ACIT Circle-4(2), New Delhi V. Beacon Higher Education Services Pvt Ltd, New Delhi

ITA 2335/DEL/2019

AI Insights

The case involves the Revenue's appeal against the order of the CIT(A) which allowed depreciation on a non-compete fee claimed by M/s Beacon Higher Education Services Pvt. Ltd. The assessee had entered into a Non-compete Agreement and a Service Continuation Agreement, for which they claimed depreciation. The Assessing Officer disallowed this claim based on a judicial precedent. The CIT(A) reversed this decision, leading to the Revenue's appeal. The Tribunal, referencing the Delhi High Court's decision in Sharp Business Systems vs. CIT, ruled in favor of the Revenue, disallowing the depreciation on the non-compete fee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115977 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-04-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 14-03-2019
• Other Referred Cases: Sharp Business System vs. the Commissioner of Income Tax-III, CIT Vs. Ingersoll Rand International Ind. Ltd., CIT Vs. Areva T&D India Ltd., CIT Vs. Ferromatic Milacron India (P.) Ltd., Dodrej Agrovet Ltd. Vs. DCIT, Pentasoft Technologies Ltd. Vs. DCIT, PCIT Vs. Piramal Glass Ltd., PCIT Vs. Zydus Wellness Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. Saktijit Dey, Vice President Dr. B. R. R. Kumar, Accountant Member ITA No. 2335/Del/2019 : Asstt. Year: 2012-13 ACIT, Circle-4(2), New Delhi-110002 Vs. M/s Beacon Higher Education Services Pvt. Ltd., S-40, 2 nd Floor, Vasant Square Mall, Plot-A, Sector-B, Pocket-V, Vasant Kunj, New Delhi-110070 (APPELLANT) (RESPONDENT) PAN No. AAECB1283F Assessee by : Sh. Ajay Vohra, Sr. Adv. Sh. Deepesh Jain, Adv. Revenue by : Sh. P. Praveen Sidharth, CIT DR Date of Hearing: 18.04.2023 Date of Pronouncement: 17.07.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the Revenue against the order of ld. CIT(A)-2, New Delhi dated 21.12.2018. 2. Following grounds have been raised by the Revenue: “1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) is legally justified in deleting the addition of Rs.2,15,00,000/- made on account of depreciation claimed on non-compete Fee by holding that non-compete fee cannot be claimed as revenue expenditure in P&L account but depreciation can be claimed being capital asset.” 3. In this case assessee company has filed income tax return declaring loss of Rs.12,39,10,240/- on 29.09.2012. The case was selected for scrutiny and assessment was completed u/s ITA No. 2335/Del/2019 Beacon Higher Education Services Pvt. Ltd. 2 143(3) of the IT Act, 1961 on 29.01.2015 at an assessed loss of Rs.2,00,95,210/-. 4. Assessment record revealed that assessee company had entered into service continuation agreement with Shri V Sankaran for Rs.3,60,00,000/- and Non compete Agreement with Shri Mahendran for Rs.5,00,00,000/- in May/June 2011 and had allowed depreciation of Rs.2,15,00,000/- at the rate of 25% on the same. Later on, placing reliance on the judgment of Hon'ble High Court of Delhi in the case of Sharp Business System vs. the Commissioner of Income Tax-III vide ITA 492/2012 & CM APPL 14836/2012 dated 05.11.2012, the AO passed an order u/s 154 disallowing the depreciation allowed earlier. 5. Aggrieved the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) held that non-compete fee is not revenue in nature and cannot be claimed as revenue expenditure. Having said so, the ld. CIT(A) allowed depreciation on the amount of non-compete fee. 6. Aggrieved, the Revenue filed appeal before us. 7. The ld. DR relied on the judgment of Hon’ble jurisdictional High Court in the case of Sharp Business Systems Vs. CIT 211 Taxmann 576 wherein it was held that the amount paid as non- compete fee do not qualify for depreciation u/s 32(1)(ii) of the Income Tax Act, 1961 nor is the same allowable as revenue expenditure. ITA No. 2335/Del/2019 Beacon Higher Education Services Pvt. Ltd. 3 8. On the other hand, the ld. AR relied on the following case laws:  CIT Vs. Ingersoll Rand International Ind. Ltd. 227 Taxman 176 (Kar.)  CIT Vs. Areva T&D India Ltd. 434 ITR 604 (Mad. HC)  CIT Vs. Ferromatic Milacron India (P.) Ltd. 99 Taxman 154 (Guj.)  Dodrej Agrovet Ltd. Vs. DCIT 230 Taxman 633 (Bom.)  Pentasoft Technologies Ltd. Vs. DCIT 222 Taxman 209 (Mad.)  PCIT Vs. Piramal Glass Ltd. in ITA No. 556 of 2017 (Bom.)  PCIT Vs. Zydus Wellness Ltd. 247 Taxman 397 (Guj.) 9. Under the facts and circumstances of the instant case and keeping in view, the judgment of Hon’ble Jurisictional High Court in the case of Sharp Business Systems Vs. CIT (supra), wherein the issue has been held in favour of the revenue, the appeal of the Revenue is hereby allowed. 10. In the result, the appeal of the Revenue is allowed. Order Pronounced in the Open Court on 17/07/2023. Sd/- Sd/- (Saktijit Dey) (Dr. B. R. R. Kumar) Vice President Accountant Member Dated: 17/07/2023 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR