Appeal details
Counselvise Citation
[2010] 122 COUNSELVISE.COM (IT) 4939 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 9 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
25-06-2010
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
I
Next Hearing Date
09-06-2010
Assessment Year
2002-2003
Appeal Filed On
23-09-2008
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHLO T ,(AM) S.NO. ITA NO./C.O. NO. APPELLANT RESPONDENT ASSESSMENT YEAR 1. 398/MUM/2006 BHARTI AIRTEL LIMITED (FORMERLY KNOWN AS BHARTI BROADBAND LTD.)(COMSAT MAX LTD.); H-5/12, QUTAB AMBIENCE, MEHRAULI ROAD, NEW DELHI-110 030. P.A. NO. (AAACC 5303 P) ASSTT. COMMISSIONER OF INCOME TAX - 8(1)MUMBAI. 2002-03 2. 422/MUM/2006 ASSTT. COMMISSIONER OF INCOME TAX , MUMBAI M/S. COMSAT MAX LTD., 5 TH FLOOR, CENTRE POINT JUNCTION OF S.V. ROAD AND JUHU ROAD; SANTACRUZ (W), MUMBAI-58 2002-03 3. C.O.176/MUM/200 8 ARISING OUT OF 422/MUM/2006 BHARTI BROADBAND LTD. (FORMERLY COMSAT MAX LTD.) BHARTI AIRTEL LTD. ASSTT. COMMISSIONER OF INCOME TAX - 8(1), MUMBAI 2002-03 4. 2935/MUM/2009 BHARTI AIRTEL LTD. ASSTT. COMMISSIONER OF INCOME TAX, 8(1), MUMBAI 2003-04 5. 3611/MUM/2009 ASSTT. COMMISSIONER OF INCOME TAX , 8(1), MUMBAI BHARTI BROADBAND LTD.(FORMERLY COMSAT MAX LTD.) 2003-04 6. 2936/MUM/2009 BHARTI AIRTEL LIMITED, (FORMERLY BHARTI BROADBAND LIMITED) ARAVALI CRESCENT, 1, NELSON MANDELA ROAD, VASANT KUNJ, PHASE-II, NEW DELHI- 110 070. ASSTT. COMMISSIONER OF INCOME TAX , 8(1), MUMBAI 2004-05 7. 3609/MUM/2009 ASSTT. COMMISSIONER OF INCOME TAX-8(1), R.NO.210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI- BHARTI BROADBAND LTD. (FORMERLY COMSAT MAX LTD.)D-222/24, TTC INDL AREA, 2004-05 ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 2 20 MIDC, NERUL VILLAGE,SHIRWANE, NAVI MUMBAI- 400 706 ASSESSEE BY : SHRI ANIL BHALLA DEPARTMENT BY : SHRI AJ AY KUMAR SRIVASTAVA O R D E R PER D.K. AGARWAL (JM). THESE CROSS APPEALS PREFERRED BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 11.11.2 005 FOR THE ASSESSMENT YEAR 2002-03 AND COMBINED ORDER DATED 20.3.20 09 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 PASSED BY THE LD. CIT(A). THE ASSESSEE HAS ALSO FILED CROSS OBJECTION FOR THE ASSESSMENT YE AR 2002-03. SINCE FACTS ARE IDENTICAL AND ISSUES INVOLVED A RE COMMON, ALL THESE APPEALS AND C.O. ARE DISPOSED OF BY THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO.398/M/2006 FOR ASSESSMENT YEAR 2002-03 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DIGITAL COMMUNICATIO N SERVICES FOR DATA, FAX AND VIDEO USING SATELLITE TECHNOLOGY, I NTERNET VIRTUAL PRIVATE NETWORK (VPN) AND TRADING AND MAINTENANCE OF EQUIPMENT USED IN PROVIDING THESE SERVICES. THE RETURN WAS FILED D ECLARING TOTAL BUSINESS LOSS OF RS.4,58,54,400/-. HOWEVER, THE ASSESSMENT WA S COMPLETED AT AN INCOME OF RS.10,10,11,270/- INCLUDING T HE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 3 DISALLOWANCE OF DOT LICENCE FEE RS.4,53,14,736/- SPACE S EGMENT CHARGES RS.6,92,95,350/-, EXTRA-ORDINARY ITEMS RS.2,80, 89,642/- AND DISALLOWANCE U/S.40A(2)(B) RS.41,66,122/-, VIDE ORDER D ATED 10.3.2005 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL . 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO.398/MUM /2006 (BY ASSESSEE) (A.Y. 2002-03): 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE O F LICENCE FEE RS.4,53,14,736/- . 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM T HE ACCOUNTS OF THE ASSESSEE IT WAS OBSERVED BY THE ASSESSING OFFICER THAT TH E ASSESSEE HAS CLAIMED AN EXPENSE OF RS.6,04,19,645/- ON ACCOUN T OF DOT LICENCE FEE. THE ASSESSING OFFICER FURTHER NOTED THAT FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 THE SAID EXPENSES WERE TREATED AS CAPITAL EXPENSES AND THE LD. CIT(A) ALSO CONFI RMED THE DISALLOWANCE FOR THESE TWO YEARS. ACCORDINGLY THE ASSESSEE W AS ASKED TO EXPLAIN AS TO WHY THE DOT LICENCE FEE SHOULD NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE VIDE LETTER DATED 4.11.2004 STATED T HAT (EXTRACTED FROM PARA 3.3 OF ASSESSMENT ORDER): ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 4 THE LICENSE FEE IS PAYABLE ANNUALLY, IN ADVANCE. THE COMPANY HAS PAID THE FEE IN QUARTERLY INSTALLMENTS AT THE BEGINNING OF THE EACH QUARTER, IN ACCORDANCE WITH O PTION PROVIDED IN THE AGREEMENT. THE CONDITION IN THE L ICENSE AGREEMENT THAT NON PAYMENT OF LICENSE FEE DUE, FOR ANY QUARTER WOULD LEAD TO THE TERMINATION OF AGREEMENT ESTABLISH THAT THE QUARTERLY PAYMENTS DO NOT CREATE BENEFIT OF ENDURING NATURE. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSE SSEES SUBMISSIONS ARE NOT ACCEPTABLE. ACCORDING TO THE ASSESSING OFF ICER THE FACTS AND CIRCUMSTANCES OF THE CASE ARE NOT DIFFEREN T FROM THOSE IN PRECEDING YEARS. ON PERUSAL OF THE LICENSE AGREEMENT IT IS SEEN THAT THE LICENSE IS TO ESTABLISH, MAINTAIN AND OPERATE CLOSED USER GROUP DOMESTIC 64 KBPS DATA NETWORK VIA INSAT SATELLITE SYST EM IN EXTENDED C BAND IN FREQUENCIES ASSIGNED FROM TIME TO T IME USING VSAT THROUGHOUT INDIA AND THE LICENSE HAS BEEN GRANTE D IN CONSIDERATION OF THE LICENSE FEE. THE MINIMUM LICENSE FEE IS RS. ONE CRORE PER YEAR FOR THE FIST TWO YEARS, RS.1.5 CRORE IN T HE THIRD YEAR AND TO BE REVIEWED THEREAFTER. THE LICENSE FEE CAN BE PAID IN EQUAL QUARTERLY INSTALLMENTS ALSO. THE LICENSE IS INITIALLY F OR 10 YEARS, THOUGH IT IS NON-EXCLUSIVE, NON-TRANSFERABLE, IS SUBJECT TO TERM INATION UNDER CERTAIN CONDITIONS, AND IS SUBJECT TO SOME OTHER CONDIT IONS. UNDER SCHEDULE B TO THE AGREEMENT, IT IS CLEARLY PROVIDED COMMUNICATION RESOURCES AND OTHER SUPPORT FACILITIES PROVIDED BY THE D OT. THE LICENSE WAS PROCURED IN ASSESSMENT YEAR 1995-96 AND THEREFO RE, IT IS VALID UP TO ASSESSMENT YEAR 2005-06. HE FURTHER OBSERVED THAT THE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 5 LICENCE IS AN INTANGIBLE CAPITAL ASSET AS PER THE PROVISION S OF SECTION 32(1)(II) OF THE ACT. HOWEVER, IN THE INSTANT CASE DEPR ECIATION CANNOT BE GIVEN AS THERE IS A SPECIFIC SECTION 35ABB BY VIRTUE OF WHICH, AN EXPENSE INCURRED FOR OBTAINING LICENSE TO OPERATE TELEC OMMUNICATION SERVICES IS TO BE AMORTISED OVER THE PERIOD OF LICENCE. T HE ASSESSING OFFICER AFTER RELYING ON THE ORDER OF THE LD. CIT(A) FOR THE EARLIER ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2001-02 AND THE DECISION S IN (1) HENRIKSEN VS. GRAFTON 11 ITR SUPPL.10, 18 (CA) ; ( 2) SOUTHWELL VS. SAVILL 4 TC 430 ; (3) MORSE VS. STEDEFORD 18 TC 457 ; (4) PENDLETON VS. MITCHELLS 45 TC 341 ; (5) STRICK VS. REGENT 43 TC 1, 37-38, 51(HL) ; (6) KNEESHAW VS. ABERTOLLI 9 ITR SUPPL 121 ; (7) A SSAM BENGAL CEMENT VS. CIT 27 ITR 34 (SC) AND (8) KIRLOSKAR OIL E NGINES LTD VS. CIT (1994) 206 ITR 13(BOM.) DISALLOWED THE DOT LICEN CE FEE RS.6,04,19,645/-. HOWEVER, HE WAS OF THE VIEW THAT T HE AMOUNT PAID IS AMOTRISED OVER A PERIOD OF FOUR YEARS I.E. OVER THE REMAINING PERIOD OF THE LICENCE AND HENCE HE ALLOWED RS.1,51,04,912/- AN D DISALLOWED BALANCE AMOUNT OF RS.4,53,14,736/- AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) FOLLOWING THE EARLIER APPELLATE ORDER DATED 23.11.2004 WHILE AGREEING WITH THE FIND INGS OF THE ASSESSING OFFICER THAT THE AMOUNT IS ADMISSIBLE AS DEDUCTION ONLY IN THE MANNER PROVIDED U/S.35ABB OF THE ACT, UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 6 6. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE, AT THE OUTSET, SUBMITS THAT THE IMPUGNED ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE VIDE PARA 8-9 OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN COMSAT MAX LIMITED VS. DCIT (2009) 29 SOT 436( DEL.) HE THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE A SSESSING OFFICER AND SUSTAINED BY THE LD, CIT(A) BE DELETED. 