Appeal details
Counselvise Citation
293719914 RSA 2009
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 1 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-06-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Next Hearing Date
07-06-2011
Assessment Year
2005-2006
Appeal Filed On
07-05-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 2937/MUM./2009 (ASSESSMENT YEAR: 2005-06 ) DATE OF HEARING 7.6.2011 DATE OF DICTAT ION : 8.6.2011 M/S. BHARTI AIRTEL LIMITED (FORMERLY M/S. BHARTI BROADBAND LTD.), ARAVALI CRESCENT, NEUMERIC-1 NELSON MENDELA ROAD, VASANT KUNJ PHASE-II, NEW DELHI 100 070 PAN AAACC5033P .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-8(1), MUMBAI .... RESPONDENT ITA NO. 3610/MUM./2009 (ASSESSMENT YEAR: 2005-06 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-8(1), MUMBAI .. APPELLANT V/S M/S. BHARTI AIRTEL LIMITED (FORMERLY M/S. BHARTI BROADBAND LTD.), ARAVALI CRESCENT, NEUMERIC-1 NELSON MENDELA ROAD, VASANT KUNJ PHASE-II, NEW DELHI 100 070 PAN AAACC5033P .... RESPONDENT ASSESSEE BY : MR. ANIL BHALLA REVENUE BY : MR. SANJEEV DUTT M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 2 O R D E R PER D.K. AGARWAL, J.M. THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 20 TH MARCH 2009, PASSED BY THE LEARNED CIT(A)-VIII, MUMBAI, FOR ASSESSMENT YEAR 2005-06. BOTH THESE APP EALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF DIGITAL COMMUNICATION SERVICES FOR DATA , FAX VIDEO USING SATELLITE TECHNOLOGY AND VALUE ADDED SERVICES, INTERNET VIRT UAL PRIVATE NETWORK (VPN) AND VALUE ADDED SERVICES AND TRADING AND MAI NTENANCE OF EQUIPMENT USED IN PROVIDING SERVICES. THE RETURN OF INCOME W AS FILED DECLARING TOTAL LOSS OF RS.7,12,37,201/-. HOWEVER, THE ASSESSMENT W AS COMPLETED AT THE INCOME OF RS.85,56,440/-, INCLUDING THE DISALLOWANC E OF INTEREST TO SUBSIDIARY OF RS.46,58,420/-, DOT LICENCE FEE OF RS. 2,76,48,9 00/-, SPACE SEGMENT CHARGES OF RS.3,95,29,597/- AND LEASE RENTAL PAID R S.79,56,723/-, VIDE ORDER DATED 28 TH DECEMBER 2007, PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ON APPEAL, THE LEARNE D CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED, THE ASSESSEE AS WELL AS THE REV ENUE ARE IN APPEAL BEFORE US. ITA NO.2937/MUM./2009 ASSESSEES APPEAL 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLO WANCE OF INTEREST PAID ON BORROWED FUNDS AMOUNTING TO RS.46,58,420/-. M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 3 5. BRIEF FACTS OF THE ISSUE ARE THAT, THE AO INTER ALIA OBSERVED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOAN OF RS.4,90,00 ,000/- TO ONE OF ITS 100% SUBSIDIARY COMPANY NAMELY M/S. SATCOM BROAD BAND EQ UIPMENT LTD. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE C OMPANY IS PAYING INTEREST ON THE SECURED AND UNSECURED LOANS TAKEN FROM BANK AND OTHER CORPORATE BODIES. ON BEING ASKED, IT WAS EXPLAINED BY THE ASS ESSEE THAT THE COMPANY HAS ADVANCED SUMS OF MONEY TO ITS 100% SUBSIDIARY M /S. SATCOM BROAD BAND EQUIPMENT LTD. A PERUSAL OF THE BALANCE SHEET, WILL SHOW THAT THE COMPANY HAD ADEQUATE NON-INTEREST BEARING FUNDS AMO UNTING TO RS. 34,30,00,000/-. THE PAYMENT WAS MADE OUT OF THE MIXED ACCOUNT AND IN VIEW OF THE FACT THAT THE COMPANY USED NON-INTER EST BEARING FUNDS TO ADVANCE SUMS TO ITS 100% SUBSIDIARY. IN ANY CASE, W ITHOUT PREJUDICE, THE ASSESSEE REFERS TO THE JUDGMENT OF HON'BLE SUPREME COURT IN S.A. BUILDERS, 288 ITR 001 (SC), WHEREIN IT HAS BEEN HELD THAT THE AMOUNT ADVANCED IS OUT OF INTEREST BEARING FUNDS TO 100% SUBSIDIARY, THE I NTEREST PAID IS FOR THE PURPOSE OF BUSINESS AND, THEREFORE, ALLOWABLE. HOWE VER, THE ASSESSING