Deputy Commissioner of Income Tax Circle-6(1)(1), Bangalore V. M/s Sangeetha Mobiles Pvt Ltd , Bangalore

ITA 715/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4599 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Depreciation; Non-deduction of tax; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI N.V. VASUDEVAN , JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . A. NO. 715 /BANG/20 17 (ASSESSMENT YEAR : 20 12 - 13 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANG ALORE. . APPELLANT. VS. M/S. SANGEETHA MOBILES PVT. LTD., NO.1183M 22 ND A CROSS, BANASHANKARI 2 ND STAGE, BANGALORE - 560 070 . .. RESPONDENT. APPELLANT BY : SHRI B. R. RAMESH, JCIT (D.R) R E SPONDENT BY : SHRI NARENDRA SHARMA, ADVOCATE. DATE OF H EARING : 11.06.2018. DATE OF P RONOUNCEMENT : 15 .06 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 6 , BANGALORE DT.9.12.2016 FOR THE ASSESSMENT YEAR 20 12 - 13 . 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UNDER : - 2 IT A NO. 715 /BANG/201 7 2.1 THE ASSESSEE - COMPANY, A DEALER IN MOBILE PHONES AND ACCESSORIES, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012 - 13 ON 30.09.2012 DECLARING INCOME OF RS.7,77,48,140. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.27.3.2015, WHEREIN THE ASSESSEE'S INCOME W AS DETERMINED AT RS.9,52,08,120 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES. (I) DEPRECIATION ON GOODWILL : RS.1,72,33,598. (II) DISALLOWANCE U/S.40(A)(IA) R.W.S. 194J : RS.2,26,381. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.27.3.2015 FOR ASSESSMENT YEAR 2012 - 13, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) 6, BANGALORE. THE LEARNED CIT (APPEALS) ALLOWED THE ASSESSEE'S APPEAL ON BOTH THE AFORESAID ISSUES VIDE THE IMPUGNED ORDER DT.9.12.2016. 3. REVENUE, BEING AGGRI EVED BY THE ORDER OF THE CIT (APPEALS) 6, BANGALORE DT.9.12.2016 FOR ASSESSMENT YEAR 2012 - 13 HAS FILED THIS APPEAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS : - 3 IT A NO. 715 /BANG/201 7 4. GROUNDS 1, 5 & 6 (SUPRA) BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 4 IT A NO. 715 /BANG/201 7 5. GROUND NOS.2 & 3 DEPRECIATION ON GOODWILL / NON - COMPETE FEE . 5.1 IN THESE GROUNDS, REVENUE CHALLENG ES THE LEARNED CIT (APPEALS) S ORDER FOR APPLYING THE RATIO OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. M/S. INGERSOL L RAND INTERNATIONAL IND . LTD. DT.30.6.2014 (227 TAXMANN.COM 176) AND ALLOWING DEPRECIATION ON THE ADDITIONAL AMOUNT PAID BY THE ASSESSEE BY TREATING IT AS EITHER GOODWILL ON NON - COMPETE FEE. REVENUE CONTENDS THAT THE ADDITIONAL AMOUNT PAID BY THE ASSESSE E IS IN THE NATURE OF CAPITAL EXPENDITURE INCURRED TOWARDS EASING OUT COMPETITION AND THEREFORE THE LEARNED CIT (APPEALS) OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF SHARP BUSINESS SYSTEMS VS. CIT (254 CTR 233). T HE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED. 5.2 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN QUESTION HAS CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 IN ITA NO.1185 & 1186/BANG/2016 DT.3.11.2016; WHEREIN THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF INGERSOLL RAND 5 IT A NO. 715 /BANG/201 7 INTERNATIONAL IND. LTD. (SUPRA) WAS FOLLOWED AFTER CONSIDERING THE DECISION OF THE HON'BLE HIGH COURT OF DELHI CITED ( SUPRA ) . 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDIC IAL DECISIONS CITED. WE FIND THAT THE ISSUE OF ALLOWING DEPRECIATION ON THE ADDITIONAL AMOUNT PAID BY THE ASSESSEE AS GOODWILL HAS BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 (SUPRA), WHEREIN THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAS FOLLOWED THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF INGERSOL RAND INTERNATIONAL IND LTD. (SUPRA) AFTER DULY CONSIDERING THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF SHARP BUSINESS SYSTEMS (SUPRA). AT PARAS 4 TO 7 OF ITS ORDER IN ITA NOS.1185 & 1186/BANG/2016 DT.3.11.2016, THE CO - ORDINATE BENCH HAS HELD AS UNDER : - 4. REGARDING THE FIRST ISSUE, IT IS SUBMITTED BY THE LE ARNED AR OF THE ASSESSEE THAT THE COPY OF ASSETS PURCHASE AGREEMENT IS AVAILABLE