M/s. Rice Lake Weighing Systems India Limited (Formerly known as Strategic Weighing Systems Limited), CHENNAI V. ACIT, CHENNAI

ITA 761/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0724 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 25-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 27-04-2011
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Valuation report; Deemed dividend; Capital receipt; Revenue expenditure
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 761/MDS/2011 (ASSESSMENT YEAR : 2006-07) M/S RICE LAKE WEIGHING SYSTEMS INDIA LIMITED, (FORMERLY KNOWN AS STRATEGIC WEIGHING SYSTEMS LIMITED), 412/7A, GST ROAD, CHROMPET, CHENNAI - 600 044. PAN : AAJCS 7011 H (APPELLANT) V. THE COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III, CHENNAI - 600 034. (RESPONDENT) APPELLANT BY :SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY :SHRI ANIRUDH RAI, CIT-DR DATE OF HEARING : 25.02.2013 DATE OF PRONOUNCEMENT : 25.02.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT ASSAILS A N ORDER DATED 22.3.2011 UNDER SECTION 263 OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), PASSED BY COMMISSIONER OF INCOME TAX, CHENNA I-III, CHENNAI. I.T.A. NO. 761/MDS/2011 2 2. THOUGH THE ASSESSEE HAVE TAKEN GROUNDS ASSAILING THE ORDER OF CIT WITH REGARD TO HIS FINDING ON WRITTEN DOWN VALU E OF ASSETS TAKEN OVER FROM A COMPANY, VALUATION OF TECHNICAL KNOWHOW , ROYALTY PAYMENT, DEEMED DIVIDEND AND TREATMENT OF NON-COMPE TE FEE, LEARNED A.R. AT THE OUTSET, SUBMITTED THAT HE WAS N OT CHALLENGING SUCH ORDER EXCEPT WITH REGARD TO THE ISSUE OF NON-C OMPETE FEE. IN OTHER WORDS, AS PER LEARNED A.R., HE HAD NO GRIEVAN CE WITH REGARD TO INVOCATION OF SECTION 263 OF THE ACT, ON THE ISSUES OTHER THAN TREATMENT OF NON-COMPETE FEE. 3. APROPOS THE ISSUE OF NON-COMPETE FEE, SUBMISSION OF THE LEARNED A.R. WAS THAT ASSESSEE HAD ACQUIRED A STRAT EGIC WEIGHING BUSINESS FROM ONE M/S SANMAR ENGINEERING SERVICES L TD. (SESL), DURING THE RELEVANT PREVIOUS YEAR. IT WAS THE SUBM ISSION OF THE LEARNED A.R. THAT A BUSINESS PURCHASE AGREEMENT WAS ENTERED WITH M/S SESL AND AS PER THIS AGREEMENT, A SUM OF ` 50 LAKHS WAS PAID TOWARDS NON-COMPETE FEE. LEARNED A.R. BROUGHT TO O UR ATTENTION ANNEXURE TO A NOTICE ISSUED BY THE ASSESSING OFFICE R UNDER SECTION 142(2) OF THE ACT ON 23.7.2008, PLACED AT PAPER-BOO K PAGES 4 & 5 WHICH, INTER ALIA, REQUIRED THE ASSESSEE TO PRODUCE DETAILS OF ACQUISITION OF FIXED ASSETS DURING THE RELEVANT PRE VIOUS YEAR. FURTHER, I.T.A. NO. 761/MDS/2011 3 AS PER LEARNED A.R., ASSESSEE WAS, DURING THE COURS E OF ASSESSMENT PROCEEDINGS, REQUIRED TO CLARIFY VARIOUS ISSUES REL ATING THE TAKEOVER OF WEIGHING DIVISION OF SESL ON A GOING CONCERN BASIS. LEARNED A.R., REFERRING TO A LETTER DATED 7 TH AUGUST, 2008, ADDRESSED TO THE ASSESSING OFFICER, PLACED AT PAPER-BOOK PAGES 11 TO 13, SUBMITTED THAT ASSESSEE HAD FURNISHED COPIES OF THIS AGREEMEN T ALONG WITH VALUATION REPORT TO THE ASSESSING OFFICER. LEARNED A.R. SPECIFICALLY POINTED OUT A LETTER DATED 14 TH AUGUST, 2008 FILED BEFORE ASSESSING OFFICER, UNDER THE COVER OF WHICH A COPY OF THE NON -COMPETE AGREEMENT WAS FURNISHED. AS PER LEARNED A.R., ON 1 4 TH NOVEMBER, 2008, ANOTHER LETTER WAS FURNISHED BEFORE THE ASSES SING OFFICER WHEREIN THE REASON WHY ASSESSEE HAD ENTERED INTO NO N-COMPETE AGREEMENT WITH M/S SESL, WAS GIVEN TO THE ASSESSING OFFICER (PAPER-BOOK PAGES 16-17). LEARNED A.R. ALSO PLACED RELIANCE ON THE SHOW CAUSE NOTICE ISSUED BY THE LD. CIT ON 29.12.20 10 WHICH, ACCORDING TO HIM, ONLY DOUBTED THE TREATMENT GIVEN TO NON-COMPETE FEE IN THE ACCOUNTS OF THE ASSESSEE. AS PER LEARNE D A.R., AT THAT POINT OF TIME, LD. CIT WAS OF THE OPINION THAT THE NON-COMPETE FEE PAID, HAD TO BE AMORTIZED OVER A PERIOD OF FIVE YEA RS AND NOT ALLOWED IN ONE GO. IN ANY CASE, ACCORDING TO HIM, THE ASSE SSING OFFICER HAD I.T.A. NO. 761/MDS/2011 4 CONSIDERED THE AGREEMENT, WHICH WAS SPECIFICALLY CA LLED FOR, IN RELATION TO NON-COMPETE FEE PAID AND HAD COME TO A LAWFUL VIEW THAT SUCH NON-COMPETE FEE COULD BE ALLOWED AS REVENUE EX PENDITURE. LD. CIT WAS ONLY TRYING TO SUBSTITUTE HIS VIEW WITH A L AWFUL VIEW TAKEN BY THE ASSESSING OFFICER. FURTHER, AS PER LEARNED A.R ., THE ORDER UNDER SECTION 263 PASSED BY THE CIT WAS IN VARIANCE WITH SHOW CAUSE NOTICE ISSUED UNDER THAT SECTION, SINCE HE HAD FINA LLY HELD THE PAYMENT OF NON-COMPETE FEE TO BE AN OUTGO IN THE CA PITAL FIELD AND NOT IN REVENUE FIELD. THEREFORE, AS PER THE LEARNE D A.R., THE PROCEEDINGS UNDER SECTION 263 ON THE ISSUE OF NON-C OMPETE FEE HAD TO BE SET ASIDE. 4. PER CONTRA, LEARNED D.R., STRONGLY SUPPORTING TH E ORDERS OF LOWER AUTHORITIES, SUBMITTED THAT ASSESSEE MIGHT HA VE FILED SO MANY DATA BEFORE ASSESSING OFFICER. HOWEVER, THERE WAS NO DISCUSSION WHATSOEVER IN THE ASSESSMENT ORDER WITH REGARD TO C LAIM OF THE ASSESSEE. ASSESSING OFFICER HAD NOT APPLIED HIS MI ND ON THE FACTS, BUT HAD COME TO AN ERRONEOUS CONCLUSION THAT NON-CO MPETE FEE AS AN ALLOWABLE EXPENDITURE. ACCORDING TO HIM, IT WAS TO ADDRESS SUCH A SITUATION, SECTION 263 WAS ENACTED. SINCE THE A.O. HAD NOT APPLIED HIS MIND, THERE WAS AN ERROR IN THE ORDER OF ASSESS MENT WHICH WAS I.T.A. NO. 761/MDS/2011 5 PREJUDICIAL