TMI Blog2022 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... . Documents on record clearly show that the assessee started providing telecommunication services after 01/4/1995 but before 01/4/2004. Thus, even if the assessee s undertaking is formed after merger/reconstruction, still the assessee would be eligible for deduction u/s.80IA of the Act in the light of CBDT circular There is no infirmity in the order of CIT(A) in coming to the conclusion that the assessee had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. Additional Evidences - HELD THAT:- This case has travelled between Assessing Officer and the Appellate Authorities four times over a period of decade. Four times the assessment order has been passed. The issue that was considered time and again in assessment proceedings and the Appellate proceedings was the assessee s eligibility to claim deduction u/s. 80IA with reference to assessee s date of start of telecommunication services. Sufficient time was available to the Department to furnish these evidences. For the reasons best known to the Department these additional evidences which are factual and were very much in existence even during at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2005-06. 2. The Revenue in appeal has assailed the order of CIT(A) by raising following grounds of appeal: 1. The Learned CIT(A) erred on facts and in law in holding that the business of the assessee started in financial year relevant to A.Y. 1996-97 without properly appreciating the factual and legal matrix as clearly brought out in the assessment order. 2. The Learned CIT(A) failed on facts and in law to appreciate that the DRP, Delhi for in assessee's own case for A.Y. 2066-07 has held that the business of the assessee started in F.Y. 1994-95 relevant to A.Y. 1995-96. 3. The Learned CIT(A) erred on facts and in law in allowing assessee's grounds of appeal pertaining to deduction u/s. 80IA without appreciating that the claims of the assessee in this regard were inadmissible in view of the commencement of assessee's business prior to A.Y. 1996-97. 4. Whether on the facts circumstances of the case and in law, the Learned CIT(A) is justified in holding that losses of earlier years, already set off against other income cannot be set off for determining the quantum of deduction u/s. 801A. 5. Whether on the facts circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held the order of CIT passed u/s. 263 of the Act.In pursuance to order u/s. 263 of the Act, the Assessing Officer completed the assessment vide order dated 30/12/2010 rejecting assessee s claim of deduction u/s. 80IA of the Act in full. The assessee carried the issue in appeal before First Appellate Authority. The CIT(A) vide order dated 13/10/2011 confirmed the assessment order dated 30/12/2010 passed u/s.143(3) r.w.s. 263 of the Act. Thereafter, the assessee carried the issue in second appeal before the Tribunal. The Mumbai Bench of Tribunal vide order dated 03/04/2013 set aside the order of CIT(A) dated 13/10/2011 and directed the Assessing Officer to make fresh assessment. The Assessing Officer in third round passed fresh assessment order u/s. 143(3) r.w.s. 263 r.w.s. 254 of the Act dated 29/11/2013. In the third assessment order, the assessee s claim of deduction u/s. 80IA was again disallowed. The assessee challenged the validity of assessment order dated 29/11/2013 in Writ Petition No. 3359 of 2013before Hon'ble Bombay High Court. The Hon'ble Bombay High Court quashed the assessment order dated 29/11/2013 and directed the Assessing Officer to make fresh assessment af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would show that the date of commencement of operation is left blank. Thereafter, the ld. Departmental Representative referred to page 515 of the assessee s paper book to point that in Form 10CCB for Assessment Year 2006-07 the date of commencement of operation is mentioned as 29/11/1994. The ld. Departmental Representative pointed that assessee after more than 8 years filed certificate dated 28/11/2013 from its Chartered Accountants clarifying that the date in Form 10CCAB for 2005-06 be read as November, 1995. The subsequent certificate issued by Chartered Accountants (at page 248 of the assessee s paper book) is an after-thought and a self-serving document to avail the benefit of section 80IA of the Act. The Auditors have to verify the facts first hand before certification. In the instant case, the Auditors have issued the certificate on mere asking of the assessee without examining the documents on record. The certificate issued by the Auditors for Assessment Year 2005-06 is contrary to the audit report in Form 10CCB for Assessment Year 2006-07. The subsequent certificate issued by Auditors is not reliable and hence, has to be discarded at the outset. The ld. Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the immediate previous year. This clearly shows that services were launched in the period relevant to the Assessment Year 1995-96. The assessee has changed the nomenclature of expenditure to suit its requirements. 4.4 The ld. Departmental Representative thereafter referred to the information extracted from the web portal of the assessee. He pointed that as per information available on the web page of Max Telecom (as was the name of assessee at time of launch of telecommunication services) the year of commencement of cellular services paging services is mentioned as 1994. The ld. Departmental Representative pointed that as per the information on the web portal the assessee had launched Max Torch cellular services in Mumbai in 1994. He asserted that in the information available in public domain the assessee throughout has claimed itself that business operations commenced in 1994. 