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TMI Blog2025 (5) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the learned CIT(A) has erred in disallowing an amount of INR 93,75,000 on account of depreciation claimed on non-compete fees paid under 32(1)(ii) of the Act, without considering the detailed submissions and judicial precedents quoted by the Appellant. 1.2 On the facts and circumstances of the case, the CIT(A) has erred in purely relying only on the decision of Delhi High Court in case of Sharp Business System v CIT (2012) 254 CTR 233 and Fortis Hospitals Ltd (ITA 132/2021), by treating noncompete fee as Capital in nature and not eligible for depreciation, without considering the fact that the High Court of Madras, recently in 2021, in the case of CIT v. Areva T & D India Ltd. (129 taxmann.com 55), after considering on the decision of the Delhi High Court in case of Sharp Business System (supra), has held that, expenditure incurred for acquiring non-compete right is capital in nature and entitled to depreciation under section 32(1)(ii) of the Act. 1.3 On the facts and circumstances of the case, the CIT(A) has erred both in law and in facts, inter-alia; in not evaluating the detailed submissions filed and case laws cited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing reliance on the following decisions :- (i) Pentasoft Technologies Ltd. v. DDCIT, Tax case (Appeals) No.1195 by Hon'ble Madras High Court. (ii) Ind Global Corporate Fiannce (P) Ltd. v. ITO (2013) 33 taxmann.com 388 (ITAT Mumbai Bench) (iii) ACIT v. Real Image Tech (P) Ltd 177 Taxmann (Chennai) (Mag.) (iv) Scott Glass India (P) Ltd. (ITA No.1698/Mum/2003) (ITAT Mumbai) (v) Sri.B.Ravendran Pillai v. CIT (194 Taxman 477) (Kerala HC) (vi) CIT v. Best & Co. 60 ITR 11 (SC) 6. However, the AO was of the opinion that the claim of allowance of depreciation cannot be allowed, placing reliance on the decision of the Hon'ble Delhi High Court in the case of Sharp Business Solution v. CIT (2012) 254 CTR 233 (Delhi). Accordingly, made the disallowance of depreciation claimed as non-compete fee of Rs.93,75,000. 7. Being aggrieved by the above assessment order, an appeal was filed before the CIT(A), who vide the impugned order, confirmed the disallowance of depreciation on account of non-compete fee, placing reliance on the decision of the Hon'ble Delhi High Court in the case of Sharp Business Solutions, cited supra, which was subsequently followed by the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a payment of consideration of Rs.5 crore in consideration of the promoters not carrying on the business relates to the appellant for a period of three years within the territory of India. The department does not dispute the existence of such an agreement nor there was any allegation that it is a sham document. The non-compete fee paid by the appellant-company was for the purpose of its business having enduring benefit resulting in an acquisition of intangible asset, which qualifies for allowance of depreciation u/s.32(1) of the Act, as held by the following High Courts :- (i) Hon'ble Bombay High Court in the case of PCIT v. Music Broadcast (P.) Ltd. (155 taxmann.com 277) (ii) Hon'ble Madras High Court in the case of CIT v. Areva T & D India Ltd. (129 taxmann.com 55) (iii) Hon'ble Gujarat High Court in the case of PCIT v. Ferromatic Milacron India (P.) Ltd. (99 taxmann.com 154) (iv) Hon'ble Karnataka High Court in the case of CIT v. Ingersoll Rand International Ind. Ltd. (2014) 48 taxmann.com 349) (v) Hon'ble Kerala High Court in the case of B.Ravindran Pillai v. CIT (194 Taxman 477). 12. The decision of the Hon'ble Delhi High Court in the case of Sharp Business Solutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses 1,18,19,512 (iv) Disallowance of depreciation on noncompete fee 70,31,250 (v) Disallowance of interest on borrowed working capital fund 50,67,973 (vi) Addition on account of interest on income-tax refund 7,27,980 (vii) Addition on account of difference in amount received 1,04,447 16. Being aggrieved by the above additions, an appeal was filed before the CIT(A), who vide the impugned order, confirmed the disallowance of belated remittance to the contribution to ESI and Labour Welfare Funds, placing reliance on the judgment of the Hon'ble Supreme Court in the case of Checkmate Services Pvt. Ltd. v. CIT (2022) 448 ITR 518 (SC). The learned CIT(A) also confirmed the addition u/s.14A, placing reliance on explanation inserted to sec.14A of the Act by the Finance Act, 2022. The learned CIT(A) also confirmed the disallowance of expenditure incurred in connection with the proposed rights issue of Rs.1,18,19,512, placing reliance on the judgment of the Hon'ble Supreme Court in the case of Brook Bond India Limited v. CIT (1997) 225 ITR 798 (SC) and CIT v. Kodak India Limited (2002) 253 ITR 445 (SC). However, directed the AO to delete the addition on account of audit fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Pr.CIT v. GVK Project and Technical Services Ltd. (2019) 106 taxmann.com 180 (Delhi) both on delay and on merits] 19. The statute is amended by insertion of explanation to sec.14A of the Act, by Finance Act, 2022 proposing to make disallowance of expenditure even in the absence of actual exempt income u/s.14A. This explanation was held to be prospective in nature applicable from assessment year 2023-2024 by the Hon'ble Delhi High Court in the case of Pr.CIT v. Era Infrastructure (India) Ltd. (448 ITR 674 (Del.), cannot be presumed to have been retrospective effect. In view of the decision of the Hon'ble Delhi High Court, the CIT(A) had clearly fell in error in confirming the disallowance u/s.14A of the Act, placing reliance on the explanation to sec.14A. Thus, grounds of appeal No.2 filed by the assessee stands allowed. 20. Grounds of appeal No.3 challenges the disallowance of rights issue expenditure of Rs.1,18,19,512. It is submitted that the appellant had incurred a total expenditure of Rs.1,18,19,512 towards proposed rights issue, which was abundant subsequently. The learned AR relied on the decision of the co-ordinate bench of the Tribunal in the case of Nimbus Communicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.242/Coch/2023 : Asst.Year 2014-2015 26. Grounds of appeal No.1 challenges the disallowance u/s.14A of the Act. This issue, we dealt with in assessee's appeal in ITA No.240/Coch/2023 for assessment year 2012-2013. Thus, for the reasoning and findings given by us therein, this grounds of appeal stands allowed. 27. Grounds of appeal No.2 challenges the disallowance of depreciation on non-compete fees. This issue, we dealt with in assessee's appeal in ITA No.239/Coch/2023 for assessment year 2011- 2012. Thus, for the reasoning and findings given by us therein, this grounds of appeal stands allowed. 28. In the result, the appeal filed by the assessee stands allowed. ITA No.243/Coch/2023 : Asst.Year 2017-2018 29. Grounds of appeal No.1 challenges the disallowance u/s.14A of the Act. This issue, we dealt with in assessee's appeal in ITA No.240/Coch/2023 for assessment year 2012-2013. Thus, for the reasoning and findings given by us therein, this grounds of appeal stands allowed. 30. Grounds of appeal No.2 challenges the disallowance of depreciation on non-compete fees. This issue, we dealt with in assessee's appeal in ITA No.239/Coch/2023 for assessment year 2011- 2012. Thus, ..... 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