TMI Blog2015 (9) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, 'carrying out any work' is the substance for making the payment relating to such work, liable for deduction of tax at source u/s 194Cof the Act. For carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under sect ion 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term 'work' is defined in section 194C of the Act. The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have al ready held that the payment of roaming charges does not require any human intervention. Hence in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as penalty to Department of Telecommunications (DOT) by the assessee would fall under the Explanation to section 37(1) of the Act treating the same as amount paid for infraction of any law? - Held that:- We find that the penalty paid to DOT is only for non-compliance of terms and conditions of the license agreement and not paid for infraction of any other law so as to warrant the Explanation to section 37(1) of the Act. Penalty paid to DOT does not come under the ambit of Explanation to Section 37(1) of the Act and accordingly, the grounds raised by the assessee in this regard are allowed.- Decided in favour of assessee. Disallowance of provision for Asset Restoration Obligation (ARO) written back - Held that:- It is pertinent to note that section 41(1) of the act uses the term 'deduction' in earlier years at the time of creation of such liability. Whereas in the instant case, the assessee had only claimed allowance of depreciation on the said provision for ARO and admittedly, claim of depreciation is only an 'allowance' and not a 'deduction'. We find that the Learned CIT(Appeals) had stated in his order that the assessee had not filed any documentary evidences before the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become applicable for recognizing the exchange fluctuation if the loan was obtained for acquisition of fixed assets only at the time of making payment and accordingly the exchange gain, if any, would go to reduce the cost of the fixed asset. Since in the instant case, the exchange gain is derived only on a notional basis and is unrealized, by applying the provisions of section 43A of the Act, the said gain needs to be reduced from the taxable income. We also find that the Learned Assessing Officer having accepted to the facts of the case and the relevant provision of the Income Tax Act in his remand report, ought not to have come on appeal before us on this issue. We also find that this issue is covered by the decision of the Supreme Court in the case of CIT vs Woodward Governor of India P Ltd reported in (2009 (4) TMI 4 - SUPREME COURT) wherein the principles were laid down for recognition of exchange gain/loss under various circumstances. - Decided against revenue. Deduction of bad debts written off - CIT(A) allowed claim - Held that:- AO having accepted this issue in the remand proceedings which is mentioned in page 74 para 27 of the Learned CIT(Appeals) order and had not gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Telecommunications (DOT). The assessee incurred domestic roaming charges of ₹ 55,41,01,320/- towards roaming facility provided by other telecom operators to the subscribers of the assessee. The assessee has entered into roaming arrangements with other telecom operators which have been given licence to operate as telecom service providers in other territories. The Learned AO initially proceeded to show cause the assessee for disallowance of roaming charges by invoking the provisions of section 40(a)(ia) r.w.s. 194C of the Act but later gave up and proceeded to section 194I /194J of the Act and made disallowance u/s 40(a)(ia) of the Act which was also upheld by the Learned CITA. Aggrieved, the assessee is in appeal before us on the following grounds:- 2.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the addition under section 40(a)(ia) of the Act on account of non-deduction of taxes on the roaming charges of INR 554,101,320 paid by the Appellant to other telecom operators for the financial year relevant to the subject AY. 2.2. Without prejudice to the above ground 2.1, on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process involved in provision of roaming services is given below:- a) A Vodafone East Ltd (VEL) Subscriber in Kolkata travelling to Delhi switches on his mobile device after reaching Delhi (in case of air travel). Where the subscriber travels by land he automatically receives a message requesting for selection of the roaming network on visiting another telecom circle. b) The subscriber has a choice of manual network selection or automatic network select ion. c) Under automatic network selection, the services of the most preferred roaming partner of Subscriber's home network will be selected; and d) Under the manual selection, the subscriber can choose the roaming partner whose services he would like to use out of the ones which are available in that area (Subscriber can only choose the roaming partner with whom VEL has a tie-up). e) Visiting network locates mobile device and identifies that it is not registered with its system i.e. Visitor Location Register. f) Visiting network contacts home network of VEL's Subscriber i.e Home Location Register (HLR) and requests service information about roaming device using International Mobile Subscriber Identity (IM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t evidence. Similarly, on what basis was the 'capacity' of each service provider fixed when interconnect ion agreements were arrived at? For example, as informed, each service provider is allotted a certain 'capacity'. On what basis such 'capacity' is allotted and what happens if a situation arises where a service provider's 'allotted capacity' gets exhausted and it wants, on an urgent basis, 'additional capacity'? Whether at what stage, any human intervention was involved was required to be examined, which again required technical data. According to the Supreme Court, these type of matters could not be decided without any technical assistance available on record. The Supreme Court directed the Assessing Officer (TDS) in each case to examine a technical expert from the side of the Department and to decide the matter. Liberty was also given to the respondents to examine its expert and to adduce any other evidence. 4.5. Pursuant to the directions of the Supreme Court, statements were recorded by ACIT, Circle 51(1), New Delhi from Shri Tanay Krishna in connection with the assessment proceedings of M/s Vodafone Essar Mobile Services Ltd (f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork. He vehemently argued that the roaming charges are paid for both inter connectivity as well as for usage of transmission lines. He fairly conceded that for the interconnectivity charges, no human intervention is required. But he argued that for usage of transmission lines, human intervention is definitely required and hence TDS is applicable. 4.8. The Learned DR further argued the provisions of Explanation 2 to sect ion 9(1)(vii) of the Act. For the sake of convenience, it is reproduced hereunder:- (vii) income by way of fees for technical services payable by - Explanation 2 - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . He argued that the term 'managerial' or 'consultancy' services definitely requires human intervention. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terconnect charges cannot be regarded as Fee for Technical Services (FTS) and hence would not fall in the ambit of section 194J of the Act. We find that on further appeal by the revenue to the Hon'ble Supreme Court in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC), the Hon'ble Apex Court had stated that right from 1979 various judgements of the High Courts and Tribunal have taken the view that the words technical services have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words technical services in section 9(1)(vii) r.w. Explanation 2 comes in between the words managerial and consultancy services . We find that the principles laid down by the Delhi High Court have been accepted by the apex court as such and the Apex Court has merely directed the TDS officer to carry out factual verification to determine the extent of human involvement. Based on this direction, the CBDT had also issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12. As per the directions of the Supreme Court in the case of CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Question 4: Can you enlighten us about the functioning of the network system of the cellular operators at the time of receiving or providing inter-connect services to each other including installation, interconnectivity etc from the very beginning? Ans. 4: As regards to interconnect to Gateway switches/MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases - i) Planning phase- where how much capacity required and how much traffic handling capacity is required on these basis hardware and software is determined. ii) Selection of vendor - is done to determine who will provide these services along with his consultancy. iii) Hardware and software is supplied by the vendor and it is customized to the need of the network as per the TEC specifications. iv) Installation as per vendor guidelines - it involves installation of both hardware and software. v) Call configuration/provisioning of system - in this the operator has to configure and make provision in data base as to how the calls will flow. This has to be done by a technically c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only hen the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another? No, as stated above, no human intervention is required in the process of carriage of calls. However, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc.) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the inter-connect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial questions of law:- (a) Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in holding that the payments of the wheeling and transmission charges made by the assessee to the entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (PGCIL) for the use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and, consequently, the provisions of section 201 and section 201(IA) could not be applied? (b) Without prejudice to the above, whether, on the facts and in the circumstances of the case and in law, payment of wheeling and transmission charges to the entitles like MSETCL and PGCIL, should have been treated as fees for technical services and tax should have been deduct ed at source under section 194J of the Act from the payments? He submitted that in the case of Chhattisgarh State Electricity Board no appeal had been filed by the Revenue and the Revenue accepted the decision of the Tribunal which was followed by the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 194-1 of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertaken by it, as a result of the restructuring of the Maharashtra State Electricity Board. It is pertinent to mention here that section 62 of the Act provides that the Commission may, in the case of supply of electricity fix a maximum ceiling of the tariff, in an attempt to promote competition amongst the distribution licensees. Thus, the very concept of the charge for transmission electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence, it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the pr inciples of conceptual interpretation to the tariff to be fixed for the wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the MSEDCL which will be availing of the said transmission facility. No service is being provided by the MSETCL or the State transmission utility. No doubt, MSED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee paid wheeling, scheduling and transmission charges to State power utility for using its distribution network to sell energy generated by assessee to end consumers and same did not involve any human element, assessee was not required to deduct TDS under section 194JHeld, yes [Para 6] in favour of assessee . c) DCIT vs Delhi Transco Ltd reported in (2014) 52 taxmann.com 261 (Delhi) This finding has been followed by the ITAT in ITA No. 3965/Del/2011 in the case of assessee for Assessment Year 2006-07. Apart from the finding of tribunal recorded in the assessee's own cases, we deem it pertinent to take note of the finding recorded by the tribunal in the case of Chhattisgarh State Electricity Board -vs.- ITO (supra) (2012) 50 SOT 33 (Mum.) - No further appeal to High Court by Department. The relevant finding read as under: 11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or power grid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the Act. 12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194-I of the Act, and analyze the same. Section 194-I provides as follows: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, tenancy or any other agreement or arrangement for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 194-I come into play on the facts of this case. 14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194-I. 15. Explanation (i) to Section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement for the use of land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that these transmission lines are not only being used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Lakshmi Audio Visual Inc. v. Asstt. Commr. of Commercial Taxes [2001] 124 STC 426 (Kar.), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168 = 2011-TII-05-HC-DEL-INTL, in the following terms : 9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of sale . On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. . 17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194 I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsustainable in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring or supplying a product according to the requirement or specification of the customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, 'carrying out any work' is the substance for making the payment relating to such work, liable for deduction of tax at source u/s 194Cof the Act. For carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under sect ion 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term 'work' is defined in section 194C of the Act. The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have al ready held that the payment of roaming charges d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended by the service providers that they provided only a service by the utilization of telegraph licensed to them for the benefit of the subscribers. The Supreme Court proceeded on the assumption that incorporeal rights may be goods for the purpose of levying sales tax and posed to itself the question whether the electromagnetic waves through which the signals are transmitted can fulfil the criteria for being described as goods . The court held that the electromagnetic waves cannot be called goods. They were held to be merely the medium of communication; the waves are neither abstracted nor consumed, they are not delivered, stored or possessed, nor are they marketable. What was transmitted is not an electromagnetic wave but the signal through such means. The Supreme Court thereafter gave a more basic reason to hold that the electromagnetic waves cannot be considered as goods and it is this reason which is relevant for our purpose. It was held that a subscriber to a telephone service could not reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the Subscriber intend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (No. 2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn't deducted TDS on amount paid to deductee and, in turn, deductee also hasn't offered to tax income embedded in such amount. The penalty for tax withholding lapse per se is separately provided under section 271C. and, therefore, section 40(a)(ia) isn't attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue. The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs.- ACIT [2014] 45 taxmann.com 555 (Agra - Trib.) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(8) was inserted by the Finance No. 2) Act, 2004, even though the Finance Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A of the Act. 3.3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding that extension of loans by the Appellant to its subsidiary is not driven by commercial expediency. 5.2. The Learned AR argued that there is significant interdependence between the assessee and its group companies. Subscribers of one entity avail roaming services from other entities when they visit their circles. Similarly, there are interconnect arrangements between these entities for termination of calls originating in one circle and terminating in another. Therefore, he argued that the funds advanced by the assessee to its subsidiary were driven by commercial considerations, since such funds would not only assist the operation of subsidiary but also equally assist the assessee in its operations. Further, it is a matter of fact that any disruption in the business of the sister concern of the assessee would adversely impact the business of the assessee itself. He further argued that since Vodafone group acquired telecom circles across India, it resulted in acquisition of telecom circles under various group entities, as against any single entity. Had all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and the interdependence between the two entitles for obtaining the network and the requirement of funds, we hold that the funds were advanced by the assessee to its subsidiary as strategic advances made only during the course of its business and the principles of commercial expediency thereon is also established and proved beyond doubt. The case law relied upon by the Learned AR is very well placed and directly applicable to the facts of the instant case. It is also observed that the case laws relied upon by the Learned DR have been rendered prior to the supreme court judgement in 288 ITR 1 and hence are not considered herein. 5.4. We al so hold that the action of the Learned CIT(Appeals) in invoking the provisions of section 14A of the Act is totally misplaced as the income received from the subsidiary, if any, would only be in the nature of interest which is taxable. Admittedly, the provisions of section 14A of the Act could be invoked only for the investments made by the assessee out of borrowed funds where the resultant gain would be in the form of dividend income which is exempt from tax. 5.5. At this juncture, it would be pertinent to get into the following decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. Dalmia Cement Bharat Ltd reported in - 2009-TIOL-467-HC-DEL-IT The Delhi High Court held that no portion of interest paid by the assessee on its borrowed funds can be disallowed on the ground that the portion thereof has been diverted to subsidiary company and that the assessing officer was not justified in disallowing the assessee company in debiting the interest paid to the bank as a revenue expenditure merely because it had given further loan to its subsidiary company. 5.6. Respectfully following the aforesaid judicial precedents and in the facts and circumstances of this case, we hold that the borrowed funds advanced to subsidiary by the assessee was on the ground of commercial expediency and accordingly the interest paid would be allowed as deduction in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on international roaming charges shall be applicable only where such charges are chargeable to tax in the hands of the non-resident telecom operator in India. He argued that since the payments on account of international roaming charges have been made to foreign telecom operators for roaming facility provided outside the territorial jurisdiction of India, such charges would fall within the exception provided in section 9(1)(vii)(b) of the Act and are not liable to tax in India. The Learned AR further argued that even under the tax treaty, since the roaming services do not make available any technical knowledge, skill, knowhow, etc., to the telecom operators which can be applied by assessee on its own and hence, the payments do not qualify as Fee for Technical Services under the tax treaties that contain 'make available' clause. He further argued that it is an established principle that where service charges, being in the nature of Fee for Technical Services under the Act, are paid to a non-resident person and the applicable DTAA does not contain a specific article on Fee for Technical Service, such charges shall be construed as business profits of the non-resident recip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assessment order that during the assessment year under appeal, the assessee has been levied with a penalty of ₹ 5,05,000/- by DOT in respect of violation of terms and conditions of license agreement in respect of verification of the Subscribers. Accordingly, he treated this as penalty paid for infraction of law and applied Explanation to Section 37(1) of the Act and disallowed a sum of ₹ 5,05,000/-. On first appeal, the Learned CIT(Appeals) upheld the disallowance made by the Learned Assessing Officer by stating that the business of telecommunication is regulated by the Indian Telegraph Act, 1885 and DOT is the nodal agency under the Govt. of India which regulates the functioning of the telecommunication business in India. The Learned CIT(Appeals) further stated that in order to ensure national security and stability, the DOT has made mandatory for telecommunication companies to obtain personal data of the Subscribers and for non-maintenance of personal information of the Subscribers, DOT had imposed fine of ₹ 5,05,000/- which is in violation of statutory requirement s of law. Aggrieved, the assessee is in appeal before us. 10.2. The Learned AR argued that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onafide personal use of the service. Para 34:- On the premise that the Respondent despite representations continued to impose penalties in terms of the purported circular letters have filed this petition, claiming inter alia for the following reliefs :- (a) Declare the penalty regime introduced by DOT through its letter dated 22.11.2006 bearing reference No. 800-04/2003-VAS (Vol.II) 1104 as illegal, arbitrary, unreasonable, irrational, disproportionate and oppressive. TDSAT decision Para 50:- Whether in view of the provisions contained in section 7(2)(k) read with section 20 and 20A of Indian Telegraph Act, 1885, the Respondent was precluded from levying any penalty on the alleged ground of non-compliance of the customer acquisition form, is the question. Para 52:- Only when a statute governs the field, contract between two parties shall be governed thereby. Absence of a rule would not be a bar for two parties to agree to the terms of a contract. In Bharat Sanchar Nigam Limited Anr. Vs BPL Mobile Cellular Limited Ors., (2008) 13 SCC 597 at page 620,- it is stated : In absence of any statutory rule governing the field, the parties would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non maintenance of personal information of the Subscribers which would ensure verification of the same in time of need. To this extent, the assessee had committed a breach of contractual obligation of the terms and conditions of the license agreement entered into with DOT. We find that the amount paid is towards damages for breach of contractual obligation and are part and parcel of the business of the assessee and hence should be regarded as an expenditure laid out wholly and exclusively for the purpose of business of the assessee. We find lot of force in the arguments of the Learned AR that merely the fact that penalty has been paid as a result of breach of a contract with the Government or any of its department should not change the character of such payments from contractual liability to a statutory liability. The penalty is not stipulated under any of the statutory Acts and accordingly the same cannot be const rued as a statutory liability. At best it could only be construed as a contractual liability. 10.6. We find that the penalty paid to DOT is only for non-compliance of terms and conditions of the license agreement and not paid for infraction of any other law so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hape of fines during normal course of business and there was no infraction of any statutory law. In the type of business of the assessee, it is beyond the control of share broker to know in advance that the trading volume would increase beyond the fixed exposure limit because trading depends upon the market trend and on certain dates there can be extraordinary increase in trading volume. On that increased trading volume, the concerned member also earns income in the shape of commission, etc., which is taxable. So, the fine by the share broker which was correlated with the increase in trading volume, which cross the fixed exposure limit, could not be considered as an infraction of law, although irregularities were there. In the instant case, for the said irregularities, the assessee suffered and paid the fine but this payment could not be termed as penal in nature. Similarly, late submission of margin certificate due to computer software problem could not be considered as infraction of law and if any fine was paid for such late submission, due to unavoidable circumstances in the regular course of business that could not also be termed as penal in nature. Similarly, fine paid for del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O was debited to from year to year through depreciation account and sufficient documentary evidences has not been placed on record by the assessee to substantiate that in all the past years the provision for ARO was in fact included in the book depreciation which stood disallowed while arriving at the taxable income. The Learned CIT(Appeals) also stated that the assessee has also not explained that whether the said provision was allowed deprecation or similar claim in the earlier years. Aggrieved, the assessee is in appeal before us. 11.2. The Learned AR argued that the assessee had entered into lease agreements with owners of certain premises for setting up cell sites for rendering cellular services. Such agreements are usually entered into for a long period of time say in the range of 15-20 years. He stated that further such lease agreements cast an obligation on the lessee (i.e. the assessee herein) to restore the leased premises to their original form at the time of vacating such premises. Accordingly for this obligation, a provision for such liability was created in accordance with the guidelines issued by ICAI. The provision made thereon was capitalized in the books and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income was sought to be reduced by the assessee in the revised return filed on 5.12.2011 while computing its taxable income on the ground that section 41(1) would not be applicable. We find that the revised return was filed within the time limit prescribed u/s 139(5) of the Act and hence the action of the Learned AO in not considering the claim of expenditure alone during the course of assessment, while considering the additional income offered in the said revised return, is not appreciated. 11.4. It is pertinent to note that section 41(1) of the act uses the term 'deduction' in earlier years at the time of creation of such liability. Whereas in the instant case, the assessee had only claimed allowance of depreciation on the said provision for ARO and admittedly, claim of depreciation is only an 'allowance' and not a 'deduction'. We find that the Learned CIT(Appeals) had stated in his order that the assessee had not filed any documentary evidences before the Learned Assessing Officer to enable him to verify the authenticity of claim made by the assessee. In the facts and circumstances of the case, we deem it fit and appropriate, in the interest of jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer and Learned CIT(Appeals) had not looked at the issue in the proper perspective and prayed for setting aside of this issue to the file of the Learned Assessing Officer. In response to this, the Learned DR fairly conceded to this. 12.3. We have heard the rival submissions and perused the materials available on record. We are admitting the additional evidence filed by the Learned AR containing the Master Service Agreement entered into by the assessee as it is very crucial for determining the issue under appeal. Since this agreement was not verified by the Learned Assessing Officer, we deem it fit and appropriate, in the facts and circumstances of the case, in the interest of justice and fair play, to set aside this issue to the file of the Learned Assessing Officer to decide this issue afresh in accordance with law. The Learned Assessing Officer is al so directed to mention in his order regarding the status of amortizat ion payment s made in the earlier years and the tax treatment given in the assessments of earlier years for the same. Needless to mention that the assessee be given reasonable opportunity of being heard. Accordingly, the grounds raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Assessing Officer sought to add the same in the assessment without adducing any reasons. On first appeal, the Learned CIT(Appeals) called for a remand report from the Learned Assessing Officer in this regard. The Learned Assessing Officer in his remand report had stated that notional exchange fluctuation gain was worked out in accordance with section 43A of the Act but did not give any adverse comments on the impugned issue. The Learned CIT(Appeals) accordingly directed the Learned Assessing Officer to allow the claim of the assessee by recording his satisfaction that the exchange fluctuation pertained to acquisition of capital assets and hence section 43A was applicable. Aggrieved, the revenue is in appeal before us on the following ground:- That under the facts and circumstance of the case whether the ld. CIT(A)-VIII, Kolkata, was justified in allowing relief of ₹ 2,55,01,032/- on account of unrealized foreign exchange of fluctuation gain . 15.2. The Learned DR vehemently supported the order of the Learned Assessing Officer. In response to this, the Learned AR argued that the exchange fluctuation to be computed as per the provisions of section 43A of the Act bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that this issue is covered by the decision of the Supreme Court in the case of CIT vs Woodward Governor of India P Ltd reported in 312 ITR 254 (SC) wherein the principles were laid down for recognition of exchange gain / loss under various circumstances. Respectfully following the provisions of the act and the decision of the apex court, we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 2 raised by the revenue is dismissed. 17. The next issue to be decided in this appeal of the revenue is as to whether the Learned CIT(Appeals) is correct in allowing the deduction of bad debts written off of ₹ 3,63,35,789/-. 17.1. We find that the Learned Assessing Officer having accepted this issue in the remand proceedings which is mentioned in pages 73 74 para 26 of the Learned CIT(Appeals) order and had not given any adverse comments about the impugned issue, ought not to have come on appeal before us on this issue. Hence we are not inclined to interfere with the decision of the Learned CIT(Appeals). Accordingly, the ground no. 3 raised by the revenue is dismissed. 18. The next issue to be decided in this appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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