TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 474
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....addition of Rs. 1,23,75,65,807- made on account of disallowance interest on loan and respectively erred in deleting the addition of Rs. 1,07,50,16,411/- on account of disallowance of depreciation on telecom towers. 4. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs. 31,03,91,544/- made on account of disallowance of IRU charges to the extent of Rs. 3,87,51,992/-." I.T.A. No.1040/DEL/2014 "1. That in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in disallowing an amount of Rs. 3,87,51,992/- towards Indefeasible Right to Use ('IRU') charges while holding the said amount to be excessive and unreasonable, without appreciating that the entire amount of IRU charges claimed were duly confirmed by the recipient parties u/s 133(6) of the Act. 1.1. That the Ld. CIT (A) erred in not appreciating the relevant clauses of IRU agreement(s) wherein it was categorically stated that the Appellant was bound to pay fixed monthly amount for IRU charges irrespective of the number of telecom sites leased. 2. That the Ld. CIT(A) erred in treating loan processing fee of Rs. 21,87,50,000/- which is reve....
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....ellaneous application seeking extension of time for completion of the assessment till 30.09.2011. The Hon'ble High Court extended the time period for the completion of the assessment upto 31.08.2011 vide its order dated 03.06.2011. During the year under consideration, the assessee has claimed an expenditure of Rs. 9,79,20,569/- mainly 011 account of foreign exchange loss which is debited to the P&L a/c considering it as revenue in nature. To ascertain the actual nature of the expenditure, the assessee was asked to furnish the actual nature of expenditure and as to why the same should not he treated as capital expenditure, provided it relates to the acquisition of the capital asset. The assessment order was passed by the Assessing Officer thereby assessing loss of (-) Rs. 292, 27,98,604/- after making following additions/disallowances as under:- S. No. Particulars Amount (in Rs.) 1 Foreign exchange fluctuation loss 9,05,76,526 2 Gratuity payments 42,25,273 3 Net accrual of equalization reserve 30,32,30,226 4 Capitalization of interest on loan 123,75,65,807 5 Depreciation on telecom towers 107,50,16,411 6 IRU charges 31,03,91,544 7 Depreciation o....
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....arge its onus to prove that the expenditure in respect of so called gratuity can be said to have been incurred wholly and exclusively for business purposes. Therefore, the Assessing Officer rightly disallowed this deduction. The Ld. DR further submitted that the CIT(A) erred in holding that this was a contractual obligation, hence allowable u/s 37(1). The CIT(A) erred in holding that each and every contractual obligation is wholly and exclusively for business purposes. The CIT(A) erred in not appreciating that the Assessing Officer appreciating the relevant evidences returned a logical and implicit finding that the expenditure in respect of so called gratuity cannot be said to have been incurred wholly and exclusively for business purposes. The CIT(A) has not found that the said finding in perverse or in the process of reaching the said finding principles of natural justice has not been followed. The CIT(A) erred in not appreciating that the reading of Section 36(1)(v), in light of whole scheme of computation of income from profits and gains of business or profession, deductions in respect of payment of gratuity in lieu of period of service rendered with an employer is not allowed ....
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....sferred from Bharti, Vodafone and Idea group companies, period of employees' continuous service and the amount of gratuity paid were duly furnished before CIT(A). The CIT(A) called for the remand report and the Assessing Officer has not pointed out any fault with the evidence produced by the assessee. In present case, gratuity was actually paid. The Ld. AR relied upon the decision of the Hon'ble Madras High Court in case of CIT vs. Premier Cotton Spg. Mills Ltd. (2003) 131 Taxman 79 (Mad.) wherein it was held that if the entire amount is not allowable under section 36(1)(v), the balance amount would necessarily have to be allowed as a business expenditure under section 37 of the Act and also that section 40A(7) of the Act has no application when there was an actual payment to an approved gratuity fund. Thus, Ground No. 1 of Revenue's appeal is dismissed. 8. As regards Ground No. 2 of Revenue's appeal, the Ld. DR submitted that during the year the assessee debited an amount of Rs. 16,21,45,355/- to the P&L Account under the head lease equalization reserve which is part of the lease rent to be paid or payable to the owner of the premise on which telecom sites (towers) are installed.....
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....h's notice to the owner to terminate the agreement. Thus, liability to pay increased payments is contingent upon use of the premises in future. Thus additional expenditure representing lease equalization reserve is a notional expense not allowable under Section 37 of the Act. The Ld. AR relied upon the decision of the Hon'ble Supreme Court in case of CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) and also relied upon the decision of the Hon'ble Apex Court in case of Godhra Electricity Co. Ltd. (1997) 91 Taxman 351 (SC). The Ld. AR relied upon the following judicial decisions:- i) CIT vs. Reliance Industrial Infrastructure Ltd. (2015) 234 Taxman 256 ii) CIT vs. Bilahari Investment (P.) Ltd. (2008) 299 ITR 1 (SC) iii) CIT vs. Realest Builders & Services Ltd. (2008) 307 ITR 202 (SC) iv) CIT vs. Excel Industries Ltd. (2013) 358 ITR 295 (SC) v) CIT vs. Vishnu Industrial Gases Pvt. Ltd. (ITR No. 229/1988 [Del. Tri.]) vi) CIT vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Del) vii) CIT vs. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) 10. We have heard both the parties and perused all the relevant material available on record. From the perusal of records it can be seen t....
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.... a particular tower was disbursed only after the construction of site was over which was already handed over to the telecom companies for business operations, is not supported by any material evidence. In fact, assessee has not mentioned any material to suggest that separate loan taken for construction of a particular tower. AS 16 defines a borrowing cost to be interest and other costs incurred by an enterprise in connection with borrowing of funds with reference to a qualifying asset. The term borrowing implies mobilizing of funds which are returnable. The plea of the assessee is based upon the implied statement that the loan was taken for each and every tower, separately after it was constructed, capitalized and put to use. The order of CIT(A) erred in not discussing evidence indicating this fact. In fact, the CIT(A) has accepted additional evidences in form of Ready For Active Installation (RFAI) Certificate in respect of 114 sites as a sample as submitted by the assessee. There is nothing in the order of the CIT(A) to show that these RFAI certificates indicate that each and every tower constructed during the year was up to use. It shows non-application of mind on the part of th....
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....uppliers for various material and services while erection and commissioning of telecom sites normally takes approx. 45 days for being ready to use is correct as per the records submitted before the CIT(A). Accordingly, a telecom site is ready to use even before the suppliers are paid. Hence no loan needs to be drawn when the site is under construction. Details of 14,484 self-constructed towers were submitted as additional evidences before CIT(A) and sample RFAI certificates were furnished to CIT(A). Thus, after going through the evidence, the CIT(A) arrived at a proper finding and correctly deleted this addition. There is no need to interfere with the findings of the CIT(A). The case laws relied upon by the Ld. DR is factually different from the present assessee's case as well as the ratio laid down does not apply. Therefore, Ground No. 3 of the Revenue's appeal is dismissed. 14. As regards to Ground No. 4 of the Revenue's appeal and Ground No. 1 of assessee's appeal, the Ld. DR submitted that the assessee had taken 79,239 telecom sites towers under Indefeasible right to use agreement from Bharti, Vodafone and Idea w.e.f. 01.01.2009 and total indefeasible right to use charges incu....
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....even when more towers were to be added. Amount paid as confirmed by various parties is no case less than amount as per IRU agreement and in most cases same as stated in IRU agreement. The Assessing Officer in his notice u/s 133(6) did not ask for number of tower confirmation. The Assessing Officer only asked for amount confirmation. In fact as per Table 1, page 44 of the CIT (A) order, there was excess confirmation of Rs. 75,41,467 by various vis-à-vis IRU agreements. There are cases where parties have confirmed more towers than as per IRU agreement. Similar clauses are present in other IRU agreements. 16. We have heard both the parties and perused all the relevant material available on record. The assessee had taken 79,239 telecom sites towers under Indefeasible right to use agreement from Bharti, Vodafone and Idea w.e.f. 01.01.2009 and total indefeasible right to use charges incurred by the assessee for 3 months i.e. from 01.01.2009 to 31.03.2009 was Rs. 268.20 crore which has been debited in P & L account claiming it as allowable expenditure. Notices u/s 133(6) were issued to all parties so as to confirm the number of towers being given on IRU agreement to the assessee,....
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....in this assessment year. The aforesaid expense has been incurred for getting the finance for normal business operations and does not provide any enduring benefit to the assessee. Business need funding from time to time and thus this expense is routine business expense claimed as revenue in nature. In fact, CIT(A) gave finding with respect to disallowance of interest and depreciation that "none of the loans related to incomplete towers shown as CWIP as the appellant has yet to make payment for such suppliers" i.e. loans were not utilized for construction of telecom towers. In view of this finding, expense related to loan cannot be capital in nature and allowable as revenue expenditure. Alternatively, the upfront fees paid to banks is in the nature of interest under Section 2(28A) of the Act which has very wide definition of interest and "includes any service fee or other charge in respect of the moneys borrowed or debt incurred". The Ld. AR relied upon the decision of the Hon'ble Delhi High Court in case of CIT vs. Gujarat Guardian Ltd. (2009) 177 Taxman 434 (Del) and also CIT vs. Bharti Telenet Ltd. & CIT vs. Bharti Infotel Ltd. in ITA Nos. 1110/2011, 386/2012, 387/2012 and 193/201....