Case: 1. A.C.I.T., 2. Vodafone Essar Gujarat Ltd. Vs 1. Vodafone Essar Gujarat Ltd., 2. The A.C.I.T.. ITAT (Income Tax Appellate Tribunal)

Parts:1. A.C.I.T., 2. Vodafone Essar Gujarat Ltd. Vs 1. Vodafone Essar Gujarat Ltd., 2. The A.C.I.T.
Issuing Organization:ITAT (Income Tax Appellate Tribunal)
Resolution Date:January 29, 2010
Ley aplicable:Income Tax Act
Judges:H.L. Karwa, Judicial Member and A.N. Pahuja, Accountant Member
 
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Order:

A.N. Pahuja, Accountant Member, (In the ITAT Ahmedabad 'A' Bench)

  1. These cross appeals by the Revenue and the assessee directed against an order dated 30.3.2009 of the ld. CIT (A)-XIV, Ahmedabad, raise the following grounds:

    ITA No. 1878/Ahd/2009[Revenue]

  2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance on account of sales promotion expenses amounting to Rs. 48,935/-.

  3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of claim for deduction Under Section 80IA from revenue of sharing of cell site of Rs. 2,75,30,602/-.

  4. The Ld. CIT(A) has erred in law and on facts in deleting the addition to the book profit of Rs. 9,52,20,000/- on a/c of provision for municipal taxes for the computation of MAT liability.

  5. On the facts and in the circumstances of the case, the Id Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.

  6. It is therefore, prayed that the order of the learned Ld. Commissioner of Income Tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored.

    ITA No. 1361/Ahd/2009[Assessee].:

  7. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the finding of the Assistant Commissioner of Income Tax, Circle 8, Ahmedabad (hereinafter referred to as the 'AO') holding that the Appellant has started providing telecommunication services during the previous year relevant to the assessment year 1996-97.

    1.1 The CIT(A) erred in stating that:

    i. The appellant has started providing communications services as soon as it undertook the first activity of installation of sites and towers

    ii. The Director's report for the year ending March 31, 1996 shows that site preparation was near completion by March 31, 1996

    iii. The Appellant has completed 25 par cent of the activity which was required to launch commercial operations by March 31,1996.

    1.2 On the facts and in the circumstances of the case, the CIT(A) erred in not appreciating that whether the business has commenced in A. Y. 1996-97 has been decided by the AO in that year and the AO in A.Y. 2006-07 cannot take a view contrary to the view taken in A.Y. 1996-97.

    1.3 Without prejudice even it is presumed that the business is set up in A.Y. 1996-97, the CIT(A) erred in not appreciating that deduction under Section 80IA(4) is available only after the assessee starts providing telecommunication service which happened in January, 1997 relevant to the assessment year 1997-98

  8. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of he AO in holding that the Appellant's claim for deduction in AY 2006-07 would be governed by the provisions of Section 80IA of the Act as it stood in AY 1996-97 and not the relevant AY i.e. AY 2006-07.

    2.1. On the facts and in the circumstances of the case, the CIT(A) erred in holding the Appellant has exercised its option of making a claim for deduction Under Section 80IA the AY 1997-98 and hence the provisions of Section 80IA as substituted from the A Y 2002-03 would not apply.

    2.2 The CIT(A) erred in holding that the option to claim deduction for ten out of fifteen years under the substituted Section 80IA was available only to concerns which were granted a license after 1.4.1995 but could not start operations till 1.4.2002.

  9. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in setting off losses of earlier assessment years 1997-98 to 2000-01 amounting to Rs. 75,98,22,036/- without giving effect to the provisions of Section 79 of the Act while computing deduction Under Section 80IA of the Act

  10. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in holding that the license fees paid by the Appellant of Rs. 67.51 crores on a revenue sharing basis, is a capital expenditure incurred for the purpose of acquiring the license and not eligible for deduction as revenue expenditure.

  11. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the miscellaneous income of Rs. 16,60,841 and scrap sales of Rs. 4,99,681 are not income derived from business of the Appellant's industrial undertaking and hence not eligible for deduction Under Section 80IA of the Act.

  12. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the action of the AO in levy of interest under Section 234B & 234C where the total income was computed under the provisions of Section 115JB of the Act

    The Appellant craves leave to add, to amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.

  13. Adverting first to ground No. 1 to 1.3 in the appeal of the assessee, facts, in brief, as per relevant orders are that the e-retum declaring income of Rs. 2,27,38,451/- filed on 28.12.2006 by the assessee, a cellular service provider in the State of Gujarat, after being processed Under Section 143(1) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act'), was selected for scrutiny with the issue of notice Under Section 143(2) of the Act on 26-10-2007. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed deduction for an amount of Rs. 3,53,51,55,037/- Under Section 80IA(4)(ii) of the Act. The assessee company was incorporated on 14-03-1995 in the name of M/s. Fascel Limited. Since certificate of commencement of business was issued to the company on 04-04-1995, the AO asked the assessee to explain as to why initial year for claiming deduction Under Section 80IA(4) of the Act may not taken as assessment year 1996-1997 instead of 1997-1998 claimed by it. In response, the assessee submitted vide letter dated 19-12-2008 that after obtaining a certificate of commencement of business on 04-04-1995, the assessee entered into a license agreement with telecom authority in the month of January 1996 to establish, maintain and operate cellular mobile telephone service in the State of Gujarat. Thereafter, the assessee started implementing the project and launched its commercial operations only on 24-01-1997 as is evident from the audited accounts for the year ending 31-03-1997. Since telecom business was capital intensive involving considerable gestation period, after identification, it took time in installing the equipment at various sites. Thereafter, the telecom authority undertook necessary performance tests to ascertain the quality of service before launching commercial operations. While referring to the assessment order for the AY 1996-97 Under Section 143(3) of the Act, the assessee pointed out the following relevant extracts from the said order:

    Since this is the first year of operation of the assessee company and no business activities are carried out, the income is assessed as declared in the return at Nil.

    2.1 The assessee further pointed out that since the AO himself computed business loss in the assessment order for the AY 1997-1998, apparently initial year for staring telecommunication activity was AY 1997-1998 and not the AY 1996-1997. However, the Assessing Officer rejected these contentions of the assessee on the ground that certificate of commencement of business was issued in the period relevant to the AY 1996-1997 and license agreement with telecom authority was also executed on 11.1.1996. Referring to note No. B-9 of schedule 7 to the audited accounts for the financial year 1995-1996 as also decisions in the case of CIT v. ESPN software India Private Limited 301 ITR 368(Delhi) CIT v. Saurashtra Cement and Chemical Industries Limited 91 ITR 170(Gujarat), the AO concluded that date of license should be taken as date of commencement of business. Accordingly, it was held that the first year of providing telecommunication services was AY 1996-97 & not the AY 1997-1998, as claimed by the assessee.

  14. On appeal, it was contended on behalf of the assessee that mere signing the license agreement without having any infrastructure for rendering telecom services does not lead to the conclusion that the assessee had started providing the telecom services. In fact, the assessee launched its commercial services in Ahmedabad & Gandhinagar on 24.1.1997. While referring to the decisions in the case of JCIT v. Sardar Sarovar Narmada Nigam Limited 93 TTJ 965(Ahd), Western India Vegetable Products Limited v. CIT 26 ITR 151 (Bombay) and Sponge Iron India Limited, 201 ITR 770 (AP), the assessee contended that the receipt of certificate of commencement business is not a conclusive test for commencement of activities by the assessee. The assessee further invited the attention of the ld. CIT(Appeals) to list of cellular mobile services licenses published by the Department of Telecommunications, reflecting the date of start of telecom service on 21-01-1997. Relying on the principles of consistency, it was contended that the Department having accepted the position of the assessee for every assessment year since the AY 1996-1997, cannot now adopt a contrary position to contradict its own findings. in this connection, the assessee relied upon the decisions in the case of Radhaswami Satsang v. CIT 193 ITR 321 (SC), CIT v. Lagankala Upvan 259 ITR 489(Del.), CIT v. N.P Mathew 280 IT 44. CIT v. Kochin Goods Transport Association 236 ITR 996 (Ker),Lovely Balshiksha Parishad 266 ITR 349(Del.),CIT v. Nirmal Commercial Ltd. 213 ITR 361(Bom.), ITO v. Tejmalbhai & Company 100 TTJ 898 (Rajkot) and. CIT v. Bhartesh Jain (310 ITR 82) (Delhi). While relying upon their submissions before the AO, the assessee added that the AO can not change the initial year in the assessment proceedings for the year under consideration.

  15. After considering the aforesaid submissions, the Id.. CIT(A) upheld the findings of the AO mentioning that notes to the accounts of the assessee for the FY 1995-96 revealed that the assessee started construction work of installation of sites and towers...

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