Mahanagar Telephone Nigam Ltd., V. Addl. CIT, Range-4,

ITA 770/DEL/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4189 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHYAMA S BANSIA
• Assessee Lawyers: V MOHAN C AS
• Keywords: Opportunity of being heard
• Section: 43B; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI K. K.K. K.D.RANJAN D.RANJAN D.RANJAN D.RANJAN, AM , AM , AM , AM ITA NO. ITA NO. ITA NO. ITA NO.770/DEL/2006 770/DEL/2006 770/DEL/2006 770/DEL/2006 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2004 2004 2004 2004- -- -05 0505 05 M/S MAHANAGAR TELEPHONE M/S MAHANAGAR TELEPHONE M/S MAHANAGAR TELEPHONE M/S MAHANAGAR TELEPHONE NIGAM LIMITED, NIGAM LIMITED, NIGAM LIMITED, NIGAM LIMITED, JEEVAN BHARTI BUILDING, JEEVAN BHARTI BUILDING, JEEVAN BHARTI BUILDING, JEEVAN BHARTI BUILDING, TOWER 1, 12 TOWER 1, 12 TOWER 1, 12 TOWER 1, 12 TH THTH TH FLOOR, FLOOR, FLOOR, FLOOR, 124, 124, 124, 124, CONNAUGHT PLACE, CONNAUGHT PLACE, CONNAUGHT PLACE, CONNAUGHT PLACE, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN NO. PAN NO. PAN NO. PAN NO.AAACM0828R. AAACM0828R. AAACM0828R. AAACM0828R. VS. VS. VS. VS. ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, ADDL.COMMISSIONER OF INCOME TAX, RANGE RANGE RANGE RANGE- -- -4, 4,4, 4, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN AND SHRI V.MOHAN, CAS. RESPONDENT BY : SMT.SHYAMA S.BANSIA, CIT-DR ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI, J , J, J , JM : M : M : M : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 30.12.2005 PASSED BY LEARNED CIT(A) IN THE MATTER OF ASSESSMEN T MADE U/S 143(3) DATED 21.2.2005 BY THE AO FOR THE AY 2004-05. 2. IN THIS CASE, THE COMMITTEE ON DISPUTES HAS PERM ITTED THE ASSESSEE TO PURSUE THE ISSUE REGARDING DISALLOWANCE OF CLAIM U/S 80IA AND ADDITIONS MADE U/S 43B FOR EMPLOYEES CONTRIBUT ION TOWARDS GPF, BEFORE TRIBUNAL IN VIEW OF QUESTIONS OF FACTS AND L AW INVOLVED VIDE MINUTES OF THE MEETING OF THE COMMITTEE CIRCULATED VIDE LETTER DATED 10 TH SEPTEMBER, 2008. 3. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO AD JUDICATION AS NO ARGUMENTS WERE PLACED IN THIS BEHALF. 4. GROUND NO.2 IS DIRECTED AGAINST CIT(A)S ORDER I N CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING DEDUCTION U/S 80IA OF THE ACT CLAIMED BY THE ASSESSEE AS A TELECOM SERVICE PROVIDER. ITA-770/DEL/2006 2 5. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING INCO RPORATED ON 28.2.1986. IT IS ENGAGED IN PROVIDING BASIC TELEPH ONE SERVICES IN METRO CITIES AS ALSO CELLULAR AND OTHER VALUE ADDED TELECOMMUNICATION SERVICES. IN THE RETURN OF INCOME, THE ASSESSEE CL AIMED DEDUCTION U/S 80IA(4C) OF THE ACT BEING 30% OF INCOME FROM SERVIC ES/OPERATIONS. THE ASSESSEE HAD GIVEN A NOTE ALONGWITH THE RETURNS OF INCOME IN SUPPORT OF ITS AFORESAID CLAIM. IT WAS NOTED BY TH E AO THAT CLAIM OF THE ASSESSEE U/S 80IA WAS DISALLOWED IN THE EARLIER YEA RS AND BOTH CIT(A) AND ITAT HAD CONFIRMED THE ADDITION ON THIS ACCOUNT . THE AO FURTHER NOTED THAT THE ASSESSEE COMPANY HAD CLAIMED THIS DE DUCTION FOR THE FIRST TIME IN AY 1996-97 WHICH WAS NOT ALLOWED AND CIT(A) CONFIRMED THE AOS ORDER. ON A FURTHER APPEAL BEFORE THE TRI BUNAL , THE TRIBUNAL DISMISSED THE ASSESSEES CLAIM. ACCORDINGLY, THE A O DISALLOWED THE ASSESSEES CLAIM AFTER FOLLOWING THE ITATS ORDER I N ASSESSEES OWN CASE. 6. ON AN APPEAL, THE LEARNED CIT(A) CONFIRMED THE A OS ORDER IN THE LIGHT OF THE FACT THAT ITAT IN EARLIER YEARS DISMIS SED THE ASSESSEES APPEAL ON THIS ISSUE. THE LEARNED CIT(A) FURTHER O BSERVED THAT ITAT DELHI BENCH B HAD EVEN REJECTED THE ASSESSEES CL AIM FOR THE AY 2001-02. THE LEARNED CIT(A) REPRODUCED PARA 5 OF T HE TRIBUNALS ORDER DATED 11.10.2004 FOR THE AY 2001-02. THE CIT(A), T HEREFORE, DISMISSED THE ASSESSEES GROUND. 7. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEA RNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN AY 1998-99, 1999 -2000, 2000-01 AND 2005-06, THE TRIBUNAL SET ASIDE THE ISSUE RELAT ING TO THE CLAIM OF DEDUCTION U/S 80IA FOR FRESH ADJUDICATION BY THE AO VIDE ORDER DATED 3.2.2006. THE LEARNED COUNSEL FOR THE ASSESSEE FUR THER POINTED OUT ITA-770/DEL/2006 3 THAT THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DA TED 15.12.2006 SET ASIDE THE VERY ISSUE OF DEDUCTION U/S 80IA TO THE F ILE OF THE AO FOR TAKING A DECISION AFRESH. HE FURTHER CONTENDED THA T AO THEREAFTER READJUDICATED THE ISSUE FOR ALL THE AFORESAID ASSES SMENT YEARS AND AFTER EXAMINING THE FACTS AND EVIDENCES UPHELD THE ELIGIBILITY OF THE ASSESSEE FOR CLAIMING EXEMPTION U/S 80IA OF THE ACT . THE AO VIDE ITS ORDER DATED 29.12.2006 ALLOWED THE DEDUCTION U/S 80 IA ON PROPORTIONATE BASIS IN THE RATIO OF THE EXCHANGES A S AGAINST FULL EXEMPTION CLAIMED BY THE ASSESSEE. THE APPEAL FILE D BY THE ASSESSEE AGAINST THE AOS ORDER FOR ALLOWING ONLY PROPORTION ATE EXEMPTION HAS BEEN DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 1 1.3.2010 PERTAINING TO THE AY 1998-99, 1999-2000, 2000-01, 2001-02 & 20 05-06 BY DIRECTING THE AO TO ALLOW 75% OF THE INCOME TO BE E LIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. IT WAS FURTHER POINTED OUT TH AT AOS ORDER ALLOWING PROPORTIONATE EXEMPTION U/S 80IA HAPPENED TO BE A S UBJECT MATTER OF THE REVISION U/S 263 BY THE COMMISSIONER OF INCOME TAX, WHO AFTER ISSUING A SHOW CAUSE NOTICE U/S 263 OF THE ACT AND AFTER HEARING THE ASSESSEE, UPHELD THE ELIGIBILITY OF THE ASSESSEE IN RESPECT OF EXEMPTION U/S 80IA VIDE ITS ORDER DATED 26.2.2008. HE, THERE FORE, SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE ORDERS OF THE EARLIER YEARS. 9. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T ASSESSEES CLAIM OF EXEMPTION U/S 80IA(4C) IS NO MORE APPLICAB LE IN THE AY 2004- 05 AND THUS, THE NECESSARY INSTRUCTIONS AND DIRECTI ONS MAY BE GIVEN TO THE AO TO DECIDE THE MATTER AS PER LAW. 10. IN REPLY, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PROVISIONS CONTAINED IN OLD PROVISION OF SECTIO N 80IA(4C) ARE NOW INCORPORATED IN 80IA, SUB-SECTION (4) CLAUSE (II) A ND, THEREFORE, THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IA(4)(II) I N THE LIGHT OF THE TRIBUNALS EARLIER ORDER. ITA-770/DEL/2006 4 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE PERUSED THE TRIBUNALS ORDER DATED 11.3.2010 PERTAINING TO THE AY 1998-99, 1999-2000, 2000-01, 2 001-02 & 2005- 06. IN THOSE YEARS, THE MATTER WAS RE-EXAMINED BY THE AO AFTER THE MATTER BEING RESTORED BY THE TRIBUNAL TO HIM, AND I N THE FRESH ASSESSMENT, THE AO ALLOWED