TMI Blog2006 (2) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4 of the Indian Telegraph Act, granted licence vide letter No. 1-101/85-MTAC/PHB, dt. 27th March, 1986, to establish, maintain and work telecommunication services within the territorial jurisdiction of the Union Territory of Delhi and areas covered by the Municipal Corporation of Bombay, New Bombay and Thane. This licence was effective from 1st April, 1986 and was for a period of 5 years. The licence fee fixed for the same was Rs. 101 per annum. The appellant-company purchased the fixed assets for a total consideration of Rs. 900 crores vide sale agreement entered by the appellant-company and the President of India. The sale consideration was discharged by allotment of shares of Rs. 599,94,84,000 to the President of India. Balance sale consideration was treated as unsecured loan. As per the agreement entered by the appellant-company and the DoT, charges payable for the use of the national network are fixed at a percentage of gross income booked for the year. The national network charges are part of the operation expenses. The licence fee and national network charges were allowed as expenses and there is no dispute on this issue till asst. yr. 1993-94. 4. Later on the DoT vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal directed the AO to work out the exact amount allowable to the appellant on the basis of the office memorandum (OM) applicable at that point of time. 7. A similar issue arose in asst. yr. 1997-98. The AO disallowed the claim of the appellant on account of the licence fee of Rs. 234.70 crores. The disallowance in this year has been made by the assessing authority for the same reasoning that the payment was nothing but sharing of revenue between DoT and this assessee. Since the appellant-company has stopped payment under the rural levy charges, there was substantial increase in the licence fee from Rs. 101 per annum to Rs. 234.70 crores which is nothing but rural levy charges. For this purpose the AO referred to a communication addressed by the DoT, dt. 22nd Sept., 1993 whereby the chairman-cum-managing director (CMD) of the appellant-company was invited for discussion at the convenience of the CMD. The AO in support of his contention also prepared a chart year-wise to highlight the fact that rural levy charges were substantially high when the licence fee was nominal. However, after the stoppage of the rural levy charges, the licence fee has been increased substantially. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues which have been wrongly decided by the Tribunal. It was stated by the AO that the Tribunal has followed its own order passed in the case of Videsh Sanchar Nigam Ltd., ignoring the fact that the stand of the assessee was quite opposite to the stand taken before the learned CIT(A). It was further stated by the AO that the Tribunal has failed to construe the true import of the plea of the Department in not referring to the relationship between the assessee-company and the DoT. The Department's stand that the abnormal hike in the licence fee without any rationale behind the same was accepted by the assessee without any demure, not because of any business consideration but because of its position under the DoT. On the basis of above reasoning and the reason given in the earlier assessment orders, the AO disallowed the claim for the assessment year, i.e., asst. yr. 2001-02 as well. The order in appeal for asst. yr. 2001-02 had since been passed by the Tribunal on 11th Oct., 2004. 10. At the time of the hearing of this appeal for asst. yr. 1998-99, the Revenue raised a preliminary objection that there is a difference of opinion between the decision of the Hon'ble Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand that he needs to be heard again on the issue of the disallowance made by the AO of the licence fee and issue be not taken as covered by earlier orders of the Tribunal. He supported the contention that disallowance of licence fee is justified. The learned Authorised Representative on the contrary submitted that the issue is squarely covered in favour of the appellant by the earlier orders of the Tribunal. On merit it was contended by the learned Authorised Representative that the licence fee is an expenditure incurred for carrying on the business and is allowable under the provisions of s. 37 of the Act. As per provisions of s. 4 of the Indian Telegraph Act, the Central Government has the exclusive privilege of establishing, maintaining and working telegraphy. Sec. 4 simply declares the sovereign right of the Central Government and does not create such a right in it. The Central Government has granted a licence to the appellant-company in terms of the proviso to s. 4 of the Indian Telegraph Act which authorises the Central Government to grant licence on such conditions and in consideration of such payment as it thinks fit. Thus, obtaining of a licence is a condition precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd. vs. CIT (2001) 169 CTR (Cal) 308 : (2001) 252 ITR 337 (Cal). In this case a dispute has arisen regarding the provision of the liability in respect of the payment of royalty for obtaining eucalyptus and pinewood trees from the forest belonging to the State Government. The assessee was liable to pay royalty as determined by the Government. It was held that the said liability is a statutory liability, not a contractual liability. The Court observed that in the case in hand, the Government is the authority to decide the rate of royalty and that can be revised. The assessee can only make a request for a lower rate of royalty. Had it been a contractual liability, how can the power of fixation of the rate of royalty be with the Government only? Similarly in the case of Hukumchand Jute Industries Ltd. vs. CIT (2000) 158 CTR (Cal) 28 : (2000) 241 ITR 517 (Cal) it has been held that the State Electricity Board is constituted under the statute and any liability fixed by the State Electricity Board shall be statutory liability. Similarly in the case of CIT vs. Swadeshi Mining Manufacturing Ltd. (1978) 112 ITR 276 (Cal) it has been held that the liability to pay additional price for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of law. 15. On the other hand, the learned Departmental Representative contends that the background of the licence fee in dispute is that the assessee-company, MTNL, a public sector undertaking, was incorporated on 28th Feb., 1986 under s. 4 of Indian Telegraph Act, 1885. DoT vide memorandum dt. 27th March, 1986 transferred the management, control and operations of telecommunication in Delhi, Mumbai, Navi Mumbai and Thane Districts to the assessee-corporation along with all the assets and liabilities of the said telephone Districts for a consideration of Rs. 900 crores pursuant to agreement between the President of India and MTNL w.e.f. 1st April, 1986. 16. The sale consideration was discharged by way of allotment of 59,99,48,400 shares of Rs. 10 each to the President of India for consideration other than cash and the balance sale consideration was treated as unsecured loan to MTNL carrying interest @ 14 per cent per annum. Licence to establish, maintain and work telephone services in metros of Delhi, Mumbai, New Mumbai, Thane was granted to MTNL w.e.f. 1st April, 1986 initially for a period of 5 years. In the aforesaid licence, MTNL was required to pay licence fee of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application of profits by its very nature cannot constitute a deduction from taxable income. This was also reflected in the then Finance Minister's communication to the Minister of Telecommunication pointing out that it is not just and correct that MTNL, a Government company, does not pay its fair share of the tax. 21. MTNL for the asst. yrs. 1987-88 onwards till 1992-93 paid Rs. 101 per annum as licence fee to DoT. The said amount was never claimed as expenditure. However, for the asst. yr. 1994-95, Rs, 1,24,85,60,000 was claimed as deduction on account of licence fee for the first time. This deduction has been claimed on the basis of OM dt. 13th May, 1994 issued by DoT. In this OM, it is stated that licence fee @ Rs. 800 per working DEL w.e.f. 1st April, 1993 will be payable by MTNL to DoT. The said OM does not state and describe the nature of the licence fee and why suddenly it has been increased to a substantially huge amount from Rs. 101 per year. The assessee was paying Rs. 101 per year as licence fee from 1986 onwards till 1994. It may also be relevant to mention that the office memorandum is dt. 13th May. 1994 i.e. after close of the accounting year and closing of boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification or rationale for DoT to increase the licence fees from a mere 101 rupees per annum to Rs. 124 crores for asst. yr. 1994-95, Rs. 148 crares for asst. yr. 1995-96 and Rs. 198 crores for asst. yr. 199697. He held that there was a diversion of income by mutual understanding, adjustment and acceptability, which does not tantamount to diversion by overriding title. 27. The assessee had gone in appeal before Tribunal against the order of CIT(A) for asst. yrs. 1995-96 and 1996-97. The Tribunal, Delhi Bench, following the order of Tribunal. Bombay Bench in the case of Videsh Sanchar Nigam Ltd. held in a common order vide ITA Nos. 1088 and 1618/Del/2000, dt. 10th Dec., 2001 that though the licence fee, in principle, should be allowed as business expenditure, however in the case of MTNL, the exact amount of licence fee/share of revenue will be allowed on the basis of office memorandum issued by the DoT regarding the charging of licence fee. If the office memorandum was passed during or prior to the accounting year, the licence fee will be allowed, and if the OM was passed after the end of the accounting year, the licence fee will not be allowed in view of Supreme Court decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. The Hon'ble Tribunal also failed to deliberate on the issue raised before it by the Department vide para 20 of the order that the case of VSNL as decided by the Bombay Bench of