REACH NETWORK INDIA P.LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 2200/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9847 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 27-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: K K VED; J D MISTRY N IRAJ SHETH
• Keywords: Reasonable cause; Corroborative evidences; Procedural lapse; Competent authority

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./8102/MUM/2010, / ASSESSMENT YEAR: 2007-08 ./I.T.A./2200/MUM/2015, / ASSESSMENT YEAR: 2007-08 REACH NETWORK INDIA PRIVATE LTD. TIMES SQUARE, UNIT-4, B-WING, 3RD FLOOR ANDHERI KURLA ROAD,ANDHERI EAST MUMBAI-400 059. PAN:AABCT 2555 M VS. ACIT-9(3) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI M.C. OMI NINGSHEN- DR /ASSESSEE BY: S/SHRI J.D. MISTRY, NIRAJ SHETH & K.K. VED / DATE OF HEARING: 27/04/2017 / DATE OF PRONOUNCEMENT: 12/07/2017 PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 21/8/2010 OF CIT(A)-20, MUMBAI THE ASSESSEE HAS FILED THE ABOVE APPEALS.ASSESSEE-COMPANY,AS PER THE ASSESSING OFFIC ER(AO),IS ENGAGED IN THE BUSINESS OF BANDWIDTH AND NETWORK SUPPORT SERVICES.IT FILED ITS RETURN OF INCOME ON 31/10/ 2007,DECLARING TOTAL INCOME OF RS.68.81 LAKHS.THE AO COMPLETED THE ASSESSMENT U/S.143(3)OF THE ACT ON 30/ 12/2009,DETERMINING THE INCOME OF THE ASSESSEE AT R S.7.92 CRORES. ITA/8102/MUM/2010: 2. FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT NOT ALLOW ING DEDUCTION U/S. 80-IA(4)(II) OF THE ACT. THE ASSESSEE COMPANY WAS INCORPORATED IN AUGUST,20 00.IT WAS GRANTED APPROVAL BY FIPB TO UNDERTAKE CERTAIN ACTIVITIES LIKE I).TO ACT AS AN I NTERNET SERVICE PROVIDER;II).TO PROVIDE INTERNET CONNECTIVITY AND RELATED SERVICES;III).TO PROVIDE C APITAL IP-BN SERVICES;IV).TO SET UP AN INTERNATIONAL GATEWAY AND PROVIDE GATEWAY SERVICES. THE DEPARTMENT OF TELECOMMUNICA - TIONS(DOT)GRANTED IT A LICENSE FOR A PERIOD OF FIFT EEN YEARS,W.E.F. 05.02.2001,FOR PROVIDING INTERNET SERVICES ALL OVER INDIA. DURING THE YEAR UNDER CONSIDERATION THE AO FOUND TH AT THE ASSESSEE HAD CREDITED THE P&L ACCOUNT WITH A SUM OF RS.26.97 CRORES AS SALE OF BA NDWIDTH AND RS.2.21 CRORES UNDER THE HEAD NETWORK AND SUPPORT SERVICES FEE, THAT IT HAD CHARG ED TO ITS P&L ACCOUNT RS.29.60 CRORES AS OPERATING AND OTHER EXPENSES INCLUDING BANDWIDTH PR OCURMENT(RS.18.97 CRORES) AND NETWORK AND SUPPORT SERVICES FEE(RS.3.06 CRORES),THAT IT HA D CLAIMED DEDUCTION OF RS.1.34 CRORES U/S.80-IA (4)(II)( IN SHORT 80IA). 8102/10&2200/M/15(07-08) REACH NETWORK 2 THE AO ISSUED A NOTICE,ON 09/11/2009,TO THE ASSESSE E TO FURNISH EXPLANATION AS TO WHY DEDUCTION U/S. 80IA SHOULD NOT BE DISALLOWED.AFTER CONSIDERING ITS REPLY,DATED 25/11/2009, THE AO HELD THAT THE ASSESSEE WAS MERELY A TRADER IN BANDWIDTH, THAT IT HAD BEEN PURCHASING BANDWIDTH FROM VARIOUS ISP.S AND WAS SELLING THE SA ME TO OTHER ISP.S,THAT HAD THE ASSESSEE PURCHASED THE BANDWIDTH FOR RENDERING INTERNET SERV ICES IT COULD NOT HAVE BEEN SAID TO BE AN ISP,THAT IT HAD ENTERED INTO AN AGREEMENT