2016 (1) TMI 1120 - AT - Income Tax

Addition made on account of license fee and spectrum charges while computing book profits u/s 115 JB - Held that - In view of our finding that the license fee and spectrum charges have to be allowed in full we delete this adjustment made to the book profit u/s 115 JB of the Act to the extent sustained by the First Appellate Authority. In the result consistent with the view taken on the issue of allowability of license fee and spectrum charges we allow the ground of the assessee and dismiss the ground of revenue. Allowability of depreciation - Held that - Tax depreciation should be allowed to the appellant on the written down value of the assets as reported in the Income Tax return of the respective year. Thus this issue stands settled in favour of the assessee. See Bharat Sanchar Nigam Ltd. Versus Deputy Commissioner of Income And other 2013 (5) TMI 416 - DELHI HIGH COURT . Adjustment made on account of excess claim of depreciation while computing book profits u/s 115 JB - Held that - After hearing rival contentions in view of our decision in the ground against part disallowance of depreciation the addition made to the book profits u/s 115 JB of the Act on the ground that there is excess claim of depreciation is hereby deleted. In the result we allow all the grounds of the assessee on this issue and dismiss the revenue s ground on this issue. Addition on loan granted by the Government of India to the assessee is a revenue receipt - Held that - The assessee has not demonstrated before us that the amount in question which is a perpetual loan with no liability for repayment of principal or interest was in fact utilised for acquisition of capital assets. The purpose of the loan is to establish telephone services in rural areas. As no evidence is produced we uphold the order of the revenue authorities on this issue. The contention of the assessee that the A.O. for the A.Y. 2011-12 has treated a similar amount as received on capital account does not persuade us to reverse the order of the Ld.CIT(A) for the reason that the addition is based on the fact of non filing of the required evidences. Hence we dismiss this ground of the assessee Adjustment made by adding the above said loan granted by the Government of India while computing book profits u/s 115 JB - Held that - No such adjustment can be made to the profits determined under Schedule VI of the Companies Act as the item in question i.e. loan received from government is not that which is specified in Explanation II to S.115 JB of the Act. In our view reliance placed by the assessee on the judgement of Hon ble Apex Court in the case of Apollo Tyres reported in (2002 (5) TMI 5 - SUPREME Court ) applies in this case. Disallowance of interest on MTNL Bonds - Held that - In view of the MOU between the BSNL and Govt. Of India the genuineness of the expenditure cannot be doubted. The expenditure incurred is for the business of the assessee and hence the same was rightly directed to be allowed by the First Appellate Authority. In the result we uphold the order of the First Appellate Authority and dismiss this ground of the Revenue. Addition on reversal of excess income booked in earlier years cannot be reversed this year - Held that - We are of the view that as the fact that the income in question is not recoverable and that i is written off is not in dispute. The Ld.CIT(A) was right in allowing the claim of deduction of reversal of income. Hence this ground of the Revenue is dismissed. Disallowance made by the A.O. u/s 43B on account of provision made for gratuity - Held that - The assessee had submitted before the revenue authorities that there is no liability for gratuity payable by the assessee company and hence there is no question of providing for such expenses. The Ld.CIT(A) held that such submission does not have any sanctity unless the same is verified. The Ld.CIT(A) refused to admit additional evidence produced by the assessee on the ground that the assessee failed to rectify the error found during the course of assessment. In our view the First Appellate Authority should have admitted the additional evidence and verified the claim of the assessee that there was an error in the tax audit report. When the assessee has not been put to notice about this particular disallowance the question of the assessee replying to the allegation during the course of assessment proceedings does not arise. In the result this ground is set aside to the file of the AO for fresh adjudication. Disallowance of expenses on the ground that they are capital in nature - Held that - we are of the considered opinion that the Ld.CIT(A) should have admitted the additional evidence under Rule 46A as the assessee was not put to notice of this disallowance to be made by the A.O. When the assessee has pointed out that in the tax audit report the actual figure is Rs. 11.32 lakhs it is not correct on the part of the Ld.CIT(A) to confirm the disallowance made by the A.O. of Rs. 113.26 crores. In view of the above discussion we set aside the matter to the file of the AO for fresh adjudication in accordance with law after considering the evidence to be produced by the assessee. Disallowane of gift - Held that - We are unable to uphold the adhoc disallowance of 20% of the total expenditure by the Ld.CIT(A). The Ld.CIT(A) should have allowed the entire expenditure for the reason that he recorded that the assessee s accounts were subject to CAG audit statutory audit internal audit tax audit etc. and that there was no adverse observation in any of these audits etc. As there is no justification for the Ld.CIT(A) to retain disallowance of 20% we delete this disallowance and allow this ground of the assessee. Disallowance u/s 14A of the Act r.w.Rule 8D - Held that - Admittedly the assessee has no exempt income during the year. Hence no disallowance can be made u/s 14A

Summary

Issues Involved:
1. Allowability of License Fee and Spectrum Charges
2. Addition of License Fee and Spectrum Charges in Book Profits u/s 115JB
3. Claim of Depreciation
4. Adjustment of Depreciation in Book Profits u/s 115JB
5. Treatment of Perpetual Loan from Government of India
6. Adjustment of Perpetual Loan in Book Profits u/s 115JB
7. Disallowance of Interest on MTNL Bonds
8. Allowability of Expenses on Issue of MTNL Bonds
9. Reversal of Excess Income Booked in Earlier Years
10. Adjustment of Reversal of Excess Income in Book Profits u/s 115JB
11. Disallowance of Gratuity Provision u/s 43B
12. Disallowance of Expenses as Capital Expenditure
13. Disallowance of Office Partition Expenses
14. Adhoc Disallowance of Expenditure on Gifts
15. Write-off of Assets
16. Disallowance of Administrative and Other Expenses
17. Disallowance of Foreign Exchange Fluctuation Loss
18. Disallowance u/s 14A r.w. Rule 8D
19. Disallowance u/s 80IA

Issue-wise Detailed Analysis:

1. Allowability of License Fee and Spectrum Charges:
The tribunal addressed the disallowance of license fees and spectrum charges by the Assessing Officer (A.O.). The A.O. disallowed the expense, arguing it was not allowable under Section 37 of the Income Tax Act and also invoked Section 43B for late payment. The First Appellate Authority restricted the disallowance to 15% and rejected the applicability of Section 43B, treating the license fee as neither tax, duty, cess, nor fees. The tribunal followed precedents set by ITAT Mumbai and Delhi Benches, allowing the full deduction of license fees and spectrum charges, dismissing the Revenue's appeal on this issue.

2. Addition of License Fee and Spectrum Charges in Book Profits u/s 115JB:
Given the tribunal's decision to allow the license fee and spectrum charges, the adjustment made to book profits under Section 115JB was deleted, aligning with the view taken on the allowability of these charges.

3. Claim of Depreciation:
The A.O. had allowed depreciation on reworked Written Down Value (WDV), disallowing part of the claim. The tribunal referenced the Hon'ble Delhi High Court's decision, which settled the issue in favor of the assessee, directing the A.O. to allow depreciation as claimed by the assessee.

4. Adjustment of Depreciation in Book Profits u/s 115JB:
Consistent with the decision on the depreciation claim, the tribunal deleted the addition made to book profits under Section 115JB due to excess depreciation claim.

5. Treatment of Perpetual Loan from Government of India:
The tribunal upheld the revenue authorities' decision to treat the perpetual loan from the Government of India as a revenue receipt, as the assessee failed to demonstrate its utilization for acquiring capital assets.

6. Adjustment of Perpetual Loan in Book Profits u/s 115JB:
The tribunal ruled that no adjustment could be made to book profits under Section 115JB for the perpetual loan, referencing the Hon'ble Supreme Court's decision in Apollo Tyres.

7. Disallowance of Interest on MTNL Bonds:
The tribunal upheld the First Appellate Authority's decision to allow the interest expenditure on MTNL bonds, recognizing the genuineness of the expenditure and its business purpose.

8. Allowability of Expenses on Issue of MTNL Bonds:
Following the decision on interest on MTNL bonds, the tribunal upheld the First Appellate Authority's decision to allow the expenditure incurred on issuing MTNL bonds.

9. Reversal of Excess Income Booked in Earlier Years:
The tribunal upheld the First Appellate Authority's decision to allow the deduction of reversal of excess income booked in earlier years, recognizing it as a non-recoverable amount.

10. Adjustment of Reversal of Excess Income in Book Profits u/s 115JB:
The tribunal dismissed the ground as not pressed by the assessee, in light of retrospective amendments to the Income Tax Act.

11. Disallowance of Gratuity Provision u/s 43B:
The tribunal set aside the issue to the A.O. for fresh adjudication, directing verification of the assessee's claim of error in the tax audit report regarding the gratuity provision.

12. Disallowance of Expenses as Capital Expenditure:
The tribunal set aside the matter to the A.O. for fresh adjudication, directing consideration of additional evidence to verify the correct amount of expenses reported in the tax audit report.

13. Disallowance of Office Partition Expenses:
The tribunal upheld the disallowance of office partition expenses as capital expenditure but allowed depreciation on the same.

14. Adhoc Disallowance of Expenditure on Gifts:
The tribunal deleted the adhoc disallowance of 20% of total expenditure on gifts, recognizing the expenditure as business-related and noting the absence of adverse audit observations.

15. Write-off of Assets:
The tribunal directed the A.O. to verify the assessee's claim of double disallowance and pass necessary orders, setting aside the issue for statistical purposes.

16. Disallowance of Administrative and Other Expenses:
The tribunal upheld the disallowance due to lack of necessary details provided by the assessee.

17. Disallowance of Foreign Exchange Fluctuation Loss:
The tribunal set aside the issue to the A.O. for fresh adjudication, directing verification of whether the loss was on revenue or capital account.

18. Disallowance u/s 14A r.w. Rule 8D:
The tribunal dismissed the revenue's ground, noting that no disallowance could be made under Section 14A as the assessee had no exempt income during the year.

19. Disallowance u/s 80IA:
Following the tribunal's earlier decision in the assessee's favor, the tribunal directed the A.O. to allow the claim under Section 80IA for the relevant assessment years.

Conclusion:
The appeals of both the assessee and the Revenue were allowed in part, with specific directions given for fresh adjudication and verification on certain issues. The tribunal's decisions were guided by precedents, statutory provisions, and factual findings.