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Issues: (i) Whether the revisionary jurisdiction under section 263 could be invoked in respect of the assessment allowing depreciation on 3G spectrum cost; (ii) Whether the cost of 3G spectrum was entitled to depreciation as an intangible asset under section 32(1), or was instead to be amortised under section 35ABB.
Issue (i): Whether the revisionary jurisdiction under section 263 could be invoked in respect of the assessment allowing depreciation on 3G spectrum cost.
Analysis: The assessment order was passed after scrutiny, enquiry and consideration of the assessee's explanations and supporting material. Revision under section 263 requires the order to be both erroneous and prejudicial to the interests of revenue. Where the Assessing Officer has taken one of the permissible views after enquiry, the mere fact that the Commissioner prefers another view does not justify revision. The record showed application of mind by the Assessing Officer, and the impugned revision was based essentially on a different opinion on the tax treatment of the spectrum cost.
Conclusion: Invocation of section 263 was not sustainable and was against the assessee.
Issue (ii): Whether the cost of 3G spectrum was entitled to depreciation as an intangible asset under section 32(1), or was instead to be amortised under section 35ABB.
Analysis: The spectrum was allotted for a specified period under an auction process, but it was distinct from the telecom licence. The allotment conferred a right to use identified spectrum frequencies for business purposes, and the assessee used that right in its telecom operations. Such a right constitutes an intangible/commercial asset for the purposes of section 32(1). The payment was not for acquiring the underlying telecom licence itself, so section 35ABB did not govern the claim. The depreciation claim was therefore consistent with the Act.
Conclusion: Depreciation under section 32(1) was allowable and the alternative treatment under section 35ABB was not applicable, in favour of the assessee.
Final Conclusion: The revision order was quashed and the depreciation claim on 3G spectrum cost stood upheld, with the assessment order remaining undisturbed.
Ratio Decidendi: Revision under section 263 cannot be sustained where the Assessing Officer has adopted a permissible view after enquiry, and a separately acquired right to use spectrum frequency for business constitutes an intangible asset eligible for depreciation under section 32(1).
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