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PIRAMAL GLASS LTD. (Formerly known as Gujarat Glass Private Limited) Versus ADCIT, Range-6 (3) , Mumbai and DCIT, Range-6 (3) , Mumbai Versus PIRAMAL GLASS LTD. (Formerly known as Gujarat Glass Private Limited)

2016 (4) TMI 583 - ITAT MUMBAI

Eligible for claim of depreciation on non-compete fee - Held that:- In the case of Ind. Global Corporate Finance Pvt. Ltd. [2013 (9) TMI 600 - ITAT MUMBAI ] held that the non compete fee is not a deductible expenditure since it is capital in nature. However, the non compete right is an "intangible asset" eligible for depreciation under the Income-tax Act, 1961. - Decided in favour of assessee

Disallowance on interest - Held that:- The purpose for which advance were made is covered by .....

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espect of visit to USA where the assessee has not done any export. The CIT(A) has given due justification for the disallowance so made. Accordingly, we do not find any justification for interfering in the order of CIT(A).

Addition invoking provisions of Section 41(1) - Held that:- Remission or cessation of a liability is pre-requisite for invoking the provisions of section 41(1) of the Act. In the absence of any such remission/cessation, the liability on the part of the appellant towa .....

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Sum appropriated by the assessee in the P&L account towards @ debentures redemption reserve cannot be held to a reserve within the meaning of clause (b) or amount set apart to meet unascertained liabilities within the meaning of clause (c) of the Explanation to Section 115J(1), and as such the said amount was not to be added to the net profit as computed by the assessee to arrive at the book profit for the purpose of Section 115J. - ITA No.9645/Mum/2004 - Dated:- 2-3-2016 - SHRI R.C.SHARMA, AM A .....

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53.76% of Equity Shares of the assessee company. Three foreign parties have subscribed the remaining 46.24% of equity shares of the assessee company. The company has two manufacturing divisions at Kosamba and Jambusar, both in Gujarat. 3. With regard to disallowance of depreciation on non-compete fee, the AO observed that the assessee paid ₹ 18 crores towards non-compete fees during assessment Year 1999-2000. The amount was paid in connection with the acquisition of glass division from Nic .....

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00, holding that the expenditure was in no way connected with the acquisition of various assets. Accordingly, the claim of the depreciation on such allocation was declined. 4. We found that similar issue was decided by the Tribunal in preceding year in favour of the revenue. It was contended by ld. AR that the Tribunal has decided the issue against the assessee by relying on Third Member s decision of the Tribunal, however, thereafter there was decision of Hon ble Madras High Court in the case o .....

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ommercial rights, therefore, eligible for claim of depreciation. This issue has also been dealt by the coordinate bench in the case of Shreya Life Science Private Limited, ITA No.7071/Mum/2010, order dated 14-1-2016, wherein the Tribunal after relying various judicial pronouncements as well as the decision of Hon ble Supreme Court in the case of Smifs Securities Pvt. Ltd., 327 ITR 323, allowed the depreciation on non-compete fees after having the following observations :- 19. Now coming to the c .....

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is case is four years. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Now, the second question is whether such right can be termed as "or any other business or commercial rights of similar nature" for construing the same as "intangible asset". Here, the doctrine of ejusdem generis would come int .....

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right obtained by way of non-compete fee would also be covered by the term "or any other business or commercial rights of similar nature" because after obtaining non-compete right, the assessee can develop and run his business without bothering about the competition. The right acquired by payment of non-compete fee is definitely intangible asset. Moreover, this right (asset) will evaporate over a period of time of four years in this case because after that the protection of non-competi .....

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(120 TTJ 983) has been held that payment made under a non-compete agreement was capital expenditure and entitled to depreciation as in intangible asset. The bench applied the decision of the Mumbai Tribunal in the case of Techno Shares and Stocks Ltd. (101 TTJ 349) (Bom) (depreciation on stock exchange membership card) which was confirmed by the Hon‟ble Supreme Court in 327 ITR 323. Recently Hon‟ble Supreme Court in case of Simfs Securities Ltd. held that even goodwill which is a co .....

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le expenditure since it is capital in nature. However, the non compete right is an intangible asset‟ eligible for depreciation under the Income-tax Act, 1961. Further, the decision of Real Image Tech (P) Ltd. has been followed by the Mumbai Tribunal in the case of Schott Glass India Pvt. Ltd. and therefore, the depreciation claim is allowed on non compete fees. 23. In view of the above discussion, we conclude that so long as the non compete fee in question is capital expenditure, the same .....

