9911796707
TMI Blog2015 (5) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... on two grounds 1) Income reflected as on "Advance Income (Prepaid)" was in fact for the outright purchase of "Recharge" by Prepaid Connection Customers and the same was not an advance to be appropriated against the future use of services and 2) Non-amortization of royalty paid to the Wireless Planning Commission of Government of India by treating the same as capital expenditure. Instead, entire expenditure charged to P&L Account was allowed as deduction resulting into under assessment of income. 2.3 It is the say of the petitioner that, on issuance of notice under Section 148 of the Act dated 07.03.2012 for reopening the assessment of the Assessment Year 2007-2008, the assessment is sought to be reopened on the very grounds which were already earlier scrutinized by the Assessing Officer as specific queries were raised under Section 142(1) of the Act alongwith detailed questionnaires & therefore, this notice is nothing but a change of opinion. 2.4 On petitioner's request, reasons recorded for such reopening of assessment vide communication dated 02.05.2012 have been provided which are as follows: "1. Section 145 of the I.T. Act, 1961 provide that the income chargeable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of Rs. 98,29,17,915/- which was charged to the Profit & Loss account but considered the same for amortization by invoking the provisions of Section 35ABB. Accordingly one-eleventh of Rs. 982917915/-/- was allowed as deduction. It was seen from Annexure 7 of assessee's submission dated April 15, 2009 under the heading "Break up of Access & regulatory Charges " that the assessee had charged Rs. 583898027 to the Profit & Loss account, being royalty paid to Wireless Planing Commission of Govt. of India. This expenditure, as stated by the assessee, was in the nature of fee paid to Wireless Planning Commission as percentage of Revenue. It was further seen from Annexure 6 of assessee's submission dated November 11, 2009 (i.e. copy of agreement between telecom operators and Department of Telecommunication- para 19.3 Radio spectrum Charges) that "in addition to license fee payable to the DOT, the cellular licensees pay spectrum charges on revenue share basis of 2% of Adjusted Cost Revenue (AGR) towards WPC charges covering royalty payment for the use of cellular spectrum and License fee for Cellular Mobile handsets & Cellular Mobile Base Stations and also for possession of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on audit objection and therefore, completely without jurisdiction. It is further the say of the petitioner that the assessee is not required to assist the Assessing Officer in drawing legal inferences from the factual details. The Assessing Officer ought to have reasonably drawn the conclusion on the basis of facts presented before him. 4. Learned Senior counsel Mr. Saurabh Soparkar, appearing with learned counsel Mr. Bandish Soparkar for the petitioner-company, has urged that it is a well settled law that if the Assessing Officer has not acted independently nor had a reason to believe that any income had escaped assessment and instead, had acted on the basis of the audit objection exclusively, such notice for reopening cannot be allowed to be proceeded with. He further urged that the grounds on which notice under Section 148 of the Act has been issued, were scrutinized by the Assessing Officer on petitioner having furnished the materials and after scrutinizing assessment under Section 143(3) of the Act and therefore also, this is nothing but a change of opinion on the part of the Assessing Officer. He relied on the decision of the Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspects to the notice of the AO, she held correspondence with the assessee. Taking into account the assessee's explanation regarding non-requirement of TDS collection and ultimately accepted the explanation concluding that in view of the Board's circular, tax was not required to be deducted at source. No income had therefore escaped assessment. Despite such opinion of the Assessing Officer, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the Assessing Officer had acted at the behest of and on the insistence of the audit party. It is well settled that it is only the Assessing Officer whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, of course true, as held by the decisions of the Apex Court in the case of P.V.S. Beedies Pvt. Ltd. (supra) and Indian & Eastern Newspaper Society (supra), if the audit party brings certain aspects to the notice of the Assessing Officer and thereupon, the Assessing Officer forms his own belief, it may still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Balance Sheet reflected an amount of Rs. 103,82,20,000/- with narration" Advance Income (Prepaid)". The business of providing cellular service caters to mainly two category of customer i.e. Post paid customers and prepaid customers. Post paid customers were billed periodically. In Schedule 19: Significant Accounting Polices, it was disclosed that, where, as per billing plan, customers were billed in subsequent period, income was offered on accrual basis. However, as far as Prepaid Service was concerned customer in this category were required to pay for the service in advance by purchase of "Recharges". The advance so paid was non-refundable even if the service could not be ultimately utilized by the customer. Even where such customer opts to cancel using assessee's service, the unutilized balance was not refundable. Thus, the amount paid for prepaid service was for outright purchase of "Recharge" and not an advance to be appropriated against future use of the service. The customer derives the absolute right to utilize the service. Thus, the income from "Prepaid Service" crystallizes as soon as customers make payment. The right to received the income vests with the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmunication was disallowed and amortized and accordingly the deduction was limited to one-eleventh of the total expenditure, the royalty charges (which includes license fee also) paid to WPC was not considered for amortization. Instead, the entire expenditure of Rs. 583898027/- as charged to the Profit & Loss account was allowed as deduction. This resulted in under assessment of income of Rs. 530816388/- with impact on revenue to the extent of Rs. 23,76,34,818/-. In view of the above I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act.' 9. It can be further noted that Asstt. Commissioner of Income-tax, Circle-8, while addressing a letter to the Commissioner of Income-tax, Ahmedabad-4, dated 27.07.2011, noted that the assessment for the Assessment Year 2006-2007 in case of the assessee was completed where a request was also made for necessary direction from the office of CIT-IV as for Assessment Year 2006-2007. Similar objections were raised and they were dealt with on such guidance. On the issue of amortization of license fees paid to operate telecommunication services, it is contended that identical obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of actual use made of the network of the assessee by the customers that he would be required to render the services. Such issue was threadbare examined by the Assessing Officer and therefore also, it cannot be said that the assessee failed to disclose fully and truly all material facts. 12.3 As far as the second question was concerned, Section 35ABB provides for amortization of license fees paid for operating telecommunication services. Petitioner's claim for the Assessment Year 2008-2009 was disallowed to the extent of Rs. 98,29,17,915/- charged to P & L account but one eleventh (1/11 th) of which was allowed as deduction for considering the same for amortization. It is the stand of the petitioner that the royalty paid to the Wireless Planning Commission of Government of India is not paid for obtaining the license & this being revenue expenditure & not capital expenditure for obtaining license, is not amortizable under Section 35ABB. The respondent-Assessing Officer thus, already had raised the said issue of amortization of royalty paid to the Wireless Planning Commission of Government of India while framing the assessment under Section 143(3) of the Act. 13. Heavy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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