Gujarat Info Petro Ltd., Gandhinagar V. The Addl.CIT.,GNR Circle, Gandhinagar

ITA 2116/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85559 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Principle of natural justice; Question of law; Reasonable cause; Capital expenditure
• Section: 142(1); 145; 12

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO.2058/AHD/2011 / ASSESSMENT YEAR: 2008-09 ACIT, GANDHINAGAR. VS GUJARAT INFO PETRO LTD. 114, 1 ST FLOOR, IT-TOWER-I, INFO CITY, INTRODA CIRCLE GANDHINAGAR. PAN : AAAJD 0596 Q ./ ITA NO.2116/AHD/2011 / ASSESSMENT YEAR: 2008-09 GUJARAT INFO PETRO LTD. 114, 1 ST FLOOR, IT-TOWER-I, INFO CITY, INTRODA CIRCLE GANDHINAGAR. PAN : AAAJD 0596 Q VS ACIT, GANDHINAGAR. ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI ROOPCHAND, SR.DR ASSESSEE(S) BY : SHRI S.N.SOPARKAR / DATE OF HEARING : 29/01/2015 / DATE OF PRONOUNCEMENT: /02/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE O RDER OF THE CIT(A), GANDHINAGAR DATED 18.5.2011. 2. IN THE REVENUES APPEAL, SALE GROUND OF APPEAL I S AS UNDER: ITA NO.2058 AND 2116/AHD/2011 2 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,08,47,120/- MADE ON ACCOUNT OF ADV ANCES FROM TRANSPORT DEPARTMENT TREATED AS INCOME UNDER P&L AC COUNT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSE RVED THAT ON VERIFICATION OF THE BALANCE SHEET, IT IS OBSERVED T HAT THE ASSESSEE HAS SHOWN RS.3,77,85,913/- AS ADVANCES FROM CUSTOMERS U NDER THE HEAD CURRENT LIABILITIES. THE ASSESSEE WAS REQUIRED T O FILE DETAILS OF ADVANCES RECEIVED AND NATURE OF SERVICES RENDERED. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, THE AO OBSERVED THAT RS. 3,08,47,120/- WAS RECEIVED FROM TRANSPORT DEPARTMENT OF GOVERNMENT OF GUJARAT, VIDE GOVT. OF GUJARAT ORDER DATED 27.3.2006. FROM THIS ORDER OF THE GOVT. OF GUJARAT, THE AO FOUND THAT THE TRANSPORT DEPARTMENT OF GOVT. OF GUJARAT HAS RELEASED THE AMOUNT FOR MODERNIZATION AND IMPLE MENTATION OF I.T. AS WELL AS NEW SERVICES FOR OFFICE AUTOMATION AND C OMPUTERIZATION METHODOLOGY. HE FURTHER NOTED THE CONTENTS OF ANN UAL REPORT (PAGE NO.2), WHICH STATES AS UNDER: THE COMPANY BEING APPOINTED AS NODAL AGENCY FOR AL L IT RELATED ACTIVITIES OF THE TRANSPORT DEPARTMENT HAD FINALIZE D THE VENDOR FOR ISSUANCE OF CARD BASED DRIVING LICENCE IN GUJARAT S TATE ON BOO BASIS. THE COMPANY IS CARRYING OUT THE ACTIVITIES L IKE SMS BASED GATEWAY, IT ROAD MAP TILL 2011, INFO-KIOSK FOR RTOS , RTO CHECK POST APPLICATION, DOCUMENT MANAGEMENT SYSTEM AND PROCUREMENT OF HARDWARE ETC. COMMISSIONER OF TRANSPORT HAS BEEN AWARDED TO GIPL FOR THE WORK OF DATA MIGRATION & DATA PORTING WORK FOR THE ISSUANCE OF SMART CARD DRIVING LICENSE IN SARATHI & VAHAN SOFTW ARE OF THE TRANSPORT DEPARTMENT. THE WORK IS ALMOST COMPLETED SATISFACTORILY.' 4. FROM THE ABOVE, THE AO CONCLUDED THAT WORK ASSIG NED BY THE TRANSPORT DEPARTMENT WAS COMPLETED SATISFACTORILY. THEREFORE, THE ASSESSEE WAS REQUIRED TO MAKE REVENUE RECOGNISATION OF THE ADVANCE OF RS.3,08,47,120/- IN THE P&L ACCOUNT. HE OBSERVED T HAT AS THE RELATED EXPENDITURE MUST HAVE BEEN BOOKED IN THE P&L A/C. B Y ADOPTING MATCHING CONCEPT, RS.3,08,47,120/- WOULD REPRESENT INCOME OF THE ITA NO.2058 AND 2116/AHD/2011 3 ASSESSEE FOR ASSTT.YEAR 2008-09, HENCE, HE ADDED RS .3,08,47,120/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. ON APPEAL, THE ASSESSEE SUBMITTED AS UNDER: THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER FA ILED TO APPRECIATE THAT THE INCOME WAS BOOKED IN THE ACCOUN TS ON THE BASIS OF SERVICES RENDERED DURING THE FINANCIAL YEA R ENDED ON 31/03/2008 I.E. F.Y. 2007-08 AND RETURN WAS PREPARE D AND FURNISHED ON THE BASIS OF SUCH FOR A.Y. 2008-09 WHE REAS DIRECTORS REPORTED TO THE SHAREHOLDERS ON 6TH DECEMBER, 2008 AND WERE THEREFORE, GIVING STATUS OF WORK AS ON 6TH DECEMBER , 2008 AND NOT AS ON 31ST MARCH, 2008 AS HAS BEEN ASSUMED BY T HE ASSESSING OFFICER, THE WORK IN FACT HAS BEEN COMPLE TED IN SUBSEQUENT ASSESSMENT YEAR I.E.AY. 2009-10 AND THER EFORE, INCOME HAS BEEN OFFERED IN A.Y. 2009-10. THE APPELL ANT FURTHER SUBMITS THAT: (A) THE PORT AND TRANSPORT DEPARTMENT, GOVERNMENT O F GUJARAT VIDE GOVERNMENT RESOLUTION 20.10.2005 HAS APPOINTED GUJ INFO PETRO LIMITED (GIPL), THE APPELLANT AS A NODAL AGEN CY FOR MODERNIZATION AND IMPLEMENTATION OF IT AS WELL AS N EW SERVICES FOR OFFICE AUTOMATION AND COMPUTERIZATION METHODOLO GY IN THE OFFICES OF TRANSPORT DEPARTMENT. (B) AS PER GR NO MVD-10.2005/3823/KH DATED 31.03.20 06 OF PORT AND TRANSPORT DEPARTMENT, GOVERNMENT OF GUJARA T HAS AUTHORISED THE COMMISSIONER, TRANSPORT