PROPORTIONATE DEDUCTION U/S 80IA TO THE ASSESSEE. THEREFORE, THE ISSUE INVOLVED IN ALL THE SE APPEALS WAS WITH REGARD TO QUANTUM OF DEDUCTION U/S 80IA OF THE ACT. IN THE FIRST ROUND, THE ASSESSEES CLAIM OF DEDUCTION U/S 80IA WAS REJE CTED. HOWEVER, WHILE FRAMING THE FRESH ASSESSMENT IN THE SECOND RO UND, THE AO HAS ACCEPTED THE POSITION THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION, BUT HE RESTRICTED THE CLAIM IN TERMS OF TOTAL TELEP HONE EXCHANGES SET UP BY THE ASSESSEE. ON THE QUANTUM OF DEDUCTION, T HE TRIBUNAL HAS TAKEN THE VIEW AS UNDER VIDE PARAGRAPH 36 OF ITS OR DER:- 36. A PLAIN READING OF THE ABOVE SECTION MAKES IT CLEAR THAT UNLIKE PROVISIONS OF SUB-SECTION 2 OF SECTION 80IA IN RESPECT OF INDUSTRIAL UNDERTAKING WHICH IMPOSES A C ONDITION THAT IT SHOULD BE A NEW UNDERTAKING AND THAT IT SHO ULD NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BU SINESS ALREADY IN EXISTENCE NOR THERE IS ANY CONDITION THA T IT SHOULD NOT BE FORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. AFTER ANALYZING ALL THESE ELIGIBILITY CRITERIA, THE AO HA S REACHED TO THE CONCLUSION THAT ASSESSEE IS ELIGIBLE FOR DEDUCT ION U/S 80IA U/S 4C OF THE IT ACT. NOW, WE HAVE TO SEE WHE THER AO WAS JUSTIFIED IN RESTRICTING CLAIM OF DEDUCTION WIT H REFERENCE TO EXCHANGES INSTALLED AFTER 1995. IT IS PERTINENT TO MENTION HERE THAT DEDUCTION U/S 80IA IS TO BE CO MPUTED ON THE PROFITS OF THE ELIGIBLE BUSINESS AND NOT ON THE BASIS OF AMOUNT INVESTED IN PLANT & MACHINERY IN THE FORM OF TELEPHONE EXCHANGES. THEREFORE, THE PROFIT ACCRUIN G FROM TELECOMMUNICATION SERVICES IS REQUIRED TO BE TAKEN INTO ACCOUNT WHILE GRANTING CLAIM OF DEDUCTION U/S 80IA. IN THIS REGARD, WE FOUND THAT AFTER 1995, THERE IS A COMPLE TE REVOLUTION IN TELECOMMUNICATION INDUSTRY AND OLD EXCHANGES IF ANY HAD BEEN TOTALLY REVAMPED. IT WAS NOT MERELY ADDITION OF THE NEW EXCHANGES BUT THERE WAS ENTIRE CHANGE IN THE SET UP, TECHNOLOGY, INSTRUMENTS AND EQUIPMENTS. THE EXCHANGES WHICH WERE EARLIER OPERA TING ON OLD TECHNOLOGY WHEREBY THERE WAS USE OF BIG CROS S BAR ITA-770/DEL/2006 5 EXCHANGES WITH LARGE TELEPHONE INSTRUMENTS OF DIALI NG NUMBERS MECHANICALLY BY ROTATING THE DIAL. SINCE T HIS TECHNOLOGY HAS BEEN TOTALLY ABANDONED AND REVAMPED , REPLACING THE OLD, MOST OF THE INCOME GENERATED IS ATTRIBUTABLE TO SUCH NEW TECHNOLOGY EXCHANGES. MER ELY ON THE NUMBER OF OLD EXCHANGES WHICH WERE NOT IN OPERA TION AT ALL OR HAD UNDERGONE TOTALLY REVAMPED, INCOME CA NNOT BE ATTRIBUTABLE TO SUCH OLD EXCHANGES, WE FOUND THA T THE NEW TECHNOLOGY AND THE NEW EXCHANGES MADE POSSIBLE A MULTITUDE OF NEW INTELLIGENT NETWORK SERVICES WHICH ARE LIKE CELLULAR SERVICES, VIRTUALLY CALLING CARD SERVICES, PREMIUM RATE SERVICES, ISDN, CALLING LINE IDENTIFICATION, C ALL FORWARD ON BUSY AND FREE LINES, CREDIT CARD PAYMENT SCHEME, TELE- MART INTERACTIVE VOICE RESPONSE SERVICES, DIRECTORY ON CD- ROM ETC. VARIOUS ADD ON SERVICES SUCH AS DATACOM, INET, DID PABX, VOICE MAIL, RADIO PAGING AND ISDN HAS BEE N STARTED AFTER 1.4.1995. IN ADDITION TO THIS PHONE PLUS FACILITIES LIKE DYNAMIC LOCKING, CALL WAITING/CALL TRANSFER, HOT LINES ETC. HAS BEEN EXTENDED TO VALUED CUSTOMERS. FURTHER IN ORDER TO MINIMIZE HUMAN RE-INTERFACE, IMPORTANT OPERATOR BASED SPECIAL