ON PAGES 78 TO 115 OF THE PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT THE ASSESSEE HAS PURCHASED VARIOUS TANGIBLE ASSETS AS LISTED ON PAGE 110 TO 111 OF THE PAPER BOOK A ND DEPOSITS WITH VARIOUS LANDLORDS OF RS. 63.14 LACS AS PER DETAILS ON PAGES 112 TO 113 OF THE PAPER BOOK IS ALSO TAKEN OVER BY THE ASSESSEE. HE SUBMITTED THAT IN ADDITION TO THIS, THE ASSESSEE HAS ALSO ACQUIRED THE TRADE MARK WAVETEL ALONG WITH CORPORAT E NAME, TRADE NAME, DOMAIN NAMES AND OTHER INTELLECTUAL PROPERTY RIGHTS OF WAVE AS CAN BE SEEN ON PAGE 103 OF THE PAPER BOOK. THEREAFTER, HE DRAWN OUR ATTENTION TO PAGE 102 OF THE PAPER BOOK AND SUBMITTED THAT THIS WAS ALSO AGREED THAT WAVE AND MR. V. F. J OHN YESUDHAS WILL NOT DO ANYTHING FOR 12 MONTHS, WHICH MAY BE DEEMED TO BE IN COMPETITION WITH THE BUSINESS OF THE ASSESSEE. THEREAFTER HE DRAWN OUR ATTENTION TO PARA 4 OF THE AGREEMENT ON PAGES 87 & 88 OF THE PAPER BOOK AND POINTED OUT THAT THE PURCHASE 6 IT A NO. 715 /BANG/201 7 PRICE AGREED IS RS. 13 CRORES IN A COMBINED MANNER. THEN HE POINTED OUT THAT AT PAGES 125 & 126 OF THE PAPER BOOK IS THE INVOICE RAISED BY WAVE AND AS PER THE SAME, THE VALUE OF TANGIBLE ASSETS IS RS. 179,69,104/ - INCLUDING INTERIORS RS. 118,76,051 PLUS VA T. THEREAFTER, HE DRAWN OUR ATTENTION TO PAGE 3 OF THE ASSESSMENT ORDER WHERE THE A.O. HAS NOTED THAT THE ASSESSEE HAS ACCOUNTED FOR RS. 63.14 LACS AS RENT DEPOSITS AND CLAIMED DEPRECIATION ON FIXED ASSETS RS. 179,69,105/ - AND ALSO CLAIMED DEPRECIATION ON GOODWILL RS. 1050,42,884/ - . THEN HE SUBMITTED THAT AS PER THE A. O., THE AMOUNT OF RS. 1050,42,884/ - IS NOT GOODWILL BUT PAYMENT FOR ELIMINATING COMPETITION FROM WAVE COMMUNICATION AND IT IS NORMALLY TERMED AS FEE PAID FOR NON COMPETITION. FOR THIS, HE D REW OUR ATTENTION TO PAGE 8 OF THE ASSESSMENT ORDER. THEREAFTER HE SUBMITTED THAT AS PER THE ASSESSEE, THIS PAYMENT OF RS. 1050.43 LACS IS FOR GOODWILL BUT EVEN IF THE CONTENTION OF THE A. O. IS ACCEPTED THAT THIS IS NOT GOODWILL BUT NON COMPETE FEE THEN A LSO DEPRECIATION IS ALLOWABLE AT SAME RATE I.E. APPLICABLE TO INTANGIBLE ASSETS. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE ON THE JUDGMENT OF HON BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. M/S INGERSOLL RAND INTERNATIONAL IND. LTD. IN ITA NO. 452 OF 2013 DATED 30.06.2004 (227 TAXMAN.COM 176), COPY ON PAGES 181 TO 205 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT PARA 8 OF THIS JUDGMENT ON PAGES 200 TO 205 OF THE PAPER BOOK IS RELEVANT AS PER WHICH IT IS HELD BY HON BLE KARNATAKA HIGH C OURT THAT THE RIGHT ACQUIRED BY THE ASSESSEE ON PAYMENT OF NON COMPETE FEES IS A COMMERCIAL OR A BUSINESS RIGHT WHICH IS SIMILAR IN NATURE TO KNOW HOW, PATENTS, COPYRIGHTS, LICENSES, FRANCHISES ETC AND IT FALLS IN THE CATEGORY OF INTANGIBLE ASSETS AND CONSEQUENTLY DEPRECIATION IS ALLOWABLE U/S 32 (1) (III). 5. AS AGAINST THIS, LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE ALSO SUBMITTED THAT IT IS NOTED BY THE LEARNED CIT (A) IN PARA 14 OF HIS ORDER THAT IN THE REMAND REP ORT (COPY ON PAGES 142 TO 144 OF THE PAPER BOOK), THE A.O. HAS DISTINGUISHED THE FACTS OF THE PRESENT CASE WITH THE FACTS IN THE CASE OF CIT VS. M/S INGERSOLL RAND INTERNATIONAL IND. LTD. (SUPRA). AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENCH ASKING TH E LEARNED DR OF THE REVENUE TO POINT OUT THE DIFFERENCE IN FACTS AS REPORTED BY THE AO IN THE REMAND REPORT. IN REPLY, LEARNED DR OF THE REVENUE POINTED OUT THAT THE A.O. REPORTED THAT THE AO HAS REPRODUCED RELEVANT OBSERVATIONS OF HON BLE HIGH COURT AS PE R WHICH, IN THAT CASE, THE RIGHT ACQUIRED BY WAY OF NON COMPETE CAN BE TRANSFERRED TO ANY OTHER PERSON. HE SUBMITTED THAT IN THE PRESENT CASE, THE RIGHTS ACQUIRED BY THE ASSESSEE BY WAY OF NON COMPETE CANNOT BE TRANSFERRED TO ANY OTHER PERSON AND THEREFORE , THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE AND IN THE PRESENT CASE, THE JUDGMENT OF HON BLE DELHI HIGH COURT RENDERED IN THE CASE OF SHARP BUSINESS SYSTEM VS. CIT, 254 CTR 233 IS APPLICABLE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGARD ING THE ISSUE IN