TMI Blog2016 (1) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... inst part disallowance of depreciation, the addition made to the book profits u/s 115 JB of the Act on the ground that there is excess claim of depreciation is hereby deleted. In the result we allow all the grounds of the assessee on this issue and dismiss the revenue’s ground on this issue. Addition on loan granted by the Government of India to the assessee, is a revenue receipt - Held that:- The assessee has not demonstrated before us, that the amount in question, which is a perpetual loan with no liability for repayment of principal or interest, was in fact utilised for acquisition of capital assets. The purpose of the loan is to establish telephone services in rural areas. As no evidence is produced, we uphold the order of the revenue authorities on this issue. The contention of the assessee that the A.O. for the A.Y. 2011-12 has treated a similar amount as received on capital account does not persuade us to reverse the order of the Ld.CIT(A) for the reason that, the addition is based on the fact of non filing of the required evidences. Hence we dismiss this ground of the assessee Adjustment made by adding the above said loan granted by the Government of India while compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have admitted the additional evidence under Rule 46A, as the assessee was not put to notice of this disallowance to be made by the A.O. When the assessee has pointed out that in the tax audit report the actual figure is ₹ 11.32 lakhs, it is not correct on the part of the Ld.CIT(A) to confirm the disallowance made by the A.O. of ₹ 113.26 crores. In view of the above discussion, we set aside the matter to the file of the AO for fresh adjudication, in accordance with law, after considering the evidence to be produced by the assessee. Disallowane of gift - Held that:- We are unable to uphold the adhoc disallowance of 20% of the total expenditure by the Ld.CIT(A). The Ld.CIT(A) should have allowed the entire expenditure for the reason that he recorded that the assessee’s accounts were subject to CAG audit, statutory audit, internal audit, tax audit etc. and that there was no adverse observation in any of these audits etc. As there is no justification for the Ld.CIT(A) to retain disallowance of 20%, we delete this disallowance and allow this ground of the assessee. Disallowance u/s 14A of the Act r.w.Rule 8D - Held that:- Admittedly the assessee has no exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard Mr.Taran Deep Singh, Ld.Counsel for the assessee and Smt.Anuradha Mishra, Ld.CIT, D.R. on behalf of Revenue. 3.1. Paper books and detailed submissions were filed by the Ld.Counsel for the assessee. Issue wise charts and contentions were also filed. The Ld.D.R. also filed written submissions on some issues. 3.2. On a careful consideration of the facts and circumstances of the case and on perusal of papers on record and orders of the authorities below and case laws cited, as well as the arguments by both sides, we hold as follows. As already stated we dispose off this case issue wise. 4. Allowability of License Fee: We first take up the assessee s ground which is against the disallowance of license fees and spectrum charges by the A.O. 4.1. This issue arises in the assessee s appeal as ground no.2 for the A.Y. 2003-04 and as ground no.1 for the A.Y. 2005-06 to 2007-08, as ground no.4 for the A.Y. 2008-09. This issie also arises in the revenue s appeals. 4.2. The A.O. disallowed the amount on the ground that the expenditure incurred on license fee was not allowable u/s 37 of the Act. He noted that for the earlier years the Ld.CIT(A) allowed the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 37(1) of the Income-tax Act, 1961 - Business -expenditure - Allowable as - Assessment year 1995-96 - Assessee, a Government-company, was incorporated in 1986 for entire management, control, operation and maintenance of overseas communication service of Department of Telecommunications (DOT) Nominal license fee and DOT levy paid by assessee were initially allowed as deduction in .assessment years 1988-89 to 1991-92 - In assessment years 1992-93 and 1993-94 CBDT opined that DOT levy was not revenue expenditure which assessee accepted and filed revised returns - From assessment year 1994-95, DOT levy was abolished and licence fee was substantially increased linking it to business done ₹ 282.60 crores paid by assessee as licence fee in assessment year under consideration and debited to profit and loss account was disallowed by Assessing Officer holding that it was nothing but -substitute of DOT levy in revised revenue sharing formula Whether payment made by assessee, by whatever name called, was for making use of network owned by DOT and for services utilised for purpose of business and, hence, could never be considered as non-business expenditure - Held, yes - Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions raised by the assessee need not be adjudicated as it would be an academic exercise. 5. The next issue is with regarding to the addition made on account of license fee and spectrum charges while computing book profits u/s 115 JB of the Act. 5.1. This issue appears as : Ground no.8 for the A.Y. 2005-06, as Ground no.12 for the A.Y. 2007-08 in assesses appeals, and as ground no.7 for the AY 2003-04, ground no.8 in appeal for AY 2006-07 and ground no.5 for AY 2008-09 in revenue s appeals. 5.2. In view of our finding that the license fee and spectrum charges have to be allowed in full, we delete this adjustment made to the book profit u/s 115 JB of the Act to the extent sustained by the First Appellate Authority. In the result, consistent with the view taken on the issue of allowability of license fee and spectrum charges, we allow the ground of the assessee and dismiss the ground of revenue. 6. The next issue is claim of depreciation. This issue arises in assessee s appeal : as ground no.5 for the AY 2003-04, as ground no.1 for the A.Y. 2004-05, as ground no.2 for the A.Y. 2005-06 and the A.Y. 2007-08 and as Ground no.3 for the A.Y. 2008-09. 6.1. During the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loan Funds Secured Loan C 5,100,000 Unsecured Loans D 107,983,258 Total 577,162,781 The scheme of hiving off the business of telecom services by Government of India to a corporate entity entailed incorporation of a wholly owned government company (i. e, the petitioner company) and the transfer of the business as a going concern along with all its assets and liabilities to the company. The net assets were transferred at book value, which was agreed to be at least ₹ 63,000/- Crores and in consideration of this the petitioner company accepted a liability of ₹ 7500 Crores and issued both equity and preference share capital of the face value of ₹ 5000 Crores and ₹ 7,500 Crores, respectively. The balancing figure was reflected as reserves which is an integral part of the shareholders funds. The Government of India has transferred the assets to the petitioner company at their book value i.e., the value at which the said assets are reflected in the books of DTS and DTO and the book value of the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y. 2003-04, ground no.7 for the A.Y. 2004-05, ground no.9 for the A.Y. 2005-06, ground no.13 for the A.Y. 2007-08; (b) in departmental appeals as ground no.9 for the A.Y. 2006-07, as ground no.3 for the A.Y. 2008-09. 7.1. After hearing rival contentions, in view of our decision in the ground against part disallowance of depreciation, the addition made to the book profits u/s 115 JB of the Act on the ground that there is excess claim of depreciation is hereby deleted. In the result we allow all the grounds of the assessee on this issue and dismiss the revenue s ground on this issue. 8. The next issue is the ground taken against the action of the AO adding an amount of ₹ 720 crores to the income of the assessee on the ground that the loan granted by the Government of India to the assessee, is a revenue receipt. This issue arises as ground no.3 in assessee s appeal for the A.Y. 2003-04. 8.1. The assessee has received a loan in perpetuity from Govt. Of India. The loan sanction documents describes the same as perpetual loan with no liability of repayment of principal and payment of interest . The assessee has shown this receipt in its balance sheet and Notes to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The next issue is disallowance of interest on MTNL Bonds. This ground appears as ground no.5 in the departmental appeal for the A.Y. 2003-04. The addition was made by the A.O. by following the orders of his predecessors. The loan in question was raised by DOT through MTNL for capital outlay of Telecom resources. Telecom infrastructure built from the MTNL Bonds were transferred to BSNL at the time of take over and accordingly the loan liability was also taken over by the BSNL. This fact is clear from the MOU between BSNL and Govt. Of India. As the amount was raised through MTNL, interest has been paid through them. The issue is whether such interest expenditure is allowable or not. 10.1. After hearing rival contentions, in view of the MOU between the BSNL and Govt. Of India, the genuineness of the expenditure cannot be doubted. The expenditure incurred is for the business of the assessee and hence the same was rightly directed to be allowed by the First Appellate Authority. In the result we uphold the order of the First Appellate Authority and dismiss this ground of the Revenue. 11 The next ground is on the issue of allowability of expenses on issue of MTNL bonds. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. The amount was added back by the assessee in its computation of income, but no adjustment was made while computing book profits u/s 115 JB of the Act. The AO added the amount to the book profits computed u/s 115 JB of the Act. 13.1. On appeal the First Appellate Authority upheld the order of the A.O. on the ground that the amount was not an ascertained bad debt but was merely a provision based on estimate. 13.2. The Ld.Counsel for the assessee did not press this ground in view of the retrospective effect to the Income Tax Act. Hence this ground is dismissed as not pressed. 14. The next ground is against the disallowance made by the A.O. u/s 43B of the Act, on account of provision made for gratuity. This is ground no.4 and 4.1 in assessee s appeal for the A.Y. 2004-05. 14.1. After hearing rival contentions we find that in the tax audit report the auditors have categorically stated that the amount of ₹ 42.16 lakhs was debited to the Profit Loss a/c as a provision for expenses on gratuity account. The assessee had submitted before the revenue authorities that there is no liability for gratuity payable by the assessee company and hence there is no question of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital in nature. 16.1. The other issue in this ground is disallowance of ₹ 2,56,00,981/-. The assessee s contention is that the same is added back suo moto by it in the computation of income and hence it is a double addition. Further the assessee disputes confirmation of addition of ₹ 5,00,343/- by the Ld.CIT(A) on the ground that it is a capital expense. 16.2. We find that the First Appellate Authority has held that the expenditure incurred on partitions are in the capital field and cannot be allowed as revenue expenditure. The Ld.Counsel for the assessee has not seriously disputed this finding. Thus we find no infirmity in the disallowance of ₹ 15,71,000/-. The assessee shall be eligible for depreciation on the same at the applicable rates. Similar is our decision on interest on capital assets of value less than ₹ 5 lakhs as the Ld.Counsel for the assessee has not disputed the same. The disallowance to the extent amounting to ₹ 5,00,343/- is confirmed. 17. The next issue is on disallowance of ₹ 2,56,00,891/-: The assessee in our view should not have any grievance as the Ld.CIT(A) has directed the A.O. to verify the same and delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these amounts and the disallowances made by the A.O. results in double disallowance. The Ld.CIT(A) for the A.Y. 2003-04, 2004-05, 2005-06 directed the A.O. to verify as to whether it is a case of double disallowance and rectify the assessment. We find no infirmity in the order of the Ld.CIT(A). 19.2. In any event we direct the A.O. if he has not passed consequential orders, to verify the claims of the assessee and pass the necessary order. In the result these grounds of the assessee are set aside for statistical purposes. 19.3. Coming to the departmental grounds for the A.Y. 2006-07, 2007-08, the First Appellate Authority has given a finding that this is a case of double disallowance. The Ld.D.R could not demonstrate that such a factual finding of the Ld.CIT(A) was wrong. Thus these grounds of Revenue for the A.Y. 2006-07, 2007-08, 2008-09 are hereby dismissed. 19.4. For the A.Y. 2006-07 there is a ground on the issue of disallowance of administrative, operative and other expenses, to the extent of ₹ 86,401/- under the head write off of losses other than bad debts . Further the assessee is aggrieved with the Ld.CIT(A) s order for not deleting the addition of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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