DCIT, New Delhi V. M/s. Vodafone Essar Digilink Ltd., New Delhi

ITA 1950/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2987 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 05-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 02-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Unexplained cash credit; Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Initiation of penalty proceedings; Non-deduction of tax; Bad and doubtful debts; Relationship of principal and agent; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 194C; 201(1); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I-1: NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO. 1950/DEL/2014 ASSESSMENT YEAR: 2009-10 DCIT, CIRCLE-17(1), NEW DELHI. VS. VODAFONE ESSAR DIGILINK LTD., C-48, OKHLA INDUSTRIAL AREA, PHASE-VI, NEW DELHI. PAN: AAACA3202D ITA NO. 1169/DEL/2014 ASSESSMENT YEAR: 2009-10 VODAFONE ESSAR DIGILINK LTD., C-48, OKHLA INDUSTRIAL AREA, PHASE-VI, NEW DELHI. PAN: AAACA3202D VS. DCIT, CIRCLE-17(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, ADVOCATE MS MANASVINI BAJPAI, ADVOCATE DEPARTMENT BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 08.03.2018 DATE OF PRONOUNCEMENT : 14.03.2018 ITA NOS.1950 & 1169/DEL/2014 2 ORDER PER R.S. SYAL, VP : THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE FINAL ASSESSMENT ORDER DATED 30.01.2014 PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) REA D WITH SECTION 144C(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER AL SO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2009-10. 2. THE APPEAL OF THE REVENUE IS DELAYED BY TWO DAYS. THE LD. AR DID NOT RAISE ANY OBJECTION TO THE CONDONATION OF D ELAY. AS SUCH, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR HE ARING. 3. FIRST GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.14,23,29,976/- ON ACCOUNT OF COMMISS ION. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBIL E TELEPHONY SERVICES IN THE TELECOM CIRCLES OF RAJASTHAN, HARYA NA AND UTTAR PRADESH (EAST). IT CLAIMED EXPENDITURE OF RS.1,42,3 2,99,755/- AS COMMISSION IN ITS PROFIT & LOSS ACCOUNT. ON BEING CALLED UPON TO FURNISH DETAILS OF COMMISSION PAID TO TOP 25 DISTRI BUTORS, THE ASSESSEE ITA NOS.1950 & 1169/DEL/2014 3 SUBMITTED SUCH DETAILS. IN SUPPORT OF THE DEDUCTIO N, IT WAS SUBMITTED THAT IT WAS PROVIDING TELECOMMUNICATION SERVICES TH ROUGH TWO MODELS VIZ., PRE-PAID MODEL AND POST-PAID MODEL. THE ASSE SSEE CLAIMED TO HAVE PAID COMMISSION TO ITS AGENTS ONLY UNDER THE P OST-PAID MODEL. THE ASSESSEE FURNISHED FORM NO.16AS IN SUPPORT OF P AYMENT OF COMMISSION TO TOP 25 PARTIES. FOLLOWING THE VIEW T AKEN IN THE PRECEDING YEARS, THE AO DISALLOWED 10% OF THE COMMI SSION EXPENSE ON AD HOC BASIS, WHICH RESULTED INTO DISALLOWANCE AMOUNTING TO RS.14,23,29,976/-. THE ASSESSEE APPROACHED THE DIS PUTE RESOLUTION PANEL (DRP) AGAINST THE ADDITION IN THE DRAFT ORDER . THE DRP GOT CONVINCED WITH THE ASSESSEES CONTENTION AND, RELYI NG ON THE ORDER PASSED FOR THE A.YS. 2000-01 TO 2008-09 DELETING SI MILAR DISALLOWANCE IN THE CASE OF VODAFONE MOBILE SERVICE S LTD., A SISTER CONCERN OF THE ASSESSEE, DELETED THE ADDITION. THE REVENUE IS AGGRIEVED AGAINST THE DELETION. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE PAID CO MMISSION OF RS.142.32 CRORE TO THE AGENTS IN THE POST-PAID SEGM ENT OF ITS BUSINESS. THE ASSESSEE FURNISHED NECESSARY DETAILS AND ALSO F ORM NO.16AS IN ITA NOS.1950 & 1169/DEL/2014 4 RESPECT OF MAJOR PAYMENTS. DESPITE THIS, THE AO CH OSE TO MAKE AN AD HOC DISALLOWANCE OF 10% OF THE TOTAL COMMISSION PAYMEN T. IT IS OBSERVED THAT THE LD. DRP DELETED THE ADDITION BY R ELYING ON THE ORDER PASSED FOR THE A.YS. 2000-01 TO 2008-09 IN THE CASE OF SISTER CONCERN OF THE ASSESSEE. THE REVENUE ASSAILED THE SAID ORD ER PASSED BY THE FIRST APPELLATE AUTHORITY BEFORE THE TRIBUNAL. IN DCIT VS. VODAFONE MOBILE SERVICES LTD. (2016) 176 TTJ 430 (DEL) , THE TRIBUNAL HAS UPHELD THE DELETION OF ADDITION. RELEVANT DISCUSSI ON HAS BEEN MADE AND THE CONCLUSION DRAWN BY THE TRIBUNAL IN PARA 9 OF ITS ORDER, IN WHICH DELETION OF SUCH AD HOC DISALLOWANCE HAS BEEN UPHELD. NO DISTINGUISHING FACTUAL FEATURE OF THE ASSESSEE VIS-A-VIS ITS SISTER CONCERN, NAMELY, VODAFONE MOBILE SERVICES LTD. WAS PLACED ON RECORD BY THE LD. DR. RESPECTFULLY FOLLOWING THE P RECEDENT, WE UPHOLD THE IMPUGNED ORDER IN DELETING THE DISALLOWA NCE OF COMMISSION AMOUNTING TO RS.14.23 CRORE. 6. GROUND NO. 2 RAISED BY THE REVENUE IS AGAINST TH E DELETION OF ADDITION OF RS.17,47,28,068/- ON ACCOUNT OF ROYALTY WPC EXPENSES. ITA NOS.1950 & 1169/DEL/2014 5 7. THE FACTS OF THE GROUND ARE THAT THE ASSESSEE CL AIMED ROYALTY WPC EXPENSES AMOUNTING TO RS.117.47 CRORE. ON BEIN G CALLED UPON TO JUSTIFY SUCH DEDUCTION, THE ASSESSEE STATED THAT THIS AMOUNT REPRESENT SPECTRUM CHARGES PAID BY IT TO THE DEPART MENT OF TELECOMMUNICATIONS ON QUARTERLY BASIS AS A PERCENTA GE OF REVENUE. IT WAS SUBMITTED THAT EVERY TELECOM OPERATOR IN INDIA, IN ADDITION TO THE INITIAL OPERATOR LICENCE FEE, IS REQUIRED TO PAY SP ECTRUM ROYALTY FOR THE USE OF SPECTRUM AND MICROWAVE ROYALTY FOR GIVEN MIC ROWAVE FREQUENCY USAGE ON REGULAR BASIS. IT WAS FURTHER SU BMITTED THAT ROYALTY WPC WAS PAID ON REVENUE SHARE BASIS AT 2% O F ADJUSTED GROSS REVENUE AND THE SAME WAS ELIGIBLE FOR DEDUCTI ON. THE AO TREATED SUCH AMOUNT AS A CAPITAL EXPENDITURE INCURR ED TO GET THE RIGHT TO USE SPECTRUM AND HENCE COVERED IT UNDER SECTION 35ABB OF THE ACT. AFTER ALLOWING DEPRECIATION @ 25%, HE MADE AN ADDIT ION OF RS.61,85,57,975/-. THE DRP ORDERED TO DELETE THE A DDITION, AGAINST WHICH THE REVENUE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE AO INVOKED THE PROVISIONS OF SECTION 35ABB FOR MAKING THE ADDITION. THIS SECTIO N, IN TURN, ITA NOS.1950 & 1169/DEL/2014 6 PROVIDES THAT EXPENDITURE FOR OBTAINING LICENCE TO OPERATE TELECOMMUNICATION SERVICES, IN SO FAR AS IT IS OF T HE NATURE OF CAPITAL EXPENDITURE, SHALL BE ALLOWED AS DEDUCTION FOR EACH OF THE RELEVANT PREVIOUS YEARS ON PROPORTIONATE BASIS. IT TRANSPIR ES THAT IN ORDER TO BE COVERED WITHIN THE AMBIT OF THIS PROVISION, IT IS SINE QUA NON THAT THE EXPENDITURE FOR OBTAINING LICENCE MUST BE OF CAPITA L NATURE AT THE FIRST INSTANCE. IF PAYMENT IS IN THE REVENUE FIELD, IT G OES OUT OF PURVIEW OF THIS PROVISION. WHEN WE ADVERT TO THE NATURE OF ROY ALTY PAID BY THE ASSESSEE, IT CLEARLY EMERGES THAT THE SAME IS IN TH E NATURE OF SPECTRUM CHARGES PAID TO GOVERNMENT OF INDIA AS A PERCENTAGE OF REVENUE ON REGULAR BASIS. THIS PAYMENT IS NOT MEANT FOR OBTAI NING A LICENCE TO USE SPECTRUM, BUT FOR THE ACTUAL USE OF IT ON REGUL AR BASIS. IT IS IN THE NATURE OF A REVENUE EXPENDITURE ELIGIBLE FOR DEDUCT ION. THUS, IT CANNOT BE CONSTRUED AS A CAPITAL EXPENDITURE AND THUS GOES OUT OF THE KEN OF SECTION 35ABB. IT IS FURTHER NOTICED THAT SIMILAR I SSUE WAS ARGUED BEFORE THE TRIBUNAL IN THE AFORESAID CASE OF THE AS SESSEES SISTER CONCERN, NAMELY, VODAFONE MOBILE SERVICES LTD. AFTE R CONSIDERING THE RELEVANT DETAILS, THE TRIBUNAL IN PARA 14 OF IT S ORDER DIRECTED TO DELETE THE ADDITION BY RELYING ON JUDGMENT OF THE H ONBLE ITA NOS.1950 & 1169/DEL/2014 7 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FASCEL LTD. 17 DTR 306 (2009 ). SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTAN T GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE CASE OF VODAFONE MOBILE SERVICES LTD. (SUPRA), RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER IN DELETING THE DISALLOWANCE. THIS GROUND FAILS. 9. GROUND NO. 3 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.2,52,28,036/- ON ACCOUNT OF ADVERTI SEMENT EXPENSES. THE ASSESSEE CLAIMED DEDUCTION FOR ADVERTISEMENT EX PENSES AMOUNTING TO RS.97.63 LAC ON PRODUCT LAUNCHES AND R S.14.81 CRORE ON GRANTY SIGNS. THE AO OPINED THAT SINCE THE BENEFIT OF THIS EXPENDITURE WOULD BE REAPED IN SUBSEQUENT YEARS AS WELL, HE TRE ATED THE SAID AMOUNT OF ADVERTISEMENT EXPENSES AS CAPITAL. AFTER ALLOWING DEDUCTION @ 25%, HE MADE AN ADDITION OF RS.2,52,28, 03,617/-. THE DRP GOT CONVINCED WITH THE ASSESSEES SUBMISSIONS A ND ORDERED TO DELETE THE ADDITION. 10. HAVING CONSIDERED THE ARGUMENTS FROM BOTH THE S IDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND TH AT THIS ISSUE IS NO ITA NOS.1950 & 1169/DEL/2014 8 MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. CITI FINANCIAL CONSUMER FINANCE LTD. (2011) 335 ITR 29 (DEL) IN WHICH ADVERTISEMENT EXPENDITURE HAS BEEN TREATE D AS REVENUE. IN VIEW OF THE JUDGMENT OF THE HONBLE JUR ISDICTIONAL HIGH COURT, WHICH HAS BEEN RELIED BY THE DRP, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS WARRANTED IN THE IM PUGNED ORDER ON THIS SCORE. THIS GROUND IS DISMISSED. 11. THE LAST GROUND OF THE REVENUES APPEAL IS AGAI NST THE DELETION OF ADDITION OF RS.31 LAC. THE FACTS APROPOS THIS G ROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.31 LAC TOWARDS FRA UDS COMMITTED BY ITS CUSTOMERS. THE AO TREATED THIS AMOUNT AS NOT D EDUCTIBLE U/S 37(1) AND, ACCORDINGLY, MADE AN ADDITION. THE DRP DIRECT ED TO DELETE THE ADDITION. 12. HAVING HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD, WE FIND THAT THE DEDUCTION OF RS.31 LAC IS NOT ON ACCOUNT OF EMBEZZLEMENT BY EMPLOYEES, BUT, FOR THE LOSS INCURR ED DUE TO FRAUDS COMMITTED BY THE ASSESSEES CUSTOMERS WHO DID NOT M AKE PAYMENTS FOR THE BILLS RAISED ON THEM BY THE ASSESSEE. THIS LOSS, BEING ITA NOS.1950 & 1169/DEL/2014 9 INCIDENTAL TO CARRYING ON BUSINESS, CANNOT BE TREAT ED AS AN ITEM OF NON-REVENUE NATURE. WE, THEREFORE, UPHOLD THE IMPU GNED ORDER IN DELETING THE DISALLOWANCE. THIS GROUND IS DISMISSED . 13. THE FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST AMORTIZATION OF REVENUE-BASED LICENCE FEE. THE ASSESSEE CLAIMED DEDUCTION OF RS.205,38,20,412/- AS REVENUE SHARE OF THE LICENCE FEE DEBITED IN THE PROFIT & LOSS ACCOUNT. APART FROM THAT, THE ASSESS EE ALSO CLAIMED DEDUCTION FOR A SUM OF RS.18,74,66,473/- AS AMORTIS ATION OF LICENCE FEE U/S 35ABB OF THE ACT IN THE COMPUTATION OF INCO ME. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE SUM OF RS.205. 