M/s Vodafone Essar Soutth Ltd., New Delhi V. CIT IV, New Delhi

ITA 3238/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3671 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 21-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REE N A PURI
• Assessee Lawyers: SANAT KAPOOR S; S SH SALIL KAPPOR
• Keywords: Assessment record; Revenue expenditure; Capital expenditure
• Section: 37(1); 263

Judgement Text

ITA NO. 3238/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3238/DEL/2009 A.Y. : 2004-05 M/S VODAFONE ESSAR SOUTH LTD., C-48, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI 110 020 (PAN : AAACS 4457Q) VS. COMMISSIONER OF INCOME TAX - IV, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : S /SH. SALIL KAPPOR AND SANAT KAPOOR, ADVOCATES DEPARTMENT BY : MS. REE N A PURI, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 30.3.2 009 PERTAINING TO ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX-IV, NEW DELHI (HEREINAFTER REFERRED TO AS THE LEARNED C.I.T.) ERRED IN INITIATING PROCE EDINGS UNDER SECTION 263 OF INCOME TAX ACT, 1961 (ACT) BY WRONGLY ASSUMING ITA NO. 3238/DEL/2009 2 JURISDICTION UNDER SECTION 263 OF THE ACT AND HENCE, THE ORDER PASSED BY THE C.I.T. UNDER SECTION 263 OF ACT IS BA D IN LAW AND VOID AB-INITIO. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE C.I.T. ERRED IN HOLDING THAT THE REGULATORY CHARGES AMOUNT ING TO ` 358,130,408 ARE CAPITAL IN NATURE AND NEED TO BE AMO RTIZED UNDER SECTION 35ABB OF THE ACT AND HAS, THEREFORE, ERRED IN DIRECTING THE DCIT, CIRCLE 12(1), NEW DELHI (HEREIN AFTER REFERRED TO AS THE LD. A.O.) TO COMPUTE ALLOWANCE UNDER SECTI ON 35ABB OF THE ACT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE C.I.T. ERRED IN HOLDING THAT DUE ENQUIRIES IN RESPECT OF LOAN ARRANGEMENT FEE AND STAMP DUTY CHARGES WERE NOT CON DUCTED BY THE ASSESSING OFFICER AND HENCE, HAS ERRED IN REMA NDING THE MATTER BACK TO THE LD. A.O. 3. IN THIS CASE LD. COMMISSIONER OF INCOME TAX NOTED THAT FROM AN EXAMINATION OF THE INCOME TAX ASSESSMENT RECORDS OF THE ASSESSEE IT TRANSPIRED THAT THE ASSESSEE HAD CLAIMED AND WAS AL LOWED THE PAYMENT OF ` 35,81,30,408/-, ON ACCOUNT OF REGULATOR Y FEES, WHICH IS CAPITAL IN NATURE AND SHOULD HAVE BEEN DISALLOWED. THE ASSESSEE HAS ITA NO. 3238/DEL/2009 3 HAD CLAIMED AND WAS ALLOWED EXPENDITURE OF ` 3,10,2 2,106/- TOWARDS PRODUCT LAUNCHES UNDER ADVERTISING AND PUBLICITY, W HICH IS CAPITAL IN NATURE AND SHOULD HAVE BEEN DISALLOWED. THE ASSES SEE HAD CLAIMED AND WAS ALLOWED AN EXPENDITURE OF ` 34,92,168/- TOW ARDS STAMP DUTY UNDER BANK CHARGES AND GUARANTEE COMMISSION, WHICH IS CAPITAL IN NATURE AND SHOULD HAVE BEEN DISALLOWED. 3.1 THE LD. COMMISSIONER OF INCOME TAX NOTED THAT D UE TO INADVERTENT ERROR WRONG NARRATION IN RESPECT OF AMO UNT OF ` 3,10,22,106/- WAS MENTIONED IN NOTICE DATED 10.2.20 09. THE CORRECT NARRATION BEING EXPENDITURE OF ` 3,10,22,106/- TOW ARDS LOAN ARRANGEMENTS AND GUARANTEE COMMISSION WAS COMMUNICATE D TO THE ASSESSEE VIDE THIS OFFICER LETTER DATED 24.3.2009. LD. COMMISSIONER OF INCOME TAX NOTED THAT ASSESSEE HAS MADE THE FOLLO WING SUBMISSIONS :- I) THE ASSESSEE HAS SUBMITTED THAT AS PER THE TERMS O F LICENSE AGREEMENT WITH THE