the Tribunal was different from that of the assessee inasmuch as the licence fees paid by the VSNL was for user of the network belonging to DoT whereas in the case of the MTNL, the network was purchased by it from DoT and there was no question of paying any licence fees for the user of the same for MTNL area. Separate network charges are paid for use of network beyond Delhi area. 31. The case of MTNL is, thus, clearly distinguishable from the case of VSNL. Tribunal in the case of VSNL has held that "DoT levy" and "licence fee" is for the use of the network made available to VSNL by DoT. It is consideration paid by VSNL for use of telecommunication network of DoT. VSNL does not possess the telecommunication network and is perforce to make use of the network owned by DoT. Payment made by VSNL by whatever name called is in truth payment for making use of the network of DoT. License fee paid by VSNL to DoT is for user of the network belonging to DoT. The facts of the present case are entirely different. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey have arisen. The aim and object of DoT while sharing profits from the asst. yr. 1992-93 onwards has been to ensure that the assessee gets 12 per cent rate of return on the net worth of MTNL as far as possible. To ensure sharing of profits, DoT has been charging the alleged licence fee. Regardless of the nomenclature used and given by the DoT and the assessee, the alleged licence fee is nothing but sharing of profits, after they have arisen, between the assessee and DoT. 35. The assessee's claim that the licence fee stands diverted by overriding title is not correct as supported by the decision of Hon'ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC) wherein it was held as under: "The present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge as obligation and not a case in which by an overriding charge the assessee became only a collector of another's income. Therefore, the assessee was not entitled to the deduction." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not considered the following facts while examining the application of the Department for seeking approval for filing appeal before the Hon'ble Delhi High Court. (i) The genesis of the dispute arises from the view taken that the liability of the MTNL to pay the licence fee is a statutory liability. It may be pointed out that the Department's view is that the licence fee paid by MTNL is not a statutory liability and that its case is different from VSNL's case. (ii) It may be mentioned that for asst. yrs. 1998-99, 1999-2000, 2000-01 and 200203 the appeals of the assessee are pending before Tribunal, G-Bench. In the course of the hearing, Tribunal has directed that verification of the licence fee be co-related to the office memorandum. This verification indicated that for asst. yr. 2000-01 the relevant OM is that dt. 9th April, 2001, which states that based on the recommendations of Telecom Regulatory Authority (TRAI) , the annual licence fee payable by MTNL w.e.f. 1st Aug., 1999 is 12 per cent of the annual gross revenue (AGR). However, the MTNL have themselves shown that they have paid the licence fee on the basis of Rs. 900 per DEL. If the liability of the MTNL to DoT was a st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is later. (vii) M/s Bharati Cellular Ltd. was incorporated on 20th March, 1992 for asst. yr. 2002-03 the assessee had claimed an amount of Rs. 65,15,10,000 on account of licence fee. However, invoking the provisions of s. 35ABB only a licence fee amounting to Rs. 4,07,19,375 was allowed, and the balance of Rs. 61,07,90,625 was disallowed. 42. In the cases of private operators, licence has been given for a definite period, e.g., in the cases of Reliance Telecom Ltd. and Bharati Cellular Ltd., licence has been given for a period of 20 years. However, in the assessee's case, licence has been given on year-to-year basis as has been seen from the OMs filed by the assessee in this regard. 43. A statutory liability is one which is levied under a statute passed by the legislature and it enjoins upon certain persons or class of persons, etc. to pay some fee, tax or cess to the Government. Such statutes contain machinery provisions for collection and recovery of the levy. 44. In MTNL's case, DoT has imposed licence fee invoking its powers under s. 4 of the Indian Telegraph Act, 1885. That section merely empowers DoT to charge any fee as a part of the conditions to be set by it for g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessarily come to the conclusion that the liability was contractual. On the other hand, the subsequent Tribunal who decided the issues for asst. yrs. 1997-98 and 2001-02 concluded that the said liability is statutory and thus taken a contrary view. Sec. 4 of the Indian Telegraph Act nonetheless shows that this is a contractual liability moreso because this is only an enabling section. The Tribunal has also not adverted upon the application of provisions of s. 43B if it was held to be a statutory liability. Besides this, whether the revenue sharing arrangement between MTNL and DoT is a distribution of profits and hence not deductible was not considered by the subsequent Tribunal who took decision for asst. yrs. 1997-98 and 2001-02. This has now become imperative to resolve the conflict and settle the important legal issue arising in the matter by way of making a reference to the Special Bench. 