38 CRORE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE AND, HENCE, A MORTIZED U/S 35ABB, THE ASSESSEE SUBMITTED THAT AS PER THE TERMS OF THE LICENCE AGREEMENT WITH THE DEPARTMENT OF TELECOMMUNICATIONS AND NATIONAL TELECOM POLICY, 1999, THE LICENCE FEE AGREED WITH A ND PAID UP TO THE DATE OF MIGRATION WAS TREATED AS ONE TIME ENTRY FEE WHICH WAS CAPITALISED TO BE AMORTIZED U/S 35ABB. AS REGARDS THE DEDUCTION OF RS.205.38 CRORE CLAIMED DURING THE YEAR, THE ASSESS EE SUBMITTED THAT IT WAS A LICENCE FEE AT SPECIFIED PERCENTAGE OF THE GR OSS REVENUE DERIVED BY THE ASSESSEE FROM ITS CELLULAR BUSINESS. IT WAS REITERATED THAT THE ITA NOS.1950 & 1169/DEL/2014 10 RECURRING LICENCE FEE WAS NOT FOR ACQUIRING ANY TEL ECOMMUNICATION LICENCE, BUT, FOR MAINTENANCE OF LICENCE TO BE PAI D TO THE GOVERNMENT OF INDIA IN TERMS OF THE NEW TELECOM POLICY. THE A O OBSERVED THAT THE ASSESSEE PAID SUCH AN AMOUNT TO THE GOVERNMENT OF INDIA, DEPARTMENT OF TELECOMMUNICATIONS IN CONSIDERATION O F GRANT OF LICENCE TO OPERATE AND PROVIDE THE TELECOMMUNICATIO N SERVICES AND THE OBJECT WAS ACQUISITION OF LICENCE. HE OBSERVED THA T AS AGAINST THE AMOUNT OF LICENCE FEE DEBITED IN THE P&L ACCOUNT ON ACCRUAL BASIS TO THE TUNE OF RS.205.38 CRORE, THE ASSESSEE MADE AN A CTUAL PAYMENT OF RS.173.84 CRORE. HE HELD THAT ONLY SUCH AN AMOUNT PAID WAS TO BE AMORTIZED OVER THE REMAINING SEVEN YEARS OF LICENCE AND, HENCE, THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION UNDER THIS SECTION AT 1/7 TH OF RS.173.84 CRORE, WHICH CAME TO RS.24.83 CRORE. THE EXCESS AMOUNT OF RS.180.54 CRORE (RS.205.38 CRORE MINUS RS.24.83 CRORE) WAS HELD TO BE NOT ALLOWABLE. HOWEVER, A DEDUCTION AMOUNTIN G TO RS.25,99,91,404/- WAS ACTUALLY ALLOWED U/S 35ABB IN RESPECT OF AMOUNTS SIMILARLY TREATED AS CAPITAL EXPENDITURE IN EARLIER YEARS. THUS, NET ADDITION OF RS.154,54,85,884/- WAS MADE. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP AS WELL AND, E VENTUALLY, ITA NOS.1950 & 1169/DEL/2014 11 ADDITION OF RS.154.54 CRORE WAS MADE IN THE IMPUGNE D ORDER, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRIBUNAL. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSES SEE ENTERED INTO LICENCE AGREEMENT WITH MINISTRY OF COMMUNICATIONS O N 28.12.1995 FOR HARYANA CIRCLE. SIMILAR LICENCE AGREEMENTS WER E ENTERED INTO FOR RAJASTHAN AND UTTAR PRADESH (EAST) CIRCLES. THE HAR YANA CIRCLE LICENCE, ALONG WITH THE OTHER TWO, WAS INITIALLY GRANTED TO THE ASSESSEE FOR A PERIOD OF TEN YEARS TO ESTABLISH, MAINTAIN AND OPER ATE CELLULAR MOBILE TELEPHONE SERVICE. A SUM OF RS.240 CRORE WAS TO BE PAID AS LICENCE FEE IN TERMS OF CONDITION NO. 19 OF THE LICENCE AGR EEMENT, A COPY OF WHICH IS PLACED FROM PAGE 540 ONWARDS OF THE PAPER BOOK. THE ASSESSEE WAS REQUIRED TO PAY A SUM OF RS.240.00 CRO RE FROM 1995 UP TO THE FINANCIAL YEAR 2000-01 AS PER THE DETAILS GI VEN IN THE AGREEMENT. ADMITTEDLY, THE ASSESSEE PAID THIS AMOU NT. HOWEVER, NEW TELECOM POLICY, 1999 CAME INTO FORCE, WHOSE CO PY IS AVAILABLE FROM PAGE 578 ONWARDS OF THE PAPER BOOK. UNDER THI S NEW POLICY, CELLULAR MOBILE SERVICE PROVIDERS (CMSPS) WERE REQU IRED TO PAY A ONE-TIME ENTRY FEE. APART FROM SUCH ONE-TIME ENTRY FEE, CMSPS WERE ITA NOS.1950 & 1169/DEL/2014 12 ALSO REQUIRED TO PAY A LICENCE FEE BASED ON REVENUE SHARE ON REGULAR BASIS. THE ASSESSEE ENTERED INTO AGREEMENT WITH GO VERNMENT OF INDIA UNDER THE NEW POLICY ON 19.11.2008, WHOSE COPY IS A VAILABLE FROM PAGE 589 ONWARDS OF THE PAPER BOOK. AS PER THIS AG REEMENT, THE EFFECTIVE DATE OF LICENCE WAS TO CONTINUE AS 12.12. 1995. THE DURATION OF THE LICENCE WAS FIXED AS 20 YEARS FROM THE EFFEC TIVE DATE. PART III OF THE AGREEMENT CONTAINS FINANCIAL CONDITION. CLA USE 18.1 PROVIDES THAT: NO ADDITIONAL ENTRY FEE SHALL BE CHARGED FRO M CMSPS FOR MIGRATION TO NEW POLICY. CLAUSE 18.2 PROVIDES THAT THE LICENSEE SHALL PAY LICENCE FEE ANNUALLY @ 8% OF ADJUSTED GROSS REV ENUE (AGR) EXCLUDING SPECTRUM CHARGES AND FOR THE FIRST FOUR Y EARS W.E.F. 01.04.2004, ANNUAL LICENCE FEE PAYABLE SHALL BE 6% OF AGR. CLAUSE 18.3 OF THE AGREEMENT PROVIDES THAT SPECTRUM CHARG ES SHALL BE 2% OF THE AGR. WHILE DEALING SUPRA WITH GROUND NO. 2 OF THE REVENUES APPEAL, WE HAVE DEALT WITH SPECTRUM CHARGES, WHICH AMOUNT WAS PAID BY THE ASSESSEE DURING THE YEAR TO THE TUNE OF RS.1 17.47 CRORE. HOWEVER, IN THE INSTANT GROUND, WE ARE CONCERNED WI TH A SUM OF RS.205.38 CRORE, BEING, THE AMOUNT DEBITED BY THE A SSESSEE IN ITS PROFIT & LOSS ACCOUNT ON ACCRUAL BASIS. THE AMOUNT OF RS.205.38 ITA NOS.1950 & 1169/DEL/2014 13 CRORE IS DIFFERENT FROM THE SPECTRUM CHARGES PAID B Y THE ASSESSEE TO THE TUNE OF RS.117.47 CRORE. WE HAVE NOTICED FROM F INANCIAL CONDITIONS OF THE NEW LICENCE AGREEMENT WHICH PROVI DES THAT THERE SHALL BE NO ADDITIONAL ENTRY FEE FROM CMSPS. HOWEV ER, THE LICENSEES HAVE BEEN REQUIRED TO PAY THE LICENCE FEE ANNUALLY @ 8%/6% ON ADJUSTED GROSS REVENUE EXCLUDING SPECTRUM CHARGES. IT IS THIS AMOUNT WHICH HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT AT RS.205.38 CRORE. THUS, IT IS DISCERNIBLE FROM THE FINANCIAL CONDITIO NS THAT FOR MIGRATION TO THE NEW POLICY FROM THE OLD ONE, NO ENTRY FEE WA S REQUIRED TO BE PAID. IT IS THIS AMOUNT OF ENTRY FEE, WHICH, IF AN D WHEN, PAID BY CELLULAR MOBILE SERVICE PROVIDERS, WOULD BE FOR ACQ UISITION OF LICENCE AND HENCE CAPITAL IN NATURE. THE OTHER REGULAR PAY MENTS MADE BY THE ASSESSEE ON YEAR-TO -YEAR BASIS AT A SPECIFIED PERC ENTAGE OF ITS ADJUSTED GROSS REVENUE ARE NOT FOR ACQUISITION OF LICENCE, B UT, TO MAINTAIN THE LICENCE ALREADY GRANTED. SUCH AN AMOUNT FOR MAINTE NANCE OF LICENCE, IN CONTRADISTINCTION TO THE CONSIDERATION FOR ACQUI SITION OF LICENCE, CANNOT BE CONSIDERED AS A CAPITAL EXPENDITURE, BEIN G, ELIGIBLE FOR DEDUCTION U/S 35ABB, AS HAS BEEN HELD BY THE AUTHOR ITIES BELOW. WE HAVE NOTICED ABOVE THAT SECTION 35ABB IS ATTRACTED ONLY IN RESPECT OF ITA NOS.1950 & 1169/DEL/2014 14 CAPITAL EXPENDITURE INCURRED BY TELECOMMUNICATION O PERATORS. IF A PARTICULAR STATUTORY PAYMENT FALLS IN THE REVENUE F IELD, THE SAME AT THE OUTSET CEASES TO BE CONSIDERED FOR THE PURPOSES OF SECTION 35ABB. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. BHARTI HEXACON LTD. (2014) 265 CTR 130 (DEL) , CONSIDERED THE INSTANT ISSUE IN AN ELABORATE MANNER AND HELD IN PARA 42 THAT: THE LIC ENCE FEE PAID OR PAYABLE FOR THE PERIOD UP TO 31 ST JULY, 1999, I.E., THE DATE SET OUT IN THE 1999 POLICY SHOULD BE TREATED AS CAPITAL IN NATURE AND THE BALANCE AMOUNT PAYABLE ON OR AFTER THE SAID DATE SHOULD BE TREATED AS REVENUE. SINCE THE AMOUNT OF RS.205.38 CRORE INCUR RED BY THE ASSESSEE AS LICENCE FEE @ 8%/6% ON ADJUSTED GROSS R EVENUE IS IN RELATION TO THE PERIOD AFTER 31 ST JULY, 1999 AND IS NOT IN THE NATURE OF ENTRY FEE, SUCH AMOUNT IS TO BE ALLOWED AS DEDUCTIO N IN ENTIRETY IN THE YEAR OF INCURRING WITHOUT INVOKING THE PROVISIONS O F SECTION 35ABB OF THE ACT. AS THE AO HAS MADE AN ADDITION OF RS.1 54.54 CRORE ON THIS SCORE, WE ORDER FOR ITS DELETION AS THE SAME I S OF THE REVENUE NATURE. 15. HOWEVER, IT IS CLARIFIED THAT IF CERTAIN SU MS CLAIMED BY THE ASSESSEE AS REVENUE IN THE PRECEDING OR SUCCEEDING YEARS GOT ITA NOS.1950 & 1169/DEL/2014 15 CAPITALISED BY THE AO U/S 35ABB, THEN, THE PROPORTI ONATE AMOUNT FROM SUCH CAPITALISATION SHOULD NOT BE ALLOWED AS D EDUCTION IN THE LATER YEARS SINCE THE FULL AMOUNT OF SUCH LICENCE F EE PERTAINING TO THE YEAR UNDER CONSIDERATION IS BEING SEPARATELY ALLOWE D. THE AO WILL VERIFY THE CALCULATIONS IN THIS REGARD AND ENSURE T HAT NO DOUBLE DEDUCTION IS ALLOWED IN THE CURRENT OR EARLIER OR L ATER YEARS IN THIS REGARD. THIS GROUND IS ALLOWED. 16. GROUND NO. 2 OF THE ASSESSSEES APPEAL IS AGAI NST THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.510,79,752/- CLAIME D ON FIXED ASSETS ON ACCOUNT OF ASSET RESTORATION COST (ARC) OBLIGATI ON. SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CAPI TALISED CERTAIN SUMS ON ACCOUNT OF ARC OBLIGATION, BEING, THE ESTIMATED COST TO BE INCURRED AT THE LEASED AND SHARED NETWORK SITES AND OFFICE PREMISES FOR RESTORING THEM TO THEIR ORIGINAL CONDITION AT THE E ND OF THE LEASE PERIOD. DEPRECIATION AMOUNTING TO RS.5.10 CRORE WA S CLAIMED ON THE SAID AMOUNT CAPITALISED. THE AO DID NOT ALLOW SUCH DEPRECIATION ON THE GROUND THAT THE AMOUNT ALLOCATED WAS NOT IN THE NATURE OF AN ASCERTAINED LIABILITY. THE ASSESSEES CONTENTION T HAT IT HAD ENTERED INTO LEASE AGREEMENT WITH VARIOUS OWNERS FOR ITS OFFICE SPACE AND FOR ITA NOS.1950 & 1169/DEL/2014 16 SETTING UP OF CELL SITE TOWERS AND SUCH LEASE AGREE MENTS PUT THE ASSESSEE COMPANY UNDER OBLIGATION TO RESTORE THE LE ASED PREMISES TO ITS ORIGINAL FORM AT THE TIME OF VACATING SUCH PREM ISES, WAS NOT FOUND TO BE BORNE OUT FROM THE SAMPLE LEASE AGREEMENTS PR OVIDED BY THE ASSESSEE. THE LD. DRP DID NOT ALLOW ANY RELIEF TO THE ASSESSEE ON THIS ISSUE. EVENTUALLY, AN ADDITION OF RS.5.10 CRORE WAS MADE IN THE IMPUGNED ORDER. 17. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE ENTERED INTO L EASE AGREEMENT WITH OWNERS OF VARIOUS OFFICE SPACES FOR SETTING UP OF C ELL SITE TOWERS. AS PER THE ASSESSEE, IT WAS OBLIGED TO RESTORE THE SIT E TO ITS ORIGINAL CONDITION AT THE EXPIRY OF THE LEASE PERIOD. THE A SSESSEE ESTIMATED A SUM TO BE INCURRED ON RESTORATION AND CAPITALISED T HE SAME TO THE COST OF CELL SITE TOWERS AT THE VERY THRESHOLD OF ENTERI NG INTO LEASE AGREEMENTS. NOT ONLY THIS, THE ASSESSEE ALSO CLAIM ED DEPRECIATION ON SUCH ESTIMATED RESTORATION COST CAPITALISED. IT IS CLEAR FROM THE FACTS THAT NO SUCH COST WAS ACTUALLY INCURRED BY THE ASSE SSEE AND A SUM WAS NOTIONALLY ESTIMATED AND CAPITALISED FOR THE PURPOS E OF DEPRECIATION. SECTION 32(1) PROVIDES FOR DEPRECIATION ON THE ACT UAL COST OF BLOCK ITA NOS.1950 & 1169/DEL/2014 17 OF ASSETS IN THE FIRST YEAR AND, THEN, ON THE WRITT EN DOWN VALUE AS PRESCRIBED IN THE PROVISIONS. SECTION 43(1) DEFINE S ACTUAL COST TO MEAN THE ACTUAL COST OF ASSETS TO THE ASSESSEE REDU CED BY THAT PORTION OF THE COST THEREOF, IF ANY, AS HAS BEEN DIRECTLY O R INDIRECTLY MADE BY ANY OTHER PERSON OR AUTHORITY. ON A CONJOINT READI NG OF THE ABOVE PROVISIONS, IT IS MANIFEST THAT DEPRECIATION CAN BE CLAIMED ONLY ON THE ACTUAL COST OF ASSET WHICH IS INCURRED BY THE ASSE SSEE. THERE IS NO QUESTION OF PROVIDING DEPRECIATION ON A NOTIONAL CO ST WHICH AT THE MOST CAN BE CONSIDERED AS AN UNASCERTAINED LIABILIT Y. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE AUTHORITIES BELOW WERE FULLY JUSTIFIED IN REJECTING THE ASSESSE ES CLAIM OF DEPRECIATION OF RS.5.10 CRORE ON THE SO-CALLED ASSE T RESTORATION COST OBLIGATION. 18. IN SUPPORT OF THE ASSESSEES CLAIM THAT IT INCURRED AN OBLIGATION FOR RESTORATION OF SITE, A COPY OF AN AGREEMENT DAT ED 01.10.2010 ENTERED INTO BETWEEN THE ASSESSEE AND UPAL DEVELOPE RS PVT. LTD., WAS PLACED ON RECORD WHICH PROVIDES FOR MONTHLY RENT OF RS.5,000/- AND THE FURTHER SUM OF RS.5,000/- PER MONTH TOWARDS MA INTENANCE CHARGES. CONSEQUENCES OF DETERMINATION OF THE AGR EEMENT HAVE BEEN ITA NOS.1950 & 1169/DEL/2014 18 SET OUT IN CLAUSE 10, WHICH IS THE BEDROCK OF THE A SSESSEES CLAIM FOR ASSET RESTORATION COST OBLIGATION AND RESULTANT DEP RECIATION. THE RELEVANT PART OF THIS CLAUSE PROVIDES THAT THE ASSE SSEE: SHALL AT ITS OWN COST RESTORE THE PREMISES OF THE SAID BUILDING TO I TS ORIGINAL STATE, IF ANY DAMAGE IS CAUSED IN THE COURSE OF THE REMOVAL O F CABLES, ANTENNAS OR OTHER EQUIPMENTS. THERE IS ABSOLUTELY NO DOUBT ON THE INTERPRETATION OF CLAUSE 10 OF THE AGREEMENT THAT T HE ASSESSEE WILL BE OBLIGED TO INCUR COST AT THE TIME OF DETERMINATION OF THE AGREEMENT ONLY IF DAMAGE IS CAUSED IN THE COURSE OF REMOVAL O F CABLES, ANTENNAS OR OTHER EQUIPMENTS AND NOT OTHERWISE. DAMAGE TO TH E PREMISES, IF ANY, ARISING ON THE REMOVAL OF CABLES, ANTENNAS AND OTHER EQUIPMENTS, ETC., CAN BE ASCERTAINED ONLY AT THE TIME OF TERMIN ATION OF THE AGREEMENT AND NOT AT THE TIME OF ENTERING INTO THE AGREEMENT. FURTHER, NO OBLIGATION WILL BE INCURRED IF NO LOSS IS CAUSED TO THE PREMISES AT THE TIME OF REMOVAL OF CABLES ETC. AS SUCH, WE ARE OF THE CONSIDERED OPINION THAT THE ADDITION OF RS.5.10 CRORE HAS BEEN RIGHTLY MADE. THIS GROUND IS NOT ALLOWED. 19. GROUND NO. 3 OF THE ASSESSEES APPEAL IS AGAI NST THE DISALLOWANCE OF INTEREST ON CAPITAL WORK-IN-PROGRESS. ITA NOS.1950 & 1169/DEL/2014 19 20. THE FACTS OF THIS GROUND ARE THAT THE ASSESS EE DECLARED CAPITAL WORK-IN-PROGRESS AMOUNTING TO RS.2789.6 MILLION IN ITS BALANCE SHEET. THE AO OBSERVED THAT ADDITION TO FIXED ASSETS AMOUN TING TO RS.12828 MILLION WAS MADE DURING THE YEAR, WHICH WAS RECORDE D IN THE SCHEDULE OF FIXED ASSETS AS AN ITEM DISTINCT FROM C APITAL WORK-IN- PROGRESS SHOWN SEPARATELY IN THE BALANCE SHEET. ON BEING CALLED UPON TO EXPLAIN AS TO WHY INTEREST COST INCURRED ON SUCH CAPITAL WORK-IN- PROGRESS SHOULD NOT BE DISALLOWED IN TERMS OF PROVI SO TO SECTION 36(1)(III), THE ASSESSEE SUBMITTED THAT THERE WAS N O EXTENSION OF EXISTING BUSINESS AS A RESULT OF SUCH CAPITAL WORK -IN-PROGRESS AND, HENCE, DISALLOWANCE OF INTEREST WAS NOT CALLED FOR. THE AO DID NOT CONCUR WITH THE ASSESSEES ARGUMENTS. RELYING ON C ERTAIN DECISIONS, HE HELD THAT THE AMOUNT OF INTEREST INCURRED IN RES PECT OF SUCH CAPITAL WORK-IN-PROGRESS SHOULD BE DISALLOWED @ 7.7% OF MON THLY OUTSTANDING BALANCES AS PER THE TABLE GIVEN ON PAGE 43 OF THE ASSESSMENT ORDER. THE ASSESSEE FAILED TO CONVINCE THE DRP ON ITS LINE OF REASONING AS WELL. THIS RESULTED INTO AN ADDITI ON OF RS.26,45,28,627/-. THE ASSESSEE IS AGGRIEVED AGAIN ST THIS ADDITION. ITA NOS.1950 & 1169/DEL/2014 20 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS FIRST NECESSARY TO UNDERSTAND THE NATURE OF THE CAPITAL WORK-IN-PROGRESS CAPITALISED IN THE BALANCE SHEET AT RS.2789 MILLION. ON A PERTINENT QUERY, THE LD. A R SUBMITTED THAT THIS AMOUNT REPRESENTS THE COST OF INSTALLING NEW C ELL SITE TOWERS TO BE USED FOR PROVIDING BETTER NETWORK TO ITS CUSTOMERS. IT WAS STATED THAT ROUGHLY A PERIOD OF THREE MONTHS IS SPENT IN THE SE TTING UP OF A TOWER. DURING THE CURRENCY OF SUCH PERIOD OF THREE MONTHS, I.E., WHEN A TOWER IS BEING SET UP, THE COSTS INCURRED ON SUCH INSTALL ATION OF TOWERS ARE BOOKED UNDER THE HEAD CAPITAL WORK-IN-PROGRESS. WHEN INSTALLATION GETS COMPLETED, THE AMOUNT SO CAPITALISED IS TRANSF ERRED FROM THE `CAPITAL WORK-IN-PROGRESS ACCOUNT TO THE `FIXED AS SETS IN REGULAR COURSE. FROM THE ABOVE NARRATION OF FACTUAL BACKGR OUND, IT IS CLEAR THAT A SUM OF RS.2789.6 MILLION REPRESENTS THE AMOU NTS INCURRED BY THE ASSESSEE UP TO THE END OF THE YEAR ON INSTALLAT ION OF TOWERS, WHOSE PROCESS OF INSTALLATION WAS STILL ON AT THE END OF THE YEAR. IN OTHER WORDS, THIS FIGURE REPRESENTS THE VALUE OF ASSETS, WHICH HAVE STILL NOT BEEN USED BY THE ASSESSEE DURING THE YEAR FOR ITS B USINESS PURPOSE. ITA NOS.1950 & 1169/DEL/2014 21 THE AO INVOKED FIRST PROVISO TO SECTION 36(1)(III) WHICH, AT THE MATERIAL TIME, READ AS UNDER:- `PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. 22. AT THIS STAGE, IT IS RELEVANT TO MENTION THAT THE WORDS FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION HAVE BEEN OMITTED BY THE FINANCE ACT, 2015 W.E.F. 01.04.2016. AS WE ARE DEA LING WITH THE A.Y. 2009-10, SUCH WORDS ARE RELEVANT FOR OUR PURPO SE. A CAREFUL PERUSAL OF THE SECTION 36(1)(III) IN JUXTAPOSITION TO THE FIRST PROVISO INDICATES THAT THE AMOUNT OF INTEREST PAID IN RESPE CT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION IS DEDUCTIBLE, BUT, ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL B ORROWED FOR `ACQUISITION OF AN ASSET FOR EXTENSION OF THE EXIST ING BUSINESS FOR ANY PERIOD TILL THE DATE ON WHICH SUCH ASSET IS FIRST P UT TO USE, SHALL NOT BE ALLOWED. 23. THE LD. AR VEHEMENTLY CONTENDED THAT THE WOR DS FOR EXTENSION OF THE EXISTING BUSINESS OR PROFESSION BRING WITHI N ITS AMBIT THE ITA NOS.1950 & 1169/DEL/2014 22 ACQUISITION OF AN ASSET WHICH IS MEANT FOR EXTENSIO N OF THE EXISTING BUSINESS AND NOT OTHERWISE. HE SUBMITTED THAT THE TELECOMMUNICATION BUSINESS CAN BE CONSIDERED AS `EXTENDED ONLY WHEN SOME NEW CIRCLES ARE ADDED TO THE EXISTING CIRCLES IN WHICH THE BUSINESS IS CARRIED ON. THIS WAS OPPOSED BY THE LD. DR WHO SUB MITTED THAT EXTENSION CAN BE WITHIN THE EXISTING CIRCLES DE HORS NEW CIRCLES. 24. WE ARE NOT CONVINCED WITH THE CONTENTION ADV ANCED BY THE LD. AR. THE WORDS FOR EXTENSION OF THE EXISTING BUSIN ESS PRESUPPOSE THAT THERE IS ALREADY A BUSINESS IN EXISTENCE AND C APITAL IS BORROWED FOR ACQUISITION OF ASSET FOR EXTENSION OF SUCH EXIS TING BUSINESS. EXTENSION CAN BE VERTICAL AS WELL AS HORIZONTAL. EXISTING TELECOMMUNICATION BUSINESS CAN BE EXTENDED IN DIFFE RENT FORMS. ONE OF SUCH FORMS CAN BE THE ONE DESCRIBED BY THE LD. A R IN WHICH A CELLULAR MOBILE SERVICE PROVIDER (CMSP) EXPANDS ITS AREA OF BUSINESS TO A DIFFERENT CIRCLE WHICH WAS NOT HITHERTO IN ITS REACH. IN THE SAME BREATH, THERE CAN BE AN EXTENSION OF EXISTING BUSIN ESS WHEN A CMSP INCREASES ITS REACH WITHIN THE ALLOTTED CIRCLE ITSE LF BY MEANS OF SETTING UP NEW TOWERS. TO PUT IT SIMPLY, IF A CMSP HAS A L ICENCE TO OPERATE IN A PARTICULAR STATE, IT MAY INITIALLY SET UP CELL TOWERS CATERING TO ITA NOS.1950 & 1169/DEL/2014 23 URBAN AREAS FOR MEETING THE REQUIREMENTS OF POPULAT ION RESIDING THEREIN. WITH THE PASSAGE OF TIME, IT MAY TRY TO R EACH TO RURAL AREAS AND STILL MORE RURAL AREAS WITHIN THE SAME STATE BY ESTABLISHING TOWERS FOR PROVIDING CONNECTIVITY IN SUCH AREAS AS WELL. WITH NEW TOWERS IN AREAS, WHICH WERE HITHERTO NOT HAVING CONNECTIVITY BECAUSE OF LACK OF THE COVERAGE OF ADEQUATE EXISTING TOWERS, THE SERVI CE PROVIDER WILL, NATURALLY, BE GOING IN FOR EXTENSION OF EXISTING B USINESS. WITH SUCH A SETTING UP OF NEW TOWERS, THE SERVICE PROVIDER WILL INCREASE ITS CUSTOMER BASE WITHIN THE EXISTING CIRCLE, WHICH IS NOTHING BUT AN EXTENSION OF EXISTING BUSINESS. 25. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE, IT EMERGES THAT THE ASSESSEE WAS SUCCESSFUL IN INCREASING ITS CUSTO MER BASE BY SETTING UP NEW TOWERS, COST OF WHICH HAS BEEN CLASSIFIED AS CAPITAL WORK-IN- PROGRESS. IT IS EVIDENT FROM THE ASSESSEES DIRECT ORS REPORT FOR THE YEAR UNDER CONSIDERATION WHICH RECORDS THAT: THE C OMPANY HAS ALSO WITNESSED A GOOD LEVEL OF INCREASE IN THE SUBSCRIBE R BASE IN ALL THE THREE CIRCLES (UPE, RAJASTHAN AND HARYANA) IN WHIC H IT OPERATES. THE COMPANY HAS FURTHER EXPANDED ITS NETWORK TO INCREAS E ITS COVERAGE ACROSS ALL ITS CIRCLES. DURING THE YEAR, THE COMPANY ADDED 5096 CELL ITA NOS.1950 & 1169/DEL/2014 24 SITES TO ENHANCE ITS NETWORK COVERAGE CLOSING WITH 14411 CELL SITES AS AT 31 ST MARCH, 2009. IT IS EVIDENT FROM THE ASSESSEES DI RECTORS REPORT THAT THE SETTING UP OF NEW CELL SITES HAS EN HANCED ITS NETWORK COVERAGE WITHIN ALL THE THREE EXISTING CIRCLES AND THE RESULTANT CUSTOMER BASE, WHICH IS NOTHING, BUT, AN EXTENSION OF EXISTING BUSINESS. WE, THEREFORE, HOLD THAT THE ARGUMENT ADV ANCED BY THE LD. AR THAT THE SETTING UP OF NEW CELL SITES, THE COST OF WHICH WAS CAPITALISED IN THE BALANCE SHEET AS CAPITAL WORK IN PROGRESS (CWIP), DOES NOT LEAD TO EXTENSION OF EXISTING BUSINESS, IS SANS MERIT AND, HENCE, DISMISSED. 26. THE LD. AR THEN ARGUED THAT INVESTMENT IN C WIP WAS MADE OUT OF OWN INTEREST FREE FUNDS AND HENCE NO INTEREST CA N BE ATTRIBUTED TO ANY CAPITAL BORROWED FOR THE PURPOSE OF MAKING SUCH AN INVESTMENT. THIS WAS OPPOSED BY THE LD. DR, WHO SUBMITTED THAT THE ASSESSEE FAILED TO FILE ANY SUCH DETAILS BEFORE THE AO AND H ENCE SUCH A CONTENTION CANNOT BE ACCEPTED AT THIS STAGE. 27. BEFORE DEALING WITH THIS CONTENTION, IT IS WORTHWHILE TO MENTION THAT THE ASSESSEE MADE INVESTMENT OF RS. 2789.6 M ILLION IN ITS ITA NOS.1950 & 1169/DEL/2014 25 CWIP, WHICH IS THE CENTRE OF DISPUTE. ON HAVING A G LIMPSE AT THE BALANCE SHEET OF THE ASSESSEE, IT BECOMES EVIDENT T HAT IT HAS PAID UP SHARE CAPITAL TO THE TUNE OF RS.1011.0 MILLION AND RESERVES AND SURPLUS FOR A SUM OF RS.4571.8 MILLION. THUS, IT IS PALPABLE THAT AS AGAINST THE INVESTMENT OF RS. 2789.6 MILLION IN CWI P, THE ASSESSEE HAS ITS OWN SHAREHOLDERS FUND FOR A SUM OF RS. 5582 .9 MILLION, WHICH IS ROUGHLY DOUBLE THE AMOUNT OF CAPITAL WORK IN PRO GRESS. 