Appeal granted, assessment order quashed for 1998-99. Non-compete fees, depreciation disallowed overturned. AO proceedings under section 147 deemed illegal.

The Division Bench allowed the appeal, quashing the assessment order for the assessment year 1998-99. The disallowance of expenditure towards non-compete fees and depreciation on leased premises was overturned. The proceedings initiated by the AO under section 147 were deemed illegal and void ab initio, leading to their quashing. The order was pronounced in Open Court on 29th June 2012.

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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.

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