9911796707
TMI Blog2024 (12) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... , arise out of the order of the Commissioner of Income Tax (Appeals)-31, New Delhi [hereinafter referred to as "ld. CIT(A)", in short] in Appeal No. 1135/22-23 dated 03.08.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act". 3. Ground No. 1, 1.1, 2, 10, 10.1 raised by the assessee are with regard to issue of depreciation of passive infrastructure assets (PIAs). 3.1 We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of providing passive infrastructure (PI) telecommunication services to the telecom operators. The return of income for AY 2010-11 was filed by the assessee on 30.09.2010 declaring total loss of Rs. 403.85 crores. In the meanwhile, Vodafone Infrastructure Limited ('VInfL'), Bharti Infratel Ventures Limited ('BIVL') and Idea Cellular Towers Infrastructure Limited ('ICTIL') (hereinafter referred to as 'transferor companies' or 'TowerCos') jointly filed a scheme of arrangement (hereinafter referred to as the 'Scheme') under sections 391 to 394 of the Companies Act, 1956, seeking approval/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned AO and detailed questionnaires were issued in response to which the assessee furnished various submissions/clarifications/details. During the assessment proceedings, the assessee also filed a detailed letter dated 6-2-2019 correcting/re-computing the following claim as per the return of income: -Claim of additional depreciation on energy saving devices amounting to Rs. 1534,67,20,392/- and -Offering disallowance of Rs. 3,32,37,255/- under section 40(a) (i) of the Act. 3.4 The assessee company was formed as a joint venture between Bharti Infratel Limited ('BIL'), Vodafone India Limited ('VIL') and Aditya Birla Telecom Limited ('ABTL') [referred as Operating Companies- OpCos.] and was incorporated on 20-11-2007 with the objective of providing Pl support services to the telecom operating entities of the shareholder groups [OpCos.] and other independent telecom operators. For consolidation of their PIAs, the shareholders (including the relevant group entities) entered into a Framework agreement dated 8-12-2007, which inter-alia provided a two-step restructuring with effect from 1-4-2009:- -Step 1 - Transfer of the PIAs owned by the shareholder grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferor/ donor is considered as the 'actual cost' of such gifted assets in the hands of the recipient/donee. 3.10 Accordingly, tax depreciation on such PIAs, which were gifted by the OpCos to the TowerCos under the De-merger Schemes were determined based on the tax WDV of such PIAs in the hands of the OpCos as on 1-4- 2009, which represents the 'actual cost' in the hands of the TowerCos for the purpose of claiming tax depreciation in FY 2009-10 and for subsequent years. 3.11 Subsequent to the transfer of the PIAs into the TowerCos under Step 2, the TowerCos (i.e. VInfL, BIVL and ICTIL) were merged into the assessee under a scheme of amalgamation (i.e. the Merger Scheme) which took effect from the appointed date of 1-4-2009. The merger was duly sanctioned vide the order dated 18-4-2013 passed by the Hon'ble Delhi High Court. Importantly, merger of TowerCos under Step 2 with the assessee undisputedly qualified as tax neutral amalgamation under section 2(1B) of the Act. 3.12 Since the merger of TowerCos with the assessee undisputedly qualified as an "amalgamation', as defined under section 2(1B) of the Act, as per Explanation 2 to section 43(6) of the Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned AO has primarily provided the following reasoning to hold that the transfer of PIAs from the OpCos to the TowerCos cannot be construed as 'gift':- a) The initial transaction was made as an arrangement of demerger under section 391/394 of the Companies Act, 1956 and was not sanctioned as a gift by the Hon'ble High Courts of Gujarat and Delhi. b) Issue regarding examining tax liability is left open for income tax Department, mere sanction of scheme cannot take away right of the Department to examine tax liability. c) The learned AO treated the two separate steps of restructuring as one and consequently alleged that the ultimate result of the transaction was transfer of PIAs by OpCos to the assessee for consideration (being shares issued pursuant to second step of amalgamation), and thus there was no 'gift' in step (1) above. d) The learned AO alleged that essential element of gift, being divesture of ownership was missing, inasmuch as ownership was retained by the Opcos in a circuitous manner as Opcos were allotted shares by the assessee pursuant to amalgamation. e) There is a consideration involved inasmuch as Rs. 484 crores is paid by ABTL and VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not tantamount to finding that impugned transfer was by way of gift. Against the said rectification order, the assessee has filed separate appeal before us in ITA 2762/Del/2023 which is also heard along with impugned appeal for AY 2010-11. This aspect of pendency of appeal in ITA No. 2762/Del/2023 would be covered by us while adjudicating the issue in dispute vide ground No. 1, 1.1, 2, 10 and 10.1 in ITA No. 1962/Del/2023 itself as the dispute in ITA No. 2762/Del/2023 is only for wrong mentioning in para 45 of order of Hon'ble Delhi High Court by the learned CIT(A) wherein, the grievance of the assessee is that the learned CIT(A) had referred to the wrong paragraph of the said judgment. If the core issue in ITA No. 1962/Del/2023 vide above mentioned ground is decided, the appeal of the assessee against section 154 order in ITA No. 2762/Del/2023 gets subsumed and no separate finding need to be given thereon. 3.19 The learned AR drew our attention to the substituted provision of Section 47(iii) of the Act by the Act by the Finance (No. 2) Act, 2024 w.e.f. 01.04.2025 wherein, company has been restricted from making gifts. In other words, if any company has made gift up to 31.