9911796707
TMI Blog2012 (7) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... short) for the said assessment year on 27.3.2006 determining the total income of Rs.6,70,122,000/under section 115JB of the Act. 3. In the return that the petitioner had filed, the petitioner had given details of significant accounting policies followed by it. Para.8 of Schedule 21 specifying such significant policies pertained to license fee. With respect to license fee payable to Department of Telecommunication by the petitioner company, it outlined its accounting policy till 31.7.1999 and, thereafter, with effect from 1.8.1999 in the following manner : "8. License Fee License Fee payable to the Department of Telecommunications, which was a fixed amount every year till 31st July 1999 and is payable on revenue sharing basis as per new Telecom Policy 1999 w.e.f. 1st August, 1999, is treated as follows : Till 31st July, 1989 a) License fee payable upto to the date of commencement of commercial operations, I.e. 24th January, 1997, was treated as Deferred Revenue Expenditure and amortized on a straight line basis over the remaining period of license (without taking into consideration the extension in license period as per NTR 1999) b) License fee payable for the period subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in above reply in turn reads as under : "Details of deductions under Section 35ABB a. The cellular services commenced on 24th January, 1997 i.e. previous year ending on 31st March, 1997. b. As per the old license terms, it would have come end on expiry of 10 years i.e. on 8th December, 2005(previous year ending on 31st March, 2006) c. As per the NTP 99, license term has been increased to 20 years and it expires on 17th December, 2015 i.e. previous year ending on 31st March, 2016. The computation of deduction is as follows : Deduction fraction Amount paid Amount claimed till Assessment year 20022003 Deduction for the year 1 In respect of amount paid in 199697 1/20 2,038,750,000 917,437,500 101,937,500 2 In respect of amount paid in 199798 1/19 815,500,000 309,985,381 42,921,053 3 In respect of amount paid in 199899 1/18 - - - 4 In respect amount paid in 199900 1/17 2,233,499,702 394,147,005 131,383,335 Note: From assessment year 20002001, the denominator has been changed as per the terms of License under NTP 99, I.e. the denominator has been increased by 10. Amount debited to Profit and Loss account Rs.238,242 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commencement of commercial operations was amortized as an expense over the remaining period of license. w.e.f. 1st August 1999 c) The entire amount of License fee of Rs.3,667.63 million lying unamortised on the above basis as at the close of 31st July, 1999, after adjusting waiver of Rs.815.50 million as per the migration package to New Telecom Policy, 1999 is amortised w.e.f. 1st August, 1999 on Straight Line basis over the balance of extended License Period (in terms of New Telecom Policy, 1999) ending on 18th December, 2014) d) The amount payable as Revenue Sharing Contribution to Department of Telecommunications under New Telecom Policy 1999 w.e.f. 1st August, 1999 was charged to Profit and Loss Account at the rate of 15% of the Adjusted Gross Revenue(AGR) upto 24th January, 2001. As per Department of Telecommunication's (DOT) order dated 22nd September, 2001, the Company has paid/provided for license fees at the rate of 12% and for WPC fees at the rate of 3% of the Adjusted Gross Revenue (AGR) from licensing activities w.e.f. 25th January, 2001." 10. On 17.3.2006, the Assessing Officer wrote to the petitioner and besides other, called for following information : "(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons he had recorded for reopening the assessment. Such reasons read as under : "2. As demanded the reason for reopening of your case vide your application dated 07.04.2009 is as under : Under section 35ABB of the I.T.Act, 1961 any expenditure incurred and paid in any previous year of a capital nature incurred for acquiring license/right to operate telecommunication services in any previous year either before the commencement of business or thereafter, shall be allowed a deduction equal to the appropriate fraction of such expenditure paid in each of the relevant previous years. As per Explanation (i)(B) 'relevant previous year' means the previous years beginning with the previous years in which the license fee is actually paid and the subsequent previous year or years during which the license, for which the fee is paid,shall be in force and as per Explanation (ii) "appropriate fraction" means the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years. On perusal of the profit and loss account and statement of computation of income, it was seen that a deduction of Rs.276.24 lacs was allowed from income u/s.35A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo is covered under the business and commercial rights treated as intangible asset eligible for depreciation u/s.32(1) of the Act. Thus, even though the assessee has effected a change in its accounting policy for the purpose of its books vis-a-vis the treatment of expenditure on license fee, the expenditure continued to be in the nature of capital expenditure for the purpose of I.T. Act and deduction was allowable only within the ambit of the provisions of section 35ABB of the Act equal to the appropriate fraction prescribed therein. Omission to restrict the deduction for expenditure on license fee in terms with the provisions of section 35ibid resulted in under assessment of income as follows ; Current previous year (a) 2002-03 Previous year up to which the license to operate telecommunication services granted (b) 2016-17 Therefore the denominator (remaining relevant years) (a) ( b) (c) 15 Expense on license fee allowed deduction during the year (d) 35450000 Therefore deduction allowable at appropriate fraction (c)/(d) I.e. 1/12 x Rs.395450000 (e) 26363333 Excess deduction allowed & underassessment of income (d)( e) (f) 369086667 Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondence exchanged between the petitioner and the Assessing Officer, during the course of original assessment, the counsel submitted that the issue of deduction of the expenditure for license fee paid by the petitioner was one of the central controversies in the original assessment. The Assessing Officer after having raised several queries and elicited replies to the petitioner, made no disallowance in the final order of assessment. Any different view at this stage therefore, would only amount to change of opinion. Counsel submitted that all facts necessary for assessment were placed before the Assessing Officer in the original assessment as well as through further materials placed during the course of assessment. 18. On the other hand, learned counsel Shri Paurami Sheth for the department opposed the petition contending that the question of deduction of license fee was not examined by the Assessing Officer. All the queries raised during the assessment proceedings pertained to other aspects. There was failure on part of the assessee to disclose truly and fully all material facts. Reasons recorded sufficiently bring out this aspect of the matter. Assessment at this stage, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manner provided in section 35ABB of the Act. Even if the petitioner changed its accounting policy, such expenditure continued to be in the nature of capital expenditure and the deduction thereof was to be governed by Section 35ABB of the Act. Nowhere do the reasons record that such treatment to the expenditure was not accorded in the original assessment on account of failure or omission on part of the petitioner to disclose truly and fully all material facts. 23. The reasons recorded also do not indicate or suggest any new material which the Assessing Officer may have received after framing of the assessment on the basis of which he formed an opinion that income chargeable to tax has escaped assessment. 24. Quite apart from these significant aspects, we may also recall that during the scrutiny assessment, the Assessing Officer raised series of questions and queries. Many of these queries pertained directly to the petitioner's claim for deduction of the license fees paid. In the return that the petitioner filed, the petitioner had highlighted the change in the accounting policy pre and post 1.8.1999. The Assessing Officer had on 1.9.2005 called upon the petitioner to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the end of the relevant assessment year could be permissible. 27. As already noted, in the reasons recorded, the Assessing Officer placed no reliance on any new material at his command to form a belief that income chargeable to tax has escaped assessment. Further during the original assessment framed after scrutiny, the claim of deduction for license fees paid by the petitioner came up for consideration. Various aspects thereof were examined. It may be that some of the queries did not directly relate to such claim and the limitation of deduction as provided in Section 35AAB of the Act. However, entire issue was at large before the Assessing Officer. He had occasion to apply his mind and material was elicited and placed before him before the final assessment was framed. 28. Under the circumstances, it cannot be stated that there was any failure or omission on part of the petitioner to disclose truly and fully any material facts necessary for assessment. Even the attempt on part of the Assessing Officer to rely on explanation(1) of section 147 would not be tenable. Such explanation reads as under : "Explanation 1 : Production before the Assessing Officer of account books or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investigated the truth of the assertions of the petitioner which he actually did in the subsequent assessment year but that did not relieve the assessee of the obligation, placed upon it by the statute to disclose fully and truly all material facts. 33. In the present case, we have noticed that in addition to lodging the claim for deduction in the original return filed giving full details and particulars and accounting policies followed by it, the petitioner further elaborated its claim for deduction to the query issued by the Assessing Officer during such correspondence. Through such correspondence, atleast full details of such claims were brought on record. In essence, the assessee desired to claim deduction of license fees paid. If the Assessing Officer was of the opinion that such expenditure had to be spread over as provided in Section 35ABB of the Act, nothing prevented the Assessing Officer from doing so in the original assessment that he framed. Full facts with respect to such claim were on record before him. Thereafter, what legal inferences should be drawn and which statutory provision should be applied while allowing, rejecting or limiting such claim, was within the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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