4.5 The ld.Departmental Representative next referred to the license agreement dated 29/11/1994 at pages 72 to 111 of the Assessee s Paper Book-I. He pointed that the effective date mentioned in the said agreement is 29/11/1994. The term effective date means the date on which the assessee is read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision of Hon'ble Supreme Court of India in the case of Arisudana Spinning Mills Ltd. vs. CIT, 26 taxmann.com 39 to support his argument on requirement to maintain separate books of account for each eligible activity. 4.7 The ld. Departmental Representative further argued that the expression start of business holds the key. The business is said to have started when the license is received or essential activity of that business started or when all steps necessary to obtain business are made. The assessee entered into license agreement, made advertisement expenses, started trading in pagers, acquired equipments machinery in Financial Year 1994-95, hence all these activities clearly indicate that the business of assessee commenced in period relevant to Assessment Year 1995-96. The ld. Departmental Representative placed reliance on the following decisions to support his argument: (i) CIT vs. ESPN Software India Pvt. Ltd. 301 ITR 368 (Delhi); (ii) CIT vs. Saurashtra Cement Chemical Inds. Ltd., 91 ITR 170 (Guj); (iii) CIT vs. E Funds International India, 162 Taxaman 1 (Delhi); and (iv) Jcdecaux Advertising India (P) Ltd. vs. DCIT, 49 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking should have started or start providing telecommunication services on or after 01/04/1995, but before 31/03/2005. The ld.Counsel for the assessee submitted that during the course of his submissions he would be referring to various documents which are already on record to show that the assessee started providing telecommunication services after 01/04/1995. The ld.Counsel for the assessee first referred to the assessment order for assessment year 1995-96 dated 09/03/1998 (at page 226 of Assessee s Paper Book-1). In assessment year 1995-96 the assessee had made a claim that the assessee s business was set up during the Financial Year 1994-95 relevant to assessment year 1995-96. The Assessing Officer rejected the claim of assessee and observed in para 6 of the assessment order that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995 . Though the assessee had filed appeal against the said assessment order before the CIT(A), however, the same was withdrawn thus, the assessee accepted the assessment order. The assessment order attained finality. 5.1 The ld.Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t approval certificate was issued on 31/03/1995 for Chandigarh Telecom Districts. Radio frequency was allotted by Wireless Planning and Co-ordination Wing (WPC) for Chandigarh Telephone District on 24/04/1995. The same is at page 210 of the paper book. Without interface service certificate and assignment of radio frequency, the assessee could not have started paging services. 5.2 The ld.Counsel for the assessee further referred to the observations of the Assessing Officer in assessment order for assessment year 1995-96, wherein the Assessing Officer had held that the assessee s business was not set up by 31/03/1995. The ld. Counsel for the assessee referred to the questionnaire issued by the Assessing Officer in assessment year 1995-96, wherein specific queries were raised with respect to details of the commencement of paging cellular services by the assessee in each of the territory including the details of starting of pilot services. The Assessing Officer further asked the assessee to file detailed technical note on the machinery equipment and the installation requirement for operating and paging and cellular services and the details of the software required for operating thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 the ld.Counsel for the assessee submitted that the advertisement expenditure was at the stage of re-launching of service. Similarly, site acquisition services were in the nature of pre-operative expenditure. The Department has failed to appreciate the fact that even in the Balance Sheet as on 31/03/1995, the expenditure in Schedule-4 has been referred to as pre-operative expenses. The ld.Counsel for the assessee further referred to Auditors report for the year ended 31/03/1995 at page 38 of the paper book, wherein the Auditors have mentioned that no profit and loss account has been prepared for the year ended 31/03/1995 as the company has not commenced commercial services. 5.5 The ld.Counsel for the assessee referred to the approval granted under section 10(23G) of the Act by Central Board of Direct Taxes dated 21/04/2006(at page 218 of the assessee s paper book-1). Before granting approval investigations were carried out by the Department. The aforesaid approval was granted for the period starting from 01/08/2000 to 31/03/2006. The approval was in respect of investment made on or after 01/06/1998. The CBDT vide said approval held Cellular Mobile Telephone Services provided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g services and cellular mobile services commenced only after 01/04/1995, hence, the arguments raised by the ld.Departmental Representative becomes irrelevant. The Department has erred in not considering the fact that deduction u/s. 80IA is available to an undertaking and not to an assessee. 5.9 On argument by the ld. DR that the business of the assessee has been formed by reconstruction/merger of two different undertakings, the ld. Counsel placed reliance on CBDT Circular 5 of 2005 dated 15/7/2005 and the findings of the CIT(A). 