DEPARTMENT T O PAY CONSULTANCY CHARGES AT FOLLOWING PERCENTAGE OF COST OF PROJECT TO BE IMPLEMENTED THROUGH GIPL: 1ST YEAR 3.5% OF COST OF PROJECT INCURRED 2ND, 3RD, 4T YEAR 3% OF COST OF PROJECT INCURRED (C) GIPL, THE APPELLANT HAS BEEN PROVIDED ADVANCES TOWARDS COST OF PROJECT FOR COMPUTERIZATION OF RTO OFFICES AS UNDER: GR NO/ OFFICE ORDER OF PORT & TRANSPORT DEPARTMENT DATE RS. GR NO. MVD/10.2005/60/KH 27.03.2006 3,03,04,400/- ITA NO.2058 AND 2116/AHD/2011 4 OFFICE ORDER NO. 193 OF 2005/06 21.03.2006 30,00,000/- TOTAL 3,33,04,400/- THE COPY OF THESE GR/ OFFICE ORDER IS SUBMITTED IN ANNEXURE D. (D) THE RTO OFFICES, GOVERNMENT OF GUJARAT HAD UTIL IZED A SUM OF RS. 24,57,280/- AND RS. 14,83,508/- DURING THE F.Y. 2006-07 AND 2007-08 RESPECTIVELY OUT OF ABOVE REFERRED ADVANCES TOWARDS THE COST OF HARDWARE/ SOFTWARE. IN ACCORDANCE WITH THE TERMS IN GR AS ABOVE REFERRED IN PARA 3.2, GIPL, THE APPELLANT HAD EARNED THE CONSULTANCY CHARGES FOR RS. 86,005/- AND RS. 1,25,6 41/- DURING F.Y. 2006-07 AND 2007-08 RESPECTIVELY AND CONSIDERE D UNDER THE HEAD 'INCOME FROM CONSULTANCY CHARGES, OPERATION & MAINTENANCE & SOFTWARE DEPARTMENT' IN THE PROFIT & LOSS ACCOUNT OF THE COMPANY IN THE RESPECTIVE YEARS. THE DETAIL IN THIS RESPECT IS SUBMITTED IN ANNEXURE E. (E) THE LD. ASSESSING OFFICER IN PARA 4.2 OF T HE ASSESSMENT ORDER HAS REFERRED THE PAGE 2 OF ANNUAL REPORT OF T HE COMPANY FOR THE YEAR IN WHICH CONVEYED THAT: 'COMMISSIONER OF TRANSPORT HAS AWARDED TO GIPL FOR THE WORK OF DATA MIGRATION AND DATA PORTING WORK FOR TH E ISSUANCE OF SMART CARD DRIVING LICENSE IN SARATHI A ND VAHAN SOFTWARE OF TRANSPORT DEPARTMENT. THE WORK IS ALMOS T COMPLETED SATISFACTORILY.' IN THIS RESPECT, THE APPELLANT SUBMITS THAT GIPL, T HE ASSESSEE HAD PURCHASED LICENSE VERSION SOFTWARE (AS SPECIFIED AS ITEM NO 1 IN GR NO MVD/10.2005/60/KH DATED 27.03.2006 OF PORT & TRANSPORT DEPARTMENT, GOVERNMENT OF GUJARAT) DURING THE YEAR AND COMPLETED THE WORK OF DATA MIGRATION AND DATA PORTI NG WORK FOR THE ISSUANCE OF SMART CARD DRIVING LICENSE IN SARAT HI AND VAHAN SOFTWARE FOR TRANSPORT DEPARTMENT AND EARNED THE CO NSULTANCY CHARGES FOR RS. 21,315/- AND RS. 18,270/- DURING F. Y. 2006-07 AND 2007-08 RESPECTIVELY WHICH WAS SHOWN AS INCOME IN PROFIT & LOSS ACCOUNT. HENCE, THERE WAS NO MISINFORMATION IN THE DIRECTORS' REPORT OF THE COMPANY BUT WAS MISREAD/MI SINTERPRETED THE ASSESSING OFFICER. (F) IN VIEW OF ABOVE, THE APPELLANT SUBMITS THAT ON LY THE CONSULTANCY CHARGES AT THE RATE OF 3.5%/ 3% OF THE COST OF PROJECT INCURRED FOR THE TRANSPORT DEPARTMENT OF GO VERNMENT OF GUJARAT WERE THE INCOME OF THE COMPANY AND THE ADVA NCES RECEIVED FROM GOVERNMENT OF GUJARAT WHICH WAS OUTST ANDING FOR ITA NO.2058 AND 2116/AHD/2011 5 RS. 3,08,47,120/- AS ON 31.03.2008 CANNOT BE CONSID ERED AS INCOME OF THE COMPANY FOR ASSESSMENT YEAR 2008-09 W HICH WAS HELD IN FIDUCIARY CAPACITY AND WAS IN THE NATURE OF LIABILITY AS NO SERVICES AGAINST THIS ADVANCE WERE RENDERED IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS COMMITTED TWO GRAVE ERROR S WHILE MAKING ASSESSMENT AND IN MAKING THIS ADDITION. FIRS TLY, DESPITE KNOWING FULLY THAT THE APPELLANT IS FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING BOTH FOR THE PURPOSE OF MAINTENANCE OF A CCOUNTS UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND ALSO UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 FOR THE PURP OSE OF COMPUTATION OF INCOME WHICH OTHERWISE RECOGNISES ME RCANTILE SYSTEM OF ACCOUNTING AS ONE OF THE ACCOUNTING METHO D WHICH AN ASSESSEE CAN ADOPTED AS COULD BE SEEN FROM THE LANG UAGE OF SECTION 145 (1) THE ACT AND THEREFORE, ONE HE WAS S ATISFIED THAT ACCOUNTS OF THE COMPANY HAVE BEEN MAINTAINED ON MER CANTILE BASIS HE OUGHT NOT TO HAVE BROUGHT THIS AMOUNT FOR TAXATION ON CASH BASIS. BY DOING SO, THE ASSESSING OFFICER HAS DISREGARDED THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED AND ACCE PTED IN THE PAST ASSESSMENTS. SECONDLY, THE ASSESSING OFFICER W ITHOUT PREJUDICE TO THESE CONTENTIONS EVEN IF HAD ANY INCL INATION TO TAX THIS AMOUNT, HE SHOULD HAVE TAXED ONLY AN AMOUNT TO THE EXTENT REPRESENTING THE INCOME OF THE APPELLANT AS EXPLAIN ED IN EARLIER PART OF THIS SUBMISSION. LASTLY, THE ACTION OF THE ASSESSING OFFICER IS NOT JUSTIFIED BECAUSE HE HAS NOT FOUND ANY, DEFE CT IN MAINTENANCE OF ACCOUNTS AFTER DUE VERIFICATION OF B OOKS OF ACCOUNTS OF THE APPELLANT AND THEREFORE, HE HAS NOT REJECTED BOOKS OF THE APPELLANT AND AS SUCH AMOUNT WHICH WAS HELD BY THE APPELLANT IN FIDUCIARY CAPACITY AND WHICH WAS IN TH E NATURE OF LIABILITY TILL THE SERVICES ARE PROVIDED TO THE CUS TOMERS CANNOT BE HELD TO BE INCOME OF THE APPELLANT. THE ASSESSING O FFICER HAS NOT FOUND ANY DEFICIENCY IN ACCOUNTING POLICIES CONSIST ENTLY FOLLOWED FOR RECOGNITION OF INCOME AND DISCLOSED IN THE ANNU AL REPORT WHICH HAS BEEN MADE BASIS FOR MAKING ADDITION. THE APPELL ANT, THEREFORE, REQUESTS YOUR HONOUR TO DELETE UNWARRANT ED ADDITION OF RS. 3,08,47,120/-.' 