Easun Reyrolle Ltd., CHENNAI V. DCIT, CHENNAI

ITA 658/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73596 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 12-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: M VISWANATHANCA
• Keywords: Depreciation; Retrospective amendment; Revenue expenditure
• Section: 143(3); 80HHC; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI (BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ) .. I.T.A. NOS.657 & 658 /MDS/2013 ASSESSMENT YEARS : 2001-02 & 2005-06 M/S.EASUN REYROLLE LTD., 672,ANNA SALAI, 6 TH FLOOR, TEMPLE TOWERS, NANDANAM, CHENNAI 600 035. PAN : AAACM 2032 P (APPELLANT) V. DEPUTY COMMISSIONER OF INCOME TAX , COMPANY CIRCLE II(1), CHENNAI 600 034. (RESPONDENT) I.T.A. NO. 777/MDS/2013 ASSESSMENT YEAR : 2001-02 DEPUTY COMMISSIONER OF INCOME TAX , COMPANY CIRCLE II(1), CHENNAI 600 034. (APPELLANT) V. M/S.EASUN REYROLLE LTD., 672,ANNA SALAI, 6 TH FLOOR, TEMPLE TOWERS, NANDANAM, CHENNAI 600 035. PAN : AAACM 2032 P (RESPONDENT) ASSESSEE BY : SHRI M.VISWANATHAN,CA REVENUE BY : SHRI S .DAS GUPTA, CIT D.R DATE OF HEARING : 05.12.13 DATE OF PRONOUNCEMENT : 08.01.14 M/S.EASUN REYROLLE LTD 2 O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE ASSESSEE, AGGRI EVED BY THE ORDER OF THE LD. CIT(A) IN APPEAL NOS.703 & 704/08 -09 DATED 09.01.2013 FOR ASSESSMENT YEARS 2001-02 & 2005-06 AND ANOTHER BY THE REVENUE FOR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE/REVENUE HAS RAISED SEVERAL ELABORA TE GROUNDS IN THEIR RESPECTIVE APPEALS FOR THE RELEVANT ASSESS MENT YEARS AND FOR THE SAKE OF CONVENIENCE, THEY ARE STATED BRIEFLY HE REIN BELOW FOR ADJUDICATION. 2.1. ASSESSEES APPEAL FOR ASSESSMENT YEARS 2001-02 & 2005-06 (I) LD. CIT(A) ERRED BY NOT TREATING TH E ASSESSMENT YEAR 2001-02 AS THE FIRST YEAR OF CLAIM OF DEDUCTION U/ S. 80-IA(2) OF THE ACT AND THEREBY NOT GRANTING DEDUCTION @ 100% AMOUN TING TO `. 44,03,590/- FOR THE A.Y.2001-02 & `. 57,42,948/- FOR THE A.Y. 2005-06 AS PROVIDED UNDER THE ACT. M/S.EASUN REYROLLE LTD 3 (II) LD. CIT(A) ERRED BY NOT CONFIRMING THE OR IGINAL ASSESSMENT ORDER BY WHICH DEDUCTION U/S. 80HHC WAS GRANTED FOR `. 8,52,921/- FOR THE A.Y.2001-02, HOWEVER CONFIRMED THE ORDER O F ASSESSING OFFICER PASSED U/S. 143(3) OF THE ACT SUBSEQUENTLY WHEREIN DEDUCTION U/S. 80HHC WAS WITHDRAWN BASED ON THE AME NDED SECTION OF 80HHC(3) OF THE ACT BY VIRTUE OF THE DEDUCTION B EING WITHDRAWN WITH RETROSPECTIVE EFFECT FOR THE TURNOVER EXCEEDI NG RS.10 CRORES. (III) LD. CIT(A) ERRED BY CONFIRMING THE ORDER OF LD. ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF DEDUCTION U/S. 37 OF THE ACT FOR THE PAYMENT MADE TOWARDS NON-COMPETE FEE TO M/S.EASWARN & SONS ENGG. LTD., FROM WHOM THE ASSESSEE HAD ACQUIRED TE CHNICAL KNOW- HOW FOR SWITCHGEAR DIVISION FOR A.Y 2005-06. 