INCOME TAX OFFICER Vs. SMARTCHEM TECHNOLOGIES LTD

JUDGEMENT

(1.) By way of this appeal, the revenue has challenged the order of the Income Tax Appellate Tribunal, Ahmedabad Bench "C", Ahmedabad, (For short, "the Tribunal") in ITA No.3955/Ahd/2003 dated 28.7.2005, whereby the Tribunal has reversed the finding of the CIT (Appeals).

(2.) The assessee company had filed return of income on 31/10/2001 declaring total loss of Rs.6,92,03,450/ -. The same was processed under Section 143 (1) on 21.1.2002 and the case was selected for scrutiny by issuing notice under Section 143 (2) dated 23.1.2002. The same was served upon the assessee on 25.1.2002. Notice under Section 142 (1) along with detailed questionnaire was issued on 28.1.2002, which was served upon the assessee on 29.1.2002. In reply to such notice, reply was filed by the assessee. During the course of assessment proceedings, the Assessing Officer had noticed that the assessee -company, which was formerly known as "Arlem Investment & Finance Ltd" had during the previous year relevant to Assessment Year 2001 -02, acquired an Industry/Plant Manufacturing Nitric Acid (NA) & Ammonium Nitrite (AN) belonging to another company styled as M/s. VBC Industries Ltd. for a total consideration of Rs.29 crores. The Industry/Plant so purchased was to include entire business undertaking situated at Ponada including movable and immovable properties and all other tangible and intangible assets relating to the business of manufacturing of aforesaid chemicals. In addition to payment of Rs.29 Crores paid for purchase of the so -called Industry/Plant Manufacturing Unit, by whatever name it may be called, the assessee entered into another 'Non Compete Agreement' with VBC and its founder Shri MVVS Murthy as a result of which the assessee paid a lumpsum of Rs.6 Crores to them. The relevant part of the Agreement so entered into has been discussed by the Revenue Authorities in their respective order and, therefore, need not to be reproduced here. In the books of account, the assessee wrote off 1/5th of the expenditure of Rs.6 Crores because the period during which agreement was to remain in force was five years, but in computation of income furnished along with return the assessee claimed whole of the expenditure of Rs.6 Crores, as Revenue expenditure. Such claim of the assessee was disallowed by the Assessing Officer, against which an appeal was preferred before the Commissioner of Income Tax (Appeals), who confirmed the order of the Assessing Officer. Therefore, an appeal was preferred before the Income Tax Appellate Tribunal, which came to be dismissed by the impugned order against which present appeal is preferred.

(3.) At the time of admitting this Appeal, following question of law was framed: -