DCIT, NEW DELHI vs. M/S. DIGITAL RADIO (DEL) BROADCASTING LTD., NEW DELHI

Page 4 of 13 In phase –II license regime, the fee structure was changed from phase –I. In Phase –II the fixed fee structure was done away with and one time Entry Fees (OTEF) system was introduced. Accordingly New applicant was required to bid a price towards one time entry fee and the highest bidder equal to the number of new license to be issued in each of the metro station were declared as successful bidders. Reserve OTEF limits for each of the city was kept at 25 % of the highest valid bid in that city and all the bids below the reserve limits were rejected summarily. The One time entry fee is the charge / fee for the new successful bidder for a period of 10 years with effect from 1.4.2005. Over and above OTEF each successful bidder is also required to pay an annual license fees on revenue sharing basis @ 4 % of gross revenue for the year or 10 % of the OTEF for the concerned city, whichever is higher. On exercise of option given to the exiting broadcasters to migrate to phase – II , they were required to pay one time entry fee which is equal to average of all successful bids received under phase – II in that city. All these assessee on migration to phase – II paid one time entry fee and accordingly got a new grant of permission agreement executed with the ministry of Information and broadcasting. Then they moved to revenue sharing model of phase –II for a fresh period of 10 years with effect from 1.04.2005.

Claim of the assessee on which penalty is levied 6. Claim of the assessee was that license fee expenditure paid under Phase -I of license regime is allowable in full during the year under consideration in accordance with sub-section (2) of section 35ABB, For this main reliance of the assessee was on the provision of section 35ABB(2) and also the notification issued by the Govt, of India Notification No. 39 dated 9th January, 2004,whereby under the proviso to clause (k) of sub-section (1) of section 2 of the TRAI Act, 1997 as amended, the scope of the expression telecommunication services was increased to include the broadcasting services and cable services also. Based on such Page 5 of 13 Notification, the license fee expenditure as earlier claimed by the assessee u/s 37 of I.T. Act had been recomputed and claim was made u/s 35ABB on proportionate basis over the term of the license period since assessment year 2004-05 onwards. It was one of the arguments that word „transfer‟ is not defined in section 35ABB and accordingly, it should be looked elsewhere in the Income Tax Act. For this Assessee relied on the definition of “transfer” u/s 2 (47) of and for definition of capital assets u/s 2 (14) of the Act. Further he submitted that Section 35ABB specifically deals with expenditure for obtaining license to operate telecommunication services and accordingly, the license as obtained by the Assessee for operating FM radio station was clearly a “capital asset” and therefore, such wide definition of transfer given in sub-clauses (i) and/or (ii) of section 2(47) read with Explanation 2, which deals with capital assets (like license) will apply to the facts of Assessee‟s case. Assessee‟s claim was also based on the facts that assessee had opted to migrate to revenue sharing Phase - II policy regime, whereby it had relinquished its rights in capital asset, which stood extinguished or had parted with capital asset or interest in such capital asset i.e. fixed fee Phase-I license as issued vide agreement dated 27/10/2000 in exchange for a new license called Grant of permission Agreement (GOPA) dated 02/03/2007 under Phase -II which was made effective w.e.f. 01/04/2005. Accordingly it was claimed that such relinquishment/ extinguishment/exchange/ parting of asset or rights therein in capital asset in any manner whatsoever clearly amounted to “transfer” as per the definition of transfer u/s 2(47) read with Explanation 2. Therefore his first argument was that there is transfer of license due to migration from phase – I to phase –II of the policy and provision of sub section 2 of section 35ABB should apply. As there is no consideration received the full amount of amount outstanding shall be allowed as deduction to the assessee. Alternatively it is not a case of „transfer‟ of license because the Phase -I license had come to an end when the Assessee opted to migrate to Phase -II license, in that situation also license fee expenditure deserves to be allowed in full during the year. Assessee had also made the claim of such license fees as intangible assets depreciable.

