TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 396
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....pitalization of Licence Fee of Rs. 2,26,50,074/-? Whereas, grounds raised in cross objection are as under : "1. That on the facts and circumstances of the case and in law, the CIT(A) erred in restricting the disallowance of Rs. 1,38,54,771 made by the assessing officer under section 14A of the Income-tax Act, 1961 ("the Act') read with Rule 8D of the Income-tax Rules. 1962 ("the Rules") to Rs. 9,31,978 and not deleting the same in entirety. 1.1. That on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that no disallowance could be made under section 14A of the Act since the assessing officer failed to point out any error in the computation of expenses incurred for earning the tax-free income suo motu disallowed by the assessee. 1.2. That on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that no disallowance could he made under section 14A of the Act without recording satisfaction/ reaching finding as to nexus of any expenditure incurred during the year with exempt income earned. 1.3. Without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that inve....
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....show cause notice, the assessee furnished a detailed reply justifying the suo motu disallowance. However, the Assessing Officer remained unconvinced. Ultimately, he proceeded to compute the disallowance under Rule 8D(2)(iii) read with section 14A at Rs. 1,39,87,135/-. After setting off the suo motu disallowance made by the assessee, he made net disallowance of Rs. 1,38,54,771/-. The assessee contested the aforesaid disallowance before learned first appellate authority. After considering the submissions of the assessee and taking note of the judicial precedents cited before him, learned Commissioner (Appeals) held that strategic investments made by the assessee in subsidiary/group companies should be excluded while computing the disallowance under Rule 8D(2)(iii). Thus, on the basis of aforesaid reasoning, learned Commissioner (Appeals) restricted the disallowance to Rs. 9,31,978/-. Aggrieved with the aforesaid decision of ld. Commissioner (Appeals), both the Revenue and assessee are in appeal before us. 5. Learned Departmental Representative submitted, the reasoning based on which learned Commissioner (Appeals) has deleted major part of the disallowance made by the Assessing Offic....
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....lowance under Rule 8D(2)(iii), only the investments yielding exempt income during the year under consideration can form part of average value of investment. Since, the strategic investments made by the assessee have not yielded any exempt income during the year, they cannot form part of the average value of investment for computing the disallowance under Rule 8D(2)(iii). 8. So far as investments in mutual fund are concerned, from the materials on record, including the financial statements of the assessee, it is observed that there is no opening and closing balances of mutual fund. Meaning thereby, the investments, on which the assessee had earned exempt income, were not only made during the year under consideration, but also sold during the year under consideration. That being the case, the average value of investment as on the 1st day of the financial year and at the year end is nil. That being the case, the computation mechanism provided in Rule 8D(2)(iii) would fail, as it is not possible to compute the disallowance in absence of average value of investment. This is the view expressed by the coordinate bench while deciding identical issue in assessee's own case in assessment ye....
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.... the disallowance. 11. Before us, learned Departmental Representative fairly submitted that in assessee's own case in various other assessment years, the issue has been decided in favour of the assessee by the Tribunal. 12. Having considered rival submissions, we find, this is a recurring dispute between the parties from past assessment years. While deciding identical issue in assessment year 2011-12 (supra), the coordinate Bench has followed its earlier order in assessment year 2007-08 and held as under : "15. We find that while making additions, the Assessing Officer himself has observed that similar disallowance was deleted by the Tribunal in Assessment Year 2007-08. Since the Revenue is in the process of filing appeal before the Hon'ble High Court the additions have been made. We are of the considered opinion that since the impugned issue is covered by the decision of the coordinate bench in assessee's own case for Assessment Year 2007-08 ITA No. 4546/DEL/2013 and 5106/DEL/2013, there is no need to burden the first appellate authority on a decided issue. It is not the case of the Revenue that the Hon'ble High Court has stayed the operation of the order of the coordi....
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....uired was initially for 10 years and the term was extended under the 1999 policy to 20 years but this itself does not justify treating the licence fee paid on revenue sharing basis under the 1999 policy as a capital expense made to acquire an asset. The payment of yearly licence fee on revenue sharing basis was for carrying on business as cellular telephone operator and, thus it was a normal business expense. HCL Comnet Systems & Services Ltd. Read in this manner, the licence granted by the Government/authority to the assessee would be a capital asset, yet at the same time, the assessee has to make payment on yearly basis on the gross revenue to continue, to be able to operate and run the business, it would also be revenue in nature. Failure to make stipulated revenue sharing payment on yearly basis would result in forfeiting the. right to operate and in turn deny the assessee, right to do business with the aid of the capital asset. Non-payment will prevent and bar an assessee from providing services. In aforesaid circumstances, it would be appropriate and proper to apportion the licence fee as partly revenue and partly capital. The next obvious question is, on what basis....
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.... Services Ltd. the said year. This would normally happen after the mid- term of the licence period. Section 35ABB, therefore, ensures that the capital payment is duly allowed as a deduction over the term and once the expenditure is allowed, it would be revenue or tax neutral provided the tax rates remain the same during this period." 31. The Hon'ble Jurisdictional High Court concluded as under: (i) The expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable up to 31- 7-1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 1-8-1999 should be treated as revenue expenditure. (ii) Capital expenditure will qualify for deduction as per section 35ABB. 32. Facts of the present case appears to be similar to the facts involved in the case of CIT Vs Bharti Hexacom Ltd. (Delhi) (supra), we, therefore, restored this issue to the file of the AO to be decided in accordance with the findings given by the Hon'ble Jurisdictional High Court in the case of Bharti Hexacom Ltd. (supra) and if any expenditure on account of licence fee was payable up to 31.07.1999, it should be treated as capital expendit....