TaxTMI 
TaxTMI 
2024 (12) TMI 1383
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....ppeal in ITA No.2762/Del/2023 for AY 2010-11, arise out of the order of the Commissioner of Income Tax (Appeals)-31, New Delhi [hereinafter referred to as "ld. CIT(A)", in short] in Appeal No. 1135/22-23 dated 03.08.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act". 3. Ground No. 1, 1.1, 2, 10, 10.1 raised by the assessee are with regard to issue of depreciation of passive infrastructure assets (PIAs). 3.1 We have heard the rival submissions and perused the material available on record. The assessee is engaged in the business of providing passive infrastructure (PI) telecommunication services to the telecom operators. The return of income for AY 2010-11 was filed by the assessee on 30.09.2010 declaring total loss of Rs. 403.85 crores. In the meanwhile, Vodafone Infrastructure Limited ('VInfL'), Bharti Infratel Ventures Limited ('BIVL') and Idea Cellular Towers Infrastructure Limited ('ICTIL') (hereinafter referred to as 'transferor companies' or 'TowerCos') jointly filed a scheme of arrangement (hereinafter referred to as the 'Scheme') under sections 391 to 3....
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....nt proceedings were conducted by the office of the learned AO and detailed questionnaires were issued in response to which the assessee furnished various submissions/clarifications/details. During the assessment proceedings, the assessee also filed a detailed letter dated 6-2-2019 correcting/re-computing the following claim as per the return of income: -Claim of additional depreciation on energy saving devices amounting to Rs. 1534,67,20,392/- and -Offering disallowance of Rs. 3,32,37,255/- under section 40(a) (i) of the Act. 3.4 The assessee company was formed as a joint venture between Bharti Infratel Limited ('BIL'), Vodafone India Limited ('VIL') and Aditya Birla Telecom Limited ('ABTL') [referred as Operating Companies- OpCos.] and was incorporated on 20-11-2007 with the objective of providing Pl support services to the telecom operating entities of the shareholder groups [OpCos.] and other independent telecom operators. For consolidation of their PIAs, the shareholders (including the relevant group entities) entered into a Framework agreement dated 8-12-2007, which inter-alia provided a two-step restructuring with effect from 1-4-2....
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....her words, the tax written down value ('WDV') of the assets in the hands of the transferor/ donor is considered as the 'actual cost' of such gifted assets in the hands of the recipient/donee. 3.10 Accordingly, tax depreciation on such PIAs, which were gifted by the OpCos to the TowerCos under the De-merger Schemes were determined based on the tax WDV of such PIAs in the hands of the OpCos as on 1-4- 2009, which represents the 'actual cost' in the hands of the TowerCos for the purpose of claiming tax depreciation in FY 2009-10 and for subsequent years. 3.11 Subsequent to the transfer of the PIAs into the TowerCos under Step 2, the TowerCos (i.e. VInfL, BIVL and ICTIL) were merged into the assessee under a scheme of amalgamation (i.e. the Merger Scheme) which took effect from the appointed date of 1-4-2009. The merger was duly sanctioned vide the order dated 18-4-2013 passed by the Hon'ble Delhi High Court. Importantly, merger of TowerCos under Step 2 with the assessee undisputedly qualified as tax neutral amalgamation under section 2(1B) of the Act. 3.12 Since the merger of TowerCos with the assessee undisputedly qualified as an "amalgamation'....
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....d the assessee would, thus, not be entitled to claim any tax depreciation on such Nil cost. 3.16 The learned AO has primarily provided the following reasoning to hold that the transfer of PIAs from the OpCos to the TowerCos cannot be construed as 'gift':- a) The initial transaction was made as an arrangement of demerger under section 391/394 of the Companies Act, 1956 and was not sanctioned as a gift by the Hon'ble High Courts of Gujarat and Delhi. b) Issue regarding examining tax liability is left open for income tax Department, mere sanction of scheme cannot take away right of the Department to examine tax liability. c) The learned AO treated the two separate steps of restructuring as one and consequently alleged that the ultimate result of the transaction was transfer of PIAs by OpCos to the assessee for consideration (being shares issued pursuant to second step of amalgamation), and thus there was no 'gift' in step (1) above. d) The learned AO alleged that essential element of gift, being divesture of ownership was missing, inasmuch as ownership was retained by the Opcos in a circuitous manner as Opcos were allotted sha....
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....ctification application was disposed off by the learned CIT(A) vide order dated 03.08.2023 whereby certain objections of the revenue while approving the scheme which does not tantamount to finding that impugned transfer was by way of gift. Against the said rectification order, the assessee has filed separate appeal before us in ITA 2762/Del/2023 which is also heard along with impugned appeal for AY 2010-11. This aspect of pendency of appeal in ITA No. 2762/Del/2023 would be covered by us while adjudicating the issue in dispute vide ground No. 1, 1.1, 2, 10 and 10.1 in ITA No. 1962/Del/2023 itself as the dispute in ITA No. 2762/Del/2023 is only for wrong mentioning in para 45 of order of Hon'ble Delhi High Court by the learned CIT(A) wherein, the grievance of the assessee is that the learned CIT(A) had referred to the wrong paragraph of the said judgment. If the core issue in ITA No. 1962/Del/2023 vide above mentioned ground is decided, the appeal of the assessee against section 154 order in ITA No. 2762/Del/2023 gets subsumed and no separate finding need to be given thereon. 3.19 The learned AR drew our attention to the substituted provision of Section 47(iii) of the Act by the ....
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....nsfer of PIAs without any consideration is al 'gift and is permissible under Section 391-394 of the Companies Act, 1956. The fact that the above-mentioned transaction qualifies as 'gift" was also confirmed by the Hon'ble Gujarat High Court in the case of Vodafone West Limited (Vodafone Essar Gujarat Ltd as it was known then) in Co petition No. 183/2009 vide OJ Appeal no 81 of 2010, wherein the same Demerger Scheme (as approved by the Hon'ble Delhi High Court) was filed. Considering the specific findings of the High Court(s), it is not open for the tax Department to question the impugned transaction. Be that as it may, it would be appreciated that once the fundamental character of transaction is held to be gift by the High Court(s), the same is binding on the tax Department. It is undisputed that the tax Department can examine the taxability as observed by the Court(s), but it cannot be construed that the tax Department is entitled to disregard the character of transaction which is expressly held to be 'gift' by the Court. The tax liability can be determined by the Revenue as per the provisions of the Act, considering the fundamental nature of the tr....
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....ion of "gift" in the respective assessments and/ or appeals in the case of OpCos and/or TowerCos; Step 2 (e) Approval of scheme of merger by the board of directors, creditors, shareholders of TowerCos and the applicant; (f) Nature of amalgamation is not doubted by any regulatory authority. Having regard to the aforesaid, it will kindly be appreciated that two separate and independent transactions between separate and independent companies/legal entities, and more particularly on account of the schemes in respect of the two separate steps being approved by the High Courts, cannot be regarded as one composite transaction and therefore, the conclusion arrived at is patently erroneous on the face of records. The action of considering the two steps as composite/ single step tantamount to ignoring the existence and lifting of corporate veil of, inter alia, the TowerCos which is blatantly contrary to the order of the High Courts and in clear disregard to the express acceptance of the two steps by all the regulatory and governing authorities, which is grossly impermissible. Be that as it may, structure involving multiple entities cannot be ignored/ disregarded by the Revenue....
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.... per the Supplementary Framework agreement dated December 19, 2008, for determination of contribution basis the shareholding ratio, it was decided that an amount of Rs. 484 cr. is payable by ABTL and VIL to BIL. The said amount Es considered as consideration for transfer of PIAs by OpCos to TowerCos, and the same is alleged to be outside purview of gift. In order to explain the nature of the payment, it is important to highlight that the Merger Scheme effectuated with effect from the appointed date 1.4.2009. At the time of entering into the Framework Agreement, it was agreed that the operating companies, apart from transferring their existing Pl sites (i.e., sites existing at that time), would also develop new sites to be referred to as 'Interim Sites' Since the same were to be ultimately transferred to the appellant, the cost of these Interim Sites was agreed to be shared between the shareholders of the appellant in the proportion of their shareholding in the appellant. However, to avoid a situation where the Interim Sites to be transferred to the appellant by the respective groups are not in accordance with the agreed ratio, it was provided that where the costs incu....
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....yable by VIL/ABTL and security deposit receivable by BIL were netted-off against each-other and therefore, were not shown separately in the financial statements of the appellant for any financial years. Screenshot of accounting entry and copy of Business Transfer Agreement are placed at pages 1374A-13740 of the PB Vol II. In the books of VIL and Idea group, amount paid to appellant was reported as a 'current asset' in the form of 'Security Deposits' placed with appellant and amount received by BIL was recorded as 'current liability in the form of 'Security Deposits' received from appellant. Accountant certificates furnished by VIL, Idea group and BIL reflecting the accounting treatment in relation to security deposits are placed at pages 13741. 1374V of the PB Vol II. In view of the aforesaid, it is respectfully submitted that the appellant company was just a pass through, or escrow agent as far as said transaction is concerned. In this regarded, it is humbly submitted that payment of Rs. 484.4 crores was settled between the shareholders towards excess interim sites constructed by BIL. The appellant only acted as an intermediary for settlement o....
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....e purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses. For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delivery. Such delivery may be made in the same way as goods sold may be delivered." Since the PIAs qualify as moveable asset, the same may be gifted by way of an instrument or by delivery. Accordingly, since the PIAs stood delivered to the TowerCos which companies accepted the possession post implementation of the Transfer Schemes, requirements of section 123 of TPA are satisfied. Moreover, the transfer of PIAs through a court approved scheme does not require any registration more so when the Schemes expressly provided that pursuant to approval of the Scheme(s), the assets shall stands transferred to the transferee without any document or instrument. It is submitted that the PIAs have legally vested into the TowerCos, pursuant to approval of Transfer Schemes by the respective High Courts. Reliance in this regard is placed on the Hon'ble Punjab ....
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....erstand the scheme of demerger as first step and scheme of merger as a 2nd step. The entire scheme of demerger has been accepted and approved by the Hon'ble High Court which indeed contained the fact of gift of assets also. The department cannot try to rewrite the scheme. All the objections of the department had to be filed when due notice was given to them prior to the sanction of the scheme of arrangement. The department cannot question the validity of the sanction of the scheme when the approved scheme is at the stage of implementation. The scheme once sanctioned by the competent court is binding on all the stakeholders which admittedly include the department also. Accordingly, the revised return filed by the assessee by giving due effect to the scheme of demerger and merger had to be accepted and given effect to by the revenue. In support of this proposition, the learned AR rightly placed reliance on the decision of the Hon'ble Supreme Court in the case of Dalmia Power Ltd Vs. ACIT reported in 420 ITR 339 (SC). Since, the due notices were issued to the income tax department before sanctioning of the scheme by the competent court, the binding nature of the scheme cannot be q....