SERVICES HAVE BEEN AUTOMATED WITH IVRS (INTERACTIVE VOICE RESPONSE SYSTEMS). WE ALSO FOUND THAT THE ASSESSEE MTNL STARTED PROVIDING SEVERAL OT HER ADVANCED AND OTHER ADD ON SERVICES SUCH AS VIRTUAL CARD/ACCOUNT CARD CALLING, FREE PHONE, VIRTUAL PRIV ATE NETWORK, PREMIUM RATE SERVICE, TELEWAITING ETC. A N EW TECHNIQUE NAMED DLC (DIGITAL LOOP CARRIER SYSTEM) H AS ALSO BEEN ESTABLISHED. THUS, 1995 ONWARDS THE ASSESSEE S INDUSTRY HAS UNDERWENT A TREMENDOUS REVOLUTION RESU LTING FROM THE POSSIBILITIES OPENED UP BY AUTOMATIC SELF OPERATED EXCHANGES. THIS WAS NOT A CHANGE OR MODIFICATION B UT INTRODUCTION OF TOTALLY DIFFERENT FACILITIES. IT H AS INDUCTED DE NOVO SYSTEMS AND TECHNOLOGY IN PLACE OF OUTMODE AND ANTIQUATED SYSTEM AND TECHNOLOGY. IN VIEW OF THE A BOVE DISCUSSION, IT IS CRYSTAL CLEAR THAT MERELY ON THE BASIS OF ATTRIBUTING THE INCOME IN THE RATIO OF TELEPHONE EX CHANGES NOT PROPER, BUT WE HAVE TO SEE THE VARIOUS SERVICES RENDERED BY MTNL AFTER 1995 WHICH WERE ACTUALLY GENERATING INCOME. SINCE THE DEDUCTION IS TO BE AL LOWED IN RESPECT OF INCOME GENERATED BY ALL THESE FACILITIES , WE ARE REQUIRED TO COMPUTE DEDUCTION AS PER THESE HOST OF SERVICES BEING RENDERED BY MTNL. THE LOWER AUTHORI TIES HAVE ALSO NOWHERE DECLINED THE VERY FACT OF OLD EXC HANGES TOTALLY BEING REVAMPED, MOST OF WHICH WERE NON-OPER ATING AND UNDER DISCARDED POSITION. AS THE INCOME GENERAT ED THROUGH SO MANY SERVICES BEING RENDERED BY THE NEW EXCHANGES WHICH IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IA, WE CANNOT RESTRICT THE CLAIM IN RESPECT OF THE NOMI NAL ITA-770/DEL/2006 6 INCOME IF ANY GENERATED OUT OF THE OLD EXCHANGES. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTA NCES OF THE CASE, WE DIRECT THE AO TO ATTRIBUTE 75% (SEVENT Y FIVE PERCENT) OF THE INCOME FROM VARIOUS SERVICES ENUMER ATED ABOVE AS HAVING BEEN CARRIED OUT ONLY BY VIRTUE OF NEW EXCHANGES HAVING BEEN INSTALLED. 25% OF THE INCOME MAY BE ATTRIBUTED TO THE OLD EXCHANGES. ACCORDINGLY, T HE MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR RECOMPUTING THE CLAIM OF DEDUCTION U/S 80IA WITH RE FERENCE TO 75% OF THE INCOME BEING ELIGIBLE FOR DEDUCTION, WHEREAS BALANCE 25% IS NOT ELIGIBLE FOR DEDUCTION IN ALL TH E YEARS UNDER CONSIDERATION. WE DIRECT ACCORDINGLY. 12. RESPECTFULLY FOLLOWING THE AFORESAID TRIBUNALS ORDER, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR COMPUTING THE ASSESSEES CLAIM OF DEDUCTION U/S 80IA IN THE LIGHT OF THE ORD ER OF THE TRIBUNAL PASSED IN EARLIER YEARS. THE AO SHALL PROVIDE REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DETERMINING T HE QUANTUM OF DEDUCTION U/S 80IA OF THE ACT. THE AO SHALL TAKE I NTO ACCOUNT THE NEW PROVISIONS CONTAINED IN SECTION 80IA(4)(II) APPLICA BLE TO THE PRESENT AY 2004-05 WHILE DECIDING THE ISSUE. WE ORDER ACCORDI NGLY. 13. GROUND NO.3 RELATING TO THE DISALLOWANCE U/S 43 B WITH REGARD TO NON-DEPOSIT OF EMPLOYEES CONTRIBUTION TOWARDS GPF WAS NOT PRESSED FOR BY THE LEARNED COUNSEL FOR THE ASSESSEE. HENCE , THE SAME STANDS DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 21 ST APRIL, 2011. SD/- SD/- (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 21.04.2011. VK. ITA-770/DEL/2006 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR