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

ITA 8102/MUM/2010

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0603 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH LD
• Keywords: Opportunity of being heard
• Section: 250; 80IA

Judgement Text

ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.8102/MUM/2010 ( / ASSESSMENT YEAR: 2007-08) REACH NETWORK INDIA PRIVATE LTD. UNIT NOS.14 & 15, 1 ST FLOOR PARADIGM TOWERS, B-WING MINDSPACE, MALAD (W), MUMBAI-400 064. / VS. A CIT - 9(3) AAYKAR BHAVAN M.K.MARG MUMBAI-400 020. ! ./ ./PAN/GIR NO. AABCT-2555-M ( !# /APPELLANT ) : ( $!# / RESPONDENT ) ASSESSEE BY : SHRI J.D. MISTRI-LD. SR. COUNSEL; SHRI NINAD PATO DE REVENUE BY : CHAUDHARY ARUN KUMAR SINGH - LD.SR.DR / DATE OF HEARING : 20/08/2019 / DATE OF PRONOUNCEMENT : 16/09/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1.1 AFORESAID MATTER IS A RECALLED MATTER SINCE THE APPEAL WAS EARLIER DISPOSED-OFF BY THE TRIBUNAL VIDE ORDER DATED 12/07 /2017. IN THE SAID ORDER, THE ISSUE OF DEDUCTION U/S 80-IA(4)(II) AS C LAIMED BY THE ASSESSEE BUT DENIED BY THE REVENUE, WAS DISMISSED VIDE PARA 5.4 AND 6 OF THE ORDER. HOWEVER, UPON ASSESSEES MISCELLANEOUS APPLI CATION, THIS ISSUE HAS BEEN RECALLED BY THE TRIBUNAL VIDE MA NO.66/M/2 018 ORDER DATED ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 2 27/09/2018. ACCORDINGLY, THE ISSUE HAS COME UP FOR FRESH HEARING BEFORE THIS BENCH. 1.2 DURING THE COURSE OF HEARING, THE REVENUE HAS U RGED THAT IT IS CONTEMPLATING FILING OF WRIT AGAINST THE RECALL OF THE ORDER BUT AS PER SUBMISSIONS FROM ASSESSEES SIDE, NO WRIT PETITION HAS BEEN SERVED ON THE ASSESSEE TILL DATE. THEREFORE, FINDING NO IMPED IMENT TOWARDS RE- HEARING OF THE APPEAL, WE PROCEED TO ADJUDICATE THE SAME. 1.3 THE ONLY ISSUE TO BE ADJUDICATED AS CONTAINED I N GROUND NOS. 1 TO 9 READ AS UNDER: - THE APPELLANT OBJECTS TO THE ORDER DATED 21 SEPTEMB ER 2010 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 20 , MUMBAI (HEREIN AFTER REFERRED TO AS 'LEARNED CIT(A)') UNDER SECTION 250 OF THE INCOME-T AX ACT, 1961 ('THE ACT') FOR THE AFORESAID ASSESSMENT YEAR ON THE FOLLOWING AMONG OT HER GROUNDS - 1. THE LEARNED CIT(A) ERRED IN NOT ALLOWING DEDUCTION U/S 80-IA(4)(II) OF THE ACT TO THE APPELLANT. 2. HE ERRED IN SUMMARILY HOLDING THAT THE RE VENUES EARNED BY THE APPELLANT ARE FROM TRADING IN BANDWIDTH, ESPECIALLY SINCE A REGIS TERED INTERNET SERVICE PROVIDER CAN ONLY RENDER INTERNET SERVICES IN INDIA AND IS NOT P ERMITTED TO TRADE IN BANDWIDTH, 3. HE FAILED TO APPRECIATE THE FACT THAT THE APP ELLANT WOULD NOT HAVE INVESTED HEAVILY IN INFRASTRUCTURE HAD IT BEEN A SO CALLED ' TRADER OF BANDWIDTH'. 