2019 (3) TMI 163 - AT - Income Tax

ITAT allows depreciation on 3G spectrum acquisition costs, citing no right to operate telecom services

The ITAT allowed the appeals by the assessee, upholding the allowance of depreciation on the fees paid for the acquisition of 3G spectrum. The ITAT ... Revision u/s 263 - disallow the claim of the assessee u/s. 32(1) - amount paid DOT for purchase of 3G spectrum and restricting the allowance being proportionate amount as applicable for the year as per provisions of section 35ABB - HELD THAT:- No response from the Pr. CIT has been received on this issue, has no relevance for the adjudication before us. We find that the ITAT in the case of Idea Cellular Limited (2017 (12) TMI 660 - ITAT MUMBAI) on same issue has concluded that the assessee was entitled to depreciation. 3G Spectrum was not applied or allotted, assessee could have still continued providing telecommunication services under existing license. The license to operate telecom services is issued u/s. 4 of the Indian Telegraph Act, 1885 which provide rights to establish and operate telecom services. As stated above, without such license one is not ever eligible to bid for 3G Spectrum. 3G Spectrum fees are merely for right to use a particular frequency/spectrum while providing telecommunication services. Even the provisions of section 35ABB of the act are not applicable to such payment In view of these facts, we are of the view that the assessee is entitled for claim of depreciation on merits also and AO has rightly allowed the claim while framing assessment under section 143(3) of the Act and the revision order of CIT Under section 263 of the Act is bad in law - Decided in favour of assessee. Issues involved:Appeal against orders of CIT under section 263 for AY 2011-12 & 2012-13; Justification of CIT's order; Depreciation claim u/s. 32 of the Income Tax Act; Applicability of Section 35ABB; Allowance of depreciation on fees paid for 3G spectrum acquisition.Analysis:The judgment pertains to appeals by the assessee against the orders of the Commissioner of Income Tax-8, Mumbai, under section 263 for the assessment years 2011-12 & 2012-13. The common issue raised was the justification of the CIT's order under section 263 of the Act. The CIT had passed orders disallowing the depreciation claim u/s. 32 of the Act related to the intangible asset of the assessee. The CIT directed the Assessing Officer to disallow the claim u/s. 32(1) and consider it under section 35ABB if claimed. The assessee contended that the issue was favorably decided by the ITAT Mumbai Bench in a similar case involving Idea Cellular Limited. The ITAT concluded that the assessee was entitled to depreciation on the 3G spectrum. The ITAT's decision highlighted that the expenditure on the 3G spectrum was not for acquiring the right to operate telecommunication services, and thus, depreciation was justified.In the subsequent assessment year, the CIT(A) allowed the depreciation claim for the assessee based on the ITAT's decision in the Idea Cellular Limited case. The CIT(A) held that the assessee rightly claimed depreciation on the fees paid for the acquisition of 3G spectrum. The judgment emphasized that the fees for 3G spectrum were for the right to use a particular frequency while providing telecommunication services, and hence, the provisions of section 35ABB were not applicable. As there was no contrary decision presented, the ITAT quashed the CIT's order under section 263 of the Act, following the precedent set by the earlier decisions in favor of the assessee.Therefore, the ITAT allowed the appeals by the assessee, highlighting that the issue was squarely covered in favor of the assessee by previous decisions, and there was no contrary decision to consider. The ITAT upheld the allowance of depreciation on the 3G spectrum acquisition fees, emphasizing the legal entitlement of the assessee to claim depreciation under section 32 of the Act.