OFFICER, AFTER RELYING ON THE RATIO OF VARIOUS DECI SIONS AS MENTIONED IN PARA- 6.8 TO 6.15 OF HIS ORDER, HELD THAT INTEREST BEARI NG FUNDS, IF UTILIZED FOR NON- BUSINESS PURPOSE, THE INTEREST EXPENDITURE CANNOT B E CONSIDERED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS WHOLLY AN D EXCLUSIVELY AND, ACCORDINGLY WHILE DISALLOWING THE INTEREST APPLIE D THE AVERAGE RATE OF 9.5% ON THE AMOUNT OF RS.4,90,36,000/-, AND WORKED OUT THE AMOUNT OF INTEREST OF RS.46,58,420/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE APP ELLATE ORDER IN THE CASE OF BHARATI BROAD BAND LTD. FOR ASSESSMENT YEAR 2002-03 DATED 11 TH NOVEMBER 2005 AND OTHER DECISIONS MENTIONED AT PAGE -4 OF HIS ORDER, CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. 7. AT THE TIME OF HEARING, LEARNED COUNSEL SUBMITS THAT THE LEARNED CIT(A) HAS NOT CONSIDERED THE ASSESSEES SUBMISSION S PROPERLY. IN FACT, HE GOT CONFUSED. WHILE PASSING THE ORDER FOR THE IMPUG NED ASSESSMENT YEAR, HE M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 4 THOUGHT THAT THE ISSUE IS WITH REGARD TO THE DISALL OWANCE OF INTEREST UNDER SECTION 40A(2)(A), WHICH MATTER WAS THE GROUND OF G RIEVANCE IN ASSESSMENT YEARS 2003-04 AND 2004-05, APPEALS OF WHICH WERE HE ARD ON THE SAME DAY AND THE ORDERS WERE PASSED ON THE SAME DAY AS IN AS SESSMENT YEAR 2005- 06. HE FURTHER SUBMITS THAT THE LEARNED CIT(A) HAS NOT CONSIDERED THE ASSESSEES SUBMISSIONS APPEARING AT PAGES-A TO C OF THE ASSESSEES PAPER BOOK, WHEREIN IT HAS, INTER-ALIA, STATED THAT THE C OMPANY HAD INTEREST FREE FUNDS AVAILABLE IN THE SYSTEM AMOUNTING TO RS.97,23 ,77,000/-, AS AGAINST THE AMOUNT OF INTEREST FREE ADVANCE CALCULATED BY T HE ASSESSING OFFICER AT RS.4,90,36,000/-, THEREFORE, FOLLOWING THE DECISIO N OF THE HON'BLE SUPREME COURT IN MUNJAL SALES CORPORATION, 298 ITR 298 (SC) , TIN BOX CO. 260 ITR 637 (DEL.) SRIDEV ENTERPRISES, 192 ITR 165 (KAR.), NO SUCH DISALLOWANCE CAN BE MADE. HE FURTHER SUBMITS THAT NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE INTEREST BEARING LOANS AND THE IMPUGNED ADVANCE AND KEEPING IN VIEW THAT IN PAST, NO SUCH DISALLOWANCE WAS MADE, THE AD DITION MADE BY THE ASSESSING OFFICER BE DELETED. IN ALTERNATIVE, HE S UBMITS THAT SINCE THE LEARNED CIT(A) HAS NOT CONSIDERED THE ISSUE PROPERL Y, THEREFORE, IN THE INTERESTS OF JUSTICE, THE MATTER MAY BE SET ASIDE T O THE FILE OF THE LEARNED CIT(A). 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE, WHILE RELYING ON THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A), SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS RE STORED BACK TO THE FILE OF THE LEARNED CIT(A). 9. HAVING CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS OF THE PARTIES AND ON PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE RE IS NO DISPUTE THAT THE LEARNED CIT(A) HAS NOTED THE ASSESSEES ARGUMENTS O N THE DISALLOWANCE OF INTEREST UNDER SECTION 40A(2)(A) OF THE ACT, WHICH IS NEITHER THE CASE OF THE ASSESSING OFFICER NOR THE ASSESSEES AND NOWHERE H E HAS EXAMINED THE FACT THAT THE ASSESSEE HAD INTEREST FREE ADVANCE AMOUNTI NG TO RS.97,23,77,000/- AS PER WRITTEN SUBMISSIONS FILED BEFORE HIM BY THE ASSESSEE. SINCE THE FACTS M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 5 AS MENTIONED IN THE WRITTEN SUBMISSIONS HAVE NOT B EEN CONSIDERED BY THE LEARNED CIT(A), WE ARE OF THE VIEW THAT IN THE INTE RESTS OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE LEARNED CIT(A) AN D, ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THI S ACCOUNT AND SEND BACK THE MATTER TO HIS FILE TO EXAMINE THE SAME AFRESH I N THE LIGHT OF OUR OBSERVATIONS HEREIN ABOVE AND, ACCORDING TO LAW AFT ER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTI CAL PURPOSES. 