A.D. Jain, Judicial Member
This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-V, New Delhi dated 10.2.2009 pertaining to assessment year 2004-05.
2. The grounds raised read as under:-
"1. The Ld. Commissioner of Income Tax (A) has erred in law and on facts in directing to delete addition of Rs. 2,52,25,000/- made by the Assessing Officer treating the same as revenue expenditure u/s. 37 of the Act which the Assessing Officer had correctly treated as of capital nature being pre-operative expenditure.
2. The Ld. Commissioner of Income Tax (A) has erred in law and on facts in directing to allow license fee of Rs. 2,86,91,56,528/- paid to Deptt. Of Telecommunication ignoring the fact that â
a) the same were correctly amortized over the remaining period of license by applying provisions of Section 35ABB of the Act.
b) allowing relief u/s. 37 of the Act by the Ld. Commissioner of Income Tax (A) is not correct appreciation of facts.
3. The Ld. Commissioner of Income Tax (A) has erred in law and on facts in directing to delete addition of Rs. 65,00,000/- on account of disallowance of deduction claimed u/s. 35 of the Act ignoring the fact that necessary details were not filed in Form 3CD attached with the return of the income and also no supporting document were furnished by the assessee in support of its claim.
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
Apropos ground no. 1
3. In this case Assessing Officer observed that Schedule-6 of the Profit and loss account showing preoperative expenses pending allocation showed an amount of Rs. 2,52,25,000/- transferred to the profit and loss account. However, the same was not added back to the computation of income. Assessing Officer enquired as to why the above mentioned expenditure claimed for expenses for setting up new assets / new circles may not be capitalized. Assessee submitted that these expenses were on revenue account and fully allowable under the I.T. Act. Assessee submitted that these expenses were for the purpose of extension of existing business. However, Assessing Officer was not satisfied. He observed that facts on the issues are same as in the assessment year 2003-04, wherein similar claim was disallowed. Accordingly, Assessing Officer held that the amount of Rs. 2,52,25,000/- claimed as revenue expenditure by the assessee on account of miscellaneous expenses for the purpose of setting up of new circles was treated as capital expenditure and added back to the total income.
4. Before the Ld. Commissioner of Income Tax (A) assessee submitted that the revenue expenditure of Rs. 2,52,25,000/- represents network operating expenditure, personnel expenditure, sales and marketing expenditure, administrative and other expenditure and finance expenses. It was submitted that the assessee is in the business of providing telephone services. It has already been in commercial operation as it was providing cellular telephone services in Delhi since 26.9.1995 and also commenced operations in eight new circles acquired in the previous assessment year. It was further submitted that the expenses were not in the nature of miscellaneous expenses and also not part and parcel of development of new project. Further, the assessee relied upon the decision of the ITAT, Delhi in the case of Bharti Infotel Ltd. (assessee's group company) for A.Y. 2007-08 and A.Y. 98-99. In this case it was held that "revenue expenditure incurred is only on the expansion of business which form part of telephone business and cellular telephoning business was said to be set up when the license was granted for Himachal Pradesh unit which is on 12.12.1995, this being only an expansion of existing business. The Revenue expenditures were allowable as such." Considering the above, Ld. Commissioner of Income Tax (A) held that as the facts in the present case were identical to the facts discussed above by the ITAT, he held that the pre-operative expenses must be treated as revenue expenditure u/s. 37 of the I.T. Act.
5. Against the above order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the following decisions:-
- Bharti Cellular Ltd. (now known as Bharti Airtel Limited) ITAT Order in I.T.A. No. A.Y. 2002-03.
- Bharti Telenet (Group Concern) - I.T.A. No. 3167/05 - A.Y. 2001-02
- Bharti Cellular Ltd. I.T.A. No. 1737 and 1738(2002) - A.Y. 1995-96 and 1996-97.
Order of ITAT In A.T. 1995-96 and 1996-97 confirmed by Delhi High Court.
SLP against the order of Delhi High Court dismissed by Supreme Court.
6.1 Ld. Departmental Representative on the other hand fairly conceded that the issue is squarely covered in favour of the assessee.
6.2 Accordingly, in this view of the matter that the issue is squarely covered by the case laws cited above, we uphold that the order of the Ld. Commissioner of Income Tax (A) and decide the issue in favour of the assessee.
Apropos ground no. 2
7. On this issue Assessing Officer observed that profit and loss account filed by the assessee shows that an amount of Rs. 4,12,75,16,258/- was claimed as "license fee and spectrum charges (revenue share)." Assessee was required to furnish the details of license fee paid during the year. On perusal of the details filed Assessing Officer observed that an amount of Rs. 307,40,95,979/- was paid as license fee during the year and the same was claimed as revenue expenses. Assessing Officer further observed that in earlier years in assessee's own case, this expenditure was amortized over the remaining license period as per the provisions of section 35ABB of the I.T. Act. Assessing Officer further noted that the issue has been discussed in the order of the earlier years in the case of the assessee itself. Assessing Officer held that the verifiable license fee was amortized as per the section 35ABB of the I.T. Act, 1961 over the remaining period by license i.e. 15 years. Accordingly, license fee amounting to Rs. 20,49,39,730/- for the current year was allowed and the rest being Rs. 2,86,91,56,258/- was disallowed and added back to the income of the assessee.
8. Before the Ld. Commissioner of Income Tax (A) assessee's counsel relied upon the order of the Ld. Commissioner of Income Tax (A) for the assessment years 2001-02 and 2002-03. It was further submitted that this proposition in assessment year 2000-01 and 2001- 02 has also been confirmed by the ITAT, Delhi. It was further explained that the in view of annual payment of the licence fee calculation on the basis of annual revenue, the expenditure was a revenue expenditure covered u/s. 37(1) of the I.T. Act, and not covered under section 35ABB as it was not merely payment of capital nature confirming a benefit on the assessee for more than one year. Considering the above, Ld. Commissioner of Income Tax (A) held as under:-
"I have considered the rival submissions and arguments on the issue carefully. The claim of license fee being the payment as a percentage share of annual gross revenue (AGR) under the head "license fee" as revenue expenditure appears to be correct. The licensee fee paid under section 35ABB conferred a right on the telecom operators to operate telephony services for a number of years. U/s. 35ABB the fee was held to capital and allowable in an appropriate proportion over the number of years. From 1.7.1999, the whole scheme of payment was changed and license fee was directly linked with the annual revenue generated by the telecom operators. The payment also was annual and not for a number of years except the entry fee which conferred the right for several years. As per settled law, any expenditure which does not create an asset and which is paid for the specific year and not for years is not a capital expenditure but revenue expenditure. In view of the decision of the ITAT, Delhi in company's own case for A.Y. 2000-01 and 2001-02, I have no hesitation in holding that the annual license fee calculated on the basis of annual revenue of the appellant company is revenue expenditure and has to be allowed under section 37 and not u/s. 35ABB. The Assessing Officer is directed to treat the license fee as revenue expenditure covered u/s. 37."
9. Against the above order the Revenue is in appeal before us.
10. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the ITAT in earlier years. In this regard, he referred to the following cases laws:-
- Bharti Cellular Ltd. order of ITAT in A.Y. 2000-01 in I.T.A. No. 5335/Del/2003.
- A.Y. 2001-02 in I.T.A. No. 3165/Del/2005 and 2725/Del/2006.
10.1 Ld. Departmental Representative on the other hand fairly conceded that the issue is squarely covered in favour of the assessee.
10.2 Accordingly, in this view of the matter that the issue is squarely covered by the case laws cited above, we uphold that the order of the Ld. Commissioner of Income Tax (A) and decide the issue in favour of the assessee.
Apropos ground no. 3
11. On this issue Assessing Officer observed that as per the computation of income, assessee had claimed deduction u/s. 35AC of the Act amounting to Rs. 65,00,000/-. However, as per Column 15 of Form No. 3CD, the Annexure 7 and Annexure 8 does not contain any amount relating to the provisions of Section 35AC of the Act. The assessee was asked to furnish details of the deduction claimed u/s. 35AC. Assessee submitted that due to typographical error the deduction u/s. 35AC of the Act has been wrongly claimed, since the same pertain to section 35 of the Act. Assessee further submitted that a certificate obtained from the IIT, Delhi in support of the claim. Assessing Officer held that the claim was not allowable, since the details were not filed in Form No. 3CD attached with the return of income and also no supporting documents were furnished in support of its claim.
12. Before the Ld. Commissioner of Income Tax (A) assessee submitted that Assessing Officer has disallowed the claim merely because the details of deduction were not mentioned in Form No. 3Cd with the return of income. It was further submitted that the assessee company has duly furnished a copy of certificate from IIT, Delhi regarding the payment made to them for research and development related to business for the assessee company. It was further submitted that the deduction was not mentioned in the Tax Audit Report was not relevant in as much as the said claim was bona fide for which payment has been made by account payee cheque as confirmed by the payee in the certificate issued by them. Considering the above, Ld. Commissioner of Income Tax (A) held that the assessee has made a bonafide payment to the IIT, Delhi for the purpose of research and development related to the business of the assessee. Merely because the details were not mentioned in the Form No. 3CD it cannot be a valid ground for disallowance.
13. Against the above order the Revenue is in appeal before us.
14. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that the Ld. Commissioner of Income Tax (A) has given a finding that the assessee has made a bonafide payment to the IIT, Delhi for the purpose of research and development work related to the business of the assessee. In this view of the matter, assessee's claim is cogent enough. Accordingly, we uphold the order of the Ld. Commissioner of Income Tax (A) and decide the issue in favour of the assessee.
15. In the result, the appeal filed by the Revenue stands dismissed.