TaxTMI 
TaxTMI 
2017 (12) TMI 660
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....ing to Rs.420.76 crores on the 3G Spectrum cost claimed by the assessee under section 32(1) of the Act and further directing the AO to instead allow deduction under section 35ABB of the Act on the ground that the 3G Spectrum was only an extension of the original license for operating telecom services and not a separate intangible asset. For this assessee raised jurisdictional issue as well as on merits by these following grounds:- "GROUND NO. I On the facts and circumstances of the case and in law, the Learned Pr.CIT erred in invoking the provisions of section 263 of the Act and directing revision of the assessment order passed under section 143(3) of the Act by the Deputy Commissioner Of Income Tax-3(2), Mumbai("the AO")on the alleged ground that the said assessment order was erroneous and prejudicial to the interest of the revenue. The Appellant prays that it be held that the action of the Learned Pr. CIT in invoking provisions of section 263 of the Act and directing the AO to pass a fresh assessment order to be held to be ab-initio and/or otherwise void and bad in law. WITHOUT PREJUDICE TO GROUND NO. I GROUND NO.II: On the fa....
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....(1) of the Act along with questionnaire dated 06.08.2012 was served and complied by the assessee. The AO after detailed examination and enquiry of various issues, passed the Assessment Order under section 143(3) of the Act dated 27.03.2014 assessing the total income at Rs. 10,78,68,58,038/- allowing TDS credit of Rs. 1,67,70,59,052/-. The Pr.CIT, subsequently, issued show cause notice on two issues for revision of assessment under section 263 of the Act. The show cause notice was issued on the following two issues:- i) The claim of depreciation @25% on the amount paid being 3G-Spectrum Band License Fee allowed by the AO is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Sec. 263 of the Act, and: ii) The claim of financial lease with M/s IBM Ltd for IT outsourcing as an operational lease & has accordingly claimed deduction u/s 37(1) of the Act on the repayment made by it during the year which includes the principal amount of Rs. 241,42,20,509/-, apart from the interest paid by the assessee pertaining to the principal amount, which is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of....
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....ase of English Indian Clays Ltd. 331 ITR 219 (Ker.) has held that a lack of proper enquiry by the Assessing Officer will render the order erroneous and prejudicial to the interest of the Revenue. Reliance is also placed oil Delhi High Court decision in the case of CIT vs. Goetze (India) Ltd. in ITA No. 1179/2010, order dated 09.12.2013, wherein HC observed that CIT had given specific reasons behind treating Assessing Officer's order as prejudicial and erroneous. HC rejected assessee's contention that power u/s 263 could not be invoked since the Assessing Officer had taken a probable view, which may be debatable and not acceptable to the Revenue. HC remarked that the order of CIT could not be set aside only on the ground that two views were possible or probable, but CIT had recorded how the order of Assessing Officer was erroneous and prejudicial to interests of revenue. Order of the CIT could be set-aside only if findings accorded by CIT were incorrect or if order of Assessing Officer was not prejudicial to interest of Revenue. HC observed that CIT could examine the issue on merits even when the same was examined by Assessing Officer and that principles of 'change of op....
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..... Similarly, the Chandigarh ITAT in the case of M/s Ind Sphinx Precision Ltd by an order dated November 10, 2006, has held that the Assessing Officer has passed the order without giving any reasons for accepting the contentions of the assessee, the Commissioner well within his jurisdiction to invoke section 263 as the Order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue, though the Assessing Officer has passed the order after taking a possible view. Reliance in this regard is also placed in the Kerala High Court Judgement in the case of Bhatsons Acquatic Products 329 11'R 67 (Ker). 4.2.iv. It has been held by the Calcutta High Court in the case reported in 31 ITR 872 that if the decision of the Assessing Officer is not in accordance with the law, the same can be revised by the Commissioner of Income-tax u/s 263. It has been held by Honorable ITAT, Mumbai Bench 'A', Mumbai in the case of Sterling construction & Investment Vs. Asstt. Commissioner of Income Tax 79 lTD 299(Mum) that when assessment order was based on incorrect assumption of facts and incorrect application of law the order was erroneous and prejudicial to the in....
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.... be claimed as an intangible asset. The assessee has claimed that without prejudice to above the entire expenditure can be claimed as business expenditure u/s.37(i) of l.T. Act. Firstly, the assessee has not made such claim in the return and secondly only expenditure incurred wholly and exclusively for the purpose of business of the relevant year is allowable u/s.37 of the l.T. Act. 4.3.iv. Thus the assessing officer wrongly allowed depreciation to the assessee on the cost of spectrum instead of allowing 1/20th of the Capital expenditure incurred as per provisions of section 35ABB of the IT Act. Thus order of Assessing Officer is erroneous in so far prejudicial to interest of revenue therefore the order passed by AO under revision is set aside to this extent. The AO is directed to allow 1/20th of the spectrum fees against the claim of the assessee as per provision of section 35ABB of the IT Act after allowing opportunities of being heard to the assessee." Aggrieved, assessee is in appeal before Tribunal. 5. Before us, Sh. J.D. Mistry Ld. Senior Counsel for the assessee narrated the facts of the case that coming to the Order under review, the AO has conducted the deta....
