Income tax Officer, Ward -16(1, Hyderabad V. M/s. Ushodaya Enterprises Ltd., Hyderabad

ITA 100/HYD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82439 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 25-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Business income; Depreciation; Share purchase agreement; Additional evidence; Bad and doubtful debts; Valuation report; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 37(1); 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 26/HYD/2011 ASSESSMENT YEAR : 2008-09 USHODAYA ENTERPRISES PVT. LTD., HYDERABAD PAN AAACU2690P ASST. COMMISSIONER OF INCOME TAX OFFICER, CIRCLE 16(2), HYDERABAD (APPELLANT) (RESPONDENT) ITA NO. 100/HYD/2012 ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER, WARD 16(1), HYDERABAD. USHODAYA ENTERPRISES PVT. LTD., HYDERABAD PAN AAACU2690P (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RAJAN VORA REVENUE BY SHRI D. SUDHAKAR RAO DATE OF HEARING 03-09-2014 DATE OF PRONOUNCEMENT 22-10-2014 O R D E R PER SAKTIJIT DEY, J.M.: THESE ARE CROSS APPEALS AGAINST THE ORDER DATED 18/ 11/2011 OF CIT(A)-V, HYDERABAD RELATING TO AY 2008-09. ITA NO. 26/HYD/2011 BY ASSESSEE 2. ASSESSEE HAS RAISED IN TOTAL NINE GROUNDS. GROUN D NOS. 1 TO 3 IS IN RESPECT OF DISALLOWANCE OF PRIOR PERIOD EXPE NDITURE OF RS. 76,18,742. 2 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A COMPANY ENG AGED IN THE BUSINESS OF PUBLISHING NEWS PAPERS, PUBLICATIONS, T ELECASTING AND MANUFACTURE AND SALE OF FOOD PRODUCTS, VIZ; PICKLES , MASALAS ETC. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETU RN OF INCOME ON 30/09/2008 DECLARING LOSS OF RS. 37,30,10,189 UNDER THE NORMAL PROVISIONS. IN COURSE OF ASSESSMENT PROCEEDING, AO WHILE EXAMINING THE FINAL ACCOUNTS OF THE ASSESSEE, NOTICED THAT TH E ASSESSEE HAS DEBITED AN AMOUNT OF RS. 76,18,742 TOWARDS PRIOR PE RIOD EXPENSES. AO NOTICING THAT ASSESSEE IS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING WHEN PROPOSED TO DISALLOW THE PRIOR PERI OD EXPENSES, ASSESSEE SUBMITTED THAT THESE ARE DUE TO BILLING MI STAKES IN RESPECT OF EARLIER YEAR RECEIPTS, HENCE, CREDIT NOTES ARE I SSUED DURING THE YEAR IN RESPECT OF THE BILLING MISTAKES. AO, HOWEVER, RE JECTING THE EXPLANATION OF THE ASSESSEE HELD THAT AS THE EXPEND ITURE DOES NOT PERTAIN TO THE ACCOUNTING YEAR UNDER CONSIDERATION SAME HAS TO BE DISALLOWED. BEING AGGRIEVED OF SUCH DISALLOWANCE, A SSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 4. THE CIT(A) FOLLOWING HIS ORDER PASSED ON SIMILAR ISSUE FOR THE PRECEDING ASSESSMENT YEAR 2006-07 SUSTAINED THE DIS ALLOWANCE MADE BY AO. 5. THE LEARNED AR SUBMITTED BEFORE US THAT OUT OF T HE TOTAL PRIOR PERIOD EXPENSES OF RS. 76,18,742, AN AMOUNT OF RS. 53,45,145 DOES NOT REPRESENT ANY EXPENDITURE BUT REPRESENTS ONLY W RITE OFF OF EXCESS AMOUNT CONSIDERED AS INCOME IN EARLIER YEARS. IT WA S SUBMITTED SINCE THE MISTAKES WERE POINTED OUT BY THE CUSTOMERS DURI NG THE YEAR AND SUBSEQUENT TO THE FINALIZATION OF THE ASSESSEES AC COUNTS FOR THE PRECEDING YEAR, CREDIT NOTES WERE RAISED DURING THE YEAR UNDER CONSIDERATION. THUS, IT WAS SUBMITTED THAT THE AMOU NT HAS TO BE ALLOWED AS DEDUCTION IN THE AY UNDER CONSIDERATION IRRESPECTIVE OF ITS CLASSIFICATION IN THE BOOKS OF ACCOUNT. LEARNED AR FURTHER SUBMITTED THAT THE CIT (A) HAVING HELD THAT EXCESS BILLING OF RS. 53,45,145 IS 3 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. WRITE OFF OF EARLIER YEARS INCOME OUGHT TO HAVE CON SIDERED THE WRITE OFF AS BAD DEBTS DEDUCTIBLE U/S 36(1)(VII) AS THE A MOUNT REPRESENTS INCOME OFFERED IN EARLIER YEARS AND WRITTEN OFF IN THE BOOKS OF ACCOUNT DURING THE YEAR. IN SUPPORT OF SUCH CONTENT ION, ASSESSEE RELIED UPON A DECISION OF THE COORDINATE BENCH IN I TS OWN CASE FOR THE AY 2007-08. ALTERNATIVELY, IT WAS CONTENDED BY THE LEARNED AR THAT THE AMOUNT IN QUESTION CAN BE ALLOWED AS A TRADING LOSS U/S 28 OF THE ACT, SINCE THE SAME GOT CRYSTALLIZED DURING THE YEA R UNDER CONSIDERATION. SO FAR AS THE BALANCE AMOUNT OF RS. 22,73,597 IS CONCERNED, THE LEARNED AR SUBMITTED THAT THE SAID A MOUNT WAS DEBITED TO P&L A/C UNDER THE HEAD PRIOR PERIOD EXPE NSES BEING CORRECTION OF VALUATION OF STOCK OFFERED AS INCOME IN EARLIER YEARS. IT WAS SUBMITTED THAT AS THE AMOUNT IN DISPUTE WAS OFF ERED AS INCOME IN EARLIER ASSESSMENT YEARS AND ACTUALLY WRITTEN OFF I N THE BOOKS OF ACCOUNT IN THE CURRENT ASSESSMENT YEAR, THE SAME HA S TO BE ALLOWED AS A DEDUCTION. 6. THE LEARNED DR, THOUGH, AGREED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08, NEVERTHELESS, HE SUPPORTED THE ORDERS OF THE REVENU E AUTHORITIES. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. THERE IS NO DISPUTE SO FAR AS THE FACTUAL A SPECT OF THE ISSUE IS CONCERNED THAT THE AMOUNTS WRITTEN OFF WERE DECLARE D AS INCOME IN EARLIER ASSESSMENT YEARS. THE AO AS WELL AS CIT(A) HAVE DISALLOWED ASSESSEES CLAIM OF DEDUCTION MAINLY ON THE GROUND THAT IT IS BEING IN THE NATURE OF PRIOR PERIOD EXPENSES CANNOT BE ALLOW ED IN THE IMPUGNED AY AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, IT IS A FACT ON RECORD THAT WH ILE CONSIDERING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR AY 2007- 08 A COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 1535/HYD/2010 DAT ED 10/05/2013 ALLOWED ASSESSEES CLAIM OF DEDUCTION ON THE FOLLOW ING FINDING: 4 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES. THOUGH IN PRINCIPL E, WE ARE AGREEMENT WITH THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES, WE FIND MERIT IN THE ALTERNATIVE CONTE NTION OF THE ASSESSEE. IN AS MUCH AS IF AN AMOUNT OF RS. 2,11,34 ,759 OUT OF TOTAL AMOUNT OF RS. 2,38,85,000 WAS ALREADY OFFERED TO TAX IN THE EARLIER YEARS, THE PRIOR PERIOD ADJUSTMENT MADE IN THAT BEHALF BY THE ASSESSEE, ON ACCOUNT OF THE CONCERNED PARTIES DECLINING TO MAKE THE PAYMENTS DUE TO DISCREPANCIES IN THE BILLING, THE SAME SHOULD BE ALLOWED AS DEDUCTION AS BAD DEBTS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE CIT(A) AND DIRECT THE AO ACCORDINGLY TO RESTRICT THE DISALLOWA NCE MADE. ASSESSEES GROUNDS ON THIS ISSUE ARE PARTLY ALLOWED . 8. AS FACTS AND ISSUE IN DISPUTE IS MATERIALLY SAME RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH, WE HOLD THAT AS THE ASSESSEE HAS OFFERED THE AMOUNT AS INCOME IN THE EARLIER ASSESSMENT YEARS AND HAS ACTUALLY WRITTEN OFF DURIN G THE YEAR UNDER CONSIDERATION, ASSESSEE WILL BE ENTITLED FOR DEDUCT ION U/S 36(1)(VII) OF THE ACT. ACCORDINGLY, WE DIRECT THE AO TO DELETE TH E ADDITION MADE ON THIS COUNT. 