we admit the additional ground for consideration. 5. We have considered rival contentions and carefully gone through the orders of the authorities below and found from the record that the assessee company is engaged in the business of manufacture of oxygen gases. During the year on account of the non-compete agreement with the original promoter of the company the present management paid a sum of Rs. 2,06,55,000/-. In the books of account the same was treated as deferred revenue expenditure, and debited a sum of Rs. 2,94,263/- but in computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital. 7. The coordinate bench of ITAT in the case of M/s Clariant Chemicals (I) Ltd., ITA No.7428/Mum/2011, order dated 19-11-2014 held as under :- "18. After considering the rival submissions and on perusal of facts as recorded by the A.O. and ld. CIT(A), we find 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 Rs. 154.20 lakhs. Since the agreement for restrictive covenant was only for the period of three years to wardoff a potential threat or completion, we are of the opinion that, there can no question of enduring benefit for a long period. Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Late G. D. Naidu [1987] 165 ITR 63 . The annual report also treated this as deferred revenue expenditure. The Assessing Officer being satisfied allowed only Rs. 20 lakhs and rejected Rs. 80 lakhs in terms of his order. The Appellate Commissioner, on challenge, held in favour of the assessee. The Tribunal would hold against the Revenue in the appeal preferred by the Revenue against the allowance of the entire amount by the appellate authority. From the material on record it is seen that the agreement with regard to allowing of Rs. 20 lakhs in the case on hand. All that the Commissioner has done is to allow the remaining amount on the ground that the said claim is based on the decision of the Madras High Court in CIT v. Late G. D. Naid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete fee but merely eliminated competition in the two-wheeler business, for a while. It was not clear from the record, for how long the restrictive covenant was to last. It was neither permanent nor ephemeral and the advantage was not of an enduring nature. There was nothing to show that the amount was drawn out of the capital of the assessee. The Commissioner (Appeals) and the Tribunal were right in concluding that the payment of non-compete fee by the assessee was a business expenditure and not a capital expenditure." 10. Applying the proposition of law laid down by the Hon'ble jurisdictional High Court and other High Courts/Tribunal, we hold that non-compete fee paid by the assessee did not create any capital assets, the same was revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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