5.10 As regards additional evidences filed by the Department, the ld.Counsel for the assessee strongly objected to the admission of additional evidences. The ld.Counsel for the assessee submits that the assessment order for assessment year 2005-06 was made four times. The matter travelled to and fro between Assessing Officer and CIT(A), the Department never thought fit to furnish the additional evidences either during assessment proceedings or during the first appellate stage in four rounds. No reason whatsoever has been given by the Department for not submitting additional documents during the course of assessment proceedings. Now, additional evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n first sale is made is not material. In the present case, the assessee purchased Pagers and sold the Pagers prior to 01/04/1995, hence, the sale and purchase of Pagers is inextricably linked to the assessee providing radio paging services. For all intent and purpose the business of assessee commenced prior to 01/04/1995, therefore, the assessee fails to qualify the pre-condition set out in section 80IA(4)(ii) of start of telecommunication services after 1/4/1995 to claim the benefit under the said section. FINDINGS: 7. We have heard extensive submissions made by rival sides and examined the orders of authorities below. We have also considered various documents and decisions on which the respective sides have placed reliance in support of their arguments. 8. The assessment for assessment year 2005-06 has a chequered history of a protracted litigation. The assessee claimed deduction u/s. 80IA of the Act in respect of profits and gains derived from telecommunication service in AY 2005-06 for the first time. The claim of the assessee was initially allowed by the Assessing Officer in order dated 03/09/2007 passed u/s. 143(3) of the Act. The CIT invoked revisional jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of April 1995. According to the Assessing Officer since, the assessee has started providing telecommunication services prior to 01/04/1995 the assessee is not eligible for claiming deduction u/s. 80IA of the Act. The assessee claimed deduction u/s. 80IA of the Act for the first time in AY 2005- 06. 9. Two issues have emerged from the submissions and the grounds of appeal raised by the Department: (i) Whether the assessee started providing telecommunication services before 01/04/1995 or thereafter; and (ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act . 10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 01/04/1995. 11. Before proceeding further to decide this issue, it would be imperative to refer to the provisions of section 80 IA(4)(ii) of the Act. The relevant extract of the same are reproduced herein below: Section 80IA(4)(ii) (ii) any undertaking which has starte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies came to conclusion that cellular services were started by the assessee on 16/11/1995. Even pilot services prior to commencement of commercial services were started on 27/07/1995 and radio paging services commenced during the period May 1995 to June 1995. The Assessing Officer in assessment order dated 09/03/1998 for Assessment Year 1995-96 categorically held that the asessee s business was not set up by 31/03/1995. The relevant extracts from the assessment order for 1995-96 are reproduced herein below: 6. After taking into account all the facts relevant to the issues and the submissions made by the assessee, it is held that the assessee s business was not set up in 1992. It is also held that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995. The reasons for holding so are discussed below: A. xxxxx B. xxxxx C. xxxxx D. The nature of the business of the assessee is such that it requires a large scale development of highly sophisticated communication equipment. These equipments could be operationalised only after developing the requisite software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne services at Mumbai subject to final clearance from Director (VAS-I), DoT. The said clearance was accorded to the assessee by Director (VSA-I) vide letter dated 20/10/1995 (at page 117 of Paper Book-1). Although, the licence agreement was executed between the assessee and DoT in November, 1994 the assessee could not have started cellular mobile telephone services till the time radio frequency was assigned and all clearances prior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone services. As is evident from permits/assignment letters from the DoT referred above it is evident that the said permissions/clearances were granted to the assessee after 01/04/1995. In so far as radio paging services is concerned the assessee received Interface/Service approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas, the Revenue held that the AY 1996-97 was the initial AY. The Tribunal while deciding the controversy in assessment year 2006-07 held that, whether or not the assessee started providing telecommunication services in any year has to be decided in the assessment proceedings for that year in the light of the relevant facts and circumstances of that assessment year alone. The Tribunal further held that without reopening the assessment proceedings for AY 1996-97, the findings recorded in the assessment year 1996-97 cannot be reconsidered in the subsequent assessment years. To support this view the Tribunal placed reliance on the decision of Hon ble Apex Court in the case of New Jehangir Vakil Mills Co. Ltd. vs. CIT, 49 ITR 137. The aforesaid decision of the Tribunal was upheld by the Hon ble Gujarat High Court in Tax Appeal No.1339 of 2010(supra). Similarly, in the instant case the Revenue is trying to reconsider the concluded findings of the assessment order for assessment year 1995-96 and 1996-97 in assessment year 2005-06. This is impermissible in the scheme of Act. The Revenue by placing reliance on defective certifications and information derived from web portal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of April 1995. The requirement of section is not commencement of business but the start of telecommunication services. It is the commencement of telecommunication services which is material for the purpose of section 80IA(4)(ii) of the Act. The business may commence with the purchase of pagers but telecommunication services would only start after assignment of radio frequency and various other technical/interface approvals from the DoT. The Revenue has placed reliance on the decision in the case of CIT vs. ESPN Software India Pvt. Ltd.(supra) and CIT vs.Saurashtra Cement and Chemical Industries Ltd.(supra) in support of the arguments that the business of the assessee commenced on the date of agreement or the date on which the assessee had traded in Pagers. There is no dispute in so far as the law laid down by the Hon ble Court in the aforesaid decisions. However, the ratio laid down in the aforesaid decisions would not apply in the facts and circumstances of the present case. 19. One of the objection raised by the Department is that the assessee has not maintained separate books of account. The assessee had ventured into two different telecommunication services i.e. radio pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this deduction is inter alia available to an undertaking providing telecommunication services if such undertaking is formed by splitting up or reconstruction of a business already in existence or by the transfer to a new business of old plant and machinery. The Circular (supra) further clarifies that the condition introduced by the Finance (No.2) Act, 2004 will not apply to undertakings which have started providing telecommunication services prior to 01-4-2004. Documents on record clearly show that the assessee started providing telecommunication services after 01/4/1995 but before 01/4/2004. Thus, even if the assessee s undertaking is formed after merger/reconstruction, still the assessee would be eligible for deduction u/s.80IA of the Act in the light of CBDT circular (supra). 21. In the light of our findings above, we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. The findings of the CIT(A) on this issue are confirmed and the appeal of Revenue is dismissed. Thus, both the issues emerging from the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised three grounds. The ld.Counsel for the assessee stated at Bar that he is not pressing ground No.1 of the appeal. The ground no.1 of appeal is accordingly dismissed as not pressed. 24. Ground No.2 of the appeal reads as under: 2.Disallowance of deduction under section 80IA of the Act on 'Other Income' 2.1 On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in upholding that deduction u/s 801A of the Act can be allowed only on direct income derived from the specified activity, thereby ignoring the non obstante sub-section 2A of section 80IA which provides that to be eligible for deduction u/s 801A of the Act, income arising should be business income of the eligible undertaking, i.e. telecom undertaking of the Appellant in the present case 2.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the order of the learned AO in excluding the following incomes while computing deduction u/s 80IAoftheAct: (a) Interest income amounting to INR. 6,09,99,174; and (b) Miscellaneous income amounting to INR 4,98,14,610; 25. The ld.Counsel for the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the context it is to be construed. Deduction under section 80- IA in terms of subsection (1) is available to gross total income of an assessee where gross total income is restricted to profits and gains derived by........ from any business referred to in sub-section (4) . The deduction is available of an amount equal to hundred percent of the profits and gains derived from such business for ten consecutive assessment years subject to the provisions of the section. The meaning and intention of the legislature has been legally settled and well understood to mean that only those profits come under the ambit which can be said to be derived from such business. The intention of the legislature on a plain reading of the said sub-section is loud and clear. Reference to the decisions which establish a nexus of the first degree at this stage is refrained from as the position is well-settled legally and at this stage is not an issue for consideration in the present proceedings as both the parties agree that sub-section (1) of section 80-IA envisages only first degree nexus for the purposes of claiming deduction. The fact that deduction is available to hundred percent of the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated under sub-section (2) the option of claiming deduction in any ten consecutive years is given to be claimed from the first fifteen years of beginning operation is given. 13.11. Thus, we find that the legislature being alive to providing tax deductions to business enterprises and undertakings, wherever it wanted to curtail the time line during which deduction can be claimed and also addressing the extent upto which it can be claimed has consciously carved out an exception to specified undertakings/enterprises whose needs and priorities differ has taken care to expand the time line for claiming deductions. It has consciously enabled those undertakings/enterprise who fall under sub-section (2A) to claim 100% deduction of profits and gains of eligible business for the first five years and upto 30% for the remaining five years in the ten consecutive assessment years out of the fifteen years starting from the time the enterprise started its operation. The legislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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