9. THE NEXT ISSUE AS RAISED IN GROUND NO. 4 RELATES TO DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF R S. 3,42,82,009 U/S 43B(F) OF THE ACT. 10. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISP UTE ARE, IN COURSE OF ASSESSMENT PROCEEDING, AO NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 3,42,82,009 TO THE P&L ACCOUNT BEING PROVISION FOR LEAVE ENCASHMENT. HOWEVER, IN THE COMPUTATION OF IN COME UNDER NORMAL PROVISION AS WELL AS U/S 115JB, ASSESSEE HAS NOT ADDED THIS AMOUNT BY RELYING UPON THE DECISION OF HONBLE CALC UTTA HIGH COURT IN CASE OF EXIDE INDUSTRIES VS. UNION OF INDIA, 292 IT R 470. AO, HOWEVER, REJECTED ASSESSEES CLAIM BY OBSERVING THA T THE DEPARTMENT HAS FILED AN SLP AGAINST THE JUDGMENT OF THE CALCUT TA HIGH COURT. ASSESSEE CHALLENGED THE DISALLOWANCE IN THE APPEAL PREFERRED BEFORE THE CIT(A). 5 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 11. THE CIT(A) SUSTAINED THE ADDITION WHILE NOTING THE FACT THAT THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN CASE OF EXIDE INDUSTRIES (SUPRA) HAS BEEN STAYED BY THE HONBLE S UPREME COURT. 12. THE LEARNED AR, THOUGH, MADE AN ATTEMPT TO JUST IFY ITS CLAIM OF DEDUCTION BY CONTENDING THAT STAY OF JUDGMENT OF TH E HONBLE CALCUTTA HIGH COURT BY HONBLE SUPREME COURT WILL NOT AMOUNT TO QUASHING OF THE SAID JUDGMENT. IT WAS SUBMITTED THAT IN SPITE O F THE STAY GRANTED BY THE HIGHER COURT THE ORDER PASSED BY THE LOWER C OURT STILL CONTINUES TO EXIST AND ITS EFFECT IS NOT DESTROYED. HOWEVER, THE LEARNED AR FAIRLY SUBMITTED THAT IN VIEW OF THE FACT THAT THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT HAS BEEN STAYED, THE MA TTER MAY BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATI ON AFTER THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF M/S EXIDE I NDUSTRIES. 13. THE LEARNED DR ALSO AGREED THAT THE MATTER CAN BE REMITTED BACK TO THE FILE OF THE AO FOR DECIDING IN CONSONAN CE WITH THE DECISION OF THE HONBLE SUPREME COURT. 14. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S IN THE CONTEXT OF THE FACTS AND MATERIALS ON RECORD, WE ARE OF THE VIEW THAT AT THIS STAGE, ASSESSEES CLAIM OF DEDUCTION CANNOT BE ALLO WED AS THE HONBLE SUPREME COURT HAS STAYED THE JUDGMENT OF TH E HONBLE CALCUTTA HIGH COURT IN CASE OF EXIDE INDUSTRIES LTD . VS. UNION OF INDIA (SUPRA). HOWEVER, ACCEPTING LEARNED ARS ALTERNATIV E CLAIM, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FILE OF TH E AO WITH A DIRECTION TO DECIDE THE SAME IN CONSONANCE WITH THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF EXIDE INDUSTRIES LTD. (SUP RA). THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN GROUND NO. 5 TO 8, ASSESSEE HAS CHALLENGED T HE DISALLOWANCE OF DEPRECIATION CLAIMED AMOUNTING TO RS. 83,75,00,0 00 ON NON- COMPETE FEE. IN GROUND NO. 9, ASSESSEE HAS RAISED A N ALTERNATIVE 6 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. CLAIM THAT NON-COMPETE FEE PAID BY ASSESSEE IS TO B E ALLOWED AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. 16. FACTS IN BRIEF RELATING TO THE AFORESAID ISSUE ARE, AO NOTED THAT ASSESSEE HAS ACQUIRED USHA KIRAN TELEVISION (UKT) A ND USHA KIRAN MOVIES TELEVISION DIVISION (UKM) IN AY 2007-08. H OWEVER, IN THE IMPUGNED AY, ASSESSEE HAS ENTERED INTO A NON-COMPET E AGREEMENT ON 30/01/2008 WITH UKT AND UKM FOR NON-COMPETING IN THE BUSINESS DIRECTLY OR INDIRECTLY FOR A PERIOD OF FIVE YEARS F ROM THE DATE OF AGREEMENT. ACCORDINGLY, IN THE PREVIOUS YEAR RELEVA NT TO AY UNDER CONSIDERATION, ASSESSEE HAS PAID AN AMOUNT OF RS. 6 70 CRORES TOWARDS NON-COMPETE FEE AND CLAIMED DEPRECIATION OF RS. 83,75,00,000. AO NOTED THAT AS PER THE AGREEMENT NO N-COMPETE FEE WAS PAID TO SELLING PROMOTERS BY THE ACQUIRER SO TH AT ERSTWHILE PROMOTERS DO NOT REENTER THE BUSINESS AND POSE SERI OUS COMPETITION TO THE ACQUIRER. HENCE, NON-COMPETE FEE IS A RIGHT THAT IS ACQUIRED BY THE PAYER BUT A RESTRICTION ON THE RECIPIENT. AO NO TED THAT SRI RAMOJI RAO IN HIS INDIVIDUAL CAPACITY IS THE CHAIRMAN OF T HE ASSESSEE COMPANY AND HOLDS SUBSTANTIAL SHARES. EVEN AS PER T HE INFORMATION GIVEN IN THE ANNUAL REPORT THE TWO ENTITIES UKT AND UKM ARE NOTHING BUT BUSINESS UNITS OF SHRI RAMOJI RAO, HUF. HENCE, BOTH THE PAYER AND PAYEE ARE RELATED PARTIES AND EXERCISE CONTROL OR SIGNIFICANT INFLUENCE ON EACH OTHER. IN THE AFORESAID CONTEXT, IT CANNOT BE SAID THAT A PERSON COMPETES WITH HIMSELF. AO OPINED THA T THE TRANSACTION IS A SHAM TRANSACTION ENTERED INTO BETWEEN THE PART IES TO COVER UP THE BROUGHT FORWARD LOSSES OF HUF. THEREFORE, ASSESSEE BEING A PROFIT MAKING UNIT PAID SUCH A HUGE SUM UNDER THE GUISE OF NON-COMPETE FEE. AO RELIED UPON CERTAIN JUDICIAL PRECEDENTS WHI LE OBSERVING THAT IN THESE TYPE OF TRANSACTIONS THE CORPORATE VEIL IS RE QUIRED TO BE LIFTED TO FIND OUT THE TRUE NATURE OF THE TRANSACTION. FURTHE R, AO ALSO RAISED SERIOUS DOUBTS WITH REGARD TO THE METHOD ADOPTED FO R VALUATION OF NON-COMPETE FEE. AO AFTER EXAMINING THE VALUATION R EPORT OBTAINED BY ASSESSEE NOTED THAT THE VALUER HAS NOT EXPLORED ANY SCIENTIFIC METHOD 7 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. TO WORK OUT THE VALUATION. HE NOTED THAT THE VALUER SIMPLY WORKED OUT THE NON-COMPETE FEE ON THE BASIS OF RATIOS CERTIFIE D BY THE MANAGEMENT. HE NOTED THAT THERE IS NO ABSOLUTE SCIE NTIFIC BASIS FOR INFERRING THAT THERE WILL BE DECLINE IN REVENUES BY 48% TO 50% AS SUBMITTED BY ASSESSEE. FINALLY, AO HELD THAT EVEN A CCEPTING THAT THE NON-COMPETE IS GENUINE, BUT, STILL THEN THE CLAIM O F DEPRECIATION ON NON-COMPETE FEE CANNOT BE ALLOWED AS ALL INTANGIBLE ASSETS ARE NOT ELIGIBLE FOR DEPRECIATION. AO OPINED THAT AS THE PA YMENTS MADE BY ASSESSEE DOES NOT COME UNDER KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENSES, FRANCHISES, THE ONLY OTHER CATEGOR Y UNDER WHICH IT CAN COME IS ANY OTHER BUSINESS OR COMMERCIAL RIGHT S OF SIMILAR NATURE. HOWEVER, ANY OTHER BUSINESS OR COMMERCIAL RIGHTS ARE NOT BY THEMSELVES INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIAT ION. THOSE RIGHTS MUST BE OF SIMILAR NATURE TO KNOW-HOW, PATENTS, COP YRIGHTS, TRADE MARKS, LICENSES, FRANCHISES, ETC. THEREFORE, ANY BU SINESS OR COMMERCIAL RIGHTS NOT SIMILAR TO THE AFORESAID ITEM S CANNOT BE TREATED AS INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION. AO RELYING UPON SOME DECISIONS AS NOTED IN ASSESSMENT ORDER, FINALLY DIS ALLOWED ASSESSEES CLAIM OF DEPRECIATION ON NON-COMPETE FEE AND ADDED BACK THE AMOUNT OF RS. 83,75,00,000 TO THE INCOME FOR THE IM PUGNED ASSESSMENT YEAR. BEING AGGRIEVED OF THE DISALLOWAN CE MADE BY THE AO, ASSESSEE CHALLENGED THE SAME BEFORE THE CIT(A). 