TaxTMI 
TaxTMI 
2022 (12) TMI 28
X X X X Extracts X X X X
X X X X Extracts X X X X
....led on facts and in law to appreciate that the DRP, Delhi for in assessee's own case for A.Y. 2066-07 has held that the business of the assessee started in F.Y. 1994-95 relevant to A.Y. 1995-96. 3. The Learned CIT(A) erred on facts and in law in allowing assessee's grounds of appeal pertaining to deduction u/s. 80IA without appreciating that the claims of the assessee in this regard were inadmissible in view of the commencement of assessee's business prior to A.Y. 1996-97. 4. Whether on the facts & circumstances of the case and in law, the Learned CIT(A) is justified in holding that losses of earlier years, already set off against other income cannot be set off for determining the quantum of deduction u/s. 801A. 5. Whether on the facts & circumstances of the case and in law the Learned CIT(A) failed to appreciate that quantum of deduction u/s. 80IA is required to be computed as if the eligible business were the only source of income during the every assessment year for which such determination is to be made. 6. Whether on the facts & circumstances of the case and in law, the Learned CIT(A) erred in deciding the eligible years for claiming deduction u/s. 80IA....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w.s. 263 of the Act. Thereafter, the assessee carried the issue in second appeal before the Tribunal. The Mumbai Bench of Tribunal vide order dated 03/04/2013 set aside the order of CIT(A) dated 13/10/2011 and directed the Assessing Officer to make fresh assessment. The Assessing Officer in third round passed fresh assessment order u/s. 143(3) r.w.s. 263 r.w.s. 254 of the Act dated 29/11/2013. In the third assessment order, the assessee's claim of deduction u/s. 80IA was again disallowed. The assessee challenged the validity of assessment order dated 29/11/2013 in Writ Petition No. 3359 of 2013before Hon'ble Bombay High Court. The Hon'ble Bombay High Court quashed the assessment order dated 29/11/2013 and directed the Assessing Officer to make fresh assessment after affording opportunity of hearing to the assessee. The Assessing Officer in fourth round passed the assessment order u/s. 143(3) r.w.s. 263 r.w.s 254 of the Act on 05/03/2014 rejecting assessee's claim of deduction u/s. 80IA of the Act. Aggrieved by the said assessment order the assessee filed appeal before the CIT(A). The First Appellate Authority vide order dated 21/06/2017 allowed assessee's claim of deduction....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Accountants clarifying that the date in Form 10CCAB for 2005-06 be read as November, 1995. The subsequent certificate issued by Chartered Accountants (at page 248 of the assessee's paper book) is an after-thought and a self-serving document to avail the benefit of section 80IA of the Act. The Auditors have to verify the facts first hand before certification. In the instant case, the Auditors have issued the certificate on mere asking of the assessee without examining the documents on record. The certificate issued by the Auditors for Assessment Year 2005-06 is contrary to the audit report in Form 10CCB for Assessment Year 2006-07. The subsequent certificate issued by Auditors is not reliable and hence, has to be discarded at the outset. The ld. Departmental Representative asserted that as per Rule 18BBB of the Income Tax Rules, 1962 (in short 'the Rules'), the assessee eligible to claim deduction u/s. 80IA has to furnish certificate from Auditor in Form 10CCB from assessment year relevant to financial year in which the assessee commences the eligible business. The Rules does not specify that Form 10CCB is required to be filed only in the year of claim of deduction. The assessee n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... name of assessee at time of launch of telecommunication services) the year of commencement of cellular services & paging services is mentioned as 1994. The ld. Departmental Representative pointed that as per the information on the web portal the assessee had launched "Max Torch" cellular services in Mumbai in 1994. He asserted that in the information available in public domain the assessee throughout has claimed itself that business operations commenced in 1994. 4.5 The ld.Departmental Representative next referred to the license agreement dated 29/11/1994 at pages 72 to 111 of the Assessee's Paper Book-I. He pointed that the effective date mentioned in the said agreement is 29/11/1994. The term effective date means the date on which the assessee is ready to start operations. The ld. Departmental Representative in support of his contentions also referred to the report published by Telecom Commission on 06/12/2000 on Radio Paging Services. He pointed that as per the said report, the first radio paging services were started in Chandigarh in March, 1995. The ld. Departmental Representative further referred to information furnished by the assessee during assessment proceedings for Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of that business started or when all steps necessary to obtain business are made. The assessee entered into license agreement, made advertisement expenses, started trading in pagers, acquired equipments& machinery in Financial Year 1994-95, hence all these activities clearly indicate that the business of assessee commenced in period relevant to Assessment Year 1995-96. The ld. Departmental Representative placed reliance on the following decisions to support his argument: (i) CIT vs. ESPN Software India Pvt. Ltd. 301 ITR 368 (Delhi); (ii) CIT vs. Saurashtra Cement & Chemical Inds. Ltd., 91 ITR 170 (Guj); (iii) CIT vs. E