DCIT, Circle-2(1),, v. Bharti Talinet Ltd.,,

ITA 3167/DEL/2005 | 2001-2002
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 316720114 RSA 2005
Assessee PAN APRIL2005P
Bench Delhi
Appeal Number ITA 3167/DEL/2005
Duration Of Justice 5 year(s) 6 month(s) 16 day(s)
Appellant DCIT, Circle-2(1),,
Respondent Bharti Talinet Ltd.,,
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-01-2011
Date Of Final Hearing 18-11-2010
Next Hearing Date 18-11-2010
Assessment Year 2001-2002
Appeal Filed On 14-07-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI B.C.MEENA ACCOUNTANT MEMBER I.T.A NO. 3167/DEL/05 ASSTT. YEAR 2001-02 DCIT CIR. 2 (1) NEW DELHI. VS. M/S. BHARTI TELENET LTD. H-5/12 QUTAB AMBIENCE MEHRAULI ROAD NEW DELHI. (APPELLANT) (RESPONDENT) AND I.T.A NO. 3309/DEL/05 ASSTT. YEAR 2001-02 M/S. BHARTI TELENET LTD. H-5/12 QUTAB AMBIENCE MEHRAULI ROAD NEW DELHI. VS. DCIT CIR. 2 (1) NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 2 APPELLANT BY: SHRI J. MISHRA DR RESPONDENT BY: SH. ANIL BHALLA CA ORDER PER RAJPAL YADAV JM: THE ASSESSEE AND REVENUE ARE IN CROSS APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A) DATED 18 TH APRIL 2005 PASSED FOR ASSTT. YEAR 2001- 02. FIRST WE TAKE THE APPEAL OF ASSESSEE I.E. ITA NO. 3309/D/05. 2. IN THE FIRST GROUND OF APPEAL ASSESSEE HAS PLEAD ED THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF ` 1 31 25 000/-. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS IN T HE BUSINESS OF PROVIDING TELEPHONE SERVICES. IT HAS FILED ITS RETU RN OF INCOME ON 31.10.2001 FOR THE ASSTT. YEAR 2001-02 DECLARING A LOSS OF ` 1 26 04 97 758/-. ON SCRUTINY OF THE ACCOUNTS LD. AO FOUND THAT ASSESSEE HAS DEBITED A SUM OF ` 1 31 25 000/- TOWARDS UPFRONT FEES PAID WITH REGARD TO LOANS RAISED. HE DISALLOWED TH E CLAIM OF ASSESSEE ON THE GROUND THAT LOANS RAISED BY THE ASSESSEE ARE UTILISED FOR CREATION ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 3 OF ASSETS ACCORDINGLY THE COST ON ACCOUNT OF UPFR ONT FEE HAS ALSO TO BE CAPITALISED BY THE ASSESSEE COMPANY. THE AO FURTHER MADE AN OBSERVATION THAT ALLEGED UPFRONT FEES IS PAID FOR M AKING INVESTMENT WHICH ANY WAY IS NOT A SUBJECT MATTER OF REVENUE EX PENDITURE. IT IS A VERY BRIEF FINDING AVAILABLE ON PAGES NO. 1 AND 2 OF TH E ASSTT. ORDER AND THE SAME HAS ALSO BEEN REPRODUCED BY THE LD. CIT(A). IT READS AS UNDER :- IT IS OBSERVING THAT THE ASSESSEE COMPANY HAS MADE A PAYMENT OF RS. 1 31 25 000/- ON ACCOUNT OF UPFRONT FEES IN REGARD TO THE LOAN RAISED. ON ENQUIRY THE ASSESSEE COMPANY HAS SUBMITTED THAT TH IS AMOUNT HAD TO BE PAID AS PER THE PROVISIONS OF LOAN ARRANGEMENT THUS TH E SAME IS AN ALLOWABLE EXPENDITURE OF REVENUE IN NATURE CONTENTION OF THE ASSESSEE COMPANY CANNOT BE ACCEPTED BECAUSE THE LOANS THUS RAISED ARE UTILI SED FOR CREATION OF ASSETS ACCORDINGLY THE COST ON ACCOUNT OF UPFRONT FEE HAS ALSO TO BE CAPITALIZED BY THE ASSESSEE COMPANY WHICH THE ASSESSEE COMPANY HA S FAILED TO DO IT IS FURTHER NOTED THAT THE UPFRONT FEES UNDER QUESTION IS PAID FOR MAKING INVESTMENTS WHICH ANYWAY IS NOT A SUBJECT MATTER OF REVENUE EXPENDITURE ANY WAY. THIS ASPECT IS FURTHER DISCUSSED HERE BELOW IN PARA 4. THUS A SUM OF RS. 1 31 25 000/- IS DISALLOWED AS REVENUE EXPENDIT URE AND THE SAME IS ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY H EREBY. 3. THE APPEAL TO THE LD. CIT(A) DID NOT BRING ANY R ELIEF. LD. CIT(A) ALSO NOT MADE DETAILED DISCUSSION ON THE ISSUE AS W ELL AS ON THE CASE LAW RELIED UPON BY THE ASSESSEE. HIS FINDING RUNS I N SIX LINE WHICH READ AS UNDER : 3.3-1 HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR GUMENTS ON THE ISSUE CAREFULLY. FROM THE ABOVE MENTIONED FACTS IT IS NOTED THAT THE APPELLANT COMPANY HAS NOT DENIED THE FINING OF THE AO THAT TH E LOAN WAS RAISED FOR MAKING INVESTMENTS IN SHARES WHICH IS NOT REVENUE E XPENDITURE. IN VIEW OF THESE FACTS THE EXPENSES INCURRED TO EARN DIVIDEND INCOME WHICH IS EXEMPT UNDER SECTION 10(33) ARE HELD TO BE DISALLOWABLE U/ S 14A OF THE INCOME TAX ACT 1961. THE DISALLOWANCE MADE BY THE AO IS THERE FORE CONFIRMED. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 4 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE RAISED T WO FOLD SUBMISSIONS. IN HIS FIRST FOLD OF SUBMISSION HE PO INTED OUT THAT UPFRONT FEES WAS PAID TO FINANCIAL INSTITUTION TOWARDS PROC ESS FEES FOR LOANS TAKEN FROM THEM. THIS LOAN WAS TAKEN FOR THE PURPOS E OF THE BUSINESS OF THE ASSESSEE COMPANY AND IT WAS EXCLUSIVELY USED FO R THAT PURPOSE. HE POINTED OUT THAT EXPENSE IS ALLOWABLE U/S 37 OF THE INCOME TAX ACT. TAKING US THROUGH SECTION 36 (I) (III) OF THE ACT HE CONTENDED THAT UPFRONT FEES IS AKIN TO INTEREST EXPENSE AND IT IS ALLOWABLE UNDER THIS SECTION ALSO. THE CAPITAL WAS BORROWED FOR THE PURP OSE OF THE BUSINESS ON SUCH BORROWED CAPITAL INTEREST EXPENSES HAS TO B E ALLOWED. THE UPFRONT FEES IS INTER LINKED WITH THE INTEREST EXPE NSE BECAUSE IT IS PAID TOWARDS PROCESS FEES FOR SUCH BORROWAL. FOR BUTTRES SING HIS CONTENTION HE RELIED UPON TWO DECISIONS OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS. SHREE MEENAKSHI MILLS LTD. 290 ITR 107 AND SUPER SPINNING MILLS LTD. REPORTED IN 296 ITR 168. APART FROM THESE JUDGMENTS HE ALSO REFERRED THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. AKKAMBA TEXTILES REPORTED IN 22 7 ITR 464 AS WELL AS RENDERED IN THE CASE OF INDIA CEMENT 60 ITR 52. HE POINTED OUT THAT BOTH THESE DECISIONS OF THE HONBLE SUPRERME COURT HAVE BEEN CONSIDERED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF HERE MEENAKSHI MILLS. IN HIS SECOND FOLD OF SUBMISSION HE POINTED OUT THAT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 5 THOUGH LD. AO HAS NOT MADE ANY DISCUSSION WITH REGA RD TO HIS OBSERVATION THAT LOANS WERE UTILISED FOR THE PURPOS E OF INVESTMENT BUT MADE THE DISALLOWANCE. HE ALSO SUBMITTED THAT LD. C IT(A) HAS NOT MADE ANY ELABORATED DISCUSSION HOW THE BORROWED FUNDS WE RE USED BY THE ASSESSEE FOR INVESTMENT UPON WHICH EXPENSES ARE TO BE DISALLOWED U/S 14A. BOTH THE AUTHORITIES HAVE MADE A GENERAL PASSI NG REMARK IN THIS REGARD. HE PLACED ON RECORD THE DETAILS OF THE BORR OWED FUNDS AVAILABLE WITH THE ASSESSEE VIS A VIS THE INVESTMENT. HE POIN TED OUT THAT THESE DETAILS WERE SUBMITTED BEFORE THE LD. CIT(A) AND AR E RELEVANT FOR GROUND NO. 2 OF THE REVENUES APPEAL WHERE AO HAS DISALLOW ED A SUM OF ` 8 80 36 863/- ON THE GROUND THAT INTEREST BEARING F UNDS WERE NOT USED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS. THIS DISALLOWANCE HAS BEEN DELETED BY THE LD. CIT(A). THE ASSESSEE HAS SU BMITTED THE DETAILS OF INTEREST FUNDS AVAILABLE WITH IT VIS A VIS INTER EST BEARING LOANS TAKEN BY IT. LD. COUNSEL FOR THE ASSESSEE WITH THE HELP OF T HE DETAILS SUBMITTED BEFORE THE APPELLATE AUTHORITY AND PLACED IN THE PA PER BOOK ON PAGES NO. 11 TO 17 ALONG WITH HIS WRITTEN NOTES DEMONSTRA TED THAT ASSESSEE HAS ADEQUATE INTEREST FREE FUNDS. HE ALSO MADE A RE FERENCE TO PAGE NO. 36 OF THE PAPER BOOK WHERE BALANCE SHEET AS ON 31 ST MARCH 2001 HAS BEEN PLACED ON RECORD. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE AO NOTICED AN INVESTMENT OF ` 62 88 34 738/-. LD. AO HAS OBSERVED THAT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 6 ON THE ONE HAND ASSESSEE HAS BEEN MAKING INVESTMENT AND ON THE OTHER HAND IT HAS RAISED LOANS FROM IDB1 @ 14% BEIN G THE SECURED REDEEMABLE NON CONVERTIBLE DEBENTURES ISSUED AMOUNT ING TO ` 75 00 00 000/- DURING THE YEAR UNDER CONSIDERATION. THUS ASSESSEE HAD SECURED LOAN BY WAY OF NON CONVERTIBLE DEBENTURE OF ` 75 00 00 000/-. HE DISALLOWED INTEREST EXPENSES OF ` 8 80 36 863/-. THE LD. COUNSEL EMPHASISED THAT THIS DISALLOWANCE HAS BEEN DELETED BY THE LD. CIT(A) AND IMPUGNED IN GROUND NO. 2 BY THE REVENUE. THE D ISALLOWANCE HAS BEEN DELETED PRIMARILY FOR THE REASON THAT ASSESSEE WAS ABLE TO DEMONSTRATE THAT IT HAS MORE INTEREST FREE FUNDS FO R MAKING INVESTMENT. HE TOOK US THROUGH THE DETAILS COMPLIED BY HIM IN H IS NOTE WHICH READS AS UNDER :- 31.03.2001 1.04.2000 INCREMENTAL SHARE CAPITAL ADVANCE AGAINST SHARE APPLICATION MONEY 3 000 000 000 - 1 688 350 000 1 042 817 604 268 832 396 SECURITY DEPOSITS FROM CUSTOMERS 201 451 383 120 798 027 80 653 356 FUNDS FROM DEPRECIATION 889 176 765 359 074 993 530 101 772 FUNDS FROM CURRENT LIABILITIES & PROVISIONS 2 345 314 481 928 032 218 1 417 282 263 TOTAL 6 435 942 629 4 139 072 842 2 296 869 787 ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 7 7. THE ASSESSEE COMPANY MAINTAINED MIXED BANK ACCOU NT WHEREIN THE INCOME GENERATED WAS DEPOSITED. 7.1 DURING THE YEAR THE GROSS INCOME GENERATED WAS RS. 94.24 CR PB 37 7.2 THE INCREMENTAL NON-CONVERTIBLE DEBENTURE WORTH RS. 75 CR WERE ALSO DEPOSITED IN THE MIXED BANK ACCOUNT. 7.3 OUT OF THE MIXED BANK ACCOUNT THE COMPANY INVES TED IN BUSINESS ASSETS FOR THE PURPOSE OF OPERATIONS. PARTICULARS 31.03.2001 31.03.2000 INCREMENTAL FIXED ASSETS 5 567 139 544 3 623 899 912 1 943 239 632 CAPITAL WORK- IN-PROGRESS 590 380 996 947 514 625 (357 133 629) PRE-OPERATIVE EXPENDITURE 43 383 608 - 43 383 608 CURRENT ASSETS LOANS & ADVANCES 864 045 029 282 163 640 581 881 389 TOTAL 7 064 949 177 4 853 578 177 2 211 371 000 7.4 THIS SHOWS THAT ADDITIONAL INVESTMENT IN THE BU SINESS ASSETS WAS RS. 221.14 CR. 7.5 THIS SHOWS THAT THIS INCREASE IN INVESTMENT IN BUSINESS ASSETS WAS MUCH MORE THAN THE FIGURE OF RS. 75 CR I.E. ADDITIO NAL DEBENTURES ISSUED. 8. IT HAS BEEN EXPLAINED THAT THE INVESTMENT IN 100 % SUBSIDIARY AMOUNTING TO RS. 1 005 000/- WAS NOT MADE OUT OF INTEREST BEA RING FUNDS AVAILABLE WITH THE COMPANY. [HOWEVER WITHOUT PREJUDICE REFERENCE IS INVITED TO THE DECISION FOR THE PROPOSITION THAT EVEN IF BORROWED FUNDS WERE UTILIZ ED NO DISALLOWANCE CAN BE MADE IN THE CASE OF : SA BUILDERS 288 ITR 1 (SC) AND THESE DETAILS ARE OTHERWISE AVAILABLE IN THE BALANC E SHEET ON PAGES NO. 36 37 40 OF THE PAPER BOOK. ON THE STRENGTH OF THES E DETAILS LD. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 8 COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN NO CAS E IS MADE OUT FOR DISALLOWING THE UPFRONT FEE U/S 14A ALSO. 5. LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES BELOW. HE POINTED OUT THAT FUNDS WERE U SED BY THE ASSESSEE FOR CREATION OF ASSETS. THEREFORE UPFRONT FEES HAS TO BE CAPITALISED. FOR BUTTRESSING HIS CONTENTION HE RELIED UPON THE FULL BENCH DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. VARDMAN POLYTEC LTD. REPORTED IN 299 ITR 152. ACCOR DING TO THE LD. DR IN THIS CASE HONBLE COURT HAS HELD THAT IF CAPITAL BORROWED FOR ESTABLISHMENT OF A NEW UNIT THEN INTEREST EXPENSES WOULD NOT BE AN ALLOWABLE DEDUCTION. LD. COUNSEL FOR THE ASSESSEE I N REBUTTAL POINTED OUT THAT HONBLE SUPREME COURT HAS CONSIDERED THIS ISSU E RECENTLY IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. REPORTED IN 298 ITR 194. THE DECISION OF THE HONBLE SUPREME COURT IS SUBSEQUENT TO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE S UPREME COURT HAS DELIVERED ITS DECISION ON 8 TH FEBRUARY 2008 WHEREAS FULL BENCH OF THE PUNJAB & HARYANA HIGH COURT DELIVERED IT ON 21 ST JANUARY 2008. WHILE TAKING US THROUGH PAGE NO. 167 OF THE REPORT IN TH E CASE OF VARDMAN POLY TECH LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT FULL BENCH OF THE HONBLE PUNJAB & HARYANA HIGH COURT DID NOT AGREE W ITH THE VIEW EXPRESSED BY THE HONBLE GUJRAT HIGH COURT IN THE C ASE OF CORE HEALTH ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 9 CARE. THE DECISION OF HONBLE GUJRAT HIGH COURT MET THE APPROVAL OF HONBLE SUPREME COURT. THEREFORE IN VIEW OF THE LA TEST DECISION OF HONBLE SUPREME COURT NO COGNIZANCE IS TO BE TAKEN OF THE PUNJAB & HARYANA HIGH COURTS DECISION. 6. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE HONBLE MADRAS HIGH COURT IN ITS DECISION RENDERED IN THE CASE OF SHREE MEENAKSHI MILLS HAS H ELD THAT UPFRONT FEES PAID FOR OBTAINING LOAN FOR PURCHASE OF MACHINERY I S REVENUE EXPENDITURE. HONBLE MADRAS HIGH COURT HAS RELIED UPON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT RENDERED IN THE C ASE OF ACIT VS. AKKAMBA TEXTILES REPORTED IN 117 ITR 294 WHICH HAS BEEN SUBSEQUENTLY UPHELD BY THE HONBLE SUPREME COURT IN 227 ITR 464. ACCORDING TO THIS DECISION THE UPFRONT FEES CHARGED BY THE BANKS ON PROCESS OF LOAN IS NOT A CAPITAL EXPENDITURE. IN OUR OPINION IT IS SIMILA R TO THAT OF INTEREST EXPENSE. THEREFORE TAKING INTO CONSIDERATION THE A UTHORITATIVE PRONOUNCEMENTS OF HONBLE SUPREME COURT IN THE CASE OF CORE HEALTH AS WELL AS THE DECISION OF HONBLE MADRAS HIGH COUR T IN THE CASE OF SHREE MEENAKASHI MILLS LTD. WE ARE OF THE OPINION T HAT AO IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE. THIS GROUND O F APPEAL IS ALLOWED AND THE DISALLOWANCE OF ` 1 31 25 000/- IS DELETED. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 10 7. GROUND NO. 2 TAKEN BY THE ASSESSEE IS INTER CONN ECTED WITH GROUND NO. 1 TAKEN BY THE REVENUE. THE ASSESSEE ORI GINALLY CLAIMED DEDUCTION OF ` 3 31 34 330/-. THESE EXPENSES WERE CLAIMED AS REVE NUE EXPENDITURE ON THE GROUND THESE WERE INCURRED ON BA SIC TELEPHONIC PROJECTS IN DELHI HARYANA TAMIL NADU AND KARNATAK A. LD. AO HAS CONSIDERED THEM AS PRE-OPERATIVE EXPENSES AND UNALL OWABLE AS REVENUE EXPENDITURE. THE ASSESSEE IN ITS APPEAL HAS SUBMITT ED THAT TOTAL EXPENSES ARE ` 3 59 39 412/-. THE ASSESSEE HAS FILED A REVISED RE TURN AND CLAIMED THE TOTAL EXPENSES TO THIS EXTENT. LD. CIT(A) HAS ALLOWED ITS CLAIM BUT DID NOT MENTIONED THE FIGURE OF ` 3 59 39 412/-. ON THE OTHER HAND REVENUE IN ITS FIRST GROUND OF APPEAL IS IMPUG NING THE GRANT OF DEDUCTION OF ` 3 31 34 330/-. 