6. THE CIT(A) ACCEPTED THE APPEAL OF THE ASSESSEE B Y OBSERVING AS UNDER: I HAVE CONSIDERED THE ARGUMENTS OF THE A.O., THE F ACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. IT HAS T O BE UNDERSTOOD THAT IT IS A GOVT. COMPANY AND ITS ACCOU NTS ARE DULY AUDITED BY VARIOUS AGENCIES. I DO NOT UNDERSTAND WH Y THE A.O. ITA NO.2058 AND 2116/AHD/2011 6 HAS GIVEN UNDUE IMPORTANCE SOLELY TO ANNUAL REPORT IN ISOLATION WITHOUT GOING INTO RELATED FACTS AND CIRCUMSTANCES. HE COULD HAVE EASILY EXAMINED THE ENTIRE CONTRACT AND THE STAGE O F WORK COMPLETED BY GOING INTO THE EXPENSES. THE APPELLANT HAS BEEN ABLE TO EXPLAIN THE COMMENT IN THE ANNUAL REPORT. I T HAS ALSO SHOWN THAT IT IS SHOWING THE INCOME ON THE BASIS OF WORK COMPLETION FROM YEAR TO YEAR AND ITS ACCOUNTING POL ICY IS UNIFORM IN THIS RESPECT. I HAVE GOT NO REASON TO DOUBT, THE ACCOUNTS OF THE APPELLANT ESPECIALLY AS IT IS A GOVT. COMPANY AND I TS ACCOUNTS ARE DULY AUDITED BY VARIOUS AGENCIES. THE ADDITION IS U NCALLED FOR AND IS DIRECTED TO BE DELETED. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A STATE GOVERNMENT COMPANY AND WAS APPOINTED AS NODAL AGENCY FOR MODERNIZATION AND IMPLEMENTATION OF I.T. AS WELL AS NEW SERVICES FOR OFFICE AUTOMATION AND COMPUTERIZATION METHODOLOGY I N THE OFFICE OF TRANSPORT DEPARTMENT BY THE PORT AND TRANSPORT DEPA RTMENT OF GOVT. OF GUJARAT VIDE RESOLUTION DATED 20.10.2005. 8. AO OBSERVED THAT THE ASSESSEE HAS SHOWN RS.3,08, 47,120/- AS LIABILITY IN ITS BALANCE SHEET AS ON 31.3.2008 UNDE R THE HEAD ADVANCE FROM CUSTOMERS. THE AO OBSERVED FROM THE DIRECTOR S REPORT DATED 6.12.2008, WHICH STATED AS UNDER: COMMISSIONER OF TRANSPORT HAS BEEN AWARDED TO GIPL FOR THE WORK OF DATA MIGRATION & DATA PORTING WORK FOR THE ISSUANCE OF SMART CARD DRIVING LICENSE IN SARATHI & VAHAN SOFTW ARE OF THE TRANSPORT DEPARTMENT. THE WORK IS ALMOST COMPLETED SATISFACTORILY.' 9. FROM THIS, THE AO CONCLUDED THAT THE WORK OF THE TRANSPORT DEPARTMENT WAS COMPLETED AND THE RELATED EXPENDITUR E MUST HAVE BEEN DEBITED IN THE P&L ACCOUNT, AND THEREFORE, AS PER T HE MATCHING CONCEPT, THE AMOUNT OF RS.3,08,47,120/- SHOULD HAVE BEEN CRE DITED IN THE P&L ACCOUNT, AND THEREFORE, ADDED RS.3,08,47,120/- TO T HE INCOME OF THE ASSESSEE. ITA NO.2058 AND 2116/AHD/2011 7 10. ON APPEAL, THE CIT(A) DELETED THE ABOVE ADDITIO N BY OBSERVING THAT THE ACCOUNTS OF THE ASSESSEE WERE AUDITED BY V ARIOUS AGENCIES, AND HE HAD NO REASON TO DOUBT THE SAME AND THE DIRE CTORS REPORT WAS EXPLAINED SATISFACTORILY. 11. BEFORE US, THE DR RELIED UPON THE ORDER OF THE AO. 12. ON THE OTHER HAND, THE AR OF THE ASSESSEE STATE D AT BAR THAT AS PER THE AGREEMENT, THE ASSESSEE WAS ENTITLED TO CON SULTANCY FEES ON THE BASIS OF WORK COMPLETED AS UNDER: 1 ST YEAR : 3.5% OF COST OF PROJECT INCURRED. 2 ND , 3 RD , 4 TH YEAR : 3% OF COST OF PROJECT INCURRED. 13. HE SUBMITTED THAT AS PER THE ABOVE AGREEMENT, T HE ASSESSEE IS DULY BOOKED ITS INCOME ON THE BASIS OF WORK COMPLET ED IN THE RELEVANT YEAR. HE EXPLAINED THAT A TOTAL OF RS.3,77,85,913/ - WAS RECEIVED BY THE ASSESSEE AS NODAL AGENCY. OUT OF THIS, WORK OF RS. 24,57,280/- AND RS.14,83,508/- WAS COMPLETED IN THE FINANCIAL YEAR 2006-07 AND 2007- 08 RESPECTIVELY TOWARDS THE COST OF HARDWARE/SOFTWA RE AND CONSULTANCY CHARGES THEREON OF RS.86,005/- AND RS.1,25,641/- WA S BOOKED BY THE ASSESSEE AS ITS INCOME IN FINANCIAL YEAR 2006-07 AN D 2007-08 RESPECTIVELY. THE BALANCE AMOUNT OF RS.3,08,47,1 20/- WAS SHOWN AS LIABILITY IN THE BALANCE SHEET. HE FURTHER EXPLAIN ED THAT DIRECTORS REPORT WAS DATED 6.12.2008, AND THEREFORE, STATED THE PROG RESS OF THE WORK AS ON THAT DATE, WHEREAS, THE YEAR UNDER CONSIDERATION ENDED MUCH EARLIER I.E. 31.3.2008. 14. WE FIND THAT REVENUE COULD NOT BRING ANY MATERI AL BEFORE US TO SHOW THAT THE EXPENSES OF MORE THAN RS.14,83,508/- WAS INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IN RESPECT OF THE PROJECT UNDER CONSIDERATION. THE AO HAS SIMPLY STA TED THAT THE EXPENSES OF THE PROJECT MUST HAVE BEEN DEBITED IN T HE PROFIT & LOSS ACCOUNT, BUT FAILED TO POINT OUT ANY EXPENSES, WHIC H WERE RELATED TO THE ITA NO.2058 AND 2116/AHD/2011 8 PROJECT IN QUESTION, WHICH WAS DEBITED IN THE PROFI T & LOSS ACCOUNT. IN THE ABSENCE OF ANY SUCH FINDINGS, THE ASSESSMENT WA S MADE MERELY ON THE BASIS OF SUSPICION OR GUESS-WORK WITHOUT ANY CO NCRETE FACTS BROUGHT ON RECORD AND SUCH ASSESSMENT IS UNSUSTAINABLE. W E, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS CONFIRMED, AND THE GROUND OF THE APPEAL OF THE REVE NUE IS DISMISSED. 15. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS CHAL LENGED THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA AS UND ER: 1. LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING ACTION OF AO IN DISALLOWING CLAIM OF DEDUCTION OF RS. 1, 56, 59, 743/- MADE U/S 80IA OF THE ACT DUE TO NON FILING OF FORM # 1OC CB DURING THE ASSESSMENT PROCEEDINGS. LD. CIT (A) ERRED IN HOLDIN G THAT THE APPELLANT DID NOT HAVE REASONABLE CAUSE FOR ITS FAI LURE AND FURTHER ERRED IN NOT ADMITTING ITS SUBMISSION UNDER RULE 46 A OF THE ACT. THIS ACTION OF ID. CIT (A) BEING UNJUST, ARBITRARY AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE DESERVES TO BE QUASHE D AND CLAIM OF THE APPELLANT U/S 80IA BE ALLOWED. 2. LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLD ING THE ACTION OF AO IN INVOKING PROVISIONS OF SECTION 80IA(10) OF THE ACT BY HOLDING THE APPELLANT TO BE SUBSIDIARY OF GSPC LTD. HAVING CLOSE BUSINESS CONNECTION FOR THE YEAR UNDER CONSIDERATIO N. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE FACT THA T IN ABSENCE OF ANY CORROBORATIVE EVIDENCE SUCH ALLEGATION FOR DENY ING DEDUCTION U/S 80IA OF THE ACT IS UNWARRANTED. LEARNED CIT (A) FURTHER ERRED IN LAW AND ON FACTS IN REWORKING PROFITS REASONABLY DEEMED TO HAVE BEEN DERIVED FROM THE ELIGIBLE BUSINESS OF THE APPELLANT UNDER THE PROVISION OF SECTION 80IA (10) OF THE ACT WITHOUT ANY BASIS OR SUBSTANTIVE EVIDENCE IGNORING VARIOUS SUBM ISSIONS, EXPLANATIONS AND DOCUMENTS ON RECORD. THIS UNILATER AL ACT OF ID. CIT (A) BEING ILLEGAL, BAD IN LAW AND UNCALLED FOR DESERVES TO BE QUASHED. 16. THE CIT(A) HAS OBSERVED AS UNDER: 4.2 I HAVE CONSIDERED THE ARGUMENTS OF THE A.O., TH E FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. THE FOLL OWING FOUR ISSUES, ONE TECHNICAL AND THREE ON MERITS ARE REQUI RED TO BE DISCUSSED AND DECIDED SEPARATELY, FOR DECIDING THIS GROUND: ITA NO.2058 AND 2116/AHD/2011 9 4.2.1 TECHNICAL GROUND OF APPELLANT HAVING NOT FILE D AUDIT REPORT IN FORM NO. 10CCB EITHER WITH THE INCOME TAX RETURN OR BEFORE THE AO; AND ITS REQUEST IN APPEAL PROCEEDINGS TO ADMIT IT THERE IS NO DISPUTE ON THE FACT THAT APPELLANT HAD NOT FILED AUDIT REPORT IN FORM NO. 10CCB EITHER WITH THE INCOME TAX RETURN OR BEFORE THE AO; AND REQUESTED IN APPEAL PROCEEDINGS TO ADMIT IT. THE APPELLANT IS CLAIMING THAT (0 IT WAS ISSUED BY THE TAX AUDITOR WELL BEFORE FURNISHING OF RETURN OF INCOME (II) DED UCTION WORKED OUT THEREIN WAS ALSO INCORPORATED IN THE TAX AUDIT REPORT FURNISHED U/S 44AB OF THE ACT. (III) THE APPELLANT IN TERMS O F PROVISIONS OF SECTION 142(1) IN FACT FURNISHED COPY OF TAX AUDIT REPORT AND, THEREFORE, WAS UNDER BONAFIDE IMPRESSION THAT THE A UDIT REPORT IN FORM NO. 10CCB FOR CLAIMING DEDUCTION U/S 80IA WAS ALSO FURNISHED TOGETHER WITH THE SAID REPORT. THE A.O. IN ITS REMAND REPORT HAS DISPUTED THE CLAI M THAT APPELLANT WAS UNDER BONAFIDE IMPRESSION THAT THE AU DIT REPORT IN FORM NO. 10CCB FOR CLAIMING DEDUCTION U/S 80IA WAS ALSO FURNISHED TOGETHER WITH THE SAID REPORT. T HE A.O. HAD SUBMITTED THAT 'ONLY AFTER ISSUING NOTICES U/S. 142(1) FOR FILING OF HARD COPY OF RETURN OF INCOME, AUDIT REPORT U/S.44AB, ANNUAL REPORT FOR THE YEAR ENDING ON 31/0 3/2009 AND STATUTORY AUDIT REPORT ON THREE OCCASIONS ON 22/03/2010, 26/07/2010 AND 26/08/2010, THE ASSESSEE SUBMITTED THE DETAILS ON 31/08/2010. HOWEVER, IT OM ITTED TO SUBMIT THE STATUTORY AUDIT REPORT U/S.1OCCB OF T HE ACT. THIS CLEARLY SHOWS AN OMISSION ON THE PART OF THE A SSESSEE WHICH CANNOT BE CONSIDERED AS BONAFIDE. THE ASSESSE E'S CLAIM THAT THE SPECIFIC OMISSION WAS NOT HIGHLIGHTE D BY THE ASSESSING OFFICER BY ANY NOTICE IS PATENTLY WRONG. VIDE NOTICEDTDO.3/09/2010, THE ASSESSEE WAS SPECIFICALLY ASKED TO SUBMIT FORM NO.1OCCB WHEREIN WORKING OF DEDUCTIO N U/S.80IA OF THE ACT- WAS CLAIMED. THE ASSESSEE WAS ALSO INQUIRED TO PUT DETAILED EXPLANATION AS TO HOW IT H AS FULFILLED ALL THE CONDITIONS AS LAID DOWN U/S.80IA(4)(II) OF THE ACT. THESE TWO SPECIFIC QUERIES ARE LISTED AT SR.NO.13 & 14 OF THE NOTICE DTD.03/09/2010. COPIES OF ALL THE NOTICES IS SUED TO THE ASSESSEE ARE ENCLOSED HEREWITH FOR YOUR READY REFERENCE.' IT IS CLEAR FROM THE ABOVE AND THE PERUSAL OF THE N OTICES THAT THE APPELLANT