TMI Blog2017 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by the assessee account of sale of bandwidth is not derived from the eligible business and it is not entitled for claiming deduction in that regard. As far as network and support service fees it is found that same were received from RGSL for providing Internet services to its customers in India. It is also found that the assessee had paid similar fees to RDSIPL for installing PoP for rendering Internet services to its customer. Thus,the only income for rendering Internet services is the network and support fee of ₹ 2.21 crores. But if the expenditure of ₹ 3.06 crores on network and support fees paid is considered it would result in a loss on operation of Internet services provided by the assessee. In these circumstances,we are of the opinion that the FAA has rightly held that assessee was not entitled to any deduction u/s. 80 IA of the Act. - Decided against assessee. - I.T.A./8102/Mum/2010, And I.T.A./2200/Mum/2015 - - - Dated:- 12-7-2017 - Sh. Rajendra, Accountant Member And Amarjit Singh, Judicial Member For The Revenue : Shri M. C. Omi Ningshen- DR For The Assessee : Shri J. D. Mistry, Niraj Sheth K. K. Ved ORDER PER RAJENDRA, AM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers, that its charges were not based on speed and data download/upload, that it had outsourced major activity to its sister concern namely Reach Data Services India P. Ltd.(RDSIPL), that it was hiring out its equipment and network service to Reach Global Services Ltd.(RGSL). Finally, he concluded that the assessee had not provided any broadband network and internet services, that it was not entitled to claim deduction u/s. 80IA, amounting to ₹ 1.34 crores. He further held that the sum of ₹ 2.21 crores shown as network support fees was not eligible for deduction u/s. 80 IA, as the said income had arisen out of hiring its equipments and network services to RGS and, that the amount in question was not form part of income eligible for deduction u/s. 80IA. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA) and made elaborate submissions. After considering the assessment order and the arguments of the assessee, he referred to the provisions of section 80 IA(4) of the Act. He also made a reference to the Memorandum explaining the provisions of Finance Bill Explaining the concept and nature of the Internet serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to network and support services fees of ₹ 2.21 crores, he held that same were received from RGSL for providing Internet services to its customers in India, that similar fees were paid to RDSIPL for installing PoP for rendering Internet services to its customers, that only income for rendering Internet services is the network and support fees of ₹ 2.21 crores, that same would be offset by the expenses of ₹ 3.06 crores on network and support fees paid to RDSIPL, that the net result was a loss on the operation of Internet services, that the assessee was not entitled to any deduction u/s. 80IA of the Act. 4. During the course of hearing before us, the Authorised Representative (AR) argued that the assessee was having bandwidth and was giving access to the customers, that it was providing transit ISP, that it was not trading in bandwidth but was providing Internet connections, that it had produced bills regarding providing services to the customers, that the assessee never admitted that it was trading in bandwidth, that in the audit report nature of business was mentioned, that the assessee was a subsidiary to a foreign company, that the FIBP had allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce (IETF), a non-profit organization of loosely affiliated international participants that anyone may associate with by contributing technical expertise. Internet service providers establish the worldwide connectivity between individual networks at various levels of scope. End-users who only access the Internet when needed to perform a function or obtain information, represent the bottom of the routing hierarchy. At the top of the routing hierarchy are the tier 1 networks, large telecommunication companies that exchange traffic directly with each other via peering agreements. Tier 2 and lower level networks buy Internet transit from other providers to reach at least some parties on the global Internet, though they may also engage in peering. An ISP may use a single upstream provider for connectivity, or implement multi-homing to achieve redundancy and load balancing. Internet exchange points are major traffic exchanges with physical connections to multiple ISPs. Large organisations, such as academic institutions, large enterprises, and governments, may perform the same function as ISPs, engaging in peering and purchasing transit on behalf of their internal networks. Research networ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as follow: The revenue recognised by the assessee company is on account of sale of bandwidth and not as in respect of bandwidth services. Your good self verify the same from the sub para (c) of Para 2 of schedule 9 to the Balance Sheet of the Company as on 31/03/2007. An analysis of the above-mentioned material clearly establishes that the assessee was primarily engaged in the business of wholesale procurement and sale of bandwidth to retail ISP.s and corporate users. There is a fine and clear distinction between deduction claimed in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. and a deduction claimed for sale of bandwidth Section 80 IA was introduced with their specific purpose. The legislature wanted to give impetus to infrastructure of the country in various fields including the telecommunication services. Broadband network and Internet services were included in subsection 4 clause (ii) by the Finance Act, 2001 with effect from 01/04/2001. Thus, deduction was allowed for broadband network and in services to the undertakings which had started providing telecommunications services. The deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g factor is the activities carried out by it in a particular AY. Having a licence of ISP for the year under consideration would not make the assessee, for the year under appeal, an undertaking engaged in providing infrastructure facilities in the field of telecommunication, as an required by section 80IA. 5.4. Before us, it was argued that assessee had issued invoices with regard to services provided by it. The AO had specifically directed the assessee to furnish confirmation from the parties to support its claim. As per the established principles of taxation jurisprudence for claiming an expenditure the assessee has to establish the genuineness of the claim. In case of deductions the onus on the assessee is much more higher. We find that the assessee did not produce any confirmation from the parties that could have made its claim stronger. In its letter, dated 25/11/2009, it informed the AO that none of the parties were forthcoming to file confirmation is it was a mundane matter for them. In our opinion, without supporting evidences, the assessee cannot claim any deduction. It was the duty of the assessee to establish that receipts from the sale of bandwidth, received during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. While completing the assessment, the AO had issued a notice to the assessee for imposing penalty for furnishing inaccurate particulars of income and concealment of income. The AO had made two additions to the total income the assessee. After considering the submission of the assessee in that regared, he levied a penalty of ₹ 45.57 lakhs, vide his order, dated 20.03.2012. 9. Aggrieved by the order of the AO, the assessee preferred an appeal before the DCIT. After a period of 30 months, it approached the FAA and requested him to condone the delay. In its application, it was mentioned that due to inadvertent error, the appeal was filed before the DCIT, as opposed to filing the same before the FAA, that the appeal was filed within period of thirty days, that the delay was neither deliberate not contumacious. However, the FAA held that explanation filed by the assessee about delay in filing the appeal was not convincing, that the assessee was advised by professionals, that the delay/inaction was not bona fide. Finally, he dismissed the appeal treating it as time-barred. 10. Before us, the AR argued that there was no deliberate intention of not filing the appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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