IDEA CELLULAR LTD,MUMBAI vs. ADDL CIT 3(2), MUMBAI

The learned Commissioner (Appeals), after considering the submissions of the assessee and having found that the decision of the Hon'ble Calcutta High Court in Exide Industries Ltd. (supra), has been stayed by the Hon'ble Supreme Court upheld the disallowance.

Learned Authorised Representative, though, agreed that the decision of the Hon'ble Calcutta High Court in Exide Industries Ltd. (supra), has been stayed by the Hon'ble Supreme Court but he nevertheless submitted that the issue relating to allowability of the provisions made on account of leave encashment may be restored back to the file of the Assessing Officer for deciding as per the decision of the Hon'ble Supreme Court in Exide Industries Ltd. (supra). In support of such submissions, learned Authorised Representative relied upon the following decisions of the Tribunal:–

Learned Departmental Representative opposing the contention of the assessee submitted, the decision in case of Exide Industries Ltd. (supra) having been stayed, the disallowance made should be upheld. He further submitted the Hon'ble Supreme Court while staying the judgment of the Hon'ble Calcutta High Court in Exide Industries Ltd. (supra) has directed the assessee to pay the tax on account of provisions made and when the actual payment has not been made by the assessee in terms of section 43B(f) of the Act.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the deduction claimed by the assessee is only a provisions and no payment was actually made by the assessee during the relevant previous year. Therefore, in terms of section 43B(f), it is not allowable. However, in the case of Exide Industries Ltd. (supra), the Hon’ble Calcutta High Court had struck down the provisions of section 43B(f) as unconstitutional. However, the Department being aggrieved of the said judgment had preferred appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court while admitting the appeal of the Department in Special Leave to Appeal (Civil) no.22889 of 2008, had directed the assessee to pay tax as if section 43B(f) is in the statute book, however, the assessee permitted to claim the deduction in the return of income. It is observed, following the aforesaid order of the Hon'ble Supreme Court, the Tribunal, Mumbai Bench, in Birla Sunlife Asset Management Co. Ltd. (supra), held as under:–

In terms with the directions of the Hon'ble Supreme Court and the co–ordinate bench referred to above, we restore the matter back to the file of the Assessing Officer with a direction that assessee will pay the tax as if section 43B(f) is on the statute book. However, till the decision of the Hon'ble Supreme Court is rendered in case of CIT v/s Exide Industries Ltd. (supra), the Department will not recover the penalty and interest which may accrue till the decision of the appeal in the case of Exide Industries Ltd. (supra). It would be open to the Department to recover the outstanding interest payment once the appeal in the case of Exide Industries Ltd. (supra) is decided in favour of the Department. With the aforesaid observations, we restore the matter back to the file of the Assessing Officer for deciding afresh in terms with the decision of the Hon'ble Supreme Court in Exide Industries Ltd. (supra). Ground no.1, is allowed for statistical purposes.

In ground no.2, the assessee has challenged the disallowance of revenue sharing amounting to ` 142,30,76,399.

Brief facts are, during the assessment proceedings, the Assessing Officer while verifying the tax audit report filed by the assessee noticed that as per Annexure–3 to the tax audit report, assessee has claimed depreciation of ` 87,12,39,508, on license fee by treating it as intangible asset. However, subsequently, the assessee had filed a revised return of income claiming deduction of an amount of ` 142,30,76,399 on account of revenue sharing license fee after giving up its claim of depreciation of ` 87,12,39,508. The Assessing Officer, after examining the facts and material on record as well as the submissions of the assessee and also taking into consideration his decisions in previous assessment years observed, in the previous years deduction on account of license fee since was allowed under section 35ABB of the Act, the same cannot be allowed under section 37 of the Act as revenue expenditure. Accordingly, he disallowed the deduction claimed of ` 1,42,30,76,399. Being aggrieved of such disallowance, assessee challenged the same in appeal preferred before the learned Commissioner (Appeals) who also confirmed the disallowance.

The learned Commissioner (Appeals), however, considering the fact that similar disallowance in earlier assessment year were upheld by him dismissed the ground raised by the assessee.

Learned Authorised Representative submitted, the issue stands covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for the assessment years 2001–02 to 2005–06. He also placed before the Bench the orders of the Tribunal.

Learned Departmental Representative, though, fairly submitted, the issue is covered by the decision of the Tribunal in assessee’s own case, he nevertheless relied upon the observations of the authorities below.