RESPECT OF ALLOWABILITY OF DEPRECIATION ON GOODWILL/NON COMPETE FEES, WE FIND THAT AS PER THE FACTS NOTED BY HON BLE KARNATAKA HIGH COURT IN PARA 8 AS REPRODUCED BELOW, THE RIGHT ACQUIRED BY WAY OF NON COMPETE CAN BE TRANSFERRED TO ANY OTH ER PERSON BUT IN THE CASE OF SHARP BUSINESS SYSTEM VS. CIT (SUPRA), HON BLE DELHI HIGH COURT JUDGMENT IS ON THE BASIS OF THIS FACT OF THAT CASE THAT THE RIGHT ACQUIRED BY WAY OF NON COMPETE CANNOT BE TRANSFERRED TO ANY OTHER PERSON: - 8. THEREFORE WHAT I S TO BE SEEN IS, WHAT ARE THE NATURE OF INTANGIBLE ASSETS WHICH WOULD CONSTITUTE BUSINESS OR COMMERCIAL RIGHTS TO BE ELIGIBLE FOR DEPRECIATION. IN THIS REGARD, IT IS NECESSARY TO NOTICE THAT THE INTANGIBLE ASSETS ENUMERATED IN SEC.32 OF THE ACT EFFECTIVELY CONFER A RIGHT UPON AN ASSESSEE FOR CARRYING ON A BUSINESS MORE EFFICIENTLY BY UTILIZING AN 7 IT A NO. 715 /BANG/201 7 AVAILABLE KNOWLEDGE OR BY CARRYING ON A BUSINESS TO THE EXCLUSION OF ANOTHER ASSESSEE. A NON - COMPETE RIGHT ENCOMPASSES A RIGHT UNDER WHICH ONE PERSON IS PROHIBITED FROM COMPETING IN BUSINESS WITH ANOTHER FOR A STIPULATED PERIOD. IT WOULD BE THE RIGHT OF THE PERSON TO CARRY ON A BUSINESS IN COMPETITION BUT FOR SUCH AGREEMENT OF NON - COMPETE. THEREFORE THE RIGHT ACQUIRED UNDER A NON - COMPETE AGREEMENT IS A RIGHT FOR WH ICH A VALUABLE CONSIDERATION IS PAID. THIS RIGHT IS ACQUIRED SO AS TO ENSURE THAT THE RECIPIENT OF THE NON - COMPETE FEE DOES NOT COMPETE IN ANY MARINER WITH THE BUSINESS IN WHICH HE WAS EARLIER ASSOCIATED. THE OBJECT OF ACQUIRING A KNOW - HOW, PATENTS, COPYRI GHTS, TRADEMARKS, LICENCES, FRANCHISES IS TO CARRYON BUSINESS AGAINST RIVALS IN THE SAME BUSINESS IN A MORE EFFICIENT MANNER OR TO PUT IT DIFFERENTLY IN A BEST POSSIBLE MANNER. THE OBJECT OF ENTERING INTO A NONCOMPETE AGREEMENT IS ALSO THE SAME IE., TO CAR RY ON BUSINESS IN A MORE EFFICIENT MANNER BY AVOIDING COMPETITION, ATLEAST FOR A LIMITED PERIOD OF TIME. ON PAYMENT OF NON - COMPETE, THE PAYER ACQUIRES A BUNDLE OF RIGHTS SUCH AS RESTRICTING RECEIVER DIRECTLY OR INDIRECTLY PARTICIPATING IN A BUSINESS WHICH IS SIMILAR TO THE BUSINESS BEING ACQUIRED, FROM DIRECTLY OR INDIRECTLY SOLICITING OR INFLUENCING CLIENTS OR CUSTOMERS OF THE EXISTING BUSINESS OR ANY OTHER PERSON EITHER NOT. TO DO BUSINESS WITH THE PERSON WHO HAS ACQUIRED THE BUSINESS AND PAID THE NON - COM PETE TEE OR TO DO BUSINESS WITH THE PER - SON RECEIVING THE NON - COMPETE FEE TO DO BUSINESS WITH A PERSON WHO IS DIRECTLY OR INDIRECTLY IN COMPETITION WITH THE BUSINESS WHICH IS BEING ACQUIRED. THE RIGHT IS ACQUIRED FOR CARRYING ON THE BUSINESS AND THEREFORE, T IS A BUSINESS RIGHT. THE WORD COMMERCAL IS DEFINED IN BLACK S LAW DICTIONARY AS RELATED TO OR CONNECTED WITH TRADE AND COMMERCE IN GENERAL COMMERCE IS DEFINED AS THE EXCHANGE OF GOODS, PRODUCTIONS OR PROPERTY OF ANY KIND, THE BUYING, SELLING AND E XCHANGING OF ARTICLES . A RIGHT BY WAY OF NON - COMPETE IS ACQUIRED ESSENTIALLY FOR TRADE AND COMMERCE AND THEREFORE, IT WILL ALSO QUALIFY AS A COMMERCIAL RIGHT. A RIGHT ACQUIRED BY WAY OF NON - COMPETE CAN BE TRANSFERRED TO ANY OTHER PERSON IN THE SENSE THAT THE ACQUIRER GETS THE RIGHT TO ENFORCE THE PERFORMANCE OF THE TERMS OF AGREEMENT UNDER WHICH A PERSON IS RESTRAINING THE OTHER BUSINESSMAN FROM COMPETING WITH THE ASSESSEE, HE GETS A VESTED. RIGHT WHICH CAN BE ENFORCED UNDER LAW ARID WITHOUT .THAT, THE OT HER BUSINESSMAN CAN COMPETE WITH THE FIRST BUSINESSMAN. WHEN BY PAYMENT CF NON - COMPETE FEE, THE BUSINESSMAN GETS HIS RIGHT WHAT BE IS PRACTICALLY GETTING IS KIND OF MONOPOLY TO RUN HIS BUSINESS WITHOUT BOTHERING ABOUT THE COMPETITION. GENERALLY, NON - COMPET E FEE IS PAID FOR A DEFINITE PERIOD. THE IDEA IS THAT BY THAT TIME, THE BUSINESS WOULD STAND FIRMLY ON ITS OWN FOOTING AND CAN SUSTAIN LATER ON. THIS CLEARLY SHOWS THAT HE COMMERCIAL RIGHT COMES INTO EXISTENCE WHENEVER THE ASSESSEE MAKES PAYMENT FOR NON - CO MPETE FEE. THEREFORE, THAT RIGHT WHICH THE ASSESSEE ACQUIRES ON PAYMENT OF NONCOMPETE FEE CONFERS IN HIM A COMMERCIAL OR A BUSINESS RIGHT WHICH IS HELD O BE SIMILAR IN NATURE TO KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES. THEREFORE, TH E COMMERCIAL RIGHT THUS ACQUIRED BY THE ASSESSEE UNAMBIGUOUSLY FALLS IN THE CATEGORY OF AN INTANGIBLE ASSET . THEIR RIGHT TO CARRY ON BUSINESS WITHOUT COMPETITION HAS AN ECONOMIC INTEREST AND MONEY VALUE. THE TERM OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT S OF SIMILAR NATURE HAS TO BE INTERPRETED IN SUCH A WAY THAT IT WOULD HAVE SOME SIMILARITIES AS OTHER ASSETS MENTIONED IN CL(B) OF EXPLN.3. HERE THE DOCTRINE OF EJUSDEM GENERIS WOULD COME INTO OPERATION AND THEREFORE, THE NON - COMPETE FEE VESTS A RIGHT IN T HE ASSESSEE TO CARRY ON BUSINESS WITHOUT COMPETITION WHICH IN TURN CONFERS A COMMERCIAL RIGHT TO CARRY ON BUSINESS SMOOTHLY. WHEN ONE THE EXPENDITURE INCURRED FOR ACQUIRING THE SAID RIGHT IS HELD TO BE CAPITAL IN NATURE. CONSEQUENTLY, THE DEPRECIATION PRO VIDED UNDER SEC.32(1)(II) IS ATTRACTED AND THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION AS PROVIDED IN THE SAID PROVISION I.E PRECISELY WHAT THE TRIBUNAL HAS HELD . 8 IT A NO. 715 /BANG/201 7 7. NOW WE EXAMINE THE FACTS OF THE PRESENT CASE TO SEE AS TO WHETHER THE RIGHTS ACQU IRED BY THE ASSESSEE BY WAY OF NON COMPETE CAN BE TRANSFERRED TO ANY OTHER PERSON OR NOT. WHEN WE CAREFULLY GO THROUGH THIS JUDGMENT IN FULL AND PARA 8 AS REPRODUCED ABOVE IN PARTICULAR, WE REACH TO THE CONCLUSION THAT THE MAIN BASIS OF THE JUDGMENT OF HON BLE KARNATAKA HIGH COURT IS THIS THAT ON PAYMENT OF NON COMPETE FEES, THE PAYER ACQUIRES A BUNDLE OF RIGHTS SUCH AS RESTRICTING RECEIVER DIRECTLY OR INDIRECTLY PARTICIPATING IN A BUSINESS WHICH IS SIMILAR TO THE BUSINESS BEING ACQUIRED, FROM DIRECTLY OR I NDIRECTLY SOLICITING OR INFLUENCING CLIENTS OR CUSTOMERS OF THE EXISTING BUSINESS OR ANY OTHER PERSON EITHER NOT TO DO BUSINESS WITH THE PERSON WHO HAS ACQUIRED THE BUSINESS AND PAID NON COMPETE FEES OR TO DO BUSINESS WITH A PERSON WHO IS DIRECTLY OR INDIR ECTLY IN COMPETITION WITH THE BUSINESS WHICH IS BEING ACQUIRED. THESE RIGHTS ARE HELD TO BE BUSINESS RIGHTS. THEREAFTER, IT IS NOTED BY HON BLE KARNATAKA HIGH COURT THAT THIS RIGHT CAN BE TRANSFERRED TO ANY OTHER PERSON IN THE SENSE THAT THE ACQUIRER GETS THE RIGHT TO ENFORCE THE PERFORMANCE OF THE TERMS OF AGREEMENT UNDER WHICH A PERSON IS RESTRAINED FROM COMPETING. IN THE PRESENT CASE ALSO, IT IS SPECIFIED IN PARA 11 OF THE AGREEMENT PAGE 102 OF THE PAPER BOOK THAT UNLESS PERMITTED BY THE ASSESSEE I.E. S MPL, WAVE AND MR. V. F. JOHN YESUDHAS WILL NOT DO ANYTHING WHICH MAY AMOUNT TO COMPETITION WITH THE PRESENT ASSESSEE. HENCE IN THE PRESENT CASE ALSO, THE ASSESSEE I.E. THE ACQUIRER GETS THE RIGHT TO ENFORCE THE PERFORMANCE OF THE TERMS OF AGREEMENT UNDER W HICH THE SELLER WAVE AND MR. V. F. JOHN YESUDHAS INCLUDING THEIR ASSOCIATES, PARTNERS AND RELATIVES SHALL NOT COMPETE WITH THE ASSESSEE I.E. THE ACQUIRER. HENCE, IN OUR CONSIDERED OPINION, THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE CASE OF THE JUDGMENT IN THE CASE OF CIT VS. M/S INGERSOLL RAND INTERNATIONAL IND. LTD. (SUPRA) AND IN THE PRESENT CASE ALSO, THIS RIGHT ACQUIRED BY THE ASSESSEE CAN BE TRANSFERRED TO ANY OTHER PERSON IN THE SENSE THAT THE ASSESSEE ACQUIRER GETS THE RIGHT TO ENF ORCE THE PERFORMANCE OF THE TERMS OF AGREEMENT UNDER WHICH THE SELLER IS RESTRAINED FROM COMPETING. THEREFORE, RESPECTFULLY FOLLOWING THIS JUDGMENT, WE HOLD THAT EVEN IF THE RIGHT ACQUIRED BY THE ASSESSEE IS HELD TO BE NON COMPETE RIGHT THEN ALSO, IT IS EL IGIBLE FOR DEPRECIATION U/S 32 (1) (III). REGARDING THE JUDGMENT OF HON BLE DELHI HIGH COURT ON WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED DR OF THE REVENUE I.E. THE JUDGMENT RENDERED IN THE CASE OF SHARP BUSINESS SYSTEM VS. CIT (SUPRA), WE HOLD THAT SI NCE, WE ARE FOLLOWING THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT, THE JUDGMENT OF ANY OTHER HIGH COURT IS NOT RELEVANT EVEN IF THE SAME IS CONTRARY TO THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT BECAUSE WE ARE BOUND TO FOLLOW THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT. HENCE, WE DO NOT EXAMINE THE APPLICABILITY OF THIS JUDGMENT. NOW, THIS ASPECT HAS BECOME ACADEMIC AS TO WHETHER THE RIGHT ACQUIRED IS GOODWILL OR NON COMPETE RIGHT. ACCORDINGLY, GROUND NO. 2 IN BOTH YEARS IS ALLOWED. 