Case Law Details
CIT Vs Indus Towers Ltd. (Delhi High Court)
Conclusion: Merely because the loan processing charges though paid upfront but amortized over a period of five years, solely to be in consonance with the mercantile system of accounting, deduction of the entire charges in lump sum in the year in which the same were paid could not be denied to assessee.
Held: Assessee-company was incorporated in the year 2007 as a joint venture Company of Bharti Infratel Limited, Vodafone Essar Limited and Aditya Birla Telecom Limited with its main object being to share the telecom infrastructure amongst various telecom service providers in 16 telecom circles through 93,723 telecom sites, out of which 79,239 telecom sites were under indefeasible rights to use on 01.01.2009 and the remaining 14,484 sites were built and personalized by assessee on its own during the financial year concerning the subject Assessment Year. Assessee filed its return of income, thereby declaring total loss of Rs.452,16,70,660/- which was revised and the declared loss was pegged at Rs.61 1,62,44,502/- including unabsorbed depreciation of Rs.525,17,02,779/-. Case of assessee having been selected for scrutiny assessment, notice under Section 143(2) of the Act was issued to it. AO passed an assessment order thereby declaring the total loss of assessee as Rs.292,27,98,604/- as against the claimed loss of Rs.61 1,62,44,502/-. During the relevant financial year, utilizing the interest bearing borrowed funds, assessee claimed to have started constructing 14,484 towers, by which time it had taken few towers on lease from Bharti Airtel, Vodafone and Idea, and the construction of new towers was merely a part of the existing concern acquiring assets to expand the same business, so the interest component on the borrowed funds could only be capitalized i.e. added to the cost of the assets but could not be claimed for deduction as revenue expenditure under Section 36. AO was of the view that all towers erected by assessee might not have been put to use, therefore, in respect of the towers that in his opinion were not put to use prior to 31.03.2009, the interest expense for the fund borrowed were to be capitalized. Since despite repeated directions, assessee failed to submit the tower-wise details, it was also not entitled to claim depreciation in respect of 50% of towers. As regards depreciation also, AO was of the view that not all towers erected by the assessee might have been put to use, so on estimated basis, depreciation qua 50% of towers could be allowed. Since assessee, claiming an amount of Rs.20.75 crore towards the upfront loan processing fees as revenue expenditure had debited only Rs.4,45,38,521/- in its profit & loss account and had amortized the loan processing fees over the period of loan, the deduction allowable to assessee had to be restricted to Rs.4,45,38,521/- for the current year with the liberty to claim disallowance in the subsequent years based on accounting treatment. Tribunal held that, so far as interest on loans and depreciation were concerned, there was no infirmity in the decision of the CIT (A). The loan in question was raised by assessee only for the purposes of its business, merely because the loan processing charges though paid upfront but amortized over a period of five years, solely to be in consonance with the mercantile system of accounting, deduction of the entire charges in lump sum in the year in which the same were paid could not be denied to assessee. There was no infirmity in the view taken by Tribunal in the impugned order.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. In this appeal brought by revenue under Section 260A of the Income Tax Act, 1961 assailing order dated 07.06.2019 of the learned Income Tax Appellate Tribunal (hereinafter referred to as “the Tribunal”), passed in ITA No.2242/Del/2014 and CO No.1040/Del/2014, following four questions of law were proposed by the appellant:
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