28. SECTION 36(1)(III) PROVIDES FOR DEDUCTION O F INTEREST OF THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ESSENCE OF THIS PRO VISION IS THAT THE INTEREST SHOULD BE ALLOWED SO LONG AS THE CAPITAL B ORROWED, ON WHICH SUCH INTEREST IS PAID, IS USED FOR THE PURPOSE OF B USINESS OR PROFESSION. IF, HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANC ES EVEN FOR A NON- BUSINESS PURPOSE, THERE CANNOT BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING LOANS. THE HON'BLE BOMBAY HIGH CO URT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 34 0 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICIENT INTERES T FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, ITA NOS.1950 & 1169/DEL/2014 26 APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMP TION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN THAT CASE, T HE AO RECORDED A FINDING THAT A SUM OF RS.213 CRORE WAS INVESTED BY THE ASSESSEE OUT OF ITS OWN FUNDS AND RS.1.74 CRORE OUT OF BORROWED FUN DS. ACCORDINGLY, DISALLOWANCE OF INTEREST WAS MADE TO THE TUNE OF RS .2.40 CRORE. THE ASSESSEE ARGUED THAT NO PART OF INTEREST BEARING FU NDS HAD GONE INTO INVESTMENT IN THOSE TWO COMPANIES IN RESPECT OF WHI CH THE AO MADE DISALLOWANCE OF INTEREST. IT WAS ALSO ARGUED THAT I NCOME FROM OPERATIONS OF THE COMPANY WAS RS.418.04 CRORE AND T HE ASSESSEE HAD ALSO RAISED CAPITAL OF RS.7.90 CRORE, APART FROM RE CEIVING INTEREST FREE DEPOSIT OF RS.10.03 CRORE. THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE BALANCE-SHEET OF THE A SSESSEE ADEQUATELY DEPICTED THAT THERE WERE ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING INVESTMENT. THE LD. CIT(A) GOT CONVINCED WIT H THE ASSESSEES SUBMISSIONS AND DELETED THE ADDITION. BEFORE THE TR IBUNAL, IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE SHAREHO LDERS FUND WAS ITA NOS.1950 & 1169/DEL/2014 27 UTILIZED FOR THE PURCHASE OF ITS ASSETS AND HENCE T HE ASSESSEE WAS LEFT WITH NO RESERVE OR OWN FUNDS FOR MAKING INVESTMENT IN THE SISTER CONCERN. THUS, IT WAS ARGUED THAT THE BORROWED FUND S HAD BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN TH E SISTER CONCERN AND THE DISALLOWANCE OF INTEREST WAS RIGHTLY CALLED FOR. THE TRIBUNAL, ON APPRECIATION OF FACTS, RECORDED A FINDING THAT T HE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN FOR MAKING INVESTMENT W ITHOUT USING THE INTEREST BEARING FUNDS. ACCORDINGLY, THE ORDER OF C IT(A) WAS UPHELD. WHEN THE MATTER CAME UP BEFORE THE HONBLE HIGH COU RT, IT WAS CONTENDED BY THE DEPARTMENT THAT THE SHAREHOLDERS FUNDS STOOD UTILIZED IN THE PURCHASE OF FIXED ASSETS AND HENCE COULD NOT BE CONSTRUED AS AVAILABLE FOR INVESTMENT IN SISTER CON CERN. REPELLING THIS CONTENTION, THE HONBLE HIGH COURT OBSERVED THAT : IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO C ONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUND TO THE TUNE OF OVER RS.172 CRORE WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS IN TER MS OF THE BALANCE- SHEET AS ON MARCH 31, 1999, IS FALLACIOUS. IN UPHOLDING THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT HELD THAT: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO M EET ITS INVESTMENT ITA NOS.1950 & 1169/DEL/2014 28 AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN , IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T FREE FUNDS AVAILABLE . THEREAFTER, THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 21 9 (CAL) WERE CONSIDERED. IT WAS FINALLY CONCLUDED THAT: THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE ARE FUNDS AVAILAB LE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTIO N WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FU NDS WERE SUFFICIENT TO MEET THE INVESTMENT . CONSEQUENTLY THE INTEREST WAS HELD TO BE DEDUCTIBLE IN FULL. 29. FROM THE ABOVE JUDGMENT, IT IS MANIFEST THAT THERE CAN BE NO PRESUMPTION THAT THE SHAREHOLDERS FUND OF A COMPAN Y WAS UTILIZED FOR PURCHASE OF FIXED ASSETS. IF AN ASSESSEE HAS INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PRESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST FREE FU NDS AT ITS DISPOSAL. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DEHI HIG H COURT IN CIT ITA NOS.1950 & 1169/DEL/2014 29 VS. TIN BOX COMPANY (2003) 260 ITR 637 (DEL) , HOLDING THAT WHEN THE CAPITAL AND INTEREST FREE UNSECURED LOAN WITH T HE ASSESSEE FAR EXCEEDED THE INTEREST FREE LOAN ADVANCED TO THE SIS TER CONCERN, DISALLOWANCE OF PART OF INTEREST OUT OF TOTAL INTER EST PAID BY THE ASSESSEE TO THE BANK WAS NOT JUSTIFIED. 30. THE LEGAL POSITION SET OUT IN THE PRECEDING PARA IS APPLICABLE IF AN ASSESSEE HAS A COMMON POOL OF FUNDS AND SOME PAR T IS INVESTMENT IN THE DISPUTED AMOUNT. THIS PROPOSITION DOES NOT H OLD WATER, IF A SPECIFIC BORROWING IS MADE FOR MAKING SUCH AN INVES TMENT. WHEN WE TURN TO THE FACTS OF THE INSTANT CASE, WE FIND THAT EVEN THOUGH THE SHAREHOLDERS FUND IS MORE THAN THE INVESTMENT IN C WIP, BUT NO DETAIL OF SECURED LOAN IS AVAILABLE. IN THE ABSENCE OF SUC H SPECIFIC INFORMATION, IT IS DIFFICULT TO DECIDE THE ISSUE AT OUR END. THE IMPUGNED ORDER IS SET ASIDE TO THIS EXTENT AND THE AO IS DIRECTED TO DECIDE THIS ISSUE AFRESH IN CONSONANCE WITH OUR FOR EGOING OBSERVATIONS. IT IS MADE CLEAR THAT IF THERE IS SOM E DIRECT BORROWING FOR INVESTING IN CWIP, THEN INTEREST PAID ON SUCH BORRO WING HAS TO BE DISALLOWED. IF, ON THE OTHER HAND, THERE IS NO SPEC IFIC BORROWING, THE FINANCING OF CWIP HAS TO BE TREATED AS OUT OF INTER EST-FREE ITA NOS.1950 & 1169/DEL/2014 30 SHAREHOLDERS FUND. IN SUCH A SCENARIO, NO DISALLOW ANCE OF INTEREST CAN BE MADE AS THE INTEREST-FREE SHAREHOLDERS FUND WOU LD BE HIGHER THAN THE AMOUNT OF INVESTMENT IN CWIP. 31. THE NEXT GROUND IS AGAINST THE DISALLOWANCE OF RS. 70,86,29,294 U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF `ROAMING CHA RGES. 32. THE FACTS APROPOS THIS GROUND ARE THAT THE AS SESSEE INCURRED EXPENDITURE OF RS.70,86,29,294/- ON DOMESTIC ROAMIN G CHARGES ON WHICH NO DEDUCTION OF TAX AT SOURCE WAS MADE. ON B EING CALLED UPON TO EXPLAIN AS TO WHY SUCH PAYMENT BE NOT CONSIDERED AS FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT, THE ASSESSEE CONTENDED THAT THE PAYMENTS MADE FOR INTER-CONNECTI VITY/ROAMING CHARGES DID NOT INVOLVE ANY HUMAN INTERVENTION AND, HENCE, SUCH AMOUNT COULD NOT BE CONSIDERED AS FEES FOR TECHNIC AL SERVICES. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE RELIED ON T HE JUDGMENT OF THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN CIT VS. BHARTI CELLULAR LTD. (2009) 319 ITR 139 (DEL) IN WHICH IT HAS BEEN HELD THAT THE SERVICES RENDERED BY MTNL AND OTHER TELECOMMUNICATI ON COMPANIES QUA INTER-CONNECTION DO NOT INVOLVE ANY HUMAN INTERFAC E AND, HENCE, ITA NOS.1950 & 1169/DEL/2014 31 THE SAME CANNOT BE REGARDED AS A `TECHNICAL SERVICE SO AS TO REQUIRE DEDUCTION OF TAX AT SOURCE U/S 194J OF THE ACT. NO T CONVINCED, THE AO TREATED SUCH PAYMENT AS `FEES FOR TECHNICAL SERVICE S REQUIRING DEDUCTION OF TAX AT SOURCE AND IN THE ABSENCE OF NO N-DEDUCTION OF TAX, THE DISALLOWANCE WAS MADE. THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL ON THE DISALLOWANCE. 33. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE JUDGMENT RELIED B Y THE ASSESSEE BEFORE THE AUTHORITIES BELOW IN BHARTI CELLULAR LTD. (SUPRA) CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT. VI DE ITS JUDGMENT DATED 12.08.2010, THE HONBLE SUPREME COURT IN CIT VS. BHARTI CELLULAR LTD. (2011) 330 ITR 239 (SC) REMANDED THE MATTER TO THE AO WITH A DIRECTION TO SEEK EXPERT EVIDENCE FOR SHOWIN G IF ANY HUMAN INTERVENTION WAS INVOLVED DURING THE PROCESS WHEN C ALL TAKES PLACE SO AS TO BRING THE PAYMENTS OF INTER-CONNECTION CHARGE S WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES U/S 194J OF THE AC T. IT IS PERTINENT TO NOTE THAT PURSUANT TO THIS JUDGMENT, A DETAILED STA TEMENT OF TECHNICAL EXPERTS OF C-DOT WAS RECORDED IN THE CASE OF VODAFO NE ESSAR MOBILE SERVICES LTD., BASED ON WHICH THE AO IN THE INSTANT CASE OPINED THAT ITA NOS.1950 & 1169/DEL/2014 32 THE PROVISION OF SECTION 194J WERE ATTRACTED AND, H ENCE, THE FAILURE TO DEDUCT TAX AT SOURCE INVITED THE WRATH OF SECTION 4 0(A)(IA). THE AO IN THE IMPUGNED ORDER HAS ALSO REFERRED TO THE STATEME NT OF SHRI TANAY KISHNA FROM C-DOT BASED ON WHICH HE REACHED THE CON CLUSION THAT SECTION 194J WAS ATTRACTED. IT IS PERTINENT TO MEN TION THAT WHEN SHRI TANAY KRISHNA WAS CROSS-EXAMINED, HE ADMITTED THAT NO HUMAN INTERVENTION WAS INVOLVED IN THE ENTIRE PROCESS OF CARRIAGE OF CALL FROM ONE OPERATOR TO ANOTHER. AN ELABORATE DISCUSSION H AS BEEN MADE IN THIS REGARD BY THE KOLKATA BENCH OF THE TRIBUNAL IN VODAFONE EAST LTD. VS. ADDL. CIT (2015) 45 CCH 373 (KOL TRIB.) . AFTER DISCUSSING THE ISSUE AT LENGTH, THE TRIBUNAL EVENTUALLY HELD T HAT THE PAYMENT OF ROAMING CHARGES DID NOT REQUIRE ANY DEDUCTION OF TA X AT SOURCE EITHER U/S 194C OR 194I OR 194J AND, HENCE, NO DISALLOWANC E COULD BE MADE U/S 40(A)(IA) OF THE ACT. 34. AT THIS STAGE, IT IS RELEVANT TO MENTION T HAT AFTER THE JUDGMENT OF THE HONBLE SUPREME COURT IN CIT VS. BHARTI CELLULAR LTD. (SUPRA), THERE IS SOME FURTHER DEVELOPMENT OF LAW. IN BHARTI CELLULAR LTD., THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE AO FOR HAVING EXPERT OPINION TO ASCERTAIN IF ANY HUMAN INTERVENT ION WAS INVOLVED SO ITA NOS.1950 & 1169/DEL/2014 33 AS TO CONSIDER THE ATTRACTABILITY OR OTHERWISE OF T HE DEFINITION OF TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT. IN A LATER DECISION IN CIT VS. KOTAK SECURITIES LTD. (2016) 383 ITR 1 (SC) , THE HONBLE SUPREME COURT, AFTER CONSIDERING ITS EARLIE R DECISION IN BHARTI CELLULAR LTD. (SUPRA), OBSERVED THAT: MODERN DAY SCIENTIFIC AND TECHNOLOGICAL DEVELOPMENTS TEND TO BLUR THE SPE CIFIC HUMAN ELEMENT IN AN OTHERWISE FULLY AUTOMATED PROCESS BY WHICH SUCH SERVICE MAY BE PROVIDED. IT WAS HELD THAT: THE T RANSACTION CHARGES, WHICH WERE CORE OF DISPUTE IN THAT CASE, WERE PAID FOR SERVICES FULLY AUTOMATED IN RESPECT OF EVERY TRANSACTION. THE HON BLE SUPREME COURT HELD THAT IF THERE IS CERTAIN EXCLUSIVE OR CU STOMISED SERVICE RENDERED BY THE STOCK EXCHANGE TO INDIVIDUAL PERSON , THAT WOULD FALL WITHIN THE AMBIT OF TECHNICAL SERVICES AND, IF, H OWEVER, SUCH SERVICES ARE AVAILABLE TO ALL THE MEMBERS OF THE STOCK EXCHA NGE, IT WILL CEASE TO BE A TECHNICAL SERVICE. SIMILAR VIEW HAS BEEN RE ITERATED IN DIT (I.T.) VS. A.P. MOLLER MAERSK A/S (2017) 392 ITR 186 (SC) IN WHICH THEIR LORDSHIPS APPLIED THE TEST LAID DOWN IN KOTAK SECURITIES LTD. (SUPRA), AND HELD THAT AUTOMATED SOFTWARE BASED COMMUNICATIO N SYSTEM SET UP BY THE ASSESSEE FOR USE TO ITS AGENT ENABLING THEM TO ACCESS CUSTOMER ITA NOS.1950 & 1169/DEL/2014 34 AND DOCUMENTS ETC. WAS NOT FEES FOR TECHNICAL SERV ICES. IT IS SIGNIFICANT TO MENTION THAT THE HONBLE KARNATAKA H IGH COURT IN CIT VS. VODAFONE SOUTH LTD. (2016) 290 CTR 436 (KAR) HAS CONSIDERED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F KOTAK SECURITIES LTD. (SUPRA) AND HAS EVENTUALLY HELD THAT THE ROAMING PROCESSES BETWEEN THE PARTICIPATING COMPANIES CANNO T BE TERMED AS TECHNICAL SERVICES AND, HENCE, NO DEDUCTION OF TAX AT SOURCE IS REQUIRED. IN VIEW OF THE FOREGOING DISCUSSION, WE A RE SATISFIED THAT THE PAYMENT OF ROAMING CHARGES BY THE ASSESSEE TO OTHER DOMESTIC PLAYERS FOR USE OF THEIR RESPECTIVE NETWORKS DOES NOT AMOUN T TO PAYMENT OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF S ECTION 9(1)(VII) OF THE ACT AND, HENCE, NO DEDUCTION OF TAX WAS REQUIRE D U/S 194J. EX CONSEQUENTI, NO DISALLOWANCE U/S 40(A)(IA) IS CALLED FOR. WE, THEREFORE, ORDER TO DELETE THE DISALLOWANCE. 35. THE NEXT ISSUE RAISED IN THIS APPEAL THROUGH GR OUND NO. 5 IS AGAINST THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT O N ACCOUNT OF DISCOUNT EXTENDED TO PRE-PAID DISTRIBUTORS. ITA NOS.1950 & 1169/DEL/2014 35 36. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSE SSEE, UNDER AN ARRANGEMENT, TRANSFERS PRE-PAID TALK TIME TO ITS DI STRIBUTORS AT A DISCOUNT AND THE DISTRIBUTORS, IN TURN, DISTRIBUTE THE SAME TO THE RETAILERS. THE RETAILERS, THEREAFTER, TRANSFER THE SAME TO THE ULTIMATE SUBSCRIBERS. AT EACH LEVEL OF THE DISTRIBUTION, TH E PARTY DISTRIBUTING THE PRE-PAID TALK TIME RETAINS A MARGIN FOR ITS EFF ORTS AND RISKS ASSUMED. THE ASSESSEE ACCOUNTED FOR THE REVENUE ON THE BASIS OF CONSIDERATION RECEIVED FROM THE DISTRIBUTORS, THAT IS, THE PRICE AT WHICH THE PRE-PAID TALK TIME WAS TRANSFERRED TO THE DISTR IBUTOR AT A REDUCED PRICE. FOR EXAMPLE, IF MRP OF PRE-PAID TALK TIME IS RS.100/- AND THE ASSESSEE SELLS THE SAME TO ITS DISTRIBUTOR AT RS.96 /-, IT ACCOUNTED FOR THE REVENUE OF RS.96/-. THE AO OPINED THAT THE ASSESSE E SHOULD HAVE ACCOUNTED FOR RS.100/- AS ITS REVENUE AND THE AMOUN T OF RS.4/- AS AN ITEM OF EXPENSE UNDER THE HEAD COMMISSION TO THE DISTRIBUTORS. IT WAS FURTHER PROPOSED THAT THE SAID AMOUNT OF COMMIS SION WAS COVERED UNDER THE TDS PROVISIONS LIABLE FOR DEDUCTION OF TA X AT SOURCE U/S 194H OF THE ACT. THE ASSESSEE CONTENDED THAT THERE WAS NO PRINCIPAL- AGENT RELATIONSHIP WITH THE DISTRIBUTORS AND, HENCE , THERE WAS NO PAYMENT OF ANY COMMISSION. THE AO, AFTER CONSIDERI NG CERTAIN ITA NOS.1950 & 1169/DEL/2014 36 CLAUSES OF THE DISTRIBUTORSHIP AGREEMENT, HELD THAT THE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS DISTRIBUTORS WAS OF PR INCIPAL AND AGENT AND, HENCE, THE PROVISIONS OF SECTION 194H WERE ATT RACTED. IN REACHING THIS CONCLUSION, THE AO RELIED ON THE JUDG MENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. IDEA CELLULAR LTD. (2010) 325 ITR 148 (DEL) , IN WHICH IT HAS BEEN HELD THAT THE TRANSACTION BETWEEN A CELLULAR OPERATOR AND PRE-PAID MARKET ASS OCIATES, SIMILAR TO THE DISTRIBUTORS IN OUR CASE, WHEREBY SIM CARDS ETC . ARE ULTIMATELY SOLD TO THE SUBSCRIBERS THROUGH THE LATTER, DOES NO T AMOUNT TO SALE OF GOODS AND, HENCE, THE DISCOUNT OFFERED BY THE ASSE SSEE TO THE DISTRIBUTORS IS COMMISSION LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194H. HE FURTHER TOOK ASSISTANCE FROM ANOTHER JUDGM ENT OF THE HONBLE KERALA HIGH COURT IN VODAFONE ESSAAR CELLULAR LTD. VS. ACIT (2010) 332 ITR 255 (KER) WHEREIN SIMILAR VIEW HAS BEEN TAKEN TREATING THE AMOUNT AS FALLING WITHIN THE DEFINITIO N OF COMMISSION U/S 194H OF THE ACT. SINCE THE ASSESSEE DID NOT DE DUCT TAX AT SOURCE, THE AO, IN THE DRAFT ORDER, PROPOSED THE DISALLOWAN CE OF RS.130,33,61,238/- U/S 40(A)(IA) OF THE ACT. NO RE LIEF WAS ALLOWED BY THE DISPUTE RESOLUTION PANEL (DRP). THIS IS HOW, T HE AO MADE AN ITA NOS.1950 & 1169/DEL/2014 37 ADDITION OF RS.130.33 CRORE IN THE IMPUGNED ORDER. THE ASSESSEE IS AGGRIEVED AGAINST THIS DISALLOWANCE. 37. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE NATURE OF TR ANSACTION. WE HAVE SEEN ABOVE, BY WAY OF AN ILLUSTRATION, THAT THE ASS ESSEE TRANSFERRED PRE- PAID TALK TIME ETC. WITH MRP OF RS.100/- TO ITS DIS TRIBUTORS, SAY, AT RS.96. IT IS THE DIFFERENTIAL AMOUNT OF RS.4/-, WHI CH HAS FORMED THE SUBJECT MATTER OF DISALLOWANCE AT RS.130.33 CRORE. THE AO HAS RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF IDEA CELLULAR LTD. (SUPRA) HOLDING THAT THE DISCOUNT OFFERED BY THE ASSESSEE TO THE DISTRIBUTORS IS IN THE NATURE OF CO MMISSION AND SUBJECT TO DEDUCTION OF TAX AT SOURCE U/S 194H OF THE ACT. SIMILAR VIEW HAS BEEN CANVASSED BY THE HONBLE KERALA HIGH COURT IN VODAFONE ESSAAR CELLULAR LTD. (SUPRA) . THE LD. AR RELIED ON A LATER DECISION OF THE HONBLE KARNATAKA HIGH COURT IN BHARTI AIRTEL LTD. VS. CIT & ANR (2015) 372 ITR 33 (KAR), IN WHICH THE AO AGAIN HELD THAT THERE WAS A PRINCIPAL-AGENT RELATIONSHIP BETWEEN CHANNEL PARTNE RS (EQUIVALENT TO `DISTRIBUTORS IN OUR CASE) AND THE ASSESSEE THEREI N. DISCOUNT/COMMISSION MADE TO SUCH PARTIES WAS HELD T O BE LIABLE FOR ITA NOS.1950 & 1169/DEL/2014 38 DEDUCTION OF TAX AT SOURCE U/S 194H OF THE ACT. THE ASSESSEE REMAINED UNSUCCESSFUL UP TO THE TRIBUNAL LEVEL. WHEN THE MA TTER CAME UP BEFORE THE HONBLE KARNATAKA HIGH COURT, THEIR LORD SHIPS HELD THAT NO RELATIONSHIP OF PRINCIPAL AND AGENT WAS FOUND AN D IT WAS A SIMPLE CASE OF SALE OF RIGHT OF SERVICE. THE HONBLE HIGH COURT CONSIDERED THE RELATIONSHIP BETWEEN THE ASSESSEE IN THAT CASE AND ITS DISTRIBUTORS AS THAT OF PRINCIPAL-TO-PRINCIPAL AND FINALLY HELD THAT NO DEDUCTION OF TAX AT SOURCE WAS CALLED FOR U/S 194H OF THE ACT. WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE HONBLE KARNAT AKA HIGH COURT ALSO CONSIDERED THE JUDGMENT OF THE HONBLE DELHI H IGH COURT IN IDEA CELLULAR LTD. (SUPRA) AND THAT OF THE HONBLE KERALA HIGH COURT IN VODAFONE ESSAAR CELLULAR LTD. (SUPRA). FROM THESE DECISIONS, IT IS MANIFEST THAT THERE IS AN APPARENT CONTRADICTION IN THE VIEW TAKEN BY DIFFERENT HIGH COURTS. IT IS FURTHER AN ADMITTED PO SITION THAT THE ISSUE HAS YET TO BE FINALLY SETTLED BY THE HONBLE SUMMIT COURT. 38. IT GOES WITHOUT SAYING THAT ALL THE AUTHORITIES WORKING UNDER THE JURISDICTION OF A PARTICULAR HONBLE HIGH COURT ARE BOUND BY ITS DECISION, NOTWITHSTANDING A CONTRARY VIEW AVAILABLE FROM OTHER HONBLE HIGH COURTS. THE ASSESSEES CORPORATE JURIS DICTION FALLS UNDER ITA NOS.1950 & 1169/DEL/2014 39 THE HONBLE DELHI HIGH COURT. IT IS, ERGO, HELD THA T THE RATIO DECIDENDI OF IDEA CELLULAR (SUPRA), BEING A DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WILL HAVE PRECEDENCE OVE R OTHER CONTRARY DECISIONS, NOTWITHSTANDING THE FACT THAT IT IS BENE FICIAL TO THE REVENUE. IN THAT VIEW OF THE MATTER, WE ARE UNABLE TO COUNTE NANCE THE CONTENTION OF THE LD. AR THAT A VIEW FAVOURABLE TO THE ASSESSEE, RENDERED BY THE HONBLE KARNATAKA HIGH COURT, SHOUL D BE ADOPTED. 39. IT HAS BEEN BROUGHT TO OUR NOTICE THAT AN OR DER U/S 201(1) OF THE ACT WAS PASSED TREATING THE ASSESSEE AS IN DEFAULT FOR NON-DEDUCTION OF TAX AT SOURCE U/S 194H ON THE COMMISSION OF RS.48,1 4,87,078/- FOR THE INSTANT YEAR WITH TAX DEMAND OF RS.6,65,54,033/- I N RESPECT OF THE RAJASTHAN CIRCLE, WHICH IS A PART ON THE AMOUNT TH AT HAS BEEN DISALLOWED BY THE AO. A COPY OF SUCH ORDER DATED 17 .01.2011 HAS BEEN PLACED ON RECORD. THE LD. AR CONTENDED THAT S INCE THE DEFAULT OCCURRED AT THE RAJASTHAN CIRCLE, THE INCOME-TAX AU THORITIES, ACTING UNDER THE TDS JURISDICTION OF THE HONBLE RAJASTHAN HIGH COURT, PASSED THE ORDER U/S 201(1), WHICH ALSO CAME TO BE UPHELD BY THE TRIBUNAL. A COPY OF THE TRIBUNAL ORDER DATED 29.0 8.2013 IN ITA NO. 239/JP/2012 WAS ALSO PLACED ON RECORD. HE SUBMITTED THAT THE ASSESSEE ITA NOS.1950 & 1169/DEL/2014 40 ALONG WITH SEVERAL OTHER CELLULAR OPERATORS CHALLEN GED THEIR RESPECTIVE ORDERS SIMILARLY PASSED U/S 201(1). A COPY OF THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT DATED 11.07.2017 WAS F ILED IN WHICH ORDER, INTER ALIA , PASSED AGAINST THE ASSESSEE U/S 201(1) OF THE AC T HAS BEEN SET ASIDE BY HOLDING THAT THE PROVISIONS OF SE CTION 194H ARE NOT ATTRACTED. 40. SECTION 40(A)(IA) OF THE ACT HAS BEEN INVO KED BY THE AO FOR MAKING THE EXTANT DISALLOWANCE. THIS SECTION BEGINS WITH A NON- OBSTANTE CLAUSE AND PROVIDES THAT NO DEDUCTION SHAL L BE ALLOWED IN COMPUTING THE INCOME FOR AN AMOUNT ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED ETC. CRUX OF THIS PROVISION IS THAT AN AMOUNT WHICH IS O THERWISE DEDUCTIBLE IN THE COMPUTATION OF BUSINESS INCOME, SHALL NOT BE ALLOWED AS DEDUCTION IF IT IS AN AMOUNT ON WHICH TAX IS DEDUC TIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED ETC. IN OTHER WORDS , NO AMOUNT SHOULD BE ALLOWED AS DEDUCTION ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT HAS NOT BEEN PROPERLY DEDUCTED ETC. SECTION 194H FALLS WITHIN CHAPTER XVII-B. THIS DISCERNS THAT IF TAX AT SOURCE IS DED UCTIBLE U/S 194H AND NO SUCH DEDUCTION ETC. HAS BEEN MADE, THEN, THE COM MISSION PAYMENT ITA NOS.1950 & 1169/DEL/2014 41 WOULD CALL FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT. IT IS THUS CRYSTAL CLEAR THAT THE CONCERNED EXPENSE, SO A S TO CALL FOR DISALLOWANCE, MUST IN THE FIRST INSTANCE BE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER CHAPTER XVII-B OF THE ACT. IF A PAR TICULAR EXPENDITURE DOES NOT REQUIRE DEDUCTION OF TAX AT SOURCE, THEN N O DISALLOWANCE CAN BE MADE. AN EXPENSE WILL NOT BE LIABLE FOR DEDUCTIO N OF TAX AT SOURCE, WHERE EITHER THE AO HIMSELF CONSIDERS IT AS NOT LIA BLE FOR TAX DEDUCTION OR WHERE HE CONSIDERS IT OTHERWISE, BUT T HE APPELLATE AUTHORITIES OVERTURN SUCH A VIEW OF THE AO. IN A NU TSHELL, WHERE AN EXPENSE IN ULTIMATE ANALYSIS IS NOT LIABLE FOR DEDU CTION OF TAX AT SOURCE, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE TRIGGERED/APPLIED. 41. COMING BACK TO THE FACTS OF THE INSTANT CASE , WE FIND THAT ALTHOUGH THE AO HELD THE APPLICABILITY OF SECTION 1 94H, BUT THE HONBLE RAJASTHAN HIGH COURT HAS REVERSED SUCH A VI EW TO THE EXTENT OF RS.48,14,87,078/- AND NOTHING HAS BEEN BROUGHT O N RECORD TO DEMONSTRATE THAT THE JUDGMENT OF THE HONBLE RAJAST HAN HIGH COURT HAS BEEN MODIFIED OR REVERSED BY THE HONBLE SUPREM E COURT. ITA NOS.1950 & 1169/DEL/2014 42 42. POR UNA PARTE, THERE IS A DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE IDEA CELLULAR LTD. (SUPRA) PROVIDING THAT THE TRANSACTION OF THE NATURE UNDER CONSIDERATION IS HI T BY SECTION 194H, POR OTRA PARTE, THERE IS A JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE ASSESSEES OWN CASE, HOLDING THAT THE PROVISIONS OF SECTION 194H ARE NOT ATTRACTED ON THE PART OF TOTAL COMMISSION DISALLOWED BY THE AO U/S 40(A)(IA) OF THE ACT. WHE REAS, IN THE CONTEXT OF THE ASSESSEE AND TO THE EXTENT OF THE AM OUNT ON WHICH THE RAJASTHAN HIGH COURT HAS HELD THAT NO DEDUCTION OF TAX AT SOURCE IS WARRANTED, THE JUDGMENT OF THE HONBLE DELHI HIGH C OURT IN IDEA CELLULAR LTD. IS IN REM, BUT THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT IS IN PERSONAM . ONCE THE HONBLE RAJASTHAN HIGH COURT HAS ERASED THE LIABILITY OF THE ASSESSEE BY HOLDING THAT THE PROVISIONS OF SECTION 194H ARE NOT ATTRACTED ON A PART OF THE AMOUNT UNDER CONSIDERATION, IN OUR CONSIDERED OPINION, SUCH PART OF COMMISSION CANNOT BE CONSTRUED AS A SUM ON WHICH TAX IS DEDUC TIBLE AT SOURCE UNDER CHAPTER XVII-B, SO AS TO BRING IT WITHIN THE SWEEP OF SECTION 40(A)(IA) OF THE ACT, CALLING FOR ANY DISALLOWANCE. IT IS, THEREFORE, HELD THAT TO THE EXTENT THE HONBLE RAJASTHAN HIGH COURT TREATED THE ITA NOS.1950 & 1169/DEL/2014 43 ASSESSEE AS NOT IN DEFAULT U/S 201(1) DUE TO NON-AP PLICABILITY OF SECTION 194H, THE PROVISIONS OF SECTION 40(A)(IA) W ILL NOT BE ATTRACTED. THE REMAINING AMOUNT OF COMMISSION, ON WHICH THE LI ABILITY U/S 201(1) HAS NOT BEEN SET ASIDE, WOULD BE GOVERNED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F IDEA CELLULAR LTD. (SUPRA) AND THE DISALLOWANCE WOULD BE MANDATED. WE, THERE FORE, HOLD THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) FOR A SUM OF RS.48,14,87,078/-. HOWEVER THE REMAINING AMOUNT OF RS. 82,18,74,160/- (RS.130,33,61,238/- MINUS RS.48,1 4,87,078/-) IS HELD TO BE RIGHTLY DISALLOWED. THIS GROUND IS ALLOW ED IN PART. 43. THE NEXT GROUND IS AGAINST THE DISALLOWANCE OF PENALTY PAID TO DEPARTMENT OF TELECOMMUNICATIONS (DOT) AMOUNTING TO RS.63,83,000/-. 44. SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT T HE ASSESSEE PAID A SUM OF RS.63,83,000/- TO DOT AS PENALTY FOR NON-COM PLIANCE. THE AO OBSERVED THAT THE PENALTIES WERE LEVIED ON ACCOU NT OF ANOMALIES AND IRREGULARITIES IN THE CUSTOMER IDENTIFICATION F ORM (CIF) AND CUSTOMER ACQUISITION FORM (CAF). SUCH AMOUNT WAS C ONSIDERED AS ITA NOS.1950 & 1169/DEL/2014 44 HIT BY EXPLANATION 1 TO SECTION 37(1) AS IN THE OPI NION OF THE AO, IT WAS AN EXPENDITURE INCURRED FOR A PURPOSE WHICH IS AN OFFENCE OR PROHIBITED BY LAW. NO RELIEF WAS ALLOWED BY THE DR P WHICH RESULTED INTO AN ADDITION OF RS.63.83 LAC BY THE AO IN THE I MPUGNED ORDER. THE ASSESSEE HAS ASSAILED THIS ADDITION BEFORE THE TRIBUNAL. 45. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE AO HAS CORRECTLY RECORDED THAT PENA LTY OF RS.63.83 LAC WAS PAID BY THE ASSESSEE ON ACCOUNT OF ANOMALIES AN D IRREGULARITIES IN CIF AND CAF. FOR GIVING A HUE OF PENALTY TO SUCH A N AMOUNT AS MAGNETIZED UNDER EXPLANATION 1 TO SECTION 37(1) OF THE ACT, THE AO REFERRED TO THE PROVISIONS OF SECTION7(3) AND SECTI ON 20 OF THE INDIAN TELEGRAPHS ACT, 1885. WE HAVE GONE THROUGH THE RELE VANT PROVISIONS OF THE INDIAN TELEGRAPHS ACT, 1885 AND FIND THAT AN OMALIES AND IRREGULARITIES IN CIF AND CAF ARE NOT COVERED UNDER ANY OF THE SPECIFIC PROVISIONS OF THE INDIAN TELEGRAPHS ACT. RATHER, SUCH PENALTIES WERE IMPOSED FOR NON-COMPLIANCE WITH THE CONTRACTUAL OBLIGATIONS UNDER THE LICENCE AGREEMENT. AS THE PA YMENT BY THE ASSESSEE IS NOT FOR AN OFFENCE, NOR IS IT PROHIBITE D BY LAW, THE SAME BEING FAILURE TO COMPLY WITH THE CONTRACTUAL OBLIGA TIONS, CANNOT FALL ITA NOS.1950 & 1169/DEL/2014 45 WITHIN THE DOMAIN OF EXPLANATION 1 TO SECTION 37(1) OF THE ACT. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF VODAFONE EAST LTD. (SUPRA). THE TRIBUNAL HAS HELD IN PARA 10.5 OF ITS ORDER THAT THE AMOUNT PAID UNDER SIMILAR CIRCUMSTANCES CANNOT BE DISALLOWED UNDER EXPLANATIO N 1 TO SECTION 37(1) OF THE ACT. NO CONTRARY DECISION HAS BEEN BR OUGHT TO OUR NOTICE BY THE LD. DR. RESPECTFULLY FOLLOWING THE PRECEDEN T, WE HOLD THAT THE ADDITION OF RS.63.83 LAC HAS BEEN WRONGLY MADE AND THE SAME IS DIRECTED TO BE DELETED. 46. THE NEXT GROUND IS AGAINST THE DISALLOWANCE OF DEDUCTION U/S 80IA ON CERTAIN ITEMS OF INCOME. 47. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSE SSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT. ON PERUSAL OF THE C OMPUTATION OF DEDUCTION, THE AO NOTICED THAT SUCH DEDUCTION WAS A LSO CLAIMED IN RESPECT OF CERTAIN RECEIPTS WHICH WERE NOT `DERIVED FROM THE ACTIVITY OF THE NATURE PROVIDED U/S 80IA, I.E., TELECOMMUNIC ATION SERVICES, WHETHER BASIC OR CELLULAR. THE AO CONSIDERED THE M ANDATE OF SECTION 80IA IN HOLDING THAT ONLY THE INCOME DERIVED FROM T ELECOMMUNICATION ITA NOS.1950 & 1169/DEL/2014 46 SERVICES WAS ELIGIBLE FOR DEDUCTION. IT WAS FOUND T HAT THE ASSESSEE EARNED INTEREST INCOME OF RS.5.19 CRORE ON FIXED DE POSITS WHICH WAS CLAIMED AS DEDUCTIBLE U/S 80IA(4) IN THE ORIGINAL R ETURN. HOWEVER, IN THE REVISED RETURN, THE ASSESSEE REDUCED THE ELIGIB LE INTEREST INCOME BY RS.1.49 CRORE AND CLAIMED DEDUCTION ON THE REMAININ G AMOUNT OF RS.3.70 CRORE. SIMILARLY, THE ASSESSEE ALSO CLAIME D DEDUCTION ON MISCELLANEOUS INCOME OF RS.4,09,40,763/-; CELL HIRI NG INCOME OF RS.42,85,79,640/-; INDEFEASIBLE RIGHT TO USE REVENU E OF RS.27,21,58,951/-. THE AO HELD THAT NO DEDUCTION U /S 80IA COULD BE ALLOWED ON THE ABOVE FOUR ITEMS OF INCOME. NO RELI EF WAS ALLOWED BY THE DRP. THE ASSESSEE IS IN APPEAL AGAINST THE RED UCTION IN THE AMOUNT OF DEDUCTION U/S 80IA ON ACCOUNT OF THESE FO UR ITEMS. 48. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT SUB -SECTION (1) OF SECTION 80IA PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SEC TION (4), THERE SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO 100% O F THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR A CERTAIN PERIOD OF YEARS. ITA NOS.1950 & 1169/DEL/2014 47 OBVIOUSLY, THE ASSESSEE HAS FULFILLED THE CONDITION S OF SUB-SECTION (4) AS THE AO HAS ALLOWED DEDUCTION U/S 80IA, ALBEIT IN PART. SUB-SECTION (2A) OF SECTION 80IA ASSUMES SIGNIFICANCE IN THE CO NTEXT OF AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES. THIS SUB-SECTION READS AS UNDER :- `NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (1) OR SUB- SECTION (2), THE DEDUCTION IN COMPUTING THE TOTAL I NCOME OF AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES, S PECIFIED IN CLAUSE ( II ) OF SUB-SECTION (4), SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMENCING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) AND THEREAFTER, THIRTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS . (EMPHASIS SUPPLIED BY US) 49. IT IS PERTINENT TO NOTE THAT SUB-SECTION (2A) A PPLIES TO AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES. THE ASSESSEE IS, ADMITTEDLY, ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES AND, HENCE, COVERED BY SUB-SECTION (2A) OF SECTION 80IA. THIS SUB-SECTION OPENS WITH A NON-OBSTANTE CLAUSE QUA SUB-SECTIONS (1) AND (2) OF SECTION 80IA AND PROVIDES THAT THE DEDUCTION SHALL BE ALLOWED ON THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS. WHEN WE READ SUB-SECTION (2A) IN JUXTAPOSITION TO SUB-SECTION (1) OF SECTION 80IA, THE POSITION WHICH EMERGES IS THAT WHEREAS SUB-SECTION (1) ALLOW S DEDUCTION OF ITA NOS.1950 & 1169/DEL/2014 48 THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS , SUB-SECTION (2A) ALLOWS DEDUCTION OF THE PROFITS AND GAINS OF ELIGIBLE BUSINESS. THE USE OF THE EXPRESSION DERIVED FROM IN SUB-SECTION (1) HAS BEEN DISPENSED WITH IN SUB-SECTION (2A). ON A CONJOINT READING OF SUB- SECTIONS (1) AND (2A) OF SECTION 80IA, IT BECOMES V IVID THAT IN THE CASE OF AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES, DEDUCTION SHALL BE ALLOWED OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS. SUCH PROFITS AND GAINS OF THE ELIGIBLE B USINESS NEED NOT NECESSARILY BE DERIVED FROM THE ELIGIBLE BUSINESS. IT IS SUFFICIENT IF THE INCOME QUALIFIES AS `BUSINESS INCOME OF THE ELIGIB LE UNDERTAKING. WITH THE ABOVE UNDERSTANDING OF THE PROVISIONS OF S UB-SECTION (2A), WE WILL NOW VENTURE TO EXAMINE THE DEDUCTIBILITY OR OTHERWISE OF THE FOUR ITEMS UNDER SECTION 80-IA OF THE ACT. 50. THE FIRST ITEM IS INTEREST INCOME EARNED BY THE ASSESSEE ON FIXED DEPOSITS AMOUNTING TO RS.3.70 CRORE. THIS AMOUNT IS SEPARATE FROM INTEREST INCOME OF RS.1.49 CRORE FROM THE FIXED DEP OSITS WHICH WERE MADE OUT OF SURPLUS FUNDS. THE LD. AR CONTENDED TH AT THE INTEREST INCOME OF RS.3.70 CRORE AND ODD WAS EARNED ON FDRS MEANT FOR AVAILING CREDIT FACILITIES FROM THE FINANCIAL INSTI TUTIONS. TO THE EXTENT ITA NOS.1950 & 1169/DEL/2014 49 THE FDRS WERE OBTAINED TO SERVE AS A MARGIN MONEY F OR AVAILING CREDIT FACILITIES FROM THE BANK, WE FIND THAT THE L INK OF SUCH INTEREST INCOME WITH THE ELIGIBLE BUSINESS STANDS ESTABLISHE D AND THE RESULTANT INTEREST INCOME ASSUMES THE CHARACTER OF `BUSINESS INCOME. IN SUCH CIRCUMSTANCES, INCOME EARNED FROM SUCH FDRS QUALIFI ES FOR DEDUCTION U/S 80-IA OF THE ACT. SINCE DETAILS OF INTEREST INC OME OF RS.3.70 CRORE ARE NOT AVAILABLE ON RECORD, WE SET ASIDE THE IMPUG NED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE AO WI TH A DIRECTION TO ALLOW DEDUCTION U/S 80IA IN RESPECT OF INTEREST EAR NED ON FIXED DEPOSITS MEANT TO SERVE AS MARGIN MONEY FOR AVAILIN G CREDIT FACILITIES FROM THE FINANCIAL INSTITUTIONS. THE REMAINING AMOU NT OF INTEREST INCOME HAVING NO LINK WITH THE BUSINESS OF TELECOMM UNICATIONS, WHICH IS SIMPLY ON PARKING OF SURPLUS FUNDS IN FDRS , WILL REMAIN `INCOME FROM OTHER SOURCES AND HENCE INELIGIBLE FO R DEDUCTION U/S 80IA. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWE D A REASONABLE OPPORTUNITY OF HEARING IN SUCH PROCEEDINGS. 51. THE NEXT ITEM IS `MISCELLANEOUS INCOME OF RS.4 .09 CRORE. THE ASSESSEE FURNISHED DETAILS OF MISCELLANEOUS INCOME BEFORE THE DRP VIDE ITS OBJECTIONS. SUCH DETAILS HAVE BEEN INCORP ORATED ON PAGES 153 ITA NOS.1950 & 1169/DEL/2014 50 AND 154 OF THE APPEAL SET FILE, WHICH IS A PART OF THE OBJECTIONS BEFORE THE DRP. THE DETAILS INDICATE THE NATURE OF MISCELL ANEOUS INCOME OF RS.4.09 CRORE - BOUNCED CHEQUE CHARGES OF RS.14 LA C; LATE PAYMENT CHARGE OF RS.2.18 CRORE; BAD DEBTS WRITTEN BACK OF RS.98 LAC; SCRAP SALE OF RS.55 LAC; PREMIUM NUMBER SALE OF RS.16.32 LAC; CHEQUE BOUNCE CHARGES RS.4.09 LAC; POST PAID PLAN REVENUE OF RS.2.69 LAC AND TWO OTHER SMALL AMOUNTS OF CUSTOMERS REFUND WRITTEN BACK AND INSURANCE CLAIM. FROM A DETAILED NARRATION OF THE ABOVE CHARGES RECOVERED BY THE ASSESSEE GIVEN ON PAGES 153 ONWARD S, IT BECOMES PALPABLE THAT THE SAME ARE RECEIVED DURING THE COUR SE OF BUSINESS OF TELECOMMUNICATION. EVEN THOUGH THESE ARE NOT DERIV ED FROM THE ELIGIBLE BUSINESS, BUT, THEY ARE IN THE NATURE OF P ROFITS AND GAINS OF ELIGIBLE BUSINESS. THE SAME, IN OUR CONSIDERED OPI NION, QUALIFY FOR DEDUCTION U/S 80IA OF THE ACT. 52. THIRD ITEM IS `CELL SITE SHARING REVENUE OF RS .42,85,79,640/-. THIS INCOME WAS EARNED BY THE ASSESSEE ON SHARING T HE AVAILABLE SPARE SPACE/CAPACITY ON ITS TELECOMMUNICATION CELL SITES WITH OTHER TELECOM OPERATORS FOR SETTING UP THEIR RESPECTIVE ANTENNAS AND PLACING MICROWAVE AND BTS EQUIPMENTS. WE FIND THAT THERE I S A DIRECT LINK OF ITA NOS.1950 & 1169/DEL/2014 51 SUCH INCOME WITH THE ELIGIBLE BUSINESS OF PROVIDING TELECOMMUNICATION SERVICES. THE LD. DR LIKENED SUC H HIRE CHARGES TO THE EARNING OF RENTAL INCOME FROM LETTING OUT PROPE RTY AND CONTENDED THAT THE SAME CANNOT BE CONSIDERED AS PROFITS AND G AINS OF BUSINESS OF TELECOMMUNICATIONS. IN OUR VIEW, THIS ANALOGY DRAWN BY THE LD. DR IS NOT CORRECT. WE ARE CONCERNED WITH A SITUATION IN W HICH INCOME HAS RESULTED FROM SHARING OF SURPLUS SPACE ON CELL SITE S WITH OTHER TELECOM OPERATORS. THE CELL SITES ARE THE TOOLS OF THE ASSE SSEES BUSINESS, WITHOUT WHICH ITS BUSINESS CANNOT RUN. IF THERE REM AINS SOME SURPLUS SPACE ON SUCH BUSINESS TOOLS, WHICH IS LET OUT BY T HE ASSESSEE, THE RESULTANT INCOME WILL BE INCOME FROM THE BUSINESS O F TELECOMMUNICATIONS. EXAMPLE OF SIMPLICITOR HIRING OF BUILDING CITED BY THE LD. DR IS NOT GERMANE TO THE ISSUE. SUCH A RENTAL INCOME WOULD OBVIOUSLY FALL UNDER THE HEAD `INCOME FROM HOUSE PR OPERTY AND WOULD NOT BE ELIGIBLE FOR DEDUCTION. SINCE THE UNDE RLYING ASSETS IN THE SITUATION UNDER CONSIDERATION ARE CELL TOWERS, WHIC H ARE IN THE NATURE OF TOOLS OF THE ASSESSEES BUSINESS, INCOME FROM TH EIR COMMERCIAL EXPLOITATION, IN OUR OPINION BECOMES `BUSINESS INCO ME QUALIFYING FOR DEDUCTION IN CONTRADISTINCTION TO INCOME FROM SIMPL E HIRING OF ITA NOS.1950 & 1169/DEL/2014 52 PROPERTY RETAINING THE CHARACTER OF `INCOME FROM HO USE PROPERTY. IT IS, THEREFORE, DIRECTED TO BE CONSIDERED AS ELIGIBL E FOR DEDUCTION U/S 80IA OF THE ACT. 53. THE LAST ITEM IS REVENUE FROM INDEFEASIBLE RIGH T TO USE (IRU) AMOUNTING TO RS.27.21 CRORE. THE AO HAS ADMITTED O N PAGE 53 OF HIS ORDER THAT IRU ARRANGEMENT IS SIMILAR IN NATURE TO CELL SITE SHARING ARRANGEMENT. SINCE WE HAVE HELD THAT THE INCOME FR OM CELL SITE SHARING IS ELIGIBLE FOR DEDUCTION U/S 80IA, AS THE SEQUITUR, REVENUE FROM IRU IS ALSO ELIGIBLE FOR THE DEDUCTION. 