We have considered the submissions of the parties and perused the material available on record. It is found from the record that this is recurring dispute between the assessee and the Department right from the assessment year 2000–01. However, in a series of decisions in assessee’s own case, the Tribunal has decided the issue in favour of the assessee holding that the amount paid to DOT towards revenue sharing license fee as revenue expenditure. In the latest order of the Tribunal for the assessment years 2004–05 and 2005–06 in ITA no.6736/Mum./2012 and others dated 24th February 2016. The co– ordinate bench of the Tribunal following its own order held as under:–

There being no material difference in facts and no contrary decision has been brought to our notice by the learned Departmental Representative, respectfully following the consistent view of the Tribunal in assessee’s own case as stated above, we allow assessee’s

In the result, assessee’s appeal for A.Y. 2006–07 is allowed. ./2013 – Department’s Appeal (A.Y. 2006–07)

Ground no.1, raised by the Department is on the issue of allowance of assessee’s claim of depreciation on revenue sharing license fee.

As discussed while deciding similar issue in assessee’s appeal in ITA no.1977/Mum./2013, the assessee in the course of assessment proceedings filed a revised return of income claiming the amount of 1,42,30,76,399, paid towards revenue sharing license fee as revenue expenditure and thereby withdrawing its claim of depreciation on the said amount. Learned Commissioner (Appeals), however, allowed depreciation on revenue sharing licence fee. Being aggrieved, department has challenged the same. Since we have allowed assessee’s claim of deduction in respect of revenue sharing license fee by holding it as revenue expenditure, this ground raised by the Department has become infructuous. Suffice to say, the expenditure incurred having allowed as revenue expenditure, there is no question

In ground no.2 and 3, the Department has challenged the decision of the learned Commissioner (Appeals) in deleting the addition made on account of disallowance of interest expenditure towards interest free loan given to the subsidiary.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that during the relevant previous year, assessee had paid interest of ` 2529.57 million on interest bearing loan of ` 29156.08 million. He also found that the assessee had borrowed funds from subsidiary of ` 1028.54 million on which no interest is paid. Further, the assessee had advanced loan of ` 124065.56 million to subsidiary without charging any interest. Taking all these facts into consideration, the Assessing Officer was of the view that advancing interest free loan to subsidiary amounts to utilisation of interest bearing borrowed funds for purpose other than business. He, therefore, was of the opinion that interest attributable to interest free advance given to subsidiary requires to be disallowed. Accordingly, he called upon the assessee to explain why proportionate disallowance should not be made. Though, the assessee objected to the proposed disallowance out of interest expenditure but the Assessing Officer

The learned Commissioner (Appeals) having found that the assessee has made the advance to its wholly owned subsidiary and special purpose vehicle through which assessee had made investment in other companies engaged in the same business was of the view that the interest free advance made was for the purpose of assessee’s business. Accordingly, following the decision of the Hon'ble Supreme Court in S.A. Builders v/s CIT, deleted the disallowance made out of interest expenditure.

We have considered the submissions of the parties and perused the material available on record. At the time of hearing, the learned Counsels from both the parties agreed before us that the issue is covered by the decision of the Tribunal in assessee’s own case for the assessment year 2003–04 to 2005–06. On a perusal of the order of the Tribunal in ITA no.6736/Mum./2012 dated 24th February 2016, it is observed, while deciding similar issue, the Tribunal followed its earlier

Respectfully following the consistent view of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing the grounds no.2 and 3 raised by the Department.

In ground no.4, Department has challenged allowance of assessee’s claim of deduction towards club fee.

During the assessment proceedings, the Assessing Officer noticed that the assessee had claimed expenditure of ` 33,21,734, on account of club entrance fee proposing to disallow the same, he called for an explanation from the assessee. Though, the assessee objected to such disallowance but rejecting the explanation of the assessee, the Assessing Officer disallowed the club fee of ` 33,21,734. The assessee challenged the disallowance before the learned Commissioner (Appeals).

The learned Commissioner (Appeals), following the decision of his predecessor–in–office in assessee’s own case for the assessment year 2003–04, allowed assessee’s claim.

We have considered the submissions of the parties and perused the material available on record. Learned Counsels from both the parties agreed before us that the issue is covered by the decision of the Tribunal in assessee’s own case for the assessment year 2003–04 to 2005–06. On a perusal of the order of the Tribunal in Mum./2012 and others, dated 24th February 2016, for the assessment year 2004–05 and 2005–06, it is noticed, the Tribunal has upheld the decision of the learned Commissioner (Appeals) observed as under:–

Respectfully following the consistent view of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing ground no.4, raised by the Department.

In the result, Department’s appeal for A.Y. 2006–07 is dismissed. ./2013 – Assessee’s Appeal (A.Y. 2007–08)

In ground no.1, assessee has challenged disallowance of deduction claimed of ` 277,77,90,896, towards revenue sharing license fee paid to Department of Telecommunication.

This issue is identical to the issue raised in ground no.2, by the assessee in its appeal being ITA no.1977/Mum./2013, for assessment

In ground no.2, the assessee has challenged proportionate deduction claimed under section 35DD on legal fee.

Brief facts are, during the assessment proceedings for the financial year 2003–04, assessee had paid legal fee amounting to ` 29,37,435 to Amarchand Mangaldas and Suresh A. Shroff, Advocate and Solicitor for legal service relating to drafting of loan agreement, due diligence, etc., in respect of Escotel Mobile Communication Ltd., which was a Cellular Service provider in the telecom circles of Kerala, Haryana and Uttar Pradesh. For the purpose of expanding its business activity, the assessee was looking for new areas where it is not providing telecom services. He, therefore, was exploring the possibility of acquiring other cellular service provider having telecom license in the area other than assessee’s area of operation. For achieving this object, the assessee wanted to acquire Escotel Mobile Communication Ltd., and for that purpose, it engaged the solicitor firms and paid the legal fee. The expenditure was initially claimed by the assessee in 18 Idea Cellular Limited assessment year 2004–05. However, the Assessing Officer disallowed the claim which was also upheld by the learned Commissioner (Appeals) on the reasoning that no merger has taken place during the relevant previous year and otherwise the expenditure is capital in nature. In the course of appeal proceedings for the impugned assessment year, the assessee has raised an additional ground claiming an amount of ` 5,87,487 being 1/5th of the legal fees paid as deduction under section 35DD of the Act.

The learned Commissioner (Appeals) held that in the assessment year 2004–05, the expenditure claimed was disallowed on the ground that no merger has take place. He, therefore, observed that as the assessee had not claimed deduction under section 35DD in the return of income, the Assessing Officer could not examine whether Escotel Mobile Communication Ltd. has merged with the assessee. He also observed, the claim of expenditure is also required to be verified factually whether it actually relates to merger of Escotel Mobile Communication Ltd. On the aforesaid reasoning, he dismissed the ground raised by the assessee.

Learned Authorised Representative referring to the observations of the Tribunal in assessee’s appeal for the assessment year 2004–05 submitted, while disallowing assessee’s claim in assessment year

Learned Departmental Representative on the other hand submitted that as per the observations made in assessment year 2004–05, the expenditure incurred towards project alchemy, therefore, whether it is related to merger requires verification.

We have considered the submissions of the parties and perused the material available on record. As found from record, this expenditure was initially claimed by the assessee in assessment year 2004–05. However, assessee’s claim was disallowed by the Departmental Authorities on two grounds; firstly, there was no merger during the relevant previous year and secondly, the expenditure incurred is capital in nature. When the issue was agitated by the assessee in second appeal, the Tribunal while deciding appeal being ITA no.6736/Mum./2012, dated 24th February 2015, held as under:–

As is evident, in the impugned assessment year the assessee had not claimed the expenditure in the return of income. He put forward his claim for deduction under section 35DD only at the stage of first appellate proceedings, that too, by raising an additional ground and the learned Commissioner (Appeals) dismissed the ground of the assessee for the reason that the issue was not examined by the Assessing Officer. Therefore, on over all consideration of facts and material on record, we are inclined to restore this issue to the file of the Assessing Officer for deciding afresh after providing due opportunity of being heard to the assessee. Ground no.2, is allowed for statistical purposes.

In the result, assessee’s appeal for A.Y. 2007–08 is allowed for statistical purposes. ./2013 – Department’s Appeal (A.Y. 2007–08)

In ground no.1, the Department has challenged the decision of the learned Commissioner (Appeals) in allowing assessee’s claim of depreciation on revenue sharing license fee.

This issue is identical to the issue raised in ground no.1, by the department in its appeal being ITA no.1853/Mum./2013, for assessment year 2006–07. As payment made by the assessee towards revenue sharing licence fee is allowed as revenue expenditure, there is no question of allowing depreciation. The ground no.1 raised by the Department having become infructuous is dismissed.