WITH DOT, THAT IT WAS A MERE TRADER OF BANDWIDTH,THAT IT COULD NOT BE TREATED AS AN ISP FOR THE PURPOSE O F SECTION 80-IA OF THE ACT,THAT IT HAD VIOLATED THE CONDITIONS LAID DOWN FOR BEING AN ISP, THAT ALL THE CUSTOMERS OF THE ASSESSEE WERE ALSO ISP.S, THAT IT HAD NOT ALLOTTED IP ADDRESSES T O ITS CUSTOMERS,THAT ITS CHARGES WERE NOT BASED ON SPEED AND DATA DOWNLOAD/UPLOAD, THAT IT HAD OUTS OURCED MAJOR ACTIVITY TO ITS SISTER CONCERN NAMELY REACH DATA SERVICES INDIA P. LTD.(RDSIPL),TH AT IT WAS HIRING OUT ITS EQUIPMENT AND NETWORK SERVICE TO REACH GLOBAL SERVICES LTD.(RGSL) . FINALLY,HE CONCLUDED THAT THE ASSESSEE HAD NOT PROVIDED ANY BROADBAND NETWORK AND INTERNET SERVICES,THAT IT WAS NOT ENTITLED TO CLAIM DEDUCTION U/S. 80IA,AMOUNTING TO RS.1.34 CRORES. HE FURTHER HELD THAT THE SUM OF RS. 2.21 CRORES SHOWN AS NETWORK SUPPORT FEES WAS NOT ELIGIB LE FOR DEDUCTION U/S. 80 IA, AS THE SAID INCOME HAD ARISEN OUT OF HIRING ITS EQUIPMENTS AND NETWORK SERVICES TO RGS AND, THAT THE AMOUNT IN QUESTION WAS NOT FORM PART OF INCOME ELIG IBLE FOR DEDUCTION U/S. 80IA. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE ARGUMENTS OF THE ASSESSEE,HE REFERRED TO THE PROVISIONS OF SECTION 80 IA(4) OF THE ACT.HE ALSO MADE A REFERENCE TO THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL.EXPLAINING THE CONCEPT AND NATURE OF THE INTER NET SERVICES AND BANDWIDTH,HE OBSERVED THAT THE DATA TRANSFER RATE (THE AMOUNT OF DATA THAT COULD BE CARRIED FROM ONE POINT TO ANOTHER POINT EVEN A GIVEN TIME PERIOD I.E.USUALLY ONE SECOND ON THE COMPUTER NETWORK) WAS CALLED BANDWIDTH, THAT SAME WAS EXPRESSED IN BITS OF DATA PER SECOND, THAT BITS WERE GROUPED IN BYTES THAT WOULD FORM WORLD, TEXT AND OTHER INFORMATION THAT WOULD B E TRANSFERRED BETWEEN THE ISPS CUSTOMERS COMPUTER AND THE INTERNET,THAT THE ASSES SEE HAD DESCRIBED THE SERVICES PROVIDED TO ITS CUSTOMER AS GLOBAL INTERNET ACCESS (GIA). THE F AA MADE A REFERENCE TO THE ACCOUNTING POLICIES AND NOTES THAT FORMED PART OF THE AUDITED FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION AND HELD THAT THE ASSESSEE WAS PRIMAR ILY ENGAGED IN THE BUSINESS OF WHOLESALE PROCUREMENT AND SALE OF BANDWIDTH TO RETAIL ISP.S A ND CORPORATE USERS,THAT QUANTUM OF REVENUE GENERATED FROM SALE OF BANDWIDTH PROVED THA T THE REVENUE RECOGNISED IN ITS ACCOUNTS WAS FROM SALE OF BANDWIDTH AND NOT FROM RENDERING A NY SERVICES IN RESPECT OF THE BANDWIDTH, 8102/10&2200/M/15(07-08) REACH NETWORK 3 THAT THERE WAS THRIVING BUSINESS OF DEALING IN BAND WIDTH ALONE, THAT THE ASSESSEE HAD CLAIMED THAT IT WAS NOT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF BANDWIDTH BUT WAS ONLY FULL- FLEDGED ISP, THAT THERE COULD NOT BE DISPUTE THAT A SSESSEE IS ALSO AN ISP,THAT PRIMARILY IT WAS ENGAGED IN BUSINESS OF WHOLESALE PURCHASE AND SALE OF BANDWIDTH, THAT THE TAX DEDUCTED AT SOURCE CERTIFICATES ISSUED BY THE CUSTOMERS SHOWED THAT PAYMENTS MADE TO THE ASSESSEE WERE ON ACCOUNT OF PROFESSIONAL SERVICES AND THAT THE TA X WAS DEDUCTED U/S. 194J