54. GROUND NO.8 OF THE ASSESSEES APPEAL IS AGAINST THE ADDITION OF RS.2,00,75,850/- MADE BY THE AO U/S 68 OF THE ACT. 55. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE SHOWED UNSECURED LOANS IN ITS AUDITED BALANCE SHEET AT RS.4,45,76,609/-. ON BEING CALLED UPON TO PROVE TH E GENUINENESS OF THE LOANS, THE ASSESSEE DID NOT FURNISH ANY CONFIRM ATION OR ANY OTHER DOCUMENTARY EVIDENCE TO SUPPORT THE FRESH CASH CRED ITS RECEIVED DURING THE YEAR. THE AO NOTICED THAT IN CASE OF 81 6 PARTIES, NEITHER THERE WERE COMPLETE ADDRESSES NOR EVEN THE PANS MEN TIONED IN THE ITA NOS.1950 & 1169/DEL/2014 53 TAX AUDIT REPORT. THE ASSESSEE SHOWED TO HAVE RECE IVED RS.25,000/- EACH FROM 803 PARTIES; RS.50,000/- EACH FROM 9 PART IES AND RS.1 LAC EACH FROM FOUR PARTIES. TOTAL AMOUNT FROM THESE 81 6 PARTIES CAME AT RS.2.00 CRORE AND ODD. THE AO TREATED THE SAME AS UNEXPLAINED CASH CREDIT U/S 68 IN THE DRAFT ORDER. THE ASSESSEE CON TENDED BEFORE THE DRP THAT THESE 816 CREDITORS WERE ITS `DISTRIBUTORS WHO DEPOSITED SECURITY THROUGH BANKING CHANNEL. THE DRP ACCEPTED THE ASSESSEES CONTENTION AND HELD THAT NO ADDITION SHOULD BE MADE IN CASE THE IDENTITY OF THESE PERSONS TO WHOM REGULAR COMMISSIO N/DISCOUNT WAS PAID, WAS ESTABLISHED. THE AO WAS DIRECTED TO VERI FY THE CLAIM OF THE ASSESSEE IN THIS REGARD. 56. IN THE CONSEQUENTIAL PROCEEDINGS, THE ASSESS EE FURNISHED PAN DETAILS ONLY IN RESPECT OF 264 CASES. EVEN IN SUCH CASES WHERE PAN DETAILS WERE FURNISHED, THE ASSESSEE DID NOT FURNIS H ANY ADDRESS. THE ASSESSEES CONTENTION THAT THE AMOUNT OF SECURITY D EPOSITS WERE RECEIVED THROUGH BANKING CHANNEL AND, HENCE, THEY S HOULD PER SE BE CONSIDERED AS GENUINE, WAS TURNED DOWN BY THE AO. THIS RESULTED INTO AN ADDITION OF RS.2.00 CRORE AGAINST WHICH THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL. ITA NOS.1950 & 1169/DEL/2014 54 57. HAVING HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE CLAIMED TO HAV E RECEIVED SECURITY DEPOSITS FROM ITS `DISTRIBUTORS TO WHOM COMMISSION ETC. WAS ALSO PAID. WE AGREE WITH THE VIEW POINT OF THE AO THAT A MERE RECEIPT OF AN AMOUNT THROUGH BANKING CHANNEL CANNOT PROVE THE GENUINENESS OF CREDIT IN TERMS OF SECTION 68 OF THE ACT. THE ASSE SSEE IS NOT ONLY REQUIRED TO PROVE IDENTITY AND CAPACITY OF THE CRED ITOR, BUT ALSO GENUINENESS OF TRANSACTIONS SO AS TO ESCAPE THE CLU TCHES OF SECTION 68 OF THE ACT. ADVERTING TO THE FACTS OF THE INSTANT C ASE, WE FIND THAT THE CLAIM OF THE ASSESSEE OF HAVING RECEIVED SUCH AMOUN TS FROM DISTRIBUTORS HAS NOT BEEN CORROBORATED BEFORE THE A O AND HENCE THE SAME CANNOT BE ACCEPTED. THE LD. AR CONTENDED THAT THE NECESSARY DETAILS ARE AVAILABLE FOR PRODUCTION AND ONE MORE O PPORTUNITY BE GRANTED TO IT. CONSIDERING THE TOTALITY OF THE FACT S AND CIRCUMSTANCES OF THE INSTANT CASE, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FO R A FRESH DECISION. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISSUE AFRESH. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE RELEVA NT DETAILS/INFORMATION ITA NOS.1950 & 1169/DEL/2014 55 AS CALLED FOR BY THE AO TO SATISFY HIMSELF AS TO TH E GENUINENESS OF THE TRANSACTIONS. IF THE ASSESSEE AGAIN FAILS TO FURNIS H NECESSARY DETAILS AS CALLED FOR, THE AO WILL BE ENTITLED TO DRAW AN ADVE RSE INFERENCE AGAINST THE ASSESSEE. 58. THE NEXT GROUND IS AGAINST DISALLOWANCE OF BRAN D ROYALTY OF RS.11,47,16,908/-. 59. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE REPORTED TWO INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB INCLUDI NG PAYMENT OF ROYALTY FEE FOR USE OF TRADE NAME AND MARK AMOUNTI NG TO RS.11,47,16,908/-. THE AO MADE REFERENCE TO THE TR ANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRIC E (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE TPO NOTICED THAT T HE ASSESSEE PAID ROYALTY AMOUNTING TO RS.7,64,77,939/- TO VODAFONE IRELAND MARKETING LTD. FOR USE OF THE BRAND NAME VODAFONE AND RS.3,82,38,969/- TO M/S RISING GROUP LTD. FOR USE O F BRAND NAME ESSAR. THE TPO OBSERVED THAT THE AGREEMENTS FOR P AYMENT OF ROYALTY WITH BOTH THE PARTIES WERE MADE EFFECTIVE F ROM 29.06.2007. UNDER THESE AGREEMENTS, BOTH THE COMPANIES ALLOWED THE ASSESSEE TO ITA NOS.1950 & 1169/DEL/2014 56 USE THEIR RESPECTIVE TRADEMARKS, VIZ., VODAFONE AND ESSAR. BOTH THE COMPANIES AGREED NOT TO CHARGE ANY ROYALTY TILL 31. 05.2008. AFTER 31.05.2008, THE ASSESSEE WAS REQUIRED TO PAY ROYALT Y @ 0.15% OF NET SERVICE REVENUE TO RISING GROUP LTD. FOR USE OF BRA ND NAME ESSAR AND @ 0.30% TO VODAFONE IRELAND FOR USE OF BRAND NA ME VODAFONE. THE ASSESSEE ADOPTED A COMPARABLE INSTANCE OF PAYME NT OF ROYALTY @ 7% OF NET SALE OF FORWARD INDUSTRIES INC., USA TO M OTOROLA INC., USA, FOR TRADE MARK LICENCE FOR USE OF MOTOROLA SIG NATURE AND LOGO. THE ASSESSEE CLAIMED THAT SINCE THE PAYMENT @ 0.15% AND 0.30% FOR USE OF BRAND NAMES, ESSAR AND VODAFONE, WAS LOWER T HAN 7% PAID BY FORWARD INDUSTRIES INC., USA TO MOTOROLA INC., USA, ITS INTERNATIONAL TRANSACTIONS WERE AT ALP. 60. THE TPO ACCEPTED THE USE OF THE CUP, AS WAS ALSO EMPLOYED BY THE ASSESSEE, AS THE MOST APPROPRIATE METHOD. HE, H OWEVER, DID NOT TREAT PAYMENT OF ROYALTY @7% OF THE NET SALES OF FO RWARD INDUSTRIES INC., USA TO MOTOROLA INC., USA, AS COMPARABLE BECA USE OF THE FUNCTIONAL DISSIMILARITY. CONSIDERING THE FACT THA T THE ASSESSEE WAS NOT EARLIER PAYING ROYALTY FOR USE OF ESSAR AND VOD AFONE TRADEMARKS UP TO 31.05.2008, THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL ITA NOS.1950 & 1169/DEL/2014 57 TRANSACTION OF PAYMENT OF ROYALTY. IN SUPPORT OF H IS DECISION, HE HELD THAT THE ASSESSEE DID NOT JUSTIFY ROYALTY RATE AND, FURTHER, THERE WAS NO COST BENEFIT ANALYSIS AND NO ECONOMIC BENEFIT WAS D ERIVED BY THE ASSESSEE. THE DRP DID NOT INTERFERE WITH THE DRAFT ORDER PASSED BY THE AO INCORPORATING NIL ALP OF THE INTERNATIONAL TRANS ACTION OF PAYMENT OF ROYALTY, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 61. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. THE ASSESSEE USED `VODAFONE ESSAR BRAN DS AS IS APPARENT FROM PAGE 13 OF THE TPOS ORDER ON WHICH SOME PHOTO GRAPHS HAVE BEEN REPRODUCED AND IT HAS BEEN MENTIONED AT THE BO TTOM: `A VODAFONE ESSAR COMPANY. WHEN WE LOOK AT THE NAME O F THE ASSESSEE, BEING `VODAFONE ESSAR DIGILINK LIMITED, THERE REMAINS NO DOUBT WHATSOEVER THAT THE ASSESSEE DID USE THE BRAN D NAMES ESSAR AND VODAFONE AND SUCH A PAYMENT IS A BONA FIDE TRANSACTION. IT IS FOR THE USE OF SUCH BRANDS THAT THE ASSESSEE PAID ROYALTY T O RISING GROUPS LTD. AND VODAFONE IRELAND MARKETING LTD. AT THE RAT E OF 0.15% AND 0.30% RESPECTIVELY. THE TPO HAS SIMPLY BRUSHED ASID E THE ASSESSEES CONTENTION FOR USE OF THE BRANDS AND DETERMINED NIL ALP OF THE ITA NOS.1950 & 1169/DEL/2014 58 INTERNATIONAL TRANSACTION ON THE PREMISE THAT : `ES SAR AS A GROUP HAS NO HISTORY OF SUCCESS IN TELECOM SECTOR ALL OVER THE W ORLD AND ESPECIALLY IN INDIA. THUS ESSAR HAS NEVER BEEN A NAME TO RECKO N WITH IN THE TELECOMMUNICATION SECTOR. AS REGARDS THE PAYMENT OF ROYALTY FOR THE USE OF BRAND `VODAFONE, THE TPO DETERMINED NIL ALP BY HOLDING ON PAGE 15 OF HIS ORDER THAT : `PAYMENT OF ROYALTY TO VODAFONE ALSO DID NOT BRING THE ASSESSEE ANY ADDITIONAL BENEFIT. THU S, IT IS OVERT THAT THE TPO HAS DETERMINED NIL ALP OF THE INTERNATIONAL TRA NSACTION OF PAYMENT OF ROYALTY FOR USE OF THE BRAND NAMES ON TH E REASONING THAT NO BENEFIT ACCRUED TO THE ASSESSEE OR THE ASSESSEE DID NOT PAY ANY ROYALTY FOR THE USE OF BRAND IN THE PAST. 62. SIMPLY BECAUSE NO ROYALTY WAS PAID IN THE PA ST CAN BE NO REASON TO TREAT THE ALP OF ROYALTY AT NIL IN LATER YEARS. CHAPTER-X OF THE ACT DEALING WITH THE TRANSFER PRICING PROVISIONS, CONTE MPLATES MAKING A COMPARISON OF THE INTERNATIONAL TRANSACTION WITH TH E COMPARABLE UNCONTROLLED TRANSACTIONS. IF SUCH A COMPARISON DE MONSTRATES THAT THE PAYMENT UNDER THE INTERNATIONAL TRANSACTION IS AT A LP IN COMPARISON WITH THE OTHER COMPARABLE UNCONTROLLED TRANSACTIONS , THEN THE TRANSACTED VALUE OF THE INTERNATIONAL TRANSACTION H AS TO BE ACCEPTED. A ITA NOS.1950 & 1169/DEL/2014 59 COMPARISON HAS TO BE MADE WITH COMPARABLE UNCONTROL LED TRANSACTIONS AND NOT WITH THE ASSESSEES PAST PRACTICE. SO THIS REASONING OF THE TPO, AS AFFIRMED BY THE DRP, IS NOT SUSTAINABLE. 63. IN SO FAR AS THE USE OF THE `BENEFIT TEST FOR DETERMINING THE ALP OF SUCH SERVICES AT NIL IS CONCERNED, IT IS NOTICED THAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN KNORR-BREMSE INDIA P. LTD. VS. ACIT (2016)380 ITR 307 (P&H) HAS HELD THAT THE QUESTION WHETHER A TRANSACTION IS AT AN ARMS LENGTH PRICE OR NOT IS N OT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN T HE ASSESSEES PROFIT. A VIEW TO THE CONTRARY WOULD THEN RAISE A QUESTION AS TO THE EXTENT OF PROFITABILITY NECESSARY FOR AN ASSESSEE TO ESTABLIS H THAT THE TRANSACTION WAS AT AN ARMS LENGTH PRICE. A FURTHER QUESTION TH AT MAY ARISE IS WHETHER THE ARMS LENGTH PRICE IS TO BE DETERMINED IN PROPORTION TO THE EXTENT OF PROFIT. THUS, WHILE PROFIT MAY REFLECT UP ON THE GENUINENESS OF AN ASSESSEES CLAIM, IT IS NOT DETERMINATIVE OF THE SAME. IT WENT ON TO HOLD THAT BUSINESS DECISIONS ARE AT TIMES GOOD A ND PROFITABLE AND AT TIMES BAD AND UNPROFITABLE. BUSINESS DECISIONS MAY AND, IN FACT, OFTEN DO RESULT IN A LOSS. THE QUESTION WHETHER THE DECIS ION WAS COMMERCIALLY SOUND OR NOT IS NOT RELEVANT. THE ONLY QUESTION IS ITA NOS.1950 & 1169/DEL/2014 60 WHETHER THE TRANSACTION WAS ENTERED INTO BONA FIDE OR NOT OR WHETHER IT WAS SHAM AND ONLY FOR THE PURPOSE OF DIVERTING THE PROFITS. 