Funds International India, 162 Taxaman 1 (Delhi); and (iv) Jcdecaux Advertising India (P) Ltd. vs. DCIT, 49 taxmann.com 149 (Del-Trib.) 4.8 The ld.Departmental Representative without prejudice to his primary submissions made alternate submission, that the assessee has violated the provisions of section 80IA(2) of the Act. The assessee has claimed deduction u/s. 80IA of the Act in respect of the business that has emerged out of merger/reconstruction of the two divisions i.e. "Max Torch" and "Max Page"i.e. cellular business and paging business, respectiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5-96 dated 09/03/1998 (at page 226 of Assessee's Paper Book-1). In assessment year 1995-96 the assessee had made a claim that the assessee's business was set up during the Financial Year 1994-95 relevant to assessment year 1995-96. The Assessing Officer rejected the claim of assessee and observed in para 6 of the assessment order that "the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995". Though the assessee had filed appeal against the said assessment order before the CIT(A), however, the same was withdrawn thus, the assessee accepted the assessment order. The assessment order attained finality. 5.1 The ld.Counsel for the assessee stated that admittedly the agreement was executed between Hutchison Max Telecom(predecessor of the assessee) and the Department of Telecommunications on 29/11/1994 (at page 72 of the Assessee's paper book -1),but the assessee started providing services much later. After execution of agreement there were several other compliances to be made, including installation of towers, assigning of radio frequency, inter phase service approval, final clearance f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessing Officer in assessment order for assessment year 1995-96, wherein the Assessing Officer had held that the assessee's business was not set up by 31/03/1995. The ld. Counsel for the assessee referred to the questionnaire issued by the Assessing Officer in assessment year 1995-96, wherein specific queries were raised with respect to details of the commencement of paging cellular services by the assessee in each of the territory including the details of starting of pilot services. The Assessing Officer further asked the assessee to file detailed technical note on the machinery equipment and the installation requirement for operating and paging and cellular services and the details of the software required for operating these services. The Assessing Officer after considering reply of the assessee came to the conclusion that the business of the assessee was not set up till 31/03/1995. In support of his submissions the learned counsel also draws our attention to the assessment order dated 29/01/1999 for assessment year 1996-97 (at page 234 of the paper book-1), wherein the Assessing Officer has categorically recorded that "cellular services had started on 16/11/1995 and paging ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ended 31/03/1995 at page 38 of the paper book, wherein the Auditors have mentioned that no profit and loss account has been prepared for the year ended 31/03/1995 as the company has not commenced commercial services. 5.5 The ld.Counsel for the assessee referred to the approval granted under section 10(23G) of the Act by Central Board of Direct Taxes dated 21/04/2006(at page 218 of the assessee's paper book-1). Before granting approval investigations were carried out by the Department. The aforesaid approval was granted for the period starting from 01/08/2000 to 31/03/2006. The approval was in respect of investment made on or after 01/06/1998. The CBDT vide said approval held Cellular Mobile Telephone Services provided by assessee as eligible business under Section 80IA(4)(ii) of the Act. 5.6 On the objections raised by the Department with respect to non-mentioning of date of commencement of business in Form 10CCB for assessment year 2005-06 and mentioning of November, 1994 as the date of commencement in Form 10CCB for assessment year 2006-07, the ld.Counsel for the assessee submits that nonmention of date of commencement in Form 10CCB for assessment year 2005-06 and mentioning o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar 5 of 2005 dated 15/7/2005 and the findings of the CIT(A). 5.10 As regards additional evidences filed by the Department, the ld.Counsel for the assessee strongly objected to the admission of additional evidences. The ld.Counsel for the assessee submits that the assessment order for assessment year 2005-06 was made four times. The matter travelled to and fro between Assessing Officer and CIT(A), the Department never thought fit to furnish the additional evidences either during assessment proceedings or during the first appellate stage in four rounds. No reason whatsoever has been given by the Department for not submitting additional documents during the course of assessment proceedings. Now, additional evidences at thisbelated stage should not be admitted. The Revenue cannot seek re-examination of the entire issue by placing reliance on additional documents which were never part of record in earlier four rounds of litigation. 5.11 In respect of alternate claim of the Department that if at all deduction u/s. 80IA is to be allowed to the assessee it should be allowed @ 30%, the ld.Counsel for the assessee placed reliance on CBDT Circular No.1 of 2016 dated 15/02/2016. 6. Rebuttin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nefit under the said section. FINDINGS: 7. We have heard extensive submissions made by rival sides and examined the orders of authorities below. We have also considered various documents and decisions on which the respective sides have placed reliance in support of their arguments. 