7. ON THE OTHER HAND LD. DR AT THE OUTSET SUBMITS THAT HE DOES NOT AGREE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL (SUPRA), IN VIEW OF THE FOLLOWING D ECISIONS: I) PINGLE INDUSTRIES LIMITED VS. CIT (1960) 40 ITR 67 (SC ) WHEREIN IT HAS BEEN HELD THAT THE PAYMENT MADE FOR ACQUISITION OF RIGHT TO EXTRACT STONES IS CAPITAL EXPENDITURE. II) CIT VS. TATA SERVICES LIMITED (1980) 122 ITR 594(BOM. ) AND(III) CIT VS. STERLING INVESTMENT CORPORATION LIMITED (1980 ) 123 ITR 441(BOM.) WHEREIN IT HAS BEEN OBSERVED THAT UNDER SECTION 2(14) OF THE INCOME-TAX ACT, 1961, A CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNEC TED WITH HIS BUSINESS OR PROFESSION. THE WORD 'PROPERTY' USED IN SECTION 2(14) OF THE ACT IS A WORD OF THE WIDEST AMPLITUDE AND THE D EFINITION HAS RE- EMPHASISED THIS BY THE USE OF THE WORDS 'OF ANY KIN D'. ANY RIGHT WHICH CAN BE CALLED PROPERTY WILL BE INCLUDED IN THE DEFI NITION OF 'CAPITAL ASSET'. ACCORDING TO THE LD. DR THE LICENCE OBTAINED BY THE ASSESSEE IS A RIGHT AND HENCE, IT FALLS UNDER THE DEFINITI ON OF CAPITAL ASSET AS CONTEMPLATED BY SECTION 2(14) OF THE ACT. IV) P.N.B. FINANCE LIMITED VS. CIT (2001) 252 ITR 491 (DE L.) WHEREIN IT HAS BEEN OBSERVED THAT THE EXPRESSION CAPITA L ASSET HAS A WIDE CONNOTATION. IT BRINGS WITHIN ITS AMBI T PROPERTY OF ANY KIND HELD BY THE ASSESSEE, EXCEPT WHAT H AS ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 7 BEEN EXPRESSLY EXCLUDED BY CLAUSES (I) TO (IV) OF SECTION 2 (14) OF THE INCOME TAX ACT, 1961 THEREUNDER. THE TERM PRO PERTY HAS NO STATUTORY MEANING BUT IS OF WIDEST IMPORT AND SUB JECT TO ANY LIMITATIONS WHICH THE CONTEXT MAY REQUIRE, IT SI GNIFIES EVERY POSSIBLE INTEREST WHICH A PERSON CAN ACQUIRE HOLD OR ENJOY. V) RAJENDRA MINING SYNDICATE VS. CIT (1961) 43 ITR 460(A P) WHEREIN IT HAS BEEN HELD THAT THE LEASEHOLD RIGHTS IN THE MINES WHICH THE ASSESSEE TRANSFERRED FELL WITHIN THE SCOPE OF CAPITAL ASSET AS DEFINED IN AND CONTEMPLATED BY SECTIONS 2(4A) AND 12 B OF THE INDIAN INCOME TAX ACT, 1922. VI) CIT VS. GENERAL INDUSTRIAL SOCIETY LIMITED (2003) 262 ITR 1 (CAL.) WHEREIN IT HAS BEEN HELD THAT THE AMOUNT RECEI VED ON TRANSFER OF THE LICENCE, A CAPITAL ASSET WITHIN THE MEANI NG OF SECTION 2(14) OF THE ACT. VII) ASSAM BENGAL CEMENT CO. LTD. VS. CIT (1955) 27 ITR 3 4 (SC) WHEREIN IT HAS BEEN HELD THAT THE RIGHT TO CARRY ON BUSINESS UNFETTERED BY ANY COMPETITION WAS A CAPITAL ASSET AND AS SUCH THE ENTIRE AMOUNT OF RS.40,000/- INCURRED ANNUALLY FOR SECURING THAT END WAS CAPITAL EXPENDITURE , NOT ALLOWABLE U/S.10(2)(XV) OF THE IT ACT, 1922. THE LD. DEPARTMENTAL REPRESENTATIVE WHILE RELYING ON THE RATIO OF ABOVE DECISIONS, SUBMITS THAT THE LICENCE IS A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) AND, THEREFORE, THE DOT LICEN CE FEE PAID BY THE ASSESSEE IS A CAPITAL EXPENDITURE AND HIT BY SECTION 3 5ABB OF THE ACT. HE FURTHER SUBMITS THAT IF THE SAME IS NOT TREATE D AS CAPITAL EXPENDITURE THEN SECTION 35ABB OF THE ACT WILL BECOME R EDUNDANT. THE LD. DR FURTHER SUBMITS THAT SINCE IT IS A QUESTION O F LAW, THEREFORE, THE DECISION RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN ASSESSEES ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 8 OWN CASE SUPRA, HAS NO BINDING FORCE AND THE SAME CAN BE READJUDICATED BY THIS TRIBUNAL AND FOR THIS PROPOSITION THE RELIANCE WAS ALSO PLACED IN C.K. GANGADHARAN AND ANOTHER VS. CIT ( 2008) 304 ITR 61(SC); CIT VS. OSWAL AGRO MILLS LTD. (2009) 313 ITR 24(SC); DCIT VS. DIVYA INVESTMENT P. LTD. (2009) 313 ITR 363(SC); AND CIT VS. ALPINE SOLVEX LTD. (2003) 259 ITR 719(SC). HE FURTH ER SUBMITS THAT THE OTHER DECISIONS OF THE TRIBUNAL IN MAHANAGAR TELE PHONE NIGAM LTD. VS. ACIT (2006) 100 TTJ (DEL.) 1 AND VIDESH SANCHAR NI GAM LTD. VS. JCIT (2002) 81 ITD 456(MUM.) REFERRED BY THE ASSESSEE I N HIS PAPER BOOK APPEARING AT PAGE-101 TO 146 ARE ALSO DISTINGUISH ABLE ON FACTS INASMUCH AS THE CASE OF VIDESH SANCHAR NIGAM LTD.(SUPRA) IS PRIOR TO INSERTION OF SECTION 35ABB WHICH HAS BEEN INSERTED BY THE FINANCE ACT, 1997, W.R.E.F. 1.4.1996. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF DOT L ICENCE FEE RS.4,53,14,736/- BE UPHELD. 8. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSESSEE SU BMITS THAT THE TRIBUNAL IN THE ASSESSEE'S OWN CASE AFTER CONSIDERING T HE TERMS OF LICENCE GRANTED TO THE ASSESSEE HAS HELD THAT THE EXPENDIT URE BEING SPECIFIC TO THE YEAR UNDER APPEAL ONLY AND NOT EXTENDI NG THE BENEFIT OF SUBSEQUENT YEARS CANNOT BE CONSIDERED AS CAPITAL EXPENDIT URE OR AND ENDURING BENEFIT AND HENCE, ALLOWABLE AS BUSINESS EXPE NDITURE U/S.37(1) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE WH ILE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 9 DISTINGUISHING THE DECISIONS RELIED ON BY THE LD. DR FUR THER SUBMITS THAT THOSE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF T HE PRESENT CASE. HE FURTHER SUBMITS THAT IN BOTH CASES NAMELY MAHANAGAR TELEPHONE NIGAM LTD.(SUPRA) AND VIDESH SANCHAR NIGAM LTD.(SUPRA), LICENCE FEE HAS BEEN TREATED AS REVENUE EXPENDITURE ALLOWABLE U/S. 37 OF THE ACT. HE THEREFORE, SUBMITS THAT THE DISALLOWANCE OF LICENCE FEE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) BE DELET ED. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. HERE IT IS NECESSARY TO TAKE NOTE OF RELEVANT SECTION 35ABB (1) OF THE ACT WHI CH READS AS UNDER: (1) IN RESPECT OF ANY EXPENDITURE, BEING IN THE NA TURE OF CAPITAL EXPENDITURE, INCURRED FOR ACQUIRING ANY RIG HT TO OPERATE TELECOMMUNICATION SERVICES EITHER BEFORE TH E COMMENCEMENT OF THE BUSINESS TO OPERATE TELECOMMUNICATION SERVICES OR THEREAFTER AT ANY TIM E DURING ANY PREVIOUS YEAR AND FOR WHICH PAYMENT HAS ACTUALLY BEEN MADE TO OBTAIN A LICENCE, THERE SHALL , SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION, BE ALLOWED FOR EACH OF THE RELEVANT PREVIO US YEARS, A DEDUCTION EQUAL TO THE APPROPRIATE FRACTIO N OF THE AMOUNT OF SUCH EXPENDITURE. 10. THE SCOPE AND EFFECT OF THE NEW PROVISIONS OF SECTION 35ABB INSERTED BY THE FINANCE ACT, 1997 W.R.E.F. 1.4.1996 WA S EXPLAINED BY THE BOARD IN A CIRCULAR NO.763 DATED 18.2.1998 REPOR TED IN (1998) 230 ITR (ST.) 54, AS UNDER : - ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 10 AMORTISATION OF TELECOM LICENSE FEES. 19.1 IN OR DER TO GIVE A FILLIP TO THE TELECOM SECTOR, A NEW SECTION 35ABB HAS BEEN INSERTED IN THE INCOME-TAX ACT. THE SECT ION PROVIDES THAT ANY CAPITAL EXPENDITURE, INCURRED BY AN ASSESSEE ON THE ACQUISITION OF ANY RIGHT TO OPERATE TELECOM SERVICES AND FOR WHICH PAYMENT HAS ACTUALLY BEEN MADE TO OBTAIN A LICENCE, WILL BE ALLOWED AS A DEDU CTION IN EQUAL INSTALLMENTS OVER THE PERIOD FOR WHICH THE LI CENSE REMAINS IN FORCE. IT FURTHER PROVIDES THAT WHERE THE LICENSE IS TRANSFERRED AND PROCEEDS OF THE TRANSFER ARE LESS THAN THE EXPENDITURE REMAINING UNALLOWED, A DEDUCTI ON EQUAL TO THE EXPENDITURE REMAINING UNALLOWED AS RED UCED BY THE PROCEEDS OF TRANSFER, SHALL BE ALLOWED IN TH E PREVIOUS YEAR IN WHICH THE LICENSE HAS BEEN TRANSFE RRED. IT ALSO PROVIDES THAT WHERE THE LICENSE IS TRANSFERRED AND PROCEEDS OF THE TRANSFER EXCEED THE AMOUNT OF EXPENDITURE REMAINING UNALLOWED, THE EXCESS AMOUNT SHALL BE CHARGEABLE TO TAX AS PROFITS AND GAINS OF BUSINESS IN THE PREVIOUS YEAR IN WHICH THE LICENSE HAS BEEN TRANSFERRED. IT FURTHER PROVIDES FOR AMORTIZATION OF UNALLOWED EXPENSES IN A CASE WHERE A PART OF THE LI CENSE IS TRANSFERRED AND TO WHICH PROVISIONS OF SUB-SECTI ON (3) DO NOT APPLY. THE PROVISIONS OF SUB-SECTIONS (2), ( 3) AND (4) PERTAINING TO TRANSFER SHALL NOT APPLY IN RELAT ION TO A TRANSFER IN A SCHEME OF AMALGAMATION WHEREBY THE LICENSE IS TRANSFERRED BY THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY, THE LATTER BEING AN INDIAN COMPANY. 