THE ACIT 1(3), MUMBAI V. M/S. VIDESH SANCHAR NIGAM LTD, MUMBAI

ITA 1387/MUM/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75734 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Bench Allotted: F
• Next Hearing Date: 21-11-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 25-02-2008
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Assessee Lawyers: DINESH VYAS; NIRANJAN GOVINDKAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Principle of natural justice; Additional evidence; Question of law; Difference of opinion; Commercial expediency
• Section: 143(3); 2(14); 37(1); 32; 37; 12; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO. 4220/MUM/2005 ASSESSMENT YEAR 2000-01 TATA COMMUNICATIONS LTD. (FORMERLY VIDESH SANCHAR NIGAM LTD. (VSNL) VIDESH SANCHAR BHAVAN, MAHATMA GANDHI ROAD, FORT, MUMBAI 400 001. VS. ADDL. CIT, RANGE-1(3), MUMBAI, AAYAKAR BHAVAN, 5 TH FLOOR, MAHARSHI KARVE ROAD, MUMBAI 400 020. APPELLANT RESPONDENT ITA NO. 4218/MUM/2005 ASSESSMENT YEAR 2000-01 ADDL. CIT, RANGE-1(3), MUMBAI, ROOM NO. 540, 5 TH FLOOR AAYAKAR BHAVAN, NEW MARINE LINES, MUMBAI 400 020. VS. TATA COMMUNICATIONS LTD. VIDESH SANCHAR BHAVAN, MAHATMA GANDHI ROAD, FORT, MUMBAI 400 001. APPELLANT RESPONDENT ITA NO. 1106/MUM/2008 ASSESSMENT YEAR 2000-01 TATA COMMUNICATIONS LTD. VIDESH SANCHAR BHAVAN, MAHATMA GANDHI ROAD, FORT, MUMBAI 400 001. VS. ASSISTANT CIT, RANGE-1(3), MUMBAI, AAYAKAR BHAVAN, 5 TH FLOOR, MAHARSHI KARVE MARG, MUMBAI 400 020. APPELLANT RESPONDENT 2 ITA NO. 1387/MUM/2008 ASSESSMENT YEAR 2000-01 ASSISTANT. CIT, RANGE-1(3), MUMBAI, ROOM NO. 540/564, 5 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI 400 020. VS. TATA COMMUNICATIONS LTD. LOKMANYA VIDESH SANCHAR BHAVAN, KASHINATH DHURU MARG, OPP. KIRTI COLLEGE, PRABHADEVI, MUMBAI 400 028. APPELLANT RESPONDENT A SSESSEE BY SHRI DINESH VYAS & SHRI NIRANJAN GOVINDKAR RE VENUE BY SHRI RAJESH RANJAN PRASAD ORDER PER BENCH THESE TWO SETS OF CROSS APPEALS ARE DIRECTED AGAINS T THE TWO SEPARATE ORDERS OF CIT(A) FOR THE ASSESSMENT YEAR 2000-01, ARISING FROM ASSESSMENT ORDER U/S 143(3) AND PENALTY ORDER U/S 271(1)(C) RE SPECTIVELY. THE ASSESSEE IN QUANTUM APPEAL HAS RAISED FOLLOWING GROUNDS:- 1.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN NOT ACCEPTING APPELLANTS CLAIM THA T LOSS OF RS. 512.76 CR IN VALUE OF SHARE OF ICO GLOBAL SYSTEMS WAS DEDU CTIBLE IN COMPUTATION OF BUSINESS INCOME OF THE CURRENT YEAR UNDER SECTION 28 OR SECTION 37 OR OTHER APPLICABLE PROVISIONS OF LA W AS THE INVESTMENT IN ICO GLOBAL SYSTEMS WAS MADE IN BUSINESS INTEREST WITH A VIEW TO INCREASE, PROTECT AND PROMOTE BUSINESS OF THE APPEL LANT. 1.2 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN NOT UPHOLDING:- DATE OF HEARING 12.02.2014 DATE OF PRONOUNCEMENT 07 - 03 - 2014 3 (A) THAT, PRIMARY OBJECT OF PARTICIPATION IN ICO GLOB AL SYSTEMS WAS TO PROTECT AND PROMOTE EXISTING BUSINESS ACTIVITI ES OF THE APPELLANT AND, (B) THAT, THERE WERE EVIDENCES TO SUGGEST THAT APPELLAN TS PARTICIPATION IN ICO GLOBAL SYSTEMS WAS IN BUSINESS INTEREST. 1.3 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN :- (A) UPHOLDING THAT THE DOCUMENTS FILED IN THE COURS E OF THE APPELLATE PROCEEDINGS AS PER LETTER DATED 15.01.200 3 AND 17.01.2003 WERE OF THE NATURE OF ADDITIONAL EVIDENC E AS SUCH: (B) NOT APPRECIATING THAT THE DOCUMENTS WERE OF THE NATURE OF SUPPLEMENTARY INFORMATION INCIDENTAL TO THE SUBMISS IONS MADE AND THE EVIDENCES FILED IN THE COURSE OF THE ASSESS MENT PROCEEDINGS; (C) NOT ALLOWING AN OPPORTUNITY TO YOUR APPELLANT T O CANVAS ITS CASE WITH REGARD TO ITS CONTENTIONS AT (A) AND (B) ABOVE AND, EVEN OTHERWISE TO MAKE OUT A CASE FOR ADMISSIBILITY OF ADDITIONAL EVIDENCE, IF ANY, IN TERMS OF RULE 46A 1.4 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONCLUDING, IF HE DID, THAT DETAILS OF TRAFFIC REVENUE EARNINGS FROM INMARSAT SERVICES AND EXTRACTS FROM A GREEMENT WITH INMARSAT WERE THE EVIDENCES NOT ADMISSIBLE FOR CONC LUSION. WHILE EVALUATING EVIDENCES AND EXPLANATIONS, THE CI T(A) ADVERTED TO IRRELEVANT CONSIDERATION WHILE OMITTING TO CONSIDER RELEVANT FACTORS IN PROPER PERSPECTIVE. 2. THE LEARNED AO HAS FURTHER ERRED IN DENYING THE CLAIM MADE U/S 80IA AMOUNTING TO RS. 4,553,478,096/- 3. THE LEARNED AO HAS FURTHER ERRED IN NOT ALLOWING DEPRECIATION ON GATEWAY DIGITAL SWITCHES (GDS) AT THE RATES APPLICA BLE FOR COMPUTERS AND INSTEAD ALLOWING DEPRECIATION AT THE RATES APPL ICABLE FOR PLANT & MACHINERY. THIS HAS RESULTED IN UNDER ALLOWANCE OF DEPRECIATION ON GDS BY RS. 241,647,303/- 4 GROUND NO. 1.1 TO 1.4 IS REGARDING DISALLOWANCE OF CLAIM OF BUSINESS LOSS OF RS. 512.76 CRORES. 2. BRIEF FACTS EMERGING FROM THE RECORD ARE THAT TH E ASSESSEE VIDESH SANCHAR NIGAM LTD. (VSNL) WAS A GOVT. OF INDIA ENTERPRISE D URING THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF PROVIDING INTERNATIONAL TELECOMMUNICATION SERVICES IN INDIA. VSNL WAS A MEMBER OF INTERNATIONAL MARITIME SATELLITE ORGANISATION (INMA RSAT) , UK, A BODY COMPRISING OF TELECOMMUNICATION COMPANIES/AUTHORITIES TO VARIO US COUNTRIES. IN ORDER TO DIVERSIFY AND ADVANCEMENT OF ITS EXITING BUSINESS I NTO THE SHED OF GLOBAL MOBILE PERSONAL COMMUNICATION ON SATELLITE (GNPCS), INMAR SAT INCORPORATED A COMPANY NAMELY ICO GLOBAL COMMUNICATION (HOLDINGS L TD.) IN SHORT ICO GLOBAL IN UNITED KINGDOM, (U.K.) VSNL BEING A MEMBER OF INMAR SAT AS WELL AS IN ITS CAPACITY AS AUTHORIZED INITIAL INVESTOR WAS ENTITLE D TO APPLY AND OBTAIN 6.7% OF THE OWNERSHIP OF THE SAID COMPANY ICO GLOBAL. DUE TO CE RTAIN EVENTS TOOK PLACE IN THE FILED OF TELECOMMUNICATION RESULTING FAILURE OF BUSINESSES PARTICULARLY IN THE AREA OF STATIONING OF SATELLITE IN THE EARTH ATMOSP HERE. ICO GLOBAL BEING IN THE PROCESS OF SIMILAR BUSINESS ALSO FAILED TO PROCEED FURTHER AND FILED A VOLUNTARY BANKRUPTCY PROTECTION IN US COURT IN DELAWARE ON AU GUST 27 TH 1999. UNDER A RESTRUCTURING PLAN APPROVED BY U.S. COURT OF BANK RUPTCY, A COMPANY NAMELY NEW ICO GLOBAL WAS TO BE INCORPORATED. THE EQUITY S TAKE OF EXISTING INVESTORS IN THE RESTRUCTURED COMPANY STANDS SUBSTANTIALLY REDUC ED. VSNLS INVESTMENT HAS BEEN WRITTEN DOWN APPROXIMATELY 1% IN THE RESTRUCT URING COMPANY I.E. NEW ICO GLOBAL. THE ASSESSEE (VSNL) PROVIDED FOR WRITE DOW N OF ICO GLOBAL INVESTMENT TO 5 THE TUNE OF RS. 5,12,75,96,000/- AND CLAIMED AS AN EXPENDITURE IN THE PROFIT & LOSS ACCOUNT TOWARDS INVESTMENT WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION. THE AO QUESTIONED THE CLAIM BEING REVENUE EXPENDITU RE. IN RESPONSE THE ASSESSEE EXPLAINED THE FACT AND CIRCUMSTANCES AS WE LL AS THE OBJECT FOR WHICH THE INVESTMENT WAS MADE IN ICO GLOBAL. THE MAIN CONTENT ION OF THE ASSESSEE WAS THAT IT WAS A PRUDENT BUSINESS DECISION TO BE THE P ART OF CUTTING EDGE TECHNOLOGY, IN ORDER TO SUSTAIN AND RETAIN ITS POSITION IN THE FIELD OF INTERNATIONAL TELECOMMUNICATION NOT ONLY IN INDIA BUT ALSO ON INT ERNATIONAL SCENE. IT WAS SUBMITTED THAT THE INVESTMENT WAS MADE WITH A VIEW TO EXPAND BUSINESS BY USING THE ADVANCED TECHNOLOGY AVAILABLE, AND, THEREFORE, IT WAS FOR COMMERCIAL EXPEDIENCY. EXPLAINING THE ADVANTAGES, IF EVERYTHIN G WOULD HAVE GONE AS PER THE OBJECTS AND NORMAL PLAN, THE ASSESSEE CLAIMED THAT THE EXPENDITURE INCURRED BY VSNL IN ORDER TO GET THE FOOT HOLD IN THE INTERNATI ONAL TELECOMMUNICATION THROUGH ICO GLOBAL WAS EXPENDITURE ON GETTING IN THE NEW TE LECOMMUNICATION NETWORK/SATELLITE BASED MOBILE TELECOMMUNICATION SY STEM WHICH WOULD HAVE ENABLED TRANSMISSION OF NOT ONLY VOICE BUT DATA, IM AGES, ELECTRONIC SIGNALS AND SO ON AND ALSO ACT A GLOBAL POSITION ASCERTAINING SYST EM THE WORLD OVER AND THE EXPENDITURE AS SUCH WAS TOWARDS THAT GOAL. THE ASS ESSEE SUBMITTED THAT THE EXPENDITURE DID NOT GIVE RISE TO ANY CAPITAL ASSET NOR A BENEFIT OF ENDURING NATURE TO VSNL AND HENCE IS ALLOWABLE U/S 37(1) IN COMPUTI NG ITS TOTAL INCOME. THUS THE ASSESSEE CONTENDED BEFORE THE AO THAT THE INVESTMEN T IN THE SHARES OF GLOBAL ICO WAS MADE FOR THE PURPOSE OF BUSINESS AND WRITING O FF SUCH INVESTMENT IS ALLOWABLE AS BUSINESS LOSS. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THE WRITE OFF OF RS. 5,12,75,96,000/ IN SHARES OF ICO GLOBAL IS NOT BUSINESS EXPENDITURE IN THIS YEAR, THE SAME WAS, TH EREFORE, DISALLOWED AND ADDED 6 TO THE TOTAL INCOME OF THE ASSESSEE. THE AO WAS AL SO OF THE VIEW THAT ITS CAPITAL LOSS WHICH HAS OCCURRED IN THE A.Y. 2001-02 AND NOT IN THE A.Y. UNDER CONSIDERATION BECAUSE THE RESTRUCTURING PLAN WAS AP PROVED BY THE US COURT IN MAY 2000, AND THE ASSESSEE HAS ALSO CLAIMED WRITING OFF, THE INVESTMENT TO THE TUNE OF RS. 5.17 CRORE IN THE A.Y. 2001-02. 3. ON APPEAL, CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY AO BY PLACING RELIANCE ON THE VARIOUS DECISIONS OF HONBLE SUPREM E COURT AS WELL AS THE DECISIONS OF HONBLE HIGH COURTS. 4. BEFORE US, THE SHRI DINESH VYAS, LD. SENIOR COUN SEL FOR THE ASSESSES HAS SUBMITTED THAT DURING THE LAST DECADE OF THE 20 TH CENTURY, THE TELECOM SECTOR WAS WITNESSING A HUGE SURGE IN RESEARCH & DEVELOPMENT OF ALTERNATIVE TECHNOLOGIES. ONE SUCH TECHNOLOGY WAS ICO I.E. INTERMEDIATE CIRCU LAR ORBIT. ICOS GOAL WAS TO ESTABLISH AND OPERATE A SATELLITE BASED MOBILE TELE COM SYSTEM. THE TECHNOLOGY WAS AIMED AT PROVIDING MOBILE COMMUNICATION TO USER S THROUGHOUT THE WORLD. THE OBJECT OF THIS TECHNOLOGY WAS TO INCLUDE RURAL AREAS AND DIFFICULT TERRAIN NOT COVERED BY THE EXISTING NETWORKS AND ALSO TO HAVE G LOBAL ROAMING ANYWHERE IN THE WORLD WITH A SINGLE NUMBER. IN ORDER TO SUSTAIN AND RETAIN ITS POSITION IN THE FIELD OF INTERNATIONAL TELECOMMUNICATION, THE VSNL AS A P RUDENT BUSINESS ENTITY DECIDED TO BE A PART OF THE CUTTING EDGE OF TECHNO LOGY. THE LD. SENIOR COUNSEL HAS EXPLAINED THAT IT WAS RESOLVED IN THE GENERAL ASSEMBLY OF UN THAT THE COMMUNICATION BY MEAN OF SATELLITE SHOULD BE AVAILA BLE TO THE NATION OF WORLD SINCE PRACTICABLY ON THE GLOBAL AND ON NON DISCRIMI NATORY BASIS. AFTER CONSIDERING THE RESOLUTION NO. 1721 (XVI) ON THE INTERNATIONAL MARITIME SATELLITE ORGANIZATION (INMARSAT) IS CONSIDERED RELEVANT PROVISIONS OF TRE ATY ON MEMBERS GOVERNING 7 THE ACTIVITY OF STATES IN EXPLORATION AND USE OF OU TER SPACE INCLUDING THE MOON AND OTHER CELESTIAL BODIES CONCLUDED ON 27 TH DAY OF 1967 AND IN PARTICULAR ARTICLE 1 WHICH STATES THAT OUTER SPACE SHALL BE USED FOR T HE BENEFIT AND INTEREST OF ALL THE COUNTRIES, IT WAS ALSO CONSIDERED AND AFFIRMED BY T HE STATE PARTIES TO THE COUNTRIES THAT MARITIME SEATTLEITE SYSTEM SHALL ALS O