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....tatement being in conformity with the scope of the terms of the scheme of arrangement, becomes an integral part of the scheme, which was sanctioned by the Company Court, and thus the transfer of the undertaking will not be considered to be one of the demerger within the meaning of Section 2(19AA) of the Income Tax Act, 1961. The Hon'ble Madras High court held that impugned proceedings itself is fallacious and further proceedings thereon cannot be sustained and accordingly quashed the same. 3.25 Keeping this proposition laid down by the Hon'ble High Court and Hon'ble Supreme Court into consideration, in our considered opinion, the action of the learned CIT(A) in the instant case before us merging both the schemes, is wrong. It is to be noted that parties to the scheme in the first step of demerger are different and parties to the scheme in the 2nd step of merger are different. By merging both schemes together, the learned CIT(A) is only try to rewrite the scheme which is not permissible. Now coming to the liberty given by the Hon'ble Delhi High Court to the Income Tax Department to question any possible tax evasion in the scheme of arrangement sanctioned by the court, the....
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....ed the Passive Infrastructure Assets(PAs) amounting to Rs. 1622,77,10000-10 Idea Cellular Tower Infrastructure Ltd. ITCIL., a 100% subsidiary of Mis. Aditya Birla Telecom Ltd. (ABTL)who in turn is 100% subsidiary of the assessee Idea Cellular Ltd) through Demerger at Nil consideration with an appointed date of 1-1-2009. Subsequently, ICTIL amalgamated in Indus Towers Ltd. (Indus), resulting into transfer of PIAs amounting to Rs. 1622,77,60,000/- to Indus. Thus, the PIASS of the assessee, having a book value of Rs. 1622,77,60,000/-as on 31-12-2008, stood transferred to Indus without payment of any taxes. This business arrangement is a colourable device through which PIA having book value of Rs. 1622,77,60,000/- have been transferred out of the block of assets of the assessee at Nil consideration and without payment of due taxes. In view of this there is reason to believe that the colourable device created through a scheme of De-merger and Amalgamation is only for tax evasion and no taxes on these transactions have been paid. The Balance Sheet of ABTL indicates that the investment in Indus, have increased from Rs. 1,90,000/- as on 31-3-2009 to Rs. 7330,75,56,000/- as on 31-3-2010 as ....
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....u/s. 391 r.w.s. 394 of the Companies Act, 1956 under which the telecom undertaking of ABTL (comprising Bihar and Jharkhand telecom circles and related assets and liabilities) was demerged into Idea with the Appointed Date of April 01, 2009. (b) From the above facts, the ld. AO held that the Scheme of Arrangement through which the PIAs of the assessee having book value of Rs. 1622,77,60,000/- was transferred to ICTIL for Nil consideration and then from ICTIL to Indus on the subsequent amalgamation of ICTIL with Indus was a colorable device to evade taxes. That this was a transfer of assets of the assessee to an entity outside the Group, and that ICTIL was only an intermediary through which the assets were being routed to avoid taxes and duties that would otherwise be attracted. The ld. AO also observed that not only the assessee but two other shareholders of Indus namely, Vodafone and Bharti Airtel had also resorted to such subterfuge. The ld. AO noted that in the related case of M/s Vodafone Essar Gujarat Limited, by an Order dated 9th December 2010, the Hon'ble Gujarat High Court had accepted the submissions of the Income-tax Department upholding the locus of the Inco....
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....cellular operators in India initiated Project MOST (Mobile Operators Shared Towers). Thus, formation of Indus met with the regulatory directions as well as commercial advantage to the promoters of Indus. This rationale was stated in all the Schemes of Arrangement entered into to meet this purpose which has been approved by various High Courts. That similar arrangements were entered into by the other Promoters of Indus namely Vodafone and Bharti Airtel. (f) The Department in the case of Vodafone had challenged the demerger of the PI Undertaking of Vodafone Essar Gujarat Ltd into Vodafone Infrastructure Ltd. before the single judge of the Hon'ble Gujarat High Court on the ground that the said demerger scheme was formulated with the purpose of evading taxes/stamp duties etc. The single judge did not approve the said demerger of Vodafone Essar Infrastructure Ltd. This is the decision referred to by the ld. AO in the assessment order. (g) The assessee submitted that the decision of the Single Judge in case of Vodafone referred to by the ld. AO was reversed by the decision of the Division Bench of the Hon'ble Gujarat High Court which approved the demerger scheme....