17. BEFORE THE CIT(A) ALSO, THOUGH, ASSESSEE REITER ATED ITS CLAIM FOR ALLOWANCE OF DEPRECIATION ON NON-COMPETE FEE, CIT(A ) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF RATIO LAID DOWN IN SOME OF THE DECISIONS OF THE HONBLE SUPREM E COURT AS WELL AS HONBLE HIGH COURTS OPINED THAT FOR DECIDING THE ISSUE WHETHER A PARTICULAR AMOUNT PAID IS IN THE NATURE OF NON-COMP ETE FEE WOULD DEPEND ON THE NATURE OF NON-COMPETE AGREEMENT AND T HE REASONS FOR WHICH SUCH NON-COMPETE FEE IS PAID. CIT(A) OBSERVED THAT ASSESSEE AND THE CONCERNS TO WHICH THE NON-COMPETE FEE WAS P AID ARE PART OF THE SAME GROUP. AS SHRI RAMOJI RAO, WHO IS THE CHAI RMAN OF THE 8 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. ASSESSEE COMPANY AS WELL AS PROPRIETOR OF TWO UNITS UKT AND UKM, THE FEE PAID IS TO A RELATED PARTY. CIT(A) OBSERVED THAT SINCE SHRI RAMOJI RAO, WHO EFFECTIVELY OWNS AND CONTROL ALL TH E UNITS, THE NON- COMPETE FEE IS PAID BY THE PERSON TO HIMSELF. HE F URTHER OBSERVED THAT THERE IS ALSO NO LIKELIHOOD OF UKT AND UKM COM PETING WITH ASSESSEE ON ACCOUNT OF COMMON OWNERSHIP. HENCE, AS THERE IS LITTLE CHANCE OF ANY COMPETITION, THE QUESTION OF PAYING N ON-COMPETE FEE WILL NOT ARISE. CIT(A) ALSO OBSERVED THAT THE PAYME NT MADE BY ASSESSEE DID NOT RESULT IN ANY ASSET TO COMPANY, WH ICH WOULD HAVE GIVEN THEM A METHODOLOGY FOR EARNING INCOME STREAMS . HE OPINED THAT NON-COMPETE FEE DOES NOT PROVIDE ANY ASSET OF ENDURING NATURE, HENCE, IT IS NOT ELIGIBLE FOR DEPRECIATION UNDER AN Y SECTION OF IT ACT, AS IT IS MERELY A RESTRICTIVE COVENANT ON THE RECIP IENT. 18. THE LEARNED AR SHRI RAJAN VOHRA, APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US, ASSESSEE PRIOR TO ITS BUSINESS RESTRUCTURING WAS HELD BY SRI RAMOJI RAO, HUF AND HIS FAMILY MEMBERS. SHRI RAMOJI RAO, HUF ALSO OWNED A NUMBER OF BUSINESS UNITS INCL UDING USHAKIRAN TELEVISION (UKT) AND USHAKIRAN MOVIES (UKM) WHICH A RE ENGAGED IN THE PRODUCTION AND SUPPLY OF SOFTWARE (CONTENT) FOR THE SATELLITE CHANNELS (ETV) OF ASSESSEE ON A REVENUE SHARE BASIS . THESE TWO CONCERNS ALSO HELD SATELLITE RIGHTS FOR MORE THAN 3 700 FEATURE FILMS IN DIFFERENT LANGUAGES EITHER PERPETUALLY OR FOR VERY LONG PERIODS RANGING FROM SEVEN YEARS TO 15 YEARS. DURING THE PREVIOUS Y EAR 2006-07 RELEVANT TO AY 2007-08, ASSESSEE ACQUIRED M/S UKT A ND UKM FROM SHRI RAMOJI RAO, HUF. AS STATED BY ASSESSEE, IN ORD ER TO CONSOLIDATE AND RESTRUCTURE ITS BUSINESS ASSESSEE APPROACHED M/ S BLACKSTONE FP CAPITAL PARTNERS (MAURITIUS) V. LTD. A FOREIGN INVE STOR FOR INVESTING INTO THE COMPANY. THE SAID FOREIGN INVESTOR AGREED TO INVEST IN THE ASSESSEES BUSINESS BY SUBSCRIBING TO CONVERTIBLE P REFERENTIAL SHARES TO THE EXTENT OF RS. 1217 CRORES (EQUIVALENT TO 26% OF THE COMPANYS PAID UP CAPITAL ON CONVERSION). ACCORDINGLY, A SUBS CRIPTION AGREEMENT WAS ENTERED INTO BETWEEN ASSESSEE AND FOREIGN INVES TOR ON 28 TH 9 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. JANUARY, 2007. THE FOREIGN INVESTOR AGREED TO INVES T IN THE COMPANY ON THE FOLLOWING PRECONDITIONS: THE FOREIGN INVESTOR AGREED TO INVEST IN THE COMPAN Y SUBJECT TO THE FOLLOWING CONDITIONS PRECEDENTS WHICH WERE AN I NTEGRAL AND OPERATIVE PART OF THE PROPOSED INVESTMENT: - ACQUISITION OF FILM LIBRARY, PROGRAMMING LIBRARY, ETC. OF UKT AND UKM FOR A CONSIDERATION OF RS. 775 CRORES (CLAU SE 3(A)(III)(4) OF THE SUBSCRIPTION AGREEMENT DATED 28 JANUARY 2007) [REFER PAGE 134 OF THE PAPER BOOK]; - EXECUTION OF A NON-COMPETE AGREEMENT BETWEEN THE APPELLANT COMPANY, PROMOTERS AND THE INVESTOR, IN A FORM AND MANNER ACCEPTABLE TO THE INVESTOR. (CLAUSE 3(A)(III)(5) OF THE SUBSCRIPTION AGREEMENT DATED 28 JANUARY 2007). [REF ER PAGE 134 OF THE PAPER BOOK] AND FOREIGN INVESTOR OBTAINING ALL THE NECESSARY GOVERN MENT APPROVALS OR ANY APPLICABLE WAITING PERIODS IN RESP ECT OF ANY SUCH GOVERNMENT APPROVALS (CLAUSE 3(B)(1) OF THE SU BSCRIPTION AGREEMENT DATED 28 JANUARY 2007). REFER PAGE 138 OF THE PAPER BOOK. 19. AS PER FOREIGN EXCHANGE REGULATION APPLICABLE F OR THE YEAR 2007, FOREIGN DIRECT INVESTMENT (FDI) INTO PRINT AN D TV MEDIA WAS ALLOWED UPTO 26% SUBJECT TO THE APPROVAL OF THE FOR EIGN INVESTMENT PROMOTION BOARD (FIPB), DEPARTMENT OF ECONOMIC AFFA IRS, MINISTRY OF FINANCE, GOVT. OF INDIA. ACCORDINGLY, THE FOREIGN I NVESTOR ALSO MADE AN APPLICATION TO THE FIPB IN FEBRUARY, 2007. FURTH ER, ANY FDI EXCEEDING RS. 600 CRORES REQUIRED CLEARANCE OF THE CABINET COMMITTEE ON ECONOMIC AFFAIRS (CCEA) UNDER FDI REGULATIONS. AS THE PROPOSED INVESTMENT BY THE FOREIGN INVESTOR WAS AN AMOUNT EX CEEDING RS. 600 CRORES, THE INVESTMENT REQUIRED CLEARANCE FROM THE CCEA. IT WAS SUBMITTED, THE TRANSACTIONS WITH THE FOREIGN INVEST OR ULTIMATELY COULD NOT MATERIALIZE AS FIPB DID NOT GRANT REQUIRED APPR OVAL FOR THE PROPOSED INVESTMENT INTO THE ASSESSEE COMPANY BY 31 /12/07 AS PER THE SUBSCRIPTION AGREEMENT. AS THE INVESTMENT BY FO REIGN INVESTOR DID NOT MATERIALIZE, ASSESSEE NEGOTIATED WITH A DOMESTI C INVESTOR, NAMELY, EQUATOR TRADING ENTERPRISES PVT. LTD. FOR I NVESTMENTS INTO THE COMPANY IN ORDER TO ACHIEVE ITS RESTRUCTURING OBJEC TIVES. THE DOMESTIC 10 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. INVESTOR AGREED TO INVEST IN THE COMPANY SUBJECT TO THE CONDITION THAT ASSESSEE SHOULD EXECUTE A NON-COMPETE AGREEMENT FOR A PERIOD OF FIVE YEARS WITH THE PROMOTERS OF UKM AND UKT WITH A VIEW TO ENSURE EXCLUSIVE RIGHTS OVER THE BUSINESS ACQUIRED AND TO RESTRAIN THE PROMOTERS CONTINUING THE SAME BUSINESS. IN THIS CON TEXT, THE LEARNED AR REFERRED TO THE AGREEMENT DATED 30/01/08 BETWEEN ASSESSEE AND THE DOMESTIC INVESTOR, A COPY OF WHICH IS PLACED AT 221 OF ASSESSEES PAPER BOOK. THEREFORE, AS PER THE CONDITION IMPOSE D BY THE DOMESTIC INVESTOR, WHICH IS ALSO INCORPORATED AS A TERM IN T HE AGREEMENT ENTERED WITH THE DOMESTIC INVESTOR, ASSESSEE ENTERE D INTO A NON- COMPETE AGREEMENT ON 30/01/08 WITH THE PROMOTER OF UKT AND UKM FOR A TOTAL CONSIDERATION OF RS. 670 CRORES. THE LE ARNED AR SUBMITTED THAT ON THE BASIS OF THE AFORESAID NON-COMPETE AGRE EMENT, THE DOMESTIC INVESTOR ENTERED INTO AN AGREEMENT WITH AS SESSEE FOR SUBSCRIBING TO 21.32% OF EQUITY SHARE OF THE ASSESS EE COMPANY FOR A TOTAL VALUE OF RS. 1424 CRORES. SIMULTANEOUSLY, THE DOMESTIC INVESTOR ALSO ACQUIRED 17.68% OF THE SHAREHOLDING FROM THE P ROMOTERS OF THE ASSESSEE COMPANY FOR A CONSIDERATION OF RS. 1180 CR ORES. THUS, IN TOTAL, THE DOMESTIC INVESTOR ACQUIRED 39% OF SHARES OF ASSESSEE. THE LEARNED AR SUBMITTED THAT AS PER CLAUSE 3 OF NON-CO MPETE AGREEMENT, BOTH UKT AND UKM AGREED THAT THEY SHALL NOT FOR A PERIOD OF FIVE YEARS FROM THE EFFECTIVE DATE EITHER ENTER INTO OR DO THE FOLLOWING ACTS OR DEEDS: 1. CANVASS, SOLICIT OR OTHERWISE COMPETE WITH ASSES SEE IN RELATION TO THE BUSINESS. 