TaxTMI 
TaxTMI 
2025 (3) TMI 2051
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....lay. Hence, we condone the delay of '93' days and proceed to adjudicate both the appeals on merits. 3. First, we will take up appeal for AY 2015-16 in ITA No. 1404/Chny/2023. It is noted that Ground no.1 is general in nature, therefore, it doesn't require any adjudication. Ground No.2 is regarding disallowance of weighted deduction of Rs. 19,78,33/- claimed u/s 35(2AB) of the Act since expenditure was not approved by the DSIR in Form 3CL. 4. Brief facts are that, the assessee a public limited company filed its Return of Income (in short "Rol") for AY 2015-16 on 30.11.2015 admitting total income of Rs. 27,34,34,800/-. Later, the RoI was selected for scrutiny, and the AO framed the assessment on 30.12.2017 and assessed total income of Rs. 30,59,75,636/-. The AO noted that, the assessee has claimed an amount of Rs. 19,78,332/- by way of weighted deduction u/s. 35(2AB) of the Act. According to the AO, as per section 35(2AB) of the Act, if a company is engaged in any business of biotechnology or of manufacture or production of any article (not being an article or thing specified in 11th Schedule), an amount equal to two times (200%) of the expenditure incurred on scien....
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....uction or the amount certified in Form 3CL was to be considered as the sum eligible for weighted deduction. It was shown to us that, the above Rule 6 underwent amendment by the Income Tax (10th Amendment) Rules, 2016, wherein sub-clause sub clause (7A) was amended with effect from 01.07.2016, hence applicable from AY 2017-18 and onwards, in terms of which the Legislature mandated the DSIR to quantify the quantum of deduction allowable u/s.35(2AB)of the Act in Part-B Part of Form 3CL. Accordingly the basis on which the AO is noted to have denied the deduction, is found to be not applicable in the context of the relevant year in question. Hence, the position prevailing prior to amendment of the Rule was that, the Form 3CL issued by DSIR was not relevant to ascertain the claim of weighted deduction u/s 35(2AB) of the Act. 4.2 In view of the above, and in our considered view therefore, the requirement to claim weighted deduction u/s 35(2AB), prior to AY 2017-18, was (a) entering into an agreement between the facility and the DSIR and (b) recognition of the R&D facility by DSIR in Form 3CM, and once these two conditions are met, the expenditure set out in separate audited accounts of....
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....s directed to produce relevant documents to substantiate the same. And the AO to pass order on this issue in accordance to law after hearing the assessee. This ground is therefore allowed for statistical purposes. 5. Ground No. 3 is noted to be against the action of the Ld. CIT(A) confirming the action of the AO in disallowing the payment of non- compete fees holding it to be capital in nature. The assessee has also alternatively claimed that, in case if the non-compete fee is not allowed as revenue expenditure, and is treated as capital in nature, then in such an event, the AO ought to be directed to allow depreciation thereon by treating the payment as 'intangible asset'. 5.1 Brief facts as noted are that, the assessee has debited miscellaneous expenses of Rs. 3,13,24,374/- in the Profit & Loss Account for the year ended 31.03.2015. The AO is noted to have called for the breakup of the details of the expenditure; and upon examining the details, the AO noted that, the assessee has debited sum of Rs. 2,37,07,960/- paid by way of non-compete fees under the head `miscellaneous expenses' and therefore, the AO required the assessee to submit the details of the same. O....
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....e aforesaid conditions and also noted that the advantage gained by the assessee was for a restricted period (as per Schedule 1 of the agreement). He thus observed that, the payment didn't necessarily confer any exclusive right to carry on primary business activity. According to him, this intangible asset cannot be sold independently unlike other intangible assets in the form of knowhow, franchise rights, license etc. Hence according to him, the same cannot be treated as an intangible asset as defined under the Act and hence the corresponding claim of depreciation was denied. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who confirmed the action of the AO by holding as under: "19. Regarding ground of disallowance of non-compete fee of Rs. 2,37,07,960/-, the appellant has countered the case laws relied upon by the AO. The appellant submitted that in the case of Pentasoft Technologies, the Hon'ble Madras High Court (2008) did not adjudicate on the question of allowability of non-compete fee as revenue expenditure or not. Further, the decision of ITAT in the cases of Real Image Tech (P) Ltd. and Indo Global Corporate Finance dealt the issue of depre....