2.2. REVENUES APPEAL FOR ASSESSMENT YEAR 2001-02 (I) LD. CIT(A) ERRED BY DIRECTING THE LD. ASSESSI NG OFFICER TO FOLLOW THE JUDGMENT OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD. VS. ACIT IN 231 CTR 368 SINCE THE SAME HAS NOT REACHED FINALITY AS THE SLP FILED BY THE REVENUE IS PENDING BEFORE THE HONBLE APEX COURT. M/S.EASUN REYROLLE LTD 4 3. THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN M ANUFACTURING, EXPORT AND WINDMILL ENERGY GENERATING ACTIVITIES, F ILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEARS WHICH WERE PROCESSED U/S. 143(1) OF THE ACT INITIALLY AND SUBSEQUENTLY T AKEN UP FOR SCRUTINY AND ASSESSMENT WAS COMPLETED FOR THE ASSESSMENT YEA RS 2001-02 & 2005-06 ON 31.12.2008 WHEREIN THE LD. ASSESSING OFF ICER DISALLOWED DEDUCTIONS U/S.80-IA, & U/S.80HHC OF THE ACT ALONG WITH CERTAIN OTHER ADDITIONS SOME OF THEM WERE FURTHER CONFIRMED BY THE LD. CIT(A) AGAINST WHICH THE ASSESSEE IS IN APPEAL BE FORE US. 4. ASSESSEES APPEAL. 4.1 GROUND NO.1:- INITIAL YEAR OF CLAIM FOR DEDUC TION U/S. 80-IA OF THE ACT. THE APPELLANT HAD COMMENCED WINDMILL BUSINESS F ROM THE ASSESSMENT YEAR 1995-96 ONWARDS. HOWEVER, THE ASSE SSEE SUFFERED LOSS ON THESE ACTIVITIES UNTIL THE ASSESSMENT YEAR 1999-2000. THEREFORE, THE ASSESSEE CLAIMED DEDUCTION U/S. 80 I A OF THE ACT FROM THE ASSESSMENT YEAR 2000-01 ONWARDS ON 100% OF THE PROFITS, THE M/S.EASUN REYROLLE LTD 5 YEAR FROM WHICH THE ASSESSEE COMPANY STARTED MAKING PROFITS. LD. ASSESSING OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE BY OBSERVING AS UNDER:- 8.4. IN THE CASE OF THE ASSESSEE, THE ASSESSEES W IND ENERGY DIVISION HAD COMMENCED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1995- 96. THE INITIAL ASSESSMENT YEAR IN ITS CASE WAS A. Y.1995-96. THE FIRST FIVE YEARS ENDED IN A.Y. 1999-2000. THE ASSESSEE FILED ITS PROFIT AND LOSS ACCOUNT WITH THE STATEMENT THAT IT WOULD CLAIM DEDU CTION IN THE YEAR IN WHICH WOULD COMMENCE DERIVING PROFITS FROM THE UNDERTAKIN G. THERE DOES NOT APPEAR TO BE ANY CONSCIOUS EXERCISE OPTED BY THE AS SESSEE AS TO WHAT WOULD BE ITS INITIAL ASSESSMENT YEAR. THE INITIAL ASSESSMENT YEAR AS DEFINED IN THE ACT, WHEN THE ASSESSEE COMMENCED ITS WINDMIL L PROJECT WAS ASSESSMENT YEAR 1995-96. THE CHOICE WAS NOT AVAILA BLE TO THE ASSESSMENT YEAR TILL ASSESSMENT YEAR 2000-01. THEREFORE, IT CA NNOT BE SAID THAT THE INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF SEC.80-IA SHOULD BE THE YEAR IN WHICH THE ASSESSEE BEGAN DERIVING PROFITS FROM THE UNDERT AKING. 8.5. DURING THE COURSE OF SCRUTINY PROCEEDINGS, T HE ASSESSEES REPRESENTATIVE ALSO MADE AN ARGUMENT THAT FOR THE P URPOSE OF SETTING OFF OF UNABSORBED LOSSES AS PER SEC.80-IA(5), THE LOSSES F ROM THE INITIAL ASSESSMENT YEAR AS CLAIMED BY THEM, I.E. FROM A.Y.2 000-01 ONWARDS SHOULD BE TAKEN INTO CONSIDERATION. THE ARGUMENT OF THE AS SESSEE CANNOT BE ACCEPTED. WITHOUT PREJUDICE TO THE STAND OF THE DE PARTMENT THAT THE ASSESSEES INITIAL ASSESSMENT YEAR IS A.Y. 1995-96U DER THE LAW AS APPLICABLE FOR THAT YEAR, EVEN IF THE ASSESSEE IS S AID TO HAVE MADE AN OPTION FROM A.Y.2000-01 IN TERMS OF SEC.80-IA(2) AS APPLIC ABLE FROM A.Y. 2000-01, THE INITIAL ASSESSMENT YEAR AS STATED IN SUB SECTIO N (5) CANNOT BE THE SAME AS THE YEAR OF FIRST CLAIM REFERRED TO SUB SECTION( 2). THE INITIAL ASSESSMENT YEAR AS APPLICABLE UNDER THE PRE A.Y. 2000-01 SECTI ON 80-IA IS APPLICABLE TO M/S.EASUN REYROLLE LTD 6 THE ASSESSEE. IT CANNOT BE CHANGED WITH THE AMENDM ENT EFFECTED TO SUBSECTION 80IA. 8.6. BASED ON THE ABOVE DISCUSSION, THE FOLLOWING FACTS EMERGE: THE ASSESSEES INITIAL ASSESSMENT YEAR IS A.Y 1995- 96 UNDER THE LAW AS APPLICABLE FOR THAT YEAR. THE OPTION OF CHOOSING THE INITIAL ASSESSMENT YEAR FROM A.Y 1996-97 WAS AVAILABLE ONLY TO AN ENTERPRISE OPERATING, MAINTAIN ING AN INFRASTRUCTURE FACILITY AND THE ASSESSEES CASE DOES NOT FALL WITHIN THE DE FINITION OF INFRASTRUCTURE FACILITY. THERE IS NOTHING ON RECORD THAT THE ASSESSEE HAD CO NSCIOUSLY CHOSEN ITS INITIAL ASSESSMENT YEAR. THE RECORDS SHOW THAT THE ASSESSEE HAS BEEN CLAIMING AND BEING ALLOWED LOSS AND DEPRECIATION RE LATING TO WINDMILL DIVISION AND IT DID NOT CLAIM DEDUCTION/S 80IA FOR THE ONLY REASON THERE WAS NO INCOME FROM THAT DIVISION FOR THESE YEARS. THE CHOICE UNDER SUBSECTION (2) UNDER TH NEW PROVIS IONS OF SECTION 80-IA IS NOT APPLICABLE TO THE ASSESSEE AS ALREADY THE AS SESSEE HAS BEEN OPERATING AND MAINTAINING WINDMILL DIVISION FROM TH E PREVIOUS YEAR RELEVANT TO A.Y 1995-96 AND BEEN FILING THE PROFIT AND LOSS ACC OUNT FOR THAT DIVISION FROM THAT YEAR. 8.7. ACCORDINGLY, THE ASSESSMENT YEAR 1995-96 IS T AKEN AS THE INITIAL ASSESSMENT YEAR IN THIS CASE, FOR THE PURPOSE OF CL AIMING DEDUCTION/S 80-IA OF THE ACT. THEREFORE, THE CURRENT ASSESSMENT YEAR VIZ.2001-02 IS THE 7 TH YEAR AND DEDUCTION UNDER SECTION 80-IA IS RESTRICTE D TO 30% OF THE PROFITS OF THE ELIGIBLE UNDERTAKING. THIS IS, APART FROM THE S TAND THAT THE ASSESSEE IS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION. 80-IA FOR THIS YEAR, BY APPLYING THE PROVISIONS OF SEC 80-IA(5) OF THE ACT, AS DISCUSSED IN PARA 7 ABOVE. M/S.EASUN REYROLLE LTD 7 WHEN THE MATTER REACHED THE LD. CIT(A), THE LD. CI T(A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. THE RELEVA NT PARA 7.3 OF LD. CIT (A)S ORDER IS REPRODUCED BELOW:- 7.3. REGARDING THE OTHER ISSUE OF THE INITIAL YE AR OF