BE OPEN FOR AERONAUTICAL AND LAND MOBILE CONNECTIONS AND COMMUNICATION ON WATERS NOT PART OF MARI ENVIRONMENT FOR THE BENEFIT OF ALL NATIONS. THE LD. SENIOR COUNSEL THUS SUBMITTED THAT INMARSAT WAS ESTABLISHED FOR THE PURPOSE TO MA KE PROVISION FOR SPACE SEGMENT NECESSARY FOR IMPROVING MARITIME CONNECTION AS PRACTICABLE, AERONAUTICAL AND LAND MOBILE CONNECTIONS ETC. IT WA S ALSO RESOLVED THAT THE ORGANIZATION SHALL BE FINANCED BY THE CONTRIBUTION OF SIGNATORIES. EACH SIGNATORY WHO HAS FINANCED INTEREST IN THE ORGANIZATION IN PA RTICIPATION TO ITS INTEREST SHARE SHALL BE DETERMINED IN ACCORDANCE WITH THE OPERATIN G AGREEMENT. THE ORGANIZATION SHALL OPERATE ON SOUND ECONOMIC AND FI NANCIAL BASIS HAVING REGARD TO THE ACCEPTED COMMERCIAL PRINCIPLES. VSNL BEING MEMB ER OF INMARSAT AND AS A PRUDENT BUSINESS ENTITY HAD DECIDED TO INVEST IN TH E SHARES OF ICO GLOBAL TO TAKE ADVANTAGE OF THE CUTTING EDGE TECHNOLOGY IN THE FIE LD OF INTERNATIONAL TELECOMMUNICATION. IN VIEW OF THE IMMENSE BUSINESS OPPORTUNITIES ARISING FROM ICO TECHNOLOGY, VSNL DECIDED TO INVEST IN THIS PROJ ECT ALONGWITH OTHER COMPANIES AND SOUGHT GOVERNMENT APPROVAL FOR IT. THE LD. SENI OR COUNSEL HAS REFERRED TO THE PROPOSAL OF VSNL FOR INVESTMENT IN THE ICO GLOB AL AND THE APPROVAL GRANTED BY GOVT. OF INDIA ON BEING SATISFIED THAT THE INVES TMENT IN THE PROJECT WAS IN THE BUSINESS INTEREST OF THE VSNL. HE HAS FURTHER CONTE NDED THAT THE GOVERNMENT WOULD HAVE NEVER GIVEN ITS APPROVAL FOR THIS HUGE I NVESTMENT HAD IT BEEN A MERE FINANCIAL INVESTMENT FOR EARNING DIVIDEND OR INTERE ST INCOME. HE HAS REFERRED TO 8 THE COMMUNICATION DATED 11 TH JANUARY 1995 BY GOI, MIN. OF TELECOMMUNICATION TO THE VSNL, GRANTING APPROVAL FOR INVESTMENT IN IC O GLOBAL AND SUBMITTED THAT THE APPROVAL WAS GRANTED SUBJECT TO THE CONDITION T HAT THE INVESTORS IN SUCH COMPANY MUST AGREE TO LOCATE ONE OF THE SATELLITE ACCESS NODES (SAN) IN INDIA AND VSNL SHOULD TO PULL OUT AND KEEP FURTHER OPTIO NS OPEN IN CASE ONE SAN IS NOT LOCATED IN INDIA. IT WAS ALSO OBSERVED THAT WHILE S UBMITTING THE PROPOSAL FOR OBTAINING GOVERNMENTS APPROVAL, THE MATERIAL VOLUM E OF TOTAL TRAFFIC GENERATED ESPECIALLY KEEPING IN VIEW, THE OTHER PARTIES LIKEL Y TO COME ON BOTH GLOBAL AND REGIONAL BASIS SHOULD BE STUDIED CAREFULLY. THUS TH E LD. SENIOR COUNSEL HAS SUBMITTED THAT THE INVESTMENT WAS FOR BUSINESS PURP OSE AND COMMERCIAL EXPEDIENCY AND NOT A MERE FINANCIAL INVESTMENT FOR EARNING THE DIVIDEND INCOME. THE INVESTMENT WAS MADE AFTER VERIFYING TELECOM BUS INESS OF VSNL AS THE INVESTMENT IN ICO GLOBAL. THE BENEFIT OF THE PROJEC T IN WHICH THE INVESTMENT WAS MADE BY VSNL INCLUDES PARTICIPATION IN LATEST TECHN OLOGY, POSITIONING OF VSNL AS A LEADER IN MOBILE COMMUNICATION, SPREAD OF TECHNOLOG Y IN RURAL AREAS, OPPORTUNITIES TO MARKET SERVICES BASED ON ICO TECHN OLOGY AS A NATIONAL WHOLESALE SERVICE PROVIDER AND TO EARN REVENUES THEREFROM. VS NL WAS TO BE ENTRUSTED WITH OPERATION & MAINTENANCE OF SATELLITE ACCESS NODES ( SAN) I.E. THE EARTHSTATION/HUB TO BE ESTABLISHED BY ICO IN INDIA AND VSNL WAS TO EARN REVENUE THEREFROM. THE VSNL WAS ALSO TO GET OPPORTUNITY TO BE EXCLUSIVE SERVICE PROVIDER OF SATELLITE MOBILE SERVICES IN INDIA. IT WAS ALSO CONTEMPLATED THAT VSNL WOULD GET A SEAT ON THE BOARD OF DIRECTORS OF ICO. THERE WAS ALSO POSSIBILITY OF GETTING BUSINESS OF OBTAINING HARDWARE AND SOFTWARE SUPPLY CONTRACTS. THE LD. SENIOR COUNSEL HAS REFERRED THE DETAILS OF THE REVENUE EAR NED BY THE VSNL AS A RESULT OF THE OPERATION AND MAINTENANCE OF SATELLITE ACCESS N ODES OF ICO AND SUBMITTED 9 THAT VSNL EARNED REVENUE OF RS. 53,00,00,000/- ON T HIS ACCOUNT. SINCE THE INVESTORS SHIED AWAY FROM PUTTING FURTHER FUNDS, IC O WAS UNABLE TO RAISE FUNDS FOR ITS PROJECTS AND CONSEQUENTLY FILED BANKRUPTCY PETI TION IN THE COURT. AS PER THE RESTRUCTURING PLAN/PACKAGE WHICH WAS APPROVED BY TH E US COURT, A NEW COMPANY NAMELY NEW ICO LTD WAS INCORPORATED /CREATED AND I CO GLOBAL STAND LIQUIDATED. VSNL GOT THE ALLOTMENT OF 1% SHARE IN THE NEW ICO G LOBAL AND AS SUCH HIS INVESTMENTS WERE SUBSTANTIALLY REDUCED THEREBY RESU LTING A LOSS IN QUESTION. VSNL INVESTMENT WAS WRITTEN DOWN TO APPROXIMATELY 1% RES ULTING LOSS OF RS. 512.75 CRORES, WRITTEN OFF IN THE YEAR UNDER CONSIDERATION . A FURTHER LOSS OF RS. 5.17 CRORE WAS WRITTEN OF IN THE ASSESSMENT YEAR 2000-01. THE LD. SENIOR COUNSEL HAS EXPLAINED THAT A VOLUNTARY BANKRUPTCY WAS FILED ON 27 TH AUGUST 1999. NEW ICO WAS INCORPORATED ON 17 TH MARCH, 2000 AND RESTRUCTURING PLAN WAS SUBMITTED TO US COURT ON 20 TH MARCH 2000. THE COURT ADMITTED THE RESTRUCTURING P LAN ON 21 ST MARCH, 2000. THOUGH THE RESTRUCTURING PLAN WAS APPR OVED ON 16 TH MAY, 2000 AND SHARES OF NEW ICO WERE ALLOTTED ON 5 TH SEPTEMBER, 2000, HOWEVER, WHEN THE BANKRUPTCY WAS FILED IN THE YEAR 1999 AND NEW ICO W AS INCORPORATED ON 17 TH MARCH 2000 AS WELL AS THE RESTRUCTURING PLAN WAS A LSO ADMITTED IN THE COURT ON 21 ST MARCH 2000 THEN THE LOSS WRITTEN OFF BY ASSESSEE W AS BASED UPON THE RESTRUCTURING PLAN AND, THEREFORE, IT WAS TO THAT E XTENT AN ASCERTAINED LOSS ALLOWABLE IN THE YEAR UNDER CONSIDERATION. HE HAS R EFERRED TO THE NOTES TO THE RETURN OF INCOME, TAX AUDIT REPORT DEALING WITH THE CLAIM OF ASSESSEE IN RESPECT OF ICO GLOBAL, DIRECTORS REPORT, NOTES ON ACCOUNTS AN D SUBMITTED THAT THESE DOCUMENTS CLEARLY EXHIBIT INTENTION AND OBJECTIVE O F INVESTMENT FOR THE BUSINESS PURPOSE OF VSNL. THE DIRECT NEXUS OF INVESTMENT WIT H THE CORE BUSINESS OF THE VSNL AND NOT FOR ANY DIVIDEND OR INTEREST INCOME. HE HAS FURTHER SUBMITTED THAT 10 THE SHARE HOLDERS OF ICO GLOBAL ALONE WOULD BE ENTI TLED TO THE BENEFIT OF OPERATION AND MANAGEMENT OF THE BUSINESS. THE MOU S IGNED BETWEEN THE VSNL AND ICO BRINGS OUT THE BENEFITS WHICH WERE TO FLOW TO THE VSNL AS A PARTY TO THE INVESTMENT. THUS IT IS TO BE NOTED THAT GOVERNMENT APPROVAL AND OTHER FACTORS AS EXPLAINED BRING OUT THE DIRECT NEXUS BETWEEN THE IN VESTMENT AND BUSINESS INTEREST OF THE ASSESSEE. THE LD. COUNSEL HAS RELI ED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PATNAIK & CO. LTD. V. COMMISSIONER OF INCOME-TAX ( 161 ITR 365) AND SUBMITTED THAT THE DECISION OF HO NBLE SUPREME COURT SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LD . SENIOR COUNSEL HAS POINTED THAT IN THE CASE OF PATNAIK & CO. LTD. V. COMMISSIO NER OF INCOME-TAX (SUPRA), THE ASSESSEE INVESTED IN THE GOVT. SECURITIES/BONDS AS HE WAS ASSURED FOR PREFERENTIAL TREATMENT IN PLACING OF ORDERS FOR MOTOR VEHICLES R EQUIRED BY THE GOVERNMENT DEPARTMENTS AND TO THE FURTHER BENEFIT OF AN ADVANC E FROM THE GOVERNMENT UP TO 50 PERCENT, OF THE VALUE OF THE ORDERS PLACED. THE ASSESSEE IN THE SAID CASE PURCHASED GOVERNMENT SECURITIES/BONDS AND SUFFERED LOSS ON THE INVESTMENT. THE HONBLE SUPREME COURT HELD THAT THE GOVERNMENT BOND S/SECURITIES WERE PURCHASED BY THE ASSESSEE WITH A VIEW TO INCREASE H IS BUSINESS WITH THE GOVERNMENT OR WITH THE OBJECT TO RETAIN THE GOOD WI LL OF THE AUTHORITIES FOR THE PURPOSE OF HIS BUSINESS, THE LOSS INCURRED ON SALE OF SUCH BONDS/SECURITIES WAS ALLOWABLE AS BUSINESS LOSS. THE LD. COUNSEL HAS ALS O RELIED UPON THE FOLLOWING DECISIONS:- (I) CAMLIN PRIVATE LTD VS. THE I.A.C (ITA NO. 928/BOM/8 8 (II) DCIT VS. COLEGATE PALMOLIVE INDIA LIMITED (ITA NO. 5485/MUM/2009 DATED 25 TH OCTOBER 2009) (III) PATNAIK & CO. LTD. VS. CIT (161 ITR 365) (SC) 11 (IV) PATNAIK & CO. LTD. (117 ITR 388) (ORI) (V) GANNON DUNKERLEY ( 119 ITR 595) (BOM) 5. LD. SENIOR COUNSEL THEN REFERRED THE DECISION DA TED 25.10.2011 OF THIS TRIBUNAL IN THE CASE OF DCIT VS. COLGATE PALMOLIVE INDIA LTD IN ITA NO. 5485/MUM/2009, AND SUBMITTED THAT OBJECTIONS AND TH E GROUNDS OF THE AUTHORITIES BELOW AS BEEN DEALT WITH BY THE TRIBUNA L IN THE SAID DECISION SO FAR AS IT RELATES TO THE POINT THAT INVESTMENT IN SUBSIDIA RIES WAS SHOWN AND DISCLOSED AS PER THE REQUIREMENT UNDER SCHEDULE VI TO THE COMPAN IES ACT, BUT THE SAME CANNOT NEGATE THE FACT THAT SUCH INVESTMENTS ARE MA DE ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. HE HAS POINTED OUT THAT IN THE SAID DECISION THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PATNAIK & CO. LTD AND HELD THAT AS LONG AS INVESTMENT IS JUSTIFIE D ON THE GROUND OF COMMERCIAL EXPEDIENCY THE LOSS ON SALE OF SUCH INVESTMENT HAS TO BE CONSIDERED AS BUSINESS LOSS. THE NATURE OF BUSINESS EXPEDIENCY COULD VARY FROM CASE TO CASE BUT WHAT IS IMPORTANT IS THAT THERE MUST BE AN UNDERLYING MOTIV E TO SERVE BUSINESS INTEREST OF THE ASSESSEE IN MAKING SUCH INVESTMENT. THE LD. SEN IOR COUNSEL THEN REFERRED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. GANNON DUNKERLEY & CO. LTD. (119 ITR 595) (BOM) AND SUBMIT TED THAT IN THE SAID CASE ASSESSEE, BUILDING CONTRACTOR WHILE TENDERING FOR C ONTRACTS WITH THE GOVERNMENT WAS REQUIRED TO DEPOSIT VARIOUS AMOUNTS. THE DEPOSI T COULD BE MADE EITHER IN CASH, WHICH YIELDED NO INTEREST OR IN GOVERNMENT SE CURITIES. THE ASSESSEE ACQUIRED CERTAIN GOVERNMENT SECURITIES AND LODGED T HEM WITH THE GOVERNMENT AND OTHER AUTHORITIES FROM TIME TO TIME. THE INTERE ST RECEIVED BY THE ASSESSEE ON THE SECURITIES WAS INCLUDED IN ITS PROFITS. IN THE RELEVANT ASSESSMENT YEARS, THE ASSESSEE CLAIMED AN ALLOWANCE OF THE LOSS SUFFERED BY IT ON THE SALE OF CERTAIN 12 GOVERNMENT SECURITIES IN DETERMINATION OF ITS BUSIN ESS PROFITS AS LOSS INCIDENTAL TO BUSINESS. THE HONBLE HIGH COURT HAS HELD THAT THE ASSSESSEE HAD NOT INVESTED IN GOVERNMENT SECURITIES AS AN INVESTMENT BUT PREFERRE D TO MAKE DEPOSIT BY WAY OF GOVERNMENT SECURITIES AT THE TIME OF TENDERING FOR CONTRACT INSTEAD OF MAKING DEPOSIT IN CASH WHICH WOULD YIELD NO INTEREST, THAT THE OPERATION CONNECTED WITH THE DISPOSAL OF THE SECURITIES WAS AN INTEGRAL PART OF THE ASSESSEES BUSINESS OPERATIONS, THAT THE SECURITIES BY THEMSELVES CANNO T BE CONSIDERED AS ATTRACTIVE INVESTMENT. ANY LOSS SUFFERED BY THE ASSESSEE WHEN SECURITIES WERE DISPOSED OFF SHOULD BE ALLOWED AS DEDUCTION IN COMPUTING BUSINES S PROFITS. LD. COUNSEL THEN REFERRED THE DECISION OF HONBLE HIGH COURT OF MADR AS IN THE CASE OF INDIAN COMMERCE AND INDUSTRIES CO. VS. CIT ( 213 ITR 533) AND SUBMITTED THAT THE LOSS ARISING ON SALE OF SHARES IN A COMPANY WAS CLAIMED BY THE ASSESSEE AS BUSINESS LOSS SUPPORTED BY THE CORRESPONDENCE BETWEEN THE AS SESSEE AND COMPANY TO SHOW THAT THE SHARES WERE PURCHASED ONLY ON BEING P RESSURIZED BY THE SAID COMPANY AND WITH THE INTENTION OF OBTAINING MORE B USINESS FROM THEM. THE HONBLE HIGH COURT HAS HELD THAT SHARES WERE PURCHA SED BECAUSE OF COERCION BY THE COMPANY AND ALSO WITH A VIEW TO INCREASE ASSESS EES BUSINESS WITH THE COMPANY. HENCE THERE WAS A NEXUS BETWEEN THE BUSINE SS OF THE ASSESSEE AND PURCHASE OF SHARES. THE LOSS ON SALE OF SHARES WAS HELD AS ALLOWABLE BUSINESS LOSS. THE LD. SENIOR COUNSEL THEN REFERRED THE DECISION O F THIS TRIBUNAL IN THE CASE OF ACIT VS. M/S CAROL INFO SERVICES LTD, IN ITA NO. 57 96/MUM/2006 VIDE ORDER DATED 26 JUNE 2009 AND SUBMITTED THAT IN THE SAID CASE TH E ASSESSEE ENTERED INTO A JOINT VENTURE IN CHINA AND GAVE ADVANCE AMOUNTING TO RS. 2.63 CRORE. THE ASSESSEE HAD TO EXIT FROM THE SAME DUE TO ADVERSE CIRCUMSTANCES IN CHINA. THE SAID PROJECT WAS ABORTED AND WAS NEVER REVIVED SO FAR AS THE ASSESSE E WAS CONCERNED. THE TRIBUNAL 13 HAS HELD THAT THE EXPENSES INCURRED IN CONNECTION W ITH ABORTIVE PROJECTS ARE REVENUE IN NATURE. HE HAS ALSO RELIED UPON THE FOLL OWING DECISIONS:- (I) DB BIST & SONS (243 ITR 179) (DEL) (II) UPPER DOAB SUGAR MILLS LTD. (188 ITR 190) (ALL ) (III) S B SUGAR MILLS (187 ITR 441) (MAD) (IV) B M S (P) LTD (11 CTR 149) (MAD) 6. ON THE POINT OF ALLOWABILITY OF LOSS IN THE YEAR UNDER CONSIDERATION, THE LD. SENIOR COUNSEL HAS REFERRED THE CIRCULAR NO. 35-D D ATED 24 TH NOVEMBER 1965 AND SUBMITTED THAT THE LOSS IS ALLOWABLE IN THE YEAR OF DISCOVERY. HE HAS ALSO RELIED UPON THE DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF DINESH MILLS LTD. VS. CIT (254 ITR 673) AND SUBMITTED THAT THE DEDUC TION OF LOSS IS ALLOWABLE IN THE YEAR IN WHICH THE ASSESSEE HAS DISCOVERED THE LOSS. IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS WRITTEN OFF THE LOSS WHEN THE ICO GLOBAL HAS FILED BANKRUPTCY PETITION IN THE COURT AND, THEREFORE, THE CLAIM OF THE ASSESSEE IS BASED ON THE DECLARATION OF BANKRUPTCY BY THE ICO GLOBAL DURING THE YEAR UNDER CONSIDERATION. IN SUPPORT OF HIS CONTENTIONS HE HAS ALSO RELIED U PON THE FOLLOWING DECISIONS:-. (I) TADALAM G. DWARAKANATH AND CO. ( 239 ITR 831) ( KAR) (II) CIT VS. MOHAN TRADING CO. (182 ITR 101) (DEL) (III) ITO VS. AG GAS AGENCY (38 ITD 589) (AHD) (IV) PUNJAB STEEL STOCKHOLDERS SYNDICATE LTD. (125 ITR 519) (P&H). 14 7. IN SUMMARIZING HIS CONTENTION THE LD. SENIOR COU NSEL HAS SUBMITTED THAT BY INVESTING IN THE SHARES OF ICO, THE VSNL ENCOMPASSE D REGULAR BUSINESS OPPORTUNITIES FROM ICO UNDER MOU, SIGNED BETWEEN TH E PARTIES. VSNL WAS RECOGNIZED BY THE COUNCIL AS EXCLUSIVE SERVICE PROV IDER IN INDIA OF SERVICES BASED ON ICO TECHNOLOGY AND SAN FOR ASIA REGION WAS AGREE D TO BE ESTABLISHED BY ICO IN INDIA AND VSNL WAS TO BE ENTRUSTED WITH OPERATION A ND MANAGEMENT OF SAID EARTHSTATION COMMON TO THE TERRITORY OF ASIA. THE O PERATION AND MANAGEMENT OF SAN CONTRACT WAS SIGNED IN NOV. 1997 AND AGGREGATE REVENUE OF ABOUT 52.70 CRORES HAS BEE N EARNED PURSUANT TO SUCH AGREEMENT. THE LD SENIOR COUNSEL HAS REFERRED THE DETAILS OF THE REVENUE EARNED BY THE V SNL FROM OPERATION AND MANAGEMENT OF EARTHSTATION PLACED AT PAPER BOOK AND SUBMITTED THAT REVENUE HAS BEEN ASSESSED AS BUSINESS INCOME OF THE ASSESSE E FOR THE RELEVANT ASSESSMENT YEARS. THEREFORE, THERE IS DIRECT NEXUS BETWEEN THE INVESTMENT AND THE BUSINESS OF THE VSNL HE HAS SUBMITTED THAT VSNL WAS GUIDED B Y PURE BUSINESS CALCULATIONS IN DECIDING UPON THE PARTICIPATION IN ICO BECAUSE T HE VSNL WOULD HAVE BEEN ENTITLED TO RETAIN AND PROTECT ITS BUSINESS AND POS ITION IN THE BUSINESS SO LONG AS VSNL MAINTAIN ITS EFFICACY AND CALIBER IN DELIVERIN G THE SERVICES BY ACCESSING THIS OPPORTUNITY. THE LD. SENIOR COUNSEL HAS REFERRED TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE AO AND CIT(A) ARE GUIDED BY THE MEMORANDUM OF ICO WHICH IS NOT RELEVANT . SO FAR AS THE CLAIM OF THE ASSESSEE FOR BUSINESS LOSS IS CONCERNED WHEN THE ASSESSEE HAS BROUGHT OUT THE FAC T THAT AS PER THE MOU SIGNED BY THE VSNL WITH ICO, IT HAS MADE IT CLEAR T HAT THE BENEFIT WHICH WERE TO FLOW TO VSNL AS PARTY TO THE INVESTMENT. THEREFORE, THERE WAS A CLEAR BUSINESS NEXUS WITH THE INVESTMENT WHICH WAS APPROVED BY THE GOVERNMENT. FURTHER THE AUTHORITIES BELOW ARE INFLUENCED BY THE TREATMENT O F HE INVESTMENT IN THE BOOKS 15 OF ACCOUNTS WHEREAS THE ALLOWABILITY OF EXPENDITURE WOULD NOT DEPEND ON THE BOOK ENTRIES BUT HAS TO BE ALLOWED AS PER THE PROVI SIONS OF LAW. HENCE, THE LD. COUNSEL HAS PLEADED THAT THE CLAIM OF THE ASSESSEE TO BE ALLOWED AS BUSINESS LOSS. 8. PER CONTRA, THE LD. DR HAS SUBMITTED THAT FOR TH E ASSESSMENT YEAR 2001-02, THE ASSESSEE HAS MADE AN ALTERNATIVE CLAIM AND PLEA OF ALLOWABILITY OF CAPITAL LOSS IN RESPECT OF THE LOSS IN THE INVESTMENT OF SHARES OF ICO GLOBAL. THE LD. DR THEN SUBMITTED THAT WHEN THE ASSESSEE ITSELF HAS ADMITTE D THE LOSS IN QUESTION AS CAPITAL LOSS FOR THE A.Y. 2001-02 THEN CLAIM IS NOT SUSTAINABLE FOR THE YEAR UNDER CONSIDERATION AS REVENUE LOSS. HE HAS FURTHER SUBMI TTED THAT WHEN ASSESSEE ITSELF IS NOT FULLY CONVINCED REGARDING THE LOSS ON THE VA LUE OF SHARES IN ICO GLOBAL AS REVENUE LOSS AS IT HAD TAKEN AN ALTERNATIVE PLEA TO TREAT IT AS A CAPITAL LOSS FOR THE ASSESSMENT YEAR 2001-02, THEN THE CLAIM OF REVENUE LOSS /BUSINESS LOSS OF RS 5,12,75,96,000/- DESERVES REJECTION. HE HAS HEAVILY RELIED UPON THE ORDERS OF AO AND CIT(A) AND SUBMITTED THAT THE AO AS WELL AS CIT (A) HAS DECIDED THE ISSUE BY DISCUSSING THE FACTS AS WELL AS THE ALLOWABILITY ON THE CLAIM ELABORATELY. THE ASSESSEE ITSELF HAS TREATED THE INVESTMENT AS LONG TERM INVESTMENT IN SCHEDULE 5 OF THE BALANCE-SHEET, THEREFORE, IT CANNOT BE ALLOW ED AS REVENUE LOSS. HE HAS REFERRED TO PARA 4.4 AND 4.5 OF THE ASSESSMENT ORDE R IN SUPPORT OF HIS CONTENTION. FURTHER THE ASSESSEE DID NOT SELL THE SHARES OF IC O GLOBAL SO AS TO CLAIM AS TRADING LOSS IN SHARES. THE VALUE OF THE SHARES HAS BEEN RE DUCED DUE TO BANKRUPTCY OF ICO GLOBAL, THEREFORE, THERE IS NO EXPLICIT BUSINESS AC TIVITY LEADING TO LOSS IN THE VALUE OF SHARES. THE LD. DR HAS FORCEFULLY CONTENDED THAT THERE WAS NOT ASSURANCE OR GUARANTEE BY THE ICO GLOBAL FOR PROVIDING ANY BUSIN ESS TO THE ASSESSEE AGAINST THE SAID INVESTMENT. THE LOSS ON SHARES HAS NO CONN ECTION WITH THE TRADING ACTIVITY OF THE ASSESSEE, THEREFORE, IT CANNOT BE C LAIMED AS REVENUE LOSS. THE 16 INVESTMENT WAS MADE IN THE YEAR 1995-96 AND, THEREF ORE, IT FALLS UNDER THE CATEGORY OF LONG TERM INVESTMENT AND LOSS IN THE VA LUE OF SUCH INVESTMENT CANNOT BE CLAIMED AS REVENUE LOSS BY WRITING OFF THE VALU E. THE ASSESSEE HAS NOT BROUGHT ON RECORD TO SHOW ANY BUSINESS EXIGENCIES FOR MAKI NG THE INVESTMENT IN THE ICO GLOBAL, THERE WAS NOT ASSURANCE FROM THE ICO GLOBAL TO THE ASSESSEE THAT THE RETURN OF INVESTMENT IN THE SHARES OF ICO GLOBAL I T WILL AWARD ANY PREFERENTIAL TREATMENT OR GIVE ANY BUSINESS TO THE ASSESSSEE. H E HAS ALSO REFERRED TO THE PROSPECTUS AND MEMORANDUM OF ICO GLOBAL AND SUBMITT ED THAT OBJECTIVE OF THE ICO GLOBAL DOES NOT INDICATE ANY SUCH PREFERENCE T O ASSESSSEE OR ANYONE WHO BUYS THE SHARES OF THE ICO GLOBAL. THE DECISIONS RE LIED UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THERE IS NO DIRECT NEXUS BETWEEN THE INVESTMENT AND THE BUSINESS ACTIVITY OF THE ASS ESSEE. THE LD. DR HAS REFERRED THE DEFINITION OF THE CAPITAL ASSET IN TERMS OF SEC TION 2(14) OF THE INCOME TAX ACT AND SUBMITTED THAT THE SHARES ACQUIRED BY THE ASSES SEE FALLS UNDER THE DEFINITION OF CAPITAL ASSET AND THE ASSESSEE ITSELF HAS TREATE D THE INVESTMENT AS CAPITAL INVESTMENT AND NOT AS STOCK IN TRADE. HE HAS REFERR ED THE IMPUGNED ORDER OF CIT(A) AND SUBMITTED THAT THE LOSS IN QUESTION CAN NOT BE ALLOWED AS BUSINESS EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT, BECAUS E THE INVESTMENT WAS NOT TREATED AS AN EXPENDITURE BUT IT WAS HELD AS AN INV ESTMENT BY THE ASSESSEE. FURTHER THE CLAIM OF LOSS U/S 28 AND 29 OF INCOME T AX ACT ALSO CANNOT BE ALLOWED IN VIEW OF VARIOUS DECISION RELIED UPON BY THE CIT( A) ON THIS POINT. HE HAS REFERRED THE REASONS GIVEN BY CIT(A) IN PARA 10 OF THE IMPUG NED ORDER AND SUBMITTED THAT THERE IS NO DIRECT NEXUS BETWEEN THE INVESTMENT AND THE REVENUE EARNED BY THE ASSESSEE. THE ASSESSEE HAS NOT FURNISHED ANY DETAIL OR RECORD TO SHOW THAT ANY REVENUE HAS BEEN EARNED FROM ICO GLOBAL AND THAT TO O BY THE VIRTUE OF THE 17 INVESTMENT IN SHARES. EVEN THE ASSESSEE HAS NOT FIL ED THE AGREEMENT IN RESPECT OF O&M OF SAN. THE CONTRACT BETWEEN THE VSNL AND ICO G LOBAL IS INDEPENDENT OF HIS DECISION TO INVEST IN THE SHARES OF ICO GLOBAL AS NO DIRECT LINK OF INVESTMENT IN SHARES AND REVENUE EARNED FROM THE ICO GLOBAL ESTAB LISHED BY THE ASSESSEE. 9. WE HAVE HEARED THE LD. SENIOR COUNSEL AS WELL AS THE LD. DR AT LENGTH AND ALSO CONSIDERED THE RELEVANT MATERIAL ON RECORD. TH E CASE OF THE ASSESSEE IS THAT THE VSNL WAS A MEMBER OF INMARSAT WHICH HAD DECIDED TO INCORPORATE A COMPANY NAMELY ICO GLOBAL FOR ADVANCEMENT OF TECHNO LOGY CALLED ICO GLOBAL AND PARTICULARLY ON GLOBAL MOBILE PERSONAL COMMUNICATIO N ON SATELLITE (GNPCS). ICOS GOAL WAS TO ESTABLISH AND OPERATE A SATELLITE BASED MOBILE TELECOM SYSTEM. VSNL DECIDED TO INVEST IN THE SHARES OF ICO GLOBAL TO HA VE ACCESS THE CUTTING EDGE TECHNOLOGY OF SATELLITE BASED COMMUNICATION. IT IS CLEAR THAT THE DECISION OF INVESTMENT WAS NOT WITH A MOTIVE OR VIEW TO EARN D IVIDEND BUT THE SOLE PURPOSE OF THE INVESTMENT IN THE ICO GLOBALS SHARE WAS TO HAVE ACCESS AND ADVANTAGE OF THE NEW MOBILE TELECOM SYSTEM AND FURTHER THE SAN ( SATELLITE ACCESS NODES) WAS TO BE LOCATED IN INDIA AS PER THE MUTUAL AGREEMENT BETWEEN THE PARTIES. THE GOVERNMENT OF INDIA HAS ALSO APPROVED THE INVESTMEN T BY CONSIDERING THE ADVANTAGE OF NEW TECHNOLOGY IN THE FIELD OF MOBILE TELECOM SYSTEM, THEREFORE, WE FIND THE INVESTMENT WAS MADE WITH A VIEW TO HAVE A DVANTAGE OF ACCESS TO THE NEW TECHNOLOGY IN THE FIELD OF MOBILE TELECOM SYSTE M AND NOT FOR EARNING ANY DIVIDEND OR INTEREST INCOME. THE QUESTION ARISES WH ETHER LOSS DUE TO BANKRUPTCY OF THE COMPANY REDUCING THE VALUE OF SHARE HELD BY ASSESSEE IS AN ALLOWABLE CLAIM EITHER U/S 37(1) OR U/S 28 AND 29 OF THE INCOME TAX ACT. SO FAR AS THE BUSINESS 18 EXPENDITURE IN TERMS OF SECTION 37(1) IS CONCERNED THIS LOSS IN THE VALUE OF INVESTMENT DOES NOT FALL IN THE CATEGORY OF BUSINES S EXPENDITURE BECAUSE IT WAS AN INVESTMENT IN THE SHARES AND NOT AN EXPENDITURE LAID OUT AND CLAIMED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE INVESTMENT AT THE TIME OF ACQUIRING OF SHARES WAS U NDISPUTEDLY TREATED AS CAPITAL INVESTMENT BY THE ASSESSEE, THOUGH IT CHANGED ITS N ATURE AT THE TIME OF LOSS DUE TO THE BANKRUPTCY OF THE ICO GLOBAL AND, THEREFORE, THE TREATMENT OF INVESTMENT OF THE BOOKS OF ACCOUNTS CANNOT BE A SOLE CRITERIA FOR DISALLOWING THE CLAIM OF THE ASSESSEE. 