2012 (8) TMI 495 - AT - Income Tax

Disallowance on Expenditure towards Non-Compete Fees & depreciation on leased premises - re-assessment order passed u/s. 147 - Held that - Learned Third Member u/s. 255(4)on difference of opinion between the Ld. Members constituting the Division Bench in respect of validity of the re assessment order decided that the assessment order passed by AO is illegal and void abinitio - in favour of assessee.

Summary

Issues:
1. Deductibility of expenditure towards non-compete fees
2. Disallowance of depreciation on leased premises
3. Validity of proceedings initiated by AO u/s. 147

Analysis:
1. The appellant contested the disallowance of expenditure of Rs. 75,00,000 towards non-compete fees, arguing that it was incurred for the business of dealing in automobile sales and servicing, making it an admissible expenditure. The Ld. CIT(A) upheld the disallowance, leading to the appeal. The Division Bench admitted an additional ground challenging the validity of proceedings initiated by the AO u/s. 147.

2. The Ld. CIT(A) disallowed depreciation on leased premises amounting to Rs. 1,41,858, which the appellant argued was fully tenable as the assets were used for the business. The matter was referred to a Learned Third Member due to a difference of opinion within the Division Bench regarding the additional ground raised by the assessee. The Ld. Third Member concurred with the proposed order of the Ld. Judicial Member, leading to the majority view that the assessment order passed by the AO was illegal and void ab initio, resulting in its quashing.

3. The proceedings initiated by the AO u/s. 147 were challenged as being bad in law and without jurisdiction. The Ld. Third Member's decision, supported by the majority view, deemed the assessment order as illegal and void ab initio, leading to its quashing. Consequently, the appeal filed by the assessee for the assessment year 1998-99 was allowed, with the order pronounced in the Open Court on 29th June 2012.