CLAIM OF DEDUCTION/S 80IA, UNDER THE LAW AS APPLICABLE FOR T HE ASSESSMENT YEAR 1995-96, WHICH WAS THE INITIAL ASSESSMENT YEAR FOR THE ASSESSEES INDUSTRIAL UNDERTAKING, THE ASSESSEE WOULD BE ENTIT LED FOR 100% DEDUCTION ON THE PROFITS OF THE UNDERTAKING FOR THE FIRST 5 YEARS AND 30% FOR THE SUBSEQUENT 5 ASSESSMENT YEARS. THE AO HAS ELABORATELY DISCUSSED AT PARA 8 OF THE ASSESSMENT ORDER REGARDI NG THE INITIAL YEAR OF CLAIM OF DEDUCTION UNDER SECTION 80IA AND HELD THAT THE ASSESSMENT YEAR 1995-96 IS TO BE TAKEN AS THE INITIAL ASSESSME NT YEAR UNDER THE LAW AS APPLICABLE FOR THAT YEAR. I AGREE WITH THE ASSE SSING OFFICERS DECISION BASED ON THE FACTS OF THE CASE. THESE GROUNDS OF A PPEAL ARE PARTLY ALLOWED. 4.2. BEFORE US THE LD. A.R. CITING THE PROVISIONS OF SEC 80-IA(2) OF THE ACT ARGUED STATING THAT SINCE THE ASSESSEE HAD OPTED THE INITIAL YEAR AS 2000-01 FOR CLAIMING DEDUCTION U/S. 80-IA(1 ), 100% OF THE PROFIT AND GAINS DERIVED FROM BUSINESS MAY BE ALLOW ED AS DEDUCTION. THE LD. D.R ON THE OTHER HAND RELIED ON THE ORDERS OF THE LD. ASSESSING OFFICER AND LD. CIT(A) AND PRAYED THE SA ME MAY BE CONFIRMED. M/S.EASUN REYROLLE LTD 8 4.3. WE HAVE HEARD THE BOTH PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD MADE AVAILABLE BEFORE US. ON PERUSING THE PROVISIONS OF THE ACT, WE FIND THAT THE ACT STOOD AS FOLLOWS PRIOR TO 01.04.2002 AS FOLLOWS :- SEC.80-IA (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UN DERTAKING OR AN ENTERPRISE REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS O F AN AMOUNT EQUAL TO HUNDRED PER CENT OF PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMENCING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) AND THEREAFTER, TWENTY -FIVE PER CENT OF THE PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS: (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY , AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH T HE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK [ OR DEVELOPS {***] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB- SECTION(4) ] OR GENERATE POWER OR COMMENCES TRANSMI SSION OR DISTRIBUTION OF POWER [OR UNDERTAKES SUBSTANTIAL RENOVATION AND MOD ERNIZATION OF THE EXISTING TRANSMISSIONS OR DISTRIBUTION LINES. M/S.EASUN REYROLLE LTD 9 [ PROVIDED THAT WHERE THE ASSESSEE DEVELOPS OR OPERATES AND MA INTAINS OR DEVELOPS, OPERATES AND MAINTAINS ANY INFRASTRUCTURE FACILITY REFERRED TO IN CLAUSE(A) OR CLAUSE (B) OR CLAUSE (C) OF THE EXPLAN ATION TO CLAUSE (I) OF SUB- SECTION (4),THE PROVISIONS OF THIS SUB-SECTION SHAL L HAVE EFFECT AS IF FOR THE WORDS FIFTEEN YEARS, THE WORDS TWENTY YEARS HAD BEEN SUBSTITUTED.] [(2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SEC TION (1) OR SUB-SECTION (2), THE DEDUCTION IN COMPUTING THE TOTAL INCOME O F AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES, SPECIFIED IN CLAUSE (II ) OF SUB-SECTION (4), SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMENCING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUBSECTION (2) AND THEREAFTER, THIRTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS.] (3) THIS SECTION APPLIES TO [AN [UNDERTAKING] REFER RED TO IN [CLAUSE (II) OR] CLAUSE (IV) [ ***] OF SUB-SECTION (4)] WHICH FULF ILS ALL THE FOLLOWING CONDITIONS, NAMELY : PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY, THE PROVISION S OF THIS SUB- SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS TWEN TY-FIVE PER CENT, THE WORDS THIRTY PER CENT HAD BEEN SUBSTITUTED. SUBSEQUENTLY, BY THE FINANCE ACT 2001 WITH EFFECT F ROM 01.04.2002 THE ACT WAS AMENDED WHICH STOOD AS FOLLOWS:- M/S.EASUN REYROLLE LTD 10 80-IA. [(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS.] (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE,BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH T HE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK [ OR DEVELOPS [***] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB- SECTION(4) ] OR GENERATE POWER OR COMMENCES TRANSMI SSION OR DISTRIBUTION OF POWER [OR UNDERTAKES SUBSTANTIAL RENOVATION AND MOD ERNIZATION OF THE EXISTING TRANSMISSIONS OR DISTRIBUTION LINES. -------------------------------------------- --------------------------------------------------- ------- --------------------------------------------------- --------------------------------------------------- ------ (4) THIS SECTION APPLIES TO (I) --------- (II) ------------ (III) ----------------- (IV) AN [UNDERTAKING] WHICH,- (A) IS SET UP IN ANY PART OF INDIA FOR THE GENERATI ON OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS T O GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINN ING ON THE 1 ST DAY OF APRIL, 1993 AND ENDING ON THE 31 ST DAY OF MARCH, [2006] M/S.EASUN REYROLLE LTD 11 THUS, FROM THE AMENDED PROVISIONS OF SECTION 80-IA (4), IT IS CLEAR THAT THE DEDUCTION U/S. 80-IA (1) & (2) WOULD BE APPLICA BLE FOR AN UNDERTAKING IF IT BEGINS TO GENERATE POWER AT ANY T IME DURING THE PERIOD BEGINNING ON THE FIRST DAY OF APRIL 1993 AND ENDING ON 31 ST MARCH,2006. IN THE GIVEN CASE BEFORE US, THE ASSES SEE STARTED GENERATING ELECTRICITY FROM THE ASSESSMENT YEAR 199 5-96. FURTHER, THE ASSESSEE WAS NOT ABLE TO CLAIM THE BENEFIT U/S. 80-IA OF THE ACT UNTIL THE ASSESSMENT YEAR 1999-00, SINCE IT WAS S UFFERING LOSSES ON THIS UNIT AND THEREFORE, THE PROVISIONS OF SEC.80IA OF THE ACT WAS NOT OPERATIONAL ON THE ASSESSEE. SUBSEQUENTLY FROM THE ASSESSMENT YEAR 2000-01, THE ASSESSEE EARNED