Page 6 of 13 Assessment & Appellate history of the claim 7. Claim of deduction pertaining to Phase- I of licensing fee was disallowed by the AO holding that same is a capital loss as the license was not transferred as required u/s 35ABB (2) of the act. On appeal before CIT (A) who in turn rejected claim of deduction of whole of license fees paid under phase –I holding that as there is no transfer as per section 35ABB (2) of the act. However he was of the view that as it is migration of license of assessee from Phase-I to phase –II of the licensing policy for F M radios, remaining unallowed expenditure u/s 35ABB becomes part and parcel of the licensing fee payable for phase- II and same shall be added to the license fee of phase – II, hence CIT (A) granted deduction of 1/10th of license fees of Phase –I. Against the Appeal filed by the Department, ITAT has dismissed the same vide their consolidated order dated 24-11-2015 and confirmed the findings of CIT (A) for granting deduction u/s 35ABB being 1/10th of license fees of Phase –I every year over 10 year period of Phase-ll License Fee commencing from AY 2006-07 onwards. Appeal as filed by the Assessee for allowing the entire deduction of phase –I of license fees itself has also been dismissed by ITAT by observing that migration of license from Phase-l to Phase-ll is just a modification of terms and conditions of the license and hence it cannot be said that Phase-l License has ceased to exist or was not in force. Penalty Order of AO 8. On the above issue penalty u/s 271(1) (c) of the act was levied by the AO holding that the assessee‟s claim u/s 35ABB is rejected by CIT (A) and therefore assessee has deliberately furnished inaccurate particulars of income. Ld. AO levied penalty @ 100 % of tax sought to be evaded.

Page 8 of 13 “5.2 I have considered the submission of the appellant, observation of the Assessing Officer and various case laws. It is seen that appellant company was engaged in the business of Radio Broadcasting at Delhi under the channel identity 93.5 Red F.M. During the year, the appellant had claimed deduction u/s 35ABB of Rs.12,65,82,440/- under the head 'license fee' in the revised return of income filed with the Assessing Officer as revenue expenditure and also shown interest income as business income instead of income from other sources. During the course of assessment proceedings the Assessing Officer has held that appellant was not entitled to claim the remaining license fee of Phase-I as revenue expenditure due to migration from Phase-I license to Phase-II license. The Assessing Officer held that because of migration from Phase- I to Phase-II, the earlier license of Phase-I has come to an end and therefore, the loss incurred under Phase-I on account of license fee was a capital loss. The Assessing Officer also treated the interest income as income from other sources against business income shown by the appellant. The CIT(A) vide its order dated 29.07.2011 has held that license fee expenditure of Rs.l2,65,82,440/-claimed as revenue expenditure cannot be totally disallowed and directed the Assessing Officer that same be allowed proportionately over the ten years license term starting from A.Y. 2006-07 onwards. In other words the CIT (A) allowed l/10lh of license fee in the A.Y. 2006-07 and balance was directed to be allowed over the next nine years in accordance with section 35ABB of the IT Act. The CIT(A) confirmed the decision of Assessing Officer with regard to interest income treated as income from other sources. After receipt of the CIT(A) order Assessing Officer issued show cause notice and levied penalty u/s 271(l)(c) of the IT Act of Rs.3,96,39,894/-on the amount of Rs.l2,65,82,440/-of the license fee claimed u/s 35 ABB and the amount of Rs.38,41,383/-treated as income from other sources as against business income shown by the appellant. The claim of the revenue expenditure u/s 35ABB made by the appellant was disallowed, however, Page 9 of 13 CIT(A) allowed 1/10th of such expenditure u/s 35ABB and rest of the amount was to be allowed in next nine years. It is claimed by the appellant that it has disclosed all material facts necessary for the assessment, it has never tried to conceal or file inaccurate particulars of income, and therefore, penalty for concealment could not be imposed. During appellate proceeding the appellant has stated that Explanation-(l)(B) as applied by the Assessing Officer was not applicable to the facts of the appellants case, as the appellant had offered an explanation which was bonafide in nature and all the facts relating to the same and material to the computation of its total income had been disclosed. The appellant has also submitted that such explanation furnished by the appellant was not found to be false by the Assessing Officer. The appellant has also submitted that the Assessing Officer has treated the entire license fee of Phase-I as capital loss whereas C1T(A) has held that such license fee is allowable proportionately over the ten years license term starting from A.Y. 2006-07 onwards in accordance with section-35ABB. This clearly shows that there was difference of opinion/ interpretation with regard to the allowability of such license fee expenditure between the appellant, Assessing Officer and CIT(Appeal). The appellant has further stated that it is a settled law that if a different stand is taken by the revenue as against the stand taken by the appellant and due to such difference of opinion such deduction is not allowed, penalty cannot be imposed on such disallowances. In view of the above stated facts the AR of the appellant submitted that no penalty is leviable in its case. A glance at the provisions of section 271(l)(c) suggests that in order to be covered u/s 271(l)(c) there has to be concealment of income of the appellant. Secondly the appellant must have furnished inaccurate particulars of its income in the return of income. However, in the instant case, the appellant has given all particulars of its income shown in the return of income. The appellant did not conceal or suppress any Page 10 of 13 facts relating to the income or loss for the instant year. The information given in the return of income was not found to be bogus or incorrect. The only mistake committed by the appellant that instead of claiming the unclaimed license fee of Phase-1 over a period of ten years it has claimed the entire license fee as revenue expenditure in A.Y. 2006-07 u/s 35ABB. The appellant has also shown interest income as business income as against income from other sources treated by the Assessing Officer as well as CIT(A). Therefore, the appellant cannot be held guilty of furnishing inaccurate particulars of income or concealment of income. Making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income. Mere making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the appellant. In the instant case the issue involved was whether the unclaimed license fee was a capital loss to the appellant or the same was in revenue in nature or the interest income was business income or income from other sources. This is a debatable issue and always two opinions are possible. Where two opinions are possible on an issue it cannot be said that appellant has furnished inaccurate particulars of income and on such issue penalty cannot be levied. There is no concealment or inaccurate particulars of income where the addition and/ or disallowance is based on bona-fide claims, debatable claims and difference of opinion as held inter-alia by the Hon'ble Supreme Court in a recent judgment in .e case of Commissioner of Income tax Vs. Reliance Petro products Pvt. Ltd. reported in 322 ITR 158 (SC) the head notes of the said case reads as under:- "A glance at the provisions of Section 271(l)(c) of the Income Tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in Section 271(l)(c). would embrace the details of the claim Page 11 of 13 made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under Section 271(l)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."

The above view of the Apex court in the case of Reliance Petro product mentioned has been followed by jurisdictional Delhi High Court and also Delhi Tribunal in numerous subsequent cases. XXXXXX Since the appellant has not concealed any income or did not furnish any inaccurate particulars of its income, therefore, the case of the appellant cannot be covered under the provisions of section 271(l)(c) explanation-(l)(B). Hence, the penalty levied by the assessing officer was not justified and same is deleted.

Page 12 of 13 From the above legal pronouncements, it is amply clear that whenever there is a genuine debate on an issue the assessee is well within his rights to make a claim .within the four walls of the law which is beneficial to him. As long as all the material facts are disclosed in form and spirit, the appellant cannot be said to have either concealed any particulars of income or having filed inaccurate particulars of income. In such circumstances no penalty under section 271(l)(c) is leviable on an assessee. In the present case it is clearly seen that the appellant had disclosed properly all material facts and had clearly disclosed the treatment of license fee made in its accounts and interest income as business income in the computation of income as well as in the audited accounts, financial statements, tax audit report which were attached. Even when the return was processed under section 143(1), this fact came out properly. In fact the assessing officer discovered the issue only from the financial statements filed voluntarily by the appellant alongwith the return of income. Therefore, it can safely be said that the issue involved was properly disclosed and there was no concealment of facts by the appellant nor inaccurate furnishing of any particulars of income. The aforementioned differential tax treatment given by the appellant, assessing officer and the CIT(Appeals) clearly points out that the issue in hand is debatable. In view of the above, it is held that the appellant has not concealed any particulars of its income nor it has furnished any inaccurate particulars in regard to claim made for license fee and interest income. Therefore, the levy of penalty is not justified and same is cancelled.”