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....ate cellular telephone services. These licenses are technology neutral; they are required to provide access services and meet the stipulated roll-out obligations using wire line and wireless technologies by utilizing network equipment that meets the prescribed standards. He further explained that the New Telecom Policy 1999 of the Government of India ("NTP-99") recognised that with proliferation of new technologies and growing demand for telecommunication services, the demand on spectrum had increased manifold. It laid down as one of its objectives that spectrum be utilized efficiently, economically, rationally and optimally. It recognised that there was a need for a transparent process of allocation of frequency spectrum for use by a service against payment of spectrum usage fee. Pursuant to the NTP-99, the Government separated Cellular Licenses from spectrum. Accordingly, in addition to the licenses, the operators had to separately acquire spectrum from the Government. With the objective of Spectrum Management, the Department of Telecommunication ("DOT') invited applications to allot the rights to use certain specified radio spectrum frequencies in the 2.1 GHZ band (the "3....
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....Bidders is distinct from the UAS/CMTS license of the awardees. This is also evident from the individual Letters of Intent ("LAM") issued by the WPC Wing for earmarking spectrum frequency in the respective service areas submitted to the AO with assessee's letter dated 04.03.2014, since each LOI specifically states that "It is not a license". 8. Ld. Counsel took us trough Clause 3.6 of the Notice, which specified that 3G Spectrum will be allotted for 20 years unless it is revoked or surrendered, provided the allottee continues to have the telecom license and this clause further points out that Spectrum is distinct from telecom license. Under Clause 3.4 of the Notice, the respective licensee who is awarded spectrum had an obligation to roll-out mobile telephone services as per the conditions specified there under. Thus, it is only with the earmarked spectrum that the awards can render services. Clause 3.7 of the Notice lays down the consequences on breach, revocation and surrender of the allotted spectrum. Under this clause, the telecom operator may surrender the spectrum, by giving notice of at least 60 calendar days in advance. In that case, it shall also notify all its customers....
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....ight of the telecom operator. As to what constitutes a "business or commercial right" is explained by several decisions. 10. In view of the above facts of the case, legal and grounds on merits, Ld Counsel for the assessee framed the following propositions:- (i) When two views are possible and the AO has taken one of the possible view, which resulted in loss of revenue, the order cannot be treated as 'erroneous' for the purposes of section 263 of the Act. (ii) Both conditions of section 263 of the Act i.e. the assessment order is 'erroneous' and 'pre-judicial to the interest of the Revenue' are conjuctive. (iii) On merits also the assessee is entitled to depreciation for the reason that any right obtained for carrying on the business effectively and profitably falls within the meaning of intangible asset. (iv) Lastly, in any case, 3G spectrum cost be allowed as expenditure under section 37(1) of the Act. 11. The learned Counsel for the assessee explained first two proposition that the provisions of sub-section (I) of Section 263 of the Act, the jurisdiction of revision can be exercised only the above two conditions are satisfied. He further ....
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....m the above facts it is clear that AO has conducted detailed examination of the issue involved, made enquiries as is cleared from documents asked for and replies filed by the assessee . The AO has applied his mind to the facts on the issue and allowed depreciation on the 3G Spectrum Band License fee paid by assessee while framing assessment under section 143(3) of the Act. We have gone through the judgments cited by the learned Counsel of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), wherein, Hon'ble Supreme Court held that a bare reading of section 263 of the Act makes it clear that the prerequisite to exercise of jurisdiction by the CIT is that the order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. Hon'ble Supreme Court observed as under: - "The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the cour....
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....o the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been c....
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....om spectrum. Accordingly, in addition to the licenses, the operators had to separately acquire spectrum from the Government. With the objective of Spectrum Management, the Department of Telecommunication ("DOT') invited applications to allot the rights to use certain specified radio spectrum frequencies in the 2.1 GHZ band (the "3G Spectrum band") and in the 2.3 GHZ band (the BWA Spectrum band") by means of auctions in various telecom service areas in India. The Notice inviting Applications dated 25.02.2010 ("the Notice"), which is available in public domain, sets out the objectives of the spectrum auction. We also find from the term and conditions of spectrum auction details that as per the Clause 2.1 of the Notice specified that under the auction process, the Successful Bidders would be granted the right to use spectrum at specified frequencies for 20 years from the date of award of right to commercially use the allocated spectrum block. However, it also directed that mere awarding of spectrum did not confer a right to provide mobile telephone services on the awardee, successful bidders also needed to acquire UAS/CMTS license for the awarded service areas. 16. We also obse....
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.... Accordingly, assessee claimed depreciation on the cost of 3G Spectrum under the provisions of section 32 of the Act by treating it as intangible assets. The details of cost capitalised and depreciation thereon are available in Annexure 2 of Form No. 3CD (i.e. Tax Audit Report) submitted to the AO. 18. In view of the above facts, we find that Revenue now before us could not controvert the facts narrated by the learned Counsel for the assessee. The learned CIT Departmental Representative ('DR'), merely relied on the revision order passed by CIT. But, we find that the assessee capitalized one time spectrum cost under the block of "intangible Assets" from the financial year 2010-I1 and any additional cost incurred on successful bidding in the auction of spectrum is also added to the WDV of the said block and claimed depreciation on WDV subject to the conditions of section 32 of the Act. This is in compliance with the method of charging depreciation under the Block of Asset concept applicable from 01.04.1988. The spectrum allotted for 20 years does not change its nature under the Act and once an asset qualifies to be an "Intangible Asset", depreciation is to be allowed under section....
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....has come to the conclusion that the authorised representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. 7. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the ass....