8. The assessment for assessment year 2005-06 has a chequered history of a protracted litigation. The assessee claimed deduction u/s. 80IA of the Act in respect of profits and gains derived from telecommunication service in AY 2005-06 for the first time. The claim of the assessee was initially allowed by the Assessing Officer in order dated 03/09/2007 passed u/s. 143(3) of the Act. The CIT invoked revisional jurisdiction u/s. 263 of the Act on the ground that the Assessing Officer without examining the claim has allowed the benefit of deduction u/s. 80IA of the Act to the assessee, hence, the assessment order was set aside. The Assessing Officer in second round passed the assessment order u/s. 143(3) r.w.s. 263 of the Act dated 30/12/2010 disallowing assessee's claim of deduction u/s. 80IA of the Act. In the meantime, the assessee had also challenged the validity of order passed by CIT u/s.263 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....95 or thereafter; and (ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act . 10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 01/04/1995. 11. Before proceeding further to decide this issue, it would be imperative to refer to the provisions of section 80 IA(4)(ii) of the Act. The relevant extract of the same are reproduced herein below: Section 80IA(4)(ii) "(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005." 12. The Department in order to prove that the assessee started providing telecommunication services which includes radio paging services and cellular telephone services inter-alia placed reliance on following documents: (i) Form ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts relevant to the issues and the submissions made by the assessee, it is held that the assessee's business was not set up in 1992. It is also held that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995. The reasons for holding so are discussed below: A. xxxxx B. xxxxx C. xxxxx D. The nature of the business of the assessee is such that it requires a large scale development of highly sophisticated communication equipment. These equipments could be operationalised only after developing the requisite software for that area. There is no evidence provided by the assessee company on record to show that necessary equipments and the required software was installed by the assessee on31/03/1995. It is pertinent to note that even the pilot services for cellular telephone and the paging services were started 2 to 4 months after the closure of the previous year under consideration. This means that the required equipments and software were installed by the assessee only after 2 to 3 months of the closure of the previous year in question." [Emphasized by us] The assessee f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entioned that a separate licence shall be required from the WPC Wing of Ministry of Communication which will permit utilisation of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone services. As is evident from permits/assignment letters from the DoT referred above it is evident that the said permissions/clearances were granted to the assessee after 01/04/1995. In so far as radio paging services is concerned the assessee received Interface/Service approval Certificate for the seven cities (Telecom District) in the month of April/May 1995. The date-wise details of the same are tabulated herein below: Date Telecom District 31/03/1995 Chandigarh 20/04/1995 Ludhiana 28/04/1995 Pune 01/05/1995 Bangalore 09/05/1995 Secunderabad 22/05/1995 Vadodara 24/05/1995 Ahmadabad / Gandhinagar After Interface/Service approval Certificate, radio frequency for paging services were assigned to the assessee by WPC Wing on 24/04/1995 for Chandigarh Telecom District. Similarly, for other Telecom Districts mentioned abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng to reconsider the concluded findings of the assessment order for assessment year 1995-96 and 1996-97 in assessment year 2005-06. This is impermissible in the scheme of Act. The Revenue by placing reliance on defective certifications and information derived from web portal of the assessee is trying to revisit the facts settled in assessment year 1995-96 and in assessment year 1996-97. The Act does not permit to disturb the findings of closed assessment (except within the mechanism provided under the provisions of the Act) in assessment proceedings for later AYs. 17. Non mentioning of date of commencement or mentioning of wrong date in Form No.10CCB by the Auditors of the assessee can be an error of reporting. We find that in Auditor's Report for the Financial Year ending on 31st March , 1995 (relevant to AY 1995-96), the Auditors have reported: "No Profit and Loss Account has been prepared for the year ending 31st March, 1995 since the Company has not commenced commercial service." The subsequent certification by the Auditor's dated 28/11/2013 rectifying the date of commencement in Form 10CCB for AY 2006-07 is in consonance with the Auditor's Report for FY 1994-95. De-hors ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esaid decisions would not apply in the facts and circumstances of the present case. 19. One of the objection raised by the Department is that the assessee has not maintained separate books of account. The assessee had ventured into two different telecommunication services i.e. radio paging services and cellular mobile telephone services. The ld.Counsel for the assessee stated at Bar that the assessee has claimed deduction u/s. 80IA of the Act in respect of cellular mobile telephone servicesonly. It is evident from the documents on record that radio paging services were started in May /June 1995 and the cellular telephone services were started in November 1995. Thus, both telecommunication services started after 01/04/1995. Undisputedly, the assessee was not maintaining separate books of account for two different segment of telecommunication services. Separate books of account for the two segments is not a mandatory condition for claiming deduction u/s. 80IA of the Act. Our aforesaid view is supported by the decision rendered by the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Micro Instruments Co.