TMI Blog2015 (2) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... A), which is confirmed, and the ground of the appeal of the Revenue is dismissed. - Decided against revenue. Disallowance of deduction under section 80IA - profit derived from internet telephony service business - AO did not accept the claim for want of audit report in prescribed Form No.10CCB - Held that:- Hon’ble Madras High Court in the case of CIT Vs.Medicaps Ltd., (2010 (1) TMI 261 - MADHYA PRADESH HIGH COURT) held that furnishing of audit-report for claim of deduction under section 80IA of the Act was not mandatory and the same can be filed even at the appellate stage. Still further, the Hon’ble Apex Court in the case of Aurangabad Electricals Ltd vs Commissioner Of Central Excise & Customs, (2010 (11) TMI 8 - Supreme Court of India) observed that keeping in view the well settled principles laid down by this Court that technicalities should not defeat rendering of complete justice to a litigant, and remanded the matter to the Tribunal to verify and consider whether the certificate which is already placed on record by the appellant, would assist them in support of their defence. In view of the above decisions, as the audit report in Form No.10CCB was filed before the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of Data Migration Data Porting Work for the issuance of Smart Card Driving License in Sarathi Vahan Software of the Transport Department. The work is almost completed satisfactorily. 4. From the above, the AO concluded that work assigned by the transport department was completed satisfactorily. Therefore, the assessee was required to make revenue recognisation of the advance of ₹ 3,08,47,120/- in the P L Account. He observed that as the related expenditure must have been booked in the P L A/c. by adopting matching concept, ₹ 3,08,47,120/- would represent income of the assessee for Asstt. Year 2008-09, hence, he added ₹ 3,08,47,120/- to the total income of the assessee. 5. On appeal, the assessee submitted as under: The appellant submits that the Assessing Officer failed to appreciate that the income was booked in the accounts on the basis of services rendered during the financial year ended on 31/03/2008 i.e. F.Y. 2007-08 and return was prepared and furnished on the basis of such for A.Y. 2008-09 whereas directors reported to the shareholders on 6th December, 2008 and were therefore, giving status of work as on 6th December, 2008 and not as on 31st Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 4.2 of the assessment order has referred the page 2 of Annual Report of the Company for the year in which conveyed that: Commissioner of Transport has awarded to GIPL for the work of Data Migration and Data Porting work for the issuance of smart card driving license in Sarathi and Vahan Software of Transport Department. The work is almost completed satisfactorily. In this respect, the appellant submits that GIPL, the assessee had purchased license version software (as specified as Item No 1 in GR No MVD/10.2005/60/KH dated 27.03.2006 of Port Transport Department, Government of Gujarat) during the year and completed the work of Data Migration and Data Porting work for the issuance of smart card driving license in Sarathi and Vahan Software for Transport Department and earned the consultancy charges for ₹ 21,315/- and ₹ 18,270/- during F.Y. 2006-07 and 2007-08 respectively which was shown as income in Profit Loss Account. Hence, there was no misinformation in the Directors' Report of the company but was misread/misinterpreted the Assessing Officer. (f) In view of above, the appellant submits that only the Consultancy charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. The CIT(A) accepted the appeal of the assessee by observing as under: I have considered the arguments of the A.O., the facts of the case and the submissions of the appellant. It has to be understood that it is a govt. company and its accounts are duly audited by various agencies. I do not understand why the A.O. has given undue importance solely to annual report in isolation without going into related facts and circumstances. He could have easily examined the entire contract and the stage of work completed by going into the expenses. The appellant has been able to explain the comment in the annual report. It has also shown that it is showing the income on the basis of work completion from year to year and its accounting policy is uniform in this respect. I have got no reason to doubt, the accounts of the appellant especially as it is a govt. company and its accounts are duly audited by various agencies. The addition is uncalled for and is directed to be deleted. 7. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The assessee is a State Government Company and was appointed as nodal agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 3,08,47,120/- was shown as liability in the balance sheet. He further explained that Directors report was dated 6.12.2008, and therefore, stated the progress of the work as on that date, whereas, the year under consideration ended much earlier i.e. 31.3.2008. 14. We find that Revenue could not bring any material before us to show that the expenses of more than ₹ 14,83,508/- was incurred by the assessee during the year under consideration in respect of the project under consideration. The AO has simply stated that the expenses of the project must have been debited in the Profit Loss account, but failed to point out any expenses, which were related to the project in question, which was debited in the profit loss account. In the absence of any such findings, the assessment was made merely on the basis of suspicion or guess-work without any concrete facts brought on record and such assessment is unsustainable. We, therefore, do not find any good reason to interfere with the order of the CIT(A), which is confirmed, and the ground of the appeal of the Revenue is dismissed. 15. In the assessee s appeal, the assessee has challenged the disallowance of deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the appellant in terms of provisions of section 142(1) in fact furnished copy of tax audit report and, therefore, was under bonafide impression that the audit report in Form No. 10CCB for claiming deduction u/s 80IA was also furnished together with the said report. The A.O. in its remand report has disputed the claim that appellant was under bonafide impression that the audit report in Form No. 10CCB for claiming deduction u/s 80IA was also furnished together with the said report. The A.O. had submitted that Only after issuing notices u/s. 142(1) for filing of hard copy of return of income, audit report u/s.44AB, annual report for the year ending on 31/03/2009 and statutory audit report on three occasions on 22/03/2010, 26/07/2010 and 26/08/2010, the assessee submitted the details on 31/08/2010. However, it omitted to submit the statutory audit report u/s.1OCCB of the Act. This clearly shows an omission on the part of the assessee which cannot be considered as bonafide. The assessee's claim that the specific omission was not highlighted by the Assessing Officer by any notice is patently wrong. Vide noticedtdO.3/09/2010, the assessee was specifically asked to submit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o file the report even after specific notices. There is no reasonable cause for its failure and its submission under Rule 46A is also not admitted for the reason. I hold that the assessee is not entitled to the benefit of deduction u/s. 80IA because of this failure. The assessee cannot claim a right to deduction just because it was allowed in earlier years because the auditor's report in the required proforma is mandatory for each assessment year and is naturally on the basis of facts of that year. No resjudicata can apply in such a case. Although the assessee would not be eligible for deduction u/s. 80IA on the above ground alone, the eligibility on merits is also material to the issue and is being decided. 4.2.2 Whether the appellant had no valid license for the major part of the assessment year 2008-09 and its impact if so. The A.O. has noted that the assessee was first issued the Wireless Station Licence No.P-5233/1 on 18/3/03 for internet services. The licence was valid up to June 2003 only. This was renewed up to 1st July 2004. Thereafter, no renewal of licence was made till 25/7/2007. It is further observed that only on 25/07/2007, renewal of licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its for deduction u/s 8OIA on the facts of the case. I have considered the arguments of the A.O., the facts of the case and the submissions of the appellant. The following observations relevant to the issue were made by the A.O.: i. The assessee has shown total revenue from ISP business income at ₹ 4,90,56,453/-. Out of this major portion relates to bandwidth charges of ₹ 4,27,26,671/-. Against this bandwidth expenses is shown at ₹ 1,14,31,790/-. ii. In order to achieve bandwidth charges of ₹ 4.27 crores, the following equipments are shown to be owned by the assessee (under the head Plant Machinery) in the block of assets. Description of the assets WDV as on 01/04/07 1. Radio Link/Modem Rs.7,03,302/- 2. Optical fiber cable Rs.5,83,201/- 3. Other hardware Rs.4,21,193/- 4. Other optic transceiver Rs.2,39,363/- 5. Equipments Rs.7,19,242/- 6. Modem Rs.2,62,141/- iii. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The appellant submits that majority of income earned by the appellant during the year was by selling bandwidth through use of optic fiber cable which is owned by the appellant. The appellant earned gross income of ₹ 4,90,56,453/- by selling and distribution of bandwidth. The income from use of leased equipments such as satellite equipments etc. which have been owned by GSPC Ltd. was just 34,22,900/- (Shared with GSPC Ltd. in the ratio of 90:10 wherein 90% of the income was retained by appellant and 10% of income was retained by GSPC Ltd as it has provided satellite equipments etc. to the appellant for use. c) The appellant has retained 90% of such income because appellant was the actual service provider and GSPC Ltd did not participate in the business carried on by the appellant in any manner except lending satellite equipments for use. Thus, payment to GSPC Ltd equivalent to 10% of revenue is nothing but remittance of lease charges for satellite equipments. d) Internet telephony used through satellite equipments has saturated and is attaining obsolensce. The bandwidth through optic fiber cable is much faster than through satellite equipments and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l fiber and not through satellites. However, not only satellites equipments but admittedly the most vital navigation equipments and other link equipments etc are also owned by GSPC ltd. The other services through optical fibers also could not have been provided without the navigation equipments and other link equipments. Considering all facts, I hold that the profits reasonably deemed to have been derived from the eligible business u/s. 80IA(10); should be reworked on the following basis: 1. In the case of business of selling bandwidth through satellites, the reasonable revenue sharing arrangement would be 30: 70. I have considered the ownership of Satellite equipments, navigation equipments and other- link equipments etc. by the GSPC ltd in favor of share of GSPC ltd and carrying out of business activities by appellant in its favor. 2. In the case of business of selling bandwidth through optical fibers, the reasonable revenue sharing arrangement would be 15:85. I have considered the ownership of vital navigation equipments and other link equipments etc. by the GSPC ltd in favor of share of GSPC ltd and carrying out of business activities by appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The assessee also raised grounds in respect of - 1. Learned CIT (A) erred in law and on facts in confirming action of AO in disallowing claim of deduction of ₹ 1, 56, 59, 7437- made u/s 80IA of the Act due to non filing of Form # 1OCCB during the assessment proceedings. Ld. CIT (A) erred in holding that the appellant did not have reasonable cause for its failure and further erred in not admitting its submission under Rule 46A of the Act. This action of Id. CIT (A) being unjust, arbitrary and against the Principles of Natural Justice deserves to be quashed and claim of the appellant u/s 80IA be allowed. 2. Learned CIT (A) erred in law and on facts in upholding the action of AO in invoking provisions of section 80IA(10) of the Act by holding the appellant to be subsidiary of GSPC Ltd. having close business connection for the year under consideration. Both the lower authorities failed to appreciate the fact that in absence of any corroborative evidence such allegation for denying deduction u/s 80IA of the Act is unwarranted. Learned CIT (A) further erred in law and on facts in reworking profits reasonably deemed to have been derived from the elig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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