PROFIT FROM THE U NIT. IT IS PERTINENT TO NOTE THAT THE ACT WAS AMENDED BY THE FINANCE ACT , 2001 WITH EFFECT FROM ASSESSMENT YEAR 2002-03. THEREFORE, DU RING THE RELEVANT PREVIOUS YEAR, THIS AMENDED PROVISION WAS NOT OPERA TIONAL IN THE CASE OF THE ASSESSEE AND THE PROVISIONS WHICH STOOD PRIOR TO THE AMENDMENT WERE IN FORCE. THEREFORE, THERE IS NO ER ROR IN THE ORDER OF THE LD. AO AND LD. LD. CIT (A). HENCE, WE CONFIRM T HE ORDER OF THE LD. CIT(A) ON THIS ISSUE, WHO HAS FOLLOWED THE ORDER OF THE LD. ASSESSING M/S.EASUN REYROLLE LTD 12 OFFICER. ACCORDINGLY, THIS GROUND RAISED BY THE AS SESSEE IS DISMISSED. 5. GROUND NO.2: DISALLOWANCE OF DEDUCTION U/S. 80 HHC OF THE ACT CLAIMED BY THE ASSESSEE. LD. ASSESSING OFFICER IN THE RE-ASSESSMENT PRO CEEDINGS U/S. 143(3) OF THE ACT OBSERVED THAT THE ASSESSEES EXPO RT TURNOVER HAS EXCEEDED `. 10 CRORES AND THEREFORE, THE ASSESSEE WAS NOT ENTIT LED TO DEDUCTION BY VIRTUE OF THE AMENDED PROVISIONS OF SEC. 80HHC(3)S THIRD, FOURTH AND FIFTH PROVISO OF THE ACT, WHICH W AS INSERTED BY TAXATION LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECT IVE FROM 01.04.1988. THE LD. CIT(A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER, WHICH IS AS PER THE PROVISIONS O F THE ACT. BEFORE US, 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. THEREFORE, THE SUBSEQUEN T ORDER OF THE REVENUE IS ERRONEOUS AND THE APPELLANT WAS ENTITLED TO THE DEDUCTION CLAIMED. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT OF THE ASSESSEE AND THE LD. A.R. THE REVENUE HAS GIVEN EFFECT TO THE AMENDMENT M/S.EASUN REYROLLE LTD 13 PROVISIONS OF THE ACT WHICH CAME INTO FORCE AT THE TIME OF PASSING THE ORDER U/S143(3) WHICH WAS ENFORCEABLE WITH RETROSPE CTIVE EFFECT FROM 01.04.1988. THEREFORE, THIS ISSUE RAISED BY THE AS SESSEE IS ALSO DISMISSED. 6. GROUND NO.3: DISALLOWANCE OF DEDUCTION OF RS.1 CRORE FOR THE PAYMENT MADE TOWARDS NON-COMPETE FEE U/S. 37 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.1 CRORE TOWARDS PAYMENT OF NON-COMPETE FEES. THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE BY OBSERVING AS UNDER:- BY PAYMENT OF NON-COMPETE FEE, THE ASSESSEE HAS DER IVED AN ENDURING BENEFIT IN ITS SWITCHGEAR DIVISION. IT IS WELL SET TLED LAW THAT WHEREVER THE BENEFIT OF ANY EXPENDITURE LAID DOWN IS SPREAD OVER A NUMBER OF YEARS AND ANY ASSET OF ENDURING BENEFIT COMES INTO EXISTE NCE BY VIRTUE OF SUCH EXPENDITURE, THEN THEY HAVE TO BE CLASSIFIED AS CAP ITAL EXPENDITURE. HENCE, THE PAYMENT OF NON-COMPETE FEE CLAIMED AS RE VENUE EXPENDITURE BY THE ASSESSEE, IS REJECTED AND THE SAME IS TREATE D AS CAPITAL IN NATURE. M/S.EASUN REYROLLE LTD 14 THE NON-COMPETE FEE IS NEITHER CLASSIFIED UNDER IN TANGIBLE ASSET NOR UNDER TANGIBLE ASSET IN THE DEPRECIATION TABLE OF THE INCOME TAX ACT / RULES AND HENCE NO DEPRECIATION IS ALSO ALLOWED. RELIANCE IS ALSO PLACED ON THE DECISION OF THE HO NBLE HIGH COURT OF MADRAS IN THE CASE OF TAMILNADU DAIRY DEVELOPMENT C ORPORATION LTD. VS LD. CIT - 239 ITR 142 WHEREIN IT WAS HELD THAT PA YMENT OF NON-COMPETE IS NOT ALLOWABLE AS A REVENUE EXPENDITURE. THE HONBLE ITAT CHENNAI, IN ITA NO.1293/MDS./200 6 DT.23.11.07, IN THE CASE OF M/S.A.B.MAURI INDIA PVT. LTD. HAS HELD THAT DEPRECIATION ON NON-COMPETE FEE IS NOT ALLOWED. LD. CIT(A) CONFIRMED THE ORDER OF LD. ASSESSING OF FICER WHO FURTHER OBSERVED THAT THE AMOUNT OF `. 1CRORE WAS PAID TOWARDS NON- COMPETING AGREEMENTS, USE OF GOOD WILL, TRANSFER OF TRADE MARK COMMITTEE -BRAND NAME- OTHER COMMERCIAL VALUES, FOR TRANSFER OF EXISTING ORDERS OF M/S.EASWARAN & SONS ENGG. LTD., AND NOT ONLY FOR NON-COMPETE FEE. THE APPELLANT HAS SUBMITTED VAR IOUS DECISIONS BEFORE US AND PRAYED THAT IF THE EXPENDITURE CLAIME D IS DISALLOWED, THE SAME MAY BE SPREAD OVER FOR THE PERIOD OF FIVE YEARS. LD. D.R RELIED ON THE ORDERS OF THE REVENUE. AFTER EXAMINI NG THE NATURE OF M/S.EASUN REYROLLE LTD 15 EXPENDITURE INCURRED BY THE ASSESSEE, WE FIND SOME STRENGTH IN THE SUBMISSIONS OF THE ASSESSEE. HOWEVER, SINCE ALL TH E DECISIONS AND THE FACTS WERE NOT PROPERLY PLACED BEFORE THE REVEN UE ON THE EARLIER OCCASIONS BY THE ASSESSEE WE ARE OF THE CONSIDERED VIEW THAT THE MATTER NEEDS TO BE LOOKED INTO AFRESH BY THE AUTHOR ITIES BELOW. THEREFORE, IN THE INTEREST OF JUSTICE WE HEREBY REM IT THIS ISSUE BACK TO THE FILE OF LD. ASSESSING OFFICER FOR DE NOVO CONSI DERATION. REVENUES APPEAL (A.Y.2001-02) 7. GROUND NO.1 : ERRONEOUS DIRECTION OF THE LD. CI T(A) TO THE LD. ASSESSING OFFICER TO FOLLOW THE DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD. VS. ACIT IN 231 CTR 368 SINCE THE ISSUE HAS NOT REACHE D FINALITY AS THE SLP FILED BY THE REVENUE IS PENDING BEFORE THE HON BLE APEX COURT. FROM THE ABOVE GROUND RAISED BY THE REVENUE IT IS EVIDENT THAT THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. C IT(A), WHO HAS ONLY DIRECTED THE LD. ASSESSING OFFICER TO FOLLOW T HE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT. WE DO NOT FIND ANY ERROR IN THE M/S.EASUN REYROLLE LTD 16 ORDER OF THE LD. CIT(A), BECAUSE THE LD.CIT(A) HAD RIGHTLY ADJUDICATED THE ISSUE KEEPING IN VIEW OF THE JUDICI AL DISCIPLINE AND PRINCIPLES. THEREFORE, THIS GROUND IS DECIDED AGAI NST THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF REVENUE IS D ISMISSED. ORDER PRONOUNCED ON 8 TH JANUARY, 2014 AT CHENNAI. SD/- SD/- (V. DURGA RAO) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 8 TH JANAURY,2014. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE