Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed - Remand for Non-compete Fee Issue (A)

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.

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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.

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