5.3.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF INGERSOLL RAND INTERNATIONAL IND LTD. (SUPRA) AND OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2010 - 11 & 2011 - 1 2, WE UPHOLD THE IMPUGNED ORDER OF 9 IT A NO. 715 /BANG/201 7 THE LEARNED CIT (APPEALS) IN ALLOWING THE ASSESSEE'S CLAIM FOR DEPRECIATION ON THE ADDITIONAL AMOUNT PAID BY THE ASSESSEE. CONSEQUENTLY, GROUNDS 2 AND 3 OF REVENUE S APPEAL ARE DISMISSED. 6. GROUND NO.4 DISALLOWANC E U/S.40(A)(I) OF THE ACT . 6.1 IN THIS GROUND (SUPRA), REVENUE CONTENDS THAT THE LEARNED CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT WITHOUT APPRECIATING THE FACT THAT PURCHASE OF SOFTWARE IS IN THE NATURE OF RO YALTY AS DEFINED IN SEC.9(1)(VI) OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 6.2 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IT IS C LEAR FROM THE DETAILS ON RECORD AND AS PER THE OBSERVATION / FINDING OF THE ASSESSING OFFICER AT PARA 5.2 OF THE ORDER OF ASSESSMENT THAT THE ABOVE EXPENDITURE ON PURCHASE OF COMPUTERS AND SOFTWARE WAS CAPITALIZED AND DEPRECIATION @ 60% THEREON WAS CLAIMED . THEREFORE, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT WOULD NOT BE ATTRACTED. IN SUPPORT OF THIS PROPOSITION, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KAWASAKI MI CROELECTRONICS INC INDIA 10 IT A NO. 715 /BANG/201 7 BRANCH V. DDIT (IT), CIRCLE 1(1), BANGALORE IN IT(IT)A NO.1512/BANG/2010 DT.26.6.2015. 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIALPRONOUNCEMENT CITED. ON AN APPRAISAL OF THE FACTS ON RECORD, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD EXPENDED AN AMOUNT OF RS.2,26,381 FOR ACQUIRING COMPUTERS AND SOFTWARES , WHICH WERE CAPITALIZED AND DEPRECIATION @ 60% WAS CLAIMED THEREON. THE ASSESSING OFFICER P ROCEEDED TO DISALLOW THE DEPRECIATION CLAIMED BY THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT IN RESPECT OF THE AFORESAID PAYMENTS MADE FOR PURCHASE OF COMPUTER AND SOFTWARE WHICH WAS CAPITALIZED BY THE ASSESSEE. WE FIND THAT THE SIMILAR ISSUE WAS CONSIDERED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KAWASAKI MICROELECTRONICS INC INDIA BRANCH V. DDIT (IT), CIRCLE 1(1), BANGALORE IN ITS ORDER IT(IT)A NO.15 12/BANG/2010 DT.26.6.2015 . IN THIS REGARD, AT PARAS 3 TO 8 OF ITS ORDER (SUPRA), THE CO - ORDINATE BENCH HAS HELD AS UNDER : - 3. THE ONLY ISSUE RAISED FOR OUR CONSIDERATION AND ADJUDICATION IS REGARDING DISALLOWANCE OF DEPRECIATION BY INVOKING THE PROVIS IONS OF SECTION 40(A)(I) OF THE ACT IN RESPECT OF THE PAYMENTS MADE FOR PURCHASE OF SOFTWARE AND CAPITALIZED BY THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE MADE THE PAYMENT OF RS.49,42,300 FOR PURCHASE OF SOFTWARE 11 IT A NO. 715 /BANG/201 7 FROM CADENCE SYSTEMS IRELA ND LIMITED (IN SHORT CADENCE ). THE SOFTWARE SO PURCHASED HAS BEEN CAPITALIZED BY THE ASSESSEE UNDER THE BLOCK OF COMPUTER AND DEPRECIATION WAS CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOUR CE WHILE MAKING PAYMENT TO CADENCE AND ACCORDINGLY ASKED THE ASSESSEE AS TO WHY THE PAYMENT SHOULD NOT BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSING OFFI CER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE DEPRECIATION CANNOT BE ALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSING OFFICER HAS HELD THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO A NON - RESIDENT ON WHICH THE TDS IS TO BE DEDUCTED AT SO URCE BUT THE ASSESSEE HAS NOT DEDUCTED THE TAX NOR HAS BEEN PAID. THE PAYMENT WHICH WAS IN THE NATURE OF ROYALTY IS CHARGEABLE UNDER THE ACT AND THEREFORE COVERED UNDER SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER PROPOSED TO DISALLOW T HE DEPRECIATION OF RS.17,49,680 CLAIMED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE PURCHASED WHICH WAS CAPITALIZED. THE ASSESSEE RAISED THE OBJECTION AGAINST THE DEPRECIATION PROPOSED TO BE DISALLOWED BY THE ASSESSING OFFICER BEFORE THE DRP, BUT COULD NOT SUCCEED. 4. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT SINCE THE EXPENDITURE IS CAPITALIZED BY THE ASSESSEE, THEREFORE, THE PROVISIONS OF SECTION 40(A)(I) CANNOT BE INVOKED FOR DISALLOWANCE OF THE DEPRECIATION ON THE CAPITALIZED AMOUNT. IT IS NOT THE CASE OF THE CLAIM OF ANY EXPENDITURE BY THE ASSESSEE BUT THE EXPENDITURE WHICH HAS ALREADY CAPITALIZED AND CONSEQUENTLY THE PROVISIONS OF SECTION 40(A)(I) HAS NO ROLE TO PLAY. IN SUPPORT OF HIS CONTENTION, HE HAS RELIE D UPON THE DECISION OF MUMBAI BENCH, ITAT IN THE CASE OF SKOL BREWERIES LTD. VS. ACIT 142 ITD 49 (MUM) AS WELL AS THE DECISION OF THE DELHI BENCH OF ITAT IN THE CASE OF SMS DEMANG (P.) LTD. V DCIT (2010) 38 SOT 496. THE LEARNED AUTHORISED REPRESENTATIVE HA S CONTENDED THAT THE ISSUE OF DISALLOWANCE OF DEPRECIATION BY APPLYING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE SAID DECISIONS OF THE TRIBUNAL. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENT ATIVE HAS SUBMITTED THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE PAYMENT FOR PURCHASE OF SOFTWARE WHICH IS IN THE NATURE OF ROYALTY AND THEREFORE THE PROVISIONS OF SECTION 195 ARE APPLICABLE ON SUCH PAYMENT FOR DEDUCTION OF TAX AT SOURCE. HE HAS FURTHER SUBMITTED THAT IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS NOT DEDUCTED THE TDS IN RESPECT OF THE PAYMENT IN QUESTION AND THEREFORE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 195 OF THE ACT AND CONSEQUENTLY, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE APPLICABLE IN THE CASE UNDER CONSIDERATION. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTENDED THAT THERE IS AN INTRICABLE LINK BETWEEN THE PROVISIONS OF SECTIONS 40, 195 & 201 OF THE ACT. ONCE THE ASSESSEE HAS FAILED TO COMPLY W ITH THE PROVISIONS OF SECTION 195, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE APPLICABLE. HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT THE MATERIAL ON RECORD. THE ISSUE BEFORE U S IS LIMITED ONLY WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE PAYMENT IN QUESTION TO A NON - RESIDENT FOR PURCHASE OF SOFTWARE AND THE SAID PAY MENT HAS BEEN CAPITALIZED BY THE ASSESSEE IN THE BLOCK OF COMPUTER ASSET. ONCE THE ASSESSEE CAPITALIZED THE PAYMENT AND HAS NOT CLAIMED THE SAME AS AN EXPENDITURE AGAINST THE PROFITS OF THE BUSINESS OF THE ASSESSEE, THEN, THE QUESTION ARISES WHETHER THE D EPRECIATION WHICH IS A 12 IT A NO. 715 /BANG/201 7 STATUTORY DEDUCTION AS PER THE SECTION 32 OF THE ACT CAN BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. AT THE OUTSET, IT IS TO BE NOTED THAT ON THE SIMILAR SET OF FACTS AN IDENTICAL ISSUE HAS BEEN DEALT BY THE ITAT, MUMBAI BENCH IN THE CASE OF SKOL BREWERIES LTD. (SUPRA), WHEREIN IT WAS HELD IN PARAS 16.1 TO 16.4 AS UNDER : - 16.1 AS REGARDS THE ALTERNATIVE PLEA OF THE LD SR COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HAS NOT CLAIMED THE ENTIRE AMOUN T AS REVENUE EXPENDITURE; BUT HAS CAPITALIZED THE SAME AND CLAIMED ONLY DEPRECIATION U/S 32(1)(II); THEREFORE, PROVISIONS OF SEC. 40(A)((I) SHALL NOT APPLY. SECTION 40(A)(I) CONTEMPLATES THAT ANY INTEREST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUM C HARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA AS IT IS RELEVANT FOR THE CASE IN HAND ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID, THE AMOUNT OF INTEREST, RO YALTY, FEE FOR TECHNICAL SERVICES AND OTHER SUM SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION'. THIS CONDITION OF DEDUCTIBILITY HAS BEEN STIPULATED U/S 40 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38 OF THE ACT. SEC. 40 BEGINS WITH NON - OBSTANTE CLAUSE; THEREFORE, IT IS AN OVERRIDING EFFECT T THE PROVISIONS OF SEC. 30 TO 38 OF THE I T ACT. THE QUESTION ARISES IS WHETHER ANY AMOUNT PAID OUTSIDE INDIA OR TO THE NON RESIDENT WI THOUT DEDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS CAPITALIZED THE SAME IN THE FIXED ASSETS AND CLAIMED ONLY DEPRECIATION IS SUBJECTED TO THE PROVISIONS OF SEC. 40(A)(I) OR NOT ?. WE QUOTE THE PROVISIONS OF SEC. 40(A)(I) AS UNDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', IN THE CASE OF ANY ASSESSEE [(I) ANY INTEREST (NOT BEING INTER