TO THE INTERESTS OF REVENUE. LEARNED D .R. FURTHER SUBMITTED THAT ASSESSEE HAD NO GRIEVANCE WITH REGAR D TO OTHER ISSUES IN THE ORDER PASSED UNDER SECTION 263 OF THE ACT, A ND THIS ITSELF SHOWED THAT LD. CIT WAS ACTING WITHIN HIS POWERS WH EN HE INVOKED HIS POWERS UNDER SECTION 263 AND DIRECTED THE A.O. TO C ONSIDER THE ASSESSMENT AFRESH. ASSESSING OFFICER HAVING NOT AP PLIED HIS MIND, THE CIT WAS DUTY BOUND TO INVOKE HIS REVISIONARY PO WER UNDER SECTION 263 OF THE ACT. 5. AD LIBITUM LEARNED A.R. SUBMITTED THAT THERE WAS NO MENTION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER ON VARIOUS ALLOWANCES CLAIMED AND ALLOWED BY HIM. HOWEVER, IT REMAINED A FACT THAT EXPLANATIONS WERE SOUGHT AND GIVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IF THE ARGUMENT OF THE LEA RNED D.R. WAS TO BE ACCEPTED, IT WOULD MEAN THAT REVISIONARY PROCEED INGS UNDER SECTION 263 WOULD BE JUSTIFIED FOR EVERY ALLOWANCE GIVEN BY THE ASSESSING OFFICER. IN OTHER WORDS, JUST BECAUSE TH E ORDER OF THE ASSESSING OFFICER WAS CRISP, WOULD NOT MEAN THAT TH ERE WAS NO APPLICATION OF MIND. IN ANY CASE, ACCORDING TO HIM , HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CARBORANDU M UNIVERSAL LIMITED V. JCIT [TC(A) NO.244 OF 2006 DATED 10.9.20 12] HAD HELD THAT I.T.A. NO. 761/MDS/2011 6 NON-COMPETE FEE PAID EVEN TO A MANAGING DIRECTOR WA S REVENUE EXPENDITURE. THEREFORE, AS PER LEARNED A.R., ASSES SING OFFICER HAD TAKEN A LAWFUL VIEW AND CIT WAS ONLY TRYING TO SUBS TITUTE SUCH VIEW WITH HIS VIEW. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. LETTER DATED 14 TH NOVEMBER, 2008, FILED BEFORE THE ASSESSING OFFICER , DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S, READS AS UNDER AT PARAS 1 AND 2:- RE: STRATEGIC WEIGHING SYSTEMS LTD. PAN NO.: AAJCS7011H ASST.YEAR:2006-07 SUB: PURCHASE OF STRATEGIC WEIGHING BUSINESS FROM SANMAR ENGINEERING SERVICES LTD. DURING THE YEAR ENDED 3 1 ST MARCH, 2006. OUR COMPANY ENTERED INTO THREE SIMULTANEOUS AGREEM ENTS WITH SANMAR ENGINEERING SERVICES LTD. (SESL) ON 27 TH MARCH, 2006 AND PURCHASED THE ENTIRE WEIGHING BUSINESS RELATING TO MANUFACTURING, SALE, MARKETING AND SERVICING OF ROAD WEIGHBRIDGE, IN MOTION ELECTRONIC WEIGHING SYSTEMS AND OTHER WEIGHING SYSTEMS MAINLY USED IN INDUSTRIAL ACTIVITIES, PEBCO RANGE OF BULK MATERIAL HANDLING S YSTEMS AND CHRONOS RANGE OF RUBBER BATCHING SYSTEMS OF SESL ON GOING C ONCERN BASIS ALONG WITH THE FOREIGN AND INDIGENOUS TECHNOLOGY AN D THE TECHNICAL KNOWHOW REQUIRED FOR THE BUSINESS, WHICH IS INHEREN T TO THE NATURE OF THIS BUSINESS AND ESSENTIAL FOR ITS CONTINUITY AND GROWTH. THE