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fies as 'gift" was also confirmed by the Hon'ble Gujarat High Court in the case of Vodafone West Limited (Vodafone Essar Gujarat Ltd as it was known then) in Co petition No. 183/2009 vide OJ Appeal no 81 of 2010, wherein the same Demerger Scheme (as approved by the Hon'ble Delhi High Court) was filed. Considering the specific findings of the High Court(s), it is not open for the tax Department to question the impugned transaction. Be that as it may, it would be appreciated that once the fundamental character of transaction is held to be gift by the High Court(s), the same is binding on the tax Department. It is undisputed that the tax Department can examine the taxability as observed by the Court(s), but it cannot be construed that the tax Department is entitled to disregard the character of transaction which is expressly held to be 'gift' by the Court. The tax liability can be determined by the Revenue as per the provisions of the Act, considering the fundamental nature of the transaction to be 'gift'. Moreover, although the term 'gift' is not defined under the Act, the same is defined under section 122 of TPA as a) transfer of; b) existing m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the applicant; (f) Nature of amalgamation is not doubted by any regulatory authority. Having regard to the aforesaid, it will kindly be appreciated that two separate and independent transactions between separate and independent companies/legal entities, and more particularly on account of the schemes in respect of the two separate steps being approved by the High Courts, cannot be regarded as one composite transaction and therefore, the conclusion arrived at is patently erroneous on the face of records. The action of considering the two steps as composite/ single step tantamount to ignoring the existence and lifting of corporate veil of, inter alia, the TowerCos which is blatantly contrary to the order of the High Courts and in clear disregard to the express acceptance of the two steps by all the regulatory and governing authorities, which is grossly impermissible. Be that as it may, structure involving multiple entities cannot be ignored/ disregarded by the Revenue at whims and fancies without any justifiable reason. It may be pointed out that multilayered holding subsidiary company structure is well recognized by the apex court in the case of Vodaphone International Holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as consideration for transfer of PIAs by OpCos to TowerCos, and the same is alleged to be outside purview of gift. In order to explain the nature of the payment, it is important to highlight that the Merger Scheme effectuated with effect from the appointed date 1.4.2009. At the time of entering into the Framework Agreement, it was agreed that the operating companies, apart from transferring their existing Pl sites (i.e., sites existing at that time), would also develop new sites to be referred to as 'Interim Sites' Since the same were to be ultimately transferred to the appellant, the cost of these Interim Sites was agreed to be shared between the shareholders of the appellant in the proportion of their shareholding in the appellant. However, to avoid a situation where the Interim Sites to be transferred to the appellant by the respective groups are not in accordance with the agreed ratio, it was provided that where the costs incurred by any party (or parties) for development of the Interim PIAs was in excess of the costs that it ought to have incurred in to accordance with the specified ratio, then such excess shall be compensated by the other shareholders to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness Transfer Agreement are placed at pages 1374A-13740 of the PB Vol II. In the books of VIL and Idea group, amount paid to appellant was reported as a 'current asset' in the form of 'Security Deposits' placed with appellant and amount received by BIL was recorded as 'current liability in the form of 'Security Deposits' received from appellant. Accountant certificates furnished by VIL, Idea group and BIL reflecting the accounting treatment in relation to security deposits are placed at pages 13741. 1374V of the PB Vol II. In view of the aforesaid, it is respectfully submitted that the appellant company was just a pass through, or escrow agent as far as said transaction is concerned. In this regarded, it is humbly submitted that payment of Rs. 484.4 crores was settled between the shareholders towards excess interim sites constructed by BIL. The appellant only acted as an intermediary for settlement of such dues. Accordingly, such consideration cannot be alleged to be a consideration for transfer of Pl assets by BIL or for that matter the other shareholders to their Tower Cos under the Demerger Schemes. There was no intent to commission the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her by a registered instrument signed as aforesaid or by delivery. Such delivery may be made in the same way as goods sold may be delivered." Since the PIAs qualify as moveable asset, the same may be gifted by way of an instrument or by delivery. Accordingly, since the PIAs stood delivered to the TowerCos which companies accepted the possession post implementation of the Transfer Schemes, requirements of section 123 of TPA are satisfied. Moreover, the transfer of PIAs through a court approved scheme does not require any registration more so when the Schemes expressly provided that pursuant to approval of the Scheme(s), the assets shall stands transferred to the transferee without any document or instrument. It is submitted that the PIAs have legally vested into the TowerCos, pursuant to approval of Transfer Schemes by the respective High Courts. Reliance in this regard is placed on the Hon'ble Punjab and Haryana High Court in the case of Hotel skylark & Restaurant (P) Ltd v CIT 221 ITR 283 wherein it has been held that ownership can be can also be transferred by Court decree and it is not mandatory the modes provided in the TPA are not exhaustive. 