TaxTMI 
TaxTMI 
2023 (5) TMI 508
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecided by this common order. For the sake of convenience the appeals are decided in seriatim of assessment year. ITA NO. 216/Chandi/2011- A.Y. 2006-07: 3. The gist of grounds raised by the assessee in appeal are as under:- Ground No. 1: Disallowance of claim of deduction u/s. 80IA of the Act; Ground No. 2: Disallowance of deduction u/s. 80IA of the Act on 'Other Incomes'; Ground No. 3 : Disallowance of depreciation on provision for 'Asset Retirement Cost' (in short ARC); Ground No. 4 : Disallowance u/s. 14A of the Act; Ground No. 5 : Disallowance of interest on loans advanced to the subsidiaries by the assessee; Ground No. 6 : Disallowance of interest on ' Capital Work-in-Progress'; Ground No. 7 : Disallowance of interest on 'External Commercial Borrowings' (ECB); Ground No. 8 : Disallowance of expenditure incurred in connection with raising of loans; Ground No. 9 : Disallowance of Roaming Cost u/s. 40(a) (ia) of the Act; Ground No. 10 : Disallowance of provision for doubtful debts while computing book profit u/s. 115JB of the Act; Ground No. 11: Initiation of penalty u/s. 271(1)(c) of the Act; and Ground No. 12: Levy of interest u/s. 234B,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to claim deduction u/s. 80IA of the Act in the light of CBDT Circular No. 5 of 2005. Following the order of Tribunal in assessee's own case for assessment year 2005-06 ground No. 1 of appeal is allowed. 9. In ground No. 2 of appeal the assessee has claimed deduct ion u/s. 80IA in respect of income from 'Other Incomes' The Tribunal in ITA No. 5078/Mum/2017 in appeal by the assessee for 2005-06 (supra) has accepted assessee's claim of deduction u/s. 80IA of the Act on 'other incomes' viz. interest income and miscellaneous income, by placing reliance on the decision in the case of Bharat Sanchar Nigam Limited reported as 156 ITD 847 (Del-Trib) Hence, ground No. 2 of the present appeal is allowed for parity of reasons. DEPRECIATION ON PROVISION FOR 'ARC' 10. The ld. Counsel for the assessee narrating the facts in respect of the issue submits - the assessee entered into licence agreement with owners of premises for installing telecom towers on their premises. The clause -11 of licence agreement cast an obligation on the assessee to restore the leased premises to its original form at the time of vacating the premises/removal of towers. The ld. Counsel for the assessee referred t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 110 (Mad) 11. Per contra, the ld. Departmental Representative vehemently supported the findings of Assessing Officer on this issue. The ld. Departmental Representative countering the proposition to treat the expenditure as revenue submits that no scientific basis of estimating / creating provision is given by the assessee. The ld. Departmental Representative further pointed that a perusal of clause -11 of the Licence Agreement would show that the assessee is liable for restoration of damage caused during installation. There is no mention of damage caused at the time of removal of structure, hence, the assessee is not under obligation to make repairs to the premises at the end of lease period. The ld. Departmental Representative further referred to clause23 of the agreement to contend that it is a duty of the owner to repair the damage caused at the time of removal of structure. No document whatsoever was produced by the assessee before the Assessing Officer to show that any such tower was removed and the expenditure was incurred by the assessee to restore the building's structure to its original position. The ld. Departmental Representative further contended that in any case it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding. The Licensee also agrees that it shall restore to the same conditions any area it has affected due to its installation work." A perusal of Clause -11 of the licence agreement shows that the assessee has agreed to restore the leased premises in case of any damage caused due to installation work. Thus, liability is fasten on the assessee to restore the leased premises to the original condition in case of any damage caused due to installation work at the time of executing licence agreement The liability is ascertained however, the same would be crystallized only in the year of vacating the leased premises. It is a well settled principle that the provision has to be created on some reliable /rational basis. The assessee has purportedly furnished the basis on which provision has been created before the Assessing Officer, however, the same has not been examined by the Assessing Officer and has been rejected at threshold. In the case of Rotork Control India Pvt. Ltd. vs. CIT (supra) on which both sides have placed reliance it has been held that the provision has to be made on some reliable estimates in respect of present obligation. 13.2 In Vedanta Ltd. vs. JCIT (supra), one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nly if there is no longer some oil to be explored or drawn out and, therefore, it cannot be said that the provision made for the three Assessment Years presently at the beginning of the Contract period was irrational or an disallowable expenditure. The question of commercial expediency is a usual business and the economic decision to be taken by the Assesee and not by the Revenue Authorities and therefore the provision made on a reasonable basis, cannot be disallowed under Section 37(1) of the Act, unless it can be said to be have no connection with the business of the Assesee. The words wholly and exclusively for the purpose of business is a sufficient safeguard and check and balance by the Revenue Authorities to test and verify the creation of provisions for meeting a liability by the Assessee in future and its connectivity with the business of the Assessee. Assuming that such set apart provision is not actually spent in future or something less is spent on Site Restoration, nothing prevents Revenue Authorities and Assessee himself to offer it back for taxation in such future year, the unspent Provision to be brought back to tax as per Section 41(1) of the Act." [Emphasi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respect to utilization of the common pool of funds. A part of common pool of funds was utilized by the assessee to extend financial support to its subsidiaries viz. S.No. Name of subsidiary Loan Amount (Rs. In crores) Interest Rate 1. Vodafone South Ltd. 662.00 Nil 2. Vodafone Digilink Ltd. 168.00 Nil 3. Vodafone Cellular Ltd. 40.00 7.7% Total 870.00 The ld. Counsel for the assessee submits that the assessee and its subsidiaries are engaged in the business of providing mobile telecom services PAN India. There is significant inter-dependance between the assessee and its group companies for providing cellular services in different telecom circles. Therefore, loan advanced by the assessee to its group concerns were driven by commercial expediency. In support of his submissions the ld. Counsel for the assessee placed reliance on the decision in the case of SA Builders Ltd. vs. CIT, 288 ITR 1(SC). 17.1 The ld. Counsel for the assessee pointed that interest free loans to the tune of Rs. 830 crores were advanced to the subsidiaries. The assessee has own sufficient interest free funds to cover such interest fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the exclusive right to take a call regarding advancing of loans to the group concern, the Assessing Officer cannot sit in the arm chair of the assessee and decide to whom loan is to be extended or at what rate of interest loan is to be extended. Once the assessee has been able to establish commercial expediency for extending the loan, which in our considered view the assessee has been successful in the present case, the interest expenditure cannot be disallowed. 19.1 The assessee has further shown that to cover the interest free loans advanced to Vodafone South Limited and Vodafone Digilink Limited aggregating to Rs. 830 crores, the assessee has sufficient own funds to cover the investment. The Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited (supra) has held that, where the assessee is having mixed bag of interest free funds and interest bearing funds and the assessee has made investment out of such common pool of funds, the presumption would be that the investments are made out of interest free funds available with the company provided the said funds are sufficient to meet the investments. Thus, in the facts of the case and the decisions discu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee submits that ECB was raised by the assessee for the purpose of acquiring fixed assets for supporting and smooth running of existing business. The ECB loan was received on 10/03/2006 and the same was not utilized up to end of the Financial Year 2006 i.e. 31/03/2006. The interest cost on the ECB has not been capitalized during the impugned assessment year, nor depreciation has been claimed thereon. The ld. Counsel for the assessee finally submitted that as long as borrowings are for the purpose of business, it is not relevant as to whether they are in the nature of capital or revenue. The proviso to section 36(1)(iii) is not attracted as it is not a case of extension of existing business. 21. Per contra, the ld. Departmental Representative vehemently defending the assessment order submitted that the assessee had acquired loans and raised ECBs for expansion of business. With the acquisition of new assets, the subscriber base of the assessee has increased, the increase in subscriber base is also an extension of business. Therefore, proviso to section 36(1)(iii) of the Act is attracted. The ld. Departmental Representative referred to the findings of the Assessing Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quality of services, this may have resulted in increase of the subscriber base to some extent. Increase in volume of subscriber base within the same territory of operation cannot be termed as extension of business. Therefore, we do not find merit in the observations of the Assessing Officer that the interest u/s. 36(1)(iii) of the Act has to be disallowed. 23.1 The reason for rejecting assessee's claim of interest expenditure on ECBs is that interest in respect of borrowed capital can only be allowed from the date on which such asset is first 'put to use'. It is an admitted fact that ECB loans were not utilized upto 31/03/2006. In so far as other borrowed funds the Assessing Officer has not raised any such objection. In the preceding part of the order, we have held that the borrowed funds have been utilized for the purpose of business. Once it is established that the funds are used wholly and exclusively for the purpose of business interest paid on such borrowed funds is allowed u/s. 36(1)(iii) of the Act. In the case of ECBs, it is not the case of Revenue that ECB loan was diverted for non-business purpose. The assessee has received ECB loans on 10/03/2006, the funds were avail....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Apex Court in the case of India Cements Ltd. vs. CIT (supra) has held that expenditure on raising of loan is revenue in nature, hence, allowable. The nature of expenditure on raising of loan does not depend upon nature and purpose of loan. Hence, we have no hesitation in holding that the expenditure incurred for raising of the loan is allowable u/s.37(1) of the Act. The ground No. 8 of the appeal is thus, allowed. DISALLOWANCE OF ROAMING COST U/S. 40(a)(ia) OF THE ACT. 27. In ground No. 9 of appeal, the assessee has assailed disallowance of roaming cost u/s. 40(a)(ia). The ld. Counsel for the assessee submits that during the year under consideration the assessee incurred expenses on roaming charges. Payments are made to other telecom operators to enable subscribers of the assessee to make or receive calls originating / terminating on other telephone networks. Roaming service is in the nature of automated services and no human intervention for switch over to the network of other telecom operators while in roaming is warranted. The Assessing Officer made disallowance u/s. 40(a)(ia) of the Act on the pretext that the provisions of section 194C and/ or section 194J of the Act ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion for the purpose of section 115JB of the Act the Assessing Officer ought to have reduced the book profits by Rs. 218.31 million from the total amount of Rs. 326.79 million. In respect of the balance amount of Rs. 108.47 million, the ld. Counsel for the assessee pointed that the same has actually been written off. Hence, clause-1 of Explanation to subsection (2) of section 115JB of the Act would not get attracted. In support of this contention the assessee placed reliance on the decision in the case of CIT vs. Vodafone Essar Gujarat Ltd., 397 ITR 55 (Guj). 31. On the other hand, ld. Departmental Representative placed reliance on the assessment order and prayed for dismissing the appeal of assessee. 32. We have heard the rival submissions and have examined the orders of authorities below. It is not in dispute that the provision made for doubtful debts amounting to Rs. 218.31 million has been added back by the Assessing Officer while computing book profits u/s. 115JB of the Act by applying clause (i) of Explanation -2 to section 115JB(2) of the Act. When the assessee chose to write back the provision for doubtful debts by creating it in its P&L Account, which in the present c....