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....100% subsidiary of M/s. Aditya Birla Telecom Ltd. (ABTL) who in turn is 100% subsidiary of the assessee. Pursuant to the merger of ICTIL with Indus Tower Ltd, ABTL was issued shares of Indus Towers Ltd. On 31/03/2010 ABTL revalued its shares held in Indus Towers Ltd. for Rs. 7330,75,56,000/-. Based on this revaluation of shares in Indus Towers Ltd made by ABTL on 31/03/2010, the ld. AO treated the entire transaction of demerger and merger as a colourable devise. We have already held hereinabove based on the facts that there is no colourable devise involved at all in the instant case. It is a fact that the scheme of demerger and the merger had been duly addressed by the Hon'ble High Courts. 8.2. Moreover, the revaluation of shares has been made by ABTL on 31/03/2010 which falls in A.Y.2010-11. Hence, the event which had occurred in A.Y.2010-11 in the hands of ABTL can never be a ground for reopening in the case of assessee for A.Y.2009-10. Hence, reopening on this issue fails directly for A.Y.2009-10. 8.3. Further the ld. AO had stated that this entire device would result in benefit u/s. 28(iv) of the Act to the assessee in the sum of Rs. 5707,97,96,000/- (7330....
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....n, the Scheme of Arrangement proposed by Vodafone Essar Gujarat Ltd. u/ss.391-394 of the Companies Act, 1956 vide Company Petition No.183 of 2009 was rejected by the Hon'ble Gujarat High Court by accepting the stand of the Income-tax department that this has been made against public interest and with a view to evade payment of taxes. Accordingly, the case of the Revenue is that this is a transfer of assets of the assessee to an entity outside the group, and ICTIL is only an intermediary through which the assets are being routed, to avoid taxes and duties that would otherwise be attracted and therefore the Scheme of Amalgamation was neither a scheme nor arrangement nor a compromise contemplated u/s. 391 of the Companies Act, 1956. The scheme of arrangement as envisaged was not really a scheme of arrangement or a scheme of demerger, so as to be eligible for a sanction by the Hon'ble Company Judge u/ss.391-394 of the Companies Act 1956. The Revenue's case is that the scheme of demerger was to transfer the PIAs to Indus Towers through the intermediary ICTIL. Hence, the transfer of assets by way of demerger tantamount to gift. The case of the Revenue is also that the company....
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....s wholly owned subsidiary for which the Scheme of Arrangement was approved by the Hon'ble Delhi High Court vide order dated 29.03.2011 in Company Petition no 324/2009. In para 9 of the said order has been noted that the scheme is intended to restructure, within the group of companies controlled by the transferor company (ie. the assessee) the holding of the passive infrastructure assets in a more efficient manner consistent with the diverse needs of the business. That the transferee company shall not be required to issue any shares or pay any consideration to the transferor company or its shareholders. In para 16 of the said order it has again been mentioned by the Hon'ble High Court that the passive infrastructure assets are being transferred without any consideration and the value of investment of the shareholders of the transferor company shall not deplete in any manner.... In the concluding para no 35 sanction has been granted by the Hon'ble High Court to the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956 with the observation that the passive infrastructure assets of the transferor company shall stand merged with the transferee company f....
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....or the purposes of IPO which was a date much later than the date of actual transfer of the assets. The said issue of IPO was in December 2012 whereas the transfer of assets was effected on 05.05.2011. That under the law the sale consideration cannot be based on deemed sale value as there is no provision under the law to undertake such exercise for the purpose of computing Capital gains and that as per section 50 the full value of consideration has to be the actual consideration which has to pass hands. I have considered the submission of the appellant with respect to chargeability of short term capital gain u/s 45 of the Act on the impugned transfer. In facts of the case it is observed that appellant has transferred specified telecom assets under the scheme of arrangement approved by the Hon'ble Delhi High Court under Section 391 and 394 of the Companies Act. In paras 22 & 23 of the Hon'ble Delhi High Court order dated 29.03.2011 in Company Petition no 324/2009 (the assessee's case) it has inter alia been held that the objections of the Income Tax Department to the scheme of arrangement are akin to that filed by them in the matter of Vodafone Essar Infrastructu....
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....egarded as transfer for the purposes of section 45, which is the charging section for capital gains. I have also considered the alternate submission of the appellant with regard to the failure of computation mechanism provided in case of depreciable assets as under section 50 of the I.T. Act which mandates appropriate modifications with respect to the provisions of section 48 and 49 and lays down that for the mode of computation there must be a full value of consideration received or accruing. However as in the present fact of the case as no consideration has either been received or accrued to the appellant, hence the computation mechanism for computing the capital gain fails. Further, for the purpose of computing short term capital gain, the AO has adopted sale consideration on the basis of value given in the red herring prospectus issued for the purposes of IPO in December 2012. In this connection the principle laid down by the Supreme Court in the case of Shoorji Vallabhdas & Co. 46 ITR and in the case of Godhra Electricity Co. Ltd v. CIT 225 ITR 746 would be applicable to appellant's case, wherein it is held as under:- "Income tax Act takes into a....
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....e should be eligible for allowance of depreciation in its hands. Hence, disallowance made on account of depreciation is hereby directed to be deleted. Accordingly, ground No. 1, 1.1, 2 are hereby allowed. 3.31. The Ground Nos. 10& 11 raised by the assessee are challenging the upward adjustment of depreciation on aforesaid assets obtained pursuant to the scheme of arrangement, while computing book profits under section 115JB of the Act. 3.32 We have heard the rival submissions and perused the materials available on record. The Passive Infrastructure Assets (PIAs) vested in the assessee with effect from 1-4-2009 pursuant to a two-step court approved scheme, the assessee in its books in accordance with the mandate of the court approved scheme, recorded the PIAs at its fair value of Rs 16306 crores. The book depreciation thereon was debited to the Profit and Loss Account as per the applicable accounting policy and applicable standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair val....