9.1 THE INVESTMENT IN QUESTION WAS MADE FOR AVAILIN G THE ADVANCED TECHNOLOGY AND TO HAVE ACCESS TO THE TECHNOLOGY BASED ON SATEL LITE MOBILE TELECOM SYSTEM. IT WAS NOT THE INVESTMENT ITSELF YIELDING ANY BUSINESS TO THE VSNL FROM ICO GLOBAL BUT THE ACTUAL USE OF THE SAID TECHNOLOGY WOULD YIE LD THE BUSINESS OR REVENUE TO THE ASSESSEE. THE INVESTMENT WAS ONLY TO MAKE AVAIL ABLE THE ACCESS OF ADVANCED TECHNOLOGY BUT THE ACCESS ITSELF IS NOT THE SOURCE OF REVENUE OR BUSINESS. IT IS A SETTLED PROPOSITION OF LAW THAT TO ALLOW A LOSS, IT MUST HAVE THE DIRECT OR PROXIMATE NEXUS TO THE BUSINESS OPERATIONS OF THE A SSESSEE TO SUCH LOSS MUST BE IN RESPECT OF TRADING ASSETS. IN THE CASE IN HAND T HERE IS ONLY A REMOTE CONNECTION BETWEEN THE INVESTMENT AND ENHANCED BUSINESS INCOME OF THE ASSESSEE. THE INVESTMENT ITSELF WOULD NOT HAVE RESULTED ANY EXTRA BUSINESS TO THE ASSESSEE BUT IT HAS ONLY CREATED A SCOPE FOR ACCESS TO A ADVANCE D TECHNOLOGY IN THE FIELD OF MOBILE COMMUNICATION SYSTEM. BY USING THE SAID TECH NOLOGY, THE ASSESSEE WOULD HAVE GENERATED MORE BUSINESS AND REVENUE. IT IS CLE AR FROM THE FACT THAT THE INVESTMENT WAS TO AVAIL AN ENDURING BENEFIT OF ACCE SS TO THE TECHNOLOGY BY EXCLUDING THE OTHER COMPETITORS AND NOT FOR DIRECTL Y PROCURING ANY ADDITIONAL 19 BUSINESS FROM ICO GLOBAL. EVEN LOCATING SAN EARTHST ATION IN INDIA ITSELF IS NOT A BUSINESS TRANSACTION FOR THE ASSESSEE BUT IT WOULD FACILITATE THE EXPANSION OF BUSINESS IN A NEW AREA OF TELECOMMUNICATION AND THE REFORE, THERE IS NO DIRECT AND PROXIMATE NEXUS BETWEEN THE INVESTMENT AND BUSINESS OPERATION OF THE ASSESSERE IS ESTABLISHED. THE LD. SENIOR COUNSEL HAS RELIED U PON A SERIES OF DECISIONS, HOWEVER ALL THESE DECISIONS ARE BASED ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF PATNAIK & CO. LTD. (SUPRA). IN THE S AID CASE IT WAS FOUND THAT THE PURCHASE OF GOVERNMENT SECURITIES AS A DEPOSIT FOR PROCURING GOVERNMENT ORDERS HAS A DIRECT NEXUS WITH THE BUSINESS ACTIVITY OF TH E ASSESSEE AND SECURING THE BUSINESS FROM THE GOVERNMENT. LOSS ON SALE OF THE G OVERNMENT SECURITIES WAS, THEREFORE, HELD ALLOWABLE AS BUSINESS LOSS. THE HON BLE SUPREME COURT RECORDED THE FACTS IN THE CASE OF PATNAIK & CO. LTD AS UNDER :- ACCORDING TO THE STATEMENT OF THE CASE DRAWN UP ON THE BASIS OF THE APPELLATE ORDER OF THE APPELLATE TRIBUNAL, THE ASSESSEE WAS TOLD TH AT IF IT SUBSCRIBED FOR THE GOVERNMENT LOAN, PREFERENTIAL TREATMENT WOULD BE GR ANTED TO IT IN THE PLACING OF ORDERS FOR MOTOR VEHICLES REQUIRED BY THE VARIOUS G OVERNMENT DEPARTMENTS AND TO THE FURTHER BENEFIT OF AN ADVANCE FROM THE GOVERNME NT UP TO 50 PER CENT. OF THE VALUE OF THE ORDERS PLACED. PURSUANT TO THAT UNDERS TANDING, AN ADVANCE TO THE EXTENT OF RS. 18,37,062 WAS RECEIVED BY THE ASSESSEE AND A CIRCULAR WAS ALSO ISSUED BY THE STATE GOVERNMENT TO VARIOUS DEPARTMENTS TO MAKE PUR CHASES OF THE VEHICLES REQUIRED BY THEM FROM THE ASSESSEE. BECAUSE OF THE ADVANCE RECEIVED FROM THE GOVERNMENT, THE ASSESSEE WAS ABLE TO SAVE RS. 45,00 0 AS BANK INTEREST DURING THE YEAR. IT WAS ALSO NOTICED THAT THE SALES SHOT UP SU BSTANTIALLY. ON SEPTEMBER 4, 1961, THE ASSESSEE MADE A DEPOSIT OF RS. 5 LAKHS CONSEQUE NT UPON A RESOLUTION OF THE BOARD OF DIRECTORS PASSED ABOUT SIX WEEKS BEFORE AFTER A STATEMENT MADE BY THE CHAIRMAN DURING THE BOARD MEETING THAT THE GOVERNMENT HAD AP PROACHED HIM TO SUBSCRIBE TO THE GOVERNMENT LOAN AND THAT THE COMPANY SHOULD DO SO AS GOOD NUMBER OF ORDERS COULD BE EXPECTED. THE PURCHASE OF THE LOAN WAS APP ROVED BY THE BOARD OF DIRECTORS AND WAS RATIFIED IN THE ANNUAL GENERAL MEETING OF T HE SHAREHOLDE DECEMBER 31, 1961. THE APPELLATE TRIBUNAL FOUND THA T HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF THE GOVERNMENT ORDERS, THE CONCLUSION WAS INESCAPABLE T HAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSESSEE AND BOOS T ITS BUSINESS. IN THE CIRCUMSTANCES, THE APPELLATE TRIBUNAL HELD THAT THE INVESTMENT WAS MADE BY EXPEDIENCY FOR THE PURPOSE OF CARRYING ON THE ASSES SEE'S BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE ON THE SALE OF TH E INVESTMENT MUST BE REGARDED AS A REVENUE LOSS. WE ARE OF OPINION THAT THE APPELLATE TRIBUNAL IS RI 10. THE ASSESSEE IN THE SAID CASE WAS DEALING IN AUTOMO BILES AND SPARE PARTS BUSINESS. THE ASSESSEE WAS TOLD THAT IF IT SUBSCRIB E TO GOVERNMENT LOAN/SECURITIES, PREFERENTIAL TREATMENT WOULD BE GIVEN REQUIRED BY THE GOVERNMENT DEPARTMENTS AND FURTHER BENEFIT OF A N ADVANCE FROM THE GOVERNMENT UP TO 50 PERCENT, OF THE VALUE OF THE ORDERS PLACED WAS ALSO TO BE GIVEN TO THE ASSESSEE. THESE FACTS CLEARLY MANIF EST THE PURPOSE OF PURCHASING THE GOVERNMENT SECURITIES AN GOVERNMENT SECURITIES WITH THE SAID CASE INVESTED IN THE GOVERNMENT SECURITIES TO PROCURE ORDERS FROM THE GOVERNMENT AND FURTHER TO GET BENEFIT OF THE ADVANC E OF ORDER PLACED, THE HONBLE SUPREME COURT FOUND THAT THERE IS NOTHING TO SHOW THAT THERE WAS ANY REASON FOR THE ASSESSES TO HOLD ON TO THE INVESTMENT IN INDEFINITELY. THERE WAS NO ENDURING ADVANTAGE AND, THEREFORE, IT WAS HELD T THE INVESTMENT DID NOT BRING ANY ASSET OR CAPITAL I N NATURE. IN THE CASE IN HAND THE INVESTMENT WAS MADE BY THE VSNL WITH A VIEW TO HAVE ACCESS 20 THE GOVERNMENT LOAN AND THAT THE COMPANY SHOULD DO SO AS GOOD NUMBER OF ORDERS COULD BE EXPECTED. THE PURCHASE OF THE LOAN WAS APP ROVED BY THE BOARD OF DIRECTORS AND WAS RATIFIED IN THE ANNUAL GENERAL MEETING OF T HE SHAREHOLDE DECEMBER 31, 1961. THE APPELLATE TRIBUNAL FOUND THA T HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF THE INVESTMENT WITH THE RECEIPT OF THE GOVERNMENT ORDERS, THE CONCLUSION WAS INESCAPABLE T HAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSESSEE AND BOOS T ITS BUSINESS. IN THE CIRCUMSTANCES, THE APPELLATE TRIBUNAL HELD THAT THE INVESTMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING ON THE ASSES SEE'S BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE ON THE SALE OF TH E INVESTMENT MUST BE REGARDED AS A REVENUE LOSS. WE ARE OF OPINION THAT THE APPELLATE TRIBUNAL IS RI GHT. THE ASSESSEE IN THE SAID CASE WAS DEALING IN AUTOMO BILES AND SPARE PARTS BUSINESS. THE ASSESSEE WAS TOLD THAT IF IT SUBSCRIB E TO GOVERNMENT LOAN/SECURITIES, WOULD BE GIVEN IN PLACING OF ORDERS FOR MOTOR VEHICLES THE GOVERNMENT DEPARTMENTS AND FURTHER BENEFIT OF A N ADVANCE FROM THE GOVERNMENT UP TO 50 PERCENT, OF THE VALUE OF THE ORDERS PLACED WAS ALSO TO BE GIVEN TO THE ASSESSEE. THESE FACTS CLEARLY MANIF EST THE PURPOSE OF PURCHASING THE GOVERNMENT SECURITIES AN D THE DIRECT NEXUS OF THE INVESTMENT IN THE SECURITIES WITH THE BUSINESS FROM THE GOVERNMENT. THE ASSESSEE IN THE SAID CASE INVESTED IN THE GOVERNMENT SECURITIES TO PROCURE ORDERS FROM THE GOVERNMENT AND FURTHER TO GET BENEFIT OF THE ADVANC E OF 50% OF THE VALUE OF ORDER PLACED, THE HONBLE SUPREME COURT FOUND THAT THERE IS NOTHING TO SHOW THAT THERE WAS ANY REASON FOR THE ASSESSES TO HOLD ON TO THE INVESTMENT IN INDEFINITELY. THERE WAS NO ENDURING ADVANTAGE AND, THEREFORE, IT WAS HELD T THE INVESTMENT DID NOT BRING ANY ASSET OR CAPITAL I N NATURE. IN THE CASE IN HAND THE INVESTMENT WAS MADE BY THE VSNL WITH A VIEW TO HAVE ACCESS THE GOVERNMENT LOAN AND THAT THE COMPANY SHOULD DO SO AS GOOD NUMBER OF ORDERS COULD BE EXPECTED. THE PURCHASE OF THE LOAN WAS APP ROVED BY THE BOARD OF DIRECTORS AND WAS RATIFIED IN THE ANNUAL GENERAL MEETING OF T HE SHAREHOLDE RS HELD ON DECEMBER 31, 1961. THE APPELLATE TRIBUNAL FOUND THA T HAVING REGARD TO THE SEQUENCE WITH THE RECEIPT OF THE GOVERNMENT ORDERS, THE CONCLUSION WAS INESCAPABLE T HAT THE INVESTMENT WAS MADE IN ORDER TO FURTHER THE SALES OF THE ASSESSEE AND BOOS T ITS BUSINESS. IN THE CIRCUMSTANCES, WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CARRYING ON THE ASSES SEE'S BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE ON THE SALE OF TH E INVESTMENT MUST BE REGARDED AS A THE ASSESSEE IN THE SAID CASE WAS DEALING IN AUTOMO BILES AND SPARE PARTS BUSINESS. THE ASSESSEE WAS TOLD THAT IF IT SUBSCRIB E TO GOVERNMENT LOAN/SECURITIES, IN PLACING OF ORDERS FOR MOTOR VEHICLES THE GOVERNMENT DEPARTMENTS AND FURTHER BENEFIT OF A N ADVANCE FROM THE GOVERNMENT UP TO 50 PERCENT, OF THE VALUE OF THE ORDERS PLACED WAS ALSO TO BE GIVEN TO THE ASSESSEE. THESE FACTS CLEARLY MANIF EST THE PURPOSE OF PURCHASING D THE DIRECT NEXUS OF THE INVESTMENT IN THE THE BUSINESS FROM THE GOVERNMENT. THE ASSESSEE IN THE SAID CASE INVESTED IN THE GOVERNMENT SECURITIES TO PROCURE ORDERS FROM THE 50% OF THE VALUE OF ORDER PLACED, THE HONBLE SUPREME COURT FOUND THAT THERE IS NOTHING TO SHOW THAT THERE WAS ANY REASON FOR THE ASSESSES TO HOLD ON TO THE INVESTMENT IN THE LOAN INDEFINITELY. THERE WAS NO ENDURING ADVANTAGE AND, THEREFORE, IT WAS HELD T HAT THE INVESTMENT DID NOT BRING ANY ASSET OR CAPITAL I N NATURE. IN THE CASE IN HAND THE INVESTMENT WAS MADE BY THE VSNL WITH A VIEW TO HAVE ACCESS TO THE NEW 21 TECHNOLOGY AND BY USING THE SAID TECHNOLOGY THE ASS ESSES WOULD HAVE EXPAND ITS BUSINESS, THEREFORE, THERE IS NO DIRECT OR PROXIMAT E NEXUS BETWEEN THE INVESTMENT AND PROCUREMENT OF BUSINESS/REVENUE. THE INVESTMENT BY VSNL WAS NOT TEMPORARY TILL THE AGREEMENT WAS SIGNED OR TECH NOLOGY WAS ACCESSED TO BUT IT WAS A PERMANENT OR FOR LONG TERM BEING THE FOUNDER MEMBER, ACCORDINGLY THE DECISION IN THE CASE OF PATNAIK & CO. LTD. WOULD NO T HELP THE CASE OF THE ASSESSEE. 11. CIT(A) HAS DECIDED THE ISSUE BY RELYING UPON TH E FOLLOWING DECISIONS:- (I) CIT. VS. INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. (249 ITR 401) (II) CIT VS. MOTIRAM NANDRAM (8 ITR 132) (P.C.) (III) HASIMARA INDUSTRIES LTD VS. CIT (SC) (230 IT R 927) (IV) SHREE DIGVIJAY WOOLLEN MILLS LTD. V. CIT ( 20 4 ITR 398) (GUJ) 11.1 IN THE CASE OF HASIMARA INDUSTRIES LTD. (SUPR A), THE ASSESSEE DEPOSITED AN AMOUNT OF RS. 20,00,000/- FOR ENTERING INTO A LEAVE AND LICENSE AGREEMENT WITH SAKASARIA COTTON MILLS LTD. FOR RUNNING A MILL, THE MILL WAS ULTIMATELY CLOSED DOWN DUE TO THE LOSS SUFFERED AND WENT INTO LIQUIDATION. THE ASSESSEE WROTE OFF THE ABOVE AMOUNT OF RS. 20,00,000/- OF DEPOSIT AS HAVIN G BECOME UNRECOVERABLE ON ACCOUNT INCAPACITY OF SAKASARIA COTTON MILLS. THE A O DISALLOWED THE CLAIM OF THE ASSESSEE AND THE MATTER WENT UP TO THE HONBLE SUPR EME COURT AND THE HONBLE SUPREME COURT HAS OBSERVED THAT THIS AMOUNT OF RS. 20,00,000/- HAD BEEN DEPOSITED BY THE ASSESSEE WITH THE LICENSOR COMPANY FOR THE PURPOSE OF SECURING THE LICENCE UNDER WHICH THE ASSESSEE HAD ACQUIRED T HE RIGHT TO WORK THE LICENSOR'S COTTON MILLS, THEREFORE, THE HONBLE APEX COURT HAS HELD THAT THE DEPOSIT WAS 22 MADE PURSUANT TO A CLAUSE IN THE LEAVE AND LICENSE AGREEMENT AND CLEARLY MADE FOR THE PURPOSE OF ACQUIRING A PROFIT MAKING ASSET TO CARRY ON BUSINESS IN COTTON. IT, THEREFORE, CANNOT BE HELD THAT THE DEPOSIT WAS MADE ON REVENUE ACCOUNT OR THAT THE LOSS THEREOF MUST BE TREATED AS BUSINESS L OSS. IT WAS HELD THAT THE LOSS THEREOF WAS A LOSS SUFFERED ON THE CAPITAL ACCOUNT AND CANNOT BE DEDUCTED ON THE BASIS THAT IT WAS A BUSINESS LOSS. A SIMILAR ISSUE WAS AGAIN CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT IN T HE CASE OF HASIMARARA INSUSTRIES LTD. VS. CIT (231 ITR 842), THE HONBLE SUPREME COURT HAS TAKEN THE SIMILAR VIEW AND HELD AS UNDER:- IT IS CLEAR FROM THE FINDINGS RECORDED BY THE TRIB UNAL AND THE HIGH COURT THAT THE ASSESSEES BUSINESS IS MANUFACTURE AND SALE OF TEA AND IT IS NOT ENGAGED IN COTTON MANUFACTURING BUSINESS AT ALL; THAT WHILE IT INTEND ED TO ENTER INTO COTTON MANUFACTURING BUSINESS, IT DID NOT SET UP A COTTON MILL, BUT OBTA INED OPERATING RIGHTS FROM ANOTHER COMPANY UNDER THE LEAVE AND LICENCE AGREEMENT FOR T HE PURPOSE OF ACQUIRING THE PROFIT- MAKING APPARATUS FOR A DURATION OF THREE YEARS OR A LITTLE MORE; THAT THE BUSINESS OF RUNNING A COTTON MILL WAS NOT ITS OWN, BUT IT WAS O NLY OPERATING THE SAID MILL UNDER THE LEAVE AND LICENCE AGREEMENT ; THAT THE AMOUNT OF AD VANCE IN A SUM OF RUPEES TWENTY LAKHS WAS GIVEN NOT FOR ITS OWN PURPOSE BY WAY OF B USINESS EXPENDITURE FOR MODERNISING THE MILL, BUT AS CAPITAL TO THE LESSOR WHO IN TURN HAD TO MODERNISE THE MILL. IN THE RESOLUTIONS MADE BY THE BOARD OF DIRECTORS IT WAS C LEAR THAT THE TRANSACTION ENTERED INTO WAS NOT IN THE NATURE OF A LOAN TRANSACTION OR A MO NEYLENDING TRANSACTION AND THUS THE LOSS SUFFERED BY THE ASSESSEE WAS A CAPITAL LOSS AN D HENCE THE AMOUNT COULD NOT BE DEDUCTED FROM THE ASSESSEES INCOME AS BUSINESS LOS S. 11.2 THUS IT IS CLEAR THAT WHETHER THE CLAIM OF BUSINESS LOSS IS ADMISSIBLE OR NOT WOULD DEPEND ON WHETHER IT ARISES OUT OF THE CARRY ING ON THE BUSINESS AND BEING INCIDENTAL TO IT. THE HONBLE SUPREME COURT IN CASE OF BADRIDAS DAGA. VS. CIT (34 23 ITR 10) HAS OBSERVED THAT THE LOSS IN WHICH THE DED UCTION COULD BE MADE U/S 10(1) MUST BE ONE THAT SPRINGS DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH HIS BUSINESS. THUS IF THERE IS A DI RECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND INVESTMENT AND L OSS ON INVESTMENT IS INCIDENTAL TO BUSINESS OPERATIONS THEN THE LOSS IS DEDUCTIBLE BEING DIRECT OUTCOME OF BUSINESS OPERATIONS. BUT IN THE ABSENCE OF DIREC T OR PROXIMATE CONNECTION AND NEXUS BETWEEN THE BUSINESS OPERATION AND LOSS IT CA NNOT BE ALLOWED AS BUSINESS LOSS. IN THE CASE IN HAND INVESTMENT WAS MADE TO HA VE ACCESS TO THE ADVANCED TECHNOLOGY OF MOBILE COMMUNICATION SYSTEM WHICH COU LD BE USED BY VSNL FOR ITS BUSINESS ACTIVITY FOR PROVIDING TELECOM SERVICES TO THE CONSUMERS. THEREFORE, THE ACCESS TO THE TECHNOLOGY ITSELF IS NOT THE BUSINESS OPERATIONS OF VSNL BUT PROVIDING THE TELECOM SERVICE IS THE BUSINESS ACTIV ITY OF THE ASSESSEE WHICH YIELD REVENUE, HENCE THERE IS NO DIRECT OR PROXIMATE NEX US BETWEEN THE BUSINESS OPERATION AND LOSS ON INVESTMENT. FURTHER THE LOS S ON INVESTMENT DUE TO THE REDUCTION OF VALUE OF SHARES WHICH IS NOT IN THE CO URSE OF BUSINESS ACTIVITY OF THE ASSESSEE BECAUSE THE SHARES UNDISPUTEDLY HELD BY TH E ASSESSEE ON CAPITAL ACCOUNT AND NOT AS STOCK IN TRADE AS THE VSNL WAS NOT DEALI NG IN SHARES, AS SUCH, THE LOSS DUE TO REDUCTION IN THE VALUE OF SHARES HAS NO DIRE CT CONNECTION WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. THUS IT IS RELEVANT TO SE E WHETHER THE PROFIT OR LOSS ARISING ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE V ALUE OF ASSET IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET O R AS FIXED ASSET. SINCE THE ASSET WAS HELD BY THE ASSESSEE AS A CAPITAL ASSET A ND THE LOSS DUE TO DEVALUATION OF THE SHARES CANNOT BE REGARDED AS REVENUE/BUSINES S LOSS WHEN THERE IS NO DIRECT NEXUS OR PROXIMITY OF SUCH LOSS TO THE BUSINESS OPE RATION. THEREFORE, THE DECISION 24 ON THE ISSUE OF ALLOWABILITY OF BUSINESS LOSS HAS T O BE TAKEN ON THE BASIS OF THE FACTS AND CIRCUMSTANCES OF THE EACH CASE BY APPLYIN G THE PRINCIPLE LAID DOWN BY THE VARIOUS DECISIONS OF HONBLE SUPREME COURT. THI S VIEW HAS BEEN FORTIFIED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF SALEM MAGNESITE (P) LTD. V . CIT (321 ITR 43). THE HONBLE HIGH COURT HAS RECORDED THE FACTS OF THE SAID CASE IN PARA 2 AS UNDER:- M/S. SALEM MANGNESITE (P) LTD., THE ASSESSEE-COMPA NY, WAS SOLELY IN THE BUSINESS OF MINING. IT WAS NOT IN THE BUSINESS OF FINANCING OR LENDING MONEY. IT HAD A FULLY OWNED SUBSIDIARY COMPANY BY NAME JANJIRA MINING CO. (P) LTD., WHICH WAS ALSO IN THE BUSINESS OF MINING. (B) IN THE YEAR 1968, FOR THE PURPOSE OF CONSTRUCTI NG A JETTY, THE ASSESSEE-COMPANY LENT TO ITS AFORESAID SUBSIDIARY COMPANY AN AMOUNT OF RS . 5 LAKHS REPAYABLE WITH 10 PER CENT INTEREST. IN THE YEARS THAT FOLLOWS, THE SUBSIDIARY COMPANY JANJIRA MINING CO. (P) LTD., SUFFERED HEAVY LOSSES AND AS A RESULT, WAS NOT IN A POSITION TO REPAY THE LOAN TAKEN FROM THE ASSESSEE-COMPANY. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1980-81, THE ASSESSEE-COMPANY ACCEPTED A SUM OF RS. 41,500 IN FU LL AND FINAL SETTLEMENT OF ITS AFORESAID LOAN OF RS. 5 LAKHS AND WROTE OFF THE BAL ANCE OF RS. 4,58,500. IN ITS RETURN FOR THE ASSESSMENT YEAR 1980-81 THE ASSESSEE-COMPANY CL AIMED A DEDUCTION OF RS. 4,58,500 ON THE GROUND THAT IT WAS LOSS INCIDENTAL TO ITS BU SINESS. RELIANCE WAS PLACED UPON A JUDGMENT OF THE APEX COURT IN THE CASE OF ESSEN LTD . VS. CIT [1967] 65 ITR 625. 11.3 AS IT IS CLEAR FROM THE FACTS OF THE SAID CASE THAT THE ASSESSEE LENT A SUM OF RS. 5,00,000/- TO ITS FULLY OWNED SUBSIDIARY COMPAN Y IN THE SAME BUSINESS OF MINING FOR THE PURPOSE OF CONSTRUCTING A JETTY. THE SUBSIDIARY OF THE ASSESSEE COMPANY SUFFERED HEAVY LOSSES AND AS A RESULT, IT W AS NOT IN A POSITION TO REPAY THE LOAN TAKEN FROM THE ASSESSEE-COMPANY. IN THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR THE ASSESSEE-COMPANY ACCEPTED A SUM OF RS. 41,500 AGAINST THE 25 LOAN AMOUNT OF RS. 5,00,000/- AND WROTE OFF THE BAL ANCE OF RS. 4,58,500/- AND CLAIMED AS LOSS INCIDENTAL TO THE BUSINESS. THE MAT TER WAS CARRIED TO THE HONBLE HIGH COURT. AFTER CONSIDERING THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF BADRIDAS DAGA. VS. CIT (34 ITR 10), THE HONBLE HIGH COURT HAS HELD IN PARA 4 AND 5 AS UNDER:- 4. THE QUESTION AS TO WHETHER A DEDUCTION IS ALLOW ABLE WHEN THERE IS NO SPECIFIC PROVISION, WAS DECIDED BY THE APEX COURT IN THE CAS E OF BADRIDAS DAGA VS. CIT [1958] 34 ITR 10. IN THAT CASE THE APEX COURT WAS C ONSIDERING SECTION 10(1) OF THE INCOME-TAX ACT, 1922 WHICH IS AKIN TO SECTION 28 OF THE INCOME-TAX ACT, 1961. THE APEX COURT OBSERVED AS UNDER:- 'THE RESULT IS THAT WHEN A CLAIM IS MADE FOR A DEDU CTION FOR WHICH THERE IS NO SPECIFIC PROVISION IN SECTION 10(2), WHETHER IT IS ADMISSIBLE OR NOT WILL DEPEND ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACT ICE AND TRADING PRINCIPLES, IT CAN BE SAID TO ARISE OUT OF THE CARRYING ON OF THE BUSINESS AND TO BE INCIDENTAL TO IT. IF THAT IS ESTABLISHED, THEN THE DEDUCTION MUST BE ALLOWED, PROVIDED OF COURSE THERE IS NO PROHIBITION AGAINST IT, EXPRESS OR IMPL IED, IN THE ACT.' THE FURTHER RELEVANT OBSERVATION OF THE SUPREME COU RT ON THE ISSUE IN QUESTION WAS AS UNDER:- 'AT THE SAME TIME, IT SHOULD BE EMPHASISED THAT THE LOSS FOR WHICH A DEDUCTION COULD BE MADE UNDER SECTION 10(1) MUST BE ONE THAT SPRINGS DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH H IS BUSINESS. IF, FOR EXAMPLE, A THIEF WERE TO BREAK OVERNIGHT INTO THE PREMISES OF A MONEY-LENDER AND RUN AWAY WITH FUNDS SECURED THEREIN, THAT MUST RESULT IN THE DEPLETION OF THE RESOURCES AVAILABLE TO HIM FOR LENDING AND THE LOSS MUST, IN THAT SENSE, BE A BUSINESS LOSS, BUT IT IS NOT ONE INCURRED IN THE RUNNING OF THE BU SINESS, BUT IS ONE TO WHICH ALL OWNERS OF PROPERTIES ARE EXPOSED WHETHER THEY DO BU SINESS OR NOT. THE LOSS IN SUCH A CASE MAY BE SAID TO FALL ON THE ASSESSEE NOT AS A PERSON CARRYING ON BUSINESS BUT AS OWNER OF FUNDS. THIS DISTINCTION, T HOUGH FINE, IS VERY MATERIAL AS ON IT WILL DEPEND WHETHER DEDUCTION COULD BE MADE U NDER SECTION 10(1) OR NOT.' 5. IN THE PRESENT CASE THERE ARE CONCURRENT FINDING S OF THREE AUTHORITIES THAT THE ASSESSEE-COMPANY WAS NOT IN THE BUSINESS OF LENDING MONEY. THERE IS A FURTHER CONCURRENT FINDING OF FACT THAT THE MONEY WAS LENT TO ITS SUBSIDIARY COMPANY TO ENABLE THE SUBSIDIARY COMPANY TO CONSTRUCT A JETTY WHICH WAS CLEARLY A CAPITAL ASSET OF THE SUBSIDIARY COMPANY. ALL AUTHORITIES HA D CONCLUDED THAT THE LOAN GRANTED TO THE SUBSIDIARY COMPANY DID NOT SPRING DI RECTLY FROM THE BUSINESS OF THE ASSESSEE- COMPANY OR WAS INCID REASON TO TAKE A DIFFERENT VIEW. 11.4 A SIMILAR VIEW HAS BEEN TAKEN BY HONBLE KERALA HI GH COURT IN THE CASE OF KERALA SMALL INDUSTRIES DEVELOPMENT CORPORATION VS. CIT ( 270 ITR 453) SAID CASE THE HONBLE HIGH COURT AFTER CONSIDERING THE SERIES OF DECISION OF HONBLE SUPREME COURT INCLUDING THE CASE OF COTTON MILLS(SUPRA), SOUTH INDIAN BANK HELD AS UNDE R: IN THIS CASE THE INVESTMENT BE TREATED AS A TRADING ACTIVITY, FOR, THERE IS NO PURCHASE AND SALE INVOLVED IN SUCH TRANSACTION. IN FACT, THE TRIB ARTICLES OF ASSOCIATION OF THE ASSESSEE HAS OBSERVE D THAT THE INVESTMENT MADE IN THE CAPITAL OF THE CO- OPERATIVE SOCIETIES CANNOT BY ITSELF BE CONSIDERED AS AN OBJECT, THOUGH IT IS DESCRIBED AS AN OBJECT BUT CAN BE VIEWED ONLY AS AN EXERCISE OF POW ER TO ENABLE THE APPELLANT- COMPANY TO PROMOTE INDUSTRIALISATION IN THE SMALL S ECTORS IN THE KERALA STATE. THE TRIBUNAL FURTHER OBSERVED THAT THERE IS NO POWE R TO WITHDRAW THE INVESTMENT, OR TO PUT IT IN MO DERN TERMINOLOGY, THE POWER TO DISINVEST AFTER A CE RTAIN STAGE OF THE DEVELOPMENT IN THE SMALL INDUSTRIAL SECTORS. THE TR IBUNAL HAS ACCORDINGLY HELD THAT THE INVESTMENT MADE BY THE APPELLANT CAN BE VIEWE D ONLY AS ITS CAPITAL STOCK AND CANNOT BE VIEWED AS PART OF ITS TRADING CAPITAL OR CIRCULATING CAPITAL. IT IS IN THIS VIEW OF THE M ATTER IT WAS HELD THAT IF AT ALL THERE WAS ANY LOSS ON THE SHARES REPRESENTING THE INVESTMENTS , IT CANNOT BE VIEWED AS A TRAD LOSS OR A REVENUE LOSS. THE TRIBUNAL ACCEPTED THE C ONTENTION OF THE DEPARTMENT THAT THE ASSESSEE IS NOT A DEALER IN SHARES. THE AFORESAID F INDINGS OF THE TRIBUNAL CONSIDERED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREM E COURT IN THE ABOVEMENT ARE PERFECTLY LEGAL AND JUSTIFIED. GOING BY THE CLA USES IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE SOCIETIES ACT AND THE RULES, IT IS ONLY TO BE HELD THAT THE INVESTMENT M ASSESSEE- COMPANY IN THE FORM OF SHARES IN CO OF CAPITAL INVESTMENTS IN FURTHERANCE OF THE OBJECT S OF THE COMPANY AND NOT AS TRADING CAPITAL OR CIRCULATING CAPITAL OF THE ASSESSEE 11.5 THUS IT IS CLEAR THAT NO GENERAL PRINCIPLE CAN BE L AID DOWN WHICH COULD BE APPLICABLE TO ALL CASES AND EACH CASE SHOULD BE DE CIDED ON ITS OWN CIRCUMSTANCES BY APPLYING THE LEGAL PRINCIPLES. IN THE CASE OF KE RALA SMALL INDUSTRIAL DEVELOPMENT CORPORATION ( SUPRA), THE ASSESSEE MADE AN INVESTMENT IN THE CAPI TAL OF THE 26 GRANTED TO THE SUBSIDIARY COMPANY DID NOT SPRING DI RECTLY FROM THE BUSINESS OF COMPANY OR WAS INCID ENTAL TO IT. ON THE FACTS OF THIS CASE WE FIND NO REASON TO TAKE A DIFFERENT VIEW. A SIMILAR VIEW HAS BEEN TAKEN BY HONBLE KERALA HI GH COURT IN THE CASE OF KERALA SMALL INDUSTRIES DEVELOPMENT CORPORATION VS. CIT ( 270 ITR 453) HONBLE HIGH COURT AFTER CONSIDERING THE SERIES OF DECISION OF HONBLE SUPREME COURT INCLUDING THE CASE OF BADRIDAS DAGA. VS. CIT (SUPRA), SATLUJ COTTON MILLS(SUPRA), SOUTH INDIAN BANK HELD AS UNDE R: - INVESTMENT IN THE SHARES IN THE INDUSTRIAL CO- OPERATIVE SOCIETIES CANNOT BE TREATED AS A TRADING ACTIVITY, FOR, THERE IS NO PURCHASE AND SALE INVOLVED IN SUCH TRANSACTION. IN FACT, THE TRIB UNAL, AFTER REFERRING TO THE CLAUSES IN THE MEMORAN DUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE HAS OBSERVE D THAT THE INVESTMENT MADE IN THE OPERATIVE SOCIETIES CANNOT BY ITSELF BE CONSIDERED AS AN OBJECT, THOUGH IT OBJECT BUT CAN BE VIEWED ONLY AS AN EXERCISE OF POW ER TO ENABLE THE COMPANY TO PROMOTE INDUSTRIALISATION IN THE SMALL S ECTORS IN THE KERALA STATE. THE TRIBUNAL FURTHER OBSERVED THAT THERE IS NO POWE R TO WITHDRAW THE INVESTMENT, OR TO DERN TERMINOLOGY, THE POWER TO DISINVEST AFTER A CE RTAIN STAGE OF THE DEVELOPMENT IN THE SMALL INDUSTRIAL SECTORS. THE TR IBUNAL HAS ACCORDINGLY HELD THAT THE INVESTMENT MADE BY THE APPELLANT -COMPANY IN THE CAPITAL OF THE CO- OPERATIVE SOCIETIES D ONLY AS ITS CAPITAL STOCK AND CANNOT BE VIEWED AS PART OF ITS TRADING CAPITAL OR CIRCULATING CAPITAL. IT IS IN THIS VIEW OF THE M ATTER IT WAS HELD THAT IF AT ALL THERE WAS ANY LOSS ON THE SHARES REPRESENTING THE INVESTMENTS , IT CANNOT BE VIEWED AS A TRAD LOSS OR A REVENUE LOSS. THE TRIBUNAL ACCEPTED THE C ONTENTION OF THE DEPARTMENT THAT THE ASSESSEE IS NOT A DEALER IN SHARES. THE AFORESAID F INDINGS OF THE TRIBUNAL CONSIDERED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREM E COURT IN THE ABOVEMENT ARE PERFECTLY LEGAL AND JUSTIFIED. GOING BY THE CLA USES IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE - COMPANY AND THE PROVISIONS OF THE KERALA CO SOCIETIES ACT AND THE RULES, IT IS ONLY TO BE HELD THAT THE INVESTMENT M COMPANY IN THE FORM OF SHARES IN CO - OPERATIVE SOCIETIES ARE ONLY IN THE NATURE OF CAPITAL INVESTMENTS IN FURTHERANCE OF THE OBJECT S OF THE COMPANY AND NOT AS TRADING CAPITAL OR CIRCULATING CAPITAL OF THE ASSESSEE -COMPANY. THUS IT IS CLEAR THAT NO GENERAL PRINCIPLE CAN BE L AID DOWN WHICH COULD BE APPLICABLE TO ALL CASES AND EACH CASE SHOULD BE DE CIDED ON ITS OWN CIRCUMSTANCES BY APPLYING THE LEGAL PRINCIPLES. IN THE CASE OF KE RALA SMALL INDUSTRIAL DEVELOPMENT SUPRA), THE ASSESSEE MADE AN INVESTMENT IN THE CAPI TAL OF THE GRANTED TO THE SUBSIDIARY COMPANY DID NOT SPRING DI RECTLY FROM THE BUSINESS OF ENTAL TO IT. ON THE FACTS OF THIS CASE WE FIND NO A SIMILAR VIEW HAS BEEN TAKEN BY HONBLE KERALA HI GH COURT IN THE CASE OF KERALA SMALL INDUSTRIES DEVELOPMENT CORPORATION VS. CIT ( 270 ITR 453) . IN THE HONBLE HIGH COURT AFTER CONSIDERING THE SERIES OF DECISION OF BADRIDAS DAGA. VS. CIT (SUPRA), SATLUJ OPERATIVE SOCIETIES CANNOT BE TREATED AS A TRADING ACTIVITY, FOR, THERE IS NO PURCHASE AND SALE INVOLVED IN SUCH UNAL, AFTER REFERRING TO THE CLAUSES IN THE MEMORAN DUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE HAS OBSERVE D THAT THE INVESTMENT MADE IN THE OPERATIVE SOCIETIES CANNOT BY ITSELF BE CONSIDERED AS AN OBJECT, THOUGH IT OBJECT BUT CAN BE VIEWED ONLY AS AN EXERCISE OF POW ER TO ENABLE THE COMPANY TO PROMOTE INDUSTRIALISATION IN THE SMALL S ECTORS IN THE KERALA STATE. THE TRIBUNAL FURTHER OBSERVED THAT THERE IS NO POWE R TO WITHDRAW THE INVESTMENT, OR TO DERN TERMINOLOGY, THE POWER TO DISINVEST AFTER A CE RTAIN STAGE OF THE DEVELOPMENT IN THE SMALL INDUSTRIAL SECTORS. THE TR IBUNAL HAS ACCORDINGLY HELD THAT THE OPERATIVE SOCIETIES D ONLY AS ITS CAPITAL STOCK AND CANNOT BE VIEWED AS PART OF ITS TRADING CAPITAL OR CIRCULATING CAPITAL. IT IS IN THIS VIEW OF THE M ATTER IT WAS HELD THAT IF AT ALL THERE WAS ANY LOSS ON THE SHARES REPRESENTING THE INVESTMENTS , IT CANNOT BE VIEWED AS A TRAD ING LOSS OR A REVENUE LOSS. THE TRIBUNAL ACCEPTED THE C ONTENTION OF THE DEPARTMENT THAT THE ASSESSEE IS NOT A DEALER IN SHARES. THE AFORESAID F INDINGS OF THE TRIBUNAL CONSIDERED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE SUPREM E COURT IN THE ABOVEMENT IONED CASES ARE PERFECTLY LEGAL AND JUSTIFIED. GOING BY THE CLA USES IN THE MEMORANDUM AND ARTICLES OF COMPANY AND THE PROVISIONS OF THE KERALA CO -OPERATIVE SOCIETIES ACT AND THE RULES, IT IS ONLY TO BE HELD THAT THE INVESTMENT M ADE BY THE OPERATIVE SOCIETIES ARE ONLY IN THE NATURE OF CAPITAL INVESTMENTS IN FURTHERANCE OF THE OBJECT S OF THE COMPANY AND NOT AS TRADING THUS IT IS CLEAR THAT NO GENERAL PRINCIPLE CAN BE L AID DOWN WHICH COULD BE APPLICABLE TO ALL CASES AND EACH CASE SHOULD BE DE CIDED ON ITS OWN CIRCUMSTANCES BY APPLYING THE LEGAL PRINCIPLES. IN THE CASE OF KE RALA SMALL INDUSTRIAL DEVELOPMENT SUPRA), THE ASSESSEE MADE AN INVESTMENT IN THE CAPI TAL OF THE 27 COOPERATIVE SOCIETIES. IT WAS HELD BY THE HONBLE H IGH COURT THAT THE INVESTMENT IN THE FORM OF SHARES IN THE COOPERATIVE SOCIETY AR E IN THE NATURE OF CAPITAL INVESTMENT IN FURTHERANCE OF THE OBJECTIVE OF THE A SSESSEE COMPANY AND NOT AS A TRADING CAPITAL OR CIRCULATING CAPITAL OF THE ASSES SEES COMPANY. IN THE CASE IN HAND THE PURPOSE OF INVESTMENT AT THE MOST CAN BE S AID FOR ACQUIRING OR HAVING ACCESS TO THE NEW ADVANCED TECHNOLOGY IN THE MOBILE TELECOMMUNICATION SYSTEM, WHICH COULD BE TREATED AS ACQUISITION OF A NEW AND MODERN PROFIT MAKING APPARATUS. THE LOSS SUFFERED DUE TO THE DEVALUATION OF THE INVESTMENT IS ON CAPITAL ACCOUNT. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE. 12. GROUND NO. 2 IS REGARDING DENIAL OF CLAIM U/S 80IA 12.1 WE HAVE HEARD LD. SENIOR COUNSEL AS WELL AS LD . DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE INVOLVES TW O COMPONENT ON WHICH THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA, NAMELY EAR THSTATION TO THE TUNE OF RS. 349.80 CRORES AND INTERNET AMOUNTING TO RS. 105.54 CRORES. AT THE OUTSET WE NOTE THAT THE ISSUE OF DEDUCTION U/S 80IA FOR EARTHSTATI ON HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1996-97, REPORTED IN 299 ITR (A T) 234 MUMBAI (SB), THIS ISSUE HAS ALSO BEEN CONSIDERED IN THE SUBSEQUENT YE ARS FROM ASSESSMENT YEAR 1997-98 TO 1999-2000 AND HAS BEEN DECIDED AGAINST T HE ASSESSEE BY THIS TRIBUNAL. THEREFORE, FOLLOWING THE DECISION OF THE SPECIAL BE NCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE , THIS ISSUE OF DEDUCTION U/S 8 0IA FOR EARTHSTATION IS DECIDED AGAINST THE ASSESSEE. 28 12.2 AS REGARDS THE DEDUCTION U/S 80IA IN RESPECT OF INTERNET CONNECTION, WE NOTE THAT FOR THE ASSESSMENT YEAR 1999-00, AN IDENT ICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL VIDE ORDER DATED 17.04 .2013 IN ITA NO. 3614/MUM/2006 IN PARA 4 AND 4.2 AS UNDER:- 4. NEXT GROUND OF APPEAL IS ABOUT THE CLAIM MADE U/ S.80IA AMOUNTING TO RS.4,12,37,88,812/- BY THE ASSESSEE IN RESPECT OF E LIGIBLE UNDERTAKINGS VIZ.,EARTH STATIONS, INTERNET AND INMARSAT M&B SERVICES. DURIN G THE ASSESSMENT P ROCEEDINGS AO HELD THAT THE METHOD ADOPTED BY THE A SSESSEE FOR CALCULATING DEDUCTION U/S.80IA WAS UNACCEPTABLE, THAT SECTION 80IA(4)(C) APPLIED TO THE AN UNDERTAKING THAT STARTED PROVIDING TELECOMMUNICATION SERVICES BETWEE N 1.4.19 95-31.03.2000,THAT ASSESSEE DID NOT START PROVIDING SAID SERVICES ON O R AFTER 1.4.1995. HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE OF RS.4,12,37,88,812/-. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. WE FIND THAT WHILE DECIDING THE ISSUE AGAI NST THE ASSESSEE, HE HAS FOLLOWED THE ORDER PASSED FOR THE AY. 2000-01 BY HIS PREDECESSOR . IT IS FURTHER OBSERVED THAT HE ALSO RELIED UPON THE ORDERS FOR AY.1996 - 97 TO 1998-99. 4.1. BEFORE US, AR SUBMITTED THAT ISSUE OF ALLOWING DEDUCTION FOR THE EARTH STATION WAS DECIDED AGAINST THE ASSESSEE, THAT DEDUCTION CL AIMED FOR INTERNET SERVICES WAS ALLOWABLE, THAT FROM A BROAD COMMERCIAL SENSE AND F ROM A COMMON SENSE POINT OF VIEW ASSESSEE ORGANISATION WAS AN UNDERTAKING, THAT SECTION 80IA PROVIDED DEDUCTION FOR UNDERTAKINGS, THAT AS PER THE AMENDED PROVISION S OF SECTION 80IA OF THE ACT DIGITAL DATA TRANSMISSION WAS ENTITLED FOR DEDUCTIO N UNDER THE ACT. DR SUPPORTED THE ORDER OF THE FAA. 4 .2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT, NEITHER THE AO NOR THE FAA HAD DELIBERATED UPON THE ALLOWABILILTY OF SECTI ON 80IA OF THE ACT WITH REGARD TO INTERNET SERVICES.AR FAIRLY CONCEDED THAT ISSUE OF ALLOWING DEDUCTION WITH RELATING TO INTERNET SERVICES WAS NEVER DECIDED BY ANY OF THE L OWER AUTHORITIES CONSIDERING THE AMENDED PROVISIONS. IN THESE CIRCUMSTANCES WE ARE O F THE OPINION THAT IN THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR PASSING FRESH ORDER KEEPING IN MIND THE AMENDED PROVISIONS OF THE SECTI ON 80IA. HE IS REQUESTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE B EFORE PASSING ORDER GROUND NO.2 IS PARTLY DECIDED IN FAVOUR OF THE ASSESSEE. 12.3 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE REMIT THIS ISSUE TO THE RECORD OF THE CIT(A) WITH THE SAME TERMS AND DIRECTIONS. 