4. HE ERRED IN UPHOLDING THAT 'NETWORK SUPPORT SERVICES' PROVIDED BY THE APPELLANT TO REACH GLOBAL SERVICES LIMITED ARE DIST INCT AND DIFFERENT FROM THE SERVICES PROVIDED BY IT TO ITS OTHER CLIENTS. 5. HE ERRED IN CONCLUDING THAT THE REVENUES EAR NED BY THE APPELLANT FROM PROVISION OF 'NETWORK SUPPORT SERVICES' TO REACH GL OBAL SERVICES LIMITED HAVE BEEN OFFSET BY THE EXPENSES ON 'NETWORK SUPPORT FEES' PA ID TO REACH DATA SERVICES INDIA PVT. LTD. 6. HE ERRED IN RELYING SOLELY ON THE NOMENCLATURE U SED IN THE NOTES TO ACCOUNTS OF THE FINANCIAL STATEMENTS WITHOUT APPRECIATING TH E FACT THAT THE ENTIRE REVENUES EARNED BY THE APPELLANT ARE PURELY ON ACCOUNT OF RE NDITION OF INTERNET SERVICES AND THE NOMENCLATURE SO USED IN THE ACCOUNTS IS ONLY A LOOSE / LAYMAN'S CONNOTATION WHICH CANNOT BE APPENDED DECISIVE IMPORTANCE IN ISO LATION. 7. HE ERRED IN HOLDING THAT NO CREDIBLE MATE RIAL OR EVIDENCE HAD BEEN BROUGHT TO HIS ATTENTION TO DEMONSTRATE THAT THE SALE OF BANDW IDTH REPRESENTS RENDERING OF INTERNET SERVICES, MORE SO SINCE THE APPELLANT WAS NEVER REQUESTED TO ELABORATE ON THIS ASPECT OR PROVIDED AN OPPORTUNITY TO DEMONSTRA TE THE SAME. 8. HE ERRED IN RELYING ON THE ASSESSING OFFIC ER'S CONTENTION THAT THE APPELLANT HAD BEEN PROVIDED AN OPPORTUNITY TO SUBMIT CONFIRMA TIONS FROM CERTAIN PARTIES TO SUBSTANTIATE THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET SERVICES BUT IT FAILED TO DO SO, ESPECIALLY SINCE THIS CONFIRMATION WAS SOUGHT ONLY FROM THE LIMITED ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 3 PERSPECTIVE OF VERIFYING THE EXISTENCE OF CREDITORS WHICH WERE APPEARING IN THE BALANCE SHEET OF THE APPELLANT, AND, NOT AS CLAIMED OTHERWISE BY THE ASSESSING OFFICER. 9. HE ERRED IN PLACING EXCESSIVE RELIANCE ON THE ABOVE CLAIM OF THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT THE CUST OMERS OF THE APPELLANT DECLINED TO RESPOND TO THE CREDITOR VERIFICATION REQUESTS IN SP ITE OF REPEATED FOLLOW UPS BY THE APPELLANT. 1.4 WE HAVE HEARD AND CONSIDERED THE ORAL AS WELL A S WRITTEN SUBMISSIONS / ARGUMENTS ADVANCED BY RESPECTIVE REPR ESENTATIVES. OUR ADJUDICATION TO THE ISSUE WOULD BE AS FOLLOWS. 2.1 UPON PERUSAL OF QUANTUM ASSESSMENT ORDER, IT TR ANSPIRES THAT THE ASSESSEE WAS DENIED DEDUCTION U/S 80IA(4)(II) IN VI EW OF THE OBSERVATIONS THAT (I) THE ASSESSEE WAS A MERE TRADE R IN BANDWIDTH; (II) THE AGREEMENT WITH GOVT OF INDIA WAS IN RESPECT OF INTERNET SERVICE PROVIDER (ISP) AND NOT MERE AS A BANDWIDTH PROVIDER ; (III) ITS MAJOR SOURCE OF ACTIVITIES WERE OUTSOURCED TO ITS SISTER CONCERN NAMELY REACH DATA SERVICES INDIA PVT. LTD. (RDSIPL). 2.2 THE ASSESSEE, VIDE LETTER DATED 25/08/2009, SUB MITTED THAT IT WAS PRIMARILY ENGAGED IN THE BUSINESS OF PROCUREMENT AN D SALE OF BANDWIDTH TO RETAIL INTERNET SERVICE PROVIDERS AND CORPORATE USERS. IT WAS SUBMITTED THAT THE COMPANY HAD LICENSE TO PROVIDE ISP SERVICE S FOR A PERIOD OF 15 YEARS. THE SAID SUBMISSIONS WERE REITERATED IN ITS SUBMISSIONS DATED 04/09/2009, WHEREIN THE ATTENTION WAS DRAWN TO SUB- PARA (C) OF PARA 2 OF SCHEDULE 9 OF THE BALANCE SHEET TO SUPPORT THE SAME . 2.3 THE AFORESAID SUBMISSIONS FORTIFIED THE OBSERVA TION OF LD.AO THAT THE ASSESSEE WAS MERELY TRADING IN BANDWIDTH. IT WA S ALSO OBSERVED THAT THE ASSESSEE RECEIVED PAYMENTS FOR PROVIDING NETWOR K SERVICES TO M/S REACH GLOBAL SERVICES LTD. (RGSL) AND MADE PAYMENT FOR EXACTLY THE ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 4 SAME NATURE OF NETWORK SERVICES TO ITS SISTER CONCE RN NAMELY M/S REACH DATA SERVICES INDIA PVT. LTD. (RDSIPL). THE ASSESSE E CLAIMED DEDUCTION ON ACCOUNT OF RECEIPTS FROM RGSL CONSIDERING THAT I T WAS THE ASSESSEE WHO WAS PROVIDING THE SERVICES. AT THE SAME TIME, I T WAS MAKING PAYMENT TO RDSIPL FOR RENDERING EXACTLY THE SAME NA TURE OF SERVICES WHICH TANTAMOUNT TO OUTSOURCING OF SERVICES WHICH W AS NOT PERMITTED AS PER THE LICENSE AGREEMENT ENTERED INTO BY THE ASSES SEE WITH GOVT. OF INDIA AND THEREFORE, THE ASSESSEE VIOLATED THE COND ITION LAID DOWN FOR BEING AN INTERNET SERVICE PROVIDER (ISP). IT WAS AL SO NOTED THAT THE ENTITIES TO WHOM THE ASSESSEE HAD SOLD THE BANDWIDT H WERE THEMSELVES INTERNET SERVICES PROVIDERS. IN THE ABOVE BACKGROUN D, IT WAS CONCLUDED THAT THE ASSESSEE WAS NOTHING MORE THAN A TRADER IN THE BANDWIDTH. FURTHER, THE ASSESSEE NEVER USED THE PURCHASED BAND WIDTH TO PROVIDE ANY INTERNET SERVICE ON ITS OWN AND THEREFORE THE A FORESAID DEDUCTION U/S 80IA WAS DENIED TO THE ASSESSEE. 2.4 PROCEEDING FURTHER, THE ASSESSEE HAD REFLECTED INCOME OF RS.2.21 CRORES STATED TO BE RECEIVED FROM RGSL. THE PERUSAL OF THE AGREEMENT REVEALED THAT THE ASSESSEE WAS HIRING OUT ITS EQUIP MENT AND NETWORK SERVICES TO RGSL AND PROVIDING THE SERVICES TO THE CUSTOMERS OF RGSL FOR WHICH IT WAS GETTING PRO-RATA FEES FOR TECHNICA L SERVICES. THE CUSTOMERS TO WHOM THE SERVICES WERE PROVIDED WERE N OT THE ASSESSEES CUSTOMERS AND IT WAS A CASE OF NETWORK ASSISTANCE R ENDERED BY THE ASSESSEE. 2.5 FINALLY, THE DEDUCTION OF RS.134.91 LACS CLAIME D BY THE ASSESSEE U/S 80-IA WAS DENIED WHILE FRAMING THE QUANTUM ASSE SSMENT ORDER. ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 5 3.1 AGGRIEVED, THE ASSESSEE CONTESTED THE STAND OF LD. AO BEFORE FIRST APPELLATE AUTHORITY, HOWEVER, WITHOUT ANY SUCCESS, VIDE IMPUGNED ORDER DATED 21/09/2010. THE LD. CIT(A), AFTER CONSIDERING ASSESSEES SUBMISSIONS & FINANCIAL STATEMENTS INCLUDING SCHEDU LE 9-ACCOUNTING POLICIES & NOTES TO THE ACCOUNTS, REACHED A CONCLUS ION THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF WHOLESALE P ROCUREMENT AND SALE OF BANDWIDTH TO RETAIL ISPS AND CORPORATE USER S AND WAS NOT RENDERING ANY SERVICES IN RESPECT TO THE BANDWIDTH. ALTHOUGH THE ASSESSEE DEFENDED THE FACTUM OF RENDERING THE SERVI CES, INTER-ALIA, BY FURNISHING SAMPLE COPIES OF INVOICES, HOWEVER, IN T HE ABSENCE OF CONFIRMATION FROM ASSESSEES CUSTOMERS, THE SAID SU BMISSIONS COULD NOT FIND FAVOR WITH FIRST APPELLATE AUTHORITY. THEREFOR E, IT WAS CONCLUDED THAT THE INCOME OF RS.26.97 CRORES CREDITED TO PROFIT & LOSS ACCOUNT WAS ON ACCOUNT OF SALE OF BANDWIDTH AND THEREFORE, NOT AN ELIGIBLE BUSINESS AS REFERRED TO IN SECTION 80-IA(4)(II). 3.2 PROCEEDING FURTHER, THE NETWORK SUPPORT SERVICE S FEES OF RS.2.21 CRORES RECEIVED FROM RGSL WAS HELD TO BE ON ACCOUNT OF RENDERING OF INTERNET SERVICES. HOWEVER, SINCE THE ASSESSEE HAD PAID A SUM OF RS.3.06 CRORES TO RDSIPL AGAINST THE SAME, THE NET RESULT BEING A LOSS, IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S 80- IA(4)(II) AGAINST THE SAME ALSO. AGGRIEVED, THE ASS ESSEE IS IN FURTHER APPEAL BEFORE US. 4.1 THE LD. SR. COUNSEL, DRAWING OUR ATTENTION TO V ARIOUS DOCUMENTS PLACED IN THE PAPER-BOOK, PITCHED FOR ASSESSEES CA SE BY SUBMITTING THAT THE ASSESSEE WAS, IN FACT, ENGAGED IN PROVIDING BAN DWIDTH AS WELL AS INTERNET SERVICES TO ITS CUSTOMERS SINCE IT WAS NOT POSSIBLE TO TRADE IN ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 6 BANDWIDTH AS WRONGLY NOTED BY THE LOWER AUTHORITIES . IT HAS BEEN PLEADED THAT LOWER AUTHORITIES HAVE COMPLETELY MISUNDERSTOO D THE NATURE OF BUSINESS BEING CARRIED OUT BY THE ASSESSEE. TO SUPP ORT THE SAME, OUR ATTENTION HAS BEEN DRAWN TO THE ISP LICENSE GRANTED BY GOVT. OF INDIA TO THE ASSESSEE, WHICH WAS VALID FOR A PERIOD OF 15 YE ARS EFFECTIVE FROM 05/02/2001. IT HAS BEEN PLEADED THAT THE SERVICES P ROVIDED BY THE ASSESSEE WERE TERMED AS GLOBAL INTERNET ACCESS (GIA ) SERVICES AS MENTIONED IN THE INVOICES ISSUED TO THE CUSTOMERS. IN ESSENCE, THE ASSESSEE RENDERED INTERNET SERVICES TO ITS CUSTOMER S AT A PARTICULAR SPEED FOR A STIPULATED PERIOD AND WHAT HAS BEEN TER MED AS SALES IN THE ACCOUNTS WOULD ACTUALLY MEAN UTILIZATION OF BANDWID TH FOR PROVIDING INTERNET SERVICES AND EARNING INCOME THEREFROM. THE ASSESSEE IS SIMPLY ACQUIRING TRANSMISSION CAPACITY FROM OTHER ISPS AND IN TURN, PROVIDING INTERNET SERVICES TO ITS CUSTOMERS AND HENCE, ELIGI BLE TO CLAIM THE SAID DEDUCTION U/S 80-IA(4)(II). 