8. LD. DR SUBMITTED THAT THESE EXPENSES WERE INCURR ED BY THE ASSESSEE TOWARDS THE BASIC TELEPHONY PROJECTS EXPL ORED IN DELHI HARYANA TAMIL NADU AND KARNATAKA. THEREFORE THESE EXPENSES CANNOT BE ALLOWED TO THE ASSESSEE AS REVENUE EXPENDITURE A GAINST THE INCOME OF EXISTING BUSINESS. THESE EXPENSES ARE INCURRED F OR NEW PROJECTS AND THEY HAVE TO BE CAPITALISED. LD. COUNSEL FOR THE AS SESSEE ON THE OTHER HAND CONTENDED THAT ASSESSEE HAS BEEN IN COMMERCIAL OPERATION PROVIDING CELLULAR TELEPHONY SERVICES IN HIMACHAL P RADESH SINCE 20 TH DECEMBER 1996 AND SINCE JUNE 1998 IN MADHYA PRADESH . THE ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 11 EXPENSES WERE INCURRED IN THE COURSE OF EXPANSION O F BUSINESS IN REGARD TO BASIC TELEPHONY PROJECT AT DELHI HARYANA AND T AMIL NADU. THESE ARE NOT NEW PROJECTS OR NEW VENTURES. THESE ARE JUST EX PANSION OF ITS EXISTING BUSINESS. HE POINTED OUT THAT IN ORDER TO UNDERSTAND THE EXPRESSION BUSINESS ONE HAS TO LOOK INTO THE BROA DER ASPECTS WHICH ARE EFFECTING THE DAY TO DAY ACTIVITIES OF ANY VENT URE. THE BUSINESS IS NOT A SINGLE ACTIVITY BUT IT IS DEPENDING UPON LARGE NU MBER OF FACTORS. SOME OF THEM ARE THE FUNDS MANAGEMENT ETC. HE POINTED OUT THAT COMPANY HAD A COMMON MANAGEMENT WHICH WAS RESPONSIBLE FOR T HE AFFAIRS OF BOTH THE UNITS BEING EXTENDED AND THE EXISTING UNIT S. THERE ARE COMMON FUNDS FOR BOTH THE ACTIVITIES. FOR BUTTRESSING THIS ASPECT HE DREW OUR ATTENTION TO PAGE NO. 36 OF THE PAPER BOOK WHICH EX HIBIT THE COMMON FUNDS FOR ALL THE PROJECTS. HE ALSO SUBMITTED THAT THERE IS INTERCONNECTION INTER LACING INTER DEPENDENCE AND UNITY OF CONTROL BY WAY OF COMMON MANAGEMENT COMMON BUSINESS ORGANISATION COMMON AD MINISTRATION COMMON FUNDS AND COMMON STEPS OF BUSINESS. ALL THES E LEADS TO THE CONCLUSION AND THERE WAS INTERLACING AND INTERDEPEN DENCE OF THE BUSINESS CARRIED ON BY THE ASSESSEE. THE EXPENSES I NCURRED FOR EXPANSION ARE TO BE ALLOWED AS REVENUE EXPENDITURE. HE FURTHER CONTENDED THAT IN ASSTT. YEAR 1997-98 THE COMPANY H AD OBTAINED LICENCE IN HIMACHAL PRADESH AND COMMENCED OPERATION S. THE LICENCE ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 12 FOR BASIC TELEPHONE SERVICE IN RESPECT TO MADHYA PR ADESH REGION WAS GRANTED SUBSEQUENTLY. THE COMPANY STARTED INCURRING OF EXPENSES FOR THE PURPOSE OF EXPANSION OF BUSINESS BY WAY OF SETT ING UP BASIC TELEPHONE SERVICES IN MADHYA PRADESH. THE TRIBUNAL IN ITA NO. 4970/DEL/2002 HAS ALLOWED ITS CLAIM. THUS THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT. HE FURTHER CONTENDED THAT RECENTLY THIS ASPECT HAS BEEN CONSID ERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MONNET INDUSTRIES R EPORTED IN 221 CTR DELHI 266 WHEREIN HONBLE DELHI HIGH COURT HAS HELD THAT THE NEW BUSINESS IS OF NO CONSEQUENCE AS LONG AS IT IS PART OF COMMON FUNDS AND COMMON MANAGEMENT. LD. COUNSEL FOR THE ASSESSEE FUR THER RELIED UPON THE FOLLOWING DECISIONS :- OTHER CASE LAWS 6.1 CIT VS. RELAXO FOOTWEARS LTD. 293 ITR 231 (DELH I) 233 6.2 CIT VS. MODI INDUSTRIES 200 ITR 341 (DEL) 6.3 CIT VS. PRITHVI INSURANCE 63 ITR 32 (SC)- REFER RED IN 200 ITR 341 347 6.4 USHA IRON & FERRO METALS CORP. LTD. 163 TAXMAN 256 6.6. STANDARD REFINERY & DISTILLERY VS. CIT 79 ITR 589 (SC) 6.7. CIT VS. ALEMBIC GLASS 103 ITR 715 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGA RD TO THE FACTS THAT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 13 THERE IS COMMON MANAGEMENT COMMON FUNDS AND THE AC TIVITY OF ASSESSEE IN PROVIDING CELLULAR SERVICE OR BASIC SER VICE ARE DEPENDENT UPON THE SAME MANAGEMENT. THERE ARE COMMON DIRECTOR S AND COMMON FINANCIAL CONTROL. THE ARGUMENTS OF THE AO IS THAT BASIC TELEPHONY SERVICES IS ALTOGETHER DIFFERENT THAN OF CELLULAR S ERVICE. HE IS ALSO OF THE VIEW THAT ASSESSEE WANTS TO OPERATE IN NEW AREAS I. E DELHI HARYANA AND TAMIL NADU. HE HAS NOT MADE ANY FURTHER DISCUSS ION. IN A BRIEF PARAGRAPH RUNNING INTO 15 LINES HE MADE THE DISALL OWANCE. WE FIND THAT ALL THESE ASPECTS HAVE BEEN CONSIDERED BY THE TRIBU NAL IN THE CASE OF ASSESSEE FOR ASSTT. YEAR 1997-98. IN THAT YEAR ALSO THE ASSESSEE HAD INCURRED CERTAIN EXPENSES TOWARDS RENDERING BASIC T ELEPHONY SERVICES IN MADHYA PRADESH. THE TRIBUNAL CONSIDERED THAT ASSES SEE WAS GRANTED LICENCE FOR RENDERING TELEPHONY SERVICES ON 12.12.1 995. THIS WAS FOR HIMACHAL TERRITORY. THUS IT HAS SET UP AND COMMENCE D ITS BUSINESS FROM THIS DATE. THE OTHER ACTIVITIES IS JUST AN EXPANSIO N OF EXISTING BUSINESS. THE EXPENSES INCURRED IN RESPECT OF MADHYA PRADESH TERRITORY HAS BEEN ALLOWED AS REVENUE EXPENDITURE. IN OUR VIEW THE IS SUE IN DISPUTE IS SQUARELY COVERED. THE TRIBUNAL HAS RELIED UPON ITS EARLIER ORDER IN THE CASE OF M/S. BHARTI CELLULAR IN ITA NO. 1737 AND 1 738/D/02. ACCORDING TO THE TRIBUNAL THIS DECISION HAS BEEN UPHELD BY TH E HONBLE DELHI HIGH COURT. THE RELEVANT OBSERVATION OF THE TRIBUNAL REA D AS UNDER :- ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 14 THIS DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY TH E HONBLE DELHI HIGH COURT BY ITS ORDER DATED 12.2.2009. SINCE THE FACTS IN THE PRESENT CASE ARE ALSO IDENTICAL IT CAN BE SAID THAT THE EXPENSES IN CURRED AFTER THE LICENCE WAS GRANTED TO THE ASSESSEE WHICH ARE REVENUE IN NATURE ARE ALLOWABLE AS SUCH WE THEREFORE DIRECT THE AO TO ALLOW THE ASSESEES CLAIM OF DEDUCTION OF EXPENSES OF REVENUE NATURE INCURRED AFTER THE LICEN CE WAS GRANTED AFTER VERIFICATION THEREOF. AS REGARDS EXPENSES FOR RENDE RING BASIC TELEPHONE SERVICES IN MADHYA PRADESH REGION IT CAN BE HELD T HAT THE ASSESSEE IS IN THE BUSINESS RENDERING TELEPHONIC SERVICES WHETHER CEL LULAR OR THROUGH LANDLINES RENDERING OF TELEPHONE SERVICES THROUGH LANDLINE IS ONLY EXPANSION OF THE EXISTING BUSINESS. THE LICENCE FOR RENDERING TELEPH ONE SERVICES IN MADHYA PRADESH WAS GRANTED ON 28.2.18997 BUT THE FIRST LIC ENCE FOR RENDERING TELEPHONE SERVICES WAS GRANTED ON 12.12.1995 WHEN T HE LICENSE WAS GRANTED FOR TELEPHONE SERVICES IN HIMACHAL PRADESH TERRITOR Y. THEREFORE SETTING UP SERVICES IN MADHYA PRADESH TERRITORY. BEING ONLY EX PANSION OF EXISTING BUSINESS WHICH IS ALREADY SET UP. THE EXPENSES WHIC H ARE REVENUE IN NATURE IN RESPECT OF RENDERING SERVICES IN MADHYA PRADESH TERRITORY ARE ALLOWABLE AS SUCH AND NOT DEPENDENT UPON COMMERCIAL OPERATION IN RESPECT OF HIMACHAL PRADESH TERRITORY. ACCORDINGLY FOR THE REASONS ASSI GNED EARLIER THE EXPENSES WHICH ARE REVENUE IN NATURE IN RESPECT OF BASIC SER VICES OF MADHYA PRADESH BE ALLOWED AFTER VERIFICATION. 10. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES WE DO NOT FIND ANY DISPARITY ON THIS ISSUE. THE ASSESSEE HAS FILED REVISED RETURN U/S 139(4). IT WAS NOT CONSIDERED BY THE AO ON THE GROU ND THAT ORIGINAL RETURN FILED U/S 139 (I) ON 31.10.2001 WAS PROCESSE D U/S 143(1) ON 27.5.2002. THEREFORE ITS COGNIZANCE CANNOT BE TAKE N. LD. CIT(A) HAS HELD THAT IF THE REVISED RETURN HAS BEEN FILED WITH IN THE STIPULATED PERIOD U/S 139(5) THEN ITS COGNIZANCE HAS TO BE TAKEN BY T HE AO. THE AO CANNOT IGNORE SUCH RETURN ON THE GROUND THAT ORIGIN AL RETURN WAS PROCESSED U/S 143 (1) BECAUSE AN INTIMATION UNDER THIS SECTION IS NOT AN ASSESSMENT OF INCOME UNDER THE INCOME TAX LAW. IN T HE REVISED COMPUTATION THE ASSESSEE HAS CLAIMED THE EXPENSES OF ` 3 59 39 412/- AS AGAINST ` 3 31 34 330/- CLAIMED ORIGINALLY. IN VIEW OF OUR A BOVE ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 15 DISCUSSION WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE. AS FAR AS GROUND OF APPEAL RAISED BY T HE ASSESSEE IS CONCERNED WE REMIT THIS ISSUE TO THE FILE OF AO FOR VERIFICATION. HE SHALL VERIFY ABOUT THE CLAIM MADE BY THE ASSESSEE IN THE REVISED RETURN AND THEN GRANT THE DEDUCTION OF THE TOTAL AMOUNT IF CL AIMED. GROUND NO. 3 11. THE GRIEVANCE OF THE ASSESSEE IN THIS GROUND OF APPEAL IS THAT LD. CIT(A) HAS ERRED IN UPHOLDING THE VIEW OF AO THAT S OFTWARE EXPENSES AMOUNTING TO ` 50 10 742/- ARE TO BE TREATED AS CAPITAL EXPENDITU RE. 12. THE BRIEF FACTS OF THE CASE ARE ASSESSEE HAS DE BITED A SUM OF ` 50 10 742/- TO THE PROFIT AND LOSS ACCOUNT ON ACCOU NT OF SOFTWARE EXPENSES. THE AO WITHOUT MAKING AN ELABORATE DISCUS SION HAS OBSERVED THAT SUCH EXPENSES CANNOT BE TERMED AS EXP ENSES OF REVENUE NATURE BECAUSE ASSESSEE IS IN SUCH A BUSINESS WHERE IMPLICATIONS OF INFORMATION TECHNOLOGY AND APPLICATIONS THEREOF ARE OF UTMOST AND IMMINENT IMPORTANCE . ACCORDING TO THE AO ASSESSEE COMPANY IS DEPENDENT ON LATEST INFORMATION TECHNOLOGY BY WAY O F COMPUTER HARDWARE AND SOFTWARE. THESE ARE INTEGRAL PART OF I TS BUSINESS AND THUS THESE ITEMS CANNOT BE SAID AS CONSUMABLES. HE ACCOR DINGLY HELD THAT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 16 EXPENSES INCURRED TOWARDS SOFTWARE IS TO BE TREATED AS CAPITAL EXPENDITURE. 13. APPEAL TO THE LD. CIT(A) DID NOT BRING ANY RELI EF TO THE ASSESSEE. 14. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SOF TWARE EXPENDITURE INCURRED BY THE ASSESSEE NEEDS UPGRADATION AND RENE WAL. THE DETAILS OF SUCH EXPENSES HAVE BEEN PLACED ON 17 OF THE PAPER B OOK. THE MAJOR ITEM IN THESE DETAILS RELATES TO LICENCE FEE ON CMS SOFTWARE WRITTEN OFF AMOUNTING TO ` 28 76 465/-. THE SOFTWARE LICENCE FEE FOR ISP WIPR O INFOTECH ` 9 78 424/- 10% OF G & S VALUE SOFTWARE ` 4 41 188/-. HE POINTED OUT THAT SIMILAR EXPENSES WERE INCURRED IN THE GROUP CASE OF BHARTI CELLULAR WHICH HAVE BEEN ALLOWED BY THE TRIB UNAL IN ITA NO. 2437/D/07 FOR ASSTT. YEAR 1997-98. ON THE STRENGTH OF THIS ORDER HE SUBMITTED THAT THESE EXPENSES BE ALLOWED TO IT. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF AO. HE CONTENDED THAT ISSUE IS REQUIRED TO BE EXAMINED IN VIEW OF THE SPECIAL BENCH DECISION O F THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT REPORTED I N 111 ITD 112. 15. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AN D GONE THROUGH THE RECORD CAREFULLY. IN THE CASE OF BHARTI CELLULA R TRIBUNAL HAS NOTICED THE DETAILS OF SOFTWARE EXPENSES AMOUNTING TO ` 1 34 68 960/- ON PAGE 2 OF THE ORDER WHICH IS AVAILABLE AT PAGES NO. 35/36 OF THE PAPER BOOK. ON ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 17 AN ANALYSIS OF THE EXPENSES TRIBUNAL HAS OBSERVED T HAT THESE EXPENSES WERE NOT INCURRED BY THE ASSESSEE FOR ACQUISITION O F NEW ASSETS. ACCORDING TO THE TRIBUNAL THE EXPENDITURES WERE INC URRED FOR UPGRADATION OF DATA PROCESSING CONSEQUENT TO EXPANSION OF BUSIN ESS. THUS THIS DECISION IS ON THE FACTS OF THAT CASE. IN THE PRESE NT CASE NEITHER THE AO NOR THE LD. CIT(A) HAS DISCUSSED THE VERY NATURE OF EXPENSES. THEY SIMPLY PROCEEDED ON THE LINE THAT AS IF SOFTWARE EX PENSES INCURRED BY THE ASSESSEE IS TO BE TREATED AS CAPITAL EXPENDITUR E ONLY. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA EN TERPRISES HAS LAID DOWN CERTAIN CRITERIA WHEREBY THE FUNCTIONAL ANALYS IS OF THE ALLEGED SOFTWARE HAS TO BE MADE IN ORDER TO DECIDE WHETHER THE EXPENSES INCURRED WERE FOR ACQUIRING AN ASSET WHICH WOULD GI VE ENDURING BENEFIT OR IT IS JUST UPGRADATION OF EXISTING SYSTEM WHICH HAS A VERY SHORT LIFE. KEEPING IN VIEW THE DECISION OF THE SPECIAL BENCH WE REMIT THIS ISSUE TO THE FILE OF AO FOR READJUDICATION. LD. AO SHALL TAK E INTO CONSIDERATION THE DECISION OF THE SPECIAL BENCH WHILE DECIDING THE IS SUE AS WELL AS THE ORDER OF ITAT IN THE CASE OF BHARTI CELLULAR. THE A O SHALL GIVE AN OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECID ING THE ISSUE. NOW WE TAKE THE APPEAL OF REVENUE I.E. ITA NO. 316 7/D/05 ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 18 16. IN THE FIRST GROUND OF APPEAL THE REVENUE HAS ERRED IN MAKING A REFERENCE TO ` 1 79 91 897/-. IN FACT IT IS OF ` 3 31 34 330/-. THIS ISSUE WE HAVE ALREADY TAKEN UP WHILE TAKING GROUND NO. 2 OF THE ASSESSEES APPEAL IN THE PRECEDING PARAGRAPH. IN VIEW OF OUR F INDING ON THE GROUND OF APPEAL RAISED BY THE ASSESSEE THIS GROUND OF APP EAL IS REJECTED. GROUND NO. 2 17. IN GROUND NO. 2 THE GRIEVANCE OF REVENUE IS THA T LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 8 80 36 863/- WHICH HAS BEEN ADDED BY THE AO BY MAKING DISALLOWANCE OF INTEREST PAID. THE AO IS OF THE OPINION THAT ASSESSEE HAS USED INTEREST BEARING FUN DS FOR NON BUSINESS PURPOSE. LD. CIT(A) HAS DISCUSSED THE ISSUE IN DETA ILED AND HELD THAT AO FAILED TO APPRECIATE THE CONTROVERSY IN RIGHT PE RSPECTIVE AND HAS DISALLOWED THE AMOUNT BY RECORDING UNSUSTAINABLE RE ASONS. 18. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HA VE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT AO HAS NOT MADE REFERENCE TO ANY DETAILS WHILE WORKING OUT THIS DISALLOWANCE. HE HAS DISALLOWED THE INTEREST EXPENSES ON SURMISES AND CONJECTURES. WHIL E DECIDING GROUND NO. 1 OF THE ASSESSEE WE HAVE TAKEN NOTE OF THE ASS ESSEES FINANCIAL POSITION IN THE FOREGOING PARAGRAPH. THE ASSESSEE H AS DEMONSTRATED THAT IT HAS MORE INTEREST FREE FUNDS FOR MAKING IN VESTMENT. IT HAS NOT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 19 USED ANY INTEREST BEARING FUNDS FOR THE PURPOSE OF INVESTMENT. LD. CIT(A) ALSO CONSIDERED THIS ASPECT BEFORE DELEING T HIS ADDITION. THUS TAKING INTO CONSIDERATION THE FUND FLOW STATEMENT E XTRACTED IN PARAGRAPH 4 OF THIS ORDER. WE DO NOT FIND ANY MERIT IN THIS G ROUND OF APPEAL RAISED BY THE REVENUE. GROUND NO. 3 19. IN THIS GROUND OF APPEAL THE GRIEVANCE OF REVEN UE IS LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 37 55 161/-. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS PAID INTEREST OF ` 37 55 161/- ON THE DELAYED PAYMENT MADE TO DEPARTMENT OF TELECOMMUNICATION TOW ARDS LICENCE FEE. THE AO DISALLOWED THE INTEREST PAYMENT ON THE GROUND THAT IT IS PENAL IN NATURE. LD. CIT(A) DELETED THE DISALLOWANC E ON THE GROUND THAT IT HAS NOT BEEN PAID FOR INFRINGEMENT OF ANY LAW. THE INTEREST HAS BEEN CHARGED ON THE DELAYED PAYMENT OF THE LICENCE FE ES. 20. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF ITAT PASSED IN ITA NO. 829 OF 2004 FOR ASSTT. YEAR 2000-01 WHERE THE TRIBUNAL HAS ALLOWED THE PAYMENT OF LICENCE FEES AS WELL AS INTEREST. LD. DR ON THE OTHER HAND RELIED UPON THE AO. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 20 21. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AN D GONE THROUGH THE RECORD CAREFULLY. THE DISALLOWANCE CAN BE MADE IF THE ASSESSEE HAS INCURRED THE EXPENSES TO ANY ITEM WHICH IS PROHIBIT ED BY LAW. THE PAYMENT IS NOT TOWARDS ANY PENALTY WHICH WAS IMPOSE D UPON THE ASSESSEE FOR INFRINGEMENT OF LEGAL PROVISIONS. THE ASSESSEE FAILED TO MAKE THE PAYMENT OF LICENCE FEE IN TIME. THEREFORE THE TELEPHONE DEPARTMENT HAS CHARGED THE ASSESSEE WITH INTEREST. IT IS JUST A COMPENSATION FOR UTILISATION OF MONEY OF DEPARTMENT OF TELECOM BY THE ASSESSEE. LD. CIT(A) HAS RIGHTLY DELETED THE DISAL LOWANCE. THIS GROUND OF APPEAL IS REJECTED. GROUND NO. 4 22. IN THIS GROUND OF APPEAL THE GRIEVANCE OF REVEN UE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LICENCE F EES PAID BY THE ASSESSEE. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE ORDER OF ITAT PASSED IN 2001-02 IN ITA NO. 829/D/04. HE D REW OUR ATTENTION TOWARDS PAGE NO. 31 TO 33 OF THE PAPER BOOK. LD. DR WAS UNABLE TO CONTROVERT THE CONTENTION OF LD. COUNSEL FOR THE AS SESSEE. THE TRIBUNAL WHILE DELETING THE DISALLOWANCE HAS MADE THE FOLLOW ING OBSERVATIONS :- 3. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT LD. FIRST APPELL ATE AUTHORITY HAS NOT ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 21 MADE ANY INDEPENDENT DISCUSSION ON THE ISSUE. THE L D. CIT(A) WAS OF THE OPINION THAT FACTS ARE IDENTICAL TO THE FACT OF M/S. BHARTI CELLULAR LTD. AND AFTER EXTRACTING HIS FINDING IN THAT CASE HE UP HELD THE ACTION OF AO IN THE CASE OF ASSESSEE. FROM THE ASSTT. ORDER IT E MERGES OUT THAT ASSESSEE HAD CLAIMED A SUM OF RS. 5 10 72 110/- UND ER THE HEAD VARIABLE LICENCE FEE PAID. THE AO ON A DETAILED A NALYSIS OF THE NATURE OF PAYMENT ETC. HAVE ARRIVED AT A CONCLUSION THAT E NTIRE LICENCE FEE CLAIMED BY ASSESSEE UNDER THE HEAD VARIABLE LICENS E FEE PAID AS REVENUE EXPENDITURE FOR THE YEAR UNDER CONSIDERATIO N IS NOT ALLOWABLE. IN HIS OPINION IT HAS TO BE AMORTIZED OVER THE REMA INING PERIOD OF THE TERM OF LICENSE I.E. 17 YEARS. PROPORTIONATELY HE A LLOWED A DEDUCTION OF RS. 30 04 241/- IN THIS YEAR. IN THIS WAY HE DISALL OWED A SUM OF RS. 4 80 67 869/- AND ON SIMILAR LOGIC INTEREST PAID B Y ASSESSEE ON THIS LICENCE FEE HAS BEEN ADDED BACK. IN THE CASE OF M/S . BHARTI CELLULAR LTD. THE TRIBUNAL HAS MADE FOLLOWING OBSERVATION WH ILE ADJUDICATING THE ISSUE :- 7. IN REGARD TO GROUND NO. 3 IT WAS SUBMITTED BY LEARNED AR THAT THE AO HAD ERRED IN HOLDING THE EXPENDITURE BEING T HE VARIABLE REVENUE SHARING FEE PAID PURSUANT TO THE MIGRATION OF THE ASSESSEE TO THE NEW TELECOM POLICY 1999 AS A CAPIT AL EXPENDITURE. IT WAS THE SUBMISSION THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF MAHANAGAR TELEPHONE NIGAM LTD. REPORTED IN 100 TTJ 1 AS ALSO THE DECISION IN THE CASE OF COMSAT MAX LTD. IN ITA NOS. 728 & 701/DEL/2005. IT WAS THE SUBMISSION THAT THE ASSESS EE HAD PAID LICENCE FEE BY WAY OF REVENUE SHARE AT 15% OF THE G ROSS REVENUE OF THE COMPANY W.E.F. 1.8.99. DURING THE RE LEVANT ASSESSMENT YEAR THE COMPANY HAD ACCEPTED THE MIGRA TION TO THE REVENUE SHARING REGIME. IT WAS THE SUBMISSION T HAT THE PAYMENT MADE BY THE ASSESSEE UNDER THE NEW TELECOM POLICY OF 1999 WAS REVENUE IN NATURE. 8. IN REPLY THE LEARNED DR SUPPORTED THE ORDERS OF AO AND CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE ALS O PERUSED THE ORDER OF THIS TRIBUNAL IN THE CASE OF MTNL REFERRED TO SUPRA. IT IS NOTICED THAT THE BOMBAY BENCH OF THIS TRIBUNAL IN T HE CASE OF MTNL HAS AFTER CONSIDERING THE VARIOUS DETAILS AND SUBMISSIONS OF THE ASSESSEE AND THE REVENUE THEREIN HAS HELD T HAT THE LICENCE FEE WAS PAID ONLY FOR THE USE OF THE RIGHT TO DO THE BUSINESS OF TELECOM PROVIDER. THE SAID RIGHT DID NO T GIVE RISE TO ANY CAPITAL ASSET. FURTHER THE BOMBAY BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS: 8. REVOCATION OF LICENCES THE CENTRAL GOVERNMENT MAY AT ANY TIME REVOKE ANY LICENCE GRANTED U/S 4 ON THE BREACH OF ANY OF THE CONDITIONS THEREIN CONTAIN ED OR IN DEFAULT OF PAYMENT OF ANY CONSIDERATION PAYABLE THEREUNDER. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 22 FROM PERUSAL OF S.8 OF THAT ACT IT IS NOW EVIDENT THAT UNDER THE CIRCUMSTANCES THE LICENCE IS REVOKED THE APPELLANT SHALL NOT BE ABLE TO CARRY ON ITS BUSINES S OF TELEPHONE SERVICES UNLESS IT HAD PAID SUCH A LICEN CE FEE TO THE GOVERNMENT. THE IRRESISTIBLE CONCLUSION THE REFORE WOULD BE THAT PAYMENT OF LICENCE FEE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINES S CARRIED ON BY IT. THE SAME IS THEREFORE AN ALLOWA BLE DEDUCTION U/S 37 OF THE ACT. SINCE THE LIABILITY ST ANDS PAID DURING THE YEAR UNDER CONSIDERATION WE DIRECT THE AO TO ALLOW THE DEDUCTION TO THE APPELLANT. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH THIS TRIBUNAL IN THE CASE OF MTNL REFERRED TO SUPRA WE ARE OF THE VIEW THAT THE VARIABLE REVENUE SHARE LICENCE REVENU E SHARE LICENCE FEE PAID PURSUANT TO THE MIGRATION OF THE A SSESSEE TO THE NEW TELECOM POLICY OF 1999 IS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE AND WE DO SO. IN THE CIRCUMSTANCES AO IS DIRECTED TO DELETE THE ADDITION MADE BY HOLDING THE VARIABLE REVENUE SHARE FEE PAID TO BE CAPITAL EXPENDITURE. IN THE CI RCUMSTANCES GROUND NO. 3 IN ASSESSEES APPEAL STANDS ALLOWED. 11. IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED TH E ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALL OWING THE INTEREST ON THE LICENCE FEE PAID TO THE DOT GOVT. OF INDIA HOLDING THE SAME TO BE CAPITAL EXPENDITURE ON THE G ROUND THAT THE VARIABLE REVENUE SHARING FEE PAID HAD BEEN HELD AS CAPITAL EXPENDITURE. AS WE HAVE ALREADY HELD THAT THE VARIA BLE REVENUE SHARING FEE PAID PURSUANT TO THE MIGRATION OF THE A SSESSEE TO THE NEW TELECOM POLICY OF 1999 IS REVENUE EXPENDITURE CONSEQUENTLY THE INTEREST ON THE LICENCE FEE PAID WOULD ALSO BE IN THE REVENUE FIELD. IN THE CIRCUMSTANCES THE AO IS DIRECTED TO DELETE THE SAID ADDITION AND GRANT THE ASSESSEE BEN EFIT OF THIS EXPENDITURE U/S 37(1) OF THE ACT. IN THE CIRCUMSTAN CES GROUND NO. 4 IS ALLOWED. 4. THERE IS NO DISPARITY OF FACTS IN THE CASE OF AS SESSEE. THEREFORE WE ALLOW BOTH THE GROUNDS OF APPEAL AND DELETE THE DISALLOWANCE. WE DIRECT THE AO TO ALLOW THE CLAIM OF ASSESSEE FOR RE VENUE EXPENDITURE. 23. ON DUE CONSIDERATION OF THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE WE DO NOT FIND ANY DISTINCTION ON FACTS BETWEE N BOTH THE ISSUES. THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED. ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 23 24. IN THE NEXT GROUND OF APPEAL GRIEVANCE OF THE R EVENUE IS THAT LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO GIVE A RELI EF OF ` 14 05 886/-. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FIELD A REVISED RETURN WHEREIN IT HAS CLAIMED EXPENSES OF ` 14 05 886/-. IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS WRONGLY CLAIMED THESE EXPE NSES IN ASSTT. YEAR 2002-03. THESE EXPENSES ARE RELATABLE TO ASSTT. YEA R 2001-02. THE ASSESSEE HAS EXCLUDED THE EXPENSES FROM ASSTT. YEAR 2002-03 AND CLAIMED IN 2001-02. THE AO DID NOT ENTERTAIN THE RE VISED RETURN FILED BY THE ASSESSEE ON THE GROUND THAT ORIGINAL RETURN HAS BEEN PROCESSED U/S 143 (1) OF THE ACT. THEREFORE IT CANNOT REVISE THE RETURN. LD. FIRST APPELLATE AUTHORITY HAS OBVERTED THAT REVISED RETUR N HAS BEEN FILED BY THE ASSESSEE WITHIN THE TIME LIMIT AVAILABLE U/S 13 9 (5) OF THE INCOME TAX ACT. THE INTIMATION U/S 143(1) IS NOT AN ASSTT. OF INCOME. THE AO IS NOT JUSTIFIED IN REFUSING TO TAKE COGNIZANCE OF THE REV ISED RETURN. LD. FIRST APPELLATE AUTHORITY TOOK THE COGNIZANCE OF THE REVI SED RETURN AND ALLOWED THE EXPENSES RELATABLE TO THIS ASSTT. YEAR. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY E RROR IN THE ORDER OF LD. CIT(A). THE REVENUE FAILED TO PLACE ANY EVIDEN CE ON THE RECORD WHICH CAN SUGGEST THAT THESE EXPENSES COULD NOT BE ALLOWED IN THE PRESENT YEAR. AS FAR AS TAKING COGNIZANCE OF THE RE VISED RETURN IS CONCERNED WE HAVE ALREADY UPHELD THE ORDER OF THE L D. CIT(A) IN THE ITA NO. 3167 3309/DEL/05 ASSTT. YEAR 2001-02 24 FOREGOING PARAGRAPH WHILE DISPOSE OFF GROUND NO. 2 OF THE ASSESSEES APPEAL. THE DETAILS OF THE EXPENSES HAVE BEEN PLAC ED ON PAGES IN 56- 57 OF THE PAPER BOOK WHICH HAS BEEN EXAMINED BY THE LD. FIRST APPELLATE AUTHORITY. CONTRARY TO THESE DETAILS NO E VIDENCE HAS BEEN PRODUCED BY THE REVENUE. IN VIEW OF THE ABOVE DISCU SSION THIS GROUND OF APPEAL IS REJECTED. 25. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY 2011. SD/- [B.C. MEENA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.1.2011 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT