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2016 (1) TMI 1120 - ITAT DELHI

2016 (1) TMI 1120 - ITAT DELHI - TMI - Addition made on account of license fee and spectrum charges while computing book profits u/s 115 JB - Held that:- 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 th .....

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, while computing book profits u/s 115 JB - Held that:- 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. - Addition on loan granted by the Government of India to the assessee, is .....

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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 computing book profits u/s 115 JB - Held that:- No such adjustment can be made to the profits determined under Schedule VI of the Companies Act, as the item in question .....

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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. - Addition on reversal of excess income booked in earlier years cannot be reversed this year - Held that:- We are of the view that as the fact that the income in question is not recoverable and that i is written off is not in dispute. The Ld.CIT(A) was right in allowing the claim of .....

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additional evidence produced by the assessee on the ground that the assessee failed to rectify the error found during the course of assessment. In our view the First Appellate Authority should have admitted the additional evidence and verified the claim of the assessee that there was an error in the tax audit report. When the assessee has not been put to notice about this particular disallowance, the question of the assessee replying to the allegation during the course of assessment proceedings .....

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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 .....

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e made u/s 14A - ITA No. 3718, 3440/Del/2006, ITA No. 3045/Del/2007, ITA No. 2162, 2176/Del/2008, ITA No. 3701, 4275, 2879/Del/2010, ITA No. 3342/Del/2011, ITA No. 1822, 1823, 1901/Del/2012 - Dated:- 22-1-2016 - SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER For The Appellant : Shri Tarandeep Singh, Adv. For The Respondent : Smt. Anuradha Misra, CIT, D.R. ORDER PER BENCH All these appeals are directed against separate orders of the Ld.CIT(A). ITA 3718/Del/06, ITA .....

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ay of this common order. 2. Facts in brief:- The assessee is a Government Company and was incorporated on 15.09.2000 under the Companies Act, 1956. Prior to the incorporation of the assessee company, the telecommunication services were being provided by Government of India, Ministry of Communication through its two departments namely Department of Telecom Services ( DTS ) and Department of Telecom Operations ( DTO ). The assessee company was incorporated pursuant to the policy of the Government .....

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is appellate order granted part relief to the assessee. Aggrieved with the order of the Ld.CIT(A), both the assessee as well as the revenue filed these appeals before us. As there are a number of issues that arise in these appeals, we dispose off the appeals issue wise for the sake of convenience. 3. We 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 .....

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sallowance 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 assessee on .....

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d as a difference of ₹ 85.05 crores remained unpaid. 4.3. On appeal the First Appellate Authority held that as far as spectrum charges and national long distance license fee are concerned, there is a categorical qualification made by the auditors of the assessee company in their audited report, that the amount in question was not in line with the agreement and that the effect there of could not be determined and that such claim ;was made merely based on estimates without any specific scien .....

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e year, which forms part of the AGR. He restricted the disallowance to 15% of the total amount claimed under this head on adhoc basis. On the alternative ground of disallowance made by the AO u/s 43B of the Act, he followed the decision of Hon ble Calcutta High Court in the case of CIT vs. Vares International Pvt. Ltd. 225 ITR 831 and held that, the license fee in question cannot be treated as tax, duty, cess or fees as has been envisaged u/s 43B of the Act and hence a disallowance cannot be mad .....

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nt-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 .....

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ould never be considered as non-business expenditure - Held, yes - Whether, therefore, DOT levy, irrespective of opinion of CBDT, was allowable and rightly allowed in assessment years 1988-89 to 1991-92 as business expenditure - Held, yes - Whether, similarly, licence fee was undisputedly paid for use of facilities provided by DOT and payment was inextricably bound up with very business of assessee and directly related to actual utilisation of network facilities and, therefore, licence fee paid .....

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ho had given an opinion in favour of the assessee. 4.7. The contentions of the Ld.D.R. that he amount of license fee is not ascertainable has been answered by the assessee by giving an affidavit before this Bench, wherein it is stated that the amount paid to the government as license fee and debited by the BSNL in its Profit and Loss a/c has not been disputed till date and that the quantification by B.S.N.L. has been accepted by the government. When a particular amount of license fee is calculat .....

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n the case of CIT vs. Varas International Pvt.Ltd. reported in 225 ITR 831. The license fees being a charge received by the government for parting with rights, is neither a tax, nor a duty, nor a fees, nor a cess within the meaning of S.43B of the Act. Hence this Sec.43B cannot be applied. 4.8. In view of the above discussion we allow the appeal of the assessee and dismiss the appeal of the Revenue on this issue. As we have held so, the alternative contentions raised by the assessee need not be .....

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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 .....

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disallowance of depreciation is consequential, and therefore, if the actual amount is later confirmed, the relief in this regard would be automatically allowed to the assessee. 6.2. On hearing the rival submissions, we find that this issue is no more res integra. The issue stands settled in favour of BSNL by way of order dated May 9, 2013, passed by the Hon'ble Delhi High Court for AY 2001-02 reported in 355 ITR 188(Del) , wherein the following observations were made: The Assessing Officer s .....

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hareholders funds. The Assessing Officer erred in completely ignoring that reserves and surpluses of a company are a part of shareholders funds and the book value of equity share consists of not only the paid up capital but also the reserves and surpluses of the company. The format of the balance sheet as prescribed under Schedule VI of the Companies Act, 1956 also clearly indicates that reserves and surpluses are a part of shareholders fund. The balance sheet of the petitioners company also ref .....

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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 ₹ .....

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The configuration of the capital structure of the petitioner has no impact on the value of the Government's holding in the petitioner company as reserves of a company are subsumed in the book value of its capital. We find no basis, at all, for the Assessing Officer to surmise that reserves represent a subsidy, grant or reimbursement from which the cost of assets of the petitioner company are met and the whole consideration received by the Government of India for transfer of business is limi .....

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directly or indirectly the cost of the assets in the hands of a company are met. We are thus of the view that the reasons as furnished by the Assessing Officer for reopening the assessments could not possibly give rise to any belief that income of the petitioner had escaped assessment and proceedings initiated on the basis of such reasons are liable to be quashed. " The above decision of the Hon'ble High Court has been accepted by the Income Tax Department and no appeal has been preferr .....

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e is allowed. 7. The next issue is with respect to the adjustment made on account of excess claim of depreciation, while computing book profits u/s 115 JB of the Act. This issue arises in the following grounds : (a) in assessee s appeals ground no.10 for the 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 riv .....

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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 accounts separately as deferred government account . 8.2. .....

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ount of loan which proves that the amount is not for capital purposes. He concluded that the financial package received by the assessee for VPT programme were utilised for revenue items and thus includible in income. 8.3. On appeal the First Appellate Authority upheld the order of the AO. Further aggrieved the assessee is before us. 8.4. After hearing rival contentions, we find that the assessee has not demonstrated before us, that the amount in question, which is a perpetual loan with no liabil .....

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fact of non filing of the required evidences. Hence we dismiss this ground of the assessee i.e. ground no.3 for the A.Y. 2003-04. 9. The next ground is ground no.9 in appeal for the A.Y. 2003-04 which is an adjustment made by adding the above said loan granted by the Government of India while computing book profits u/s 115 JB of the Act. In our view no such adjustment can be made to the profits determined under Schedule VI of the Companies Act, as the item in question i.e. loan received from gov .....

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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 expenditur .....

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of MTNL bonds. This issue is ground no.6 in the Revenue s appeal for the A.Y. 2003-04. 11.1. After hearing rival contentions, in view of our findings that the interest on MTNL bonds have to be allowed, we uphold the findings of the First Appellate Authority that the expenditure incurred on issual of MTNL Bonds is for the purpose of business and hence has to be allowed. We uphold the order of the Ld.CIT(A) and dismiss this ground of Revenue. 12. The next issue is on the addition of ₹ 435.38 .....

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period and a credit entry made in the earlier year cannot be claimed as a deduction in the current A.Y. He held that the assessee had an option on filing a revised return for the earlier A.Y. and hence no deduction can be allowed in this A.Y. On appeal the Ld.First Appellate Authority gave a factual finding that it is not in dispute that this excess provision of income was not recoverable any more. He held that the assessee had no option but to write off the same in the accounts as not recovera .....

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B of the Act with respect to reversal of excess income booked. This ground is taken by the assessee in its appeals as ground no.8 for the A.Y. 2003-04, as ground no.5 for the A.Y. 2004-05, as ground no.7 for the A.Y. 2005-06 to 2006-07, as ground no.11 for A.Y. 2007-08 and as ground no.5 for the A.Y. 2008-09. The assessee has debited an amount of ₹ 484,63,13,000 as provision for doubtful debts and bills. The amount was added back by the assessee in its computation of income, but no adjustm .....

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e 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 t .....

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the claim of the assessee that there was an error in the tax audit report. When the assessee has not been put to notice about this particular disallowance, the question of the assessee replying to the allegation during the course of assessment proceedings does not arise. In the result this ground is set aside to the file of the AO for fresh adjudication. 15. The next ground is on disallowance of expenses on the ground that they are capital in nature. The tax auditor has reported that the assess .....

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deration of the facts, we are of the considered opinion, that the Ld.CIT(A) 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 t .....

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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 b .....

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xt 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 addition in case it is a double addition. 17.1. The AO shall carry out the necessary verification. In the result this ground of the assessee is dismissed. 18. The next issue is the adhoc disallowance of expenditure incurred on gifts. This appears as ground no.5 in assessee s appeal for the A.Y. 2005- 06. 18.1. The A. .....

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rding gifts. The Revenue has accepted the finding of the Ld.CIT(A) that the expenditure on gifts was business expenditure and that gifts can be given during the course of business promotion expenses. The Ld.CIT(A) has also recorded a finding of fact that the AO has not brought on record any fact or evidence to support his conclusion, that the expenditure was not for business purposes. These factual findings are not disputed. 18.3. Under these circumstances, we are unable to uphold the adhoc disa .....

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t to write off of assets. This issue arises in assessee s appeal as ground no.4 for the A.Y. 2003-04, ground no.2 for the A.Y. 2004-05, ground no.3 for the A.Y. 2005-06. In the departmental appeals, this ground appears as ground no.1 for the A.Y. 2006-07, 2007-08 and as ground no.2 for the A.Y. 2008-09. 19.1. After considering rival submissions, and perusing the papers on record, we find that there is no dispute on the issue as to whether the amounts in question written off, could be disallowed .....

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der. 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 disa .....

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