TaxTMI 
TaxTMI 
2020 (8) TMI 954
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....d March 15, 2018 as well revisionary order dated March 28, 2018 passed under section 263 of the Act is time barred, since the only order which the learned PCIT could have revised was the draft assessment order for the subject AY, which being passed on March 31, 2015, could have been revised up-till March 31, 2017 alone. 3. Without prejudice to Grounds I and 2 above, on the facts and circumstances of the case and in law, the learned PCIT has erred in assuming jurisdiction and passing the revisionary order under section 263 of the Act since: 3.1. The order passed by the learned AO under section 144C(13) read with section 143(3) of the Act for the subject AY is not an order exclusively passed by him, but passed by him under section 144C(13) of the Act in conformity with the directions issued by the Dispute Resolution Panel under section 144C(5) of the Act, and hence, cannot be revised under section 263 of the Act; 3.2. The learned AO had not only made adequate inquires, but had also undertaken necessary verification basis the details/ documents sought from the Appellant during the course of assessment proceedings and taken one of the permissible views. Accor....
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.... the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case." 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in provision of wireless telecommunications services to individual and corporate customers in India. It is primarily engaged in providing telecommunication services to its customers/subscribers located in Mumbai circle. In addition to telecom services, the assessee also provides other services such as text messaging, wireless distribution of contents such as music, news and email to its customers. For the year under consideration, the assessee filed its return declaring loss of Rs. 235.15 crores, which was subsequently revised to Rs. 181.54 crores. The assessment was completed on 28/01/2016 vide order U/s 144C(13) read with Section 143(3) of the Act determining the total income of Rs. 308,62,72,670/-. Thereafter the ld. Pr.CIT invoked his power U/s 263 of the Act and observed that the assessee company had claimed depreciation amounting to Rs. 447,13,85,156/- at the rate of 25%/12.5% on spectrum fe....
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.... under: "6.9 The provisions of the Act allow depreciation u/s.32(1)(ii) on intangible assets being know- how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. As already brought out earlier, the commercial / business rights are to be of similar nature to the know-how, patents, copyrights, trademarks, licenses, franchises. The provisions of section 35ABB apply specifically to payments made to obtain a license for acquiring a right to operate telecommunication services. So, in the case of a telecom license the specific provision would apply and not the general provision of the commercial rights in the nature of license covered u/s.32(1)(ii). 6.10 The assessee itself is claiming that the payment made for 3G Spectrum is not a license but only a right to use which is separate from the license. Once the payment is not a license or similar to a license it cannot be covered u/s.32(1)(ii) as already brought out in the earlier paras. If the payment for 3G Spectrum is not part of the license it will also not be covered u/s.35ABB which covers only payments for license. In such a case the payment made by the as....
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..... 8.5.2 This issue is therefore set-aside with a direction to the Assessing Officer to examine by seeking details of customer wise break up of Rs.37 crores written off and see whether the individual accounts have also been written off for allowing the claim. The AO may give an opportunity to the assessee to produce the details of such account in soft copy by way of CD and go through the entire cycle of provisioning and write off individual debtor accounts by examining and test checking certain random debts."- 7. Against the above order of the ld. Pr.CIT U/s 263 of the Act, the assessee is in further appeal before the ITAT. It was argued by the ld. AR that the learned Principal Commissioner of Income-tax ['PCIT'] erred in assuming jurisdiction and initiating proceeding under section 263 of the Income-tax Act, 1961 ('Act') since the order passed by the Assessing Officer ('AO') was neither 'erroneous' nor 'prejudicial' to the interest of the revenue as the AO had not only made adequate inquiries, but had also undertaken necessary verification on basis the of the details sought from the assessee during the course of the assessment proceedings and had taken one of the permis....