DEPARTMENT OF TELECOMMUNICATION, IN TERMS OF MIGRATION OF NATIONAL TELECOM POLICY 1999, EFFECTI VE FROM 01.08.1999, THE LICENSE FEE ACCRUED AND PAID UPTILL THE DATE OF MIGRATION WAS TREATED AS ONE TIME ENTRY FEE WHICH HAS BEEN CAPITALIZED BY THE ASSESSEE COMPANY AND AMORTIZED U NDER SECTION 35ABB. ITA NO. 3238/DEL/2009 4 (II) THE ASSESSEE HAS FURTHER SUBMITTED THAT IN TER MS OF THE MIGRATION TO THE REVENUE SHARING REGIME, WITH EFFECT FROM 01.0 8.1999, THE ASSESSEE COMPANY WAS PAYING LICENCE FEE AT SPECIFIED PERCENTAGE OF THE GROSS REVENUE DERIVED BY THE ASSE SS.EE FROM ITS CELLULAR BUSINESS. THE ASSESSEE HAS SUBMITTED T HAT UNDER THE NEW REVENUE SHARING REGIME EFFECTIVE FROM 01.08.1999, THE LICENCE FEES WAS A DIRECT FUNCTION OF THE REVENUE W HICH WAS BASED ON UNIT CALL RATE AND CALL TIME. THE ASSESSEE, HAS THEREFORE, SUBMITTED THAT THE LICENCE FEES WAS CORRECTLY CLAIM ED AS REVENUE EXPENDITURE. (III) THE ASSESSEE HAS FURTHER SUBMITTED THAT PAYME NT OF THE YEARLY FEE FOR USE OF LICENCE DID NOT CONFER UPON THE COMPA NY ANY ADVANTAGE OF AN ENDURING NATURE SINCE THE LICENCE F EE WAS PAYABLE ANNUALLY AS A FUNCTION OF THE GROSS REVENUE EARNED AND THAT THE IICENCE COULD BE REVOKED BY DOT WITHOUT ANY COMPENSATION. IT HAS BEEN SUBMITTED THAT THE EXPENDIT URE WAS COVERED U/S 37(1) OF THE INCOME TAX ACT, 1961, AND SECTION 35ABB IS NOT APPLICABLE IN THIS CASE. (IV) IN RESPECT OF TWIN ISSUES OF ` 3,10,22,106/- ON ACCOUNT OF LOAN 'ARRANGEMENT FEE AND ` 34,92,168/- TOWARDS STAMP DUT Y, BANK CHARGES AND GUARANTEE COMMISSION. IT IS ASSESSEE'S SUBMISSION THAT THESE ARE ALLOWABLE REVENUE EXPENDITURE AND RE LIANCE HAS BEEN PLACED ON SEVERAL DECISIONS INCLUDING INDIA CE MENT VS. CIT 60 ITR 52 (SC), JEEWANLAS LTD VS. CIT 74 ITR 753 (SC). IN ADDITION TO OBJECTIONS ON MERITS THE ASSESSEE CO MPANY HAS ALSO OBJECTED TO ASSUMPTION OF JURISDICTION U/S 263 ON LEGAL GROUNDS CLAIMING THAT :- ITA NO. 3238/DEL/2009 5 (A) THE ASSESSING OFFICER HAD DULY SOUGHT DETAILS AND REPLIES WERE GIVEN AND THEN ONLY AFTER DUE APPLICATION OF MIND TH E ORDER WAS PASSED, THEREFORE, ACTION U/S 263 IS NOT LEGALLY TE NABLE. B) IN CASE TWO VIEW ARE POSSIBLE AND AO HAS TAKEN O NE VIEW THEN CIT CANNOT SUBSTITUTE THE VIEW OF THE AO FOR ITS OWN. C) VARIOUS CASE LAWS HAVE BEEN RELIED UPON INCLUDIN G MALABAR INDUSTRIAL CO. LTD. VS. CIT (243ITR83(SC)); CIT VS. GM MITTAL STAINLESS STEEL PVT. LTD. (263ITR255)(SC); CIT VS. G ABRIEL INDIA LTD. (2031TR 108)(BOM); RAWANI DAL & FLOOR MILLS VS. COMMISSIONER OF SALES TAX (86 ITR 409) (ORISSA); GR ADEN SILK MILLS LTD. VS. C.I.T. (221 ITR 861) (GUJ); RAM KISHAN DASS VS. ITO 149 TAXMANN 55 9AT). 3.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DID N OT ACCEPT THE ABOVE CONTENTION. HE OPINED THAT THE PAYMENTS WERE TOWARDS ACQUISITION OF AND IN CONSIDERATION OF LICENCE FOR 20 YEAR TO OPERATE SPECIFIED SERVICES BY THE ASSESSEE. THE MAIN OBJECT OF EXPENDITURE IS TOWARDS ACQUISITION OF AN INTANGIBLE ASSET I.E. LI CENCE WHICH HAS AN ENDURING BENEFIT FOR THE ASSESSEE. THE C.I.T. DID N OT ACCEPT THE CASE LAW RELIED UPON BY THE ASSESSEE. HE HELD THAT EXPENDITURE ON ACCOUNT OF LICENCE FEE SHOULD HAVE BEEN HELD TO BE CAPITAL EXPENDITURE INCURRED ON ACCOUNT OF INTANGIBLE