Tribunal rules in favor of assessee on various grounds under Income Tax Act

M/s IDEA CELLULAR LTD Versus ADDL COMMISSIONER OF INCOME TAX AND INCOME TAX OFFICER

M/s IDEA CELLULAR LTD Versus ADDL COMMISSIONER OF INCOME TAX AND INCOME TAX OFFICER - TMI Issues Involved:
1. Disallowance of Expenses on Abandoned Projects.
2. Disallowance of Additional Claim under Section 35ABB of the Income Tax Act.
3. Allowability of Revenue Share Expenses under Section 37 of the Income Tax Act.
4. Disallowance of Foreign Exchange Loss.

Detailed Analysis:

1. Disallowance of Expenses on Abandoned Projects:
Facts and Arguments:
The assessee incurred expenses of Rs. 3,94,75,619 on abandoned cell sites, claiming these as business expenditure. The AO disallowed the claim, treating the expenses as capital in nature, arguing they were spent to bring new assets and sources of income into existence. The CIT(A) upheld this view.

Judgment:
The Tribunal noted that the expenses were incurred for the construction of cellular towers for the assessee's existing business, not for a new business. It referred to the Jharkhand High Court decision in CIT Vs. Tata Robins Fraser Ltd., which held that pre-operational expenses on abandoned projects can be treated as revenue expenditure. The Tribunal concluded that since the towers were meant to facilitate the existing business and no new asset came into existence, the expenditure is allowable as revenue expenditure under Section 37(1). The Tribunal set aside the orders of the authorities below and allowed the claim.

2. Disallowance of Additional Claim under Section 35ABB:
Facts and Arguments:
The assessee took over TATA Cellular Ltd and claimed the license fee paid by TATA Cellular Ltd up to December 31, 2000, under Section 35ABB. The AO disallowed the claim as it was made through a letter without filing a revised return. The CIT(A) upheld the AO's decision.

Judgment:
The Tribunal held that the provisions of Section 35ABB(6) allow the amalgamated company to claim the license fee paid by the amalgamating company. It cited the Supreme Court decision in National Thermal Power Corporation Ltd. Vs. CIT, which permits claims to be raised before appellate authorities even if not claimed in the return of income. The Tribunal found that the CIT(A) erred in not admitting the claim and allowed the amortization of the license fee for the entire year under Section 35ABB.

3. Allowability of Revenue Share Expenses under Section 37:
Facts and Arguments:
The assessee did not claim the deduction for revenue sharing expenses in the return but raised it before the CIT(A), who rejected it as it did not emerge from the assessment order.

Judgment:
The Tribunal referred to the Supreme Court decision in National Thermal Power Corporation Ltd. Vs. CIT, which allows new claims before appellate authorities if relevant facts are on record. It cited multiple decisions, including CIT Vs. Bharati Hexacom Ltd., which held that license fees on a revenue-sharing basis are allowable as revenue expenditure. The Tribunal admitted the additional ground and allowed the claim, noting that the CIT(A) erred in not admitting the ground.

4. Disallowance of Foreign Exchange Loss:
Facts and Arguments:
The AO disallowed the foreign exchange loss of Rs. 22,38,39,000, arguing it led to an increase in liability towards loan repayment, thus treating it as a capital item. The CIT(A) allowed the claim, following precedents including the Supreme Court decision in UPSIDC.

Judgment:
The Tribunal noted that a similar issue was decided in favor of the assessee for A.Y. 1998-99, allowing the foreign exchange loss as revenue expenditure. It cited the Supreme Court decision in CIT Vs. Woodward Governor India P. Ltd., which supports treating such losses as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's appeal, emphasizing consistency in treatment across assessment years.

Conclusion:
The Tribunal allowed the assessee's appeal on all grounds, treating the expenses on abandoned projects and revenue share expenses as revenue expenditure and allowing the additional claim under Section 35ABB. It also upheld the CIT(A)'s decision to allow the foreign exchange loss as revenue expenditure, dismissing the revenue's appeal.