2. SOLICIT IN ANY MANNER WHATSOEVER THE EMPLOYEES, CUSTOMERS OR SUPPLIERS OR OTHER BUSINESS ASSOCIATES OF THE AS SESSEE COMPANY. 20. STRONGLY, REFUTING THE ALLEGATIONS OF THE AO AS WELL AS CIT(A) THAT THE TRANSACTION ENTERED INTO BETWEEN ASSESSEE AND UKT AND UKM FOR PAYMENT OF NON COMPETE FEE IS A SHAM TRANSA CTION AND THERE IS NO NECESSITY TO PAY SUCH NON-COMPETE FEE AS SHRI RAMOJI RAO IS 11 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. EXERCISING CONTROL OVER ALL THE ENTITIES, THE LEARN ED AR SUBMITTED THAT UKT AND UKM ARE ONE OF THE EARLIEST PRODUCTION HOUS ES WITH LARGE BASE OF SATELLITE RIGHTS IN FEATURE FILMS AND TELEV ISION SOFTWARE AND, THUS, HAVE A STRONG FOOTHOLD IN THE TV MARKET. IN T V INDUSTRY CONTENT IS THE KING AND AS LONG AS THE CHANNEL TELECAST PRO GRAMMES CATERING TO DIFFERENT CATEGORIES OF VIEWERS AND THE PROGRAMM ES ARE POPULAR, THE CHANNEL POSITION IN THE MARKET WILL BE STRONG. IT WAS SUBMITTED THAT REGIONAL CHANNELS IN THE ETV NET WORK STOOD AMONG T HE TOP THREE CHANNELS IN THE MARKET, MAINLY, DUE TO THE QUALITAT IVE CONTENT PRODUCED BY UKT AND UKM OVER 12 YEARS AND THIS HELP ED THE ASSESSEE IN EARNING SUBSTANTIAL REVENUES AS ONE OF THE THREE TOP CHANNELS. IT WAS SUBMITTED THAT ASSESSEES ADVERTIS EMENT REVENUE ATTRIBUTABLE TO THE PROGRAMMES PRODUCED BY UKT AND UKM RANGED BETWEEN 45% AND 60% OF THE TOTAL ADVERTISEMENT REVE NUE EARNED FROM ETV NETWORK. DUE TO THESE FACTORS, THE DOMEST IC INVESTOR WAS OF THE OPINION THAT HAD THERE BEEN NO NON-COMPETE WITH AGREEMENT WITH UKT AND UKM, THEY WOULD HAVE AGGRESSIVELY BOUGHT T HE RIGHTS OF BLOCKBUSTER FILMS, PRODUCED EXPENSIVE REALITY AND G AME SHOWS, FEATURE FILMS ETC. WITH QUALITY CONTENT FROM THE SU BSTANTIAL SUM OF RS. 775 CROES RECEIVED FROM SALE OF THEIR BUSINESS. THI S COULD HAVE IMPACTED THE VIEWERSHIP OF ETV CHANNELS OF ASSESSEE AND CONSEQUENTLY ITS REVENUES AND PROFITABILITY. FOR T HIS REASON ALONE, THE DOMESTIC INVESTOR TO ENSURE THAT THERE WOULD NOT BE ANY DIRECT OR INDIRECT COMPETITION BY THE PROMOTER IN HIS HUF CAP ACITY IN THE MARKET, AGREED TO INVEST INTO THE ASSESSEE COMPANY ON THE PRECONDITION THAT THE ASSESSEE COMPANY WOULD EXECUT E THE NON- COMPETE AGREEMENT WITH THE PROMOTERS OF UKT AND UKM . THUS, A NON COMPETE AGREEMENT WAS ENTERED BY THE ASSESSEE COMPA NY WITH THE PROMOTERS OF UKT AND UKM AT THE BEHEST OF THE DOMES TIC INVESTOR, WHO ARE NOT RELATED IN ANY MANNER TO SHRI RAMOJI RA O. IT WAS SUBMITTED THAT THE CONCLUSION DRAWN BY AO AND CIT(A ) TO THE EFFECT THAT THERE IS NO NECESSITY FOR PAYMENT OF NON-COMPE TE FEE AS THE PROMOTER OF BOTH ASSESSEE COMPANY AND UKT AND UKM A RE SAME AND 12 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. AS SUCH A PERSON CANNOT PAY MONEY TO HIMSELF FOR NO T COMPETING IS TOTALLY IRRELEVANT AS THEY HAVE FAILED TO APPRECIAT E THE FACT THAT 39% OF THE ASSESSEES SHAREHOLDING IS HELD BY A DOMESTIC I NVESTOR WHO IS AN UNRELATED PARTY AND HAS SIGNIFICANT INFLUENCE ON TH E AFFAIRS OF THE COMPANY. THE LEARNED AR SUBMITTED THAT THE CIT(A) F AILED TO APPRECIATE THAT IT WAS THE DOMESTIC INVESTOR WHO HA D INSISTED ON A NON-COMPETE AGREEMENT TO THWART ANY COMPETITION FRO M THE PROMOTERS OF UKT AND UKM. THUS, IT WAS SUBMITTED BY THE LEARN ED AR THAT DOMESTIC INVESTOR BEING AN UNRELATED PARTY HAVING V ISUALIZED A LIKELY COMPETITION IN THE SAME BUSINESS FROM THE PROMOTERS OF UKT AND UKM AND IN ORDER TO PROTECT AND INSULATE ITS INVEST MENT AND INTEREST INSISTED ON A NON-COMPETE AGREEMENT WHICH WAS MADE AN INTEGRAL AND OPERATIVE PART OF THE TRANSACTION. THEREFORE, T HE CONCLUSION DRAWN BY AO AND CIT(A) THAT IT IS A SHAM TRANSACTION AND THERE IS NO NECESSITY TO PAY NON-COMPETE FEE IS WITHOUT ANY BAS IS. 21. SO FAR AS THE ALLEGATION OF THE AO THAT ASSESSE E ENTERED INTO THE SAID TRANSACTION TO COVER UP THE BROUGHT FORWAR D LOSSES OF HUF CONCERN OF SHRI RAMOJI RAO, THE LEARNED AR SUBMITTE D THAT AO HAS FAILED TO APPRECIATE THE FACT THAT THE HUF CONCERNS OF SHRI RAMOJI RAO AND ASSESSEE COMPANY ARE TWO DISTINCT LEGAL ENTITIE S, WHICH ARE ASSESSED TO TAX SEPARATELY. THE NON-COMPETE WAS OFF ERED TO TAX AS BUSINESS INCOME IN THE HANDS OF HUF AND THE BROUGHT FORWARD LOSSES WERE ADJUSTED IN ACCORDANCE WITH THE STATUTORY PROV ISIONS. THE LEARNED AR SUBMITTED THAT THIS PARTICULAR TRANSACT ION OF PAYMENT OF NON-COMPETE WAS SCRUTINIZED BY THE JCIT, WHO IS THE AO OF SHRI RAMOJI RAO, HUF WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT AND AFTER THOROUGH INVESTIGATION HE ACCEPTED TH E TRANSACTION. THEREFORE, THE ALLEGATION OF THE AO THAT THE TRANSA CTION WAS DRAWN TO COVER UP THE BROUGHT FORWARD LOSSES OF HUF CONCERN IS NOT TENABLE IN LAW. FOR SUBSTANTIATING THE AFORESAID ARGUMENT, TH E LEARNED AR SUBMITTED A COPY OF THE ASSESSMENT ORDER PASSED U/ S 143(3) OF THE ACT IN CASE OF SHRI RAMOJI RAO, HUF, COPY OF IT RET URN FOR AY 2008-09 13 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. IN CASE OF SHRI RAMOJI RAO HUF AND P&L ACCOUNT FOR THE YEAR ENDING 31/03/08 ALONG WITH THE SCHEDULE. THE LEARNED AR A LSO FILED A PETITION UNDER RULE 29 OF THE ITAT RULES, 1963 REQU ESTING FOR ADMISSION OF THE AFORESAID DOCUMENTS AS ADDITIONAL EVIDENCE. THUS, IN SUM AND SUBSTANCE, THE LEARNED AR SUBMITTED THAT NEITHER THE AUTHENTICITY OR THE NECESSITY FOR PAYMENT OF NON-CO MPETE FEE CAN BE CALLED INTO QUESTION. SO FAR AS THE ISSUE OF ALLOWA BILITY OF DEPRECIATION ON NON-COMPETE FEE AS AN INTANGIBLE A SSET, THE LEARNED AR REFERRING TO THE