FAILED TO FILE AUDIT REPORT U/S.10CCB OF THE ACT EVEN AFTER SPECIFIC NOTICES. THE DECIDED LAW ON THIS ISSUE IS AS FOLLOWS: ITA NO.2058 AND 2116/AHD/2011 10 'FILING OF AUDIT REPORT IN FORM 10CCB IS MANDATORY- CIT V JAIDEEP INDUSTRIES [1989] (PUNJ. & HAR.) FURTHER, IN FEW JU DICIAL DECISIONS, IT IS STATED THAT IF AUDIT REPORT IS FILED AT ANY T IME BEFORE FRAMING OF ASSESSMENT THE REQUIREMENT OF SECTION 80-IA(7) W OULD BE MET- CIT V CENTIMETERS ELECTRICALS (P) LTD[2009] 178 TAX MAN 422 (DELHI)/CIT V ACE MULTITAXES SYSTEMS (P) LTD (2009) 317ITR307 (KAR.) IN THE CASE OF CIT V PANAMA CHEMICAL WORKS [2000] 1 13 TAXMAN 717(MP) IT WAS HELD THAT FILING OF THE AUDIT REPORT DURING THE ASSESSMENT PROCEEDINGS BY THE ASSESSEE AMOUNTS TO S UBSTANTIAL COMPLIANCES WITH THE STATUTORY REQUIREMENT, AND THA T IT WOULD BE TOO TECHNICAL TO DISALLOW THE DEDUCTION MERELY ON T HE GROUND THAT THE AUDIT REPORT WAS NOT ATTACHED TO THE RETURN OF INCOME WHEN THE EXISTENCE OF SUCH A REPORT WAS NOT IN DOUBT AND WHEN IT WAS BROUGHT ON RECORD DURING THE ASSESSMENT PROCEEDINGS . FOR THESE REASONS, THE HIGH COURT HELD THAT NO QUESTION OF LA W WOULD ARISE FROM THE TRIBUNAL'S ORDER ALLOWING DEDUCTION TO SUC H A CASE, HOWEVER, THE SUPREME COURT IN V, PANAMA CHEMICALS W ORKS [200 1]250 ITR 661/118 TAXMAN 886 HELD THAT A REFERABLE QUESTION OF LAW WOULD ARISE IN SUCH A CASE. FINAL DECISION IS A WAITED.' AFTER CONSIDERING THE ABOVE DECISIONS I AM OF THE O PINION THAT FILING OF AUDIT REPORT BEFORE ITO IS MANDATORY, BUT FILING OF REPORT ALONGWITH THE RETURN IS NOT MANDATORY. IF IN A GIVE N CASE, AN ASSESSEE FAILS TO FILE SUCH REPORT ALONGWITH THE RE TURN BUT FILES IT SUBSEQUENTLY BEFORE COMPLETION OF ASSESSMENT, IT WO ULD NOT BE FATAL TO THE CLAIM OF THE ASSESSEE, AND THE ITO WIL L HAVE THE POWER TO ACCEPT THE SAME IF HE IS SATISFIED THAT THE DELA Y IN FILING THE SAME WAS FOR GOOD AND SUFFICIENT REASONS. IN THIS P ARTICULAR CASE THE ASSESSEE HAS FAILED TO FILE THE REPORT EVEN AFT ER SPECIFIC NOTICES. THERE IS NO REASONABLE CAUSE FOR ITS FAILU RE AND ITS SUBMISSION UNDER RULE 46A IS ALSO NOT ADMITTED FOR THE REASON. I HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEF IT OF DEDUCTION U/S. 80IA BECAUSE OF THIS FAILURE. THE ASSESSEE CAN NOT CLAIM A RIGHT TO DEDUCTION JUST BECAUSE IT WAS ALLOWED IN E ARLIER YEARS BECAUSE THE AUDITOR'S REPORT IN THE REQUIRED PROFOR MA IS MANDATORY FOR EACH ASSESSMENT YEAR AND IS NATURALLY ON THE BASIS OF FACTS OF THAT YEAR. NO RESJUDICATA CAN APPLY IN SUCH A CASE. ALTHOUGH THE ASSESSEE WOULD NOT BE ELIGIBLE FOR DED UCTION U/S. 80IA ON THE ABOVE GROUND ALONE, THE ELIGIBILITY ON MERITS IS ALSO MATERIAL TO THE ISSUE AND IS BEING DECIDED. 4.2.2 WHETHER THE APPELLANT HAD NO VALID LICENSE FO R THE MAJOR PART OF THE ASSESSMENT YEAR 2008-09 AND ITS IMPACT IF SO. ITA NO.2058 AND 2116/AHD/2011 11 THE A.O. HAS NOTED THAT THE ASSESSEE WAS FIRST ISSU ED THE WIRELESS STATION LICENCE NO.P-5233/1 ON 18/3/03 FOR INTERNET SERVICES. THE LICENCE WAS VALID UP TO JUNE 2003 ONLY. THIS WAS RE NEWED UP TO 1ST JULY 2004. THEREAFTER, NO RENEWAL OF LICENCE WA S MADE TILL 25/7/2007. IT IS FURTHER OBSERVED THAT ONLY ON 25/0 7/2007, RENEWAL OF LICENCE (P-5233/1) WAS GRANTED BY A NEW LICENCE ISP- 384/1 UP TO 30/06/2008. THE A.O. HAS HELD THAT THER E WAS NO VALID LICENCE FOR INTERNET SERVICE BETWEEN THE INTE RMITTENT PERIOD OF 01/07/2004 TO 25/07/2007. HENCE, BETWEEN THE PER IOD 01/07/2004 TO 25/07/2007, THE ASSESSEE HAS CLAIMED OPERATION WITHOUT A VALID LICENCE WHICH IS APPARENTLY A SERIO US BREACH OF LAW AND PROCEDURE. THIS WILL AUTOMATICALLY LEAD TO NON ELIGIBILITY OF DEDUCTION CLAIMED FOR THIS PERIOD WHICH INCLUDES PA RT OF A.Y.2008- 09 TOO. THE APPELLANT SUBMITTED THAT THE APPELLANT WAS AWAR DED LICENCE BY THE DOT TO CARRY OUT THESE SERVICES UNDER LICENC E AGREEMENT FOR A PERIOD OF 15 YEARS VIDE LICENCE AGREEMENT N O. 820- 559/2002-LR DATED 14/06/2002 IN PURSUANCE OF BOARD RESOLUTION DATED 13/02/2001 BY AGREEING TERMS AND C ONDITIONS OFFERED BY DOT AND .APPROVED BY TRAI AS PER GUIDELI NES ON INTERNET SERVICE NO 845-51/97-VAS AS WELL AS THE GU IDELINES FOR ISSUE OF PERMISSION TO OFFER INTERNET TELEPHONY SER VICES DATED 21ST MARCH, 2002. THE APPELLANT BEGS TO SUBMIT THAT WHAT HAS BEEN REFERRED TO T. THE ASSESSING OFFICER IN THE AS SESSMENT ORDER IS NOTHING BUT SUPPLEMENTS~. DOCUMENTS EXECUTED BY THE APPELLANT WITH THE DOT TIME TO TIME IN ACCORDANCE W ITH THE GUIDELINES ISSUED BY TRAI AND WHICH INCLUDES PAYMEN T OF LICENCE FEE/ CHARGES TO THE DOT IN PURSUANCE TO PRINCIPAL L ICENCE AGREEMENT REFERRED HEREINABOVE. THE