TMI Blog2016 (8) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act. Considering the above, we are of the opinion that the FAA was not justified in confirming the order of the AO. Therefore, reversing his order, we are deciding first effective ground of appeal in favour of the assessee. Sale of goodwill - Long-Term Capital Gain(LTCG) OR income from other sources - Held that:- Section 55 (2) (a)(ii) of the Act deals with the cost of acquisition in respect of Goodwill of business or a right of manufacture, produce or process any article or thing right to carry on business. In our opinion, the assessee had rightly contended that assets under consideration were self-created/ generated assets the cost of acquisition was to be taken is nil and the assessee had rightly offered the entire sale consideration as LTCG. It is also a fact that the assessee had not claimed any depreciation under section 32 of the Act with regard to goodwill. Considering these facts, we are of the opinion that the amount in question was not assessable under the head income from other sources - Decided in favour of assessee Claim of deduction u/s. 35 DDA - VRS expenses - Held that:- FAA had observed that assessee had not filed any details in that regard and the AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the above-mentioned judgment was pronounced in the year 1996 and pertain to the assessment year 1978-79. He referred to the case of TI Diamond Chain Ltd. (274 ITR 59),wherein the compensation paid on termination of a selling agency was held to be a capital expenditure. Referring to the facts of the case under consideration, the AO observed that the agreement entered into by the assessee with AMPL was due to expire on 27.11.2007 i.e. almost after five months after the termination when it had run along for more than four years on the trot, that the agreement was terminated before that period in the same financial year, that the assessee had not explained as to why the agreement was terminated in its penultimate run and as to how it was commercially unviable to continue the agreement for further period in the very near future. He compared the profits of the assessee with the earlier years and held that it could not be said that the agreement with AMPL was unviable, that the payment in respect of a discontinued segment of business was not revenue specific and was not for running of the day-to-day affairs of the business, that the compensation paid by the assessee, amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expenditure incurred by the assessee was not wholly and exclusively for the purpose of the business considering the provisions of section 294A of the Companies Act. 3.2. During the course of hearing before us, the AR argued that assessee had entered into sole selling agency agreement in the year 1998, that agreement was to be lapsed on 27.11.2007, that in the agreement there was a clause for terminating the agreement, that the agreement was approved by the Central Government, that the compensation was paid as per provision of section 294A of the Companies Act, that expenditure was incurred wholly and exclusively for the purpose of business, that the assessee had hived off graphic division to third party, that it was a commercial decision and was taken in the common interest of business. He relied upon the cases of Ashok Leyland Ltd(86ITR549), Sales Magnesite(P.) Ltd (214 ITR 1),Life Insurance Corporation of India (119 ITR 900) and refer to the pages 110-114 and 122 of the paper book. The DR supported the order of the FAA. 3.3. We have heard the rival submissions and perused the material before us. We find that the assessee had entered into sole selling agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensate the sole selling agent as per the agreement. It was a pure commercial decision and the AO had no business to question the intelligence of the assessee in that regard. In the case of Dalmia Cement (Bharat) Ltd. (254 ITR 377) the Hon ble Delhi High Court has held as under: In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be just from the point of view of the businessman and not the Revenue. The jurisdiction of the Revenue is confined to deciding the reality of the expenditure namely whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business The assessee was suffering losses in the graphic division and had sold the said division. Therefore, if it decided to pay compensation to its agent, in our opinion, it had not contravened the provisions of the Act or the Companies Act. Considering the above, we are of the opinion that the FAA was not justified in confirming the order of the AO. Therefore, reversing his order, we are decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the assessee had sold the graphic division and had offered LTCG for the transaction in question. He referred to pg Nos.179, 159 of the PB and stated breakup of all assets were furnished to the AO during the assessment proceedings, that there was specific mention of goodwill, that the transaction was part of the agreement entered into by the assessee, that the AO had wrongly assessed it under the head income from other sources. DR relied upon the order of the AO and the FAA. 4.3. We have heard the rival submissions and perused the material before us. We find that the assessee had offered the receipt of ₹ 10 lakhs, on transfer of goodwill, under the head LTCG, that the AO assessed the same as Income from Other Sources, that the assessee was carrying out business of manufacturing and marketing Pre-Sensitised Offset Plates (PS Plates),that on 30.06.2006 it disposed off assets of the PS Plates for a total consideration of ₹ 15.24 crores, that the breakup of the consideration included and amount of ₹ 10 lakhs under the head Goodwill, Marketing Information, Know-How and Approvals. Section 55 (2) (a)(ii) of the Act deals with the cost of acquisition in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the FAA till date. Alternatively, it was argued that if the amount was not to be allowed u/s. 35DDA, the same should be allowed u/s.37(1) of the Act, as the amount was spent for business purposes. The DR stated that the payment was for voluntary retirement scheme and it could not be allowed u/s.37 of the Act. 5.3. We find that the AO had restricted the claim of deduction u/s. 35 DDA to ₹ 3.82 lakhs as against ₹ 15.15 lakhs as claimed by the assessee and thus had made a disallowance of ₹ 11.32 lakhs, that he had held that assessee had made VRS payment of ₹ 43.87 lakhs to the employees that were not on its pay-roll, that ₹ 12.73 lakhs were paid as VRS to unspecified contract employees. The FAA had observed that assessee had not filed any details in that regard and the AO had not called for further details before completing the assessment. It had claimed that payment of ₹ 43.87 lakhs was made to the employees that were on its pay roll, that the AO had wrongly picked up only four employees while making the disallowance. We are of the opinion that the issue needs further verification. Therefore, in the interest of justice, we are restoring t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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