EST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, OUTSIDE INDIA; OR IN INDIA TO A NON - RESIDENT, NOT BEING A COMPANY OR TO A FOR EIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB - SECTIO N (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUBSECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB - CLAUSE, ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB - SECTION (1) OF SECTION 9; 13 IT A NO. 715 /BANG/201 7 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB - SECTION (1) OF SECTION 9; 16.2 IT IS MANIFEST FROM THE PLAIN READING OF PROVISIONS OF SEC. 40(A)(I) THAT AN AMO UNT PAYABLE TOWARDS INTEREST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THIS ACT SHALL NOT BE DEDUCTED WHILE COMPUTING THE INCOME UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE; BUT SU CH TAX HAS NOT BEEN DEDUCTED. THE EXPRESSION 'AMOUNT PAYABLE' WHICH IS OTHERWISE AN ALLOWABLE DEDUCTION REFERS TO THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID EXPENDITURE IS A DEDUCTIBLE CLAIM. THUS, SECTION 40 REFERS TO THE OUTGOING AMOUNT CHARGEABLE UNDER THIS ACT AND SUBJECT TO TDS UNDER CHAPTER XVII - B. THERE IS A DIFFERENCE BETWEEN THE EXPENDITURE AND OTHER KIND OF DEDUCTION. THE OTHER KIND OF DEDUCTION WHICH INCLUDES ANY LOSS INCIDENTAL TO CARRYING ON THE BUSINESS, BAD DEBTS ETC., WHICH ARE DEDUCTIBLE ITEMS ITSELF NOT BECAUSE AN EXPENDITURE WAS LAID OUT AND CONSEQUENTIALLY ANY SUM HAS GONE OUT; ON THE CONTRARY THE EXPENDITURE RESULTS A CERTAIN SUMS PAYABLE AND GOES OUT OF THE BUSINESS OF THE ASSESSEE. THE SUM, AS CONTEMPLATED UNDER SEC. 40(A)(I) IS THE OUTGOING AMOUNT AND THEREFORE, NECESSARILY REFERS TO THE OUTGOING EXPENDITURE. DEPRECIATION IS A STATUTORY DEDUCTION AND AFTER THE INSERTION OF EXPLANATION 5 TO SEC. 32, IT IS OBLIGATORY ON THE PART OF THE AS SESSING OFFICER TO ALLOW THE DEDUCTION OF DEPRECIATION ON THE ELIGIBLE ASSET IRRESPECTIVE OF ANY CLAIM MADE BY THE ASSESSEE. THEREFORE, DEPRECIATION IS A MANDATORY DEDUCTION ON THE ASSET WHICH IS WHOLLY OR PARTLY OWNED BY THE ASSESSEE AND USED FOR THE PURP OSE OF BUSINESS OR PROFESSION WHICH MEANS THE DEPRECIATION IS A DEDUCTION FOR AN ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS AND NOT FOR INCURRING OF ANY EXPENDITURE. 16.3 THE DEDUCTION U/S 32 IS NOT IN RESPECT OF THE AMOUNT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTORY DEDUCTION ON AN ASSET WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION OF DEPRECATION. DEPRECIATION IS NOT AN OUTGOING EXPENDITURE AND THEREFORE, THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT ARE NOT ATTRACTED ON SUCH DEDUCTION. THIS VIEW HAS BEEN FORTIFIED BY THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MARK AUTO INDUSTRIES LTD. (SUPRA) IN PARS 5 & 6 AS UNDER: '5. ADVERTING TO QUESTIONS (II) AND (III), THE ISSUE WHICH ARISES FOR CONSID ERATION IS WHETHER THE ASSESSEE COULD BE DISALLOWED CLAIM FOR DEPRECIATION UNDER SECTION 40(A)(I) OF THE ACT ON THE GROUND THAT THE PAYMENTS MADE FOR TECHNICAL KNOW - HOW WHICH HAD BEEN CAPITALIZED, NO TAX DEDUCTION AT SOURCE HAS BEEN MADE THEREON. THE TRIBU NAL WHILE ACCEPTING THE PLEA OF THE ASSESSEE, IN PARA 3, HAD NOTICED AS UNDER: '3. GROUND NO. 4 IS AGAINST DELETION OF AN ADDITION OF RS. 6,88,1751 - MADE BY THE AO ON ACCOUNT OF DEDUCTION OF DEPRECIATION ON TECHNICAL KNOW - HOW AS THE ASSESSEE FAILED TO DE DUCT TAX IN ACCORDANCE WITH THE PROVISION CONTAINED IN SECTION 40(A)(I). THE FINDING OF THE LEARNED CIT(A) WAS THAT THE ASSESSEE HAD INCURRED, EXPENDITURE BY WAY OF TECHNICAL KNOW - HOW, WHICH WAS CAPITALIZED AMOUNT AS MADE IN THE RETURN OF INCOME. SINCE THE ASSESSEE HAD NOT CLAIMED DEDUCTION FOR THE AMOUNT PAID, THE PROVISIONS CONTAINED IN SECTION 40(A) (I) WERE NOT ATTRACTED. THE LEARNED DR COULD NOT FIND ANY FAULT WITH THIS DIRECTION OF THE CIT(A) ALSO ALTHOUGH SHE REFERRED TO PAGE 4 OF THE ASSESSMENT ORD ER, WHERE IT WAS MENTIONED THAT THE 14 IT A NO. 715 /BANG/201 7 TAX DEDUCTED IN RESPECT OF THE PAYMENT WAS MADE OVER TO THE GOVERNMENT IN THE SUBSEQUENT YEAR AND, THEREFORE, DEPRECIATION COULD NOT BE DEDUCTED ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. IN REPLY, THE LEARNED COUNSEL POINTED OUT THAT THE EXPENDITURE BY WAY OF TECHNICAL KNOW - HOW WAS CAPITALIZED AND IT WAS NOT CLAIMED AS REVENUE EXPENDITURE. THEREFORE, THERE WAS ALSO NO REASON TO DISALLOW DEPRECIATION ON SUCH CAPITALIZED AMOUNT AS THE AFORESAID PROVISION DOES NOT DEAL WITH DEDUCTION OF DEPRECIATION. HAVING CONSIDERED ARGUMENTS FROM BOTH THE SIDES, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) WHICH REQUIRES CORRECTION FROM US. THUS, THIS GROUND IS ALSO DISMISSED.' 6. LEARNED COUNSE L FOR THE REVENUE WAS UNABLE TO SUBSTANTIATE THAT IN THE ABSENCE OF ANY REQUIREMENT OF LAW FOR MAKING DEDUCTION OF TAX OUT OF THE EXPENDITURE ON TECHNICAL KNOW HOW WHICH WAS CAPITALIZED AND NO AMOUNT WAS CLAIMED AS REVENUE EXPENDITURE, THE DEDUCTION COULD BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, NO INFIRMITY COULD BE FOUND IN THE ORDER PASSED BY THE TRIBUNAL WHICH MAY WARRANT INTERFERENCE BY THIS COURT. THUS, BOTH THE QUESTIONS ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSES SEE.' 16.4 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. AS IT IS CLEAR FROM THE ABOVE DECISION THAT THE TRIBUNAL HAS DISCUSSED AND ANALYSED THE PROVISIONS OF SECTION 40(A)(I) IN DETAIL IN THE CONTEXT OF DISALLOWANCE OF DEPRECIATION. THE LEARNED D.R. HAS SUBMITTED THAT ONCE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 195, THEN, EVEN THE EXPENDITURE IS CAPITAL IZED BY THE ASSESSEE, THE PROVISIONS OF SECTION 40(A)(I) ARE APPLICABLE FOR DISALLOWANCE OF DEPRECIATION ON SUCH CAPITALIZED EXPENDITURE. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED D.R, BECAUSE A REMEDY FOR VIOLATION OF PROVISIONS OF SECTION 195 IS AVAILABLE WITH THE ASSESSING OFFICER UNDER SECTION 201 & 201A OF THE ACT. THE PROVISIONS OF SECTION 40(A) IS ONLY AN ADDITIONAL MEASURE TO ENFORCE THE COMPLIANCE OF CHAPTER XVIIB OF THE ACT, BY DISALLOWING AN EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A) ARISES ONLY WHEN AN EXPENDITURE IS CLAIMED BY THE ASSESSEE WITHOUT DEDUCTING THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER - XVIIB OF THE ACT, 1961. IN THE CASE ON H AND, WHEN THE ASSESSEE HAS NOT CLAIMED, THE SAID PAYMENT AS AN EXPENDITURE THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT ARISE. THE ONLY REMEDY WHICH MIGHT HAVE BEEN RESORTED TO BY THE ASSESSING OFFICER IS THE ACTION UNDER SECTION 201 A ND 201A OF THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SMS DEMANG (P) LTD. (SUPRA) IN PARA 8 AS UNDER : - 8. AS REGARDS THE CLAIM OF ASSESSEE FOR DEPRECIATION ON ASSETS CAPITALIZED, DEPRECIATION CANNOT BE DIS ALLOWED ON THE GROUND THAT AT THE TIME OF REMITTANCE, NO TAX WAS DEDUCTED AT SOURCE. PROVISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE FOR CLAIM FOR DEDUCTION UNDER SECTION 32 OF THE ACT. ACCORDINGLY, IN OUR CONSIDERED OPINION, THE AO WAS NOT JUSTIFIED IN DISALLOWING 50 PERCENT OF DEPRECIATION ON THE GROUND THAT PROVISIONS OF SECTION 40(A)(I) WERE APPLICABLE. HOWEVER, THE AO WILL VERIFY THE FACT WHETHER THE ASSETS IN RESPECT OF WHICH EXPENDITURE HAS BEEN CAPITALIZED HAVE BEEN USED IN BUSINESS FOR PERIOD MOR E THAN 180 DAYS. IF THE ASSETS HAVE BEEN USED FOR MORE THAN 180 DAYS, THE AO WILL ALLOW FULL DEPRECIATION, AS CLAIMED BY THE ASSESSEE. THE AO IS DIRECTED ACCORDINGLY . 15 IT A NO. 715 /BANG/201 7 6.3.2 FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF KAWASAKI MICROELECTRONICS INC INDIA BRANCH V. DDIT (IT), CIRCLE 1(1), BANGALORE (SUPRA), WHICH IS ON SIMILAR FACTS AS THOSE IN THE CASE ON HAND, WE ARE OF THE OPINION AND HOLD THAT ONCE THE ASSESSEE HAS CAPITALIZED THE PAYMENT IN QUEST ION THOUGH THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENT, THE PROVISIONS OF SEC. 40(A)(I) CANNOT BE INVOKED FOR DISALLOWANCE OF DEPRECIATION. CONSEQUENTLY, G ROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUE S APPEAL FOR ASSESSMENT YEAR 2012 - 13 IS DISMISSED. PR O N O U N C E D I N T H E O P EN C O U RT O N T H I S 15 TH D AY O F J U N E, 2 0 1 8 . SD/ - (N.V. VASUDEVAN) JUDICIAL MEMBER SD/ - (JASON P BOAZ) ACCOUNTANT MEMBER BANGALORE, DT.15.06.2018. *REDDY GP