11. ACCORDING TO SAMPAT IYENGARS LAW OF INCOME TAX 10 TH EDITION 2 ND VOLUME AT PAGE 2935 THE AMENDMENT MADE TO SECTION 35ABB MEANT FOR TELECOMMUNICATION RULES OUT DEDUCTION FOR DEP RECIATION U/S.32(1) BUT IT DOES NOT RULE OUT APPLICATION OF SECTIO N 35D BEING PRELIMINARY EXPENDITURE NOR DOES IT RULE OUT SECTION 3 7 WHICH ALLOWS REVENUE EXPENDITURE. THE CLAUSE IMPLIES THAT EXPENDIT URE ON ORIGINAL LICENCE WOULD NOT ORDINARILY BE DEDUCTIBLE. BUT IF IT IS SO DEDUCTIBLE, IT CANNOT RULE OUT THAT SUCH DEDUCTION MERELY BECAUSE IT MAY ALSO FALL ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 11 UNDER SECTION 35ABB IN THE ABSENCE OF ANY PROHIBITION A S FOR DEDUCTION OF DEPRECIATION. IT WOULD ALSO MEAN THAT PAYMENT MAD E FOR RENEWAL OF LICENCE SHOULD NOT FALL U/S. 35ABB AS IT WOULD FALL MOR E APPROPRIATELY U/S.37. 12. FROM THE READING OF THE PROVISIONS OF SECTION 35A BB(1) IT IS CLEAR THAT ANY CAPITAL EXPENDITURE INCURRED BY AN ASSESSEE ON THE ACQUISITION OF ANY RIGHT TO OPERATE TELECOM SERVICES AND FOR WHICH P AYMENT HAS ACTUALLY BEEN MADE TO OBTAIN A LICENCE, WILL BE ALLOW ED AS A DEDUCTION IN EQUAL INSTALMENTS OVER THE PERIOD FOR WHICH THE LICE NCE REMAINS IN FORCE. IT MEANS THAT EXPENDITURE IN OBTAINING ORIGI NAL LICENCE WOULD NOT ORDINARILY BE DEDUCTIBLE. IT WOULD ALSO MEAN THA T PAYMENT MADE FOR RENEWAL OF LICENCE SHOULD NOT FALL U/S.35 ABB AS IT WOULD FALL MORE APPROPRIATELY U/S.37 OF THE ACT. 13. IN THE CASE OF THE ASSESSEE WE FIND THAT THE DISALLOWA NCE WAS MADE ON THE GROUND THAT ON PERUSAL OF THE LICENSE AGRE EMENT IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE LICENSE IS TO EST ABLISH, MAINTAIN AND OPERATE CLOSED USER GROUP DOMESTIC 64 KBPS DATA NETWORK VIA INSAT SATELLITE SYSTEM IN EXTENDED C BA ND IN FREQUENCIES ASSIGNED FROM TIME TO TIME USING VSAT THROUGHOUT INDIA AND THE LICENSE HAS BEEN GRANTED IN CONSIDERATION OF THE LICEN SE FEE. THE MINIMUM LICENSE FEE IS RS. ONE CRORE PER YEAR FOR THE FI RST TWO YEARS, ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 12 IS RS.1.5 CRORE IN THE THIRD YEAR AND TO BE REVIEWED T HEREAFTER. THE LICENSE FEE CAN BE PAID IN EQUAL QUARTERLY INSTALLMENTS ALSO. THE LICENSE IS INITIALLY FOR 10 YEARS, THOUGH IT IS NON-EXCL USIVE, NON- TRANSFERABLE, IS SUBJECT TO TERMINATION UNDER CERTAIN CON DITIONS, AND IS SUBJECT TO SOME OTHER CONDITIONS. UNDER SCHEDULE B TO THE AGREEMENT, IT IS CLEARLY PROVIDED COMMUNICATION RESOUR CES AND OTHER SUPPORT FACILITIES PROVIDED BY THE DOT. THE LICENSE WA S PROCURED IN ASSESSMENT YEAR 1995-96 AND THEREFORE, IT IS VALID UP TO ASSESSMENT YEAR 2005-06 AND IN SUPPORT THE ASSESSING OFFICER ALSO REL IED ON THE ORDER OF THE LD. CIT(A) IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001-02 AND OTHER CASES AS MENTIONED ABOVE. ON APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER FOR THE SAME REASONS THAT THE SAME WAS CONFIRMED BY THE LD. CIT(A ) VIDE ORDER DATED 23.11.2004 IN THE APPEAL FOR THE PRECEDI NG ASSESSMENT YEAR. 14. WE FURTHER FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN COMSAT MAX LIMITED VS. DCIT AND VICE VERSA SUPRA, SINCE R EPORTED IN (2009) 29 SOT 436 (DEL.) HAS HELD (PAGE 445): ...THE ONLY REASON FOR TREATING THE EXPENDITURE A S CAPITAL WAS THAT THE ASSESSEE RECEIVED AN ENDURING BENEFIT. SINCE THE BENEFIT ENDURES ONLY FOR THE YE AR UNDER APPEAL AND COULD NOT HAVE BEEN EXTENDED TO THE SUBSEQUENT YEARS, THE LICENCE FEE DOES NOT GIVE THE ASSESSEE ANY ENDURING BENEFIT IN THE RELEVANT ASSES SMENT YEARS. BUT FOR THE PAYMENT OF LICENCE FEE THE ASSES SEE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 13 COULD NOT HAVE CARRIED ON THE BUSINESS DURING THE Y EAR. FOR NON-PAYMENT OF LICENCE FEE, THE LICENCE COULD H AVE BEEN REVOKED. THEREFORE, THE EXPENDITURE BEING SPE CIFIC TO THE YEAR UNDER APPEAL ONLY AND NOT EXTENDING THE BENEFIT OF SUBSEQUENT YEARS CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE OR AN ENDUING BENEFIT. WE, THE REFORE, HOLD THAT THE EXPENDITURES BEING INCURRED IN THE CO URSE OF CARRYING ON THE BUSINESS ARE ALLOWABLE AS BUSINESS EXPENDITURE U/S.37(1) OF THE ACT. 9. SIMILARLY THE PAYMENT MADE TO WPC WING OF MINISTRY OF COMMUNICATION IS ALSO THE PRE-CONDITION FOR CARRYING ON THE BUSINESS AND BASED ON THE YEARLY US ER OF THE FACILITY ARE TO BE CONSIDERED AS REVENUE EXPEND ITURE. THE EXPENDITURE ALLOWABLE U/S.35ABB IS ONLY THAT EXPENDITURE WHICH IS CAPITAL EXPENDITURE AND NOT TH E EXPENDITURE WHICH ARE OTHERWISE REVENUE IN NATURE A ND ALLOWABLE U/S.37(1). THE DECISION IN THE CASE OF T RIVENI ENGG. WORKS (SUPRA), RELIED ON BY THE LD. DR ON THE CONTRARY, SUPPORTS THE CASE OF THE ASSESSEE. IN TH E SAID CASE THE HONBLE DELHI HIGH COURT HELD THAT THE PAYM ENT FOR TECHNICAL KNOWHOW AND SERVICES FOR A PERIOD OF TEN YEARS WAS NOT CAPITAL EXPENDITURE BUT REVENUE EXPENDITURE. WE, THEREFORE, DELETE THE DISALLOWANC E MADE FOR BOTH THE YEARS. 15. HOWEVER, THE CONTENTION OF THE LD. DR IS THAT SINCE LICENCE IS A CAPITAL ASSET THEREFORE, ANY EXPENDITURE INCURRED ON A LICENCE FEE IS ALSO A CAPITAL EXPENDITURE AND IN SUPPORT HE PLACED REL IANCE ON THE FOLLOWING JUDGMENTS WHICH ARE AS UNDER : 16. IN PINGLE INDUSTRIES LTD. SUPRA, IT HAS BEEN HELD (HEADNOTE): HELD (PER KAPUR AND HIDAYATULLAH, JJ.: S.K. DAS, J., DISSENTING) THAT THE ASSESSEE ACQUIRED BY HIS LONG- TERM LEASE THE RIGHT TO WIN STONES, AND THE LEASES CONVE YED TO HIM A PART OF LAND. THE STONES IN SITU WERE NOT HIS STOCK- IN-TRADE IN A BUSINESS SENSE BUT A CAPITAL ASSET FR OM WHICH AFTER EXTRACTION HE CONVERTED TO STONES INTO HIS STOCK-IN-TRADE. THE PAYMENT, THOUGH PERIODIC IN FAC T, WAS NEITHER RENT NOR ROYALTY BUT A LUMP PAYMENT IN INSTALMENTS FOR ACQUIRING A CAPITAL ASSET OF ENDURI NG ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 14 BENEFIT TO HIS TRADE. THE AMOUNTS WERE OUTGOINGS ON CAPITAL ACCOUNT AND WERE NOT ALLOWABLE DEDUCTIONS. 17. IN TATA SERVICES LIMITED, SUPRA, IT HAS BEEN OBSERVE D (HEADNOTE): UNDER SECTION 2(14) OF THE INCOME-TAX ACT, 1961, A CAPITAL ASSET MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION. THE WORD 'PROPERTY' USED IN SECTION 2(1 4) OF THE ACT IS A WORD OF THE WIDEST AMPLITUDE AND THE DEFINITION HAS RE-EMPHASISED THIS BY THE USE OF THE WORDS 'OF ANY KIND'. ANY RIGHT WHICH CAN BE CALLED PROPER TY WILL BE INCLUDED IN THE DEFINITION OF 'CAPITAL ASSET'. A CONTRACT FOR SALE OF LAND IS CAPABLE OF SPECIFIC PERFORMANCE . IT IS ALSO ASSIGNABLE. THEREFORE, A RIGHT TO OBTAIN CONVE YANCE OF IMMOVABLE PROPERTY IS CLEARLY PROPERTY AS CONTEMPLATED BY SECTION 2(14) OF THE ACT. 18. IN STERLING INVESTMENT CORPORATION LTD. SUPRA, IT HAS BEEN OBSERVED (HEAD NOTE ) : UNDER S. 2(14) OF THE I.T. ACT, 1961, AND S. 2(4A) OF THE INDIAN I.T. ACT, 1922 (WHICH IS THE CORRESPONDING PROVISION UNDER THE ACT OF 1922), A CAPITAL ASSET M EANS PROPERTY OF ANY KIND. THE CONTRACTUAL RIGHT OF A PU RCHASE TO OBTAIN TITLE TO IMMOVABLE PROPERTY FOR A PRICE, WHICH RIGHT IS ASSIGNABLE, CAN BE CONSIDERED AS A PROPERT Y AND, THEREFORE, A CAPITAL ASSET: CIT V. TATA SERVICES LT D. [1980] 122 ITR 594 (BOM) FOLLOWED. 19. IN P.N.B. FINANCE LTD. SUPRA, IT HAS BEEN OBSERVED THAT(HEAD NOTE): THE EXPRESSION CAPITAL ASSET HAS A WIDE CONNOTAT ION. IT BRINGS WITHIN ITS AMBIT PROPERTY OF ANY KIND HELD B Y THE ASSESSEE, EXCEPT WHAT HAS BEEN EXPRESSLY EXCLUDED B Y CLAUSES (I) TO (IV) OF SECTION 2(14) OF THE INCOME TAX ACT, 1961 THEREUNDER. THE TERM PROPERTY HAS NO STATUTO RY MEANING BUT IS OF WIDEST IMPORT AND SUBJECT TO ANY LIMITATIONS WHICH THE CONTEXT MAY REQUIRE, IF SIGNI FIES EVERY POSSIBLE INTEREST WHICH A PERSON CAN ACQUIRE HOLD OR ENJOY. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 15 20. IN RAJENDRA MINING SYNDICATE, SUPRA IT HAS BEEN HE LD (HEAD NOTE): HELD, (I) THAT THE LEASEHOLD RIGHTS IN THE MINES WHICH TH E ASSESSEE TRANSFERRED FELL WITHIN THE SCOPE OF 'CAPI TAL ASSET' AS DEFINED IN AND CONTEMPLATED BY SECTIONS 2 (4A) AND 12B OF THE INDIAN INCOME-TAX ACT, 1922; 21. IN GENERAL INDUSTRIAL SOCIETY, SUPRA IT HAS BEEN HE LD [HEADNOTE (III)] (III) THAT WHAT WAS RECEIVED ON TRANSFER OF THE LI CENCE, A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14), WAS NOT AN INCOME FROM BUSINESS UNDER SECTION 28(IV) AND TH OUGH CHARGEABLE UNDER THE HEAD CAPITAL GAINS UNDER SEC TION 45, SINCE IT WAS NOT COMPUTABLE BY REASON OF SECTIO NS 48 AND 49 READ WITH SECTION 55(2) AS IT STOOD IN THE ASSESSMENT YEAR 1986-87, IT COULD NOT BE ASSESSED A S CAPITAL GAINS. 22. IN ASSAM BENGAL CEMENT CO. LTD. SUPRA, IT HAS BEEN OBSERVED AND HELD (HEADNOTE): THE APPELLANT COMPANY ACQUIRED FROM THE GOVERNMENT OF ASSAM, FOR THE PURPOSE OF CARRYING ON THE MANUFACTU RE OF CEMENT, A LEASE OF CERTAIN LIMESTONE QUARRIES FOR A PERIOD OF TWENTY YEARS FOR CERTAIN HALF-YEARLY RENTS AND R OYALTIES. IN ADDITION TO THE RENTS AND ROYALTIES THE APPELLAN T AGREED TO PAY THE LESSOR ANNUALLY A SUM OF RS. 5,000 DURIN G THE WHOLE PERIOD OF THE LEASE AS A PROTECTION FEE AND I N CONSIDERATION OF THAT PAYMENT THE LESSOR UNDERTOOK NOT TO GRANT TO ANY PERSON ANY LEASE, PERMIT OR PROSPECTIN G LICENCE FOR LIMESTONE IN A GROUP OF QUARRIES WITHOU T A CONDITION THAT NO LIMESTONE SHOULD BE USED FOR THE MANUFACTURE OF CEMENT. THE APPELLANT ALSO AGREED TO PAY RS. 35,000 ANNUALLY FOR FIVE YEARS AS A FURTHER PRO TECTION FEE AND THE LESSOR IN CONSIDERATION OF THAT PAYMENT GAVE A SIMILAR UNDERTAKING IN RESPECT OF THE WHOLE DISTR ICT. THE QUESTION WAS WHETHER IN COMPUTING THE PROFITS OF TH E ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 16 APPELLANT THE SUMS OF RS. 5,000 AND RS. 35,000 PAID TO THE LESSOR BY THE APPELLANT COULD BE DEDUCTED UNDER SECTION 10(2) (XV) OF THE INDIAN INCOME-TAX ACT, 19 22. THE INCOME-TAX AUTHORITIES, THE APPELLATE TRIBUNAL AND HIGH COURT ON A REFERENCE UNDER SECTION 66(1) HELD T HAT THE AMOUNT WAS NOT AN ALLOWABLE DEDUCTION UNDER SEC TION 10(2)(XV). ON APPEAL TO THE SUPREME COURT: HELD, THAT THE PAYMENT OF RS. 40,000 WAS A CAPITAL EXPENDITURE AND WAS THEREFORE RIGHTLY DISALLOWED AS A DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT. 23. WHEREAS IN THE CASE BEFORE US THE FACTS ARE ENTIRELY DIFFERENT INASMUCH AS IT IS NOBODYS CASE THAT THE PAYMENT HAS BEEN M ADE FOR ACQUISITION OF LICENCE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE RIGHT IS ASSIGNABLE. IN THE CASE OF THE ASSESSEE THOUGH TH E LICENCE WAS GRANTED FOR 10 YEARS INITIALLY, HOWEVER, AS PER TERMS OF LICENCE THE ASSESSEE IS REQUIRED TO PAY LICENCE FEE PAYABLE EVERY YEAR ON QUARTERLY BASIS. THEREFORE, THE BENEFIT AVAILABLE BY MAKING TH E PAYMENT OF ANNUAL LICENCE FEE LASTS FOR THAT YEAR ONLY. IF THE ASSE SSEE WISHES TO CARRY ON THE BUSINESS IN TERMS OF LICENCE AGREEMENT, LICEN CE FEE IS PAYABLE FOR SUBSEQUENT YEAR ALSO. THEREFORE, THE BENE FIT OF LICENCE FEE PAID DURING THE YEAR ENDURES ONLY TILL THE END OF RE LEVANT FINANCIAL YEAR AND DOES NOT EXTEND TO SUBSEQUENT FINANCIAL YEAR. FURT HER, ADMITTEDLY THE LICENCE IS NON EXCLUSIVE, NON-TRANSFERABLE AND IS SUB JECT TO TERMINATION UNDER CERTAIN CONDITIONS. IN THIS VIEW OF THE MATTER ALL THE AFOREMENTIONED DECISIONS RELIED ON BY THE LD. DR ARE D ISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 17 24. THE OTHER DECISIONS RELIED ON BY THE LD. DR NAMELY C.K. GANGADHARAN AND ANOTHER SUPRA; OSWAL AGRO MILLS LTD. SU PRA; DIVYA INVESTMENTS P. LTD. SUPRA AND ALPINE SOLVEX LIMITED SU PRA ARE ON THE ISSUE THAT THERE IS NO BAR FOR THE DEPARTMENT TO PREFE R AN APPEAL IN ANOTHER CASE WHERE THE DEPARTMENT HAS NOT PREFERRED AN APPEAL IN ONE CASE OR ON THE ISSUE OF CONSISTENCY OR ON THE ISSUE OF SUBSTANT IAL QUESTION OF LAW. THERE IS NO QUARREL ON THE RATIO OF THE ABOVE DECISIONS. HOWEVER, IT IS NOT THE CASE OF THE ASSESSEE THAT THE DEPARTMENT IS NOT ENTITLED TO FILE ANY APPEAL BEING A COVERED MATTER OR THE ISSUE INVOLVED DOES NOT HAVE ANY QUESTION OF LAW, OR THE REVENUE IS NOT ENTITLED TO ADJUDICATE THE MATTER AFRESH, THEREF ORE, THE DECISIONS RELIED ON BY THE LD. DR ARE DISTINGUISHABLE AND NOT A PPLICABLE TO THE FACTS OF THE CASE. 25. IN VIDESH SANCHAR NIGAM LTD. SUPRA, IT HAS BEEN HE LD BY THE TRIBUNAL VIDE PARA-31 OF ORDER THAT THE AMOUNT OF RS.282.60 CRORES PAID BY THE ASSESSEE TO DOT AS LICENCE FEE IS AN ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT IN COMPUTING THE PROFITS OF THE ASSE SSEE'S BUSINESS. THERE IS NO DISPUTE THAT THE ABOVE CASE IS PER TAINING TO THE ASSESSMENT YEAR 1995-96 I.E. PRIOR TO INSERTION OF THE P ROVISIONS OF SECTION 35 ABB OF THE ACT. NO CONTRARY MATERIAL HAS BEE N PLACED ON RECORD BY THE LD. D.R AS TO WHY THE SAME IS NOT RELEVAN T FOR THE PURPOSE OF SECTION 37(1) OF THE ACT. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 18 26. IN MAHANAGAR TELEPHONE NIGAM LIMITED SUPRA, TH E ASSESSMENT YEARS INVOLVED ARE 98-99 TO 2000-01 AND 02-03. IT H AS BEEN HELD VIDE PARA 47 AND 48 OF THE ORDER THAT PAYMENT OF LICENCE F EE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINESS CARR IED ON BY IT. THE SAME IS THEREFORE, AN ALLOWABLE DEDUCTION U/S.37 OF THE ACT. WE DO NOT FIND ANY MERIT IN THE PLEA OF THE LD. DR THA T THE AFORESAID CASE IS PRIOR TO THE INSERTION OF THE PROVISIONS OF SECTION 3 5 ABB OF THE ACT OR AS TO HOW THE SAME IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 27. SINCE THE LICENCE FEE DOES NOT CONFER ANY ENDURING ADVAN TAGE, THE LICENCE GRANTED CAN BE REVOKED ON THE BREACH OF ANY OF THE CONDITIONS SUBJECT TO WHICH IT WAS ISSUED OR ANY DEFAULT O F PAYMENT OF ANY FEE PAYABLE FOR THE LICENCE AND THE LICENCE IS NON EXCLUSIVE, NON- TRANSFERABLE AND IT IS OPEN TO THE GOVERNMENT OF INDI A TO GRANT SIMILAR LICENCES TO OTHER PERSONS AS WELL BY VIRTUE OF POWERS CONF ERRED UPON IT U/S.4 OF THE TELEGRAPH ACT, THUS THERE IS NO MONOPOLY RIGHT CONFERRED UPON THE ASSESSEE AND FURTHER THOUGH THE LICENCE WAS GRANT ED FOR 10 YEARS INITIALLY, HOWEVER, AS PER TERMS OF THE LICENCE, THE ASSESSEE IS REQUIRED TO PAY LICENCE FEE PAYABLE EVERY YEAR ON QU ARTERLY BASIS, THEREFORE, THE BENEFIT AVAILABLE FOR MAKING THE PAY MENT OF ANNUAL LICENCE FEE LASTS FOR THAT YEAR ONLY AND, THEREFORE, TH E BENEFIT OF LICENCE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 19 FEE PAID DURING THE YEAR ENDURES ONLY TILL THE END O F THE RELEVANT FINANCIAL YEAR AND DOES NOT EXTEND TO THE SUBSEQUENT FI NANCIAL YEAR AND, HENCE, THE LICENCE FEE IS NOT IN THE NATURE OF CAPI TAL EXPENDITURE FALLS U/S.35ABB OF THE ACT, BUT THE SAME IS REVENUE IN N ATURE, ALLOWABLE U/S.37(1) OF THE ACT. 28. THIS VIEW ALSO FINDS SUPPORT FROM THE ORDER OF THE TRIBUNAL IN ITO VS. EVERGROWTH TELECOM LTD. IN ITA NO.5652/MUM/07 FOR ASSESSMENT YEAR 1998-99 DATED 9.9.2009 IN WHICH ONE OF US (JM) WAS A PARTY WHEREIN IT HAS BEEN OBSERVED AND HELD VIDE PARA 8,9, AND 10 OF ITS ORDER AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE HOLDING COMPANY J.T. MOBILE LTD. RECEIVED THE TELECOM LICEN CE FROM THE DEPARTMENT OF TELECOMMUNICATION (DOT) TO PROVIDE CELLULAR MOBILE SERVICES IN THE PUNJAB SERV ICE AREA FOR A PERIOD OF TEN YEARS. THE ASSESSEE COMP ANY WAS APPOINTED BY J.T. MOBILE LTD. AS OPERATOR AND ACCORDINGLY THE COMPANY WAS PROVIDING CELLULAR MOBI LE SERVICES IN THE PUNJAB CIRCLE. THE ASSESEE COMPANY HAS SHOWN LICENCE OPERATING FEE UNDER THE HEAD MISCELLA NEOUS EXPENDITURE AS BALANCE SHEET ITEM AND AMORTIZED THE SAME OVER THE VALIDITY PERIOD OF LICENCE I.E. 10 Y EARS. THE ASSESSEE COMPANY SPREAD OVER THE LICENCE FEE OV ER 10 YEARS PERIOD AND HAS WRITTEN OFF THE AMOUNT OF RS.47.46 CRORES DURING THE YEAR UNDER CONSIDERATION IN THE BOOKS OF ACCOUNT. HOWEVER, IN THE COMPUTATION OF INCOME, THE AMOUNT OF RS.1,15,09,09,090/- BEING LIC ENCE FEE FOR THE YEAR WAS CLAIMED AS ALLOWABLE U/S. 37(1 ) OF THE ACT. THE TRIBUNAL IN THE ASSESSEES OWN CASE(SU PRA) HAS ALLOWED THE SIMILAR AMOUNT OF LICENCE FEE AS RE VENUE EXPENDITURE VIDE FINDING RECORDED IN PARA 4 OF ITS ORDER DATED 29.3.07, WHICH IS REPRODUCED AS UNDER:- ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 20 4. WE FIND THAT THE FEES PAID BY THE ASSESSEE, AS EVIDENT FROM A COPY OF THE LICENCE AGREEMENT PLACED BEFORE US AT PAGES 1 TO 6 OF THE PAPER BOOKS, IS AN ANNUAL FEES IN NATURE AND NOT A ONE TIME FEES AS OBVIOUSLY WAS THE ERRONEOUS ASSUMPTION OF THE ASSESSING OFFICER. ONCE THE FEES PAID IS FOR THE PERIOD COVERED BY THE RELEVANT PREVIOUS ONLY, THERE IS NO QUESTION OF AMORTIZATION OF EXPENSES OVER A PERIOD OF TEN YEARS; ENTIRE AMOUNT OF THE FEES SO PAID SHOULD HAVE BEEN ALLOWED AS DEDUCTION AS REVENUE EXPENDITURE. THE OTHER ASPECT OF THE MATTER OF THE QUESTION WHETHER OR NOT THE BUSINESS HAD COMMENCED IN THE RELEVANT PREVIOUS YEAR. LD. ASSESSING OFFICERS CONCLUSION AGAINST THE ASSESSEE ON THIS ISSUE WERE BASED ON OBSERVATIONS MADE BY THE AUDITOR TO THE EFFECT THAT THE ASSESSEE HAS NOT STARTED (IN THE RELEVANT PREVIOUS YEAR) PROVIDING CELLULAR MOBILE TELEPHONE SERVICES. IN DOING SO, HOWEVER, ASSESSING OFFICER CLEARLY ERRED IN NOT APPRECIATING THE ALL IMPORTANT DISTINCTION BETWEEN COMMENCEMENT OF A BUSINESS AND STARTING OF CORE COMMERCIAL ACTIVITY OF THAT BUSINESS. IT IS NOT IN DISPUTE THAT THE ASSESSEE H AD SET UP DEALER NETWORK, UNDERTAKEN ADVERTISEMENT CAMPAIGN AND EVEN ACCEPTED DEPOSITS FROM THE SUBSCRIBERS UNDER THESE CIRCUMSTANCES; AND JUST BECAUSE CELLULAR MOBILE SERVICE HAD NOT COMMENCED, IT COULD NOT BE SAID THAT THE ASSESSEE HAD NOT COMMENCED BUSINESS. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE AND CONFIRM WELL REASONED CONCLUSIONS ARRIVED AT BY THE LD. CIT(A) AND DECLIN E TO INTERFERE IN THE MATTER. 9. IN COMSAT MAX LTD. (SUPRA), THE LICENCE FEE PAID TO DOT WAS TREATED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. ON APPEAL, THE LD. CIT(A) HELD THAT T HE SAME ALLOWABLE U/S.35 ABB OF THE ACT. ON FURTHER A PPEAL, THE TRIBUNAL HELD THAT SINCE THE BENEFIT ENDURED ON LY FOR THE YEAR UNDER APPEAL AND COULD NOT HAVE BEEN EXPAN DED TO THE SUBSEQUENT YEARS, THE LICENCE FEE DID NOT GI VE THE ASSESSEE ANY ENDURING BENEFIT IN THE RELEVANT ASSES SMENT YEAR. BUT FOR THE PAYMENT OF LICENCE FEE THE ASSES SEE COULD NOT HAVE CARRIED ON THE BUSINESS DURING THE Y EAR. FOR NON-PAYMENT OF LICENCE FEE, THE LICENCE COULD H AVE BEEN REVOKED. THEREFORE, THE EXPENDITURE BEING SPEC IFIC TO THE YEAR UNDER APPEAL ONLY AND NOT EXTENDING THE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 21 BENEFIT TO THE SUBSEQUENT YEARS, COULD NOT BE CONSI DERED AS CAPITAL EXPENDITURE OR AN ENDURING BENEFIT. IT WAS, THEREFORE, TO BE UPHELD THAT THE EXPENDITURE BEING INCURRED IN THE COURSE OF CARRYING ON THE BUSINES S WAS ALLOWABLE AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT. 10. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE OR CONTRARY DECISION BROUGHT ON RECORD BY THE LD. DR W E RESPECTFULLY FOLLOWING THE ABOVE DECISIONS DO NOT F IND ANY ERROR IN THE ORDER OF THE LD. CIT(A) IN DELETING TH E ADDITION MADE BY THE ASSESSING OFFICER AND ACCORDINGLY THE GROUNDS TAKEN BY THE REVENUE ARE REJECTED. 29. THIS VIEW ALSO FINDS SUPPORT FROM THE ORDER OF THE TRIBUNAL IN ACIT VS. VODAFONE ESSAR GUJARAT LTD. (2010) 38 SOT 51 (AHD.) WHEREIN THE TRIBUNAL AFTER CONSIDERING SECTION 4 OF TH E INDIA TELEGRAPH ACT, 1985 AND VARIOUS DECISIONS INCLUDING ASSAM BENGAL CEM ENT CO. LTD. VS. CIT SUPRA, VIDESH SANCHAR NIGAM LTD. VS. JCI T SUPRA, COMSAT MAX LTD. VS. DCIT SUPRA, HARI SHANKAR VS. DY. EXCISE AND TAXATION COMMISSIONER AIR 1975 (SC) 2008, STATE OF HARYANA VS. JAGE RAM AIR 1980 (SC) 2018, GOVERNMENT OF ANDHRA PRADESH VS. ANABESHAHI WINE AND DISTILLERIES (P.) LTD. AIR 1988 (SC) 771, C IT VS. VARAS INTERNATIONAL (P.) LTD. (1997) 225 ITR 831 (CAL.), BOMBAY STEAM NAVIGATION CO. (1953) (P.) LTD. VS. CIT (1965) 56 I TR 52 (SC) , MTNL VS. ADDL. CIT (2006) 8 SOT 376(DEL.) AND M/S. BHARTI CELLULAR LTD.(SUPRA) HAS HELD (PAGE 87) : .. THE LICENCE, IN OUR OPINION, DOES NOT CONFER ANY SU CH ENDURING ADVANTAGE BECAUSE UNDER CONDITION NO.15 OF THE SCHEDULE B THE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 22 LICENCE GRANTED U/S.4 CAN BE REVOKED ON THE BREACH OF A NY OF THE CONDITIONS SUBJECT TO WHICH IT WAS ISSUED OR ANY DEFAULT O F PAYMENT OF ANY CONSIDERATION PAYABLE FOR THE LICENCE. FURTHER, T HE LICENCE IS NON- EXCLUSIVE LICENCE AND IT IS OPEN TO THE GOVERNMENT OF IN DIA TO GRANT SIMILAR LICENCES TO OTHER PERSONS AS WELL BY VIRTUE OF POW ERS CONFERRED UPON IT U/S.4 OF THE TELEGRAPH ACT. THUS, THERE IS NO MONOPOLY RIGHT CONFERRED UPON THE ASSESSEE. THE TRIBUNAL AFTER TAKING S UPPORT FROM THE DECISION OF THE COMPANY-ORDINATE BENCH IN THE CASE O F COMSAT MAX LIMITED SUPRA, MTNL VS. ADDL. CIT (2006) 8 SOT 376(D EL.) AND M/S. BHARTI CELLULAR LTD.(SUPRA) HAS HELD THAT THE AMOUNT OF RS.67.51 CRORES PAID BY THE ASSESSEE TO DOT AS LICENCE FEE IS AN ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT IN COMPUTING THE PROFITS OF THE ASSE SSEE'S BUSINESS. 30. FOR THE REASONS AS DISCUSSED ABOVE WE HOLD THAT THE A DDITION OF RS.4,53,14,736/- OUT OF THE DOT LICENCE FEE PAID R S.6,04,19,645/- IS AN ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT IN CO MPUTING THE PROFITS OF ASSESSEE'S BUSINESS AND ACCORDINGLY THE ASSESSING OF FICER IS DIRECTED TO ALLOW THE SAME. THE GROUND TAKEN BY THE A SSESSEE IS, THEREFORE, ALLOWED. 31. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF ARREARS OF LICENCE FEE RS.1,94,97,604/- AND INTEREST RS.78,37,77 3/-. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 23 32. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM THE ACCOUNTS OF THE ASSESSEE IT WAS OBSERVED BY THE ASSESSING OFFICER THAT TH E ASSESSEE COMPANY INTERALIA CLAIMED ARREARS OF LICENCE FEE RS.1,94,97,604/- AND INTEREST ON DELAYED PAYMENT RS.78 ,37,773/-. THE ASSESSEE WAS ASKED AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED. IN RESPONSE IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT THE DEMAND NOTICES HAVE BEEN RECEIVED FOR DOT AN D HENCE, THE LIABILITY OF THE AFORESAID AMOUNT HAS BEEN CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION AND IS ALLOWABLE. HOWEVER, THE ASSE SSING OFFICER WAS OF THE VIEW THAT AN AMOUNT OF RS.78,37,773/- WAS O N ACCOUNT OF PENAL INTEREST FOR DELAYED PAYMENT OF LICENCE FEE. AS THE NATURE OF PAYMENT WAS IN THE NATURE OF PENAL INTEREST, THE SAME IS NOT ALLOWABLE AS PER PROVISIONS OF SECTION 37(1) OF THE ACT. FURTHER THE ARREAR OF LICENCE FEE OF RS.1,94,97,604/- WAS RELATING TO THE LICE NCE FEE PAYABLE BY THE ASSESSEE FOR THE PERIOD MARCH 2000 TO OCTOBER 200 1. THUS, AN AMOUNT OF RS.71,83,330/- IS RELATING TO THE LICENCE FEE FOR ASSESSMENT YEAR 2002-03 AND THE BALANCE OF RS.1,23,14,274/- RELA TES TO THE EXPENSE OF ASSESSMENT YEAR 2001-02. THE ASSESSING OFFICER AF TER APPLYING THE PROVISIONS OF SECTION 35ABB ALLOWED RS.24,6 2,855/- AND RS.17,95,833/- BEING 1/5 TH OF RS.1,23,14,247/- AND RS.71,83,330/- RESPECTIVELY. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 24 33. ON APPEAL, THE LD. CIT(A), OBSERVED AND HELD (P AGE 6 CIT(A) ORDER): 25. HOWEVER, THE LIABILITY RELATED TO PAYMENT OF LI CENCE FEE OF THE EARLIER PERIOD HAS THE SAME CHARACTER AS OF LICENCE FEE PAYABLE FOR THE RELEVANT ACCOUNTING YEA R. HENCE THE AMOUNT RELATED TO LICENCE FEE CANNOT BE ALLOWED AS DEDUCTION IN FULL. THE DEDUCTION OF THE SAID AMOUNT IS TO BE MADE IN TERMS OF SECTION 35ABB OF T HE ACT, AFTER TAKING THE LICENCE FEES PAYABLE AS THE L IABILITY OF THE PRESENT ACCOUNTING YEAR. 26. IN SO FAR AS THE QUESTION OF ADMISSIBILITY OF EXPENDITURE OF BY WAY OF INTEREST PAYMENT AMOUNTIN G TO RS.78,37,773/- IS CONCERNED, THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE HOLDING THAT THE INTEREST PAY MENT IS OF PENAL NATURE AND THEREFORE IS NOT ALLOWABLE. THIS FINDING IS WITHOUT ANY SUPPORTING MATERIAL. THE AP PELLANT COMPANY HAD MADE THE PAYMENT OF THE IMPUGNED SUM ON ACCOUNT OF REVISION OF RATES OF LICENCE FEE PAYABLE FROM A RETROSPECTIVE DATE. THERE IS NO INFRACTION OF LAW THAT HAS RESULTED IN THE PAYMENT OF INTEREST AMOUNT. HENCE, THE NATURE OF PAYMENT IS REQUIRED TO BE HELD AS OF COMPENSATORY NATURE MAKING IT ADMISSIBLE AS DEDUCTI ON. 27. HOWEVER, SINCE THE INTEREST RELATES TO PAYMENT O F LICENCE FEES, THE ADMISSIBILITY OF WHICH IS TO BE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35ABB OF THE ACT, THE INTEREST AMOUNT IS ALSO TO BE TAKEN AS PAR T THEREOF AND THE DEDUCTION IN RESPECT OF THE AMOUNT IS TO BE ALLOWED ONLY IN THE MANNER PROVIDED IN SECTION 3 5ABB OF THE ACT. 34. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE PAYMENT OF LICENCE FEE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE IN COMSAT MAX LIMITED SUPRA, THEREFORE, THE SAME BE ALLOWED AS BUSINESS EXPEND ITURE. WITH REGARD TO THE DISALLOWANCE OF INTEREST HE SUBMITS THAT I NTEREST IS NOT AKIN TO LICENCE FEE AND IN ANY CASE IT IS COVERED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF BHARATI C ELLULAR LIMITED VS. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 25 DY. CIT IN ITA NO.5335/DEL/2003 FOR ASSESSMENT YEAR 200 0-01 ORDER DATED 29.5.2009. 35. ON THE OTHER HAND THE LD. DR WHILE RELYING ON T HE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) SUBMITS THAT THE PLE A TAKEN BY HIM IN ASSESSEE'S GROUND NO.1 MAY BE CONSIDERED WHILE DECID ING THE IMPUGNED GROUND TAKEN BY THE ASSESSEE . 36. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) WHILE AGREEING THAT BOTH THE PAYMENTS ARE ALL OWABLE IN THE YEAR UNDER CONSIDERATION HELD THAT THE SAME ARE ALLOWA BLE ONLY IN THE MANNER PROVIDED U/S.35 ABB OF THE ACT. FOR THE REASO NS AS DISCUSSED IN GROUND NO.1 OF THIS APPEAL IN PARAS 27 TO 30 OF TH IS ORDER AND KEEPING IN VIEW THAT IT HAS BEEN HELD BY THE TRIBUNA L IN BHARATI CELLULAR LTD. SUPRA, THAT THE VARIABLE REVENUE SHARING FEE PAI D PURSUANT TO THE MIGRATION OF THE ASSESSEE TO THE NEW TELECOM POLICY OF 19 99 IS REVENUE EXPENDITURE, CONSEQUENTLY THE INTEREST ON THE LICENCE FEE PAID WOULD ALSO BE IN THE REVENUE FIELD, DELETED THE ADDI TION MADE BY THE ASSESSING OFFICER, WE ARE OF THE VIEW THAT PROVISIONS OF SECTION 35 ABB OF THE ACT ARE NOT APPLICABLE AS BOTH EXPENSES ARE REVEN UE IN NATURE, ALLOWABLE U/S.37(1) OF THE ACT IN COMPUTING THE PROFIT S OF THE BUSINESS. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE, ALLOWED . ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 26 37. GROUND NO.3 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF INTEREST RS.41,66,122/- U/S.40A(2) OF THE ACT. 38. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT ON PERU SAL OF THE AUDIT REPORT FILED BY THE ASSESSEE IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE ARE SOME PAYMENT MADE TO PERSONS SPECIFIED U/ S.40A(2)(B) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY D ISALLOWANCE SHOULD NOT BE MADE U/S.40A(2)(B) OF THE ACT. IT WAS E XPLAINED BY THE ASSESSEE THAT IT WAS PAYING INTEREST @ 16.81% TO ICICI BA NK AND TO ITS SISTER CONCERN @ 7% TO 18%. IN THE SUBSEQUENT LETTER DATED 2.2.2005 THE ASSESSEE STATED THAT IT WAS PAYING INTEREST T O ICICI BANK @ 14%. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THA T THE ASSESSEE COMPANY BORROWED LOANS DURING FINANCIAL YEARS 200 0-01 AND 2001-02. THE MARKET RATE OF INTEREST DURING THAT PE RIOD WAS ABOUT 12%. HENCE, IT IS CLEAR THAT THE ASSESSEE COMPANY HAS PAID E XCESS INTEREST TO ITS SISTER CONCERNS COVERED U/S.40A(2)(B) OF THE ACT. THE ASSESSING OFFICER AFTER RELYING ON THE DECISION IN ANANDJ I SHAH VS. CIT (1990) 181 ITR 171 (KER.) WAS OF THE VIEW THAT INTER EST EXCEEDING 12% IS NOT FOR THE PURPOSE OF BUSINESS AND HENCE, HE DISA LLOWED THE INTEREST PAID OVER 12% WHICH HE WORKED OUT TO RS.41,66 ,122/- AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) WHILE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 27 AGREEING WITH THE VIEW OF THE ASSESSING OFFICER UPHELD T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 39. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT TERMS OF THE LOAN TAKEN FROM ICICI BANK ARE SO ONEROUS. THE CASH CREDIT FACILIT Y SANCTIONED BY ICICI BANK SPECIFIES CERTAIN MAXIMUM LIMIT FOR DRAW DO WN AND THERE WAS A PENAL INTEREST @ 2.42% PER ANNUM CHARGED FOR EX CESS DRAWING ABOVE THE SANCTIONED LIMIT. IN ORDER TO TIDE OVER IT S POOR FUNDS POSITION THE APPELLANT BORROWED FUNDS FROM ITS RELATE D PARTIES WHICH WERE AVAILABLE IMMEDIATELY WITHOUT ANY PROCEDURAL DE LAY AND ON EASY TERMS AND CONDITIONS. THEREFORE, NO SUCH DISALLOWANCE IS CA LLED FOR. HE FURTHER SUBMITS THAT ONCE IT IS ACCEPTED THAT THE TRANS ACTION IS FOR BUSINESS PURPOSES, THE RATE HAS TO BE LEFT TO THE DECISION OF THE BUSINESSMAN UNLESS PROVED OTHERWISE. HE FURTHER SUBMITS TH AT FAIR MARKET VALUE OR BASIS ADOPTED HAS NOT BEEN ESTABLISHED BY THE ASSESSING OFFICER. FURTHER, NO DISALLOWANCE OF INTEREST WA S MADE ON THE SAME FACTS IN THE EARLIER YEAR. THE RELIANCE WAS AL SO PLACED ON THE FOLLOWING DECISIONS: 1. PONDY METAL & ROLLING MILLS 107 TTJ 336(DEL.), 2. VOLTAMP TRANSFORMERS 129 ITR 105(GUJ.), 3. S.K. ENGINEERING VS. JT.CIT 103 ITR 97 (BANG.), ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 28 4. CIT VS. EDWARD KEVENTER 86 ITR 370(CAL.); APPROVED IN 115 ITR 149(SC), 5. GUJARAT GUARDIAN 114 TTJ 565 (DEL.), 6. ASTT. CIT VS. KIN SHIP SERVICES(INDIA)(P.) LTD.(2009) 3 1 SOT 375(COCHIN), 7. BATILIVALA & KARANI 2 SOT 379(MUM.), 8. UDAIPUR DISTILLERY 316 ITR 426(RAJ.), 9. CIT VS. WALCHAND AND CO. PRIVATE LTD. 65 ITR 381(SC), 10. J.K. WOOLEN 72 ITR 612(SC), 11. CIT VS. AMRIT SOAP CO. 308 ITR 287, 12. ASSTT. CIT VS. SHIV AGREVO LTD. (2009) 123 TTJ 416 , 34 SOT 1 (JP.) (URO) AND 13. SATYA NARAIN KESHO RAM (P.) LTD. VS. DY. CIT (200 9) 122 TTJ (LUCK.) 839 HE THEREFORE SUBMITS THAT THE DISALLOWANCE MADE BY THE A SSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 40. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE ASSESSING OFFICER AND THE LD. CIT(A). 41. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND T HAT THERE IS NO DISPUTE THAT THE LOANS WERE TAKEN FOR THE BUSINESS PURPO SES. THE ONLY DISPUTE IS WITH REGARD TO THE EXCESS PAYMENT OF INTEREST . THE ASSESSEE HAS MADE THE PAYMENT OF INTEREST TO ITS SISTER CONCERNS AT 7% TO 18% PER ANNUM AS AGAINST 16.81% PAID BY THE ASSESSEE TO ICICI BANK. ACCORDING TO THE ASSESSING OFFICER THE REASONABLE RATE OF PAYMENT OF INTEREST IS 12% AND HENCE HE DISALLOWED THE EXCESS PAYMEN T OF ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 29 INTEREST U/S.40A(2)(B) OF THE ACT WHICH ON APPEAL HAS A LSO BEEN CONFIRMED BY THE LD. CIT(A). 42. TO START WITH WE MAY GAINFULLY QUOTE THE PROVISIO NS OF SECTION 40A(2)(A) WHICH READ AS UNDER:- (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE I N RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB-SE CTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEE DS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE B ENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESS IVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. 