TMI Blog2023 (5) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... miscellaneous income, by placing reliance on the decision in the case of Bharat Sanchar Nigam Limited [ 2015 (12) TMI 1531 - ITAT DELHI] . Hence, ground No. 2 of the present appeal is allowed for parity of reasons. Depreciation on ARC obligation capitalized - Assessee first proposition is, that the same be considered as capital in nature and the assessee be allowed depreciation on capitalized amount - HELD THAT:- This proposition has already been rejected by the Delhi Bench of Tribunal in assessee s group concern M/s. Vodafone Essar Digilink Ltd. [ 2018 (6) TMI 1029 - ITAT DELHI] Though the assessee has filed appeal against the decision of Tribunal before Hon ble Delhi High Court, the appeal of the assessee has been admitted, however, no stay is operative against the Tribunal order. Therefore, the first proposition of the assessee is rejected. Second proposition is that the provision on ARC be allowed as expenditure u/s. 37 - Liability is fasten on the assessee to restore the leased premises to the original condition in case of any damage caused due to installation work at the time of executing licence agreement The liability is ascertained however, the same would be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies for providing cellular services in different telecom circles - Therefore, loan advanced by the assessee to its group concerns were driven by commercial expediency - HELD THAT:- The Hon ble Supreme Court of India in S.A Builders Ltd. [ 2006 (12) TMI 82 - SUPREME COURT] has held that once it is established that interest free loans has been advanced to sister concerns on account of commercial expediency, the interest paid on such loans by assessee cannot be disallowed. In so far as the objection of Revenue regarding advancement of loans to a loss making group concern, we hold that it is the assessee who has the exclusive right to take a call regarding advancing of loans to the group concern, the AO cannot sit in the arm chair of the assessee and decide to whom loan is to be extended or at what rate of interest loan is to be extended. Once the assessee has been able to establish commercial expediency for extending the loan, which in our considered view the assessee has been successful in the present case, the interest expenditure cannot be disallowed. The assessee has further shown that to cover the interest free loans advanced to Vodafone South Limited and Vodafone Dig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working capital and loan funds have been utilized for non-business considerations - Whether secured and unsecured loans were raised purely for business exigencies? - HELD THAT:- While deciding the preceding grounds we have held that the loans have been utilized by the assessee for the purpose of business. The loans that have been advanced to the group concern are on account of business exigencies Hon ble Apex Court in the case of India Cements Ltd. [ 1965 (12) TMI 22 - SUPREME COURT] has held that expenditure on raising of loan is revenue in nature, hence, allowable. The nature of expenditure on raising of loan does not depend upon nature and purpose of loan. Hence, we have no hesitation in holding that the expenditure incurred for raising of the loan is allowable u/s.37(1) of the Act. The ground of the appeal is thus, allowed. Disallowance of roaming cost u/s. 40(a)(ia) - assessee submits that during the year under consideration the assessee incurred expenses on roaming charges - HELD THAT:- One of the issue in the case of Vodafone East Ltd. [ 2015 (9) TMI 1358 - ITAT KOLKATA] was with respect to deduction of tax at source in respect of roaming charges paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1173/Chandi/2011 by the assessee is directed against the order of Commissioner of Income Tax (Appeals) Chandigarh dated 17/11/2011, for the Assessment Year 2007-08. 2. Since, the grounds raised in both the appeals germinate from same set of facts, these appeals are taken up together for adjudication and are decided by this common order. For the sake of convenience the appeals are decided in seriatim of assessment year. ITA NO. 216/Chandi/2011- A.Y. 2006-07: 3. The gist of grounds raised by the assessee in appeal are as under:- Ground No. 1: Disallowance of claim of deduction u/s. 80IA of the Act; Ground No. 2: Disallowance of deduction u/s. 80IA of the Act on Other Incomes ; Ground No. 3 : Disallowance of depreciation on provision for Asset Retirement Cost (in short ARC); Ground No. 4 : Disallowance u/s. 14A of the Act; Ground No. 5 : Disallowance of interest on loans advanced to the subsidiaries by the assessee; Ground No. 6 : Disallowance of interest on Capital Work-in-Progress ; Ground No. 7 : Disallowance of interest on External Commercial Borrowings (ECB); Ground No. 8 : Disallowance of expenditure incurred in connection with rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 28/11/2022(supra). The Tribunal has held that the assessee started telecommunication services after 01/04/1995 and hence, eligible for deduction u/s. 80IA(4) of the Act. The Coordinate Bench further held that even if the assessee s undertaking is formed after merger/re-construction there would be no impediment to claim deduction u/s. 80IA of the Act in the light of CBDT Circular No. 5 of 2005. Following the order of Tribunal in assessee s own case for assessment year 2005-06 ground No. 1 of appeal is allowed. 9. In ground No. 2 of appeal the assessee has claimed deduct ion u/s. 80IA in respect of income from Other Incomes The Tribunal in ITA No. 5078/Mum/2017 in appeal by the assessee for 2005-06 (supra) has accepted assessee s claim of deduction u/s. 80IA of the Act on other incomes viz. interest income and miscellaneous income, by placing reliance on the decision in the case of Bharat Sanchar Nigam Limited reported as 156 ITD 847 (Del-Trib) Hence, ground No. 2 of the present appeal is allowed for parity of reasons. DEPRECIATION ON PROVISION FOR ARC 10. The ld. Counsel for the assessee narrating the facts in respect of the issue submits the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t his contention, the ld. Counsel for the assessee placed reliance on the following decisions: (i) Madras Industrial Investment Corporation Ltd. vs. CIT, 225 ITR 802 (SC) (ii)Hindustan Aluminum Corporation vs. CIT, 144 ITR 474 (Cal). (iii)First Leasing Company of India Ltd. vs. CIT, 292 ITR 110 (Mad) 11. Per contra, the ld. Departmental Representative vehemently supported the findings of Assessing Officer on this issue. The ld. Departmental Representative countering the proposition to treat the expenditure as revenue submits that no scientific basis of estimating / creating provision is given by the assessee. The ld. Departmental Representative further pointed that a perusal of clause -11 of the Licence Agreement would show that the assessee is liable for restoration of damage caused during installation. There is no mention of damage caused at the time of removal of structure, hence, the assessee is not under obligation to make repairs to the premises at the end of lease period. The ld. Departmental Representative further referred to clause23 of the agreement to contend that it is a duty of the owner to repair the damage caused at the time of removal of structure. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee has drawn our attention to Clause-11 of the Licence Agreement. The same is reproduced herein under: 11. The Licensee agrees that it shall carry out the installation work in a professional manner with least inconvenience to members/owners of the Building. The Licensee also agrees that it shall restore to the same conditions any area it has affected due to its installation work. A perusal of Clause -11 of the licence agreement shows that the assessee has agreed to restore the leased premises in case of any damage caused due to installation work. Thus, liability is fasten on the assessee to restore the leased premises to the original condition in case of any damage caused due to installation work at the time of executing licence agreement The liability is ascertained however, the same would be crystallized only in the year of vacating the leased premises. It is a well settled principle that the provision has to be created on some reliable /rational basis. The assessee has purportedly furnished the basis on which provision has been created before the Assessing Officer, however, the same has not been examined by the Assessing Officer and has been rejected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng viz., 25 years, which too now stands extended by period of ten years or more and therefore the actual work of site restoration may happen after 35 years depending upon the actual exploration of oil reserves and the Site restoration would be undertaken only if there is no longer some oil to be explored or drawn out and, therefore, it cannot be said that the provision made for the three Assessment Years presently at the beginning of the Contract period was irrational or an disallowable expenditure. The question of commercial expediency is a usual business and the economic decision to be taken by the Assesee and not by the Revenue Authorities and therefore the provision made on a reasonable basis, cannot be disallowed under Section 37(1) of the Act, unless it can be said to be have no connection with the business of the Assesee. The words wholly and exclusively for the purpose of business is a sufficient safeguard and check and balance by the Revenue Authorities to test and verify the creation of provisions for meeting a liability by the Assessee in future and its connectivity with the business of the Assessee. Assuming that such set apart provision is not actually spent in future ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has raised secured loans amounting to Rs. 10451.78 million and unsecured loans amounting to Rs. 3700 million. The secured and unsecured loan form part of the common pool of funds available with the assessee. No specific details/ accounts are maintained with respect to utilization of the common pool of funds. A part of common pool of funds was utilized by the assessee to extend financial support to its subsidiaries viz. S.No. Name of subsidiary Loan Amount (Rs. In crores) Interest Rate 1. Vodafone South Ltd. 662.00 Nil 2. Vodafone Digilink Ltd. 168.00 Nil 3. Vodafone Cellular Ltd. 40.00 7.7% Total 870.00 The ld. Counsel for the assessee submits that the assessee and its subsidiaries are engaged in the business of providing mobile telecom services PAN India. There is significant inter-dependance between the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans / advances to its subsidiaries in the initial years of business. We find merit in the explanation furnished by the assessee. The Hon ble Supreme Court of India in S.A Builders Ltd. vs. CIT(Supra) has held that once it is established that interest free loans has been advanced to sister concerns on account of commercial expediency, the interest paid on such loans by assessee cannot be disallowed. In so far as the objection of Revenue regarding advancement of loans to a loss making group concern, we hold that it is the assessee who has the exclusive right to take a call regarding advancing of loans to the group concern, the Assessing Officer cannot sit in the arm chair of the assessee and decide to whom loan is to be extended or at what rate of interest loan is to be extended. Once the assessee has been able to establish commercial expediency for extending the loan, which in our considered view the assessee has been successful in the present case, the interest expenditure cannot be disallowed. 19.1 The assessee has further shown that to cover the interest free loans advanced to Vodafone South Limited and Vodafone Digilink Limited aggregating to Rs. 830 crores, the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n beyond geographical area, where telecommunication services are rendered. The assessee is providing telecommunication services in Mumbai Telecom Circle and even after acquiring new assets the geographical area of operation remain confined to Mumbai Telecom Circle. The ld. Counsel for the assessee in support of his submissions placed reliance on the following decisions: (i) DCIT vs. Core Healthcare Ltd., 252 ITR 61 (Guj). (ii) ITW Signode India Ltd. vs. DCIT, 110 TTJ 170 (Hyd-Trb) In respect of ECBs the ld. Counsel for the assessee submits that ECB was raised by the assessee for the purpose of acquiring fixed assets for supporting and smooth running of existing business. The ECB loan was received on 10/03/2006 and the same was not utilized up to end of the Financial Year 2006 i.e. 31/03/2006. The interest cost on the ECB has not been capitalized during the impugned assessment year, nor depreciation has been claimed thereon. The ld. Counsel for the assessee finally submitted that as long as borrowings are for the purpose of business, it is not relevant as to whether they are in the nature of capital or revenue. The proviso to section 36(1)(iii) is not attracted as it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nication business, expression extension is used where the business of the assessee has grown in geographical terms. It is an undisputed fact that even after having acquired new assets, the area of operation of the assessee has not extended. The assessee was providing telecommunication services in Mumbai Telecom Circle and even after substantial investment in new assets, the area of operation remain confined to Mumbai Telecom Circle. The investment in assets / Plant Machinery/ Network equipment by the assessee have improved the quality of services, this may have resulted in increase of the subscriber base to some extent. Increase in volume of subscriber base within the same territory of operation cannot be termed as extension of business. Therefore, we do not find merit in the observations of the Assessing Officer that the interest u/s. 36(1)(iii) of the Act has to be disallowed. 23.1 The reason for rejecting assessee s claim of interest expenditure on ECBs is that interest in respect of borrowed capital can only be allowed from the date on which such asset is first put to use . It is an admitted fact that ECB loans were not utilized upto 31/03/2006. In so far as other borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the orders of authorities below. The assessee during the period relevant to assessment year under appeal has raised secured and unsecured loans. The Assessing Officer has disallowed expenditure on raising of loan for the reason that loan has been disbursed for capital expenditure and not for augmentation of the working capital and loan funds have been utilized for non-business considerations. While deciding the preceding grounds we have held that the loans have been utilized by the assessee for the purpose of business. The loans that have been advanced to the group concern are on account of business exigencies 26.1 The Hon ble Apex Court in the case of India Cements Ltd. vs. CIT (supra) has held that expenditure on raising of loan is revenue in nature, hence, allowable. The nature of expenditure on raising of loan does not depend upon nature and purpose of loan. Hence, we have no hesitation in holding that the expenditure incurred for raising of the loan is allowable u/s.37(1) of the Act. The ground No. 8 of the appeal is thus, allowed. DISALLOWANCE OF ROAMING COST U/S. 40(a)(ia) OF THE ACT. 27. In ground No. 9 of appeal, the assessee has assailed disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Rs. 218.31 million. A reversal of Rs. 326.79 million was also made during Assessment Year 2006-07, thus, resulting into a net reversal of provision for bad debt and doubtful debts amounting to Rs. 108.47 million. The Assessing Officer added back Rs. 218.31 million to the book profit but did not reduce 326.79 million from the book profits. The provisions of section 115JB require that where amount is sought to be excluded from computation of book profit by way of writing back of the provision the book profits of such year ought to be increased by such provision. He further submitted that since, book profit has been increased by 218.31 million for the purpose of section 115JB of the Act the Assessing Officer ought to have reduced the book profits by Rs. 218.31 million from the total amount of Rs. 326.79 million. In respect of the balance amount of Rs. 108.47 million, the ld. Counsel for the assessee pointed that the same has actually been written off. Hence, clause-1 of Explanation to subsection (2) of section 115JB of the Act would not get attracted. In support of this contention the assessee placed reliance on the decision in the case of CIT vs. Vodafone Essar Gujarat Ltd., 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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