45.1 In the backdrop of aforesaid submissions, we have perused the entire material on record. The Revenue is found to have moved a petition before the Hon'ble President, Tribunal, New Delhi, on 7th Dec., 2004 pointing out the aforesaid position stated before us also. The Hon'ble President ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 3 SCC 350, 364 and also by the Bombay High Court in the case of CIT vs. Thana Electricity Supply Ltd. (1993) 112 CTR (Bam) 356 : (1994) 206 ITR 727 (Bom), where also it was held that where there are conflicting decisions of Courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decision. Following the aforesaid principle essentially the later decision taken by the Tribunal in the asst. yrs. 1997-98 and 2000-01 is preferred and shall be applicable in the present case in appeal as well. "However, the learned assessing authority as well as the learned CIT(A) did not accept the decision rendered by the earlier Tribunal and have chosen to depart therefrom even though the fact and circumstances remained the same. It is needless to add that a judgment delivered by the Tribunal is binding on the AO. He is bound to follow the judgment of the Tribunal in its true letter and spirit. The AO being an inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and, therefore, he should not have tried to distinguish the same on untenable grounds. It is also necessary for the judicial unity and disciplin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legraph Act relevant for this purpose is reproduced herebelow: "4. Exclusive privilege in respect of telegraphs, and power to grant licences.- (1) Within India, the Central Government shall have exclusive privilege of establishing, maintaining and working telegraphs: Provided that the Central Government may grant a licence, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India: Provided further that the Central Government may, by rules made under this Act and published in the Official Gazette, permit, subject to such restrictions and conditions as it thinks fit, the establishment, maintenance and working- (a) of wireless telegraphs on ships within Indian territorial waters and on aircraft within or above India, or Indian territorial waters, and (b) of telegraphs other than wireless telegraphs within any part of India. (2) The Central Government may, by notification in the Official Gazette, delegate to the telegraph authority all or any of its powers under the first proviso to sub-s. (1). The exercise by the telegraph authority of any power so delegated shall be subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue's averment on the basis of letter dt. 22nd Sept., 1992 placed at Department's paper book p. 76 which also came for consideration of earlier Tribunal that the appellant has entered into a profit sharing arrangement with DoT. The subject of the letter goes to state "sharing of revenue between DoT and MTNL". The letter was written by Department of Telecom to the CMD of MTNL with the proposal to lay down the principles for sharing of revenue between DoT and MTNL from 1992-93 onwards. This letter does not convey of sharing of profits but speaks of sharing of overall revenue on the basis of which a licence fee has been fixed as an obligation on the appellant for use of exclusive privilege vested in the Central Government. It, therefore, cannot be inferred that this letter conveyed the arrangement of sharing of profit earned by the appellant from running of telephone services. Sec. 8 of Indian Telegraph Act lays down the consequences for making default of payment of any consideration payable under s. 4 of that Act which is reproduced as under: "8. Revocation of licences-The Central Government may, at any time, revoke any licence granted under s. 4, on the breach of any of the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative that the case of the appellant has not been examined in right perspective by the authorities below. It was submitted that the claim in the return was made for the first time in this assessment year. In earlier years, no formal claim was made in the return of income. In the immediately preceding asst. yr. 1997-98, a letter was filed before the AO claiming deduction under s. 80-IA of the Act. The said claim was rejected by the AO on the ground that since the claim has not been made in the return of income nor any revised return has been filed, the same is untenable. The AO made a specific observation refusing to adjudicate upon the issue on merit. It was submitted that as such the claim of the appellant has not been examined in earlier years on merit, in this year, the appellant has made a claim in the return itself and the said claim had been examined by the AO in the course of the assessment proceedings. However, the same has been rejected ignoring the fact as well as the correct position of law. It was submitted that the assessee justified the deduction under s. 80-IA(4C) vide its letter dt. 14th Jan., 2000 and letter dt. 11th Dec., 2000 filed before the AO. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he MTNL is eligible for the deduction under s. 80-IA of the IT Act, 1961." On the basis of the above submission, it was argued that the appellant has specifically brought to the notice of the AO that the appellant-company since 1st April, 1995 has inducted de novo systems and technology. It was further submitted that the appellant which was providing certain basic telecommunication services prior to 1st April, 1995 has started providing certain other types of basic telecommunication services on or after 1st April, 1995, making it eligible for deduction under s. 80-IA(4C) of the Act. The AO has rejected the claim ignoring the specific contentions in an arbitrary manner. The contention of the AO regarding infrastructure facilities is misplaced as no condition is required to be fulfilled by an undertaking providing telecommunication services. Secondly, the AO has failed to make distinction between an undertaking and a company. The deduction under s. 80-IA is to an undertaking specific and as such it places no bar on a company which comes into existence before 1st April, 1995. An undertaking which has come into existence before 1st April, 1995, shall be eligible to claim deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basic or cellular including radio-paging, domestic satellite services or network of trunking and electronic data interchange services at any time on or after the 1st of April, 1995 but before the 31st day of March, 2000." 52.2 The above is an exclusive clause applicable to telecommunication services and cannot be confused with the conditions which are applicable to industrial undertaking and specified in sub-s. (2). It is important to note that there is no word such as, "new undertaking" in this sub-section nor there is any condition that it should not have been formed by splitting up or reconstruction of a business already in existence, nor there is any condition that it should not be formed by transfer to new business of machinery or plant previously used for any purpose. 52.3 In the absence of any of these conditions being applicable to an undertaking providing telecom services, such undertaking can be formed out of a business already in existence and such undertaking can also use the machinery or plant previously used for any purpose and still can be eligible for deduction under s. 80-IA(1). These are important distinctions. Based on these interpretations the appellant-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es eligible the whole of such income shall be eligible for exemption. The above interpretation is on the basis of the language of s. 80-IA which provides deduction in respect of profits and gains derived by such undertaking. Further, in the case of an 'industrial undertaking' despite the condition of not formed by way of reconstruction and not to use any plant and machinery previously used still an 'industrial undertaking' which uses old plant and machinery the value of which does not exceed 20 per cent of the total value of the plant and machinery, the entire profit arising from such industrial undertaking is eligible for deduction. In that case it cannot be said that profit to the extent derived from the use of old plant and machinery shall not be eligible for deduction. The industrial undertaking can use old plant and machinery upto 20 per cent of its own and the profit derived from such old plant and-machinery shall also be eligible for deduction. In the absence of any such condition not to use any old plant and machinery in the case of the telecommunication provider under sub-s. (4C) the entire profit on the line as explained above shall be eligible for deduction. (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be eligible for deduction under this section irrespective of the services which it started providing on or after 1st April. 1995. On this basis, the appellant company shall be entitled to following deduction under s. 80-IA(4C), in respect of profit derived from undertaking which has started providing telecommunication services on or after 1st April, 1995: ---------------------------------------- Asst. yr. 1998-99 Rs. 341.322 crores Asst. yr. 1999-2000 Rs. 473.737 crores Asst. yr. 2000-01 Rs. 441.551 crores Asst. yr. 2002-03 Rs. 692.894 crores ---------------------------------------- 54. In support of the above contention, reliance has been placed on the following judgments: (i) CIT vs. Indian Aluminium Co. Ltd. (1977) 108 ITR 367 (SC) (ii) International Instruments (P) Ltd. vs. CIT (1979) 9 CTR (Ker) 291 : (1979) 123 ITR 11 (Ker) (iii) CIT vs. Premier Cotton Mills Ltd. (1999) 154 CTR (Mad) 538 : (1999) 240 ITR 434 (Mad) (iv) CIT vs. Shree Digvijay Cement Co. Ltd. (1983) 144 ITR 532 (Guj) (v) CIT vs. Bhilai Engineering Corporation (P) Ltd. (1982) 133 ITR 687 (MP) (vi) Textile Machinery Corporation Ltd. vs. CIT 1977 CTR (SC) 151 : (1977) 107 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides for hundred per cent deduction from the profits and gains of an enterprise carrying on the business of providing telecommunication services, whether basic or cellular, for the initial five assessment years and thereafter twenty-five per cent (thirty per cent in case of companies) of such profits and gains for subsequent five years. The deductions shall be available to an undertaking which begins to provide the telecommunication services (whether basic or cellular) at any time during the period beginning on 1st April, 1995 and ending on 31st March, 2000. The amendment will take effect retrospectively form 1st April, 1996 and will, accordingly, apply in relation to the asst. yr. 1996-97 and subsequent years.' In view of the clear statement of intent and the wording of the provision, there is no doubt that the appellant who started providing telecom services way back in 1986 is not entitled to the tax exemption contained in s. 80-IA(4C) of the Act. Accordingly, the AO's conclusion is confirmed. This ground of appeal fails." The matter was taken up in further appeal before Tribunal by the appellant. The Tribunal dismissed the claim of the appellant with the following obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises to engage in these services, the Act provides for hundred per cent deduction from the profits and gains of an enterprise carrying on the business of providing telecommunication services, whether basic or cellular, for the initial five assessment years and thereafter twenty five per cent (thirty per cent in case of companies) of such profits and gains for subsequent five years. The deductions shall be available to an undertaking which begins to provide the telecommunication services (whether basic or cellular) at any time during the period beginning on 1st April, 1995 and ending on 31st March, 2000. 34.3 The amendment will take effect retrospectively from 1st April, 1996 and will accordingly apply in relation to the asst. yr. 1996-97 and subsequent years.' In view of the clear statement of intent and the wording of the provision, there is no doubt that the appellant who started providing telecom services way back in 1986 is entitled to the tax exemption contained in s. 80-IA(4C) of the Act. Accordingly, the AO's conclusion is confirmed. This ground of appeal fails." While confirming that the deduction is not available to the assessee-company in this assessment year, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld Storage Co. as: 'an undertaking of some definite kind is being carried on ......, but is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on ..... but in some altered form to continue the undertaking in such manner as that the person now carrying it on will substantially continue to carry it." It is further held in the case of Travancore Rayons Ltd. vs. CIT (1997) 139 CTR (Ker) 190 : (1996) 220 ITR 201 (Ker) that an industrial unit which is an expansion of the existing business is not eligible for deduction under s. 80J. Applying the same ratio to this case, mere up gradation of existing exchanges or their replacement introducing new technologies and adding new services would only amount to continuation of same business, and it cannot be said that a new undertaking has come into existence. Accordingly, the assessee-company would not be entitled for deduction under s. 80-IA on this account also. "Para 7.4. Sec. 80-IA(4C) was introduced by the Finance Act, 1997, with retrospective effect from 1st April, 1996. This section reads as under: This section applies to any undertaking which starts providing telecommunicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of aforesaid directions. A reasonable opportunity of being heard shall be afforded to the appellant before taking decision in accordance with law. 61. The third ground in appeal for asst. yr. 1998-99 is regarding disallowance of an amount of Rs. 47,45,62,757 prior-period expenditure over and above the Rs. 30,18,37,243 suo motu added back by the appellant in its computation of income. As per the AO, the assessee-company was asked to reconcile the figure of the prior-period adjustment as per the P L a/c amounting to Rs. 17,18,26,550 with the amount of prior-period depreciation amounting to Rs. 30,18,37,243 added back by the assessee itself in the computation of income. It was clarified by the assessee that the prior-period expenditure represents that expenditure in respect of which items of expenditure crystallised during the year. The AO further noticed that the prior-period figures stated in the annual accounts for the year under consideration are not matching with the figures of the annual accounts for the last year. Further, the AO noticed that there is a change in the accounting policy during the year whereby income and expenditure for more than Rs. 1 lakh are trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the action of the AO in increasing the figure to Rs. 77.64 crores on the basis of the ratio of Rs. 17.81 crores to Rs. 33.50 crores is stated to be absolutely wrong. It was further submitted that the assessee itself has made a disallowance of Rs. 33,50,34,346 and there was no need for the AO to make a disallowance of Rs. 77.64 crores which has been made by totally misunderstanding the figures. As regards the impact on account of the change in accounting policy, it was submitted that as per para 1.1 of p. 55 of the paper book, this policy has been discussed and it has been stated that profit before tax has gone higher by Rs. 548.63 lakhs instead of profit being reduced. Consequently, because of the change in policy instead of there being a negative impact on the profit there is a positive impact and this has gone to increase the profit rather than reduce the profit of the company. Further, even otherwise this is a bona fide change in the accounting policy which is being followed consistently in the subsequent year and as such no adverse inference can be drawn on this basis. 63. We have considered the above submission and find that the AO has not appreciated the facts correctly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipment Co. Ltd. vs. CIT (2001) 170 CTR (Guj) 470 : (2002) 253 ITR 454 (Guj). The learned Departmental Representative, however, placed reliance on the order of the authorities below. 66. We have considered the arguments of parties with reference to material on record. The AO was not justified in considering only one part of the report and ignoring the other part. The learned Authorised Representative is correct in saying that a document cannot be read in part; it has to be read in totality. As such the addition made by the AO on this account is set aside and matter is restored to him for taking decision afresh in accordance with law. A reasonable opportunity of being heard shall be allowed. 67. For parity of reasons and facts being identical, similar issues in ground No.3 for asst. yrs. 1999-2000 and 2000-01 are set aside and restored to the AO for taking decision afresh after affording opportunity of being heard to the assessee. 68. Ground No.5 in appeal for asst. yr. 1998-99, ground No.8 for asst. yr. 1999-2000, ground No.9 for asst. yr. 2000-01 and ground No.6 for asst. yr. 2002-03 are general and no prejudice having been projected, the same are dismissed. 69. Ground No.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the P L a/c. 73. Having heard the parties and on the perusal of material on record, we find that this is a factual error committed by the AO. The assessee having included these amounts in its income there was no justification in adding the same amounts again to the income so disclosed by the appellant. That being so, we direct the AO to delete these additions. Accordingly the ground Nos. 4, 5 and 6 in appeal stand allowed. 74. Ground No.7 in appeal for asst. yr. 1999-2000, relates to disallowance of an amount of Rs. 30,992 representing late deposit of employees' contribution to the provident fund. The said addition has been made by the AO by invoking the provisions of s. 43B of the Act. This issue (is) stated to be covered by the judgment of the Delhi Tribunal delivered in the case of Addl. CIT vs. Vestas RRB (India) Ltd. (2005) 93 TTJ (Del) 144 : (2005) 92 ITD 1 (Del) where it has been held that the amendment carried out by the Finance Act, 2003 is clarificatory in nature. After the amendment no disallowance for late payment can be made even if the same is made beyond due date prescribed under s. 36(1)(va). This amendment has been made to remove the hardship caused at pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the AO has simply not applied his mind. The learned Departmental Representative has placed reliance on the order of the authorities below. 77. We have considered the factual position explained by the learned Authorised Representative. The tax audit report Annex. VIII is very clear where the auditor has stated that these amounts have been credited to the P L a/c. The profit on P L a/c has been taken as basis of computation of income for the year under appeal. As such there was no justification on the part of the AO to make these additions. We, therefore, direct the AO to delete these additions and these grounds in appeal stand allowed. 78. Ground No.8 in appeal relates to the addition of Rs. 5,50,00,000 representing provision for loss on abandoned assets. The AO has made the above addition in the computation of income and the same has been confirmed by the CIT(A) without much discussion. It was contended by the learned Authorised Representative that this amount of Rs. 5,50,00,000 is part of the loss on sale of assets of Rs. 5,66,20,053 which has been added in the computation of income as is evident from p. 1 of the paper book. Reference was also made to the tax audit report, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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