29 13. GROUND NO. 3 IS REGARDING DISALLOWANCE OF DEPRE CIATION AT HIGHER RATE ON GATEWAY DIGITAL SWITCHES (GDS). THE LD. SENIOR COUN SEL FOR THE ASSESSEE HAS SUBMITTED THAT GATEWAY DIGITAL SWITCHES ARE BASICAL LY SWITCHING EQUIPMENTS BASED ON THE DIALED CODE SORTS/FUNCTIONS IN SORTING OUT INCOMING CALLS INTO THE SYSTEM AND SENDS OUT THE CALLS TO THE DESIGNATED EN D ON THE BASIS OF DIALED CODE. THE CALL SORTING IS DONE ELECTRONICALLY AND ACCORDI NGLY AS PER INFORMATION TECHNOLOGY ACT, 2000, GDS SYSTEM IS CLASSIFIED UNDE R THE HEAD COMPUTER AND COMPUTER PERIPHERALS WHICH IS ELIGIBLE FOR DEPRECI ATION AT THE RATE OF 60%. HE HAS REFERRED THE DEFINITION OF TERM COMPUTER UNDER THE INFORMATION TECHNOLOGY ACT AND SUBMITTED THAT GDS SYSTEM IS A SPECIAL PURPOSE COMPUTER AND HAS MULTIPLE PROCESSOR THAT ANALYZE THE CALL DATA (INFORMATION) AND COMMAND AND CONTROL TO MAKE/BREAK CONNECTIONS BETWEEN INPUT TRUNK LINES AN D OUTPUT TRUNK LINES FOR ESTABLISHING THE PHONE CALL. THE LD. SENIOR COUNSEL HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) DCIT VS. DATACRAFT INDIA LTD. (133 TTJ 377) (MU M) (SB) (II) DCIT VS. MICROSOFT CORPORATION INDIA (P) LTD. (139 TTJ 40) (DEL)(UO) (III) FIDELITY INFORMATION SYSTEMS CO. INDIA (P) LT D. (DELHI) (ITAT) (ITA NO. 2951/DEL2009, ORDER DATED 4 DECEMBER 2009) (IV) ACIT VS. CINCOM SYSTEMS INDIA PVT. LTD (2009 T IOL 371 ITAT DEL) (V) NOKIA INDIA (51 SOT 286) (VI) NOKIA INDIA ( 20 ITR TRIB.) 198) (DEL) (VII) OMNI GLOBAL INFORMATION TECHNOLOGIES (131 ITD 280) (DEL) (VIII) CIT(A) ORDER IN ASSESSEES OWN CASE FOR AY 2 005-06. 13.1 HE HAS ALSO REFERRED THE CERTIFICATE OF THE TE CHNICAL EXPERT IN SUPPORT OF THE CLAIM OF THE ASSESSEE AND SUBMITTED THAT IN CASE TH E ISSUE REQUIRES TECHNICAL ASSISTANCE BY TECHNICAL EXPERTS, THE CONCLUSION SHO ULD BE REACHED BASED ON THE REPORTS GIVEN BY THE TECHNICAL EXPERTS. 30 13.2 ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT THE SWITCHES IN QUESTION DOES N OT PROCESS BUT IT SIMPLY TRANSMIT ONE INPUT TO THE SAME OUTPUT, NOTHING NEW RESULT HAS COME OUT. HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN THE CA SE OF VENTURE INFOTECH (25 SOT 184). 13.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ISSUE OF HIGHER RATE OF DE PRECIATION ON ROUTER AND SWITCHES HAS BEEN CONSIDERED AND DECIDED BY THE SPE CIAL BENCH OF THIS TRIBUNAL IN CASE OF DCIT VS. DATACRAFT INDIA LTD.(SUPRA). THE S PECIAL BENCH HAS TAKEN A VIEW THAT DEFINITION OF COMPUTER AS GIVEN IN THE INFORMA TION TECHNOLOGY ACT, 2000, CANNOT BE APPLIED IN THE CONTEXT OF SECTION 32 OF T HE INCOME TAX ACT. IT WAS HELD IN PARA 31.4 AS UNDER: IN VIEW OF HE ABOVE DISCUSSION, WE ARE OF HE CONSI DERED VIEW THAT ROUTER AND SWITCHES CAN BE CLASSIFIED AS A COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COM PUTER. IN OTHER WORDS, WHEN A DEVICE IS USED AS PART OF THE COMPUTER IN ITS FUNCT IONS, THEN IT WOULD BE TERMED AS A COMPUTER. 13.4 IT IS CLEAR THAT IF THE ROUTERS AND SWITCHES ARE USED ALONG WITH COMPUTER AND FUNCTIONS AS INTEGRATED PART WITH THE COMPUTER THEN IT WOULD BE TERMED AS COMPUTER. IN THE CASE IN HAND THERE IS NO DETAIL BE FORE US TO SHOW WHETHER THE GDS IN QUESTION ARE USED WITH COMPUTER AND FUNCTION S ARE INTEGRATED WITH THE COMPUTER OR NOT. ACCORDINGLY, WE SET ASIDE THIS ISS UE TO THE RECORD OF CIT(A) FOR A LIMITED PURPOSE TO VERIFY THIS ASPECT AND THEN DECI DE THIS ISSUE AS PER LAW INCLUDING DECISION OF SPECIAL BENCH IN CASE OF DATA CRAFT INDIA LTD. 31 14. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. ASST. COMMISSIONER OF INCOME TAX-1(3) BE DIRECTED TO ALLOW REPAIRS AND MAINTENANCE EXPENSES OF RS. 15,12,479/-. WHICH HAVE BEEN DISALLOWED BY HOL DING IT TO BE PRIOR PERIOD EXPENSES IN THE ASSESSMENT YEAR 1999-2000, PAID DUR ING THE YEAR UNDER CONSIDERATION. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, T HE LD. ASST. COMMISIONER OF INCOME TAX-1(3) BE DIRECTED TO ALLOW REPAIRS AND M AINTENANCE EXPENSES OF RS. 69,20,485/- (PRIOR PERIOD EXPENSES) BEING EXPEN SES PERTAINING TO THE YEAR UNDER CONSIDERATION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. ADDL. COMMISSIONER OF INCOME TAX-1 (3) BE DIRECTED TO EXC LUDE THE WRITE-BACK OF EXPENSES OF RS. 84,99,171/- FROM THE TAXABLE INCOME OF AY 200-01, WHICH AMOUNT HAS BEEN DISALLOWED AND TAXED IN AY 1999-00 BY HOLDING IT TO BE PRIOR PERIOD EXPENSES. 14.1 WE HAVE HEARD THE LD. SENIOR COUNSEL AS WELL A S THE LD. DR ON THE ADMISSIBILITY OF THE ADDITIONAL GROUNDS. SINCE NO N EW FACTS ARE REQUIRED TO BE EXAMINED OR INVESTIGATED FOR THE PURPOSE OF ADJUDIC ATION OF THE ADDITIONAL GROUNDS, THEREFORE, IN THE INTEREST OF JUSTICE AND IN VIEW OF THE DECISIONS OF HNBLE SUPREME COURT IN THE CASE OF N.T.P.C VS. CIT ( 229 ITR 383) WE ADMIT ADDITIONAL GROUNDS FOR DISPOSAL ON MERITS. 14.2 ADDITIONAL GROUND NO. 1 IS REGARDING, THE AO H AS DISALLOWED A SUM OF RS. 15,12,479/- ON ACCOUNT OF REPAIR AND MAINTENANCE EX PENSES BEING PRIOR PERIOD EXPENSES THOUGH PAID DURING THE YEAR UNDER CONSIDER ATION. 14.3 WE NOTE THAT OUT OF THE TOTAL DISALLOWANCE , A SUM OF RS. 3,79,597/- HAS ALREADY BEEN ALLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 1999-00 VIDE ORDER 32 DATED 17.04.2013. THE LD. SENIOR COUNSEL HAS SUBMIT TED THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1997-98 AND 1999-00, THEREFORE, THE BALANCE AMOUNT OF RS. 11,32,882/- MAY BE ALLOWED AS THE CLAIM OF THE ASSE SSEE WAS ACCEPTED BY THE TRIBUNAL IN THE EARLIER YEARS. THE LD. DR HAS NOT D ISPUTED THAT OUT OF TOTAL DISALLOWANCE OF RS. 15,12,479/-, A SUM OF RS. 3,79, 597/- HAS ALREADY BEEN ALLOWED FOR THE A.Y. 1999-00. THE TRIBUNAL IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 1997-98 AND 1999-00 HAS CONSIDERED AND DECIDED THE IDENTICAL ISSUE AT PARA 12 AS UNDER:- HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT & CHEMICALS INDUSTRIES LTD. VS. CIT, 213 ITR 523 HELD THAT MERELY BECAUSE EXPEN SES RELATE TO A TRANSACTION OF AN EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABL E IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON MERCANTILE BASIS. HON'BLE C ALCUTTA HIGH COURT IN THE CASE OF SUTNA STONE AND LIME CO. VS. CIT, 192 ITR 478 (CAL) , WAS DEALING WITH A CASE WHERE, THE RAILWAYS SENT A BILL WHICH WAS RECEIVED BY THE ASSE SSEE IN MAY 1997 AND IN SUCH CIRCUMSTANCES, IT HELD THAT THOUGH CHARGES PERTAIN TO A PERIOD OF 1 ST NOVEMBER 1963 TO 11 TH DECEMBER 1973, DEDUCTION WAS ADMISSIBLE FOR A.Y.19 96-97. APPLYING THE PROPOSITION LAID DOWN IN THESE CASE LAWS TO THE FACTS OF THE CA SE WE HOLD THAT SUCH BILLS WERE RECEIVED DURING THE CURRENT FINANCIAL YEAR. THE FIRST APPELL ATE AUTHORITY HAS RIGHTLY HELD THAT THE EXPENDITURE CRYSTALLIZED DURING THE YEAR AND HENCE WAS RIGHTLY CLAIMED DURING THE YEAR. THUS, WE DISMISS GROUND NO. 2,3&4 OF THE REVENUE. 14.4 WE FURTHER NOTE, THAT FOR A.Y. 1999-00, THE TR IBUNAL HAS CONSIDERED AN IDENTICAL ISSUE AND ALLOWED THE CLAIM OF THE ASSESS EE BY FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 1997-98. SINCE THE FACTS ARE IDEN TICAL IN THE YEAR UNDER 33 CONSIDERATION TO THAT OF THE EARLIER YEAR, THEREFOR E, BY FOLLOWING THE EARLIER YEARS ORDER OF THIS TRIBUNAL, WE DECIDE THIS ISSUE IN FAV OUR OF THE ASSESSEE AND ALLOW THE BALANCE CLAIM OF RS. 11,32,882/- 15. ADDITIONAL GROUND NO. 2 IS REGARDING ALLOWABILI TY OF REPAIR AND MAINTENANCE EXPENSES OF RS. 69,20,485/-. 15.1 WE HAVE HEARD THE LD. SENIOR COUNSEL AS WELL A S LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE TRIBUNAL IN ASSESSEEES OWN CASE FOR THE A.Y. 1999-00 HAS ALLOW ED THE CLAIM OF THE ASSESSEE TO THE TUNE OF RS. 69,20,485/-. SINCE THE CLAIM HAS ALREADY BEEN ALLOWED IN THE ASSESSMENT YEAR 1999-00, THEREFORE, THIS ADDITIONAL ISSUE IS DISMISSED BEING INFRUCTUOUS SUBJECT TO THE FINALITY OF THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 1999-00. 16. ADDITIONAL GROUND NO. 3 IS REGARDING WRITE BACK OF REPAIRS AND MAINTENANCE EXPENSES. 16.1 WE HAVE HEARD THE LD. SENIOR COUNSEL AS WELL A S LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IT HAS BEEN POINTED OU T BY LD. SENIOR COUNSEL THAT THE REPAIR AND MAINTENANCE EXPENSES OF RS. 84,99,17 1/- WAS DISALLOWED BY AO FOR ASSESSMENT YEAR 1999-00. FOR THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAS WRITE BACK THE SAID AMOUNT OF RS. 84,99,171/- AND O FFERED TO TAX, HOWEVER WHEN THE CLAIM OF THE ASSESSEE IS DISALLOWED BY THE AO I N THE EARLIER YEAR THEN THIS AMOUNT IS SUBJECTED TO DOUBLE TAX ONCE IN A.Y. 1999 -00 AND AGAIN IN THE 34 ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. DR HAS SUBMITTED THAT WHETHER THIS AMOUNT IS SUBJECTED TO DOUBLE TAX OR NOT REQUIRES V ERIFICATION AT THE LEVEL OF ASSESSING OFFICER. IN VIEW OF SUBMISSIONS MADE BY B OTH THE PARTIES, WE DIRECT THE AO TO VERIFY WHETHER THIS AMOUNT OF RS. 84,99,171/- ON ACCOUNT OF WRITE BACK OF REPAIR AND MAINTENANCE EXPENSES IN THE YEAR UNDER C ONSIDERATION IS ALSO SUBJECTED TO TAX FOR THE A.Y. 1999-00, BEING DISALL OWED IN THE ASSESSMENT ORDER AND ACCORDINGLY TAKE STEPS TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. 17. THE REVENUE IN THE CROSS APPEAL, ITA NO.4218/MU M/2005 HAS RAISED FOLLOWING GROUNDS:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEPRECIAT ION OF RS. 21,31,96,410/- ON UNDERSEA FLAG CABLE SYSTEM. 17.1 WE HAVE HEARD LD. DR AS WELL AS LD. SENIOR COU NSEL AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1997-98, 1998-99 AND 1999-00. THE FINDING OF THE TRIBUNAL FOR A.Y.19 99-00 ON THIS ISSUE IN PARA 6 TO 602 ARE AS UNDER:- 6. IN THE APPEAL FILED BY THE AO FIRST GROUND OF AP PEAL IS ABOUT ALLOWANCE OF DEPRECIATION, AMOUNTING TO RS.17.36 CRORES, ON UNDE RSEA FLAG CABLE SYSTEM.AO WHILE DELIBERATING UPON THE ISSUE OF DEPRECIATION; IN RESPECT OF PLANT AND MACHINERY ACQUIRED IN THE UNDERSEA CABLE FLAG; HELD THAT IN THE EARLIER AY.I.E.1998-99 THE THEN AO HAD DISALLOWED THE BENEF IT OF DEPRECIATION TO THE ASSESSEE, THAT FACTS AND CIRCUMSTANCES HAD NOT CHAN GED DURING THE YEAR UNDER CONSIDERATION, THAT ASSESSEE WAS NOT ENTITLED TO DE PRECIATION. THUS, FOLLOWING THE ORDER FOR THE AY.1998-99 HE DENIED THE ASSESSEE DEP RECIATION ON FLAG CABLE SYSTEM. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA .AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT IN APPELLA TE PROCEEDINGS FOR THE 35 AY.1998-99, CIT (A)-XXIV, MUMBAI HAD ALLOWED THE AP PEAL FILED BY THE ASSESSEE, THAT FAA HAD DIRECTED THE AO TO ALLOW DEPRECIATION ON FLAG CABLE SYSTEM. FOLLOWING THE ORDER FOR THE EARLIER YEAR OF CIT (A) -XXIV, HE ALLOWED THE APPEAL OF THE ASSESSEE FOR THE AY. UNDER CONSIDERATION. 6.1. BEFORE US, DR RELIED UPON THE ORDERS OF THE AO .AR SUBMITTED THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE BENCH OF THE MUMBAI TRIBUNAL VIDE ITS ORDER DTD. 05.12.2012 (ITA 3062&3438/MUM/03-AY. 1998-99 AND ITA/3061 & 3474/ MUM/ 03 DTD.30. 03.2011-AY.1997-98).HE FURTHE R RELIED UPON THE CASES OF PODAR CEMENT LTD.(226 ITR 625), SBI HOME FINANCE LT D.(280 ITR 6), GROWERSONS PUBLISHERS P LTD.(240ITR 191), STEELCRETE PVT .LTD. (142ITR45) AND RANI KANIZ ABID (93ITR332). 6.2. WE HAVE PERUSED THE ORDERS OF THE TRIBUNAL FOR THE AY.1997-98 AND 1998- 99.WE FIND THAT TRIBUNAL ;WHILE PASSING THE ORDER F OR THE AY.1998-99;HAD NOT GIVEN ANY FINDING ABOUT THE CLAIM OF THE ASSESSEE-IT SIMP LY FOLLOWED THE ORDER FOR THE AY 1997-98.BUT IN THE ORDER FOR THE YEAR 1997-98 ISSUE WAS DISCUSSED AT LENGTH. AT PARAGRAPHS14-17 OF THE SAID ORDER ISSUED HAS BEEN D EALT ABOUT DEPRECIATION ON INDEFEASIBLE RIGHT TO USE UNDERSEA CABLES. IN THIS MATTER, AO WHILE PASSING THE ORDER,HAD DISALLOWED THE CLAIM MADE BY THE ASSESSEE U/S.32 OF THE ACT.IN THE APPELLATE PROCEEDINGS FAA HELD IT IS NOW AS WELL SETTLED POSITION OF THE LAW THAT THE ELIGIBILITY TO CLAIM DEPRECIATION U/S.32 OF THE I.T.ACT,1962 IS GOVERNED BY THE FACTUM OF BENEFICIAL OWNER -SHIP OF THE DEPRECIABLE ASSETS NOTWITHSTANDING THE ABSENCE OF LEGAL TITLE THERETO......ACCORDINGLY THE APPELLANT IS ENTITLED TO CLAIM DEPRECIATION ON THE VALUE OF THE INDEFEASIBLE RIGHT S AND SUCH CLAIM OF THE APPELLANT HAS BEEN WRONGLY DENIED BY THE ASSESSING OFFICER.TH E ASSESSING OFFICER IS THEREFORE DIRECTED TO WORK OUT THE EXACT AMOUNT OF DEPRECIATI ON ALLOWABLE TO THE APPELLANT...... TRIBUNAL CONFIRMED THE ORDER OF TH E FAA AND HELD AS UNDER: LEARNED COUNSEL OF THE ASSESSEE POINTED OUT THAT T HE REVENUE HAS BEEN ALLOWING DEPRECIATION IN THE SUBSEQUENT YEAR AND PRINCIPLES OF CONSISTENCY SHOULD BE FOLLOWED AS PER THE RATIO OF THE JUDGMENT OF HONBL E DELHI HIGH. COURT IN THE CASE OF CIT VS. DALMIA PROMOTERS P. LTD.281 ITR 346 (DEL ).LEARNED DEPARTMENTAL REPRESENTATIVE WAS NOT ABLE TO FACTUALLY CONTRADICT THAT THE CLAIM OF THE ASSESSEE THAT IT IS A MEMBER OF INTERNATIONAL CONSORTIUM THA T OWNED THE CABLES AND THAT IT IS A PART OWNER, WITH THE RIGHT TO TRANSFER ITS SHA RE TO OTHER AND ALSO A RIGHT TO SHARE THE SALE PROCEED ON DECOMMISSIONING OF THE SY STEM, IN PROPORTION TO THE RIGHTS HELD BY IT. WHEN THESE FACTS ARE NOT IN DISP UTE, WE ARE NO HESITATION IN UPHOLDING THE ORDER OF THE FIRST APPELLATE AUTHORIT Y AND DISMISSING GROUND NO. 5 OF THE REVENUE. 36 AS THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE I N THE EARLIER AYS. SO, RESPECTFULLY FOLLOWING THE SAME WE DECIDE GROUND NO.1 AGAINST TH E AO. 17.2 FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 18. THE ASSESSEE IN THE APPEAL ARISING FROM THE PEN ALTY ORDER U/S 271(1)(C) HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS:- GROUND NO. 1 LEVY OF PENALTY U/S 271(1)(C) IS WITHO UT JURISDICTION, INVALID, BAD IN LAW AND FACTS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XXI [CIT (A)] HAS ERRED IN UPHOLDING THE PENALTY ORDER OF THE ASSESSING OFFICER ON THE PREMISE THAT THE APPELLANT HAD FURNISHED INACCURATE PARTICULARS OF THE INCOME. GROUND NO.2 ERRONEOUS CONFIRMATION OF LEVY OF PENAL TY ON DISALLOWANCE OF CLAIM OF BUSINESS LOSS ON ACCOUNT OF ICO GLOBAL COMMUNICATION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT THE APPELLANT HAD FURNISHED INACCURATE PARTICULARS IN THE RETURN OF INCOME FOR CLAIM OF BUSINESS LOSS ON ACCOUNT OF INVESTMENT IN ICO GLOBAL COMMUNICATIONS. GROUND NO. 3- ERRONEOUS CONFIRMATION OF LEVY OF PEN ALTY ON DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA ON INCOME FROM EAR TH STATION UNDERTAKING. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS MADE GROSS ERROR OF LAW IN COMPLETELY IGNORING THE DECIS ION OF HOBBLE JUDICIAL MEMBER IN SPECIAL BENCH IN WHICH HE HAD UPHELD THAT EACH EART H STATION CONSTITUTES A SEPARATE UNDERTAKING AND QUALIFIED FOR DEDUCTION UNDER SECTI ON 80IA(4) (II) IN RESPECT OF THE PROFIT DERIVED THEREFROM. 18.1 WE FIRST TAKE UP GROUND NO. 2 REGARDING LEVY OF PENALTY OF DISALLOWANCE OF CLAIM OF BUSINESS LOSS ON ACCOUNT OF DEVALUATION OF THE VALUE OF INVESTMENT IN ICO GLOBAL. WE HAVE HEARD THE LD. SENIOR COUNSEL AS WEL L AS LD. DR AND CAREFULLY 37 PERUSED THE RELEVANT MATERIAL ON RECORD. THOUGH, TH E DISALLOWANCE OF CLAIM BEING BUSINESS LOSS HAS BEEN CONFIRMED BY US, HOWEVER, WE FIND THAT THE ISSUE INVOLVES IN THE CLAIM OF BUSINESS LOSS IS A HIGHLY DEBATABLE ONE, AND THERE IS NOTHING ON RECORD TO INDICATE THAT THIS CLAIM OF THE ASSESSEE IS ABSOLUTELY ILLEGAL, BOGUS OR FALSE. THE ASSESSEE HAS SUPPORTED ITS CLAIM WITH TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF PATNAIK CO. LTD.(SUPRA), THERE FORE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE THOUGH NOT ALLOWABLE AS PER T HE PROVISIONS OF INCOME TAX ACT, HOWEVER THE SAME CANNOT BE TERMED AS BOGUS OR INHERENTLY INCORRECT CLAIM LEADING TO THE CONCLUSION THAT THE ASSESSEE HAS FUR NISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. DIS ALLOWANCE OF A CLAIM WHICH IS NOT FOUND BOGUS OR INHERENTLY INCORRECT OR PATENTLY UNTENABLE WOULD NOT IFSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FURNI SHED INACCURATE PARTICULARS OF INCOME OR CONCEALED PARTICULARS OF INCOME ATTRAC TING LEVY OF PENALTY U/S 271 (1)(C). THE ASSESSEE HAS DISCLOSED ALL THE RELEVAN T FACTS AND DETAILS IN RESPECT OF THE CLAIM DURING THE ASSESSMENT PROCEEDINGS AND THE CLAIM HAS BEEN SPECIFICALLY EXPLAINED THROUGH THE NOTES OF THE RETURN OF INCOME . THEREFORE, WE FIND THAT THE PENALTY ON THE DISALLOWANCE OF CLAIM OF BUSINESS LO SS ON ACCOUNT OF WRITTEN DOWN VALUE OF SHARES OF ICO GLOBAL IN THE FACTS AND CIRC UMSTANCES OF THE CASE DOES NOT WARRANT LEVY OF PENALTY. ACCORDINGLY, WE DELETE THE PENALTY ON THIS ACCOUNT. 18.2 GROUND NO. 3 IS REGARDING LEVY OF PENALTY ON D ISALLOWANCE OF DEDUCTION U/S 80IA. WE HAVE HEARD LD. SENIOR COUNSEL AS WELL AS L D. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE THE ISSUE OF DED UCTION U/S 80IA ON THE INTERNET INCOME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE CLAIM OF DEDUCTION U/S 80IA HAS BEEN ALLOWED IN THE QUANTUM APPEAL. TH EREFORE, THE PENALTY TO THE 38 EXTENT OF DISALLOWANCE OF DEDUCTION U/S 80IA ON INT ERNET INCOME IS NOT SUSTAINABLE AND ACCORDINGLY DELETED. AS REGARDS THE PENALTY AGAINST THE DISALLOWANCE OF DEDUCTION U/S 80IA ON EARTHSTATION IT IS TO BE NOTED THAT THE QUESTION OF LAW INVOLVED IN THE CLAIM OF THE ASSESS EE IS A HIGHLY COMPLEXED AND DEBATABLE ONE AS IT WAS FINALLY DECIDED BY A LARGER BENCH OF THIS TRIBUNAL. SINCE THE ISSUE WAS REFERRED TO THE LARGER BENCH (SB) OF THIS TRIBUNAL FOR ADJUDICATION WHICH ITSELF MANIFESTS THAT THERE WAS POSSIBILITY OF MORE THAN ONE VIEW ON THIS ISSUE. ACCORDINGLY, THE DISALLOWANCE OF CLAIM WHICH INVOLVES A HIGHLY DEBATABLE ISSUE AND BASED ON THE DIFFERENCE OF OPINION WOULD NOT AMOUNT TO FURNISHING INCORRECT PARTICULARS OF INCOME OR CONCEALMENT OF P ARTICULARS OF INCOME ON THE PART OF THE ASSESSEE. HENCE LEVY OF PENALTY ON SUCH A DEBATABLE LEGAL ISSUE IS NOT WARRANTED AND ACCORDINGLY DELETED. 18.3 NOW WE TAKE UP GROUND NO. 1 OF ASSESSEES APPE AL WHICH IS REGARDING LACK OF JURISDICTION IN LEVY OF PENALTY U/S 271(1)(C). T HE ASSESSEE HAS NOT BROUGHT OUT ANY SPECIFIC FACT OR CIRCUMSTANCES AS TO HOW THE OR DER U/S 271(1)(C) IS WITHOUT JURISDICTION ON THE PART OF THE AO. EVEN NOTHING HA S BEEN BROUGHT BEFORE US TO SHOW THE VIOLATION OF PRINCIPLE OF NATURAL JUSTICE WHILE PASSING THE ORDER U/S 271(1)(C). ACCORDINGLY WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THE GROUND NO. 1 RAISED BY THE ASSESSEE. EVEN OTHER WISE, THIS GROUN D HAS BECOME PURELY ACADEMIC IN NATURE, IN VIEW OF OUR FINDING ON THE MERITS OF THE LEVY OF PENALTY. ACCORDINGLY THIS GROUND OF ASSESSEES APPEAL IS DISALLOWED. 19. THE REVENUE IN THE APPEAL ARISING FROM THE PENA LTY ORDER U/S 271(1)(C) HAS RAISED THE FOLLOWING GROUNDS:- 39 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE PENALTY LEVIED U/S 2 71(1)(C) OF THE ACT IN THE CONTEXT OF DISALLOWANCE OF GDS DEPRECIATION. 2. FURTHER PLACED IN THE ABOVE FACTUAL LEGAL SCENAR IO, THE IMPUGNED ORDER OF THE LD. CIT(A) IS, THE APPELLANT PRAY, CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET ASIDE AND THEAT OF THE ASSESSING OFFICER BE RESTORED. 19.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. SENIO R COUNSEL AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO LEVIED THE PENALTY INTER ALIA AGAINST THE DISALLOWANCE OF HIGHER DEPRECIATION ON GATEWAY DIGITAL SWITCHES(GDS). WE HAVE SET ASIDE THE ISSUE OF HIGHE R DEPRECIATION ON GDS TO THE RECORD OF CIT(A) AND, THEREFORE, THE PENALTY ON THI S ACCOUNT DOES NOT SURVIVE. EVEN OTHERWISE THIS ISSUE OF HIGHER DEPRECIATION ON GDS IS A DEBTATABLE ISSUE AS THE QUESTION INVOLVES WHETHER GDS IS PART OF THE COMPUT ER FOR THE PURPOSE FOR DEPRECIATION U/S 32 OF THE INCOME TAX ACT. THE ASSE SSEE HAS CLAIMED HIGHER DEPRECIATION IN VIEW OF THE INFORMATION TECHNOLOGY ACT, AND SUPPORTED ITS CLAIM BY THE VARIOUS DECISIONS OF THIS TRIBUNAL, WHEREIN THE SWITCHES AND ROUTERS ARE HELD TO BE THE PART OF THE COMPUTER FOR THE PURPOSE OF DEPRECIATION U/S 32 OF THE ACT. EVEN OTHERWISE THERE IS NO DISPUTE ABOUT THE A SSET IN QUESTION AND THE HIGHER RATE OF DEPRECIATION IS ONLY A QUESTION OF INTERPRE TATION OF DEFINITION OF THE COMPUTER. THEREFORE, WHEN THE ASSESSEE HAS DISCLOSE D AND EXPLAINED ALL THE RELEVANT FACTS AND DETAILS RELEVANT TO THE CLAIM OF HIGHER DEPRECIATION ON GDS, THEN WE DO NOT FIND THAT MERELY CLAIMING A HIGHER D EPRECIATION WHICH IS OTHERWISE SUPPORTED BY THE VARIOUS DECISIONS WOULD LEAD TO TH E CONCLUSION THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OR CONCEALED P ARTICULARS OF INCOME. IN VIEW OF OUR FINDING IN THE QUANTUM APPEAL ON THIS ISSUE, WE ARE OF THE CONSIDERED OPINION, 40 THAT DISALLOWANCE OF HIGHER DEPRECIATION ON GDS SW ITCHES DOES NOT WARRANT LEVY OF PENALTY U/S 271(1)(C). ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) IN DELETING THE PENALTY ON THIS ACCOUNT AND HENCE WE DISMISS THE APPEAL OF THE REVENUE. 20. IN THE RESULT QUANTUM APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PENALTY APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS THE APPEA LS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 /03/2014 SD/- SD/- (N.K. BILLAIYA) (VIJAY P AL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 7 /03/2014 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI