TMI Blog2020 (2) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business and therefore, the same would be an allowable deduction to the assessee in the normal business losses also. The decision of Hon ble Bombay High Court rendered in CIT V/s Evergrowth Telecom Ltd. [ 2013 (1) TMI 64 - BOMBAY HIGH COURT] also support assessee s case and therefore, no fault could be found in the impugned order, in this regard. - Decided against revenue Interest on fixed deposits / margin money which was reduced from work-in-progress (WIP) and not credited to Profit Loss Account - HELD THAT:- The perusal of financial statements corroborates the same. The Note no. 4 of Schedule 17 also mention that the company has started operations in 8 of its 21 circles with effect from 29/07/2010. This being the case, we direct Ld. AO to verify the stated facts and accept assessee s claim after due verification since the learned first appellate authority agreed with assessee s proposition that interest received during pre-operative period could not be charged to tax and the revenue is not in further appeal on this point. If the said interest of ₹ 151.89 Lacs pertains to circle which were not operationalized during the year, the impugned addition would s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. Our adjudication to the subject matter of cross-appeals would be as per succeeding paragraphs. 3.1 Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged as telecom service provider, was assessed for year under consideration u/s.143(3) on 14/03/2014 wherein the losses were determined at ₹ 125.33 Crores after certain additions/disallowances as against returned loss of ₹ 143.30 Crores efiled by the assessee on 29/09/2011 which was subsequently revised on 23/01/2012 at ₹ 142.54 Crores. 3.2 The Assessee was incorporated with the object of carrying on the business of telecom services. The assessee was allotted National Long Distance (NLD) license in 2006. Subsequently, the assessee was allotted Unified Access Service License (UASL) during financial year 2008-09 and it paid license fees of ₹ 1472.05 Crores. The said license was to operate all across India. The assessee was awarded 21 licenses in the 2G Auction. After the allocation of 2G spectrum license, the assessee surrendered NLD license to Department of Telecommunications (DOT) and accordingly, wrote-off an amount of ₹ 2.50 Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense. However, later the appellant was successful in obtaining the Unified Access Service License (hereinafter referred to as 'UASL') for 21 telecom circles which virtually covered the entire area of India. In other words, the appellant got 21 licenses which would collectively enable the appellant to offer all sorts of inter-city and intra-city telecom services throughout the length and breadth of the country. In such circumstances, the NLD license would become virtually redundant as all the rights enjoyed by the appellant under the NLD license would be enjoyed by it also under UASL. As the appellant had not put the NLD license to use, any delay in rolling out the NLD would have attracted penal charges from the DOT apart from the mandated yearly license fees. Through the surrender of the NLD license - which was a prudent business decision - the appellant had also avoided payment of both the penalty charges as well as the yearly license fees for NLD. However, it had lost the payment of ₹ 2.5 crores made to DOT as license fees for the NLD license on surrender of the said license. The appellant was not compensated by the DOT to the extent of a single rupee. On this back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the license has been transferred. It further provides for amortization of unallowed expenses in a case where a part of the license is transferred and to which the provisions of sub-section (3) do not apply. The provisions of sub-sections (2), (3) and (4) pertaining to transfer shall not apply in relation to a transfer in a scheme of amalgamation whereby the license is transferred by the amalgamating company to the amalgamated company, the latter being an Indian company. [Emphasis supplied] From a plain reading of above, it would be clear that the provisions of section 35ABB of the Act stand reiterated in the Circular. Further, as per the Circular, the stated objective of the provisions of section 35ABB of the Act is stated to be the grant of a fillip to the telecom sector. As such, the reliance of the AR on circular no. 763 is seen to be a valid one. 4.3.2 Coming to the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Evergrowth Telecom Limited (supra), the issue for consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 2.50 Crores in its Books of Accounts, being license fees paid to acquire the NLD license. The allegation of Ld. AO was that NLD was an intangible asset which would be eligible for depreciation u/s 32. However, as per assessee s submissions, the assessee has never claimed depreciation against the same and the said fact remain unrebutted before us also. The perusal of financial statements for the year as placed before us also corroborate the said fact which is further fortified by the fact that the assessee has not claimed any depreciation on intangible assets in its Income Tax Return. This being the case, the assessee was clearly eligible to claim the write-off of ₹ 2.50 Crores as normal business loss as well as in terms of provisions of Sec.35ABB(2) read with CBDT Circular No. 763 dated 18/02/1998 . It is noteworthy that the assessee was engaged in the business of providing telecom services and the losses incurred on account of surrender of NLD license would be in the normal course of business and therefore, the same would be an allowable deduction to the assessee asn normal business losses also. The decision of Hon ble Bombay High Court rendered in CIT V/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt rendered in CIT v. Maharashtra Electrosmelt Limited (214 ITR 489) . 5.2 However, not convinced, Ld. AO opined that business activities were started during the year and substantial opening working-in-progress (WIP) was put to use during the year. Therefore, the said interest was not to be capitalized but brought to tax. Finally, the said amount was added to the income of the assessee. 5.3 Upon further appeal, Ld. CIT(A) confirmed the stand of Ld. AO by observing as under: - 7.3 Decision - I have carefully considered the AO's order as well as the AR's submissions. The AR has contended that the interest income arose directly as a result of fixed deposits which were obliged to be kept with banks as mandated by the conditions of the UASL. In other words, the said deposits were kept with the banks for operationalizing the UASL, which was actually the business of the appellant. There is hence no doubt that the source of such interest income was inextricably linked to the business operations of the appellant. To that extent all such interest income received on a pre-operative basis could not be charged to tax, it constituting a capital receipt. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd which too is accordingly dismissed. It is evident that Ld. CIT(A) concurred with assessee s submission that source of interest income was inextricably linked to business operations of the assessee and therefore, the interest received during pre-operative period could not be charged to tax. However, it was noted that the assessee had commenced its business activity during the year under consideration as evidenced by the fact the opening WIP was converted into fixed assets and put to use during the year. The pre-operative stage was already over. The assessee also acquiesced to the said facts but submitted that the business operations were not commenced in all 21 telecom circles but was progressing at various stages. Therefore, it was pleaded that it would be unfair to charge tax on entire interest income. However, since the assessee could not place on record requisite details and circle-wise bifurcation, the entire disallowance was confirmed. Aggrieved by the aforesaid adjudication, the assessee is under further appeal before us. 5.4 We find the dispute to be in a narrow compass since it is undisputed fact that the assessee s business had already commenced during the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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