43. THUS, A LOOK AT THIS PROVISION DOES SHOW, THAT IT IS ONLY IF, THE ASSESSING OFFICER IS OF THE OPINION, THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VAL UE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE, AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE , SHALL NOT BE ALLOWED AS A DEDUCTION. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 30 44. IN S.A. BUILDERS VS. CIT(A) AND ANOTHER(2007) 288 ITR 1(SC) IT HAS BEEN OBSERVED BY THEIR LORDSHIPS (AT PLACITUM 35 AP PEARING AT PAGE-9 OF THE ITR ) : ....THAT ONCE IT IS ESTABLISHED THAT THERE WAS N EXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CL AIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING RE GARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN C AN BE COMPLELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESS MAN WOULD A CT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM TH EIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN... .. 45. IN ANANDJI SHAH VS. CIT SUPRA, THE ASSESSEE FIRM PAID INTEREST TO THE ESTATE OF LATE SMT. TARAMATHI S. SHAH WORKED OUT AT 24% PER ANNUM. THE ASSESSING OFFICER HELD THAT THE PAYMENT OF I NTEREST AT 24% WAS EXCESSIVE AND INVOKING PROVISIONS OF SECTION 40A(2 ) OF THE ACT, ALLOWED INTEREST ONLY AT 12% PER ANNUM. THE LD. CIT(A) HELD THAT INTEREST AT 18% PER ANNUM WILL BE REASONABLE AND RESTR ICTED THE DISALLOWANCE TO ONLY THE AMOUNT IN EXCESS OF THE SAME. T HE TRIBUNAL AFFIRMED THE ORDER OF THE LD. CIT(A). ON REFERENCE IT HAS BEEN HELD THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PAY MENT OF INTEREST @ 24% PER ANNUM BY THE ASSESSEE FIRM TO THE ESTATE OF SMT. TARAMATHI S. SHAH WAS EXCESSIVE AND THAT ONLY INTEREST @ 18% PER ANNUM COULD BE SAID TO BE REASONABLE. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 31 46. WE FURTHER FIND THAT IN THE IMMEDIATELY PRECEDIN G YEAR I.E. 2001- 02 THE ASSESSING OFFICER AFTER CONSIDERING THE PROVISIONS O F SEC.40A(2)(B) ON THE PAYMENT OF CONSULTANCY AND ADVISORY SERVICES DID NOT MAKE ANY SUCH DISALLOWANCE OF INTEREST U/S.40A(2) (B) OF THE ACT VIDE ASSESSMENT ORDER DATED 15.3.2004 PASSED U/S.143(3 ) OF THE ACT. 47. APPLYING THE RATIO LAID DOWN IN THE ABOVE CASES TO THE FACTS OF THE ASSESSEE'S CASE, IN THE ABSENCE OF ANY MATERIAL TO SHOW T HAT THE PAYMENT OF INTEREST MADE BY THE ASSESSEE IS IN EXCESS OF FA IR MARKET VALUE , AND KEEPING IN VIEW THAT NO SUCH DISALLOWANCE WAS MADE IN THE IMMEDIATELY PRECEDING YEAR AND ALSO KEEPING IN VIEW T HAT IN THE CASE RELIED ON BY THE ASSESSING OFFICER 18% RATE OF INTEREST WAS CONSIDERED AS REASONABLE, WE ARE OF THE VIEW THAT INTEREST PAID B Y THE ASSESSEE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS AND HENCE THE DISALLOWANCE OF INTEREST OF RS.41,66,122/- M ADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) IS NOT SU STAINABLE IN LAW AND ACCORDINGLY THE SAME IS DELETED. THE GROUND T AKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 48. GROUND NO.4 IS AGAINST THE LEVY OF INTEREST U/S.234 D OF THE ACT. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 32 49. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE CONSEQUENTIAL RELIEF IN RESPECT OF LEVY OF INT EREST U/S.234D BE ALLOWED TO THE ASSESSEE. 50. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE ASSESSING OFFICER AND LD. CIT(A). 51. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE OF LEVY OF INTEREST U/S.234D OF THE ACT IS COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUN AL IN ITO VS. EKTA PROMOTERS P. LTD. (2008) 305 ITR (AT) 1(DEL. )(SB) WHEREIN IT HAS BEEN HELD (PAGE-33 ): IN VIEW OF THE ABOVE DISCUSSION OUR ANSWER TO QUESTION REFERRED TO US IS THAT INTEREST UNDER SECT ION 234D IS CHARGEABLE FROM THE ASSESSMENT YEAR 2004-05 AND IT COULD NOT BE CHARGED FOR EARLIER YEARS EVEN THOUGH REGULAR ASSESSMENT FOR THESE YEARS ARE FRAMED AFTER JUNE 1, 2003, OR THE REFUND WAS GRANTED FOR THOSE YEARS AFTER THE SAID DATE. APPLYING THE RATIO OF THE ABOVE DECISION TO THE FACTS O F THE PRESENT CASE WE FIND THAT THE ASSESSMENT ORDER WAS PASSED ON 10.3.20 05 I.E. AFTER JUNE 1, 2003 FOR THE ASSESSMENT YEAR UNDER CONSIDE RATION I.E. 2002-03, THE INTEREST U/S.234D IS NOT CHARGEABLE AS THE SAME IS CHARGEABLE FROM THE ASSESSMENT YEAR 2004-05 AND ACCORDINGL Y THE GROUND TAKEN BY THE ASSESSEE IS ALLOWED. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 33 ITA NO.422/M/06 (REVENUE APPEAL) (A. Y.2002-03): 52. GROUND NO.1 IS AGAINST THE DELETION OF DISALLOWAN CE OF RS.6,92,95,350/- OUT OF RS.9,23,93,800/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SPACE SEGMENT CHARGES. 53. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED RS.9,23,93,800/- ON ACCOUNT OF SPACE SEGMENT AND LEASED LI NE CHARGES. THESE PAYMENTS WERE MADE TO DOT AS PER THE LI CENCE AGREEMENT. THE PAYMENT WAS FOR THE LICENCE GIVEN TO T HE ASSESSEE FOR OPERATING WPC AND V-SAT. THIS LICENCE FEE WAS ALSO A PA RT OF THE SAME AGREEMENT BY WHICH THE DOT PERMITTED THE ASSESSEE CO MPANY TO OPERATE THE V-SAT. THE ASSESSING OFFICER AFTER NOTI NG THAT FOR THE ASSESSMENT YEAR 2001-02 THE SAME HAS BEEN HELD TO BE CAPIT AL EXPENDITURE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY SPACE SE GMENT CHARGES COULD NOT BE DISALLOWED. IN RESPONSE IT WAS SUBMIT TED BY THE ASSESSEE (EXTRACTED FROM PARA 4.3 OF THE ASSESSMENT ORDER): THE LICENSE AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND DOT HAS BEEN MADE BY THE COMPANY IN ORDER TO ESTABLISH, MAINTAIN AND OPERATE CLOSED USE R GROUP DOMESTIC 64 KBPS DATA NETWORK VIA INSAT SATELLITE SYSTEM ON EXTENDED C BAND, IN FREQUENCIES ASSIGNED FROM TIME TO TIME USING VERY SMALL APERTUR E TERMINALS THROUGHOUT INDIA. IT IS ALSO STATED THAT ECONOMIC BENEFITS COMPRISED IN THE PAYMENT EXPIRE A T THE END OF THE YEAR AND HENCE IF VSATS ARE NIL, THE F EE PAYABLE WOULD BE NIL, CONVERSELY, IF VSATS WERE DOU BLE, ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 34 THE FEE PAYABLE WOULD DOUBLE TOO. IT IS THUS LINEA RLY RELATED TO AND IMPACTED BY THE OPERATING ACTIVITY L EVEL. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEE'S SUBMISSION WAS OF THE VIEW THAT THE PAYMENT FOR LICENCE TO USE TRANSP ONDERS ON SATELLITE OF DOT IS CAPITAL EXPENSES ON THE SAME LINE AS I N THE CASE OF LICENCE FEE AND ACCORDINGLY HE CAPITALISED RS.9,23,93,800 /- AND AMOTRIZED U/S.35ABB OVER A PERIOD OF 4 YEARS AND AFTE R ALLOWING RS.2,30,98,450/- DISALLOWED THE BALANCE OF RS.6,92,95,3 50/- AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) FOLLOWING THE APPELLATE ORDER DATED 23.11.2004 IN A SSESSEE'S OWN CASE WHILE HOLDING THAT THE LIABILITY OF SPACE SEGMENT CHARG ES HAS ACCRUED DURING THE ACCOUNTING YEAR AND THE SAME IS OF REVENUE I N NATURE, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 54. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FO R THE SAME REASONS AND PLEA AS TAKEN IN GROUND NO.1 IN ASSESSEE'S APPE AL IN RESPECT OF DISALLOWANCE OF LICENCE PAID TO DOT, THE LD. C IT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER. HE THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE A SSESSING OFFICER BE RESTORED. 55. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE W HILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT THE TRIB UNAL IN ASSESSEE'S OWN CASE, VIDE PARA-25 OF ITS ORDER SUPRA, HAS UPHELD T HE ORDER OF THE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 35 LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A SSESSING OFFICER. HE THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. C IT(A) BE UPHELD. 56. AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE TRIBUNAL IN ASSESSE E'S APPEAL IN COMSAT MAX LTD. VS. DCIT AND VICE VERSA (SUPRA), HAS OBSER VED AND HELD AS UNDER: 25. .THE PAYMENT HAVING BEEN MADE FOR ALLOCATIO N OF SPACE SEGMENT CHARGES AND FOR THE USE OF SATELLITE DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSET. THE FE ES BEING PAYABLE FOR THE USE OF FACILITY AND NOT FOR THE FAC ILITY ITSELF ARE ALLOWABLE AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE SAME AND KEEPING IN VIEW OF OUR FINDING RECORDED IN PARAS 27 30 OF THIS ORDER AND ALSO THE RU LE OF CONSISTENCY WE ARE OF THE VIEW THAT THE PAYMENT HAVING BEEN MAD E AND FOR THE ALLOCATION OF SPACE SEGMENT CHARGES AND FOR THE USE OF SAT ELLITE DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSET. THE FEES BE ING PAYABLE FOR THE USE OF FACILITY AND NOT FOR THE FACILITY ITSELF A RE ALLOWABLE AS REVENUE EXPENDITURE AND ACCORDINGLY THE ORDER PASSED BY THE LD . CIT(A) IN DELETING THE DISALLOWANCE IS UPHELD. 57. GROUND NO.2 IS AGAINST THE DELETION OF DISALLOWAN CE OF EXTRAORDINARY ITEMS RS.3,37,68,238/-. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 36 58. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM THE ACCOUNTS OF THE ASSESSEE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPA NY HAD CLAIMED FOLLOWING EXPENSES UNDER THE HEAD EXTRAORD INARY ITEMS: LICENCE FEE RS.1 ,94,97,604/- INTEREST ON DELAYED PAYMENTS RS. 78,37,77 3/- RS.2,37,35,337/- SPACE SEGMENT CHARGES RS. 64,32,9 01/- RS.3,37,68,238/- THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE DOT LICENCE FEE AND SPACE SEGMENT CHARGES HAVE BEEN HELD TO BE CAPITAL EX PENSES, THE EXPENSES CLAIMED UNDER THE HEAD EXTRAORDINARY ITE MS AMOUNTING TO RS.3,37,68,238/- ARE DISALLOWED AND AFTER ALLOWING THE AMORTIZATION U/S.35ABB RS.56,78,596/- HE ADDED THE BALANCE AMOUNT O F RS.2,80,69,642/- TO THE INCOME OF THE ASSESSEE. ON APPEA L, THE LD. CIT(A) WHILE HOLDING THAT THE PAYMENT OF SPACE SEGMEN T CHARGES AS REVENUE EXPENDITURE, DIRECTED THE ASSESSING OFFICER TO RE -COMPUTE THE DEDUCTION ADMISSIBLE U/S.35 ABB OF THE ACT. 59. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FO R THE SAME REASONS AND PLEA AS TAKEN IN GROUND NO.1 IN ASSESSEE'S APPE AL IN RESPECT OF DISALLOWANCE OF LICENCE PAID TO DOT, THE LD. C IT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER. HE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 37 THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE A SSESSING OFFICER BE RESTORED. 60. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SU BMITS THAT IN VIEW OF HIS EARLIER PLEA TAKEN IN GROUND NO.2 IN ASSESSEE'S APPEAL AND IN GROUND NO.1 IN REVENUES APPEAL ALL THE ABOVE ITEMS ARE REVENUE EXPENDITURE AND ARE ALLOWABLE U/S.37(1) OF T HE ACT. 61. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD AND KEEPING IN VIEW OF OUR FINDING RECORD IN GROUND NO.2 OF ASSESSEE'S APPEAL IN PAR A -36 AND GROUND NO. 1 IN REVENUES APPEAL IN PARA -56 OF THIS ORDER, WE ARE OF THE VIEW THAT THE ABOVE EXPENSES CLAIMED BY THE ASSESSEE ARE ALLOWABLE AS REVENUE EXPENDITURE AND ACCORDINGLY WE WH ILE DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, REJECT THE GROUND TAKEN BY THE REVENUE. 62. GROUND NO.3 AND 4 ARE GENERAL IN NATURE AND IN THE ABSENCE OF ANY SPECIFIC PLEA THE SAME ARE THEREFORE REJECTED. C.O. NO.176/M/08 (BY ASSESSEE )(A.Y.2002-03): 63. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT ALL THE GROUNDS TAKEN IN THE C.O. ARE THE SAME A ND COVERED IN ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 38 ASSESSEE'S APPEAL IN ITA NO.398/M/06 FOR THE ASSESSMENT YEA R 2002- 03, THEREFORE THE C.O. FILED BY THE ASSESSEE MAY BE TRE ATED AS INFRUCTUOUS WHICH WAS NOT OBJECTED TO BY THE LD. DR . 64. THAT BEING SO, AND IN THE ABSENCE OF ANY CONTRARY M ATERIAL PLACED ON RECORD BY THE PARTIES, AND KEEPING IN VIEW O F OUR FINDINGS RECORDED IN ASSESSEE'S APPEAL AS ABOVE, THE GROUNDS TAKEN B Y THE ASSESSEE IN ITS C.O. DO NOT REQUIRE ANY FRESH ADJUDICATION AND ACCORDINGLY THE SAME ARE REJECTED BEING INFRUCTUOUS. ITA NO. 2935/MUM/2009(BY ASSESSEE) (A.Y.2003-04) ITA NO. 3611/MUM/2009(BY REVENUE) (A.Y.2003-04) ITA NO. 2936/MUM/2009(BY ASSESSEE) (A.Y.2004-05) ITA NO. 3609/MUM/2009(BY REVENUE) (A.Y.2004-05) 65. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THAT THE FACTS AND THE ISSUES RAISED IN THE AFORESAID APPEALS EXCEPT G ROUND NO.3 IN REVENUES APPEAL RELATING TO DEDUCTION U/S.80IA FOR ASSE SSMENT YEARS 2003-04 AND 2004-05 ARE THE SAME AS IN THE ASSESSEE'S AND REVENUES APPEAL FOR THE ASSESSMENT YEAR 2002-03, THEREFORE, THE PLEA TAKEN BY THEM IN BOTH THE APPEALS MAY BE CONSIDERED WHILE DECID ING THESE APPEALS. 66. THAT BEING SO, AND IN THE ABSENCE OF ANY CONTRARY M ATERIAL PLACED ON RECORD BY THE PARTIES AND KEEPING IN VIEW OF OUR FINDING RECORDED IN ASSESSEE'S AND REVENUES APPEAL FOR THE ASSESSMEN T YEAR ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 39 2002-03, WE DIRECT THE ASSESSING OFFICER TO FOLLOW OUR FI NDING RECORDED IN THE ASSESSEE'S APPEAL IN ITA NO.398/MUM/2006 AND IN R EVENUES APPEAL IN ITA NO.422/MUM/2006 FOR THE ASSESSMENT YEAR 2 002-03 AND ALLOW THE CLAIM OF THE ASSESSEE ON ALL THE ISSUES. WE HOLD AND ORDER ACCORDINGLY. THE GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED AND THE GROUNDS TAKEN BY THE REVENUE ARE REJECTED. 67. COMMON GROUND NO.3 IN REVENUES APPEAL FOR ASSESSMEN T YEARS 2003-04 AND 2004-05 READS AS UNDER 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE FACTS FROM RECORDS AND ALLOW THE DEDUCTION U/S. 80IA OF THE ACT AS THE ASS ESSEE NEVER CLAIMED SUCH DEDUCTION IN THE COMPUTATION OF INCOME AND BY DIRECTING THE ASSESSING OFFICER TO VE RIFY THE FACT AND ALLOW THE DEDUCTION, THE LD. CIT(A) HA S INDIRECTLY ALLOWED DEDUCTION U/S.80IA OF THE ACT TO THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE . 68. AT THE TIME OF HEARING THE LD. DEPARTMENTAL REP RESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER . 69. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE R ELIED ON THE ORDER OF THE LD. CIT(A). 70. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND T HAT BEFORE THE LD. CIT(A) IT WAS SUBMITTED BY THE ASSESSEE THAT WHERE THE I NCOME OF THE ASSESSEE IS ASSESSED AT A POSITIVE FIGURE AS A RESULT OF ADDITI ON MADE ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 40 BY THE ASSESSING OFFICER, THE ASSESSEE WOULD BE ENTITLED TO CLAIM A DEDUCTION OF 100% OF THE BUSINESS PROFITS U/S.80IA OF TH E ACT. THE LD. CIT(A) WHILE OBSERVING THAT THE SAID GROUND IS CONSEQUEN TIAL TO THE ABOVE GROUNDS, NO SPECIFIC ADJUDICATION IS CALLED FOR, H OWEVER, DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS FROM THE RECORDS AND ALLOW THE DEDUCTION ACCORDINGLY. 71. SINCE THE GROUND RAISED BY THE ASSESSEE BEFORE THE LD . CIT(A) IS A LEGAL GROUND, AND KEEPING IN VIEW THE RATIO OF DE CISION IN NATIONAL THERMAL POWER CO. LTD. VS. CIT (1998) 229 ITR 383 (S C) WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY CONSIDERED THE SA ME AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS FROM RECORDS AND A LLOW DEDUCTION ACCORDINGLY. THIS BEING SO WE ARE OF THE VIE W THAT THE COMMON GROUND RAISED BY THE REVENUE IS DEVOID OF ANY M ERIT AND ACCORDINGLY THE SAME IS REJECTED. 72. IN THE RESULT, THE ASSESSEE'S APPEALS ARE ALLOWED AND THE ASSESSEE'S C.O. AND REVENUES APPEALS STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.6.2010 SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.6. 2010. JV. ITA NO.BHARTI AIRTEL (7 APPEALS) A.Y:02-03, 03-04 & 04-05 41 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