PROVISIONS CONTAINED U/S 32(1)( II) AND EXPLANATION 3 TO THE SAID SECTION, SUBMITTED THAT AS PER THE M EANING GIVEN IN THE SAID PROVISION INTANGIBLE ASSETS ARE THE RIGHTS AV AILABLE TO THE OWNER WHICH WOULD ENTITLE THE OWNER TO GENERATE INCOME FR OM EXPLOITATION OF SUCH RIGHTS. PAYMENT OF NON-COMPETE FEE IS AN ARRAN GEMENT OR AGREEMENT PUTTING A CONTRACTUAL OBLIGATION ON THE O THER PARTY, SO THAT HE OR SHE SHOULD NOT CARRY ON SIMILAR ACTIVITY OR T RADE IN COMPETITION WHICH WILL REDUCE THE PROFITABILITY OF ASSESSEE AND OBLIGATION OF OTHER PARTY TO NON-COMPETE. IT WAS SUBMITTED THAT AS PER THE DEFINITION OF INTANGIBLE ASSET, NON-COMPETE FEE IS NOT SPECIFICAL LY MENTIONED. THEREFORE, ONE HAS TO EXAMINE WHETHER THE WORDS BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CAN BE SAID T O INCLUDE NON- COMPETE FEE. IN THIS CONTEXT, LEARNED AR RELIED ON A DECISION OF HONBLE SUPREME COURT IN CASE OF TECHNO SHARES AND STOCKS LTD. AND OTHERS VS. CIT 327 ITR 323 WHEREIN MEMBERSHIP CARD OF BSE WAS HELD TO BE A BUSINESS OR COMMERCIAL RIGHT AS IT GIV ES RIGHT TO ACCESS THE EXCHANGE AND TO PARTICIPATE THEREIN TO A NON-DE FAULTING CONTINUING MEMBER, HENCE, IT IS IN THE NATURE OF LICENSE AKIN TO LICENCE IN TERMS OF SECTION 32(1)(II) ON WHICH DEPRECIATION IS ALLOW ABLE. HE ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF SMIFS SECURITIES LTD. TS 639-SC, 2012 WHEREIN IT IS HELD THAT PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRE TING THE EXPRESSION OF SIMILAR NATURE WHICH FINDS PLACE IN EXPLANATION 3(B) AND HELD THAT GOODWILL FALLS UNDER THE CATEGORY OF ANY OTHER BUSI NESS OR COMMERCIAL RIGHTS OF A SIMILAR NATURE WITHIN THE DEFINITION OF INTANGIBLE ASSETS AND, 14 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. THEREFORE, ELIGIBLE FOR DEPRECIATION. THE LEARNED A R RELIED UPON A DECISION OF HONBLE SUPREME COURT IN CASE OF NAT ST EEL EQUIPMENT PVT. LTD. VS. COLLECTOR OF CENTRAL EXCISE AIR 1988 SC 631 WHEREIN IT IS HELD THAT THE EXPRESSION SIMILAR IS A SIGNIFICAN T EXPRESSION AND IT DOES NOT MEAN IDENTICAL BUT IT MEANS CORRESPONDING TO OR RESEMBLING TO IN MANY RESPECTS, SOMEWHAT LIKE, OR HAVING A GEN ERAL LIKENESS, HENCE, A BUSINESS OR A COMMERCIAL RIGHT WILL BE COV ERED ONLY IF IT IS CORRESPONDING TO OR RESEMBLING TO ANY ONE OF THE PR ECEDING ASSETS IN MANY RESPECTS. FURTHER, THE LEARNED AR RELIED UPON DECISION OF MADRAS HIGH COURT IN CASE OF PENTA SOFT TECHNOLOGIE S VS. DCIT 264 CTR 187 WHEREIN IT IS HELD THAT NON-COMPETE FEE PAI D TO THE TRANSFEROR UNDER A COMPOSITE AGREEMENT INTER-ALIA INVOLVED TRA NSFER OF TRADE NAMES, TRADE MARKS, SERVICE MARKS, PATENTS, COPY RI GHTS, CONFIDENTIAL INFORMATION, COMPUTER PROGRAMMES AND ALL OTHER INTA NGIBLE RIGHTS OF SOFTWARE TOGETHER WITH ASSOCIATED GOODWILL OF THE I DENTIFIED BUSINESS DIVISION AND HENCE IS ELIGIBLE FOR DEPRECIATION U/S 32 OF THE ACT. IN THIS CONTEXT, THE LEARNED AR ALSO RELIED UPON SOME DECIS ION OF DIFFERENT BENCHES OF TRIBUNAL ALSO, WHICH ARE AS UNDER: 1. M/S SAINT GOBAIN VETROTECHS, ITA NO. 439/HYD/04, DATED 29/5/09. 2. ITO VS. MEDICORP TECHNOLOGIES INDIA LTD., 122, T TJ 394 3. ACIT VS. REAL IMAGE TECH P. LTD., 14 DTR 138. 22. THE LEARNED AR ALSO RELIED UPON A RECENT JUDGME NT OF THE HONBLE KARNATA HIGH COURT IN CASE OF CIT VS. INGER SOLLRAND INTERNATIONAL INDIA LTD, ITA NO. 452 OF 2013, DATED 30 TH JUNE, 2014 WHEREIN THE HONBLE HIGH COURT ALLOWED ASSESSEES C LAIM OF DEPRECIATION ON NON-COMPETE FEE. IN COURSE OF HEARI NG THE LEARNED AR FAIRLY SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN CASE OF SHARP BUSINESS SYSTEMS VS. CIT, 254 CTR 233 HAS HELD THAT NON-COMPETE FEE IS NOT ELIGIBLE FOR DEPRECIATION U/S 32 OF IT A CT. IN THIS CONTEXT, THE LEARNED AR SUBMITTED THAT IN THE RECENT JUDGMENT IN CASE OF CIT VS. 15 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. INGERSOLLRAND INTERNATIONAL INDIA LTD, (SUPRA) THE KARNATAKA HIGH COURT AFTER TAKING INTO CONSIDERATION THE JUDGEMENT OF DELHI HIGH COURT IN CASE OF SHARP BUSINESS SYSTEMS VS. CIT (SU PRA), WHICH IS AGAINST ASSESSEE AND THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF PENTA SOFT (SUPRA) WHICH IS FAVOURABLE TO A SSESSEE ALLOWED ASSESSEES CLAIM OF DEPRECIATION. THE LEARNED AR SU BMITTED THAT IF THERE ARE TWO OR MORE INTERPRETATIONS POSSIBLE, THE ONE WHICH IS BENEFICIAL TO ASSESSEE IS TO BE FOLLOWED. IN THIS C ONTEXT, HE RELIED ON THE FOLLOWING DECISIONS: 1. CIT VS. VEGITABLE PRODUCTS LTD., 88 ITR 192 2. ITO VS. PRASAD PRODUCTIONS LTD., [2010] 3 ITR 58 (CHENNAI)(SB) 23. HE FURTHER SUBMITTED THAT WHEN THERE ARE CONFLI CTING DECISIONS OF HIGH COURTS, THE LATEST DECISION IS REQUIRED TO BE FOLLOWED TO MAINTAIN JUDICIAL DISCIPLINE. FOR SUCH PROPOSITION, HE RELIE D ON A DECISION OF ITAT, AHEMABAD BENCH IN CASE OF SHRI PRAKASH VASANT BHAI GOLWALA VS. ACIT, ITA NO. 558/AHD/13. THUS, IT WAS CONTEND ED BY THE LEARNED AR THAT THE CLAIM OF DEPRECIATION SHOULD B E ALLOWED. AS FAR AS THE DOUBT RAISED BY THE AO IN RESPECT OF THE VAL UATION OF NON- COMPETE FEE, THE LEARNED AR SUBMITTED THAT THE VALU E OF NON-COMPETE FEE PAID BY ASSESSEE WAS DECIDED AND AGREED UPON IN CONSULTATION WITH THE DOMESTIC INVESTOR. IT WAS SUBMITTED THAT T RANSACTION FOR SUCH CONSIDERATION CANNOT TAKE PLACE UNLESS THERE IS A V ALUE TO THE TRANSACTION AND SUCH VALUATION IS ACCEPTABLE TO THE INVESTOR. IT WAS SUBMITTED THAT TO SUBSTANTIATE THE VALUE OF NON-COM PETE FEE PAID BY ASSESSEE A VALUATION REPORT FROM A REPUTED CA FIRM, NAMELY, SSPA AND CO., WHO ARE EXPERT IN THE FIELD WAS OBTAINED A ND SUBMITTED BEFORE THE AO IN COURSE OF ASSESSMENT PROCEEDING. H OWEVER, AO WITHOUT BRINGING ANY CONTRARY VALUATION ON RECORD A ND WITHOUT ANY SOUND REASONING, HAS OPINED THAT THE VALUER HAS NOT EXPLORED ANY SCIENTIFIC METHOD TO WORK OUT THE VALUATION. IT WA S SUBMITTED THAT AO CANNOT REWRITE THE AGREEMENT ENTERED INTO BETWEEN T HE PARTIES. 