64. REVERTING TO THE FACTS OF THE EXTANT CASE, IT I S ESTABLISHED BEYOND DOUBT THAT BRAND NAMES OF ESSAR AND VODAFONE HAVE I N FACT BEEN USED BY THE ASSESSEE, WHICH DECIPHERS THAT THE INTERNATI ONAL TRANSACTION ENTERED IN TO BY THE ASSESSEE WITH ITS AES WAS GEN UINE AND BONA FIDE . 65. IT IS MANIFEST THAT THE TPO APPLIED THE CUP MET HOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N. WHILE APPLYING THE CUP METHOD, IT WAS OBLIGATORY UPON HIM TO BRING ON RECORD SOME COMPARABLE UNCONTROLLED INSTANCE AS PER THE MANDATE OF RULE 10B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INSTANC E HAS BEEN BROUGHT ON RECORD TO FACILITATE A COMPARISON BETWEEN THE PR ICE FOR THE USE OF BRAND BY THE ASSESSEE VIS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR UNCONTROLLED CIRCUMSTANCES. 66. WE FURTHER FIND THAT THE ASSESSEE USED ONLY ONE FOREIGN COMPARABLE INSTANCE IN WHICH ROYALTY AT THE RATE OF 7% OF NET SALES WAS PAID BY FORWARD INDUSTRIES INC., USA TO MOTOROL A INC. USA. THIS IS NOT A COMPARABLE INSTANCE BECAUSE OF THE FUNCTIO NAL DISSIMILARITY. ITA NOS.1950 & 1169/DEL/2014 61 MOTOROLA INC. IS IN THE BUSINESS OF DESIGNING AND S ELLING WIRELESS NETWORK INFRASTRUCTURE EQUIPMENTS, SUCH AS, CELLULA R TRANSMISSION BASE STATIONS AND SIGNAL AMPLIFIERS. MOTOROLAS HOME AND BROADCAST NETWORK PRODUCTS INCLUDE SET-TOP BOXES, DIGITAL VID EO-RECORDERS, AND NETWORK EQUIPMENT USED TO ENABLE VIDEO BROADCASTING , COMPUTER TELEPHONY AND HIGH DEFINITION TELEVISION. AS AGAINS T THIS, THE ASSESSEE IS ENGAGED IN PROVIDING CELLULAR MOBILE TELEPHONY S ERVICES. THERE CAN BE NO COMPARISON OF A COMPANY DEALING IN HARDWARE W ITH A COMPANY PROVIDING TELEPHONY SERVICES. PRE-REQUISITE FOR AP PLICATION OF THE CUP METHOD IS THAT THERE MUST BE A COMPLETE IDENTIT Y BETWEEN THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRAN SACTION, WITH WHICH COMPARISON IS SOUGHT TO BE MADE. WHEN WE EXAMINE TH E NATURE OF THE INTERNATIONAL TRANSACTION UNDER CONSIDERATION AND T HE TRANSACTION BETWEEN FORWARD INDUSTRIES INC., USA TO MOTOROLA IN C. USA, IT IS MANIFESTED THAT THERE IS NO COMPARISON WHATSOEVER B ETWEEN THE TWO. THAT APART, IT IS A TRANSACTION BETWEEN TWO FOREIGN PARTIES AND HENCE CANNOT BE CONSIDERED FOR COMPARING AN INTERNATIONAL TRANSACTION WITH THE INDIAN ASSESSEE AS A TESTED PARTY. WE, THEREFOR E, DISAPPROVE THE ITA NOS.1950 & 1169/DEL/2014 62 COMPARABLE TRANSACTION USED BY THE ASSESSEE FOR BEN CHMARKING THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY FOR USE OF BRANDS. 67. THAT APART, IT IS NOTICED THAT THE ACTION OF TH E TPO IN DETERMINING NIL ALP OF THE INTERNATIONAL TRANSACTIO N ON THE GROUND THAT NO BENEFIT ACCRUED TO THE ASSESSEE AND THEN TH E AO MAKING ADDITION SIMPLY ON THE BASIS OF RECOMMENDATION OF T HE TPO, IS NOT IN ACCORDANCE WITH THE JUDGMENT OF THE HONBLE JURISDI CTIONAL HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730 (DEL ), IN WHICH IT HAS BEEN HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANSFER PRICING ANALY SIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF SUCH SERVICE EXISTS OR BENEFITS DID ACCRUE TO THE ASSESS EE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAI N OF THE AO. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED B Y TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTE RACTION AND RELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. AS THE DETA ILS OF SPECIFIC ACTIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY), AND ATTENDANT BENE FITS TO ASSESSEE ITA NOS.1950 & 1169/DEL/2014 63 WERE NOT CONSIDERED, THE HON'BLE HIGH COURT REMANDE D THE MATTER TO FILE OF CONCERNED AO FOR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSID ERING THE DEDUCTIBILITY OR OTHERWISE AS PER SECTION 37(1) OF THE ACT. 68. WHEN WE COME BACK TO THE FACTS OF THE INSTANT C ASE, IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTME NT EQUAL TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTION AT RS .11.47 CRORE AND ODD, INTER ALIA , BY HOLDING THAT NO BENEFIT WAS RECEIVED BY THE AS SESSEE AND HENCE NO PAYMENT ON THIS SCORE WAS WARRANTED. THE A O IN HIS DRAFT ORDER HAS TAKEN THE ALP OF THE INTERNATIONAL TRANSA CTION AT NIL ON THE BASIS OF SUCH RECOMMENDATION OF THE TPO WITHOUT CAR RYING OUT ANY INDEPENDENT INVESTIGATION FOR THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. THIS ADDITION HAS BEEN MADE BY THE AO IN HIS FINAL ASSESSMENT ORDER GIVING EFFECT TO THE DIRECTION GIVEN BY THE DRP AND NOT BY INVOKING SECT ION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA) , THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION, UNCONCERNED WITH THE FACT, IF ANY BENEFIT ACCRUED TO THE ASSESSEE AND THEREAFTER, IT WAS FOR THE AO TO ITA NOS.1950 & 1169/DEL/2014 64 DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) O F THE ACT. AS THE TPO IN THE INSTANT CASE INITIALLY DETERMINED NIL AL P BY HOLDING THAT NO BENEFIT ACCRUED TO THE ASSESSEE ETC. AND THE AO MADE THE ADDITION WITHOUT EXAMINING THE APPLICABILITY OF SECTION 37(1 ) OF THE ACT, WE FIND THE ACTIONS OF THE AO/TPO RUNNING IN CONTRADIC TION WITH THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . IN THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND S END THE MATTER TO THE FILE OF AO/TPO FOR DECIDING IT IN CONFORMITY WI TH THE ABOVE DISCUSSION AND THE LAW LAID DOWN BY THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE AFORENOTED CASE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN SUCH PROCEEDINGS. 69. GROUND NO.10 IS AGAINST THE ADDITION OF RS.284, 68,27,994/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF ADVERTISI NG, MARKETING AND PROMOTION (AMP) EXPENSES. 70. THE FACTS APROPOS THIS GROUND, AS RECORDED BY T HE TPO ON PAGE 16 ONWARDS OF HIS ORDER, ARE THAT THE ASSESSEE INCU RRED HUGE AMOUNT OF AMP EXPENSES WHICH WAS FOR THE PROMOTION OF BRAND O WNED BY THE AES. APPLYING THE BRIGHT LINE TEST, THE TPO PROPOS ED TRANSFER PRICING ITA NOS.1950 & 1169/DEL/2014 65 ADJUSTMENT AMOUNTING TO RS.284,68,27,994/-. THE DR P UPHELD THE ORDER PASSED BY THE TPO. THE AO MADE THE ADDITION IN THE IMPUGNED ORDER, AGAINST WHICH THE ASSESSEE HAS COME UP IN AP PEAL. 71. THE LD. AR CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THE RE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANS ACTION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE JUDGMENTS O F THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE JUDGMENTS AND SOME OTHER TRIBUNAL ORDERS, IT WAS SU BMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, MAKING TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 72. AU CONTRAIRE , THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) ITA NOS.1950 & 1169/DEL/2014 66 PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRANSACTION A ND THE MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. HE ALSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DEL HI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EX PENSES IS AN INTERNATIONAL TRANSACTION HAS BEEN RESTORED FOR A F RESH DETERMINATION. IT WAS ARGUED THAT THE JUDGMENTS IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 ARE LATER IN POINT OF TIME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL ETC. AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FR ESH DETERMINATION. IT WAS SUBMITTED THAT THERE IS NO B LANKET RULE OF THE AMP EXPENSES AS A NON-INTERNATIONAL TRANSACTION. H E FURTHER STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING IF AN INTERNATIONAL TRANSACTION OF AMP EXPENSES EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES HAS RESTORED THIS IS SUE TO THE FILE OF TPO ITA NOS.1950 & 1169/DEL/2014 67 TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGMENT O F THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS . HE ALSO RELIED ON STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DEL HI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EX PENSES IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERRED TO THREE LATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COURT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (20 15) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSA CTION. IT WAS ARGUED THE MATTER SHOULD BE RESTORED FOR A FRES H DETERMINATION. ITA NOS.1950 & 1169/DEL/2014 68 73. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT WHEN THE TPO HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE AN Y OCCASION TO CONSIDER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT AS DISCUSSED ABOVE AND CE RTAIN OTHERS DELIVERED LATER ON AS WELL, WHICH ARE NOW AVAILABLE FOR CONSIDERATION. RESPECTFULLY FOLLOWING THE PREDOMINANT VIEW TAKEN I N SEVERAL TRIBUNAL ORDERS OF CO-ORDINATE BENCHES, WE ARE OF T HE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS I F THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTOR ED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES . IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADD ITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NOS.1950 & 1169/DEL/2014 69 74. HOWEVER, IT IS MADE CLEAR THAT IF THE ALP O F THE AMP EXPENSES COMES UP FOR DETERMINATION, THEN SELLING EXPENSES S HOULD NOT BE CONSIDERED AS A PART OF AMP EXPENSES. IN THIS REGAR D, THE HON'BLE JURISDICTIONAL HIGH COURT HAS CONSISTENTLY HELD THA T SELLING EXPENSES CANNOT BE INCLUDED IN THE AMBIT OF AMP EXPENSES. TH ERE IS NOT EVEN A SINGLE ORDER IN WHICH THE SELLING EXPENSES HAVE BEE N DIRECTED TO BE INCLUDED IN THE OVERALL AMP EXPENSES. SIMPLY BECAU SE THE DEPARTMENT HAS NOT ACCEPTED THE JUDGMENTS OF THE HO N'BLE JURISDICTIONAL HIGH COURT AND SLPS HAVE BEEN ADMITT ED, THE BINDING NATURE OF SUCH JUDGMENTS IS NOT MITIGATED IN ANY MA NNER. UNLESS THE HON'BLE SUPREME COURT REVERSES THE JUDGMENT OF A HI GH COURT, THE SAME HOLDS THE FIELD AND REMAINS BINDING ON ALL THE AUTHORITIES WORKING UNDER ITS JURISDICTION. IT IS, THEREFORE, DIRECTED THAT SELLING EXPENSES SHOULD BE EXCLUDED FROM THE OVERALL PURVIE W OF THE AMP EXPENSES FOR THE BENCHMARKING EXERCISE, IF NECESSIT Y ARISES. 75. GROUND NO.11 IS AGAINST NON-GRANTING OF FULL CR EDIT IN RESPECT OF TDS AND GROUND NO.12 IS AGAINST NON-GRANTING OF MIN IMUM ALTERNATE ITA NOS.1950 & 1169/DEL/2014 70 TAX (MAT) CREDIT. THE AO IS DIRECTED TO VERIFY THE ASSESSEES CLAIM IN THIS REGARD AND ALLOW THE NECESSARY CREDIT, IF A VAILABLE. 76. THE OTHER GROUND ON THE CHARGING OF INTEREST IS CONSEQUENTIAL AND ON THE INITIATION OF PENALTY PROCEEDINGS U/S 27 1(1)(C) IS PREMATURE. 77. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.201 8. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 14 TH MARCH, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.