ASSET. HE FURTH ER OBSERVED THAT THE ARGUMENTS OF THE ASSESSEE THAT TWO VIEW ARE POSSIBL E IS NOT TENABLE, BECAUSE THERE CAN ONLY BE ONE VIEW IN THE MATTER UND ER CONSIDERATION. ITA NO. 3238/DEL/2009 6 THE C.I.T. FURTHER HELD THAT ON ALL THE ISSUES, ASS ESSING OFFICER DID NOT EXAMINE THE ISSUE AT ALL. HE OBSERVED THAT THERE WAS GENERAL QUESTIONNAIRE RAISED AND MERE BREAK-UP TO SUPPORT T HE ALLOWABILITY WITH NO JUSTIFICATION OR LEGAL AUTHORITY WAS SUBMIT TED. C.I.T. CONCLUDED THAT IN VIEW OF THE ABOVE, PATENT LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER IS DULY ESTABLISHED AND THIS LAC K OF ENQUIRY RENDERS THE ASSESSMENT ORDER PASSED AS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE AS HELD BY THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF M/S GEE VEE ENTEPRISES VS. ADDL. C.I. T. [99 ITR 375). ACCORDINGLY, C.I.T. HELD THAT ASSESSMENT ORDER DATE D 29.12.2006 WAS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE AND THE SAME ARE SET ASIDE ON LIMITED ISSUES DISCUSSED I N THE ORDER. 4. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE CONTENDED THAT ASSESSING OFFICER HAS DULY ISSUED QUESTIONNAIRE AND SOUGHT INFORMATION WITH REGARD TO ALL THE THREE ISSU ES. HE TOOK US THE PAPER BOOK PAGE NO. 75 & 76 WHEREIN THE QUESTIONNAI RE GIVEN BY THE ASSESSING OFFICER WAS ATTACHED. ITA NO. 3238/DEL/2009 7 5.1 LD. COUNSEL OF THE ASSESSEE FURTHER REFERRED TO REPLY GIVEN TO THE ASSESSING OFFICER WHICH WAS PLACED IN THE PAPER BOOK PAGE NO. 84 TO 115. 5.2 IN LIGHT OF THE ABOVE SUBMISSIONS, LD. COUNSEL OF THE ASSESSEE CONTENDED THAT IN THIS CASE IN ALL THE THREE ISSUES ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRIES. HE ARGUED THAT IF THE ENQUIRIES ARE INADEQUATE THE RECOURSE CANNOT BE MADE U/S 263 BY TH E C.I.T. IN THIS CONNECTION, HE PLACED RELIANCE UPON THE ORDER OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF C.I.T. VS. SUNBEAM AUTO LTD. 22 7 CTR (DEL) 133. 5.3 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND, SUPPORTED THE ORDER OF THE C.I.T.. SHE CLAIMED THAT THERE WAS NO ENQUIRY AT ALL BY THE ASSESSING OFFICER AND ASSESSEE DID NOT SUBMIT DE TAILS IN THIS REGARD. 6. WE HAVE CAREFULLY CONSIDERED THE ISSUE AND PERUS ED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX IN THE N OTICE ISSUED HAS MENTIONED THAT THE EXPENDITURES WERE CAPITAL IN NATU RE. HOWEVER, IN THE REVISION ORDER HE HAS HELD THAT THE THERE WAS P ATENT LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER. THIS LACK OF ENQUIRY IN HIS OPINION, HAS RENDERED THE ASSESSMENT ORDER PASSED E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF JUSTICE. IT TRANSPIR ES THAT THE ASSESSING OFFICER HAD ASKED FOR THE DETAILS FOR ALL THE THRE E ITEMS AS EMANATING FROM THE PAPER BOOK NO. 75-76 IN THIS REGARD. DETAI LS WERE INTER-ALIA SOUGHT FROM THE ASSESSEE, REGARDING OTHER REGULATO RY FEE, CIRCLE WISE, BANK CHARGES AND GUARANTEE COMMISSION. ASSESSEE HAS GIVEN REPLY IN THIS REGARD TO THE ASSESSING OFFICER AS EMANATING FR OM PAGE NO. 84 TO 114. THE DETAILED BREAK-UP OF THESE EXPENDITURE WA S DULY GIVEN. NO ITA NO. 3238/DEL/2009 8 FURTHER ENQUIRY WAS MADE BY THE ASSESSING OFFICER . IN THIS REGARD, THE ASSESSEES CONTENTION IS THAT IF