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.... revaluation of any asset held by the assessee, because no such reserve has been created by the assessee on revaluation of shares. Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. ♦ Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally belonged to PREPL and PPPL and appeared in their balance sheet; and these assets entered in the books of assessee by virtue of amalgamation valued on fair market value as mandated by the order of Hon'ble High Court. Thus, it would be wrong to say that there was any kind of revaluation of assets. Therefore, there could not be any question of invoking clause (j) of Explanation to section 115JB for calculation of book profit u/s. 115JB. Here in this case, nowhere it has been disputed that the profit and loss account has not been prepared in compliance of requirement of Part-I and Part-II of the Companies Act, 2013 and as per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book ....
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.... Once the site is ready for activating, the entire expenditure incurred towards set-up is capitalized in the books as asset used for business purposes. A completed tower site is capable of generating revenue to the assessee company as part of its regular business activity over the period through rendering of passive infrastructure services on the said towers to the telecom operators. 4.2. The ld AO however disregarded the contentions of the assessee and proceeded to disallow the sum of Rs. 9,71,61,370/- on account of CWIP written off holding the same to be capital in nature. The ld AO observed that merely because a particular business project had been abandoned by the assessee as it did not materialize, the nature of expenditure which is primarily capital in nature cannot be converted into revenue expenditure by claiming loss thereon. This action of the ld AO was upheld by the ld CIT(A). 4.3. From the modus operandi adopted by the assessee in its business model which is referred supra, we find that if the tower site before its setting up gets cancelled by the customers due to cancellation of service order or cancellation of tenancy agreement with the landlord or due to any ot....
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....ar view was also taken by the Hon'ble Calcutta High Court in the case of Binani Cements Ltd vs CIT reported in 380 ITR 116 (Cal). Similar view was taken by the Hon'ble Jurisdictional High Court in the case of CIT vs Priya Village Roadshows Ltd reported in 332 ITR 594 (Del). 4.4. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, Ground Nos. 3 to 3.1 raised by the assessee are hereby allowed. 5. Ground Nos. 4, 9, 11 and 12 raised by the assessee are challenging the disallowance of Provision for Site Restoration Obligation (SRO)/ Asset Restoration Obligation (ARO) amounting to Rs. 101.11 crores under normal provisions of the Act and also in the computation of book profits u/s 115JB of the Act. 5.1 We have heard the rival submissions and perused the material available on record. We have already stated that the assessee is engaged in the business of providing passive infrastructure (PI) telecom service to several telecom operators. In order to provide PI services, the assessee enters into long term lease agreements with the land/ premises owners for setting-up of telecom towers, shelters, DG sets etc. Since such s....
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....unting. For the purpose of computing income under normal provisions of the Act, the assessee excludes such SRO cost from the cost of fixed assets and therefore does not claim any tax depreciation thereon. Following the mercantile system of accounting and the law enunciated by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd v. CIT [1997] 225 ITR 802 (SC) and Rotork Controls India (P.) Ltd. vs. CIT [2009] 314 ITR 62 (SC), such SRO is amortized over the tenure of the lease and claimed as business expenditure deductible. During the relevant assessment year, the assessee amortized Rs. 101,11,00,000 in the books of accounts in respect of site restoration obligation. For the purposes of MAT, since ARO liability represents an ascertained liability, the same has been accordingly claimed as an allowable expense under provisions of Section 115JB of the Act. 5.3 The ld AO concluded that the provision of expenses on account of SRO/ ARO as an unascertained liability not eligible for deduction both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act and accordingly, disallowed the sum of Rs. 101.11 c....
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....ervations and allegations reproduced supra were upheld by the ld CIT(A). We find that as per the lease agreement entered into by the assessee, the assessee is duly obligated to restore the premises/ site to its original condition. For this purpose, obviously the assessee had to incur expenses towards un-installation of the tower sites together with various other equipments and also had to incur expenses towards leveling, converting etc to restore the premises to its original condition. These expenses had to be obviously incurred by the assessee at the expiry of the lease period. Expiry date of the lease period is known from the lease agreement itself. Hence, on the date of entering the lease agreement itself, the assessee is very well aware about the date of expiry of agreement. Hence, the obligation on the part of the assessee to incur such expenses is crystallized on the date of entering lease agreement itself that there is expenditure towards SRO/ ARO which had to be incurred necessarily and positively by the assessee in future. Hence, the existence of such liability towards expenditure on account of SRO/ ARO is real and not contingent liability. We have gone through the working....
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....consequentially becomes taxable u/s 41(1) of the Act. Hence, we have no hesitation to hold that the provision made for expenses on account of SRO/ ARO as an ascertained liability. Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of Rotork Constrols India (P) Ltd vs CIT reported in 314 ITR 62 (SC) and Bharat Earth Movers Ltd reported in 245 ITR 428 (SC). Hence, it become an allowable expenditure both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, Ground Nos. 4, 9, 11 and 12 raised by the assessee are hereby allowed. 6. Ground No. 5, 5.1, 9 and 13 raised by the assessee are challenging the disallowance of provision for expenses treating the same as unascertained liability both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. 6.1 We have heard the rival submission and perused the material available on record. Pursuant to the mercantile system of accounting followed by the assessee, the assessee accounts for all the expenses pertaining to the relevant year while arriving at the profit for that year. Once, the expenditure is a....