APPELLANT SUBMI TS THAT PRINCIPAL LICENCE AGREEMENT HAS NEVER BEEN REVOKED OR CANCELLED BY THE DOT AT ANY POINT OF TIME AND, THEREFORE, REM AINED VALID IN THE PERIOD COVERED BY THIS ASSESSMENT YEAR. I AGREE WITH THE APPELLANT THAT THERE IS NO CASE TH AT THE ASSESSEE WAS PREVENTED FROM DOING THE BUSINESS BECAUSE OF AB SENCE OF LICENSE, OR THAT THE PRINCIPAL LICENSE AGREEMENT WA S EVER REVOKED OR CANCELLED BY THE DOT AT ANY POINT OF TIME. EVEN IF THE LICENSE IS ACCEPTED TO BE RENEWED FOR THE PERIOD THOUGH AFTERW ARDS AS NOTED BY THE A.O., THEN ALSO THE BUSINESS CONDUCTED IS VA LIDATED. FURTHER, THE A.O. HAS NOT ALLEGED ANY PENDING PROCE EDINGS ON THIS ACCOUNT AGAINST THE ASSESSEE BY THE DOT. THE DEDUCT ION U/S. 80IA CANNOT BE DENIED TO THE APPELLANT ON THIS BASI S. 4.2.3 WHETHER THE APPELLANT WAS NOT IN POSSESSION O F REQUISITE PLANT & MACHINERY TO CARRY OUT BUSINESS OF INTERNET TELEPHONY BY EARNING BANDWIDTH CHARGES. THE APPLICABILITY OF SUB SECTION (10) OF ITA NO.2058 AND 2116/AHD/2011 12 SECTION 80IA FOR WORKING OUT ELIGIBLE PROFITS FOR D EDUCTION U/S 8OIA ON THE FACTS OF THE CASE. I HAVE CONSIDERED THE ARGUMENTS OF THE A.O., THE FA CTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. THE FOLLOWING OBSERVATIONS RELEVANT TO THE ISSUE WERE MADE BY THE A.O.: I. THE ASSESSEE HAS SHOWN TOTAL REVEN UE FROM ISP BUSINESS INCOME AT RS.4,90,56,453/-. OUT OF THIS MAJOR PORTION RELATES TO BANDWIDTH CHARGES OF RS.4,27,26,671/-. A GAINST THIS BANDWIDTH EXPENSES IS SHOWN AT RS.1,14,31,790/-. II. IN ORDER TO ACHIEVE BANDWIDTH CHARGES OF RS.4.27 CRORES, THE FOLLOWING EQUIPMENTS ARE SHOWN TO BE OWNED BY THE ASSESSEE (UNDER THE HEAD PLANT & MACHINERY) IN THE BLOCK OF ASSETS. DESCRIPTION OF THE ASSETS WDV AS ON 01/04/07 1. RADIO LINK/MODEM RS.7,03,302/- 2. OPTICAL FIBER CABLE RS.5,83,201/- 3. OTHER HARDWARE RS.4,21,193/- 4. OTHER OPTIC TRANSCEIVER RS.2,39,363/- 5. EQUIPMENTS RS.7,19,242/- 6. MODEM RS.2,62,141/- III. FROM THE ABOVE DETAILS, IT IS OBSERVED TH AT MAJOR EQUIPMENTS VIZ. SATELLITE EQUIPMENTS, NAVIGATIONS E QUIPMENTS OTHER LINK EQUIPMENT ETC. WHICH FORM A MAJOR PORTIO N OF ASSETS FOR ANY IP SERVICE PROVIDER IS NOT OWNED OR OPERATED BY THE ASSESSEE. WITHOUT THESE MAJOR EQUIPMENTS, BANDWIDTH IP ACTIVI TIES CANNOT BE ACHIEVED, ACTIVATED OR PROVIDED BY ANY ENTITY. IV. THE FOLLOWING INFORMATION IS PROVIDED BY TH E ASSESSEE : '......SATELLITE EQUIPMENTS ARE PURCHASED BY GSPC AND GIPL IS ONLY MANAGING GSPC'S SATELLITE EQUIPMENT AND GEN ERATES REVENUE FOR ITS OWN. HENCE, GIPL HAS NOT INCURRED ANY CAPITAL EXPENDITURE TO GENERATE REVENUE. AGAINST CAPITAL EXPENDITURE OF GSPC, GIPL IS SHARING 10% OF BANDWID TH INCOME.' IN THIS CONNECTION, IT IS OBSERVED THAT GIPL HAS SH ARED REVENUE OF RS.3,42,290/-ONLY TO GSPC ACCOUNT. V. THUS, GIPL HAS BECOME A SUBSIDIARY OF GSPC. IT IS FURTHER OBSERVED FROM THE AUDITORS REPORT THAT GIPL IS 'PRI MARILY ITA NO.2058 AND 2116/AHD/2011 13 ENGAGED IN THE MARKETING AND DISTRIBUTION OF BANDWI DTH AND OTHER VALUE ADDED SERVICES TO VARIOUS ORGANIZATION IN GUJ ARAT.' VI. IT IS ALSO OBSERVED THAT INSPITE OF HAVING MAJOR INVESTMENTS IN SATELLITE EQUIPMENTS ETC. BEING MADE BY GSPC, TH E ASSESSEE (GIPL) HAS ENTERED INTO A PECULIAR REVENUE SHARING ARRANGEMENTS WITH GSPC, BY WHICH GIPL IS SELLING THE BANDWIDTH G ENERATED BY THE ASSETS OWNED BY THE GSPC AND REVENUE ARISING FR OM SUCH ACTIVITIES ARE SHARED WITH GSPC IN THE RATIO OF 90: 10 (90% BEING GIPL SHARE). VII. FROM THE ABOVE DISCUSSION, IT IS CRYSTAL CLEAR THAT OWING TO CLOSE CONNECTION BETWEEN GSPC AND GIPL, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT GIPL IS RECEIVING MUCH MORE THAN THE ORDINARY PROFITS EXPECTED FROM SUCH BUSINE SS AS OUTLINED IN THE SEC.80IA(10) OF THE ACT. THE SUBMISSIONS OF THE APPELLANT ON THESE ARE SUMME D UP AS FOLLOWS: A) IN THE CASE OF THE APPELLANT, SATELLITE EQUIPMEN TS, NAVIGATION EQUIPMENTS OTHER LINK EQUIPMENTS ETC. WERE ACQUIRED BY PROMOTER COMPANY I.E. GSPC LTD. AND WERE PERMITTED TO USE BY THE APPELLANT UNDER AN ARRANGEMENT WHICH NEITHER BY DOU BTED, DISPUTED OR HELD INVALID BY THE LICENSING AUTHORITY DOT AND THERE IS NO APPARENT VIOLATION OF TRAI GUIDELINES. NEEDLE SS MENTION THAT SAID EQUIPMENTS HAVE BEEN EXCLUSIVELY USED BY THE A PPELL. AND GSPC LTD HAS NOT USED THEM FOR ANY OTHER PURPOSES. B) THE APPELLANT SUBMITS THAT MAJORITY OF INCOME EA RNED BY THE APPELLANT DURING THE YEAR WAS BY SELLING BANDWIDTH THROUGH USE OF OPTIC FIBER CABLE WHICH IS OWNED BY THE APPELLANT. THE APPELLANT EARNED GROSS INCOME OF RS. 4,90,56,453/- BY SELLING AND DISTRIBUTION OF