2014 (7) TMI 497 - AT - Income Tax

Deduction U/s. 80-IA of the Act assessee suffered loss on windmill business - Held that - From the amended provisions of section 80-IA (4), it is clear that the deduction U/s. 80-IA (1) & (2) would be applicable for an undertaking if it begins to generate power at any time during the period beginning on the first day of April 1993 and ending on 31st March,2006 - the assessee started generating electricity from the AY 1995-96 -the assessee was not able to claim the benefit U/s. 80-IA of the Act until the AY 1999-00, since it was suffering losses on this unit and therefore, the provisions of sec.80IA of the Act was not operational on the assessee - from the AY 2000-01, the assessee earned profit from the unit - the Act was amended by the Finance Act, 2001 with effect from AY 2002-03 - during the relevant previous year, this amended provision was not operational in the case of the assessee and the provisions which stood prior to the amendment were in force - there is no error in the order of the AO and CIT (A) Decided against Assessee. Deduction U/s. 80HHC of the Act - Export turnover exceeded ₹ 10 crores - Held that - The assessee submitted that the amended provisions were not applicable at the time of passing the original order U/s. 143(1) of the Act dated 21.01.2003 there was no find any merit in the argument of the assessee and Revenue has given effect to the amendment provisions of the Act which came into force at the time of passing the order U/s143(3) which was enforceable with retrospective effect from 01.04.1988 Decided against Assessee. Deduction of payment of ₹ 1 crore of non-compete fee U/s. 37 of the Act Held that - There was some strength in the submissions of the assessee - all the decisions and the facts were not properly placed before the Revenue on the earlier occasions by the assessee thus, the matter is to be remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Initial year of claim for deduction under Section 80-IA.
2. Disallowance of deduction under Section 80HHC.
3. Disallowance of deduction for non-compete fee under Section 37.
4. Direction to follow jurisdictional High Court decision in Velayudhaswamy Spinning Mills Pvt. Ltd. case.

Detailed Analysis:

1. Initial Year of Claim for Deduction under Section 80-IA:
The assessee commenced windmill operations in the assessment year 1995-96 and incurred losses until 1999-2000. The assessee claimed deductions under Section 80-IA starting from 2000-01, the year it began making profits. The Assessing Officer (AO) disallowed this claim, stating the initial assessment year was 1995-96, and thus, the deduction for 2001-02 should be restricted to 30% of profits. The CIT(A) upheld this decision. The Tribunal confirmed the orders of the AO and CIT(A), noting that the law prior to the Finance Act 2001 (effective from 01.04.2002) applied, which did not allow the assessee to choose the initial assessment year as 2000-01. Hence, the assessee's claim was dismissed.

2. Disallowance of Deduction under Section 80HHC:
The AO observed that the assessee's export turnover exceeded Rs. 10 crores, making it ineligible for the deduction under Section 80HHC(3) as per the amended provisions effective retrospectively from 01.04.1988. The CIT(A) confirmed this disallowance. The assessee argued that the amended provisions were not applicable at the time of the original assessment under Section 143(1). However, the Tribunal dismissed this argument, stating that the reassessment under Section 143(3) correctly applied the retrospective amendment, thus upholding the disallowance.

3. Disallowance of Deduction for Non-Compete Fee under Section 37:
The assessee claimed a deduction of Rs. 1 crore as a non-compete fee. The AO disallowed this, treating it as a capital expenditure, not eligible for depreciation. The CIT(A) confirmed this view, noting that the payment was for enduring benefits, including goodwill and trademark rights. The Tribunal found merit in the assessee's argument to spread the expenditure over five years but noted that the facts and decisions were not adequately presented earlier. Therefore, the Tribunal remitted the issue back to the AO for fresh consideration.

4. Direction to Follow Jurisdictional High Court Decision:
The Revenue appealed against the CIT(A)'s direction to the AO to follow the jurisdictional High Court's decision in Velayudhaswamy Spinning Mills Pvt. Ltd. case, arguing that the issue had not reached finality due to a pending SLP before the Supreme Court. The Tribunal upheld the CIT(A)'s direction, emphasizing judicial discipline and principles, and dismissed the Revenue's appeal on this ground.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, with the non-compete fee issue remitted back to the AO for reconsideration. The Revenue's appeal was dismissed, affirming the CIT(A)'s directions and decisions. The order was pronounced on 8th January 2014 at Chennai.