OF THE ACT, THAT THE INVOICES WERE COMPUTER GENERATED, THAT THE AO H AD ASKED THE ASSESSEE TO FURNISH CONFIRMATION FROM THE PARTIES TO SUPPORT ITS CLAIM, THAT NONE OF THE PARTIES HAD ISSUED CONFIRMA -TION,THAT IT WAS THE DUTY OF THE ASSESSEE TO ESTAB LISH THAT THE RECEIPT FROM SALE OF BANDWIDTH WAS ELIGIBLE FOR EXEMPTION,THAT NO CREDIBLE MATERIA L EVIDENCE HAD BEEN BROUGHT ON RECORD TO ESTABLISH THAT THE SALE OF BANDWIDTH IN FACT REPRES ENTED RENDERING INTERNET SERVICES AS CONTEMPLATE U/S. 80 IA,THAT THE CONTENTION RAISED B Y THE ASSESSEE THAT IT IS NOT ENGAGED IN PURCHASING AND SALE OF BANDWIDTH WAS CONTRARY TO WH AT WAS DISCLOSED IN THE ACCOUNTS,THAT THE ENTIRE INCOME OF RS. 26.97 CRORES ON ACCOUNT OF SAL E OF BANDWIDTH WAS NOT DERIVED FROM THE ELIGIBLE BUSINESS REFERRED TO IN SECTION 80IA. 3.1. WITH REGARD TO NETWORK AND SUPPORT SERVICES FEES OF RS. 2.21 CRORES,HE HELD THAT SAME WERE RECEIVED FROM RGSL FOR PROVIDING INTERNET SERV ICES TO ITS CUSTOMERS IN INDIA,THAT SIMILAR FEES WERE PAID TO RDSIPL FOR INSTALLING POP FOR REN DERING INTERNET SERVICES TO ITS CUSTOMERS, THAT ONLY INCOME FOR RENDERING INTERNET SERVICES IS THE NETWORK AND SUPPORT FEES OF RS. 2.21 CRORES,THAT SAME WOULD BE OFFSET BY THE EXPENSES OF RS. 3.06 CRORES ON NETWORK AND SUPPORT FEES PAID TO RDSIPL,THAT THE NET RESULT WAS A LOSS ON THE OPERATION OF INTERNET SERVICES, THAT THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION U/S. 80IA OF THE ACT. 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) ARGUED THAT THE ASSESSEE WAS HAVING BANDWIDTH AND WAS GIVING ACCESS TO THE CUSTOMERS,THAT IT WAS PROVIDING TRANSIT ISP,THAT IT WAS NOT TRADING IN BANDWIDTH BU T WAS PROVIDING INTERNET CONNECTIONS,THAT IT HAD PRODUCED BILLS REGARDING PROVIDING SERVICES TO THE CUSTOMERS,THAT THE ASSESSEE NEVER ADMITTED THAT IT WAS TRADING IN BANDWIDTH,THAT IN T HE AUDIT REPORT NATURE OF BUSINESS WAS MENTIONED,THAT THE ASSESSEE WAS A SUBSIDIARY TO A F OREIGN COMPANY, THAT THE FIBP HAD ALLOWED IT TO INVEST IN INTERNET AND BANDWIDTH, THAT IT HAD ENTERED INTO AN AGREEMENT.HE REFERRED TO THE PAGES 27, 54, 86, 87, 101, 102, 103,109, 113, 131,1 57,171,158 AND 247 OF THE PAPER BOOK AND STATED THAT ALL THE EQUIPMENTS WERE PURCHASED BY TH E ASSESSEE. 4.1. THE DEPARTMENTAL REPRESENTATIVE (DR) STATED THAT AS SESSEE WAS NOT OWNER OF THE FIBRE,THAT IT WOULD PURCHASE BANDWIDTH AND MAKE AVA ILABLE TO THE END USERS,THAT IT WAS BUYING 8102/10&2200/M/15(07-08) REACH NETWORK 4 SOME RIGHTS FROM AN ENTITY AND WAS SELLING TO ANOTH ER ENTITY, THAT ASSESSEE WAS A LINKMAN IN THE RECORDS OF THE TELECOMMUNICATION AUTHORITY,THAT IT WAS NOT A SERVICE PROVIDER, THAT IT WAS NOT ENTITLED TO CLAIM DEDUCTION U/S. 80IA OF THE AC T. HE REFERRED TO PAGE NUMBER 113 OF THE PAPER BOOK. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. BEFORE PROCEEDING FURTHER,IT WOULD BE USEFUL TO DELIBERATE UPON THE C ONCEPT AND NATURE OF THE INTERNET-SERVICE PROVIDERS(ISP.S).INTERNET IS THE GLOBAL SYSTEM OF I NTERCONNECTED COMPUTER NETWORKS THAT USE THE INTERNET PROTOCOL SUITE (TCP/IP)TO LINK DEVICES WORLD WIDE.IT IS A NETWORK OF NETWORKS THAT CONSISTS OF PRIVATE, PUBLIC,ACADEMIC,BUSINESS, AND GOVERNMENT NETWORKS OF LOCAL TO GLOBAL SCOPE,LINKED BY A BROAD ARRAY OF ELECTRONIC, WIRELESS, AND OPTICAL NETWORKING TECHNOLO - GIES.IT CARRIES AN EXTENSIVE RANGE OF INFORMATION R ESOURCES AND SERVICES, SUCH AS THE INTER- LINKED HYPERTEXT DOCUMENTS AND APPLICATIONS OF THE WORLD WIDE WEB (WWW), ELECTRONIC MAIL, TELEPHONY, AND FILE SHARING.INTERNET USE GREW RAPIDLY FROM THE MID-1990S.IN THE TWO DECADES SINCE THEN,INTERNET USE HAS GROWN 100-TIMES , MEASURED FOR THE PERIOD OF ONE YEAR,TO OVER ONE THIRD OF THE WORLD POPULATION.IT HAS ENABL ED AND ACCELERATED NEW FORMS OF PERSONAL INTERACTIONS THROUGH INSTANT MESSAGING, INTERNET FO RUMS AND SOCIAL NET-WORKING. 5.I. INTERNET HAS NO CENTRALIZED GOVERNANCE IN EITHER TE CHNOLOGICAL IMPLEMENTATION OR POLICIES FOR ACCESS AND USAGE;EACH CONSTITUENT NETWORK SETS ITS OWN POLICIES.ONLY THE OVER-REACHING DEFINITIONS OF THE TWO PRINCIPAL NAME SPACES IN THE INTERNET,THE INTERNET PROTOCOL ADDRESS (IP ADDRESS)SPACE AND THE DOMAIN NAME SYSTEM (DNS),ARE DIRECTED BY A MAINTAINER ORGANISA - TION,THE INTERNET CORPORATION FOR ASSIGNED NAMES AN D NUMBERS (ICANN).THE TECHNICAL UNDER-PINNING AND STANDARDISATION OF THE CORE PROTO COLS IS AN ACTIVITY OF THE INTERNET ENGINEERING TASK FORCE(IETF),A NON-PROFIT ORGANIZAT ION OF LOOSELY AFFILIATED INTERNATIONAL PARTICIPANTS THAT ANYONE MAY ASSOCIATE WITH BY CONT RIBUTING TECHNICAL EXPERTISE. INTERNET SERVICE PROVIDERS ESTABLISH THE WORLDWIDE CONNECTIVITY BETWEEN INDIVIDUAL NETWORKS AT VARIOUS LEVELS OF SCOPE.END-USERS WHO ONLY ACCES S THE INTERNET WHEN NEEDED TO PERFORM A FUNCTION OR OBTAIN INFORMATION, REPRESENT THE BOTTO M OF THE ROUTING HIERARCHY.AT THE TOP OF THE ROUTING HIERARCHY ARE THE TIER 1 NETWORKS, LARGE TE LECOMMUNICATION COMPANIES THAT EXCHANGE TRAFFIC DIRECTLY WITH EACH OTHER VIA PEERING AGREEM ENTS. TIER 2 AND LOWER LEVEL NETWORKS BUY INTERNET TRANSIT FROM OTHER PROVIDERS TO REACH AT LEAST SOME PARTIES ON THE GLOBAL INTERNET, THOUGH THEY MAY ALSO ENGAGE IN PEERING.AN ISP MAY U SE A SINGLE UPSTREAM PROVIDER FOR CONNECTIVITY,OR IMPLEMENT MULTI-HOMING TO ACHIEVE R EDUNDANCY AND LOAD BALANCING.INTERNET 8102/10&2200/M/15(07-08) REACH NETWORK 5 EXCHANGE POINTS ARE MAJOR TRAFFIC EXCHANGES WITH PH YSICAL CONNECTIONS TO MULTIPLE ISPS. LARGE ORGANISATIONS, SUCH AS ACADEMIC INSTITUTIONS, LARGE ENTERPRISES, AND GOVERNMENTS, MAY PERFORM THE SAME FUNCTION AS ISPS, ENGAGING IN PEER ING AND PURCHASING TRANSIT ON BEHALF OF THEIR INTERNAL NETWORKS. RESEARCH NETWORKS TEND TO INTERCONNECT WITH LARGE SUB-NETWORKS.BOTH THE INTERNET IP ROUTING STRUCTURE AND HYPERTEXT LIN KS OF THE WORLD WIDE WEB ARE EXAMPLES OF SCALE-FREE NETWORKS. 