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....on dated February 25, 2015 (relevant page 99 of the paper book) and March 27, 2015 (relevant pages 151 and 152 of the paper book) and March 30, 2015 (relevant pages 155 and 156 of the paper book) filed by the Appellant wherein details regarding acquisition of right to use 3G spectrum, the cost of such acquisition, additions made in the books of accounts, break-up of the cost for tax purposes, claim of depreciation under section 32(1)(ii) of the Act, copy of the 3G spectrum and BWA spectrum license, relevant approvals from DoT etc. were furnished. As regards allowability of depreciation on fees paid for acquisition of 3G spectrum, reliance was placed on the following judicial pronouncements:- 1. Idea Cellular Ltd. (ITA No.360/Mum/2016) [Mumbai Bench of the Tribunal] 2. Techno Shares and Stocks Ltd. 327 ITR 323 (SC) 3. CIT vs Smifs Securities Ltd, 348 ITR 302 (SC) 10. Inviting out attention to the order passed by the AO, the ld. AR of the assessee contended that the AO has conducted detailed enquiries during the course of the proceedings then change of opinion by merely reappraising evidence is not within the parameters of revisional jurisdiction unde....
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....O on applicability of Section 35ABB of the Act. In fact, Malabar Industrial Co. Ltd. vs CIT (supra) supports the stand of Revenue. 15. With regard to applicability of Section 35ABB of the Act, the DR further contended that as per Wikipedia (Exhibit A page 4 of proposition on behalf of the Revenue) ''A Spectrum auction is a process whereby a Government uses an auction system to sell the rights (licenses) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Hence right to use Spectrum is nothing but right to transmit Radio Waves over relevant bands and is, therefore , a right to operate telecommunication services (band specific). 16. The ld. DR further submitted that when one time spectrum fee was sought to be levied by the Department of Telecom, existing holders of licences using the spectrum were given the option to surrender the licences if they did not want to pay the spectrum fees (See Communication from Department of Telecommunication Marked Exhibit B Page 5 of proposition on behalf of the Revenue). Hence it cannot be said that even if 3G Spectrum was not applied the telecommunication services could have been pro....
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....the fact that without Spectrum (radio waves) there can be no provision of telecommunication service. 19. As regards invocation of power u/s 263 in relation to claim of bad debts and deduction u/s 36(1)(vii) of the Act is concerned, the ld. DR relied upon the reasoning given in the order u/s 263 of the Act. 20. In the Rejoinder to the arguments of the ld. DR, it was submitted by the ld. ARthat clause (a) of the Explanation 2 to Section 263 applies, if the order has been passed by the assessing officer without making enquiries or verification which a reasonable or prudent officer shall have carried out in the facts and circumstances of the case. In the present case, detailed enquiry and examination was made by the AO as regards the additions made to the fixed asset in relation to acquisition of right to use 3G spectrum. Hence, as the condition prescribed in clause (a) of the Explanation 2 has not been satisfied in the present case, the amended provision shall not be relevant in the instant case. Reliance in this regard is placed on the Hon'ble Mumbai Tribunal decision in the case of Shri Narayan Tatu Rane vs ITO Ward 27(1)(1) (ITA 2690 and 2691/Mum/2016). 21. As per ld. AR o....
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....l assessment order, an appeal was filed by the assessee before this Hon'ble Tribunal which is pending disposal. Subsequently, the ld. CIT initiated revisionary proceedings under section 263 of the Act and on the pretext of lack of enquiry and non-application of mind, the learned CIT passed the revisionary order dated March 28, 2018 wherein he directed the AO to: - disallow the claim of depreciation on right to use 3G spectrum under section 32(1)(ii) as claimed by the assessee and amortize such expenditure u/s 35ABB of the Act; - examine the correct cost allocation and capitalization in the books so that no excess claim is allowed; and - examine the customer wise break up of bad debts and verify whether individual accounts have been written off for allowing the claim of deduction of bad debts. Aggrieved by such order, the assessee has instituted this appeal before this Tribunal. 23. Regarding invocation of powers under section 263 of the Act with respect to claim of depreciation on the spectrum fees and allowability of depreciation under section 32(1)(ii) of the Act, we observed that the assessee had acquired the right to use 3G spectrum for providin....
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....ons of section 35ABB of the Act. 24. Tested in light of the law laid down by the jurisdictional Bombay High Court in the case of Gabriel India Ltd. (203 ITR 108), it can be concluded that the invocation of powers u/s. 263 of the Act by the PCIT is incorrect and hence the impugned Order passed u/s. 263 of the Act ought to be struck down. Reliance placed by the Revenue on the Explanation to section 263 of the Act is also incorrect in light of the fact that the said Explanation has not been invoked by the PCIT while passing the Order u/s. 263 and it is now a well settled law that Order passed u/s. 263 of the Act cannot be improved upon by the DR. Reliance in this regard is placed on the Hon'ble Mumbai Tribunal decision in the case of Shri Narayan Tatu Rane vs ITO (ITA 2690 and 2691/Mum/2016). We also observe that the Revenue is not disputing that a deduction ought to be allowed to the assessee vis-à-vis the payment in question. The only issue is whether the deduction is to be allowed thereon as depreciation u/s. 32 of the Act over a period of time, or whether the same has to spread over the years as per section 35ABB of the Act. Examined in light of the decision of the Supre....
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..../Mum/2016). 29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) has already held that the provisions of section 35ABB are not applicable on the cost of acquisition of the 3G Spectrum and no specific arguments have been made on the said decision of the ITAT on the merits of the issue by the Revenue. 30. This decision has also been followed by the ITAT in the case of Tata Teleservices Maharashtra Ltd.(ITA No. 3567/Mum/2016 and 4392/M/2017). 31. With regard to reliance of the ld. DR on the decision of Hon'ble Supreme Court in the case of Britania Industries Ltd.(278 ITR 546), we observe that the question before the Supreme Court in the said case was whether expenses towards rent, repairs, depreciation and maintenance of a building used as a guest house, was to be governed by the provisions of section 30 to 36 of the Act or whether the specific provisions of section 37(4) r.w.s. 37(3) and 37 (5) of the Act would be applicable. The Hon'ble Supreme Court held that the specific provisions would be applicable. In the instant case, the provision of section 35ABB of the Act, wh....
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....ty of depreciation claimed on 3G spectrum fees: The Hon'ble Tribunal observed that the telecom license and spectrum are independent of each other and 3G spectrum fee merely provides a right to use a particular frequency/spectrum while providing telecommunication services. The assessee has rightly claimed depreciation under section 32 of the Act and the provisions of section 35ABB of the Act are clearly not applicable. Refer paras 17 to 20 of the order (page no 25 to 30 of the order). It was further highlight that the Jurisdictional Tribunal in the case of Tata Teleservices Maharashtra Limited (ITA 3567/Mum/2016 and 4392/Mum/2017), for AYs 2011-12 and 2012-13, has followed the decision of Idea Cellular (supra) and directed the AO to allow the depreciation claim under section 32(1)(ii) of the Act in respect of the amount paid to DOT for purchase of 3G spectrum and quashed the order passed u/s 263 of the Act by the learned CIT. 34. With regard to the applicability of the above orders to the assesses case on invocation of power u/s 263 of the Act, we observe that AO had examined/ verified the cost of acquisition of the 3G spectrum and then allowed the claim of depreciati....
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....ction under section 36(1)(vii) of the Act, we observe that the assessee had created a Provision of Badand Doubtful Debtsof INR 32,23,50,209 [reflected in Schedule 17 of the Profit & Loss Account and simultaneously reduced such amount from 'Sundry Debtors' in Schedule 7 of the Balance Sheet. From such provision of bad and doubtful debts, the assessee had written off an amountof INR 37,57,77,446 as bad debts after expiry of period of 180 days since the debt had become irrecoverable. In response to the specific query of the AO regarding deductibility of the bad debts, the assessee filed submissions dated March 30, 2015 wherein details regarding the policy adopted by the assessee for treating any amount as bad debts and the process generally followed by the assessee for collection of the outstanding dues was outlined. 39. From the record, we also found that such debt was earlier accounted as income, and this fact is duly evidenced from clause 13 of the Tax Audit Report for the subject AY and also the accounting policies followed by VIL as reported in schedule 19 to the audited financial statement relevant for the subject AY. 40. From the order of the AO, we also found that during....