10. GROUND NO.2, IS AGAINST SUSTENANCE OF DISALLOWA NCE OF LEASE RENT PAID OF RS.79,56,723/-. 11. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT, ON PER USAL OF COMPUTATION OF INCOME, THE ASSESSING OFFICER OBSERVED THAT WHILE C OMPUTING THE TOTAL INCOME, THE ASSESSEE HAS REDUCED AN AMOUNT OF RS.79 ,56,723/-, ON ACCOUNT OF LEASE RENT PAID IN RESPECT OF ASSETS TAKEN ON FI NANCIAL LEASE. THE ASSESSING OFFICER, VIDE ORDER SHEET NOTING DATED 20.12.2007 A SKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE LEASE RENTALS PAID IN RESP ECT OF ASSETS TAKEN ON FINANCE LEASE SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, SINCE THE ASSESSEE FAILED TO SUBMIT ANY REPLY, HE DISALLOWED THE SUM OF RS.79,5 6,723/-AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED H IS EXPLANATION INTERALIA CLAIMING, THAT AS PER ACCOUNTING STANDARD AND CBDT CIRCULAR, THE CLAIM OF TOTAL INSTALLMENTS OF RS.79,56,523/-, ARE ALLOWABLE EXPENSES IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE LEAR NED CIT(A), IN THE ABSENCE OF ANY REASON, FOR NOT SUBMITTING THE DETAI LS BEFORE THE ASSESSING OFFICER, WHILE RELYING ON THE DECISION IN FAIRDEAL FILAMENTS LTD. V/S CIT, (2008) 302 ITR 173 (GUJ.), HELD THAT UNDER RULE 46A , NO PERSON IS ENTITLED TO SEEK ADMISSION OF ADDITIONAL EVIDENCE AS A MATTER O F RIGHT AND, HENCE, HE REJECTED THE CLAIM OF THE ASSESSEE. M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 6 13. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS FILED ITS REPLY VIDE LETTER D ATED 29 TH DECEMBER 2007, HOWEVER, THE ASSESSMENT WAS COMPLETED ON 28 TH DECEMBER 2007, THEREFORE, THE ASSESSING OFFICER HAS NOT CONSIDERED THE ASSESS EES EXPLANATION AND REJECTED THE CLAIM OF THE ASSESSEE. HE FURTHER SUBM ITS THAT BEFORE THE LEARNED CIT(A), THE ASSESSEE HAS FILED THE SAME REP LY BUT THE LEARNED CIT(A) ALSO REJECTED THE CLAIM OF THE ASSESSEE ON THE GROU ND THAT NO SUCH EXPLANATION WAS FILED BEFORE THE ASSESSING OFFICER. HE, THEREFORE, SUBMITS THAT IN THE INTERESTS OF JUSTICE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE SAME AFRESH. 14. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE, WHILE RELYING ON THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A), SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS SE T ASIDE TO THE FILE OF THE ASSESSING OFFICER. 15. AFTER CONSIDERING THE RIVAL CONTENTIONS OF THE PARTIES AND ON PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THER E IS NO DISPUTE THAT THE ASSESSEE HAS FILED ITS REPLY ON THE ISSUE OF LEASE RENTAL VIDE LETTER DATED 29 TH DECEMBER 2007. SINCE THE ASSESSMENT WAS ALREADY PAS SED ON 28 TH DECEMBER 2007, THE ASSESSING OFFICER DID NOT GET TH E OPPORTUNITY TO CONSIDER THE CLAIM OF THE ASSESSEE. HOWEVER, BEFORE THE LEAR NED CIT(A), THE ASSESSEE HAS AGAIN REITERATED HIS WRITTEN SUBMISSIONS WHICH THE LEARNED CIT(A) HAS NOT CONSIDERED ON THE GROUND THAT IN THE ABSENCE OF ANY REASON FOR NOT SUBMITTING THE DETAILS BEFORE THE ASSESSING OFFICER , THE ASSESSEE IS NOT ENTITLED TO SEEK THE ADMISSION OF ADDITIONAL EVIDEN CE AS A MATTER OF RIGHT AND, HENCE, REJECTED THE CLAIM OF THE ASSESSEE AND FOR THIS PROPOSITION, HE PLACED RELIANCE ON THE FAIRDEAL FILAMENTS LTD. (SUP RA). M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 7 16. IN FAIRDEAL FILAMENTS LTD. (SUPRA), THE ASSESSE E WAS ASKED TO FURNISH INFORMATION REGARDING THE NAMES AND ADDRESSES OF TH E SHAREHOLDERS BUT THE ASSESSEE HAS FAILED TO FILE THE SAME BEFORE THE AO . BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE, HOWEV ER, FURNISHED THE LIST OF THE SHAREHOLDERS SHOWING THE NAMES AND ADDRESSES , AND PANS AND CONTENDED THAT THE ABOVE ADDITION SHOULD BE DELETED AND ADDITION, IF ANY, SHOULD BE CONSIDERED IN THE HANDS OF INDIVIDUAL SHA REHOLDERS OF COMPANY. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX (A) ON EXAMINATION OF THE CASE RECORDS OBSERVED THAT THE FIRST NOTICE CALLING FOR THIS INFORMATION WAS FOUND TO HAVE BEEN ISSUED BY THE AO ON 2.3.199 3 AND ANOTHER NOTICE CALLING FOR THE SAME INFORMATION WAS ISSUED ON 19.3 .1993 BUT THE ASSESSEE CARED NOT TO COMPLY WITH THESE NOTICES, THEREFORE, HE WAS OF THE VIEW THAT ASSESSEES CASE IS NOT COVERED BY RULE 46A OF IN COME TAX RULES, 1962 AND ACCORDINGLY HE REJECTED THE CLAIM OF THE ASSESSEE. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL OBSERVED THAT IT IS AN ADMITTED FACT THAT THE EVIDENCE IN RESPECT OF THE SHARE CAPITAL WAS FURNIS HED FOR THE FIRST TIME BEFORE THE COMMISSIONER OF INCOME TAX (A) VIDE LETT ER DATED 28.12.1993. THE TRIBUNAL FURTHER OBSERVED THAT THE ASSESSEE TOO K THE WHOLE THING VERY LIGHTLY AND RATHER DICTATED TO THE AO TO TAKE UP TH E ASSESSMENT PROCEEDINGS AT THEIR CONVENIENCE AS IT WAS NOT GETTING TIME BAR RED. THE TRIBUNAL AFTER CONSIDERING THE FACTS OF THE CASE REFUSED TO ADMIT THE ADDITIONAL EVIDENCE UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNA L) RULES, 1963 ON THE GROUND THAT THE RULE COULD NOT BE INVOKED BY A PA RTY AFTER BEING NEGLIGENT, NON-COOPERATIVE AND RECALCITRANT. ON REFERENCE BEF ORE THE HONBLE GUJARAT HIGH COURT, IT HAS BEEN HELD (PAGE 174 HEADNOTES) :- HELD, THAT BOTH THE APPELLATE AUTHORITIES HAD REC ORDED THAT SUFFICIENT OPPORTUNITIES WERE GRANTED TO THE ASSESSEE AND WHET HER SUFFICIENT OPPORTUNITY WAS GRANTED OR NOT WAS BASICALLY A QUE STION OF FACT AND THE HIGH COURT COULD NOT GO BEHIND THE FINDING OF FACT RECORDED BY THE TRIBUNAL. IN THE ABSENCE OF ANY SPECIFIC QUESTIO N AS TO WHETHER THE FINDING OF THE TRIBUNAL WAS SUPPORTED BY ANY MATER IAL OR ANY EVIDENCE ON RECORD, THE COURT COULD NOT IGNORE IN EXERCISE OF REFERENCE JURISDICTION THE FINDING OF FACT RECORDED BY THE T RIBUNAL. THE LETTER DATED MARCH 28, 1983, RELIED UPON BY THE ASSESSEE WAS NEITHER REFERRED TO M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 8 IN THE ORDER OF THE TRIBUNAL NOR ANNEXED TO THE S TATEMENT OF THE CASE AND HENCE COULD NOT BE GONE INTO BY THE HIGH COUR T. 17. WHEREAS IN THE CASE BEFORE US, THE AO FOR THE F IRST TIME ASKED THE ASSESSEE VIDE ORDER SHEET NOTING DATED 20.12.2007 T O SUBMIT THE REPLY AND WITHOUT GIVING SUFFICIENT TIME HE COMPLETED THE AS SESSMENT WITHIN 8 DAYS I.E. ON 28.12.2007. IN FACT, THE AO HAS GIVEN LE SS THAN A WEEKS TIME TO FILE THE REPLY WHICH IS NOT A REASONABLE TIME IN THE EY ES OF LAW. DESPITE THAT, THE ASSESSEE AT THE EARLIEST POSSIBLE OPPORTUNITY HAS SUBMITTED HIS REPLY ON 29.12.2007 I.E. WITHIN 7 WORKING DAYS. IT IS NOT T HE CASE OF THE REVENUE THAT THE ASSESSEE WAS GIVEN REPEATED OPPORTUNITY OR ADEQ UATE OPPORTUNITY TO FURNISH THE DETAILS OR HAS NOT FILED THE SAID REPLY . THUS, THE DECISION RELIED UPON BY THE LEARNED COMMISSIONER OF INCOME TAX (A) IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 18. THAT BEING SO AND IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE ASSESSING OFFICER HAS PROVIDED SUFFICIENT OPPORTUNI TY TO THE ASSESSEE, WE ARE OF THE VIEW THAT IT IS A FIT CASE OF SUFFICIENT CAU SE. SINCE THE ISSUE ON MERITS HAS NOT BEEN CONSIDERED EITHER BY THE ASSESSING OFF ICER OR BY THE LEARNED CIT(A), THEREFORE, IN THE INTERESTS OF JUSTICE, WE CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHOULD GO BACK TO THE FI LE OF ASSESSING OFFICER AND, ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FIL E OF ASSESSING OFFICER TO DECIDE THE SAME AFRESH AND ACCORDING TO LAW AFTER P ROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UND TAKEN IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3610/MUM./2009 REVENUES APPEAL 19. GROUND NO.1, READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF R S.2,76,48,900/- MADE M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 9 ON ACCOUNT OF WIRELESS PLANNING COORDINATION FEE PAID TO DEPARTMENT OF TELECOMMUNICATION TREATING IT AS A REVENUE EXPEN DITURE WITHOUT APPRECIATING THE FACTS OF THE CASE 20. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM T HE SCHEDULE 13 NETWORK OPERATING EXPENDITURE TO THE P AND L ACCOUNT TH E AO NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.3,07,21,000/- ON ACCOUNT OF WIRELESS PLANNING COORDINATION FEE. VIDE QUESTIONNAIRE ANN EXED TO THE NOTICE UNDER SECTION 142(1) DATED 7.12.2007 THE ASSESSEE WAS ASK ED TO FURNISH THE DETAILS OF DOT LICENSE FEES AND SPACE SEGMENT CHAR GES PAID IF ANY, DURING THE FINANCIAL YEAR. THE ASSESSING OFFICER, AFTER CO NSIDERING ASSESSEES REPLY OBSERVED THAT THE LEARNED CIT(A) IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02, HAS UPHELD THE DISALLOWANC E MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DOT LICENCE FEE AN D, HENCE, HE DISALLOWED RS.3,07,21,000/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE AO AMORTIZED THE AMOUNT PAID OVER A PERIOD OF TEN YEARS I.E., OVER THE REMAINING PERIOD OF LICENSE AND, HEN CE, HE ALLOWED RS.30,72,100/- AND DISALLOWED THE BALANCE AMOUNT OF RS.2,76,48,900/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 21. ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE DE CISION OF TRIBUNAL IN THE CASE OF COMSAT MAX LTD. IN ITA NO.728 AND 701/DEL./ 2005 DATED 30.1.2009, FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02, DELET ED THE ADDITION MADE BY THE ASSESSING OFFICER. 22. AT THE TIME OF HEARING, LEARNED DEPARTMENTAL RE PRESENTATIVE, WHILE FAIRLY ADMITTING THAT THE TRIBUNAL IN ASSESSEES OW N CASE HAS DECIDED THE IMPUGNED ISSUE IN FAVOUR OF THE ASSESSEE, REFERS TO PAGE-40 OF THE ASSESSEES PAPER BOOK TO SHOW THE LICENCE AGREEMEN T FOR VALUE ADDED SERVICE WHEREIN IT HAS BEEN, INTER-ALIA, MENTIONED THAT IT IS A LICENCE FEE. HE FURTHER SUBMITS THAT IN VIEW OF THE SPECIFIC PROVIS IONS OF SECTION 35ABB OF THE ACT BY VIRTUE OF WHICH AN EXPENDITURE INCURRED FOR OBTAINING LICENSE TO M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 10 OPERATE TELECOMMUNICATION SERVICES IS TO BE AMORTIZ ED OVER THE PERIOD OF LICENSE, THEREFORE, THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN ALLOWING THE AMOUNT OF RS.30,72,100/- AND IN DISALLOWING THE BAL ANCE AMOUNT OF RS.2,76,48,900/- OUT OF THE TOTAL AMOUNT OF LICENCE FEE OF RS.3,07,21,000/-. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRI BUNAL IN THE CASE OF ACIT V/S FASCEL LIMITED, (2009) 120 TTJ (DEL) 289, WHERE IN IT HAS BEEN OBSERVED THAT THE LICENCE FEE TO OPERATE TELECOMMUNICATION S ERVICES IS A CAPITAL EXPENDITURE AS LAID DOWN IN SECTION 35ABB. HE, THER EFORE, SUBMITS THAT THE ORDER PASSED BY THE LEARNED CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 23. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2000-01 AND 2001-02 AND RECENT ORDER OF THE TRIBUNAL IN BATCH OF APP EALS IN ITA NO.398/MUM./2006 IN THE CASE OF BHARTI AIRTEL LIMIT ED V/S ACIT AND VICE- VERSA FOR THE ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05, VIDE ORDER DATED 25 TH JUNE 2010. HE ALSO PLACED ON RECORD A COPY OF THE SAID ORDER OF THE TRIBUNAL. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF LICENCE FEE OF RS.2,76,48,900/- TO BE UPHELD. 24. AFTER CONSIDERING THE RIVAL CONTENTIONS OF THE PARTIES AND ON PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE CIT ED SUPRA SINCE REPORTED IN (2010) 41 STO 175 (MUM.) WHEREIN THE TRIBUNAL, AFTE R CONSIDERING THE ENTIRE MATERIAL AND THE PLEA TAKEN BY THE LEARNED D.R. BEF ORE US HAS HELD VIDE PARAS-27 AND 30 OF THE ORDER, AS UNDER:- M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 11 27. SINCE THE LICENCE FEE DOES NOT CONFER ANY ENDU RING ADVANTAGE, THE LICENCE GRANTED CAN BE REVOKED ON THE BREACH OF ANY OF THE CONDITIONS SUBJECT TO WHICH IT WAS ISSUED OR ANY DE FAULT OF PAYMENT OF ANY FEE PAYABLE FOR THE LICENCE AND THE LICENCE IS NON EXCLUSIVE, NON- TRANSFERABLE AND IT IS OPEN TO THE GOVERNMENT OF IN DIA TO GRANT SIMILAR LICENCES TO OTHER PERSONS AS WELL BY VIRTUE OF POWE RS CONFERRED UPON IT U/S.4 OF THE TELEGRAPH ACT, THUS THERE IS NO MONOPO LY RIGHT CONFERRED UPON THE ASSESSEE AND FURTHER THOUGH THE LICENCE WA S GRANTED FOR 10 YEARS INITIALLY, HOWEVER, AS PER TERMS OF THE LICEN CE, THE ASSESSEE IS REQUIRED TO PAY LICENCE FEE PAYABLE EVERY YEAR ON Q UARTERLY BASIS, THEREFORE, THE BENEFIT AVAILABLE FOR MAKING THE PAY MENT OF ANNUAL LICENCE FEE LASTS FOR THAT YEAR ONLY AND, THEREFORE , THE BENEFIT OF LICENCE FEE PAID DURING THE YEAR ENDURES ONLY TILL THE END OF THE RELEVANT FINANCIAL YEAR AND DOES NOT EXTEND TO THE SUBSEQUEN T FINANCIAL YEAR AND, HENCE, THE LICENCE FEE IS NOT IN THE NATURE OF CAPITAL EXPENDITURE FALLS U/S.35ABB OF THE ACT, BUT THE SAME IS REVENUE IN NATURE, ALLOWABLE U/S.37(1) OF THE ACT. *** * ** *** 30. FOR THE REASONS AS DISCUSSED ABOVE WE HOLD THAT THE ADDITION OF RS.4,53,14,736/- OUT OF THE DOT LICENCE FEE PAID RS .6,04,19,645/- IS AN ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT IN COMPU TING THE PROFITS OF ASSESSEE'S BUSINESS AND ACCORDINGLY THE ASSESSING O FFICER IS DIRECTED TO ALLOW THE SAME. THE GROUND TAKEN BY THE ASSESSEE IS , THEREFORE, ALLOWED. 25. IN THE DECISION RELIED ON BY THE LEARNED DEPART MENTAL REPRESENTATIVE IN FASCEL LIMITED (SUPRA), IT HAS BEEN HELD AS FOL LOWS (HEADNOTE):- HELD, A PERUSAL OF THE LICENCE AGREEMENT BETWEEN T HE ASSESSEE AND THE DOT, GOVERNMENT OF INDIA, REVEALS THAT THE GOVERNME NT OF INDIA IN CONSIDERATION OF OBSERVANCE OF MUTUAL COVENANTS AND PAYMENT OF LICENCE FEE HAS GRANTED A NON-EXCLUSIVE LICENCE TO THE ASSESSEE TO ESTABLISH, MAINTAIN AND OPERATE CELLULAR MOBILE TEL EPHONE SERVICE IN THE AREA OF GUJARAT CIRCLE. THE LICENCE IS GRANTED FOR A PERIOD OF 10 YEARS. THE LICENCE AGREEMENT IS DT. 11TH JAN., 1996. CLAUS E 19 OF THE AGREEMENT PRESCRIBES THE LICENCE FEE PAYABLE BY THE ASSESSEE FOR EACH OF THE 10 CALENDAR YEARS. THE LICENCE FEE FOR THE F IRST YEAR WAS TO BE PAID IN LUMP SUM PRIOR TO SIGNING THE LICENCE AGREE MENT. FOR SUBSEQUENT YEARS LICENCE FEE FOR EACH YEAR IS PAYAB LE IN QUARTERLY INSTALMENTS IN ADVANCE BY WAY OF POST-DATED CHEQUES . CLAUSE 19.8 OF THE AGREEMENT MENTIONS THAT IN CASE OF OVERDUE PAYM ENTS, INTEREST M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 12 SHALL BE CHARGED ON THE AMOUNT DUE AT THE PRIME LEN DING RATE AS SPECIFIED BY SBI FROM TIME-TO-TIME PLUS 5 PER CENT (COMPOUNDED MONTHLY). A PERUSAL OF THE AFORESAID CLAUSES OF THE AGREEMENT CLEARLY REVEALS THAT THE LIABILITY IN QUESTION IS A CONTRAC TUAL LIABILITY. IT IS ALSO CLEAR THAT THE PAYMENT OF INTEREST IS NOTHING BUT A COMPENSATORY PAYMENT FOR DEPRIVING THE USE OF FUNDS BY THE GOVER NMENT OF INDIA. NOTWITHSTANDING THE FACT THAT THE LICENCE FEE TO OP ERATE TELECOMMUNICATION SERVICE IS A CAPITAL EXPENDITURE AS LAID DOWN IN S. 35ABB, THE INTEREST PAYABLE ON OVERDUE PAYMENT OF T HE LICENCE FEE CANNOT BE SAID TO BE CAPITAL EXPENDITURE, AS IT DOE S NOT PARTAKE THE CHARACTER OF CAPITAL EXPENDITURE MERELY BECAUSE IT IS INCURRED IN RELATION TO A CAPITAL ASSET. THE LAW IS WELL-SETTLED THAT IN TEREST ON BORROWINGS WHETHER FOR ACQUIRING A CAPITAL ASSET OR STOCK-IN-T RADE IS ALLOWABLE AS A DEDUCTION. INTEREST PAYABLE ON LICENCE FEE CANNOT B E EQUATED WITH THAT OF A LICENCE FEE AS CONTEMPLATED BY THE PROVISIONS OF S. 35ABB. SINCE S. 35ABB IS INAPPLICABLE IN RESPECT OF INTEREST PAYABL E FOR DELAY IN PAYMENT OF LICENCE FEE TO OPERATE TELECOMMUNICATION SERVICE S, THE CLAIM FOR DEDUCTION BY THE ASSESSEE ON ACCRUAL BASIS HAS TO B E ALLOWED AS A DEDUCTION.INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) RELIED ON. (PARA 9) IT HAS BEEN FURTHER HELD (HEADNOTE) :- HELD : IT IS CLEAR FROM THE LICENCE AGREEMENT THAT THE LICENCE FEE TO OPERATE TELECOMMUNICATION SERVICES AND THE ROYALTY PAYABLE TO WPC ARE TOTALLY DIFFERENT. PRIMARILY, THEREFORE, PROVISIONS OF S. 35ABB ARE NOT ATTRACTED TO THE ROYALTY PAYABLE TO WPC. THE EXPEND ITURE IN QUESTION HAS TO BE INCURRED BY THE ASSESSEE AS A PART OF NET WORK OPERATION EXPENDITURE AND IS PAYABLE ON THE BASIS OF THE PERI OD FOR WHICH THE FACILITY IS USED BY THE ASSESSEE. IT CANNOT BE SAID THAT THIS EXPENDITURE HAS RESULTED INTO ANY BENEFIT OF ENDURING NATURE TO THE ASSESSEE. IT IS, THEREFORE, A PART OF THE PROFIT MAKING PROCESS OF T HE ASSESSEE. THE EXPENDITURE ARISES OUT OF A CONTRACTUAL OBLIGATION AND IS, THEREFORE, ALLOWABLE AS A DEDUCTION ON ACCRUAL BASIS. THE EXPE NDITURE DOES NOT PARTAKE THE CHARACTER OF A CAPITAL EXPENDITURE AND IS, THEREFORE, TO BE ALLOWED AS A DEDUCTION. (PARA 15) 26. WHEREAS IN THE CASE BEFORE US, THE ISSUE IS ENT IRELY DIFFERENT I.E., ALLOWABILITY OF DOT LICENCE FEE, AND NOT THE PAYME NT OF INTEREST ON OVERDUE PAYMENT OF LICENCE FEE, WHICH HAS ALSO BEEN HELD IN THE CITED CASES AS ALLOWABLE ON ACCRUAL BASIS. THEREFORE, THE DECISION RELIED ON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE ABSENCE OF ANY OT HER DISTINGUISHABLE M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 13 FEATURES BOUGHT ON RECORD BY THE LEARNED DEPARTMENT AL REPRESENTATIVE, WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL, HOLD THAT THE LICENCE FEE PAID RS.3,07,21,000/- IS AN ALLOWABLE E XPENDITURE UNDER SECTION 37 OF THE ACT IN COMPUTING THE PROFIT OF THE ASSESS EES BUSINESS AND, ACCORDINGLY, THE ORDER PASSED BY THE LEARNED CIT(A) IN DELETING THE NET DISALLOWANCE OF DOT LICENCE FEE OF RS.2,76,48,900/- IS UPHELD. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. 27. GROUND NO.2 IS AGAINST DELETION OF DISALLOWANCE OF SPACE SEGMENT CHARGES OF RS.3,95,29,597/-. 28. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM T HE SCHEDULE 13 NETWORK OPERATING EXPENDITURE TO THE P AND L ACCOUNT TH E AO NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.4,39,21,774/- ON ACCOUNT OF COMMUNICATION & SPACE SEGMENT CHARGES. VIDE QUEST IONNAIRE ANNEXED TO THE NOTICE UNDER SECTION 142(1) DATED 7.12.2007 THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF DOT LICENSE FEES AND SPACE SEGMENT CHARGES PAID IF ANY, DURING THE FINANCIAL YEAR. THE ASSESSING OFFIC ER, AFTER CONSIDERING THE ASSESSEES REPLY, OBSERVED THAT THE SIMILAR ADDITIO N WAS MADE IN ASSESSMENT YEAR 2004-05. THEREFORE, FOR THE SAME REASONS, HE C APITALIZED THE SPACE SEGMENT CHARGES OF RS.4,39,21,774/-AND AMORTIZED UN DER SECTION 35ABB OF THE ACT OVER A PERIOD OF TEN YEARS. THUS, HE ALLOWE D AN AMOUNT OF RS.43,92,177/- AND DISALLOWED BALANCE AMOUNT OF RS .3,95,29,597/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 29. ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE TR IBUNAL ORDER IN THE CASE OF COMSAT MAX LTD. (SUPRA), DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER. 30. AT THE TIME OF HEARING, THE LEARNED DEPARTMENTA L REPRESENTATIVE SUBMITS THAT THE PLEA TAKEN BY HIM IN GROUND NO.1 I N REVENUES APPEAL MAY BE CONSIDERED WHILE DECIDING THE GROUND NO.2 TAKEN IN THIS APPEAL AND, M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 14 THEREFORE, HE SUBMITS THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BE RESTORED. 31. ON THE OTHER HAND, THE LEARNED COUNSEL SUBMITS THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL FOR ASSESSMENT YEARS 2000-01 AND 2001-02 AND ALSO BY TH E RECENT ORDER OF THE TRIBUNAL VIDE PARA-56 APPEARING AT PAGE-35 OF THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA AND, THEREFORE, THE ISSUE MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 32. AFTER CONSIDERING THE RIVAL CONTENTIONS OF THE PARTIES AND ON PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL (SUPRA) WHER EIN THE TRIBUNAL, AFTER CONSIDERING THE ENTIRE MATERIAL AND PLEA TAKEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US HAS HELD VIDE PARA-56 OF THE ORDER AS UNDER:- 56. AFTER HEARING THE RIVAL PARTIES AND PERUSING T HE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE TRIBUNAL IN ASSESSEE'S A PPEAL IN COMSAT MAX LTD. VS. DCIT AND VICE VERSA (SUPRA), HAS OBSERVED AND HELD AS UNDER: 25. .THE PAYMENT HAVING BEEN MADE FOR ALLOCATION OF SPACE SEGMENT CHARGES AND FOR THE USE OF SATELLITE DOES N OT BRING INTO EXISTENCE ANY CAPITAL ASSET. THE FEES BEING PAYABLE FOR THE USE OF FACILITY AND NOT FOR THE FACILITY ITSELF ARE ALLOWA BLE AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE SAME AND KEEPING IN VIEW OF OUR FINDING RECORDED IN PARAS 27 30 OF THIS ORDER AND ALSO TH E RULE OF CONSISTENCY WE ARE OF THE VIEW THAT THE PAYMENT HAVING BEEN MAD E AND FOR THE ALLOCATION OF SPACE SEGMENT CHARGES AND FOR THE USE OF SATELLITE DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSET. THE FEES BE ING PAYABLE FOR THE USE OF FACILITY AND NOT FOR THE FACILITY ITSELF ARE ALLOWABLE AS REVENUE EXPENDITURE AND ACCORDINGLY THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWANCE IS UPHELD. M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 15 33. IN THE ABSENCE OF ANY OTHER DISTINGUISHING FEA TURES BOUGHT ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE RESP ECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, HOLD THAT THE SPA CE SEGMENT CHARGES RS.4,39,21,774/- ARE AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT IN COMPUTING THE PROFIT OF THE ASSESSEES BUSINESS AND , ACCORDINGLY, THE ORDER PASSED BY THE LEARNED CIT(A) IN DELETING THE DISALL OWANCE OF NET SPACE SEGMENT CHARGES RS.3,95,29,597 IS UPHELD. THE GROU ND TAKEN BY THE REVENUE IS, THEREFORE, REJECTED. 34. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2011. SD/- SD/- /- T.R. SOOD ACCOUNTANT MEMBER SD/- D.K. AGARWAL JUDICIAL MEMBER MUMBAI, DATED: 24/06/2011. SRL: COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, I BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI M/S. BHARTI AIRTEL LIMITED ITA NO.2937/MUM./2009 ITA NO.3610/MUM./2009 16 DATE INITIAL 1. DRAFT DICTATED ON 8.6.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR .6.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .6.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER