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borrowed fund claimed under section 36(1) (iii) of ₹ 3,36,32,300/- on the ground that it was capital expenditure. From the perusal of Schedule 6 of the Balance sheet of the assessee company, it was noticed that the appellant had invested ₹ 2587.10 lakhs in shares of the subsidiary company, namely, M/s. Ceylon Glass Company Ltd. Sri Lanka. At the same time, he found that there are interest bearing borrowings of ₹ 3267.41 Crores and interest of ₹ 38.22 Crores had been debit .....

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ssociate concern. The investment was made for controlling interest in the associate concern, therefore, in view of the decision of Hon ble Bombay High Court in the cases of Phil Corporation Ltd., 244 CTR 266, Pstabai Rikhabchand Kothar, 30 taxmann.com 346, Shristi Securities, 321 ITR 498 and decision of Hon ble Kolkata High Court in the case of Jardine Henderson Ltd., 210 ITR 981, the assessee is entitled for claim of interest on the funds acquired for controlling interest. We also found that in .....

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77; 99,49,264/-. This ground relates to the action of the AO in estimating the cost of borrowing at 13% and thereby disallowing the interest of ₹ 99,49,264/- on amount outstanding of ₹ 7,65,32,802/. From Para 4 of Part B of Notes forming part of accounts, it was seen by the AO that ₹ 3 lakhs was outstanding from a Director of the assessee and ₹ 346.433 lakhs was due from companies where Directors of the assessee company were interested as Director. On the other hand, he f .....

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e interest bearing loans have not been used for business purposes-After examining the details filed by the appellant vide letter dated 15.12.2003, in the light of further explanation of the assessee vide letter dated 30/1/2004, the AO made disallowance of an amount of ₹ 99,49,264/-. 10. We have considered rival contentions and found that the purpose for which advance were made is covered by the principle of commercial expediency, therefore, following the decision of Hon ble Supreme Court i .....

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82,525/- The AO was however not convinced with the explanation of the assessee. He found that the subsidiary company, being an independent legal entity, the travelling expenses incurred for visiting the same is non-business expense. He further held that travelling for machinery inspection purchase of machinery is definitely a capital expenditure. He also included that in the absence of any exports made to USA , the foreign availing to USA is nothing but a pleasure trip, and as such expenses towa .....

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n the order of CIT(A). 13. In the appeal of the revenue, the revenue is aggrieved for write off of payments of non-compete fees made to PEL over a period of 18 years. As we have already directed the AO to allow depreciation on the non-compete fees, the ground taken by the revenue has become infructuous. 14. The next grievance of the revenue relates to considering fair market value for depreciation assets acquired on slump sale from NPIL as the actual cost for the purpose of calculating depreciat .....

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regating to ₹ 39,73,399/- due to thirteen parties, were outstanding for more than 3 years. He therefore, proposed disallowance of those outstanding balances invoking the provisions of section 41(1) , and called for the explanation of the assessee against the same. On consideration of the explanation of the assessee, the AO observed that except for an amount of ₹ 1,01,7611' due to M/s. Morarjee Brembana Limited to whom the outstanding balance was paid in December 2001, the remaini .....

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- 10.4 On a careful consideration of the matter, the undersigned finds merits in the contentions of the appellant on this issue. Remission or cessation of a liability is pre-requisite for invoking the provisions of section 41(1) of the Act. In the absence of any such remission/cessation, the liability on the part of the appellant towards a creditor continues to persist, notwithstanding pendency of any dispute . Merely because a liability is outstanding for more than 3 years, the same cannot be a .....

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the provisions made for redemption of debentures while calculating book profit u/s.115JB. 18. This ground is against the action of the CIT(A) in excluding an amount of ₹ 2.25 crores being provisions made for redemption of debentures while computing book profit under section 115JB of the Act. It was claimed that the amount transferred to debenture redemption reserve is an ascertained liability deductible under section 115JB(2) of the Act, in computing book profit for the year. The AO holdin .....

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aid schedule of the Companies Act. By the impugned order the CIT(A) directed for excluding the amount being provision made for debentures after having the following observations :- 16.4 On a careful consideration of the matter, in the light of the submission of the appellant and the case law noted above, the undersigned finds force in the contentions of the appellant. The Calcutta Bench decision of the Tribunal in the case of IOL Ltd. (supra) , considering identical issue under Income tax Act, f .....

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