In ground no.2, Department has challenged allowance of assessee’s claim of depreciation on revenue sharing license fee carried over by BTA Cellular Ltd. in continuation of amalgamation with the assessee.

Brief facts are, in the course of assessment proceedings, the Assessing Officer while examining assessee’s claim of deduction on account of revenue sharing license fee paid to DOT held that the expenditure is neither allowable as revenue expenditure under section 37(1) nor assessee’s claim of depreciation on revenue sharing license fee can be allowed as the assessee has already claimed deduction under section 35ABB. He found that during the year, assessee has claimed depreciation of an amount of ` 6,55,44,254 in respect of BTA Shelcom Ltd. (BTA) which amalgamated with the assessee during the relevant previous year. He observed, as BTA has claimed deduction under section 35ABB on the revenue sharing license fee, assessee is 22 Idea Cellular Limited not eligible to claim deduction. Accordingly, he disallowed deduction claimed of ` 6,65,44,254. Being aggrieved of such disallowance, the assessee challenged the same in appeal before the learned Commissioner (Appeals).

Before the learned Commissioner (Appeals), it was submitted by the assessee that till its merger with the assessee, BTA has never claimed deduction under section 35ABB on the revenue sharing license fee. It was submitted, BTA was consistently capitalising revenue sharing license fee and claimed depreciation @ 20% by treating it as intangible asset. It was submitted, the Assessing Officer also has allowed BTA’s claim of depreciation in the earlier assessment year. Assessee submitted as BTA was claiming depreciation on the revenue sharing license fee, assessee also continued to claim depreciation after amalgamation on the assets of the BTA, even though the revenue sharing license fee is allowable as revenue expenditure. Learned Commissioner (Appeals) after considering the submissions of the assessee found that neither BTA prior to its amalgamation nor the assessee after amalgamation of BTA had ever claimed deduction under section 35ABB on the revenue sharing license fee paid by the BTA. He, therefore, directed the Assessing Officer to verify this aspect and allow assessee’s claim of depreciation on the written down value if other conditions of section 43(6)(c) Explanation–2 are fulfilled.

Learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, since BTA was claiming depreciation on block of assets, the assessee continued to claim depreciation after merger of BTA for maintaining consistency in accounting. He, therefore, submitted there is no reason to interfere with the order of the learned Commissioner (Appeals).

Learned Departmental Representative relied upon the order of the Assessing Officer.

We have considered the submissions of the parties and perused the material available on record. It is evident from the assessment order, the Assessing Officer denied the claim of depreciation on revenue sharing license fee relating to BTA primarily for the reason that the BTA has claimed deduction under section 35ABB. However, the learned Commissioner (Appeals) having found that neither BTA nor the assessee have claimed deduction under section 35ABB directed the Assessing Officer to verify the fact and allow assessee’s claim of depreciation. We do not find any infirmity in the aforesaid direction of the learned Commissioner (Appeals). As already held by us, revenue sharing license fee paid to DOT is otherwise allowable as revenue expenditure.

Since the BTA was claiming depreciation on revenue sharing license fee after treating it as intangible asset after capitalization the assessee continued with the same accounting principle after merger of BTA insofar as revenue sharing business fee paid by BTA which was acquired as a part of block of asset. In the aforesaid facts and circumstances, assessee’s claim of deduction being legally valid has to be allowed. Therefore, we uphold the order of the learned Commissioner (Appeals) on the issue by dismissing ground no.2, raised by the Department.

In ground no.3, Department has challenged the decision of the learned Commissioner (Appeals) in deleting the disallowance made by the Assessing Officer on account of interest earned on interest free advance made to subsidiary.

This issue is identical to the issue raised in grounds no.2 and 3, by the Department in its appeal being ITA no.1835/Mum./2013, for assessment year 2006–07, wherein, for the reasons stated in Para–22 and 23, similar ground raised by the Department is dismissed. In view of the reasoning given by us therein, question of reversing the order of the learned Commissioner (Appeals) directing the Assessing Officer to delete the disallowance on account of interest earned on interest free advance made to subsidiary does not arise. Ground no.4 is dismissed.

In the result, Department’s appeal for A.Y. 2007–08 is dismissed.

To sum up, assessee’s Appeal for A.Y. 2006–07 is allowed; Department’s appeal for A.Y. 2006–07 is dismissed; assessee’s appeal for A.Y. 2007–08 is allowed for statistical purposes and Department’s appeal for A.Y. 2007–08 is dismissed. Order pronounced in the open Court on 27.05.2016