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.... first took us through the background facts leading to the impugned non- compete agreement between the assessee and M/s JSK & M/s RAL. It was brought to our notice that, the assessee had two promoter directors, Shri Kunal K Jiwarajkaand Shri Rajendra Prasad Khaitan who held 9.95% and 9.12% equity stake in the assessee company respectively. He submitted that, these two directors held 100% stake in the companies M/s JSK & M/s RAL which distributed the assessee company's products in various Indian States. According to him, during the relevant year, the assessee had intended to take over the distribution networks in certain areas where these two companies were already operating. Having regard to the fact that, the distribution network of remaining areas would continue under them, and given their expertise and access to company's confidential information, it was mutually agreed to enter into a non-compete agreement in terms of which M/s JSK & M/s RAL would give up their distribution networks in certain areas, which was defined as 'Discontinued Territories' and would retain the distribution business for remaining areas known as 'Continuing Territories'. It was als....
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....hed distribution players, having significant expertise and access to confidential information, the assessee, is noted to have entered into a non-compete agreement in terms of which, M/s JSK & M/s RAL essentially gave up their distribution activity rights in the specified areas for a specified period to the assessee, and also agreed to refrain from carrying on the business of distribution of batteries in the said specified areas. The relevant terms of the non-compete agreement have been examined and it is observed that the assessee had paid a lumpsum consideration to acquire valuable commercial right viz., distribution right/network in specified areas from M/s JSK & M/s RAL and at the same time abstaining them to conduct the same business activity in that area so as to eliminate competition and obtain an enduring benefit across the specified period in the course of business. On these facts, we agree with the AO that, by payment of non-compete fee, the assessee had acquired valuable commercial & business rights resulting in enduring benefit to the company and therefore the impugned payment was capital in nature. For this, we gainfully refer to the decision of Special Bench of this Tr....
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....ecided against the assessee and in favour of the revenue. 5.7 Applying the ratio decidendi laid down in the decision (supra) to the present case, it is noted that the tenure of the non-compete agreement between the assessee and M/s JSK & M/s RAL has been defined in Schedule 1 to the agreement, which is extracted below :- "Restricted Period" shall commence from the Implementation Date and shall continue as follows: 1.19.1, Till the time undertaking Parties continue as authorised wholesale dealer in the JSK Continued Territory 1.19.2 In the event Undertaking Pai-ties discontinue to act as authorised wholesale dealer in the JSK Continued Territory on its own accord without duress from the Company, then till the period of 2 years from the Implementation Date'; 1.19.3 In the event the Company discontinues the authorised wholesale dealership of the Undertaking Parties in the JSK Continued Territory then up to the date of such discontinuation". ...... "Restricted Period" shall commence from the Implementation Date and shall continue as follows: 1.20.1 till the time RPK continues as the managing director of the company a....
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....s, M/s JSK & M/s RAL who were engaged in distribution of batteries and that the payment made was towards acquisition of their distribution rights/network in specified locations along with their agreement to abstain for operating their business in those specified areas. 5.10 Moreover, we find the decision of the Hon'ble jurisdictional Madras High Court in the case of Pentasoft Technologies Ltd Vs DCIT (41 taxmann.com 120) to be relevant wherein on similar facts had held the non-compete fees to be capital in nature. We further note that the Hon'ble jurisdictional Madras High Court in their latest judgment in the case of CIT Vs Areva T & D India Ltd [TS-231-HC-2021(MAD)] dated 25.03.2021 wherein also the non-compete fees paid for acquisition of business rights from two running companies was upheld to be capital in nature. 5.11 In view of the above decisions (supra), we uphold the order of the lower authorities to the extent holding the payment of non-compete fees to be in the nature of capital outlay and therefore, the same cannot be allowed as revenue expenditure u/s 37(1) of the Act. 5.12 Having held so above, we now come to the alternate argument of the assessee se....
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....er Systems was installed and synchronized on 31.03.2016. The Ld. AR also invited our attention to the energy meter reading as on 31.03.2016 placed at Page 5 & 6 of the paper book and showed us that, the assessee had generated 4050 units from 8.00 am to 3.00 pm on 31.03.2016 which was supplied to M/s Deccan Hospital, and in support of the same he invited our attention to the invoice raised on 31.03.2016 for supply of 4050 units at the rate of Rs. 6 per unit. According to the Ld. AR therefore, the certificate given by the electricity department, energy reading details, invoice raised on customer clearly showed that the solar power plant was put to use on 31.03.2016 and therefore the assessee had rightly claimed depreciation thereon of Rs. 78,03,958/-. However, we find that these details & evidences were not available before the lower authorities. Hence, in fitness of the matters, we set aside this issue afresh back to the AO for the purpose of verifying these documents now furnished by the assessee and if the same is found to be in order for making the claim for AY 2015-16, then AO to consider and allow the depreciation on the solar power plant in accordance to law. Needless to say, ....