5.II. COMPUTERS AND ROUTERS USE ROUTING TABLES IN THEIR O PERATING SYSTEM TO DIRECT IP PACKETS TO THE NEXT-HOP ROUTER OR DESTINATION.ROUTING TABLES A RE MAINTAINED BY MANUAL CONFIGURATION OR AUTOMATICALLY BY ROUTING PROTOCOLS. END-NODES TYPIC ALLY USE A DEFAULT ROUTE THAT POINTS TOWARD AN ISP PROVIDING TRANSIT, WHILE ISP ROUTERS USE THE BORDER GATEWAY PROTOCOL TO ESTABLISH THE MOST EFFICIENT ROUTING ACROSS THE COMPLEX CONNECTIO NS OF THE GLOBAL INTERNET.COMMON METHODS OF INTERNET ACCESS BY USERS INCLUDE DIAL-UP WITH A COMPUTER MODEM VIA TELEPHONE CIRCUITS OR BROADBAND OVER COAXIAL CABLE, FIBER OPT ICS OR COPPER WIRES,WI FI,SATELLITE AND CELLULAR PHONE TECHNOLOGY. 5.III. WHEN REFERRING TO A DATA CONNECTION,BANDWIDTH ( COMMUNICATION SPEED, OR CONNECTION SPEED)IS THE TOTAL MAXIMUM TRANSFER RATE OF A NETWO RK CABLE OR DEVICE.ESSENTIALLY, IT IS A MEASUREMENT OF HOW FAST DATA CAN BE SENT OVER A WIR ED OR WIRELESS CONNECTION, USUALLY MEASURE IN BITS PER SECOND. 5.1. WE FIND THAT THE BASIC QUESTION TO BE DECIDED IS AS TO WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM MADE BY IT U/S. 80IA OF THE ACT.THE SECTION A PPLIES TO ANY UNDERTAKING WHICH STARTED PROVIDING TELECOMMUNICATION SERVICES BASIC CELLULAR , INCLUDING A DIVISION, DOMESTIC SATELLITE SERVICE, NETWORK OF TRUNKING, BROADBAND NETWORK AND INTERNET SERVICES ON OR AFTER 01/04/1999 BUT ON OR BEFORE 31/03/2005. WE WOULD LIKE TO REFER TO SCHEDULE 9:(ACCOUNTING PO LICIES AND NOTES FORMING PART OF THE AUDITED FINANCIAL STATEMENT)FOR THE YEAR UNDER CONS IDERATION AND SAME READS AS UNDER: 1. COMPANY BACKGROUND: REACH NETWORK INDIA PRIVATE LTD (THE COMPANY) WA S INCORPORATED ON 9 AUGUST 2000. THE COMPANY IS PRIMA RILY ENGAGED IN THE BUSINESS OF PROCUREMENT AND SALE OF BANDWIDTH TO RETAIL INTERNE T SERVICE PROVIDERS AND CORPORATE USERS. THE COMPANY HAS A LICENCE TO PROVIDE ISP SERVICES F OR A PERIOD OF 15 YEARS FROM 5 FEBRUARY 2001. IT IS OBSERVED IN ITS LETTER,DATED 25/08/2009,THE A SSESSEE, BEFORE THE AO, STATED THAT IT WAS PRIMARILY ENGAGED IN THE BUSINESS OF WHOLESALE P ROCUREMENT OF BANDWIDTH AND SALE OF BAND -WIDTH TO RETAIL ISP.S.WITH REGARD TO NATURE OF BA NDWIDTH REVENUE THE ASSESSEE,IN ITS LETTER, DATED 04/09/ 2009 STATED AS FOLLOW: 8102/10&2200/M/15(07-08) REACH NETWORK 6 THE REVENUE RECOGNISED BY THE ASSESSEE COMPANY IS ON ACCOUNT OF SALE OF BANDWIDTH AND NOT AS IN RESPECT OF BANDWIDTH SERVICES. YOUR GOOD SELF VERIFY THE SAME FROM THE SUB PARA (C) OF PARA 2 OF SCHEDULE 9 TO THE BALANCE SHEET OF THE CO MPANY AS ON 31/03/2007. AN ANALYSIS OF THE ABOVE-MENTIONED MATERIAL CLEARLY ESTABLISHES THAT THE ASSESSEE WAS PRIMARILY ENGAGED IN THE BUSINESS OF WHOLESALE PROC UREMENT AND SALE OF BANDWIDTH TO RETAIL ISP.S AND CORPORATE USERS.THERE IS A FINE AND CLEAR DISTINCTION BETWEEN DEDUCTION CLAIMED IN RESPECT OF PROFITS AND GAINS FROM INDUSTRIAL UNDERT AKINGS OR ENTERPRISES ENGAGED IN INFRASTRUC - TURE DEVELOPMENT ETC.AND A DEDUCTION CLAIMED FOR SA LE OF BANDWIDTH.SECTION 80 IA WAS INTRODUCED WITH THEIR SPECIFIC PURPOSE.THE LEGISLAT URE WANTED TO GIVE IMPETUS TO INFRASTRUCTURE OF THE COUNTRY IN VARIOUS FIELDS INCLUDING THE TELE COMMUNICATION SERVICES. BROADBAND NETWORK AND INTERNET SERVICES WERE INCLUDED IN SUBSECTION 4 CLAUSE(II) BY THE FINANCE ACT, 2001 WITH EFFECT FROM 01/04/2001. THUS, DEDUCTION WAS ALLOWED FOR BROADBAND NETWORK AND IN SERVICES TO THE UNDERTAKINGS WHICH HAD STARTED PROVIDING TEL ECOMMUNICATIONS SERVICES. THE DEDUCTION WAS ALLOWABLE TO ALL UNDERTAKINGS SET UP AFTER 01/0 4/1995 BUT ON OR BEFORE 31/03/205. 5.2. LIKE ANY OTHER SECTION DEALING WITH ANY DEDUCTION W HAT HAS TO BE SEEN IS AS TO WHETHER THE ASSESSEE HAD FULFILLED THE BASIC CONDITIONS OR NOT. THE ASSESSEE IN FACT WAS CARRYING ON A PURELY COMMERCIAL FUNCTION WHICH NOTHING TO DO WITH THE DE VELOPMENT OF INFRASTRUCTURE.DEVELOP - MENT OF INFRASTRUCTURE A DIFFERENT CONCEPT FROM SEL LING THE PRODUCTS/ FACILITIES OF INFRASTRUCTURE DEVELOPED BY OTHERS.FOR EXAMPLE AN ASSESSEE CAN DEV ELOP AN INDUSTRIAL PARK AND CLAIM DEDUCTION U/S.80 IA.BUT, ANOTHER ASSESSEE WITHOUT D EVELOPING THE INFRASTRUCTURE FACILITY I.E. AN INDUSTRIAL PARK CAN PURCHASE SOME PORTION OF THE PA RK AND USE/SELL IT.IN OUR OPINION, THE ASSESSEE UNDER THE FIRST CATEGORY CAN CLAIM DEDUCTI ON,WHEREAS THE OTHER ASSESSEE WOULD NOT BE ENTITLED TO CLAIM ANY DEDUCTION.THE ASSESSEE,BEFORE US HAS NOT PROVIDED BROADBAND NETWORK/ INTERNET SERVICES.IT HAS ADMITTED THAT IT WAS PURCH ASING AND SELLING THE BANDWIDTH TO ITS CUSTOMERS.IT IS SAID THAT THE PRINCIPLES OF BENEFIC IAL INTERPRETATION IN FAVOUR OF THE ASSESSEE, WITH REGARD TO DEDUCTIONS/EXEMPTIONS/ REBATES SHOUL D BE RESORTED TO ONLY WHEN TRUE SCOPE OF THE AMBIT OF THE PROVISION IS NOT CLEAR OR THERE AR E TWO EQUALLY REASONABLE INTERPRETATIONS OR WHEN WORDS OF THE STATUTE ARE NOT PLAIN,PRECISE AND UNAMBIGUOUS.IN THE MATTER BEFORE US,THERE IS NO AMBIGUITY ABOUT THE ENTITLEMENT OF THE DEDUCT ION.A WHOLESALE PURCHASER OF BANDWIDTH, IN OUR OPINION, CANNOT BE EQUATED WITH AN UNDERTAKI NG PROVIDING INFRASTRUCTURE FACILITIES I.E. BROADBAND NETWORK AND INTERNET SERVICES.IN ITS LETT ER,DATED 25/08/209,IT HAD ADMITTED THAT IT USED TO PROCURE BANDWIDTH IN WHOLESALE FROM PARTIES LIKE MTNL, BHARATI INFOTEL LIMITED, BROADBAND PACENET INTERNET (INDIA).AS STATED EARLIE R, THAT IT HAD ALSO ADMITTED THAT REVENUE WAS RECOGNISED ON ACCOUNT OF SALE OF BANDWIDTHAND NOT IN RESPECT OF BANDWIDTH SERVICES. 8102/10&2200/M/15(07-08) REACH NETWORK 7 5.3. WE ARE AWARE THAT THE ASSESSEE WAS GRANTED A LICENC E BY THE COMPETENT AUTHORITY TO PROVIDE BROADBAND SERVICES AND TO WORK AS ISP.HAVIN G A LICENCE OF A PARTICULAR PRODUCT/ FACILITY IS DIFFERENT FROM THE ACTUAL BUSINESS OF A N ASSESSEE. THE ASSESSEE MAY CARRY ONLY ONE OF THE ACTIVITY OF THE LICENSED ITEM/FACILITY/SERVI CE IN A PARTICULAR YEAR AND MAY EXPEND ITS ACTIVITIES IN THE SUBSEQUENT YEARS. IN SUCH CASES,T HE DECIDING FACTOR IS THE ACTIVITIES CARRIED OUT BY IT IN A PARTICULAR AY.HAVING A LICENCE OF ISP FO R THE YEAR UNDER CONSIDERATION WOULD NOT MAKE THE ASSESSEE,FOR THE YEAR UNDER APPEAL,AN UNDE RTAKING ENGAGED IN PROVIDING INFRASTRUC - TURE FACILITIES IN THE FIELD OF TELECOMMUNICATION, AS AN REQUIRED BY SECTION 80IA. 5.4. BEFORE US,IT WAS ARGUED THAT ASSESSEE HAD ISSUED IN VOICES WITH REGARD TO SERVICES PROVIDED BY IT.THE AO HAD SPECIFICALLY DIRECTED THE ASSESSEE TO FURNISH CONFIRMATION FROM THE PARTIES TO SUPPORT ITS CLAIM.AS PER THE ESTABLISHED PRINCIPLES OF TAXATION JURISPRUDENCE FOR CLAIMING AN EXPENDITURE THE ASSESSEE HAS TO ESTABLISH THE GENUI NENESS OF THE CLAIM. IN CASE OF DEDUCTIONS THE ONUS ON THE ASSESSEE IS MUCH MORE HIGHER. WE FI ND THAT THE ASSESSEE DID NOT PRODUCE ANY CONFIRMATION FROM THE PARTIES THAT COULD HAVE MADE ITS CLAIM STRONGER. IN ITS LETTER,DATED 25/11/2009,IT INFORMED THE AO THAT NONE OF THE PART IES WERE FORTHCOMING TO FILE CONFIRMATION IS IT WAS A MUNDANE MATTER FOR THEM.IN OUR OPINION, WITHOUT SUPPORTING EVIDENCES,THE ASSESSEE CANNOT CLAIM ANY DEDUCTION.IT WAS THE DUTY OF THE A SSESSEE TO ESTABLISH THAT RECEIPTS FROM THE SALE OF BANDWIDTH,RECEIVED DURING THE YEAR UNDER CO NSIDERATION, WAS ELIGIBLE FOR EXEMPTION U/S. 80 IA OF THE ACT.CLAIMING A DEDUCTION AND FILI NG NECESSARY EVIDENCES IN ITS SUPPORT ARE NOT MUNDANE MATTERS-RATHER SAME ARE THE FOUNDATIO N STONES OF CLAIM OF DEDUCTION.THERE IS NO CREDIBLE MATERIAL ON RECORD BEFORE ANY OF THE AU THORITIES, INCLUDING US, TO SHOW THAT PROCUREMENT AND SALE OF BANDWIDTH REPRESENTED RENDE RING INTERNET SERVICES AS ENVISAGED BY THE PROVISIONS OF SECTION 80IA OF THE ACT.THE ASSES SEE HAD PLACED RELIANCE OF VARIOUS PAGES OF THE PAPER BOOK(PARAGRAPH-4).WE HAVE PERUSED THEM BU T COULD NOT FIND ANY EVIDENCE THAT COULD PROVE THAT THE ASSESSEE WAS NOT ENGAGED IN PU RCHASE AND SALE OF BANDWIDTH.IN SHORT,INCOME EARNED BY THE ASSESSEE ACCOUNT OF SALE OF BANDWIDTH IS NOT DERIVED FROM THE ELIGIBLE BUSINESS AND IT IS NOT ENTITLED FOR CLAIMI NG DEDUCTION IN THAT REGARD. 6 .AS FAR AS NETWORK AND SUPPORT SERVICE FEES OF RS. 2.21 CRORES IS CONCERNED, IT IS FOUND THAT SAME WERE RECEIVED FROM RGSL FOR PROVIDING INTERNET SERVICES TO ITS CUSTOMERS IN INDIA. IT IS ALSO FOUND THAT THE ASSESSEE HAD PAID SIMILAR FEES TO RDSIPL FOR INSTALLING POP FOR RENDERING INTERNET SERVICES TO ITS CUSTOMER. THUS,THE ONLY IN COME FOR RENDERING INTERNET SERVICES IS THE NETWORK AND SUPPORT FEE OF RS. 2.21 CRORES. BUT IF THE EXPENDITURE OF RS. 3.06 CRORES ON 8102/10&2200/M/15(07-08) REACH NETWORK 8 NETWORK AND SUPPORT FEES PAID IS CONSIDERED IT WOUL D RESULT IN A LOSS ON OPERATION OF INTERNET SERVICES PROVIDED BY THE ASSESSEE. IN THESE CIRCUMS TANCES,WE ARE OF THE OPINION THAT THE FAA HAS RIGHTLY HELD THAT ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION U/S. 80 IA OF THE ACT. FIRST EFFECTIVE GROUND OF APPEAL (GOA.1-9), IS DECIDED AG AINST THE ASSESSEE. 7. NEXT EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION O F RS.1.31CRORES ON ACCOUNT OF DIFFERENCE IN INCOME AS REFLECTED IN THE TEDIOUS CERTIFICATE I SSUED BY VARIOUS PARTIES AND CORRESPONDING INCOME CREDITED BY THE ASSESSEE TO ITS P&L ACCOUNT. IN OUR OPINION, THE ISSUE NEEDS FURTHER VERIFICATION. THEREFORE, IN THE INTEREST OF JUSTICE ,WE ARE DIRECTING THE AO TO VERIFY THE CLAIM MADE BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY FEELING TO THE ASSESSEE.SECOND EFFECTIV E GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. ITA/2200/MUM/2015: 8. EFFECTIVE GROUND OF APPEAL IS ABOUT DISMISSAL OF AP PEAL BY THE FAA FILED BY IT.WHILE COMPLETING THE ASSESSMENT,THE AO HAD ISSUED A NOTIC E TO THE ASSESSEE FOR IMPOSING PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME. THE AO HAD MADE TWO ADDITIONS TO THE TOTAL INCOME THE ASSESSEE .AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE IN THAT REGARED,HE LEVIED A PENALTY OF RS. 45.57 LAKHS,VIDE HIS ORDER,DATED 20.03.2012. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE DCIT.AFTER A PERIOD OF 30 MONTHS,IT APPROACHED THE FAA AND REQUE STED HIM TO CONDONE THE DELAY. IN ITS APPLICATION,IT WAS MENTIONED THAT DUE TO INADVERTEN T ERROR, THE APPEAL WAS FILED BEFORE THE DCIT,AS OPPOSED TO FILING THE SAME BEFORE THE FAA, THAT THE APPEAL WAS FILED WITHIN PERIOD OF THIRTY DAYS,THAT THE DELAY WAS NEITHER DELIBERAT E NOT CONTUMACIOUS. HOWEVER, THE FAA HELD THAT EXPLANATION FILED BY THE ASSESSEE ABOUT DELAY IN FILING THE APPEAL WAS NOT CONVINCING, THAT THE ASSESSEE WAS ADVISED BY PROFESSIONALS, THAT THE DELAY/INACTION WAS NOT BONA FIDE. FINALLY, HE DISMISSED THE APPEAL TREATING IT AS TIME-BARRED. 10. BEFORE US,THE AR ARGUED THAT THERE WAS NO DELIBERAT E INTENTION OF NOT FILING THE APPEAL BEFORE THE FAA,THAT BY MISTAKE APPEAL WAS FILED BEF ORE THE DCIT, THAT IT WAS FILED IN DUE COURSE OF TIME, THAT IMMEDIATELY AFTER KNOWING THE MISTAKE IT HAD APPROACHED THE FAA, THAT THERE WAS BONA FIDE AND VALID REASONS FOR THE DELAY . THE DR SUPPORTED THE ORDER OF THE FAA. 8102/10&2200/M/15(07-08) REACH NETWORK 9 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD CHALLENGED THE IMPOSITION OF PENALTY U NDER SECTION 271(1)(C) OF THE ACT, THAT IT FILED THE APPEAL BEFORE THE AO AND NOT BEFORE THE F AA, THAT THE APPEAL WAS FILED WITHIN THE 30 DAYS OF RECEIPT OF THE ORDER OF THE AO.WE KNOW T HAT THERE WAS A DELAY IN FILING THE APPEAL BUT IT IS NOT A CASE OF NOT FILING ANY APPEAL AT AL L. IT IS ALSO A FACT THAT THE DCIT HAD ALSO NOT RETURNED THE APPEAL TO THE ASSESSEE. IN OUR OPINION , CONSIDERING THE PECULIAR FACTS OF THE CASE IT SHOULD BE TREATED AS A PROCEDURAL LAPSE ON PART OF THE ASSESSEE.IT IS SAID THAT TAX MATTERS, AS FAR AS POSSIBLE,SHOULD BE DECIDED ON MERITS AND TECHNIC ALITIES SHOULD NOT GOVERN THE DECISION ABOUT THE DUE TAXES TO BE COLLECTED FROM THE ASSESS EE.THEREFORE,IN THE INTEREST OF JUSTICE,WE ARE DIRECTING THE FAA TO DECIDE THE PENALTY APPEAL ON MERITS.WE HOLD THAT THERE WAS REASONABLE CAUSE FOR DELAY IN FILING THE APPEAL BEF ORE THE FAA. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. AS A RESULT, BOTH THE APPEALS FI LED BY THE ASSESSEE STAND PARTLY ALLOWED. ORDER PRONOUNCED I N THE OPEN COURT ON 12 TH JULY , 2017. 12 , 2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 12.07.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.