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2019 (6) TMI 474

note that at the time of incorporation, some of the employees from Bharti, Vodafone and Idea group companies were transferred to the assessee and were enrolled as full time employees. The assessee was required to pay “ex-gratia/gratuity” amount in terms of the terms and conditions of appointment for such employees. Sample employment contracts, details of all the employees transferred from Bharti, Vodafone and Idea group companies, period of employees’ continuous service and the amount of gratuity paid were duly furnished before CIT(A). CIT(A) called for the remand report and the AO has not pointed out any fault with the evidence produced by the assessee. In present case, gratuity was actually paid. AR relied upon the decision of CIT vs. Premier Cotton Spg. Mills Ltd. [2002 (7) TMI 66 - MADRAS HIGH COURT] wherein it was held that if the entire amount is not allowable u/s 36(1)(v), the balance amount would necessarily have to be allowed as a business expenditure u/s 37 of the Act and also that section 40A(7) has no application when there was an actual payment to an approved gratuity fund. Ground No. 1 of Revenue’s appeal is dismissed. Taxability of Lease equal .....

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(A). Accordingly, a telecom site is ready to use even before the suppliers are paid. Hence no loan needs to be drawn when the site is under construction. Details of 14,484 self-constructed towers were submitted as additional evidences before CIT(A) and sample RFAI certificates were furnished to CIT(A). Thus, after going through the evidence, the CIT(A) arrived at a proper finding and correctly deleted this addition - Ground No. 3 of the Revenue’s appeal is dismissed. Disallowance of IRU charges - allowable revenue expense - HELD THAT:- Amount paid as confirmed by various parties is no case less than amount as per IRU agreement and in most cases same as stated in IRU agreement. AO in his notice u/s 133(6) did not ask for number of tower confirmation. AO only asked for amount confirmation. From the records it can be seen that the confirmations filed by the assessee was not properly verified either by the CIT(A) as well as by the AO and both the authorities take the cognizance of the relevant clauses of the IRU agreement. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer to take into account all the relevant evidence. Allowability o .....

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; 3,87,51,992/-. I.T.A. No.1040/DEL/2014 1. That in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in disallowing an amount of ₹ 3,87,51,992/- towards Indefeasible Right to Use ('IRU') charges while holding the said amount to be excessive and unreasonable, without appreciating that the entire amount of IRU charges claimed were duly confirmed by the recipient parties u/s 133(6) of the Act. 1.1. That the Ld. CIT (A) erred in not appreciating the relevant clauses of IRU agreement(s) wherein it was categorically stated that the Appellant was bound to pay fixed monthly amount for IRU charges irrespective of the number of telecom sites leased. 2. That the Ld. CIT(A) erred in treating loan processing fee of ₹ 21,87,50,000/- which is revenue in nature allowable under section 37(1) of the Act, as capital expenditure and thereby allowing depreciation instead of allowing it as revenue expenditure u/s 37(1) of the Act. That the above grounds of appeal are without prejudice to each other. 3. The assessee is a public limited company registered under the Companies Act, 1956 and was incorporated 011 20.11.2007. The assessee is a joint venture among B .....

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amp;L a/c considering it as revenue in nature. To ascertain the actual nature of the expenditure, the assessee was asked to furnish the actual nature of expenditure and as to why the same should not he treated as capital expenditure, provided it relates to the acquisition of the capital asset. The assessment order was passed by the Assessing Officer thereby assessing loss of (-) ₹ 292, 27,98,604/- after making following additions/disallowances as under:- S. No. Particulars Amount (in Rs.) 1 Foreign exchange fluctuation loss 9,05,76,526 2 Gratuity payments 42,25,273 3 Net accrual of equalization reserve 30,32,30,226 4 Capitalization of interest on loan 123,75,65,807 5 Depreciation on telecom towers 107,50,16,411 6 IRU charges 31,03,91,544 7 Depreciation on network cables, printers and scanners 94.78.632 8 Disallowance of loan processing fee 16,29,61,479 TOTAL 319,34,45,898 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. As regards Ground No. 1 of the Revenue s appeal, the Ld. DR submitted that the assessee is a joint venture among Bharti Infratel Ltd., Vodafone Essar Limited and A .....

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or business purposes. The CIT(A) erred in not appreciating that the Assessing Officer appreciating the relevant evidences returned a logical and implicit finding that the expenditure in respect of so called gratuity cannot be said to have been incurred wholly and exclusively for business purposes. The CIT(A) has not found that the said finding in perverse or in the process of reaching the said finding principles of natural justice has not been followed. The CIT(A) erred in not appreciating that the reading of Section 36(1)(v), in light of whole scheme of computation of income from profits and gains of business or profession, deductions in respect of payment of gratuity in lieu of period of service rendered with an employer is not allowed being capital and non-recurring in nature and also relates to earlier period. That s why contribution to approved gratuity fund created for exclusive benefit of its employees under trust. The CIT(A) erred in not appreciating that there is bar on allowability of deduction under Section 37(1) in respect of expenditure which are in nature of expenditure in respect of whom deduction is allowed under any other section. Natural connotation of the term na .....

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Ltd. (2003) 131 Taxman 79 (Mad.) wherein it was held that if the entire amount is not allowable under section 36(1)(v), the balance amount would necessarily have to be allowed as a business expenditure under section 37 of the Act and also that section 40A(7) of the Act has no application when there was an actual payment to an approved gratuity fund. Thus, Ground No. 1 of Revenue s appeal is dismissed. 8. As regards Ground No. 2 of Revenue s appeal, the Ld. DR submitted that during the year the assessee debited an amount of ₹ 16,21,45,355/- to the P&L Account under the head lease equalization reserve which is part of the lease rent to be paid or payable to the owner of the premise on which telecom sites (towers) are installed. Further, the debited amount has been added back in the computation of income under the normal provision of the Act. Similarly, the assessee enters into an agreement with telecom companies to provide them space on its towers in lieu of which services charges are being received. During the year, the assessee has credited an amount of ₹ 46,53,75,581 to its revenue account under the head revenue equalization reserve which is the part of service ch .....

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n of the Hon ble Apex Court in case of Godhra Electricity Co. Ltd. (1997) 91 Taxman 351 (SC). The Ld. AR relied upon the following judicial decisions:- i) CIT vs. Reliance Industrial Infrastructure Ltd. (2015) 234 Taxman 256 ii) CIT vs. Bilahari Investment (P.) Ltd. (2008) 299 ITR 1 (SC) iii) CIT vs. Realest Builders & Services Ltd. (2008) 307 ITR 202 (SC) iv) CIT vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC) v) CIT vs. Vishnu Industrial Gases Pvt. Ltd. (ITR No. 229/1988 [Del. Tri.]) vi) CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Del) vii) CIT vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) 10. We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen that the assessee debited an additional amount of ₹ 16,21,45,355 to P&L over and above the actual lease expenditure/revenue during the assessment year as the assessee adopted AS 19. The liability to pay increased payments is contingent upon use of the premises in future. Thus additional expenditure representing lease equalization reserve is a notional expense not allowable under Section 37 of the Act. The Ld. AR relied upon the decision of .....

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borrowing of funds with reference to a qualifying asset. The term borrowing implies mobilizing of funds which are returnable. The plea of the assessee is based upon the implied statement that the loan was taken for each and every tower, separately after it was constructed, capitalized and put to use. The order of CIT(A) erred in not discussing evidence indicating this fact. In fact, the CIT(A) has accepted additional evidences in form of Ready For Active Installation (RFAI) Certificate in respect of 114 sites as a sample as submitted by the assessee. There is nothing in the order of the CIT(A) to show that these RFAI certificates indicate that each and every tower constructed during the year was up to use. It shows non-application of mind on the part of the CIT(A). The Ld. DR relied upon the decision of the Hon ble Supreme Court in case of Punjab State Industrial Corporation Ltd. vs. CIT 225 ITR 792 (SC). 12. The Ld. AR submitted that construction of towers began in April 2008 whereas IRU agreement was entered into 1st January, 2009. The Assessing Officer was incorrect in stating that assessee commenced business through lease of towers under IRU agreement. Receipt of equipment and .....

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ore CIT(A) and sample RFAI certificates were furnished to CIT(A). Thus, after going through the evidence, the CIT(A) arrived at a proper finding and correctly deleted this addition. There is no need to interfere with the findings of the CIT(A). The case laws relied upon by the Ld. DR is factually different from the present assessee s case as well as the ratio laid down does not apply. Therefore, Ground No. 3 of the Revenue s appeal is dismissed. 14. As regards to Ground No. 4 of the Revenue s appeal and Ground No. 1 of assessee s appeal, the Ld. DR submitted that the assessee had taken 79,239 telecom sites towers under Indefeasible right to use agreement from Bharti, Vodafone and Idea w.e.f. 01.01.2009 and total indefeasible right to use charges incurred by the assessee for 3 months i.e. from 01.01.2009 to 31.03.2009 was ₹ 268.20 crore which has been debited in P & L account claiming it as allowable expenditure. Notices u/s 133(6) were issued to all parties so as to confirm the number of towers being given on IRU agreement to the assessee, total cost incurred by the companies in erecting the towers eventually being leased out to the assessee, WDV of the towers in the book .....

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41,467 by various vis-à-vis IRU agreements. There are cases where parties have confirmed more towers than as per IRU agreement. Similar clauses are present in other IRU agreements. 16. We have heard both the parties and perused all the relevant material available on record. The assessee had taken 79,239 telecom sites towers under Indefeasible right to use agreement from Bharti, Vodafone and Idea w.e.f. 01.01.2009 and total indefeasible right to use charges incurred by the assessee for 3 months i.e. from 01.01.2009 to 31.03.2009 was ₹ 268.20 crore which has been debited in P & L account claiming it as allowable expenditure. Notices u/s 133(6) were issued to all parties so as to confirm the number of towers being given on IRU agreement to the assessee, total cost incurred by the companies in erecting the towers eventually being leased out to the assessee, WDV of the towers in the books of the party as on the date of IRU agreement and total IRU charges being received by the above parties from the assessee during F.Y. 2008-09. The Ld. AR contended that as per clause 2.1.3 consideration was not subject to change even when more towers were to be added. Amount paid as con .....

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related to incomplete towers shown as CWIP as the appellant has yet to make payment for such suppliers i.e. loans were not utilized for construction of telecom towers. In view of this finding, expense related to loan cannot be capital in nature and allowable as revenue expenditure. Alternatively, the upfront fees paid to banks is in the nature of interest under Section 2(28A) of the Act which has very wide definition of interest and includes any service fee or other charge in respect of the moneys borrowed or debt incurred . The Ld. AR relied upon the decision of the Hon ble Delhi High Court in case of CIT vs. Gujarat Guardian Ltd. (2009) 177 Taxman 434 (Del) and also CIT vs. Bharti Telenet Ltd. & CIT vs. Bharti Infotel Ltd. in ITA Nos. 1110/2011, 386/2012, 387/2012 and 193/2013 dated 03.02.2015. 19. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee had taken loans from banks and financial institutions amounting to ₹ 1850 crores for operating its business and banks charges ₹ 21,87,50,000/- as one time processing fees (upfront fee). The entire amount of loans processing fees was claimed .....

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