16 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 24. THE LEARNED DR SHRI D. SUDHAKAR RAO, ON THE OTH ER HAND, PLACING STRONG RELIANCE ON THE OBSERVATIONS MADE BY THE AO AND CIT(A) SUBMITTED THAT THERE IS NO REASON TO PAY THE NON-COMPETE FEE AS THE TRANSACTIONS IS BETWEEN RELATED PARTIES. IT WAS SUBMITTED THAT WHILE SHRI RAMOJI RAO IN HIS CAPACITY AS KARTHA OF HUF IS THE OWNER OF UKT AND UKM, IN HIS INDIVIDUAL CAPACITY IS THE C HAIRMAN OF THE ASSESSEE COMPANY. THEREFORE, IN EFFECT, SHRI RAMOJI RAO IS THE OWNER OF NOT ONLY THE ASSESSEE COMPANY, BUT, OTHER TWO EN TITIES. IN THIS SITUATION, THERE CANNOT BE A COMPETITION BETWEEN TH E ASSESSEE COMPANY WITH UKT AND UKM AS THEY ARE OWNED BY THE S AME PERSON. THE LEARNED DR SUBMITTED THAT EVEN THE VALUE OF NON -COMPETE FEE IS NOT ON THE BASIS OF ANY SCIENTIFIC METHOD, THEREFOR E, THE SAME CANNOT BE ACCEPTED. THE LEARNED DR SUBMITTED THAT EVEN ASS UMING THAT PAYMENT OF NON-COMPETE FEE TO BE GENUINE NO DEPRECI ATION CAN BE ALLOWED ON THE SAME AS IT IS NOT AN INTANGIBLE ASSE T AS PER SECTION 32(2)(II) OF THE ACT. IN THIS CONTEXT, THE LEARNED DR RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF SHARP BUSINESS SYSTEMS VS. CIT (SUPRA). THUS, IT WAS SUBMITTED BY LEARNED DR IN THE GIVEN FACTS AND CIRCUMSTANCES ASSESSEES CLAIM OF D EPRECIATION HAS BEEN RIGHTLY DISALLOWED. 25. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATE RIALS ON RECORD AND ALSO GONE THROUGH THE DECISIONS CITED. A PERUSAL OF THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY CIT(A) WOULD L EAVE NO ROOM FOR DOUBT THAT ASSESSEES CLAIM OF DEPRECIATION ON NON- COMPETE FEE HAS BEEN REJECTED BASICALLY FOR THE FOLLOWING TWO REASO NS: 1. GENUINENESS OF THE PAYMENT MADE AND NECESSITY OF PAYING NON-COMPETE FEE. 2. NON-COMPETE FEE NOT BEING IN THE NATURE OF AN IN TANGIBLE ASSET AS DEFINED IN SECTION 32(1)(II), DEPRECIATION IS NOT ALLOWABLE. 17 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 26. BEFORE EXAMINING WHETHER NON-COMPETE FEE CAN B E CONSIDERED TO BE AN INTANGIBLE ASSET SO AS TO ENTITLE THE ASSE SSEE TO CLAIM DEPRECIATION ON IT, IT IS NECESSARY, AT THE OUTSET, TO ADDRESS THE ISSUE OF GENUINENESS OF PAYMENT OF NON-COMPETE FEE AND NE CESSITY TO MAKE SUCH PAYMENT. AS CAN BE SEEN FROM THE ASSESSMENT O RDER, AO HAS TREATED THE AGREEMENT ENTERED INTO BETWEEN ASSESSEE FOR PAYMENT OF NON-COMPETE FEE AS A SHAM TRANSACTION AS SHRI RAMOJ I RAO IS NOT ONLY THE OWNER OF UKT AND UKM BEING THE KARTA OF HU F TO WHICH THESE CONCERNS BELONG BUT HE ALSO IN HIS INDIVIDUAL CAPACITY IS THE CHAIRMAN OF THE ASSESSEE COMPANY. AS SUCH, ASSESS EE CANNOT BE CONSIDERED TO BE COMPETING WITH HIMSELF. AS IT IS A N ARRANGEMENT BETWEEN RELATED PARTIES, THERE IS NO NECESSITY FOR PAYMENT OF NON- COMPETE FEE. AO FURTHER OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENT FOR PAYMENT OF NON-COMPETE FEE TO REDUCE ITS TAX BURDEN BY ALLOWING SHRI RAMOJI RAO HUF TO ADJUST THE NON-C OMPETE FEE AGAINST THE HUGE BROUGHT FORWARD LOSSES SUFFERED BY IT. AO ALSO RAISED DOUBTS WITH REGARD TO THE VALUE OF NON-COMPETE FEE AT RS. 670 CRORES. HOWEVER, THE CIT(A) HAS REJECTED ASSESSEES CLAIM B Y HOLDING THAT AS SHRI RAMOJI RAO, WHO IS THE KARTHA OF HUF, WHICH O WNS UKT AND UKM AND ALSO IN HIS INDIVIDUAL CAPACITY IS THE CHAI RMAN OF THE ASSESSEE COMPANY, THEREFORE, THERE IS NO QUESTION O F PAYING NON- COMPETE FEE AS A PERSON CANNOT COMPETE WITH HIMSELF . OF COURSE THE CIT()A) HAS ALSO HELD THAT AS NON-COMPETE FEE DOES NOT PROVIDE ANY ASSET OF ENDURING NATURE, DEPRECATION CANNOT BE ALL OWED. IN THIS CONTEXT, IT IS TO BE NOTED THAT ASSESSEE ON 25/01/2 008 HAS ENTERED INTO SUBSCRIPTION AGREEMENT AND SHARE PURCHASE AGRE EMENT WITH A DOMESTIC COMPANY, VIZ.; EQUATOR TRADING ENTERPRISES PVT. LTD. AS PER WHICH THE SAID DOMESTIC COMPANY AGREED TO MAKE SUBS TANTIAL INVESTMENT IN PURCHASE OF EQUITY SHARES OF THE ASSE SSEE COMPANY. HOWEVER, AS A PRECONDITION FOR MAKING SUCH INVESTME NT, THE SAID DOMESTIC COMPANY REQUIRED THE ASSESSEE COMPANY TO E NTER INTO A NON-COMPETE AGREEMENT WITH UKT AND UKM. THOUGH, CO PIES OF THE SHARE PURCHASE AGREEMENT AND SUBSCRIPTION AGREEMENT ARE NOT 18 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. AVAILABLE ON RECORD BEFORE US, HOWEVER, ON PERUSAL OF THE CLOSING AGREEMENT DATED 30/01/08 BETWEEN ASSESSEE AND M/S E QUATOR TRADING ENTERPRISES PVT. LTD. A COPY OF WHICH IS AT PAGE 220 OF PAPER BOOK, WE FIND A REFERENCE TO SUCH PRECONDITION IN C LAUSE 2(A). FURTHER, AS IT APPEARS FROM THE FACT ON RECORD AND WHICH REM AINS UNCONTROVERTED IN PURSUANCE TO THE CONDITION IMPOSE D BY THE DOMESTIC INVESTOR ASSESSEE HAS ENTERED INTO THE NON COMPETE AGREEMENT WITH UKT AND UKM FOR A PERIOD OF 5 YEARS ON PAYMENT OF N ON-COMPETE FEE OF RS. 670 CRORES, WHICH IS ALSO APPROVED BY THE DO MESTIC INVESTOR. IT IS THE CONTENTION OF ASSESSEE THAT AS A RESULT OF F ULFILLMENT OF SUCH CONDITION OF NON-COMPETE FEE THEREBY EXCLUDING UKT AND UKM COMPETING WITH ASSESSEE COMPANY IN FUTURE, THE DOME STIC COMPANY INVESTED SUBSTANTIAL AMOUNT BY ACQUIRING 39% OF SHA RE IN THE ASSESSEE COMPANY. 27. FROM THE AFORESAID FACTS IT CANNOT BE DENIED TH AT EQUATOR TRADING ENTERPRISES PVT. LTD IS A MAJOR STAKEHOLDER IN ASSESSEE COMPANY. AS CAN BE SEEN FROM THE ASSESSMENT ORDER A S WELL AS ORDER PASSED BY THE CIT(A) BEFORE COMING TO THEIR RESPECT IVE CONCLUSION THAT THE TRANSACTION ENTERED INTO BY PARTIES FOR PA YMENT OF NON- COMPETE FEE IS NOT GENUINE OR THERE IS NO NECESSITY FOR PAYING THE NON-COMPETE FEE AS THE SAME PERSON IS CONTROLLING B OTH THE ASSESSEE COMPANY AND THE TWO OTHER COMPANIES ACQUIRED BY THE ASSESSEE, THE ROLE OF M/S EQUATOR TRADING ENTERPRISES PVT. LTD. I N ANY DECISION TAKEN BY ASSESSEE COMPANY HAS NOT AT ALL BEEN CONSI DERED. NEITHER THE AO NOR THE CIT(A) HAS EXAMINED THE EFFECT OF AC QUISITION OF 39% OF EQUITY SHARES BY ANOTHER ENTITY AND WHETHER AFTE R SUCH ACQUISITION OF SHARES, IT CAN STILL BE HELD THAT SHRI RAMOJI RA O IS THE CONTROLLING AUTHORITY OF ASSESSEE COMPANY AND IT IS A TRANSACTI ON BETWEEN RELATED PARTIES. UNFORTUNATELY, THE ASSESSMENT ORDER AND OR DER OF CIT(A) IS TOTALLY SILENT ON THIS ASPECT. THOUGH IN THE REMAND REPORT, AO HAS EXAMINED THE ISSUE OF INVESTMENT MADE BY THE DOMEST IC INVESTOR AND HAS ALLEGED THAT IT AS A SHAM TRANSACTION AND A COL LUSIVE AGREEMENT 19 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. ENTERED INTO BETWEEN THE PARTIES TO REDUCE THE TAX BURDEN BY CLAIMING DEPRECIATION ON PAYMENT OF NON-COMPETE FEE. HOWEVER , SUCH INFERENCE DRAWN BY AO, IN OUR VIEW, IS MORE ON PRES UMPTIONS AND SURMISES RATHER THAN ON THE BASIS OF STRONG EVIDENC E. WHEN TWO INDEPENDENT PARTIES ENTER INTO AN AGREEMENT ON CERT AIN TERMS AND CONDITIONS, IT CANNOT BE TERMED AS SHAM OR COLLUSIV E WITHOUT BRINGING SUFFICIENT EVIDENCE TO PROVE SUCH FACT. AO CANNOT T REAT THE TRANSACTION AS A COLOURABLE DEVICE ADOPTED BY THE PARTIES MEREL Y ON PRESUMPTIONS AND SURMISES WITHOUT PROVING THE FACT THAT EITHER T HE PROMOTERS OF BOTH THE COMPANIES ARE SAME OR M/S EQUATOR TRADING ENTERPRISES PVT. LTD. IS A FRONT COMPANY OF EITHER THE ASSESSEE OR T HE RAMOJI RAO GROUP. IN THESE CIRCUMSTANCES, THE INFERENCE DRAWN ON MERE ASSUMPTIONS AND PRESUMPTIONS THAT THE AGREEMENT IS A COLOURABLE DEVICE TO REDUCE THE TAX BURDEN CANNOT BE ACCEPTED. THEREFORE, WITHOUT EXAMINING THE IMPACT OF INVESTMENT MADE IN EQUITY SHARES TO THE EXTENT OF 39% BY THE DOMESTIC INVESTOR AND COND ITION IMPOSED BY IT, THE CONCLUSION DRAWN BY THE CIT(A) THAT THERE I S NO NECESSITY OF PAYMENT OF NON-COMPETE FEE AS THE SAME PERSON IS CO NTROLLING THE ASSESSEE COMPANY AS WELL AS UKT AND UKM, IN OUR VIE W, IS WITHOUT PROPER APPRECIATION OF FACTS AND EVIDENCES BROUGHT ON RECORD, HENCE, CANNOT BE SUSTAINED. 28. EVEN THOUGH THE AO IN THE ASSESSMENT ORDER HAS ALSO RAISED THE ISSUE OF PAYMENT OF NON-COMPETE FEE FOR THE PUR POSE OF SETTING OFF THE LOSS SUSTAINED BY THE HUF AND ALSO HAS QUESTION ED THE VALUE OF NON-COMPETE FEE BUT THE LEARNED CIT(A) HAS NOT AT A LL DEALT WITH THESE ISSUES. BE THAT AS IT MAY, IT NEEDS TO BE OBSERVED THAT SO FAR AS VALUATION OF NON-COMPETE FEE IS CONCERNED, IN COURS E OF ASSESSMENT PROCEEDING, ASSESSEE HAS SUBMITTED A VALUATION REPO RT OF A CA FIRM IN SUPPORT OF THE VALUATION MADE BY IT. THEREFORE, IF THE AO HAD ANY DOUBT WITH REGARD TO THE VALUATION MADE, HE SHOULD HAVE GOT IT VALUED THROUGH AN INDEPENDENT VALUER IN STEAD OF REJECTING THE VALUATION BY SIMPLY OBSERVING THAT THE METHOD ADOPTED IS NOT COR RECT OR SCIENTIFIC. 20 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. IT IS ALSO ALLEGED BY THE AO THAT THE PAYMENT OF NO N-COMPETE FEE WAS MADE ON THE ONE HAND TO ENABLE THE ASSESSEE TO REDU CE ITS PROFIT AND AT THE SAME TIME ALLOWING SHRI RAMOJI RAO HUF TO AD JUST IT AGAINST ITS HUGE BROUGHT FORWARD LOSSES. IN THIS CONTEXT, IT IS TO BE OBSERVED THAT IN COURSE OF HEARING BEFORE US THE LEARNED AR HAS S UBMITTED CERTAIN DOCUMENTS AS ADDITIONAL EVIDENCE. A PERUSAL OF THE SAID DOCUMENTS REVEAL THAT SHRI RAMOJI RAO HUF FOR THE ASSESSMENT YEAR 2008-09 HAS NOT ONLY SHOWN THE NON COMPETE FEE RECEIVED BY IT AS INCOME BUT HAS ALSO ADJUSTED IT AGAINST THE BROUGHT FORWARD LO SSES OF EARLIER YEARS. AO I.E. JCIT, RANGE -16, WHILE COMPLETING AS SESSMENT IN CASE OF SHRI RAMOJI RAO HUF HAS ACCEPTED NOT ONLY THE IN COME BUT ALSO ITS ADJUSTMENT AGAINST BROUGHT FORWARD LOSSES IN AN ASS ESSMENT ORDER PASSED U/S 143(3) ON 24/12/2010. THEREFORE, WHEN TH E NON-COMPETE FEE PAID BY ASSESSEE HAS BEEN ACCEPTED AT THE HANDS OF SHRI RAMOJI RAO HUF AND ALLOWED TO BE SET OFF AGAINST THE BROUG HT FORWARD LOSSES, IT NEEDS TO BE EXAMINED WHETHER STILL THE P AYMENT OF NON- COMPETE FEE MADE BY THE ASSESSEE TO SHRI RAMOJI RAO HUF CAN BE HELD TO BE EITHER NON-GENUINE OR NOT NECESSARY. THE REFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES WE ARE OF THE VIEW THAT AS THE IMPACT OF ACQUISITION OF 39% OF EQ UITY SHARES BY M/S EQUATOR TRADING ENTERPRISES PVT. LTD. HAS NOT AT AL L BEEN EXAMINED BY AO AT THE TIME OF ASSESSMENT PROCEEDING OR BY THE L EARNED CIT(A) WHILE DISPOSING OF ASSESSEES APPEAL AND FURTHER AS THE ADDITIONAL EVIDENCES PRODUCED BEFORE US WERE NOT EXAMINED EITH ER BY THE AO OR BY CIT(A), WHICH CERTAINLY HAVE A CRUCIAL BEARING O N THE ISSUE AS TO WHETHER THE PAYMENT OF NON-COMPETE FEE IS GENUINE A ND NECESSARY, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FIL E OF AO FOR DECIDING AFRESH. ONLY AFTER THE ISSUE RELATING TO GENUINENES S OF NON-COMPETE FEE PAID AND NECESSITY TO PAY SUCH FEE IS RESOLVED, AO WILL DECIDE THE ALLOWABILITY OF DEPRECIATION CLAIMED ON SUCH NON-CO MPETE FEE BY KEEPING IN VIEW THE STATUTORY PROVISION AS WELL AS THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO HEREINABOVE AND ANY OT HER DECISION BROUGHT TO HIS NOTICE. IT IS NEEDLESS TO MENTION TH AT AO MUST AFFORD A 21 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. FAIR OPPORTUNITY OF HEARING TO ASSESSEE IN THE MATT ER BEFORE DECIDING THE ISSUE. THIS GROUND IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. 29. BEFORE PARTING, WE NEED TO MENTION THAT IN GROU ND NO. 9, ASSESSEE HAS RAISED AN ALTERNATIVE CONTENTION FOR A LLOWING NON- COMPETE FEE AS DEFERRED REVENUE EXPENDITURE. THOUGH THE LEARNED AR AT THE TIME OF HEARING HAS ALSO ADVANCED ARGUMENTS IN RESPECT OF THE AFORESAID ISSUE, HOWEVER, CONSIDERING THE FACT THAT WE HAVE REMITTED THE ISSUE RELATING TO GENUINENESS AND NECESSITY OF PAYMENT OF NON- COMPETE FEE AND ASSESSEES CLAIM OF DEPRECIATION ON IT, WE ARE NOT INCLINED TO GO INTO THE ISSUE AT THIS STAGE. HOWEVE R, IT IS OPEN FOR THE ASSESSEE TO RAISE SUCH ISSUE BEFORE THE AO AT THE T IME REASSESSMENT PROCEEDINGS. IF THE ASSESSEE RAISES SUCH AN ISSUE, AO MUST HAVE TO DECIDE THE SAME AFTER CONSIDERING THE FACTS AND MAT ERIALS BROUGHT ON RECORD AND IN ACCORDANCE WITH LAW. 30. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ITA NO. 100/HYD/12 BY REVENUE 31. IN THIS APPEAL, THE DEPARTMENT HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 2. THE HONBLE CIT(A) ERRED IN DIRECTING TO DELETE THE ADDITION MADE TOWARDS COMMISSION PAID ON SALE OF SPACE FOR ADVERTISEMENT IN NEWSPAPERS AND TELEVISION TIME SLO TS. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE ABO VE PAYMENT ATTRACTS PROVISIONS OF SECTION 194 OF THE IT ACT AS THE RELATION BETWEEN PRINCIPAL AND AGENT EXISTS. 3. THE HONBLE CIT(A) OUGHT TO HAVE CONFIRMED THE A DDITION AS THE PRINTERS, SCANNERS AND MODELS ETC. ARE NOT PART OF COMPUTER SYSTEMS. THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THAT THE ABOVE ITEMS ARE NOT ELIGIBLE FOR 60% DEPRECIATION. 