(supra). Therefore, the claim of the assessee u/s. 80IA of the Act c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see had started telecommunication services after 01/04/1995 and the assessee is eligible for deduction u/s. 80IA(4) of the Act. The findings of the CIT(A) on this issue are confirmed and the appeal of Revenue is dismissed. Thus, both the issues emerging from the appeal of the Revenue are decided in favour of the assessee. 22. The Revenue had filed an application for admission of additional evidences. The additional evidences filed by the Revenue are to buttress the arguments that the assessee had commenced telecommunication services prior to 01/04/1995. The additional evidences filed by the Revenue includes communication between assessee with the DoT, invoices to substantiate sale of Pagers and the licence agreement for radio paging services. This case has travelled between Assessing Officer and the Appellate Authorities four times over a period of decade. Four times the assessment order has been passed. The issue that was considered time and again in assessment proceedings and the Appellate proceedings was the assessee's eligibility to claim deduction u/s. 80IA of the Act, with reference to assessee's date of start of telecommunication services. Sufficient time was available to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed AO in excluding the following incomes while computing deduction u/s 80IAoftheAct: (a) Interest income amounting to INR. 6,09,99,174; and (b) Miscellaneous income amounting to INR 4,98,14,610;" 25. The ld.Counsel for the assessee submits that the assessee had earned interest income of Rs.6.09 crores and miscellaneous income of Rs.4.98 cores. The assessee claimed deduction u/s. 80IA of the Act in respect of the aforesaid income. The same was disallowed by the Assessing Officer and the CIT(A). The ld.Counsel for the assessee submitted that Delhi Bench of the Tribunal in the case of Bharat Sanchar Nigam Ltd.(BSNL) reported as 156 ITD 847 (Del-Trib) has held that deduction for telecommunication services is allowable in respect of "profits of eligible business and not restricted to profits derived from eligible business as mentioned in section 80IA of the Act." Thus, the provisions of sub-section(2A) of Section 80IA of the Act are much wider in scope as compared to the provisions of section 80IA(1) of the Act. The deduction in computing total income of an undertaking providing telecommunication services shall be in accordance with the provisions of subsection (2A) of section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the present proceedings as both the parties agree that sub-section (1) of section 80-IA envisages only first degree nexus for the purposes of claiming deduction. The fact that deduction is available to hundred percent of the profits for a period of ten consecutive years is also not an issue under debate and even otherwise we find that the above provision in the said extent is clear and unambiguous. 13.3. What we may take note of is that on reading of only this sub-section in isolation what emanates clearly is that the deduction is applicable to any undertaking or an enterprise from any business referred to in sub-section (4) of section 80-IA which the legislature describes as "eligible business". The said sub-section sets out in unequivocal terms that the deduction is available to the gross total income of such undertaking/enterprise which "includes" "profits and gains derived from" such business. The meaning and limits of first degree nexus of the said phrase is wellunderstood by the tax payer, the tax collector and the Legislature. The said subsection also sets out the period and extent of deduction available as hundred percent for ten years." The Co-ordinate Bench further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gislature having ousted applicability of sub-section (1) and (2) in the opening sentence brought in for the purposes of time line sub-section (2) into play but made no efforts whatsoever to put the assessee under sub-section (2A) to meet the stringent requirements that the profits so contemplated were to be "derived from". The requirements of the first degree nexus of the profits from the eligible business has not been brought into play" The Tribunal finally concluded that in terms of non- obstinate clause used in section 80IA(2A), deduction for telecommunication services is available in respect of "profits of eligible business" and is not restricted to "profits derived from eligible business" as mentioned in section 80IA(1) of the Act. The aforesaid findings of the Tribunal were affirmed by the Hon'ble Delhi High Court. We further observe that the DRP in directions dated 21/09/2017 for assessment year 2013-14 has observed that no SLP has been filed against the decision of Hon'ble Delhi High Court by the Revenue and allowed assessee's claim of deduction u/s. 80IA of the Act in respect of other incomes. Respectfully following the decision of Hon'ble Delhi High Court in the case of....