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....sis in consonance with the accrual system of accounting regularly employed by the assessee and in consonance with AS- 29 issued by ICAI. In our considered opinion, the said expenditure would have to be squarely allowed as deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act as it falls under the category of ascertained liability. Accordingly, the Ground No. 5, 5.1, 9 and 13 raised by the assessee are allowed. 7. Ground Nos. 6 and 14 raised by the assessee are challenging the confirmation of disallowance of provision for Service Level Adjustment (SLA) credits both under normal provisions of the Act as well as computation of book profit u/s 115JB of the Act. 7.1 We have heard the rival submission and perused the material available on record. During the year under consideration, the assessee accounted for SLA provision of Rs. 133.36 crores and raised credit notes amounting to Rs. 68.67 crores. The closing balance of SLA provision amounting to Rs. 64.12 crores was reflected in the financial statements. The assessee enters into non-cancellable (long term) service arrangements, i.c., Master Service Agreement ('MSA&#....
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....sued thereon in pages 1964 to 1976 of the paper book Volume IV on sample basis. 7.4 Apart from that, the ld AR drew our attention to accounting policy qua SLA provision created on scientific basis which is enclosed in pages 1580 to 1594 of Vol -III of Paper Book; month-wise break up of provision along with details of actualization which are enclosed in pages 1963 to 1976 of Volume IV of Paper Book; sample credit notes together with the detailed workings and customers sign off of the same which are enclosed in pages 1977 to 1980 and 1984 to 2015 of Vol-IV of Paper Book. Hence, we find that the said provision of SLA credits made by the assessee is made on a scientific basis having proper rationale for the same as it is akin to provision made for warranty. In view of the decision of the Hon'ble Supreme Court in the case of Rotork Controls Pvt Ltd reported in 314 ITR 62 (SC), we hold that the aforesaid provision of SLA credit would have to be construed as an ascertained liability eligible for deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, ground No. 6 and 14 raised by the assessee are allowed. ....
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....pose of business of the assessee, the interest paid on such loan becomes an allowable deduction u/s 36(1)(iii) of the Act. Reliance in this regard has been rightly placed by the ld AR on the decision of Hon'ble Supreme Court in the case of DCIT Vs. Core Healthcare Ltd reported in 167 taxman 206 (SC). Further, we find that there is absolutely no basis for the lower authorities to arrive at the average credit period of 90 days obtained from the vendors or average period taken for installation/ construction of tower sites. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above ground no. 7 raised by the assessee is hereby allowed. 9. Ground No. 8 raised by the assessee is challenging the denial of additional claim of enhanced depreciation of energy saving device @80% as against 15% granted by the revenue. 9.1 We have heard the rival submission and perused the material available on record. The telecom tower sites comprises two infrastructure facilities namely passive infrastructure (owned by the assessee) and active infrastructure (owned by the customers/ telecom operators). Further, as part of the standard business o....
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....oetze (India) Ltd reported in 284 ITR 323 (SC) to deny the claim of additional allowance towards enhanced rate of depreciation on energy saving devices. We find that the said decision is not applicable to appellate authorities and hence, the ld CIT(A) ought to have considered the claim of the assessee on merits. Since, the said issue is glaring on us, we proceed to decide the same at our level instead of sending it back to the file of the ld CIT(A). We find that the devices installed by the assessee are only to ensure uninterrupted power supply at the tower sites at the required temperature level. Hence, these equipments do fall under the category of energy saving device eligible for enhanced rate of depreciation of 80%. Hence, the ld AO is directed to grant 80% depreciation on this energy saving device and recompute the allowable income tax deprecation u/s 32 of the Act for the year under consideration and also for subsequent years consequentially. Accordingly, ground No. 8 raised by the assessee is hereby allowed. 10. The Ground Nos. 10& 11 raised by the assessee are challenging the upward adjustment of depreciation on aforesaid assets obtained pursuant to the scheme of arrang....
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....reported in 104 taxmann.com 298 had considered an identical issue where shares acquired pursuant to amalgamation were recognized at their fair values, wherein the learned AO treated the same as revaluation and denied deduction of fair value as cost of acquisition while computing book gains on transfer of shares. The Tribunal held that recognition of shares at fair value does not amount to revaluation. The conclusion drawn by the Delhi Tribunal in this regard are as under:- "17. Such a premise of the Assessing Officer cannot be approved for the reason that; ♦ Firstly, this reserve has not been created on revaluation of asset albeit same has been acquired through amalgamation and the shares have been valued as per the purchase method for a certain price. ♦ Secondly, it is not revaluation of any asset held by the assessee, because no such reserve has been created by the assessee on revaluation of shares. Revaluation of assets takes place only when the assessee decides to revalue the asset existing in the balance sheet. ♦ Lastly, in this case all the assets belonged to amalgamating companies, that is, the shares of IHFL originally b....
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....Learned AO in the assessment order proceeded to disallow 15% depreciation thereon aggregating to Rs. 25,54,75,517/- primarily alleging that the same does not constitute actual cost. The Learned AO held that provisional capitalization has been booked on the basis of standard cost which is impermissible for the purpose of allowance of depreciation. The Learned CITA deleted the aforesaid addition holding that the sites corresponding to the provisional capitalization were ready for use and the cost for acquisition / construction of asset has been incurred and accordingly the assessee is eligible for claim of depreciation on the cost capitalized. 13.2 The Learned DR vehemently relied on the order of the Learned AO. Per Contra, the learned AR before us explained the modus operandi adopted by the assessee with regard to the said provisional capitalization of assets by explaining as under:- -Whenever a telecom service provider wishes to avail passive infrastructure support services, it sends a request describing the tower location, tower specifications such as the angle or height required, latitude and longitude and equipment details (which would be kept on the tower site and c....
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....can eventually extend beyond RFAI date etc. -However, since the tower sites is ready to use, it is essential to capitalize the same with cost incurred on such date both from the perspective of accounts as well as tax. Therefore, the process of provisional capitalization followed by the assessee to record the cost of tower sites as under ✔The materials/vendor invoices to the extent available are mapped to the identified tower sites to determine the actual cost on such month end. ✔ The available actual cost of towers and civil works at the cut-off date is compared to the standard cost based on which provisional capitalization is done. ✔ Provisional capitalization is reversed on the first day of the succeeding month. ✔Provisional capitalization is made only for an asset which has already been put to use. -Accordingly, the assessee has resorted to a standard set of procedure to capitalize the cost of equipment or services (for which it has not received the invoice as on the date of capitalization or the cost of which cannot be accurately allocated on the date of capitalization) on the basis of purchase or....
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....and perused the materials available on record. During the year, the assessee capitalized several telecom tower sites made up of passive infrastructure facilities and other ancillary equipments, which is used by the customers / telecom operators for the purpose of installation of their active infrastructure equipment. The different dates involved in the commercial deployment of the tower site for use by customer / telecom operator as coming out of Master Service Agreement (MSA) are explained in brief as under:- "Stage 1: First RFAI notice generation date (also known as DPIS date): Date when telecom tower site is ready to use as per the site norms and is ready to be leased out and offered to the ultimate customer/ operator by the assessee. At this time, the site has fulfilled all technical requirements and internal controls and technical tests of the appellant leaving no question as to the readiness of the towers. Accordingly, on this date the appellant capitalizes its telecom tower site and claims depreciation for both accounts as well as for tax purposes. Stage 2: RFAI date: Date on which customer confirms its acceptance of the site for installation of its active ....
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....en sites are ready for active installation of the assets to the customers and accordingly had denied depreciation. In our considered opinion, this view is based on the point of view of the sharing operator and not taken from the perspective of the assessee and hence liable to be ignored. In order to determine the date of "put to use" for the purpose of allowance of depreciation under Section 32 of the Act, the same needs to be considered from the perspective of the assessee i.e. whether the tower site is "ready for use" as per norms of the assessee and agreed with customers and has it been offered for testing and evaluation to the sharing operators. This view is no longer res integra in view of the decision of Hon'ble Punjab and Haryana High Court in the case of CIT vs Piccadilly Agro Industries Limited reported in 311 ITR 24 (P&H) ; decision of Hon'ble Bombay High Court in the case of Larsen and Toubro Limited vs PCIT reported in 403 ITR 248 (Bom). It is pertinent to note that the SLP preferred by the revenue against this decision was dismissed by the Hon'ble Apex Court which is reported in 259 Taxman 79 (SC). 14.4. We find that the Hon'ble Courts have already held that the ter....
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....c) The assessee derives enduring benefits and therefore the salary expenditure of such staff should form part of cost of towers. Based on the above, the learned AO disallowed salary expenditure of SCM, site acquisition team and infra quality team amounting to Rs. 13,29,08,545/-, i.e., actual salary of Rs. 14,94,18,079/- as reduced by depreciation of Rs. 1,65,09,534/-. The aforesaid depreciation is allowed by AO assuming that half of the aforesaid salary expenditure is attributable to assets put to use for more than 180 days and remaining half is attributable to assets put to use for less than 180 days. The Learned CITA deleted the addition by holding that salary expenses pertain to the three divisions mentioned supra of the assessee and are engaged in both pre as well as post commencement activities after the towers are set up. 15.2 The Learned DR vehemently relied on the orders of the Learned AO by arguing that the Learned AO was duly justified in capitalization of salary expenses and granting depreciation thereon in the facts and circumstances of the case. Per contra, the Learned AR before us duly placed on record the detailed work profile and scope of work undertaken by the e....
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....nagement The department takes care of procurement function and make sure that there is no delay in setting-up of sites for want of materials. It is responsible for capex (capital expenditure), opex (operating expenditure) management and warehouse management. The team's task is to effect all commercial purchases for the company except rental agreement with the landlords. It is responsible for buying/ procuring all the material/ spares/ diesel for running the telecom tower sites. The team also procures the capital goods for the company, however, it is only incidental to the overall work stream of the department and while the new towers set-up have substantially reduced by FY 2011-12, the strength of this department has increased since a lot of critical parts/ equipment require frequent replacement in the industry such as battery bank, DG sets, and interaction with different service vendors who assist the appellant in upkeep and maintenance of the telecom tower sites. 7,62,49,368 Similar is the case for SCM division * Responsible for entire procurement function and effect all commercial purchases for the company except rental agreement. * Responsible for buying/ pro....
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....have heard the rival submissions and perused the materials available on record. The assessee filed its half-yearly service tax returns on a standalone basis on 26.10.2009 and 23.04.2010 and reported following details relating to revenue generated on 'Business Support Services': Table 1 Business support services Apr'9 to Sep'09 Oct'09 to Mar'10 Total Gross amount received 4,163.26 4,718.22 8,881,48 17.2. Copy of service tax return filed by the assessee (on standalone basis) is placed at pages 4211-4231 of the PB Volume VII. In the financial statement, the assessee reported total revenue of Rs. 5,88,85,830 (net of passthrough expense of Power & Fuel). Breakup of the same is as under: Table 2 Schedule Indus (standalone) Income of TowerCos (net of elimination entries Total Service Income 8,771.34 462.17 9,266.51 Less: Power and fuel charges recovered 3,344.92 - 3,344.92 Total 5,426.42 462.17 5,888.58 17.3. During the assessment proceedings, the learned AO determined a gap of Rs. 110,13,00,000/- (i.e. income as reported in the service tax returns of Rs 8,881.48 crores less income reported in the ....
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....eld that the upfront fees paid by the assessee is of capital nature as assessee has made heavy investment in its tower infrastructure and therefore, the loan upfront fee paid to banks is incurred for acquisition of capital assets and accordingly need to be capitalized with the cost of plant and machinery. Having held so, the learned AO proceeded to grant depreciation at the rate of 15 percent on the same and disallowed the remaining sum of Rs 75,79,87,500/- in the assessment. The learned CITA deleted the said addition by following the order of this Tribunal in assessee's own case for Assessment Year 2009-10 wherein it was held as revenue in nature. 18.2. The issue in dispute is no longer res integra in view of the decision of this Tribunal in assessee's own case for assessment year 2009-10 which is reported in 110 taxmann.com 176 wherein the loan upfront fees paid by the assessee was held to be revenue expenditure. It is also pertinent to note that the appeal preferred by the revenue against this Tribunal order was dismissed by the Hon'ble Jurisdictional High Court in ITA No. 89 / 2020 dated 31-10-2023. Hence the learned CITA was duly justified in granting relief to the ....
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....eements entered into with 5 vendors out of the total 6 vendors 3. Copy of Form 16A corresponding to 22 sample transactions out of the total of 39 transactions 4. Copy of TDS statements filed for the subject assessment year evidencing compliance to the withholding provisions 5. Copy of certificate obtained from the independent chartered accountant certifying the appropriateness of TDS compliance of the assessee and identifying certain exceptional and insignificant transactions on which tax was not withheld by the assessee. 20.2. The learned AO accepted the explanations given by the assessee for the 22 transactions, however, with respect to balance 17 transactions, he proceeded to disallow the amounts on the pretext that mere furnishing of invoice does not establish the genuineness of such transactions. Accordingly, the learned AO disallowed expenses aggregating to Rs 8,83,62,379/- corresponding to 17 transactions which are listed as under:- S.no Name of the Supplier Nature of Expense Amount (INR) 1. Tops Security Limited Security Guard Expenses 23,36,382 2. NISA Industrial Services Pvt. Ltd. Infrastructure R&M 48,18,9....
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....Accordingly, the Ground No. 11 raised by the revenue is dismissed. 21. The Ground No. 12 raised by the revenue is challenging the deletion of disallowance of unverifiable expenses in the sum of Rs 16,24,22,328/- due to discrepancy in the PAN. 21.1. We have heard the rival submissions and perused the materials available on record. The special auditor for the purpose of examining the accuracy of the tax deducted at source (TDS) statements filed by the assessee, examined the same. On examination and verification, the special auditor reported list of instances where either a permanent account number (PAN) was quoted for more than one party / vendor or more than one PAN number was quoted for the single person / entity. During the assessment proceedings, the learned AO attempted to correlate the said discrepancies on verification of the details filed by the assessee. The learned AO proceeded to disallow the corresponding expenditure on the premise that existence of the expenditure remains unverifiable as under:- Particulars No. of cases/transactions Amount (Rs.) Incorrect name mentioned in the TDS returns against the PAN 40 8,99,31,077 Different/incorrect PAN m....
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....e refer to Sr No 2 & 3 below for details of documents/evidences supporting the above transactions. 2 Incorrect Observation 2 79,89,541 The Ld, AO has noted that incorrect PAN has been mentioned for Vidyut Engineers (PAN as mentioned: AAAHA7593Q) and Lloyd Insulations (India) Ltd (PAN as mentioned: AAACL0486E). Such observation is however incorrect and supporting documents are placed at pages 4505-4516 of the PB Volume VIII. 3. Incorrect vendor name inadvertently mentioned in the TDS statement 36 7,67,50,021 The PAN as mentioned in the TDS statements are correct and mere error in the name of vendor reported in the TDS statement, cannot imply any adverse observation as regards the genuineness of the expense. In any case, the below mentioned details/documentary/supporting evidences, substantiates the genuineness of the expenditure: Copy of invoices on a sample basis - Copy of agreements on a sample basis - Form 16A issued to all the parties as identified in the 12 cases Supporting documents for transaction wise listing are placed at pages 4517-4730 of the PB Volume VIII. 4 Incorrect PAN details inadvertently mentioned in the TDS state....