ASSESSING OFFICER HAD MADE ENQUIRIES AND THE ENQUIRIES ARE NOT ADEQUATE, THE ORDER CANN OT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENU E. IN THIS REGARD, HONBLE APEX COURT DECISION IN THE CASE OF C.I.T. VS. SUNBEAM AUTO LTD. 227 CTR 133 IS RELEVANT WHEREIN IT HAS BEEN H ELD AS UNDER (HEADS NOTES ONLY):- THERE IS A DISTINCTION BETWEEN LACK OF ENQUIR Y AND INADEQUATE ENQUIRY IF THERE IS AN ENQUIRY, EVEN INADEQUATE, THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE C.I.T . TO PASS ORDER UNDER SECTION 263, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER SUCH A COURSE OF ACTION IS OPEN ONLY I N CASES OF LACK OF ENQUIRY CONTENTION OF THE REVENUE THAT THE ASSESSING OFFICER DID NOT CONSIDER AS TO WHETHER THE EXPEND ITURE IN QUESTION WAS CAPITAL OR REVENUE EXPENDITURE CANNOT BE ACCEPTED ALTHOUGH APPARENTLY THE ASSESSMENT DOES NOT GIVE ANY REASONS FOR ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXP ENDITURE, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND TO THE ISSUE AS SESSING OFFICER IS NOT REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION IN THE ASSESSMENT ORDER - ASSESSING OFFICER HAD CALLED FOR EXPLANATION REGARDING THIS VERY ITEM AND THE ASSESSEE HAD FURNISHED ITS EXPLANATION THIS F ACT HAS BEEN ITA NO. 3238/DEL/2009 9 NOTICED BY THE C.I.T. HIMSELF IN HIS ORDER THUS, IT CANNOT BE SAID THAT IT IS A CASE OF LACK OF ENQUIRY FURTHER, EV EN THE C.I.T. WAS NOT CLEAR AS TO WHETHER THE SAID EXPENDITURE IS TO BE TREATED AS CAPITAL OR REVENUE EXPENDITURE DYES USED BY THE A SSESSEE, A MANUFACTURER OF CAR PARTS, ARE THE COMPONENTS OF THE MACHINES AND NEED CONSTANT REPLACEMENT AS THEIR LIFE SPAN IS NOT MORE THAN A YEAR - WITH THE REPLACEMENT OF SUCH TOOLS AND DYES, NO NEW ASSET COMES INTO EXISTENCE, NOR THERE IS BENEFIT OF ENDURING NATURE IT DOES NOT ENHANCE THE LIFE OF THE EXISTI NG MACHINE OR INCREASE ITS PRODUCTION CAPACITY THEREFORE, THE V IEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIE WS AND THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER C OULD NOT BE HELD TO BE PREJUDICIAL TO THE REVENUE. 6.1 CONSIDERING THE PRESENT CASE ON THE ANVIL OF TH E AFORESAID CASE LAW, WE FIND THAT ASSESSING OFFICER DID ENQUIRE ON ALL THE THREE ITEMS AND ASSESSEE RESPONDED BY GIVING THE BREAKUP OF EX PENDITURE. THOUGH, ASSESSMENT ORDER DOES NOT GIVE REASON FOR A LLOWING THE EXPENDITURE AND ASSESSING OFFICER DID NOT MAKE FUR THER ENQUIRY, IT CANNOT BE SAID THERE WAS LACK OF ENQUIRY IN THIS CA SE. IN THIS VIEW OF THE MATTER, THE RATIO FROM THE HONBLE JURISDICTIONA L HIGH COURT DRAWN ABOVE IS APPLICABLE FULLY. THERE IS DUE ENQUIRY BY THE ITA NO. 3238/DEL/2009 10 ASSESSING OFFICER, THOUGH IT HAS BEEN CONSIDERED TO BE INADEQUATE BY THE C.I.T., RECOURSE U/S 263 CANNOT BE MADE. 7. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AN D PRECEDENT, AND IN OUR CONSIDERED OPINION, THE ORDER U/S 263 OF THE IT ACT PASSED BY THE LD. COMMISSIONER OF INCOME TAX IS LIABLE TO BE QUASH ED AND ACCORDINGLY, THE SAME IS QUASHED FOR LACK OF JURISD ICTION. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/6/2011. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 24/6/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES