TaxTMI 
TaxTMI 
2011 (1) TMI 1607
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. He disallowed the claim of assessee on the ground that loans raised by the assessee are utilised for creation of assets, accordingly, the cost on account of upfront fee has also to be capitalised by the assessee company. The AO further made an observation that alleged upfront fees is paid for making investment which any way is not a subject matter of revenue expenditure. It is a very brief finding available on pages No. 1 and 2 of the asstt. order and the same has also been reproduced by the Ld. CIT(A). It reads as under :- "It is observing that the assessee company has made a payment of Rs. 1,31,25,000/- on account of upfront fees in regard to the loan raised. On enquiry, the assessee company has submitted that this amount had to be paid as per the provisions of loan arrangement, thus, the same is an allowable expenditure of revenue in nature, contention of the assessee company cannot be accepted because the loans thus raised are utilised for creation of assets accordingly, the cost on account of upfront fee has also to be capitalized by the assessee company, which the assessee company has failed to do, it is further noted that the upfront fees under question....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court in the case of here Meenakshi Mills. In his second fold of submission, he pointed out that though Ld. AO has not made any discussion with regard to his observation that loans were utilised for the purpose of investment but made the disallowance. He also submitted that Ld. CIT (A) has not made any elaborated discussion how the borrowed funds were used by the assessee for investment upon which expenses are to be disallowed u/s 14A. Both the authorities have made a general passing remark in this regard. He placed on record the details of the borrowed funds available with the assessee vis a vis the investment. He pointed out that these details were submitted before the Ld. CIT (A) and are relevant for ground No. 2 of the revenue's appeal where AO has disallowed a sum of Rs. 8,80,36,863/- on the ground that interest bearing funds were not used by the assessee for the purpose of the business. This disallowance has been deleted by the Ld. CIT(A). The assessee has submitted the details of interest funds available with it vis a vis interest bearing loans taken by it. Ld. Counsel for the assessee with the help of the details submitted before the appellate authority and placed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assets - loans & Advances 864,045,029 282,163,640 581,881,389 Total 7,064,949,177 4,853,578,177 2,211,371,000 7.4 This shows that additional investment in the business assets was Rs. 221.14 CR. 7.5 This shows that this increase in investment in business assets was much more than the figure of Rs. 75 CR i.e. additional debentures issued. 8. It has been explained that the investment in 100% subsidiary amounting to Rs. 1,005,000/- was not made out of interest bearing funds available with the company. [However, without prejudice reference is invited to the decision for the proposition that even if borrowed funds were utilized no disallowance can be made, in the case of : SA Builders 288 ITR 1 (SC) and These details are otherwise available in the balance sheet on pages No. 36,37,40 of the paper book. On the strength of these details, Ld. Counsel for the assessee submitted that even no case is made out for disallowing the upfront fee u/s 14A also. 5. Ld. DR on the other hand relied upon the orders of the revenue authorities below. He pointed out that funds were used by the assessee for creation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... This ground of appeal is allowed and the disallowance of Rs. 1,31,25,000/- is deleted. 7. Ground No. 2 taken by the assessee is inter connected with ground No. 1 taken by the revenue. The assessee originally claimed deduction of Rs. 3,31,34,330/-. These expenses were claimed as revenue expenditure on the ground these were incurred on basic telephonic projects in Delhi, Haryana, Tamil Nadu and Karnataka. Ld. AO has considered them as pre-operative expenses and unallowable as revenue expenditure. The assessee in its appeal has submitted that total expenses are Rs. 3,59,39,412/-. The assessee has filed a revised return and claimed the total expenses to this extent. Ld. CIT (A) has allowed its claim but did not mentioned the figure of Rs. 3,59,39,412/-. On the other hand revenue in its first ground of appeal is impugning the grant of deduction of Rs. 3,31,34,330/-. 8. Ld. DR submitted that these expenses were incurred by the assessee towards the basic telephony projects explored in Delhi, Haryana, Tamil Nadu and Karnataka. Therefore, these expenses cannot be allowed to the assessee as revenue expenditure against the income of existing business. These expenses are incu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds and common management. Ld. Counsel for the assessee further relied upon the following decisions :- Other Case Laws 6.1 CIT vs. Relaxo Footwears Ltd. 293 ITR 231 (Delhi) 233 6.2 CIT vs. Modi Industries 200 ITR 341 (Del) 6.3 CIT vs. Prithvi Insurance 63 ITR 32 (SC)- Referred in 200 ITR 341, 347 6.4 Usha Iron & Ferro Metals Corp. Ltd. 163 Taxman 256 6.6. Standard Refinery & Distillery vs. CIT 79 ITR 589 (SC) 6.7. CIT vs. Alembic Glass 103 ITR 715 9. We have duly considered the rival contention and gone through the record carefully. There is no dispute with regard to the facts that there is common management, common funds and the activity of assessee in providing cellular service or basic service are dependent upon the same management. There are common directors and common financial control. The arguments of the AO is that basic telephony services is altogether different than of cellular service. He is also of the view that assessee wants to operate in new areas i.e. Delhi,Haryana and Tamil Nadu. He has not made any further discussion. In a brief, paragraph running into 15 lines, he made the disallowance. We find tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces of Madhya Pradesh be allowed after verification." 10. On due consideration of the facts and circumstances, we do not find any disparity on this issue. The assessee has filed revised return u/s 139(4). It was not considered by the AO on the ground that original return filed u/s 139 (i) on 31.10.2001 was processed u/s 143(1) on 27.5.2002. Therefore, its cognizance cannot be taken. Ld. CIT (A) has held that if the revised return has been filed within the stipulated period u/s 139(5) then its cognizance has to be taken by the AO. The AO cannot ignore such return on the ground that original return was processed u/s 143 (1), because an intimation under this section is not an assessment of income under the income tax law. In the revised computation, the assessee has claimed the expenses of Rs. 3,59,39,412/- as against Rs. 3,31,34,330/- claimed originally. In view of our above discussion, we do not find any merit in the ground of appeal raised by the revenue. As far as ground of appeal raised by the assessee is concerned we remit this issue to the file of AO for verification. He shall verify about the claim made by the assessee in the revised return and then grant the deduction of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ition of new assets. According to the Tribunal the expenditures were incurred for upgradation of data processing consequent to expansion of business. Thus this decision is on the facts of that case. In the present case neither the AO nor the Ld. CIT (A) has discussed the very nature of expenses. They simply proceeded on the line that as if software expenses incurred by the assessee is to be treated as capital expenditure only. The special bench of the Tribunal in the case of Amway India Enterprises has laid down certain criteria whereby the functional analysis of the alleged software has to be made in order to decide whether the expenses incurred were for acquiring an asset which would give enduring benefit or it is just upgradation of existing system which has a very short life. Keeping in view, the decision of the special bench we remit this issue to the file of AO for readjudication. Ld. AO shall take into consideration the decision of the special bench while deciding the issue as well as the order of ITAT in the case of Bharti Cellular. The AO shall give an opportunity of hearing to the assessee before deciding the issue. Now we take the appeal of revenue i.e. ITA No. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TA No. 829 of 2004 for asstt. year 2000-01 where the Tribunal has allowed the payment of licence fees as well as interest. Ld. DR on the other hand relied upon the AO. 21. We have duly considered the rival contention and gone through the record carefully. The disallowance can be made if the assessee has incurred the expenses to any item which is prohibited by law. The payment is not towards any penalty which was imposed upon the assessee for infringement of legal provisions. The assessee failed to make the payment of licence fee in time. Therefore, the telephone department has charged the assessee with interest. It is just a compensation for utilisation of money of department of telecom by the assessee. Ld. CIT (A) has rightly deleted the disallowance. This ground of appeal is rejected. Ground No. 4 22. In this ground of appeal the grievance of revenue is that Ld. CIT (A) has erred in deleting the disallowance of licence fees paid by the assessee. Ld. Counsel for the assessee at the very outset submitted that this issue is squarely covered in favour of the assessee by the order of ITAT passed in 2001-02 in ITA No. 829/D/04. He drew our attention towards page....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... We have heard the rival submissions. We have also perused the order of this Tribunal in the case of MTNL referred to supra. It is noticed that the Bombay Bench of this Tribunal in the case of MTNL has after considering the various details and submissions of the assessee and the revenue therein, has held that the licence fee was paid only for the use of the right to do the business of telecom provider. The said right did not give rise to any capital asset. Further the Bombay bench of this Tribunal has held as follows: "8. Revocation of licences - The Central Government may, at any time, revoke any licence granted u/s 4, on the breach of any of the conditions therein contained, or in default of payment of any consideration payable thereunder." From perusal of S.8 of that Act, it is now evident that under the circumstances the licence is revoked, the appellant shall not be able to carry on its business of telephone services, unless it had paid such a licence fee to the Government. The irresistible conclusion, therefore, would be that payment of licence fee is wholly and exclusively incurred for the purpose of the business carried on by it. The same is, therefore, a....