3.21 It was vehemently ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of the department had to be filed when due notice was given to them prior to the sanction of the scheme of arrangement. The department cannot question the validity of the sanction of the scheme when the approved scheme is at the stage of implementation. The scheme once sanctioned by the competent court is binding on all the stakeholders which admittedly include the department also. Accordingly, the revised return filed by the assessee by giving due effect to the scheme of demerger and merger had to be accepted and given effect to by the revenue. In support of this proposition, the learned AR rightly placed reliance on the decision of the Hon'ble Supreme Court in the case of Dalmia Power Ltd Vs. ACIT reported in 420 ITR 339 (SC). Since, the due notices were issued to the income tax department before sanctioning of the scheme by the competent court, the binding nature of the scheme cannot be questioned or challenged at the time of implementation of the scheme as the scheme had attained statutory force not only between the transferor or transferee company but also between statutory authorities to whom notices were issued by the Court. Needless to mention that every scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(19AA) of the Income Tax Act, 1961. The Hon'ble Madras High court held that impugned proceedings itself is fallacious and further proceedings thereon cannot be sustained and accordingly quashed the same. 3.25 Keeping this proposition laid down by the Hon'ble High Court and Hon'ble Supreme Court into consideration, in our considered opinion, the action of the learned CIT(A) in the instant case before us merging both the schemes, is wrong. It is to be noted that parties to the scheme in the first step of demerger are different and parties to the scheme in the 2nd step of merger are different. By merging both schemes together, the learned CIT(A) is only try to rewrite the scheme which is not permissible. Now coming to the liberty given by the Hon'ble Delhi High Court to the Income Tax Department to question any possible tax evasion in the scheme of arrangement sanctioned by the court, the same had to be understood only in the context of any tax evasion being carried out by the assessee while giving effect to the scheme need to be looked into by the Income tax department if there is some tax evasion as liberty is given by the Hon'ble High Court while sanctioning the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted date of 1-1-2009. Subsequently, ICTIL amalgamated in Indus Towers Ltd. (Indus), resulting into transfer of PIAs amounting to Rs. 1622,77,60,000/- to Indus. Thus, the PIASS of the assessee, having a book value of Rs. 1622,77,60,000/-as on 31-12-2008, stood transferred to Indus without payment of any taxes. This business arrangement is a colourable device through which PIA having book value of Rs. 1622,77,60,000/- have been transferred out of the block of assets of the assessee at Nil consideration and without payment of due taxes. In view of this there is reason to believe that the colourable device created through a scheme of De-merger and Amalgamation is only for tax evasion and no taxes on these transactions have been paid. The Balance Sheet of ABTL indicates that the investment in Indus, have increased from Rs. 1,90,000/- as on 31-3-2009 to Rs. 7330,75,56,000/- as on 31-3-2010 as ABTL fair valued its investment in Indus. Since the assessee is a holding company of ABTL, therefore, this increase in fair valuation of Indus is due to the transfer of PIAs from Idea Cellular Ltd. to Indus. The fair valuation of ABTL's investments in Indus has increased by Rs. 7330,75,56,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh which the PIAs of the assessee having book value of Rs. 1622,77,60,000/- was transferred to ICTIL for Nil consideration and then from ICTIL to Indus on the subsequent amalgamation of ICTIL with Indus was a colorable device to evade taxes. That this was a transfer of assets of the assessee to an entity outside the Group, and that ICTIL was only an intermediary through which the assets were being routed to avoid taxes and duties that would otherwise be attracted. The ld. AO also observed that not only the assessee but two other shareholders of Indus namely, Vodafone and Bharti Airtel had also resorted to such subterfuge. The ld. AO noted that in the related case of M/s Vodafone Essar Gujarat Limited, by an Order dated 9th December 2010, the Hon'ble Gujarat High Court had accepted the submissions of the Income-tax Department upholding the locus of the Income-tax Department and rejected similar Scheme of Arrangement proposed by Vodafone Essar Gujarat Limited under sections 391 to 394 of the Companies Act, 1956 vide Company Petition No. 183 of2009. That the present Scheme of Arrangement in the assessee's case also had been challenged bythe Department before the Hon'ble Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t similar arrangements were entered into by the other Promoters of Indus namely Vodafone and Bharti Airtel. (f) The Department in the case of Vodafone had challenged the demerger of the PI Undertaking of Vodafone Essar Gujarat Ltd into Vodafone Infrastructure Ltd. before the single judge of the Hon'ble Gujarat High Court on the ground that the said demerger scheme was formulated with the purpose of evading taxes/stamp duties etc. The single judge did not approve the said demerger of Vodafone Essar Infrastructure Ltd. This is the decision referred to by the ld. AO in the assessment order. (g) The assessee submitted that the decision of the Single Judge in case of Vodafone referred to by the ld. AO was reversed by the decision of the Division Bench of the Hon'ble Gujarat High Court which approved the demerger scheme in the case of Vodafone Essar Gujarat Ltd. v. Department of Income-tax(2013) 353 ITR 222 dated August 27, 2012. In this case, the Hon'ble Division Bench of the Gujarat High Court, while appreciating that the ultimate effect of the Scheme of Demerger without consideration may result into some tax benefit or tax avoidance, nevertheless, approved the Scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. AO treated the entire transaction of demerger and merger as a colourable devise. We have already held hereinabove based on the facts that there is no colourable devise involved at all in the instant case. It is a fact that the scheme of demerger and the merger had been duly addressed by the Hon'ble High Courts. 8.2. Moreover, the revaluation of shares has been made by ABTL on 31/03/2010 which falls in A.Y.2010-11. Hence, the event which had occurred in A.Y.2010-11 in the hands of ABTL can never be a ground for reopening in the case of assessee for A.Y.2009-10. Hence, reopening on this issue fails directly for A.Y.2009-10. 8.3. Further the ld. AO had stated that this entire device would result in benefit u/s. 28(iv) of the Act to the assessee in the sum of Rs. 5707,97,96,000/- (7330,75,56,000-1622,77,60,000). Even if the entire contentions of the revenue and the ld. DR are to be accepted it is ABTL who had revalued its shares for Rs. 7330,75,56,000/- in Indus Towers Ltd. It is ABTL pursuant to the merger of ICTIL with Indus Towers were issued shares in Indus Towers Ltd. Hence, by way of a scheme of demerger and merger if the Passive Infrastructure Assets worth Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assets of the assessee to an entity outside the group, and ICTIL is only an intermediary through which the assets are being routed, to avoid taxes and duties that would otherwise be attracted and therefore the Scheme of Amalgamation was neither a scheme nor arrangement nor a compromise contemplated u/s. 391 of the Companies Act, 1956. The scheme of arrangement as envisaged was not really a scheme of arrangement or a scheme of demerger, so as to be eligible for a sanction by the Hon'ble Company Judge u/ss.391-394 of the Companies Act 1956. The Revenue's case is that the scheme of demerger was to transfer the PIAs to Indus Towers through the intermediary ICTIL. Hence, the transfer of assets by way of demerger tantamount to gift. The case of the Revenue is also that the company cannot gift its assets. The Revenue also says that the demerger is not section 2(19AA) compliant and that ICTIL is merely a paper company prior to amalgamation with Indus. 8.6. We are unable to comprehend ourselves to accept to the aforesaid averments made by the ld. AO in his assessment order which were also heavily relied upon by the ld. DR before us. It is pertinent to note that the single Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iverse needs of the business. That the transferee company shall not be required to issue any shares or pay any consideration to the transferor company or its shareholders. In para 16 of the said order it has again been mentioned by the Hon'ble High Court that the passive infrastructure assets are being transferred without any consideration and the value of investment of the shareholders of the transferor company shall not deplete in any manner.... In the concluding para no 35 sanction has been granted by the Hon'ble High Court to the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956 with the observation that the passive infrastructure assets of the transferor company shall stand merged with the transferee company from the appointed date i.e. 01.04.2009. Thus the stand of the assessee before the AO was that since the above said infrastructure assets were transferred to the subsidiary company at Nil consideration therefore there has been a resultant loss on such transfer effected on 05.05.2011 for Rs. 5992,05,10,000/-. This loss was added back in the computation of income by the assessee. The AO has however held that the provision of Section 45 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation which has to pass hands. I have considered the submission of the appellant with respect to chargeability of short term capital gain u/s 45 of the Act on the impugned transfer. In facts of the case it is observed that appellant has transferred specified telecom assets under the scheme of arrangement approved by the Hon'ble Delhi High Court under Section 391 and 394 of the Companies Act. In paras 22 & 23 of the Hon'ble Delhi High Court order dated 29.03.2011 in Company Petition no 324/2009 (the assessee's case) it has inter alia been held that the objections of the Income Tax Department to the scheme of arrangement are akin to that filed by them in the matter of Vodafone Essar Infrastructure Ltd in Company Petition no 334/2009 and that since these objections stand dismissed in that petition therefore no separate orders are required to be passed in the Petition No. 324/2009. It is a matter of record that the scheme of arrangement approved by the Hon'ble High Court in assessee's case entails transfer of the passive infrastructure assets at Nil consideration. Moreover the AO has not brought any fact on record to controvert the assessee's claim that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accruing. However as in the present fact of the case as no consideration has either been received or accrued to the appellant, hence the computation mechanism for computing the capital gain fails. Further, for the purpose of computing short term capital gain, the AO has adopted sale consideration on the basis of value given in the red herring prospectus issued for the purposes of IPO in December 2012. In this connection the principle laid down by the Supreme Court in the case of Shoorji Vallabhdas & Co. 46 ITR and in the case of Godhra Electricity Co. Ltd v. CIT 225 ITR 746 would be applicable to appellant's case, wherein it is held as under:- "Income tax Act takes into account two points of time at which the liability to' tax is attracted, viz, the accrual of the income or its receipt, but the substance of the matter is income. If income does not result at all, there cannot be tax, even through in book keeping, an entry is made about hypothetical income", which does not materialize ". Based on the above discussion the AO was not justified in computing Short Term Capital Gain on the transfer of assets and hence the Ground 1 to 1.7 are allowed in favour of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Passive Infrastructure Assets (PIAs) vested in the assessee with effect from 1-4-2009 pursuant to a two-step court approved scheme, the assessee in its books in accordance with the mandate of the court approved scheme, recorded the PIAs at its fair value of Rs 16306 crores. The book depreciation thereon was debited to the Profit and Loss Account as per the applicable accounting policy and applicable standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair value tantamount to revaluation and accordingly depreciation on the so-called revalued amount would not be allowed as reduction under clause (iia) of Explanation 1 to section 115JB of the Act. Consequentially, the Learned AO made an upward adjustment of Rs 1112.30 crores on account of this transaction while computing book profit under section 115JB of the Act. This was reduced to Rs 1030.95 crores by the Learned CITA rectifying the factual errors committed by the Learned AO. 3.33 We have already held that transaction of gift of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble High Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the ld. CIT (A) too cannot be upheld for the same reason. 3.35 Hence the assessee woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that merely because a particular business project had been abandoned by the assessee as it did not materialize, the nature of expenditure which is primarily capital in nature cannot be converted into revenue expenditure by claiming loss thereon. This action of the ld AO was upheld by the ld CIT(A). 4.3. From the modus operandi adopted by the assessee in its business model which is referred supra, we find that if the tower site before its setting up gets cancelled by the customers due to cancellation of service order or cancellation of tenancy agreement with the landlord or due to any other business reason, gets aborted before setting-up of the tower or before it gets ready for active installation, the expenditure already incurred thereon would not result in setting up of a tower site cable of generating any revenue out of it and the expenditure incurred thereon would have to be ultimately written off by the assessee as there would be no value/ benefit by retaining the same in the books of account. The purpose of incurrence of such expenditure is intricately and inextricably linked with the primary business of the assessee vis-à-vis the project that is aborted due to af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset Restoration Obligation (ARO) amounting to Rs. 101.11 crores under normal provisions of the Act and also in the computation of book profits u/s 115JB of the Act. 5.1 We have heard the rival submissions and perused the material available on record. We have already stated that the assessee is engaged in the business of providing passive infrastructure (PI) telecom service to several telecom operators. In order to provide PI services, the assessee enters into long term lease agreements with the land/ premises owners for setting-up of telecom towers, shelters, DG sets etc. Since such setting-up of telecom towers involves substantial modification of the premises to enable installation of such steel structures, shelters, generators, foundation etc., it is agreed by the assessee to restore such sites back to their original condition at the time of termination of the lease agreement. Accordingly, Site Restoration Obligation (SRO) arises in respect of the setting-up, installation, alteration or modification, which the assessee undertakes for the purpose of setting-up of towers on the leased premise. 5.2 The assessee placed copies of sample lease agreement which contained such obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee amortized Rs. 101,11,00,000 in the books of accounts in respect of site restoration obligation. For the purposes of MAT, since ARO liability represents an ascertained liability, the same has been accordingly claimed as an allowable expense under provisions of Section 115JB of the Act. 5.3 The ld AO concluded that the provision of expenses on account of SRO/ ARO as an unascertained liability not eligible for deduction both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act and accordingly, disallowed the sum of Rs. 101.11 crore amortized during the year by making the following observations:- -The term for lease period for tower sites is normally 20 years; during this period - the lease period may be extended on mutual agreement, terms of lease agreement may be altered; the appellant may not remove tower at all on its expenses. -Cost of removal of tower after period of 20 years cannot be reliably determined at the beginning of the lease term. -In the books of accounts, the appellant is capitalizing such obligation but for the purpose of the Act, same is being claimed as revenue expense. -Had the provision been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the lease agreement itself, the assessee is very well aware about the date of expiry of agreement. Hence, the obligation on the part of the assessee to incur such expenses is crystallized on the date of entering lease agreement itself that there is expenditure towards SRO/ ARO which had to be incurred necessarily and positively by the assessee in future. Hence, the existence of such liability towards expenditure on account of SRO/ ARO is real and not contingent liability. We have gone through the workings made for provision on account of ARO/ SRO which are enclosed in pages 1457 to 1463 of Vol-III of Paper Book and find that the same is made on a scientific basis by the assessee by considering all the relevant documents including obtaining quotations from the 3rd party vendors for estimating the dismantling cost. It is not in dispute that the said lease agreement was entered during the course of regular business of the assessee and provisions made on account of SRO/ ARO is part of regular business activity of the assessee. Hence, the expenditure provided thereon becomes an expenditure wholly and exclusively for the purpose of business of the assessee. This issue was subject m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enging the disallowance of provision for expenses treating the same as unascertained liability both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. 6.1 We have heard the rival submission and perused the material available on record. Pursuant to the mercantile system of accounting followed by the assessee, the assessee accounts for all the expenses pertaining to the relevant year while arriving at the profit for that year. Once, the expenditure is accrued, the assessee account for the same even if the invoices have not been received for the same in order to follow the accrual and matching principle of accounting. Accordingly, the assessee makes provision for expenditure that had actually accrued and become due in the month of March 2010 for which the invoices were received by the assessee in April 2010 or May 2010. For these expenses, the expenditure is provided on accrual basis in the month of March 2010 itself to depict the true and fair state of affairs of the company and also to ensure that only 12 months expenditure are reflected under each head of expenditure. Accordingly, the assessee had recognized the following provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival submission and perused the material available on record. During the year under consideration, the assessee accounted for SLA provision of Rs. 133.36 crores and raised credit notes amounting to Rs. 68.67 crores. The closing balance of SLA provision amounting to Rs. 64.12 crores was reflected in the financial statements. The assessee enters into non-cancellable (long term) service arrangements, i.c., Master Service Agreement ('MSA'), with the telecom operators (customers) to provide Passive Infrastructure services. The MSA includes the terms for the minimum standards of operations and maintenance levels to be maintained which are defined in Schedule 2: Operation and Maintenance services of the MSA. The relevant clauses specify an expected uptime service level in each circle for each month at 99.95% across all sites (other than Strategic Sites) and at 99.99% for all strategic sites in that circle. Pursuing the relevant Schedule-2 of the MSA, the SLA (Service Level Agreement) credit is the amount of credit to be given to the operators on account of deficiency in the provision of services which become payable upon the settlement of the dispute with the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion made for warranty. In view of the decision of the Hon'ble Supreme Court in the case of Rotork Controls Pvt Ltd reported in 314 ITR 62 (SC), we hold that the aforesaid provision of SLA credit would have to be construed as an ascertained liability eligible for deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, ground No. 6 and 14 raised by the assessee are allowed. 8. Ground No. 7 raised by the assessee is challenging the confirmation of disallowance of interest paid u/s 36(1)(iii) of the Act amounting to Rs. 3.74 crores. 8.1 We have heard the rival submission and perused the material available on record. During the year under consideration, the assessee had incurred and claimed interest expenditure of Rs. 785,74,73,000/-. The assessee is engaged in the business of providing passive infrastructure telecommunication services to the telecom service providers in various circles. Even prior to the merger of the tower companies into the assessee, assessee was engaged in providing such passive infrastructure services. Out of the aforesaid interest expenditure, the ld AO disallowed a sum of Rs. 91,80,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the denial of additional claim of enhanced depreciation of energy saving device @80% as against 15% granted by the revenue. 9.1 We have heard the rival submission and perused the material available on record. The telecom tower sites comprises two infrastructure facilities namely passive infrastructure (owned by the assessee) and active infrastructure (owned by the customers/ telecom operators). Further, as part of the standard business offerings, the assessee renders following telecom infrastructure support services to customers/ telecom operators:- -Access to passive infrastructure installed/constructed (i.e. towers, shelter room) by of active infrastructure equipment (i.e. microwave radio, antenna, base transmission station etc.) by telecom operators. the assessee to be used for installation and safe keeping -24x7x365 uninterrupted power supply at desired current and voltage levels - Temperature below 35 degrees Celsius inside the shelter room all the time. 9.2 To ensure uninterrupted power supply at the tower sites at the required temperature level, besides the power connection taken from the respective state electricity boards, the assessee has installed following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allowable income tax deprecation u/s 32 of the Act for the year under consideration and also for subsequent years consequentially. Accordingly, ground No. 8 raised by the assessee is hereby allowed. 10. The Ground Nos. 10& 11 raised by the assessee are challenging the upward adjustment of depreciation on aforesaid assets obtained pursuant to the scheme of arrangement, while computing book profits under section 115JB of the Act. 10.1 We have heard the rival submissions and perused the materials available on record. The Passive Infrastructure Assets (PIAs) vested in the assessee with effect from 1-4-2009 pursuant to a two-step court approved scheme, the assessee in its books in accordance with the mandate of the court approved scheme, recorded the PIAs at its fair value of Rs 16306 crores. The book depreciation thereon was debited to the Profit and Loss Account as per the applicable accounting policy and applicable standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair value tantamou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, because no such reserve has been created by the assessee on revaluation of shares. Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. ♦ Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally belonged to PREPL and PPPL and appeared in their balance sheet; and these assets entered in the books of assessee by virtue of amalgamation valued on fair market value as mandated by the order of Hon'ble High Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as under:- -Whenever a telecom service provider wishes to avail passive infrastructure support services, it sends a request describing the tower location, tower specifications such as the angle or height required, latitude and longitude and equipment details (which would be kept on the tower site and connected to the passive infrastructure) etc. Post assessee's response, the assessee receives the order from customer and tower site is set-up for use by the customer. -Tower site requires installation of various complex and technical equipment (detailed in submissions) and requires services of highly technical personnel. -To foster the process, the assessee, as a policy, procures certain infrastructure/ regular items/ materials in bulk and stores them in its warehouses maintained at various locations. Items are then released from warehouse to tower sites as and when required. For other items and civil work, various vendors are identified who work on number of sites simultaneously in a particular geographical area and furnish their invoices for approval to the appellant on time-to-time basis. -The invoices are sent for approval by the relevant team and the same are then a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apitalize the cost of equipment or services (for which it has not received the invoice as on the date of capitalization or the cost of which cannot be accurately allocated on the date of capitalization) on the basis of purchase orders received and standard cost determined for setting-up of site. The said method of capitalization adopted by the assessee is termed 'provisional capitalization'. -Further, provisional capitalization made during each month of the year stands fully reversed during the same year itself and the only the amount of provisional capitalization created for the month of March thus appears as the closing balance at the year-end (i.e. year-end provisional capitalization). In addition, such year-end provisional capitalization is regularized basis actual invoices received in subsequent year. -Based on the above, book depreciation as well as tax depreciation is claimed on the (1) actual cost of the tower sites/assets (as appearing in the fixed asset register) as well as (ii) year-end provisional capitalization as on 31st March of the financial year. As against this provisional capitalization for 31st March of previous year, the actual cost is identified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tower site and claims depreciation for both accounts as well as for tax purposes. Stage 2: RFAI date: Date on which customer confirms its acceptance of the site for installation of its active infrastructure equipment. Customers generally give the confirmation within 14 days of the RFAI notice generation date. However, in case of no response, the 14th day is deemed as RFAI date, Stage 3: Billing start date: Date from which the actual billing is done to the customers. This may in some circumstances, due to certain practical difficulties, be more than 14 days apart from the RF. FAI Notice generation date." 14.2 The Learned AO held that the RFAI notice generation date cannot be treated as date of ready to use/ put to use (i.e., date of capitalisation of asset) of tower site since(1) That the customer can use the tower site only with effect from "active installation" i.e installation of active infrastructure devices (Le. RFAI date); (ii) customer may point certain deficiency in such tower sites, which the assessee is obligated to rectify, thereby meaning that such tower sites were not ready for use on RFAI Notice Generation Date; and (iii) assessee is entitled to raise invoice for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue against this decision was dismissed by the Hon'ble Apex Court which is reported in 259 Taxman 79 (SC). 14.4. We find that the Hon'ble Courts have already held that the term "use" as referred to in Section 32 of the Act is not restricted to "actual use", but also includes "passive use" i.e. assets kept "ready for use" which should also be considered for the purpose of claim of depreciation. Reliance in this regard has been rightly placed by the Learned AR on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Refrigeration and Allied Industries Limited reported in 113 Taxman 103 (Del). In any event, the date on which the depreciation is being claimed by the assessee and the date for which depreciation is granted to the assessee by the revenue only results in a timing difference and effectively becomes revenue neutral and hence the revenue need not have any grievance on the same. Reliance in this regard has been rightly placed on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Triveni Engineering and Industries Limited reported in 196 Taxman 94 (Del) and decision of Hon'ble Supreme Court in the case of Excel Industries Limited rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case. Per contra, the Learned AR before us duly placed on record the detailed work profile and scope of work undertaken by the employees in the aforesaid divisions in a tabular form which are reproduced here under:- Term Work profile Amount Allegations of AO Post capitalization functions actually performed Infra quality The team is responsible for managing big team of field support engineers who are responsible at ground level for safe and continuous working of telecom towers sites and function on 24x7x365 day basis. They also take care of newer aspects which could be brought in different aspects of tower site maintenance such as replacement of parts, upgradation of various equipment, tower design, etc. They also work with external agencies to ensure audits of sites pre-delivery. The department ensures that right quality of site is delivered to customers as per their requirements. 1,18,22,646 The division namely infra quality is doing only pre capitalization work. Responsible for managing a big team of field support engineers who are responsible at ground level for safe and continuous working of telecom towers sites and function on 24x7x365 days ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect all commercial purchases for the company except rental agreement. * Responsible for buying/ procuring all the material/ spares/ diesel for running the telecom tower sites * Responsible for procurement of spares and replacements such as battery bank, DG sets, etc. * Responsible for interaction with different service vendors who assist the appellant in upkeep and maintenance of the telecom tower sites. 15.3 The above facts were not controverted by the revenue before us. We find that the employees are not only engaged in setting up of tower sites, rather majority of responsibilities relate to post setting up of tower sites and help in day to day operations of the assessee company. Hence it could be safely concluded that there is absolutely no basis for the Learned AO to even allege that these divisions perform only pre-capitalization work. We find that these salary expenditures are incurred in a routine course of business having direct nexus with the business operations of the assessee company and hence would be squarely allowable as deduction which fact has been duly appreciated by the Learned CITA while granting the relief to the assessee. Hence we do not find any infirmity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 crores less income reported in the standalone financial statements of Rs 8,771.34 crores- refer amounts in Table 1 & 2 above) and accordingly made addition of said amount alleging that the assessee has not provided the complete reconciliation of the income as reported in the service tax returns vis-a-vis income tax return for the captioned assessment year. 17.4 In the proceedings before the learned CIT(A), the assessee duly furnished the reconciliation of the aforesaid amounts, The learned CIT(A) has, vide order dated 05.06.2023, after admitting the additional evidences including the reconciliation, filed by the assessee under Rule 46A of the Income Tax Rules directed the learned AO assessing officer to delete the addition subject to verification of reconciliation by the assessee. 17.5. We find that the Learned CITA had rightly admitted the additional evidences filed by the assessee under Rule 46A of the Income Tax Rules containing the turnover reconciliation statements between service tax returns and income tax return as the same are very much required for determination of the issue in dispute before him. The Learned DR before us could not draw our attention to any errors or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in granting relief to the assessee by treating the entire upfront fees paid as a revenue expenditure. Accordingly, the Ground No. 8 raised by the revenue is hereby dismissed. 19. The Ground Nos. 9 and 10 raised by the revenue are challenging the deletion of disallowance of interest partially by the learned CITA. 19.1. We have heard the rival submissions and perused the materials available on record. The issue of disallowance of interest under section 36(1)(iii) of the Act has been already elaborately dealt hereinabove in assessee's appeal vide Ground No. 7. The decision rendered in assessee's appeal thereon shall apply mutatis mutandis for Ground Nos. 9 and 10 in Revenue's appeal also. Accordingly, the Ground Nos. 9 and 10 raised by the revenue are hereby dismissed. 20. The Ground No. 11 raised by the revenue is challenging the deletion of disallowance of unverifiable expenses by the Learned CITA. 20.1. We have heard the rival submissions and peruse the materials available on record. During the year under consideration, special audit was mandated as per the provisions of the Act by the income tax department to be carried out on the assessee. The special auditor se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. Security Guard Expenses 21,91,521 4. PRO Interactive Services India Pvt. Ltd. Security Guard Expenses 21,48,993 5. PRO Interactive Services India Pvt. Ltd. Security Guard Expenses 44,37,030 6. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 81,03,885 7. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 57,30,957 8. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 40,55,485 9. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 40,40,854 10. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 41,92,042 11. PRO Interactive Services India Pvt. Ltd. Infrastructure R&M 42,33,275 12. Raven beck Security India Ltd.* Security Guard Expenses 46,95,030 13. Raven beck Security India Ltd.* Security Guard Expenses 53,49,636 14. Raven beck Security India Ltd.* Security Guard Expenses 64,00,122 15. Sri Sai Telecom Services* Infrastructure R&M 1,25,92,800 16. Sri Sai Telecom Services* Infrastructure R&M 1,29,19,500 17. Core Logistic Pvt. Ltd. Transportation 1,15,913 Total 8,83,62,379 20.3. Before the Learned CITA, the assessee filed additional evidences in support of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Rules. The learned CITA admitted those additional evidences and observed that the corresponding expenditure for the tax deducted at source were duly supported by all evidences. The learned CITA observed that the expenditure cannot be disallowed merely because of some mistakes prevailing in the TDS returns. With these observations, the learned CITA deleted the disallowance made by the learned AO. 21.3. The learned DR vehemently relied on the order of the learned AO and stated that the assessee had not taken any efforts to set right the discrepancies prevailing in the TDS statements. Hence the corresponding expenditure has been rightly disallowed by the learned AO. Per contra, the learned AR before us submitted that admittedly the disallowance was made on account of expenses due to some errors or manual deficiencies in the TDS statements filed by the assessee, which are clerical in nature. These clerical errors could be rectified by filing of revised TDS statements. Such inadvertent errors cannot automatically lead to the disallowance of expenditure and resultantly fall in the category of unverifiable expenses. The company's transactions are voluminous and multiple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n wise listing are placed at pages 4731-5221 of the PB Volume VIII. 21.5. In view of the above, we find that the learned CITA had duly appreciated the contentions of the assessee and rightly deleted the disallowance made on account of expenses. We do not find any infirmity in the order of the learned CITA granting relief to the assessee. Accordingly, Ground No. 12 raised by the revenue is dismissed. 22. The Ground No. 13 raised by the revenue is general in nature and does not require any specific adjudication. 23. In the result, the appeal of the revenue is dismissed. ITA No. 2762/Del/2023 - Assessment Year 2010-11 - Assessee Appeal against rectification order of Learned CITA dated 3-8-2023 24. The dispute arising out of this appeal is already covered by us while adjudicating the issue in dispute vide ground No. 1, 1.1, 2, 10 and 10.1 in ITA No. 1962/Del/2023 itself as the dispute in this appeal is only for wrong mentioning in para 45 of order of Hon'ble Delhi High Court by the learned CIT(A) wherein, the grievance of the assessee is that the learned CIT(A) had referred to the wrong paragraph of the said judgment. Since the core issue in ITA No. 1962/Del/2023 vide above mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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