22 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 32. THE FIRST ISSUE AS RAISED IN GROUND NO. 2 IS IN RESPECT OF DELETION OF AN AMOUNT OF RS. 1,01,63,14,378 DISALLO WED U/S 40(A)(IA) BY THE AO FOR NON DEDUCTION OF TAX U/S 194H ON COM MISSION PAID TO AGENTS ON SALE OF SPACE FOR ADVERTISEMENT IN NEWS P APERS AND TELEVISION TIME SLOT. 33. BRIEFLY THE FACTS RELATING TO THE AFORESAID ISS UE ARE, IN COURSE OF ASSESSMENT PROCEEDING, AO WHILE EXAMINING THE FINAL ACCOUNTS OF ASSESSEE NOTICED THAT DURING THE ASSESSMENT YEAR UN DER CONSIDERATION, ASSESSEE RECEIVED ADVERTISEMENT REVE NUE OF RS. 731,59,90,000. HOWEVER, THE AFORESAID ADVERTISEMENT REVENUE SHOWN BY ASSESSEE IS NET OF EXPENDITURE OF RS. 101,63,14, 378 INCURRED TOWARDS COMMISSION PAID TO AGENTS FOR SALE OF SPACE FOR ADVERTISEMENT IN NEWS PAPERS AND TELEVISION TIME SL OT. AO THEREFORE REQUIRED THE ASSESSEE TO FURNISH DETAILS REGARDING TDS ON SUCH PAYMENTS. IN REPLY ASSESSEE SUBMITTED THAT TAX HAS NOT BEEN DEDUCTED ON SUCH PAYMENTS AS THE AGENTS AFTER DEDUC TING THE COMMISSION AMOUNT PAY THE NET AMOUNT, HENCE THERE I S NO OCCASION TO DEDUCT TAX ON THE COMMISSION. FURTHER, IT WAS EX PLAINED THAT TDS IS TO BE DEDUCTED AT THE TIME OF CREDIT/PAYMENT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE IN CASH OR BY ISSUE OF A CHEQU E OR DRAFT OR BY ANY OTHER MODE. SINCE THE ASSESSEE IS NEITHER CREDI TING THE AMOUNT NOR PAYING AMOUNT TO THE ADVERTISING AGENTS/CONSULT ANTS, THERE IS NO LIABILITY ON ASSESSEE TO DEDUCT TAX AT SOURCE. IT W AS SUBMITTED THAT SINCE THE PAYMENTS FOR BOOKING THE SPACE FOR ADVERT ISEMENT AND TIME SLOTS FOR TELEVISION BROADCASTING ARE DIRECTLY ACC EPTED BY THE AGENTS AND THE AGENTS REMIT THE PAYMENTS ONLY AFTER RETAIN ING THEIR COMMISSION PORTION, THE PROVISION OF SECTION 194H I S NOT APPLICABLE. AO, HOWEVER, WAS NOT CONVINCED WITH THE EXPLANATION SUBMITTED BY ASSESSEE AND WAS OF THE VIEW THAT THE PAYMENTS MADE BY ASSESSEE ATTRACT DEDUCTION OF TAX AT SOURCE U/S 194H. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENT AS PER S ECTION 194H, AO BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, DISALLOWED THE 23 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. AMOUNT OF RS. 1,01,63,14,378. BEING AGGRIEVED OF SU CH DISALLOWANCE, ASSESSEE CHALLENGED IT IN THE APPEAL PREFERRED BEFO RE THE CIT(A). 34. THE CIT(A) DELETED THE ADDITION BY FOLLOWING TH E ORDER PASSED BY HIM EARLIER IN ASSESSEES OWN CASE FOR AY 2006-0 7. 35. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. A T THE OUTSET, BOTH THE LEARNED AR AND LEARNED DR AGREED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE ITAT, HYDE RABAD IN ASSESSEES OWN CASE FOR AYS 2004-05, 2005-06, 2006- 07 AND 2007- 08. ON A PERUSAL OF THE ORDER PASSED BY THE ITAT IN ITA NO. 1706 TO 1708/HYD/2008 DATED 22/03/2012, IT IS OBSERVED THAT FOR AY 2004-05 TO 2006-07 WHEN THE AO RAISED DEMAND U/S 201 AND 20 1(1A) AGAINST ASSESSEE FOR NOT DEDUCTING TAX AT SOURCE U//S 194H ON COMMISSION PAID TO AGENTS ON SALE OF SPACE FOR ADVERTISEMENT I N NEWS PAPERS AND TELEVISION TIME SLOT, THE ASSESSEE CHALLENGED THE S AME BEFORE CIT(A). AFTER THE CIT(A) DELETED THE DEMAND RAISED U/S 201 AND 201(1A), THE DEPARTMENT CAME IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL, HOWEVER, UPHELD THE DECISION OF THE CIT(A) BY HOLDI NG THAT THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX U/S 194H ON SUCH PAYMENTS. FOLLOWING THE AFORESAID DECISION, THE ITAT IN ASSES SEES OWN CASE FOR AY 2005-06 AND 2006-07 IN ITA NO. 701/HYD/09 AND 42 6/HYD/10 DATED 09/07/12 AND FOR AY 2007-08 IN ITA NO. 1535/H YD/10 DATED 10/05/13 WHILE DECIDING THE ISSUE OF DISALLOWANCE M ADE BY AO U/S 40(A)(IA) FOR NOT DEDUCTING TAX AT SOURCE U/S 194H ON COMMISSION PAYMENTS MADE TO AGENTS UPHELD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY AO. AS THE VIEW TAKEN BY THE LEARN ED CIT(A) IN THE PRESENT CASE IS IN CONFORMITY WITH THE DECISIONS O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEARS, WE UPHOLD THE SAME. ACCORDINGLY, GROUND RAISED IS DISMISSED. 24 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. 36. THE NEXT ISSUE AS RAISED IN GROUND NO. 3 IS WIT H REGARD TO CIT(A) UPHOLDING ASSESSEES CLAIM OF DEPRECIATION A T 60% ON PRINTERS, SCANNERS AND MODEMS ETC. 37. BRIEFLY THE FACTS ARE, AO IN COURSE OF ASSESSME NT PROCEEDING NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON C OMPUTER ACCESSORIES LIKE PRINTERS, SCANNERS, MODEMS, ROUTER S, ETC. AT 60% BY TREATING THEM AS PART OF COMPUTER. AO WAS HOWEVER O F THE VIEW THAT THESE ITEMS CANNOT BE CONSIDERED AS PART OF COMPUTE R, HENCE, DEPRECIATION @ 60% CANNOT BE ALLOWED. ACCORDINGLY, AO COMPLETED THE ASSESSMENT BY RESTRICTING THE DEPRECIATION @ 15 % ON THE AFORESAID ITEMS BY TREATING THEM AS PLANT AND MACH INERY AND IN THE PROCESS TREATED THE DIFFERENTIAL AMOUNT OF RS. 23,8 4,929 AS EXCESS DEPRECIATION CLAIMED WHICH IS NOT ALLOWABLE AND ADD ED IT BACK TO THE INCOME OF ASSESSEE. BEING AGGRIEVED OF SUCH ADDITIO N, THE ASSESSEE CHALLENGED IT BEFORE THE CIT(A). 38. CIT(A) FOLLOWING HIS OWN ORDER PASSED IN CASE O F ASSESSEE FOR AY 2006-07, ALLOWED ASSESSEES CLAIM OF DEPRECIATI ON AT 60%. 39. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDER S OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. BOTH THE COUNSELS AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERE D IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE DECIDED BY THE TRIB UNAL FOR THE AY 2005-06, 2006-07 AND 2007-08. ON A PERUSAL OF THE O RDER PASSED BY THE COORDINATE BENCH IN ASSSESSEES OWN CASE FOR AY 2005-06 AND 2006-07 IN ITA NOS. 701/HYD/09 AND 426/HYD/10 DATED 09/07/12, WE FIND THAT THE TRIBUNAL HAS UPHELD ASSESSEES CLAIM OF DEPRECIATION AT 60% ON PRINTERS, SCANNERS, MODEMS, ROUTERS, ETC. FO LLOWING THE SAID DECISION THE ITAT ALLOWED ASSESSEES CLAIM OF DEPRE CIATION AT 60% ON THESE ITEMS IN AY 2007-08 ALSO WHILE DECIDING THE A PPEAL IN ITA NO. 1535/HYD/10 AND 1552/HYD/10 DATED 10/05/2013. AS TH E VIEW TAKEN BY CIT(A) IS IN CONFORMITY WITH THE ORDERS PASSED B Y THIS TRIBUNAL IN 25 ITA NOS. 26/HYD/2011 & 100/HYD/12 USHODAYA ENTERPRISES PVT. LTD. ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YE ARS THERE IS NO REASON TO INTERFERE WITH THE SAME. GROUND RAISED BY THE DEPARTMENT IS DISMISSED. 40. IN THE RESULT DEPARTMENTS APPEAL IS DISMISSED. 41. TO SUM UP APPEAL OF THE ASSESSEE IN ITA NO. 26/ HYD/11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APP EAL OF REVENUE IN ITA NO. 100/HYD/12 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 22/10/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 22 ND OCTOBER, 2014 KV COPY TO:- 1) USHODAYA ENTERPRISES PVT. LTD., 6-3-570, EENAD U COMPLEX, SOMAJIGUDA, HYDERABAD. 2) ACIT, CIRCLE 16(2), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3) CIT(A)-V, VIJAYAWADA. 4) CIT-IV, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.