CONCEPT OF ELECTRONIC IN MOTION WAGON WEIGHIN G SYSTEM IS HIGHLY TECHNICAL IN NATURE AND THE TECHNOLOGY WAS I NTRODUCED ALMOST THREE DECADES BACK IN THE INDIAN MARKET FIRSTLY THR OUGH MANGOOD CORPORATION, USA, SESL HAS ON GOING TECHNICAL COLLA BORATIONS WITH I.T.A. NO. 761/MDS/2011 7 CHRONOS RICHARDSON,UK FOR BATCHING AND BLENDING SYSTEMS AND WITH PEBCO,USA FOR BULK MATERIAL HANDLING PRODUCTS AND SOLUTIONS. THE TECHNOLOGY AND TECHNICAL KNOWHOW OF THE BUSINESS IS THE KEY FACTOR OF THE BUSINESS AND THEREFORE CARRIES MAXIMUM WEIGHTAG E IN ACQUISITION OF THE SAID BUSINESS. SESL SOUGHT TO CHARGE SEPARA TE VALUE/CONSIDERATION FOR SALE OF TECHNOLOGY AND THE TECHNICAL KNOWHOW, AND IT PROVIDED SPECIFIC LETTERS OF CONSENT FROM BO TH THE FOREIGN TECHNOLOGY PARTNERS TO CONTINUE THEIR WORKING ASSOC IATION WITH SWSL. IT WAS AGREED BY BOTH THE PARTIES TO VALUE THE TECH NOLOGICAL KNOW HOW SEPARATELY AND THE REMAINING FIXED AND CURRENT ASSETS NET OF CURRENT LIABILITIES, GOODWILL AND OTHER INTANGIBLES WERE COVERED IN DETAIL UNDER SEPARATE BUSINESS PURCHASE AGREEMENT. FURTHER, IN VIEW OF SESLS LONG EXPERIENCE IN THIS BUSINESS AND TO E LIMINATE COMPETITION, THE COMPANY ENTERED INTO A SEPARATE NO N COMPETE AGREEMENT. COPIES OF ALL THESE AGREEMENTS HAVE ALR EADY BEEN SUBMITTED WITH YOU. 7. THERE IS NO DISPUTE THAT NON-COMPETE FEE WAS PAI D BY THE ASSESSEE TO M/S SESL AS A PART OF ITS DEAL PURCHASI NG STRATEGIC WEIGHING BUSINESS FROM THE SAID M/S SESL. ASSESSEE HAD GIVEN VARIOUS PARTICULARS WITH REGARD TO THE BUSINESS TAK EN OVER FROM M/S SESL. LETTER DATED 24 TH NOVEMBER, 2008, FURNISHED BY THE ASSESSEE TO ASSESSING OFFICER, DURING THE COURSE OF ASSESSME NT PROCEEDINGS, READS AS UNDER:- FURTHER TO OUR SUBMISSIONS VIDE LETTERS DATED 07/08 /2008 AND 13/11/2008, WE ARE PLEASED TO SUBMIT AS UNDER: WE PURCHASED THE TECHNOLOGICAL KNOW HOW OF PEBCO, U.S.A. AND CHRONOS RICHARDSON, U.K. FROM SANMAR ENGINEERING SE RVICES LTD. AFTER HAVING WRITTEN CONSENT FROM THE SAID FOREIGN TECHNO LOGY PARTNERS IN TERMS OF THE TECHNOLOGY SALE AGREEMENT DATED 27 TH MARCH, 2006 AND I.T.A. NO. 761/MDS/2011 8 OUR TECHNOLOGY AGREEMENT WITH PEBCO, U.S.A., AND CH RONOS RICHARDSON, UK (NOW CALLED ZEPPELIN SYSTEMS, U.K.) INCLUDES TRANSFER THEIR TECHNICAL UPDATES ABOUT THE MATERIAL HANDLING AND RUBBER BATCHING SYSTEMS RESPECTIVELY ON CONTINUOUS BASIS. WE TAKE THEIR TECHNICAL SUPPORT ON ABOVE PRODUCTS ON CONTINUOUS B ASIS FOR DEVELOPMENT AND IMPROVEMENT IN THE SAME. AS PER TH IS AGREEMENT SWSL IS GRANTED EXCLUSIVE NON TRANSFERABLE RIGHTS T O USE THE TECHNICAL KNOW-HOW IN ITS MANUFACTURING PROCESS. W E HAVE BEEN ABLE TO DEVELOP OUR CUSTOMER BASE AND ALSO THE BUSINESS WITH THE CONTINUOUS UPGRADATION OF TECHNOLOGY FROM SAID FORE IGN TECHNOLOGY PARTNERS AND CATERING TO PRESTIGIOUS INDIGENOUS CUS TOMERS LIKE RELIANCE, ACC, MRF AND JK INDUSTRIES ETC. FOR YOUR READY REFERENCE WE ARE ENCLOSING HEREWITH FEW CURRENT CATALOGUES OF THE COMPANYS PRODUCTS. WE WOULD ALSO LIKE TO INFORM YOU THAT OUR TECHNICA L KNOW-HOW LICENCE AGREEMENT WITH PEBCO, U.S.A., HAS DULY BEEN RENEWED AS AGREED UPON AND EXTENDED TILL APRIL 2012 VIDE UNDERSTANDING DAT ED 3 RD APRIL 2007 WHICH WAS DULY SIGNED BY THE MANAGEMENT OF STRATEGI C WEIGHING SYSTEMS LIMITED WITH PEBCO. WE ARE ENCLOSING HEREW ITH A COMPANY OF THE AGREEMENT FOR YOUR REFERENCE. FURTHER PLEASE NOTE THAT, THE TECHNICAL SUPPORT FR OM PEBCO, U.S.A. AND CHRONOS RICHARDSON, UK (NOW CALLED ZEPPELIN SYS TEMS, U.K.) ARE VERY CRITICAL FOR THE COMPANY TO COMPLETE THE PROJE CTS IN MATERIAL HANDLING AND RUBBER BATCHING SYSTEMS AND WITHOUT TH E ABOVE TECHNOLOGY AND CONTINUOUS SUPPORT BY WAY OF TECHNIC AL UPDATES, IT WILL NOT BE POSSIBLE FOR THE COMPANY TO CONTINUE ITS BUS INESS AS IT STANDS TODAY. OUR TECHNICAL COLLABORATIONS WITH WORLD LEA DERS IN THEIR RESPECTIVE FIELD SERVED AS VITAL REASONS FOR SECURI NG MAJOR ORDER IN INDIAN MARKETS. MOREOVER, OUR TECHNICAL COLLABORATORS PROVIDE UPDAT ES IN TECHNOLOGIES THROUGH TRAINING SESSION IN INDIA AND ABROAD FOR OU R ENGINEERS, TECHNICIANS AND OTHER EMPLOYEES DURING THEIR ONSITE VISIT TO COLLABORATOR AND ALSO THROUGH CONFERENCE CALL. AS PER THE AGREEMENT WITH PEBCO,U.S.A., THE COMPAN Y CONTINUES TO PAY A RECURRING ROYALTY OF 5% ON PRODUCT VALUE ON H ALF YEARLY BASIS. I.T.A. NO. 761/MDS/2011 9 SINCE THE BUSINESS WAS PURCHASED ON 27 TH MARCH,2006, THE CURRENT YEARS WORKING WAS FOR THE PERIOD FROM 27 TH MARCH, 2006 TO 31 ST MARCH, 2006 AND NO ROYALTIES WERE PAID DURING THE F .Y. 2005-06 RELEVANT TO THE ASSESSMENT YEAR 2006-07. HOWEVER, SUBSTANTIAL AMOUNTS WERE PAID DURING SUBSEQUENT YEARS AND A DET AILS OF ROYALTIES PAID DURING THE F.Y. 2005-06, 2006-07 AND 2007-08 I S ENCLOSED HEREWITH. 8. THAT IT HAD TAKEN OVER WEIGHING DIVISION FROM M/ S SESL ON A GOING CONCERN BASIS, WAS CLEARLY SUBMITTED TO THE A SSESSING OFFICER BY THE ASSESSEE, VIDE ITS LETTER DATED 7 TH AUGUST, 2008. POINT NO.13 OF THE SAID LETTER READS AS UNDER:- POINT NO.13: THE COMPANY ACQUIRED THE WEIGHING DIVI SION OF SANMAR ENGINEERING SERVICES LIMITED ON GOING CONCERN BASIS ALONG WITH ALL ITS ASSETS AND LIABILITIES AND TECHNOLOGY. CERTIFIED C OPY OF THE VALUATION REPORT FROM M/S S.SEN&ASSOCIATES, REGISTERED AND AP PROVED VALUERS AS ON 27 TH MARCH 2006 IS ENCLOSED AND MARKED AS ANNEXURE XII. ALL THE ASSETS HAVE BEEN TAKEN OVER BY THE CO MPANY ON THE BASIS OF THE SAID VALUATION REPORT. WE ARE ALSO ENCLOSIN G A COPY OF THE TECHNOLOGY PURCHASE AGREEMENT AND MARKED AS ANNEXUR E XIII. 9. NO DOUBT, THE ASSESSMENT ORDER DOES NOT HAVE ANY SPECIFIC DISCUSSION REGARDING ALLOWANCE OF NON-COMPETE FEE C LAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE. IN FACT, ASSE SSING OFFICER HAD ACCEPTED THE LOSS RETURNED BY THE ASSESSEE. NEVERT HELESS, AS MENTIONED BY US AT PARA 8 ABOVE, ASSESSEE HAD GIVEN INFORMATION TO THE ASSESSING OFFICER THAT IT HAD ACQUIRED THE WEIG HING DIVISION FROM M/S SESL AND IT HAD ENTERED INTO VARIOUS AGREEMENTS FOR THAT I.T.A. NO. 761/MDS/2011 10 PURPOSE WHICH, INTER ALIA, INCLUDED AN AGREEMENT FO R NON-COMPETITION. ALL THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS. COPIES OF SUCH A GREEMENTS WERE ALSO FILED. TAKING OVER A BUSINESS AS A GOING CONCERN IS NOT A REGULAR FEATURE, BUT MORE LIKE A ONE-OFF TRANSACTIO N. IT IS NOT AKIN TO A REGULAR CLAIM OF EXPENDITURE MADE ON YEAR TO YEAR B ASIS. AN ORDINARY RECURRING EXPENDITURE CAN ALWAYS BE MISSED OUT IN A SCRUTINY PROCEEDING FOR VERIFICATION. BUT, A TRANSACTION OF THE NATURE OF A BUSINESS TAKE OVER LIKE WHAT HAS HAPPENED HERE, ONC E BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, WE CANNOT PRESUME THAT ASSESSING OFFICER HAD OMITTED TO VERIFY OR HAD GIVEN A GOOD-B YE. WE CANNOT TAKE A PRESUMPTION THAT ASSESSING OFFICER WOULD HAV E IGNORED ALL THE AGREEMENTS FILED BY THE ASSESSEE WITH REGARD TO THE BUSINESS TAKEN OVER. WE CANNOT ALSO SAY THAT ASSESSING OFFICER WO ULD HAVE VERIFIED ALL THE AGREEMENTS BUT OMITTED THE AGREEMENT RELATI NG TO NON- COMPETE FEE. ANY ASSESSING OFFICER WOULD HAVE GONE THROUGH SUCH AGREEMENT COPIES, WHICH WERE BROUGHT TO HIS NOTICE, AND WE CANNOT SAY THAT THIS WAS NOT DONE HERE, JUST BECAUSE THE A SSESSMENT ORDER WAS CRYPTIC. ONLY POSSIBLE CONCLUSION THAT CAN BE REACHED IN SUCH CIRCUMSTANCES IS THAT ASSESSING OFFICER HAD CONSIDE RED THE CLAIM OF I.T.A. NO. 761/MDS/2011 11 NON-COMPETE FEE, WHICH RESTRICTED THE OTHER PERSON FROM CARRYING OUT SIMILAR BUSINESS FOR A PERIOD OF FIVE YEARS, AND CO NCLUDED IT TO BE MORE IN THE NATURE OF A REVENUE OUTGO THAN IN THE N ATURE OF A CAPITAL OUTGO. EVEN IN THE SHOW CAUSE NOTICE ISSUED BY CIT UNDER SECTION 263 OF THE ACT, PLACED AT PAPER-BOOK PAGES 28-30, H IS APPREHENSION REGARDING THE CLAIM ON NON-COMPETE FEE, WAS AS UNDE R:- I. AS PER THE BUSINESS PURCHASE AGREEMENT ENTERED I NTO BY THE ASSESSEE COMPANY WITH M/S SANMAR ENGINEERING SERVIC ES LTD. (HEREINAFTER REFERRED TO AS SESL) AT THE TIME OF AC QUISITION OF STRATEGIC WEIGHING BUSINESS OF SESL, THE PRELIMINAR Y EXPENSES AND NON-COMPETE AMOUNT ARE TO BE AMORTISED OVER A PERIO D OF 5 YEARS CONTRARY TO THE ENTIRE EXPENSES CLAIMED WHILE COMPU TING THE LOSS ADMITTED RESULTING IN EXCESS LOSS. 10. HOWEVER, WHEN THE CIT EVENTUALLY PASSED THE ORD ER, HE HELD THAT NON-COMPETE FEE WAS A CAPITAL OUTGO. WE ARE O F THE OPINION THAT CIT WAS ONLY TRYING TO SUBSTITUTE A LAWFUL VIEW TAK EN BY THE A.O. BY HIS OWN VIEW. THERE WAS NO ERROR COMMITTED BY THE A.O. MUCH LESS AN ERROR WHICH WAS PREJUDICIAL TO THE INTERESTS OF REVENUE. CIT, IN OUR OPINION, WAS NOT JUSTIFIED IN INVOKING HIS POWE R UNDER SECTION 263 VIS--VIS THE ISSUE OF NON-COMPETE FEE. ON OTHER I SSUES, LEARNED A.R. FAIRLY ADMITTED THAT THE POWER UNDER SECTION 263 WA S RIGHTLY INVOKED BY THE LD. CIT. I.T.A. NO. 761/MDS/2011 12 11. BEFORE PARTING, IT WILL BE INAPPROPRIATE IF WE DO NOT GIVE THE REASON AS TO WHY THE DECISION OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF ASHOK LEYLAND LTD. V. CIT (260 ITR 599) RELIED ON BY THE LEARNED D.R., IS NOT APPLICABLE HERE. IN THIS CASE , THERE WAS A CLEAR FINDING BY THE LOWER AUTHORITIES THAT ASSESSING OFF ICER HAD FAILED TO EXAMINE THE CLAIM OF ASSESSEE WITH REGARD TO INSURA NCE MONEY RECEIVED FOR DAMAGES CAUSED TO MACHINERY. IN OUR O PINION, THIS CASE WILL NOT HELP THE REVENUE, SINCE HERE PRIMA FACIE T HE ASSESSING OFFICER HAD APPLIED HIS MIND ON THE ISSUE. AS FOR THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JA I BHARATH TANNERS V. CIT (264 ITR 673), AGAIN RELIED ON BY THE LEARNED D .R., THERE WAS A CLEAR FINDING THAT ASSESSING OFFICER HAD CONSIDERED THE PROFITS ON SALE OF IMPORT ENTITLEMENTS AS CAPITAL RECEIPTS OVERLOOK ING SECTION 28(IIIA), (IIIB) AND (IIIC) OF THE ACT. THIS CASE ALSO, IN O UR OPINION, WILL NOT HELP THE REVENUE, SINCE ALLOWANCE OF NON-COMPETE FEE AS A REVENUE OUTGO WAS NOT AGAINST ANY PROVISIONS OF THE ACT. 12. THEREFORE, IN THE INTEREST OF JUSTICE, WE MODIF Y THE ORDER OF CIT AND HOLD THAT THE ORDER UNDER SECTION 263 DATED 29. 12.2010 IS JUSTIFIED EXCEPT FOR THE ISSUE WITH REGARD TO CLAIM OF NON-COMPETE FEE. DIRECTION OF LD. CIT IS MODIFIED TO THIS EXTENT. O RDERED ACCORDINGLY. I.T.A. NO. 761/MDS/2011 13 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON MONDAY, THE 25 TH OF FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (S.S. GODARA) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 25 TH FEBRUARY, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-III, CHENNAI (4) D.R. (5) GUARD FILE