4.2 TO FURTHER SUPPORT THE AFORESAID SUBMISSIONS, T HE ATTENTION OF THE BENCH HAS BEEN DRAWN TO AUDIT REPORTS IN FORM NO. 1 0CCB AS WELL AS IN FORM NO. 3CB WHEREIN THE NATURE OF SERVICES BEING P ROVIDED BY THE ASSESSEE HAS BEEN DESCRIBED AS INTERNET SERVICES . THE ATTENTION HAS ALSO BEEN DRAWN TO VARIOUS CORRESPONDENCES / INTIMA TIONS / COMMUNICATIONS DONE BY THE ASSESSEE WITH VARIOUS GO VERNMENT AGENCIES / ASSOCIATIONS. FURTHER, THE ASSESSEE IS S TATED TO BE LISTED AS ISP ON THE WEBSITE OF TELECOM REGULATORY AUTHORITY OF INDIA. 4.3 THE LD. SR. COUNSEL FURTHER POINTED OUT THAT TH E SERVICES PROVIDED BY THE ASSESSEE TO RGSL AS WELL AS TO OTHER CUSTOME RS WAS QUITE SIMILAR ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 7 AND THEREFORE, THERE WAS NO REASON TO DENY THE STAT ED DEDUCTION TO THE ASSESSEE. 4.4 DURING THE COURSE OF HEARING, IT ALSO TRANSPIRE S THAT THIS IS THE ONLY YEAR IN WHICH THIS DEDUCTION HAS BEEN CLAIMED BY TH E ASSESSEE SINCE IN ALL THE OTHER ELIGIBLE YEARS, THE ASSESSEE HAS INCU RRED LOSSES. 4.5 THE LD. SR. DR, ON THE OTHER HAND, CONTESTED TH E SUBMISSIONS BY DRAWING OUR ATTENTION TO THE OBSERVATIONS MADE BY L OWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. IT HAS BEEN ASSERTED THAT ASSESSEE WAS A MERE TRADER OF BANDWIDTH. 5. UPON CAREFUL CONSIDERATION OF STATED FACTS & CIR CUMSTANCES, THE BENCH FORMED AN OPINION THAT THE FACTUAL SUBMISSION S MADE BEFORE US WOULD REQUIRE REAPPRECIATION BY LOWER AUTHORITIES S INCE IT HAS BEEN STRESSED BY LD. SR. COUNSEL THAT TRADING IN BANDWID TH LIKE A COMMODITY WAS NOT PERMISSIBLE / POSSIBLE AND THE ASSESSEE WAS PROVIDING BANDWIDTH / INTERNET SERVICES ONLY AND THEREFORE, E LIGIBLE TO CLAIM THE DEDUCTION U/S 80-IA(4)(II). THE LOWER AUTHORITIES H AVE PRIMARILY GONE BY THE ASSESSEES SUBMISSIONS MADE DURING ASSESSMENT P ROCEEDINGS AS WELL AS FINANCIAL STATEMENTS AND REACHED A CONCLUSI ON THAT THE ASSESSEE WAS TRADING IN BANDWIDTH, WHICH THE ASSESSEE HAS NO T CONTESTED BEFORE US. THEREFORE, THE MATTER STAND REMITTED BACK TO TH E FILE OF LEARNED AO, FOR ADJUDICATION DE NOVO, KEEPING ALL THE ISSUES OPEN, WITH A DIRECTION TO THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. NEEDLESS TO ADD THAT REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE GRANTED TO THE ASSESSEE. UNDISPUTEDLY, THE ONUS WOULD BE ON ASSESSEE TO ESTA BLISH THAT IT FULFILS THE ELIGIBILITY CONDITIONS OF SECTION 80-IA(4)(II). ITA NO.8102/MUM/2010 REACH NETWORK INDIA PRIVATE LTD. ASSESSMENT YEAR :2007-08 8 6. RESULTANTLY, THE GROUNDS STAND ALLOWED FOR STATI STICAL PURPOSES. THE APPEAL REMAINS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2019. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16/09/2019 SR.PS, JAISY VARGHESE 23456736 / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. O ( ) / THE CIT(A) 4. O / CIT CONCERNED 5. PQ C R , R , / DR, ITAT, MUMBAI 6. QSTU / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.