BANDWIDTH. THE INCOME FROM USE OF L EASED EQUIPMENTS SUCH AS SATELLITE EQUIPMENTS ETC. WHICH HAVE BEEN OWNED BY GSPC LTD. WAS JUST 34,22,900/- (SHARED WIT H GSPC LTD. IN THE RATIO OF 90:10 WHEREIN 90% OF THE INCOME WAS RETAINED BY APPELLANT AND 10% OF INCOME WAS RETAINED BY GSPC LT D AS IT HAS PROVIDED SATELLITE EQUIPMENTS ETC. TO THE APPELLANT FOR USE. C) THE APPELLANT HAS RETAINED 90% OF SUCH INCOME BE CAUSE APPELLANT WAS THE ACTUAL SERVICE PROVIDER AND GSPC LTD DID NOT PARTICIPATE IN THE BUSINESS CARRIED ON BY THE APPEL LANT IN ANY MANNER EXCEPT LENDING SATELLITE EQUIPMENTS FOR USE. THUS, PAYMENT TO GSPC LTD EQUIVALENT TO 10% OF REVENUE I S NOTHING BUT REMITTANCE OF LEASE CHARGES FOR SATELLITE EQUIP MENTS. ITA NO.2058 AND 2116/AHD/2011 14 D) INTERNET TELEPHONY USED THROUGH SATELLITE EQUIPM ENTS HAS SATURATED AND IS ATTAINING OBSOLENSCE. THE BANDWIDT H THROUGH OPTIC FIBER CABLE IS MUCH FASTER THAN THROUGH SATEL LITE EQUIPMENTS AND, THEREFORE, APPELLANT STARTED USE OF OPTIC FIBE R CABLES WHICH ARE OWNED BY THE APPELLANT ONLY IN ORDER TO REMAIN ACTIVE IN THE MARKET AND TO OFFER SERVICES AT COMPETITIVE RATES. E) QUESTION OF SHARING OF MORE REVENUE WITH GSPC LT D WOULD HAVE ARISEN ONLY IN A SITUATION WHERE GSPC LTD HAD PART ICIPATED IN THE BUSINESS ACTIVELY ON DAY TO DAY BASIS. THE LEGITIM ATE SHARE OF THE GSPC LTD WAS ONLY TO THE EXTENT OF POSSIBLE LEASE RENT OF SUCH EQUIPMENTS WHICH HAS BEEN FAIRLY DETERMINED AT INC OME AND HAS BEEN ADMITTED AND AGREED BY THE GSPC LTD. AND HAS B EEN EXAMINED BY THE AUDITORS THRICE INCLUDING BY THE AU DITORS OF CAG INDEPENDENT OF EACH OTHER. F) THE PLANT & MACHINERY SUCH AS RADIO LINK/ MODE MS; OPTICAL FIBER CABLES; ROUTER & OTHER HARDWARES; UPS / PORTA BLE POWER GENERATORS; FIBER OPTIC TRANSCEIVERS; ISP EQUIPMENT S; MODEMS; COMPUTERS AND SOFTWARE'S ARE OF OWNED BY APPELLANT. THE APPELLANT SUBMITS THAT NO OTHER EQUIPMENTS, PLANT & MACHINERY ETC. WERE REQUIRED TO CARRY ON THIS BUSINESS AND, T HEREFORE, MERELY SAYING THAT THE APPELLANT HAS NO MAJOR INVES TMENT IN PLANT & MACHINERY IS ' NOT SUFFICIENT. IN ABSENCE OF ANY CORROBORATIVE STATEMENT OR INDICATION OF EQUIPMENTS WHICH WERE NO T IN POSSESSION OF APPELLANT TO CARRY ON BANDWIDTH SERVI CE BY THE ASSESSING OFFICER, THE APPELLANT SUBMITS THAT ALLEG ATION MADE BY THE ASSESSING OFFICER REMAIN UNSUBSTANTIATED AND TH EREFORE, DEDUCTION DENIED ON THIS GROUND IS NOT JUSTIFIED. FROM THE ABOVE, IT IS CLEAR THAT THE APPELLANT GIPL IS A SUBSIDIARY OF GSPC LTD AND THE TWO WERE CLOSELY CONNECTED IN T HE ASSESSMENT YEAR IN QUESTION. THE ASSESSEE HAS CLEARLY ADMITTED THAT IMPORTANT EQUIPMENT SATELLITE EQUIPMENTS, NAVIGATIO N EQUIPMENTS AND OTHER LINK EQUIPMENTS ETC. WERE ACQUIRED BY PRO MOTER COMPANY I.E. GSPC LTD AND WERE PERMITTED TO USE BY THE APPELLANT UNDER AN ARRANGEMENT. LOOKING TO THE TOTA LITY OF THE FACTS, THE REVENUE SHARING ARRANGEMENT IS SKEWED HI GHLY FAVORABLY TOWARDS THE ASSESSEE. IT IS ONLY POSSIBLE BECAUSE GIPL IS A SUBSIDIARY OF GSPC LTD AND THE TWO WERE CLOSEL Y CONNECTED. NO INDEPENDENT UNRELATED PARTIES WOULD HAVE GONE IN TO THIS ARRANGEMENT. HOWEVER, THE A.O. HAS FAILED TO CONSID ER THE OTHER RELEVANT FACTS AND ALSO WORK OUT THE REASONABLE PRO FITS DERIVED FROM THE ELIGIBLE BUSINESS. I FIND MERIT IN THE ASS ESSEE'S CLAIM THAT NOW MAJOR PORTION OF SERVICES ARE BEING PROVIDED TH ROUGH OPTICAL FIBER AND NOT THROUGH SATELLITES. HOWEVER, NOT ONLY SATELLITES EQUIPMENTS BUT ADMITTEDLY THE MOST VITAL NAVIGATION EQUIPMENTS ITA NO.2058 AND 2116/AHD/2011 15 AND OTHER LINK EQUIPMENTS ETC ARE ALSO OWNED BY GSP C LTD. THE OTHER SERVICES THROUGH OPTICAL FIBERS ALSO COULD NO T HAVE BEEN PROVIDED WITHOUT THE NAVIGATION EQUIPMENTS AND OTHE R LINK EQUIPMENTS. CONSIDERING ALL FACTS, I HOLD THAT THE PROFITS REASONABLY DEEMED TO HAVE BEEN DERIVED FROM THE ELI GIBLE BUSINESS U/S. 80IA(10); SHOULD BE REWORKED ON THE F OLLOWING BASIS: 1. IN THE CASE OF BUSINESS OF SELLING BANDWIDTH THR OUGH SATELLITES, THE REASONABLE REVENUE SHARING ARRANGEM ENT WOULD BE 30: 70. I HAVE CONSIDERED THE OWNERSHIP OF SATELLITE EQUIPMENTS, NAVIGATION EQUIPMENTS AND OTH ER- LINK EQUIPMENTS ETC. BY THE GSPC LTD IN FAVOR OF SHARE O F GSPC LTD AND CARRYING OUT OF BUSINESS ACTIVITIES BY APPE LLANT IN ITS FAVOR. 2. IN THE CASE OF BUSINESS OF SELLING BANDWIDTH THR OUGH OPTICAL FIBERS, THE REASONABLE REVENUE SHARING ARRA NGEMENT WOULD BE 15:85. I HAVE CONSIDERED THE OWNERSHIP OF VITAL NAVIGATION EQUIPMENTS AND OTHER LINK EQUIPMENTS ETC . BY THE GSPC LTD IN FAVOR OF SHARE OF GSPC LTD AND CARR YING OUT OF BUSINESS ACTIVITIES BY APPELLANT AND OWNERSHIP O F OPTICAL FIBERS IN ITS FAVOR. THE PROFITS U/S. 80IA(10) ARE DIRECTED TO BE REWORK ED ON THE ABOVE BASIS. HOWEVER, AS THE ASSESSEE HAS BEEN HELD TO BE NOT ELIGIBLE FOR DEDUCTION U/S. 80IA AT ALL ON OTHER BA SIS DISCUSSED IN THIS ORDER; THIS ISSUE BECOMES ACADEMIC. 17. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL ON RECORD. WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA OF RS.1,56,59,743/- IN RESPECT OF PROFIT DERIVED FROM INTERNET TELEPHONY SERVICE BUSINESS. THE AO DID NOT ACCEPT THE CLAIM FOR WANT OF AUDIT REPORT IN PRESCRIBED FORM NO.10CCB. THE ASSESSEE F ILED THE SAID AUDIT REPORT FOR THE FIRST TIME BEFORE THE CIT(A). THE C IT(A) REFUSED TO ADMIT THE SAID AUDIT REPORT AND CONFIRMED THE DISALLOWANC E OF THE CLAIM MADE BY THE ASSESSEE. WE FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF MAYUR FOUNDATION VS. CIT, (2015) 274 ITR 562 (GUJ) HELD THAT THE APPEAL WOULD BE CONTINUATION OF THE ASSESSMENT PROC EEDINGS. THE COURT APPROVED THE DECISION OF THE TRIBUNAL UNDER S ECTION 11(2) OF THE ITA NO.2058 AND 2116/AHD/2011 16 ACT WHEN NECESSARY SUPPORT FOR THE CLAIM WAS PRESEN TED AT THE APPELLATE STAGE BEFORE THE TRIBUNAL. FURTHER, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS.MEDICAPS LTD., (2010) 3 23 ITR 554 HELD THAT FURNISHING OF AUDIT-REPORT FOR CLAIM OF DEDUCTION U NDER SECTION 80IA OF THE ACT WAS NOT MANDATORY AND THE SAME CAN BE FILED EVEN AT THE APPELLATE STAGE. STILL FURTHER, THE HONBLE APEX C OURT IN THE CASE OF AURANGABAD ELECTRICALS LTD VS COMMISSIONER OF CENTR AL EXCISE & CUSTOMS, (2011)(1) SCC 121 OBSERVED THAT KEEPING IN VIEW THE WELL SETTLED PRINCIPLES LAID DOWN BY THIS COURT THAT TEC HNICALITIES SHOULD NOT DEFEAT RENDERING OF COMPLETE JUSTICE TO A LITIGANT, AND REMANDED THE MATTER TO THE TRIBUNAL TO VERIFY AND CONSIDER WHETH ER THE CERTIFICATE WHICH IS ALREADY PLACED ON RECORD BY THE APPELLANT, WOULD ASSIST THEM IN SUPPORT OF THEIR DEFENCE. 18. IN VIEW OF THE ABOVE DECISIONS, AS THE AUDIT RE PORT IN FORM NO.10CCB WAS FILED BEFORE THE CIT(A), IN OUR CONSID ERED VIEW, IT SHALL BE JUST AND FAIR AND IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO READJUDICTE THE ISSUE AFTE R TAKING INTO CONSIDERATION THE AUDIT REPORT IN FORM NO.10CCB FIL ED BELATEDLY BY THE ASSESSEE, AND AFTER EXAMINING ALL THE ASPECTS OF TH E MATTER, IN ACCORDANCE WITH LAW. 19. THE ASSESSEE ALSO RAISED GROUNDS IN RESPECT OF - 1. LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN CON FIRMING ACTION OF AO IN DISALLOWING CLAIM OF DEDUCTION OF R S. 1, 56, 59, 7437- MADE U/S 80IA OF THE ACT DUE TO NON FILING OF FORM # 1OCCB DURING THE ASSESSMENT PROCEEDINGS. LD. CIT (A ) ERRED IN HOLDING THAT THE APPELLANT DID NOT HAVE REASONABLE CAUSE FOR ITS FAILURE AND FURTHER ERRED IN NOT ADMITTING ITS SUBM ISSION UNDER RULE 46A OF THE ACT. THIS ACTION OF ID. CIT (A) BEI NG UNJUST, ARBITRARY AND AGAINST THE PRINCIPLES OF NATURAL JUS TICE DESERVES TO BE QUASHED AND CLAIM OF THE APPELLANT U/S 80IA BE A LLOWED. 2. LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UPH OLDING THE ACTION OF AO IN INVOKING PROVISIONS OF SECTION 80IA (10) OF THE ACT BY HOLDING THE APPELLANT TO BE SUBSIDIARY OF GSPC L TD. HAVING ITA NO.2058 AND 2116/AHD/2011 17 CLOSE BUSINESS CONNECTION FOR THE YEAR UNDER CONSID ERATION. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE FACT THAT IN ABSENCE OF ANY CORROBORATIVE EVIDENCE SUCH ALLEGATION FOR D ENYING DEDUCTION U/S 80IA OF THE ACT IS UNWARRANTED. LEARN ED CIT (A) FURTHER ERRED IN LAW AND ON FACTS IN REWORKING PROF ITS REASONABLY DEEMED TO HAVE BEEN DERIVED FROM THE ELIGIBLE BUSIN ESS OF THE APPELLANT UNDER THE PROVISION OF SECTION 80IA (10) OF THE ACT WITHOUT ANY BASIS OR SUBSTANTIVE EVIDENCE IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND DOCUMENTS ON RECORD. THIS UNILATERAL ACT OF ID. CIT (A) BEING ILLEGAL, BAD IN LAW AND UNCALLED FOR DESERVES TO BE QUASHED. 20. AS WE HAVE SET ASIDE THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IA BEFORE THE AO, WE DIRECT THE AO TO EXA MINE ALL ASPECTS AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF HE ARING TO THE ASSESSEE, AND AFTER CONSIDERING ALL THE CONTENTIONS OF THE ASSESSEE. THUS, ALL THE GROUNDS OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 6 TH OF FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 06/02/2015 $% & ''() *$)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-III, AHMEDABAD 5. $%& '' , , )*++ / DR, ITAT, AHMEDABAD 6. &,- . / GUARD FILE. $% + / BY ORDER, TRUE COPY ,/ - ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD