DCIT Vs Vodafone India Ltd. (ITAT Mumbai)
ITAT Mumbai held that in terms of non- obstinate clause used in section 80IA(2A), deduction for telecommunication services is available in respect of “profits of eligible business” and is not restricted to “profits derived from eligible business” as mentioned in section 80IA(1) of the Act.
Facts-
The main controversy in the appeal by Department is admissibility of assessee’s claim of deduction u/s 80IA(4) of the Income Tax Act, 1961 [in short ‘the Act’] on telecommunication services.
Conclusion-
The Tribunal finally concluded that in terms of non- obstinate clause used in section 80IA(2A), deduction for telecommunication services is available in respect of “profits of eligible business” and is not restricted to “profits derived from eligible business” as mentioned in section 80IA(1) of the Act. The aforesaid findings of the Tribunal were affirmed by the Hon’ble Delhi High Court. We further observe that the DRP in directions dated 21/09/2017 for assessment year 2013-14 has observed that no SLP has been filed against the decision of Hon’ble Delhi High Court by the Revenue and allowed assessee’s claim of deduction u/s. 80IA of the Act in respect of other incomes. Respectfully following the decision of Hon’ble Delhi High Court in the case of BSNL, we direct the Assessing Officer to allow the benefit of deduction u/s. 80IA of the Act in respect of interest Income as well as miscellaneous income. Ground No.2 of the assessee’s appeal is thus allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals by the Department and assessee are against the order of Commissioner of Income Tax(Appeals)14, Mumbai [in short ‘the CIT(A)’] dated 2 1/06/2017 for the Assessment Year 2005-06.
2. The Revenue in appeal has assailed the order of CIT(A) by raising following grounds of appeal:
“1. The Learned CIT(A) erred on facts and in law in holding that the business of the assessee started in financial year relevant to A. Y. 1996-9 7 without properly appreciating the factual and legal matrix as clearly brought out in the assessment order.
2. The Learned CIT(A) failed on facts and in law to appreciate that the DRP, Delhi for in assessee’s own case for A.Y. 2066-07 has held that the business of the assessee started in F. Y. 1994-95 relevant to A. Y. 1 995-96.
3. The Learned CIT(A) erred on facts and in law in allowing assessee’s grounds of appeal pertaining to deduction u/s. 80IA without appreciating that the claims of the assessee in this regard were inadmissible in view of the commencement of assessee’s business prior to A. Y. 1996-97.
4. Whether on the facts & circumstances of the case and in law, the Learned CIT(A) is justified in holding that losses of earlier years, already set off against other income cannot be set off for determining the quantum of deduction u/s. 801A.
5. Whether on the facts & circumstances of the case and in law the Learned CIT(A) failed to appreciate that quantum of deduction u/s. 80IA is required to be computed as if the eligible business were the only source of income during the every assessment year for which such determination is to be made.
6. Whether on the facts & circumstances of the case and in law, the Learned CIT(A) erred in deciding the eligible years for claiming deduction u/s. 80IA in spite of the fact that the assessee is not eligible for deduction u/s 80IA at all as it has commenced its business prior to 01/04/1995.
7. The Learned CIT(A) has erred on facts and in law, in not giving effect to section 114(g) of the Indian Evidence Act which clearly lays down that if a fact in knowledge of a party is not explained, adverse inference can be drawn against the party possessing the knowledge of facts/information.”
3. Shri Anand Mohan representing the Department narrating the back ground of the case submitted that the main controversy in the appeal by Department is admissibility of assessee’s claim of deduction u/s 80IA(4) of the Income Tax Act, 1961 [in short ‘the Act’] on telecommunication services. This being the first year of claim of deduction u/s. 80IA of the Act, is of significant import. The admissibility or otherwise of assessee’s claim u/s. 80IA of the Act shall have consequential effect in the subsequent assessment years. The ld. Departmental Representative submits that assessee filed its return of income for impugned assessment year on 05/10/2005 claiming deduction u/s 80IA of the Act amounting to Rs.307,93,70,059/-. The assessee returned ‘Nil’ income for the Assessment Year 2005-06. The assessment was completed u/s 143(3) vide order dated 03/09/2007. The Assessing Officer accepted assessee’s claim of deduction u/s. 80IA of the Act in entirety. In immediately succeeding assessment year i.e. A.Y. 2006-07 assessee’s claim of deduction was denied by the AO on the ground that the assessee started telecommunication services prior to 1/4/1995. The said assessment order was confirmed by the DRP. Thereafter, the Commissioner of Income Tax, Chandigarh (in short ‘the CIT’) invoked revisional jurisdiction u/s. 263 of the Act for A.Y.2005-06 and quashed the assessment order. The assessee challenged the order of CIT dated 30/03/2010 passed u/s. 263 of the Act. The Tribunal vide order dated 19/09/2012 in ITA No. 706/Chd/2010 upheld the order of CIT passed u/s. 263 of the Act.In pursuance to order u/s. 263 of the Act, the Assessing Officer completed the assessment vide order dated 30/12/2010 rejecting assessee’s claim of deduction u/s. 80IA of the Act in full. The assessee carried the issue in appeal before First Appellate Authority. The CIT(A) vide order dated 13/10/2011 confirmed the assessment order dated 30/12/2010 passed u/s.143(3) r.w.s. 263 of the Act. Thereafter, the assessee carried the issue in second appeal before the Tribunal. The Mumbai Bench of Tribunal vide order dated 03/04/2013 set aside the order of CIT(A) dated 13/10/2011 and directed the Assessing Officer to make fresh assessment. The Assessing Officer in third round passed fresh assessment order u/s. 143(3) r.w.s. 263 r.w.s. 254 of the Act dated 29/11/2013. In the third assessment order, the assessee’s claim of deduction u/s. 80IA was again disallowed. The assessee challenged the validity of assessment order dated 29/11/2013 in Writ Petition No. 3359 of 2013before Hon’ble Bombay High Court. The Hon’ble Bombay High Court quashed the assessment order dated 29/11/2013 and directed the Assessing Officer to make fresh assessment after affording opportunity of hearing to the assessee. The Assessing Officer in fourth round passed the assessment order u/s. 143(3) r.w.s. 263 r.w.s 254 of the Act on 05/03/2014 rejecting assessee’s claim of deduction u/s. 80IA of the Act. Aggrieved by the said assessment order the assessee filed appeal before the CIT(A). The First Appellate Authority vide order dated 21/06/2017 allowed assessee’s claim of deduction u/s.80IA of the Act, hence, the present appeal by the Department.
In the meantime conflicting decisions were given by the Dispute Resolution Penal (DRP) at Delhi & Mumbai qua assessee’s claim of deduction us. 80IA of the Act. For A.Ys. 2006-07 to 2008-09 the DRP at Delhi rejected assessee’s claim u/s 80IA of the Act. Whereas, DRP at Mumbai allowed the claim of assessee for A.Ys. 2009-10 to 2012-13.
4. The ld. Departmental Representative (DR) submits that the assessee was providing Radio Paging Services and Cellular Phone Services. Both the above services fall within the meaning of telecommunication services u/s.80IA(4) (ii) of the Act. The ld. Departmental Representative submits that license for paging services was granted to the assessee on 05/08/1994 and license for cellular services was granted to the assessee on 29/11/1994. The assessee was already having customer base in the period relevant to Assessment Year 1995- 96. The assessee started selling pagers in FY 1994-95, therefore, the business of assessee had already commenced prior to 01/04/1995.
4.1 Referring to the provisions of section 80IA(4)(ii) of the Act, the ld. DR submitted that to be eligible to claim the benefit of deduction, the primary requirement of section is that the undertaking starts providing telecommunication services on or after 01/04/1995. In other words, benefit of section 80IA of the Act would be allowed, if assessee starts providing telecommunication services on or after 01/04/1995. In the present case, documents on record suggest that the assessee had started services prior to 01/05/1995, hence, the assessee is not eligible to claim benefit of deduction u/s. 80IA(4) of the Act. To support his arguments, the ld. DR referred to Form No.10CCB furnished by the assessee for Assessment Year 2005-06 and 2006- 07. The ld. DR referred to Form 10CCB for Assessment Year 2005-06at page 509 of the Assessee’s paper book. He pointed that a perusal of Column -8 of the Form would show that the date of commencement of operation is left blank. Thereafter, the ld. Departmental Representative referred to page 515 of the assessee’s paper book to point that in Form 10CCB for Assessment Year 2006-07 the date of commencement of operation is mentioned as 29/11/1994. The ld. Departmental Representative pointed that assessee after more than 8 years filed certificate dated 28/11/2013 from its Chartered Accountants clarifying that the date in Form 10CCAB for 2005-06 be read as November, 1995. The subsequent certificate issued by Chartered Accountants (at page 248 of the assessee’s paper book) is an after-thought and a self-serving document to avail the benefit of section 80IA of the Act. The Auditors have to verify the facts first hand before certification. In the instant case, the Auditors have issued the certificate on mere asking of the assessee without examining the documents on record. The certificate issued by the Auditors for Assessment Year 2005-06 is contrary to the audit report in Form 10CCB for Assessment Year 2006-07. The subsequent certificate issued by Auditors is not reliable and hence, has to be discarded at the outset.
The ld. Departmental Representative asserted that as per Rule 18BBB of the Income Tax Rules, 1962 (in short ‘the Rules’), the assessee eligible to claim deduction u/s. 80IA has to furnish certificate from Auditor in Form 10CCB from assessment year relevant to financial year in which the assessee commences the eligible business. The Rules does not specify that Form 10CCB is required to be filed only in the year of claim of deduction. The assessee never furnished Auditors Report in Form 10CCB up to Assessment Year 2005-06. The assessee furnished said report for the first time in Assessment Year 2005-06 i.e. the year of claim of deduction u/s. 80IA of the Act.
4.2 The ld. Departmental Representative referred to assessee’s return of income for the Assessment Year 1995-96 at page 58 of the Department’s Paper Book No.3. He pointed that in the Balance Sheet as on 31/03/1995 annexed to the return of income, the assessee has declared profit on sale of Pagers aggregating to Rs.35.88 lacs. On page No.28 of the said paper book the details of purchase, sale and closing stock of Pagers is given. The trading of Pagers clearly show that radio paging services had started in the Financial Year 1994- 95 i.e. prior to 01/04/1995. The ld. Departmental Representative further referred to Schedule -4 to the Balance sheet at page 32 of the said paper book. The ld. Departmental Representative pointed that the assessee had claimed expenditure on advertisement and site acquisition services during the Financial Year 1994-95. No customer would purchase hardware (Pagers) unless the service provider would start telecommunication services. Site acquisition services and the advertisement expenditure would only be incurred after the launch of services. Thus, from the aforesaid expenditure and profit on sale of Pagers it is logical to conclude that the assessee had started telecommunication services during the Financial Year 1994-95.
4.3 The ld. Departmental Representative further referred to assessee’s return of income for Assessment Year 1996-97 at page 1 of Department’s Paper Book No.4. He pointed that in Assessment Year 1996-97 in Schedule – 4 to Balance Sheet as on 31-3-1996, the assessee has claimed‘Service Launch Expenses’ which is nothing but the ‘Advertisement Expenses’.As the figure of advertisement expenses Rs.4.28 lakhs in Assessment Year 1995-96 corresponds to the figure of Service Launch Expenses in the immediate previous year. This clearly shows that services were launched in the period relevant to the Assessment Year 1995-96. The assessee has changed the nomenclature of expenditure to suit its requirements.
4.4 The ld. Departmental Representative thereafter referred to the information extracted from the web portal of the assessee. He pointed that as per information available on the web page of Max Telecom (as was the name of assessee at time of launch of telecommunication services) the year of commencement of cellular services & paging services is mentioned as 1994. The ld. Departmental Representative pointed that as per the information on the web portal the assessee had launched “Max Torch” cellular services in Mumbai in 1994. He asserted that in the information available in public domain the assessee throughout has claimed itself that business operations commenced in 1994.
4.5 The ld. Departmental Representative next referred to the license agreement dated 29/11/1994 at pages 72 to 111 of the Assessee’s Paper Book-I. He pointed that the effective date mentioned in the said agreement is 29/11/1994. The term effective date means the date on which the assessee is ready to start operations. The ld. Departmental Representative in support of his contentions also referred to the report published by Telecom Commission on 06/12/2000 on Radio Paging Services. He pointed that as per the said report, the first radio paging services were started in Chandigarh in March, 1995. The ld. Departmental Representative further referred to information furnished by the assessee during assessment proceedings for Assessment Year 2006-07 regarding various services provided year wise. As per assessment order for the Assessment Year 2006-07, the assessee admitted vide letter dated 26/10/2009 that cellular paging services were started in Mumbai, Navi Mumbai and Kalyan Telephone District during Financial Year 1994-95 and radio paging services were provided by the assessee in Telephone District of Ahmedabad, Bangalore, Pune, Vadodara, Chandigarh, Hyderabad and Ludhiana in Financial Year 1994-95.
4.6 The ld. Departmental Representative submitted that the assessee discontinued radio paging services on 01/04/2001. The assessee continued to provide cellular telephone services and purportedly claimed deduction u/s. 80IA of the Act first time in Assessment Year 2005-06 in respect of cellular services only. The assessee has not maintained separate books of account for cellular telephone services and radio paging services. Merely for the reason that assessee discontinued radio paging services that were started in Financial Year 1994-95 would not mean that the assessee is eligible to claim deduction u/s. 80IA in respect of the surviving segment i.e. cellular services. Telecommunication services include both radio paging services and cellular services. Non-maintaining of separate books for the two different divisions itself shows that the assessee was treating radio paging services and cellular services as composite business. The starting of even one of the divisions prior to 01/04/1995 would disentitle the assessee to claim deduction u/s 80IA of the Act in respect of the other division, even if the radio paging division was subsequently discontinued. The ld. Departmental Representative submitted that provisions of section 80IA read with Rule 18BBB makes it clear that each eligible undertaking has to be treated as separate undertaking and separate books are required to be maintained for each eligible undertaking. The ld. Departmental Representative placed reliance on the decision of Hon’ble Supreme Court of India in the case of Arisudana Spinning Mills Ltd. vs. CIT, 26 taxmann.com 39 to support his argument on requirement to maintain separate books of account for each eligible activity.
4.7 The ld. Departmental Representative further argued that the expression “start of business” holds the key. The business is said to have started when the license is received or essential activity of that business started or when all steps necessary to obtain business are made. The assessee entered into license agreement, made advertisement expenses, started trading in pagers, acquired equipments& machinery in Financial Year 1994-95, hence all these activities clearly indicate that the business of assessee commenced in period relevant to Assessment Year 1995-96. The ld. Departmental Representative placed reliance on the following decisions to support his argument:
(i) CIT vs. ESPN Software India Pvt. Ltd. 301 ITR 368 (Delhi);
(ii) CIT vs. Saurashtra Cement & Chemical Inds. Ltd., 91 ITR 170 (Guj);
(iii) CIT vs. E Funds International India, 162 Taxaman 1 (Delhi); and
(iv) Jcdecaux Advertising India (P) Ltd. vs. DCIT, 49 com 149 (Del-Trib.)
4.8 The ld. Departmental Representative without prejudice to his primary submissions made alternate submission, that the assessee has violated the provisions of section 80IA(2) of the Act. The assessee has claimed deduction u/s. 80IA of the Act in respect of the business that has emerged out of merger/reconstruction of the two divisions i.e. “Max Torch” and “Max Page”i.e. cellular business and paging business, respectively in the year 2000- 01. Although the assessee has claimed that it has satisfied all the conditions laid down u/s. 80IA(3) of the Act and there was no merger or reconstruction of the business, however, the facts on record are contrary to the claim of the assessee. The ld. Departmental Representative referred to the information available on web portal of Hutchison Max wherein the assessee in an article has stated that Hutchison has decided to merge its cellular and paging divisions. The head quarters of “Max Page” has already been shifted from Bangalore to Mumbai.
4.9 The Department filed an application for admission of additional evidences. The ld.Departmental Representative submitted that additional evidences are in the form of order sheets, exchange of letters between the assessee and Principal General Manager, Department of Telecommunications Chandigarh, noting sheets of Department of Telecommunication recorded during the Financial Year 1994-95, copies of invoices cum delivery challans indicating sale of Pagers during March 1995, license agreement for Radio Paging Service between Department of Telecommunications and Hutchison Max Telecom Ltd. These additional evidences are filed to substantiate that the assessee had started telecommunication services during the financial year 1994-95 i.e. prior to 01/04/1995.
The ld. Departmental Representative finally submitted that without prejudice to his primary arguments, even if, it is held that the services were started in the period relevant to the assessment year 1995-96, the assessee would be eligible for deduction @30% only and not 100% as claimed by the assessee.
5. Au Contraire, Shri Salil Kapoor appearing on behalf of the assessee vehemently defended the findings of CIT(A) in allowing assessee’s claim of deduction u/s. 80IA of the Act. The ld. Counsel for the assessee submits that to be eligible for claiming of deduction u/s. 80IA(4)(ii) of the Act, the undertaking should have started or start providing telecommunication services on or after 01/04/1995, but before 31/03/2005. The ld. Counsel for the assessee submitted that during the course of his submissions he would be referring to various documents which are already on record to show that the assessee started providing telecommunication services after 01/04/1995. The ld. Counsel for the assessee first referred to the assessment order for assessment year 1995-96 dated 09/03/1998 (at page 226 of Assessee’s Paper Book-1). In assessment year 1995-96 the assessee had made a claim that the assessee’s business was set up during the Financial Year 1994-95 relevant to assessment year 1995-96. The Assessing Officer rejected the claim of assessee and observed in para 6 of the assessment order that “the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995”. Though the assessee had filed appeal against the said assessment order before the CIT(A), however, the same was withdrawn thus, the assessee accepted the assessment order. The assessment order attained finality.
5.1 The ld.Counsel for the assessee stated that admittedly the agreement was executed between Hutchison Max Telecom(predecessor of the assessee) and the Department of Telecommunications on 29/11/1994 (at page 72 of the Assessee’s paper book -1),but the assessee started providing services much later. After execution of agreement there were several other compliances to be made, including installation of towers, assigning of radio frequency, inter phase service approval, final clearance from Department of Telecommunication, etc. before start of telecommunication services. The execution of agreement was one of intermediate step towards start of services. The ld. Counsel for the assessee referred to the letter issued by Department of Telecommunication dated 31/05/1995 at page 113 of the Assessee’s Paper Book Volume-1, whereby Radio Frequency Channels were assigned for GSM Cellular Network in Mumbai. The ld. Counsel for the assessee further referred to letter from Ministry of Communications, Government of India dated 13/10/1995 at page 116 of the aforesaid paper book, whereby it was communicated to the assessee that permissions granted earlier for launch of cellular mobile telephone services would be effective as soon as final clearance is received from Director (VAS-1), Department of Telecommunications. He further referred to letter dated 20/10/1995, whereby clearance in respect of interface/service approval for commissioning of Cellular Mobile Service was granted to the assessee by Director (VAS-1) subject to compliance of certain further conditions. Thus, it is evident from the documents on record that the final clearance and approve for starting cellular services were granted to the assessee in the year 1995 i.e. after 01/04/1995.
The ld.Counsel for the assessee pointed that in so far as radio paging services is concerned, the said services commenced in May/June 1995. He submitted that licence agreement for radio paging services may have been executed with Department of Telecommunications in 1994, however, radio frequency and final approval for starting the services were received by the assessee from Department of Telecommunications after 01/04/1995. The ld.Counsel for the assessee referred to Inter-Phase/Service Approval Certificate issued by the Department of Telecommunications for various Telecom Districts are at pages 199 to 205 of the Assessee’s Paper Book-1. He pointed that the earliest approval certificate was issued on 31/03/1995 for Chandigarh Telecom Districts. Radio frequency was allotted by Wireless Planning and Co-ordination Wing (WPC) for Chandigarh Telephone District on 24/04/1995. The same is at page 210 of the paper book. Without interface service certificate and assignment of radio frequency, the assessee could not have started paging services.
5.2 The ld. Counsel for the assessee further referred to the observations of the Assessing Officer in assessment order for assessment year 1995-96, wherein the Assessing Officer had held that the assessee’s business was not set up by 31/03/1995. The ld. Counsel for the assessee referred to the questionnaire issued by the Assessing Officer in assessment year 1995-96, wherein specific queries were raised with respect to details of the commencement of paging cellular services by the assessee in each of the territory including the details of starting of pilot services. The Assessing Officer further asked the assessee to file detailed technical note on the machinery equipment and the installation requirement for operating and paging and cellular services and the details of the software required for operating these services. The Assessing Officer after considering reply of the assessee came to the conclusion that the business of the assessee was not set up till 31/03/1995. In support of his submissions the learned counsel also draws our attention to the assessment order dated 29/01/1999 for assessment year 1996-97 (at page 234 of the paper book-1), wherein the Assessing Officer has categorically recorded that “cellular services had started on 1 6/11/1995 and paging services in 7 cities were also started in May/June 1995”.
5.3 The ld. Counsel for the assessee thereafter referred to the decision of Ahmadabad Bench of the Tribunal in assessee’s own case titled ACIT vs. Vodafone Essar Gujarat Ltd. reported as 131 TTJ 544(Ahd-ITAT). The ld. Counsel for the assessee submitted that Assessing Officer in assessment year 2006-07 denied deduction u/s. 80IA of the Act to the assessee. The assessee assailed the findings of Assessing Officer before the CIT(A) but remained unsuccessful. Thereafter, the assessee carried the issue in appeal before the Tribunal. The Tribunal allowing the appeal of assessee held that “whether or not the assessee started providing telecommunication services in any year, has to be decided in the assessment proceedings for that year in the light of the relevant facts and circumstances obtaining in that assessment year alone”. The Tribunal further observed that in the case of assessee, “the Assessing Officer has not reopened the assessment proceedings for the assessment year 1996- 97.Instead the findings recorded in the assessment year 1996-97 are being reconsidered in the year under consideration. This approach of the Assessing Officer is against settled position in law”. The aforesaid findings of the Tribunal were assailed by the Department before the Hon’ble Gujarat High Court in Tax Appeal No.1339 of 2010. The Hon’bleHigh Court upheld the findings of the Tribunal. The ld.Counsel for the assessee argued that similar is the position in present case. The findings given by Assessing Officer in assessment year 1995-96 were accepted by Department. No revision proceedings u/s 263 of the Act were initiated. Now, the Department cannot reconsider the findings given by the Assessing Officer in assessment years 1995-96 and1996-97 in assessment proceedings for Assessment Year 2005-06.
5.4 Referring to the advertisement expenditure in Financial Year 1994-95 the ld.Counsel for the assessee submitted that the advertisement expenditure was at the stage of re-launching of service. Similarly, site acquisition services were in the nature of pre-operative expenditure. The Department has failed to appreciate the fact that even in the Balance Sheet as on 31/03/1995, the expenditure in Schedule-4 has been referred to as pre-operative expenses. The ld. Counsel for the assessee further referred to Auditors report for the year ended 3 1/03/1995 at page 38 of the paper book, wherein the Auditors have mentioned that no profit and loss account has been prepared for the year ended 31/03/1995 as the company has not commenced commercial services.
5.5 The ld.Counsel for the assessee referred to the approval granted under section 10(23G) of the Act by Central Board of Direct Taxes dated 21/04/2006(at page 218 of the assessee’s paper book-1). Before granting approval investigations were carried out by the Department. The aforesaid approval was granted for the period starting from 01/08/2000 to 31/03/2006. The approval was in respect of investment made on or after 01/06/1998. The CBDT vide said approval held Cellular Mobile Telephone Services provided by assessee as eligible business under Section 80IA(4)(ii) of the Act.
5.6 On the objections raised by the Department with respect to non-mentioning of date of commencement of business in Form 10CCB for assessment year 2005-06 and mentioning of November, 1994 as the date of commencement in Form 10CCB for assessment year 2006-07, the ld.Counsel for the assessee submits that non-mention of date of commencement in Form 10CCB for assessment year 2005-06 and mentioning of 29/11/1994 for assessment year 2006-07 was a clerical error and the same was rectified by the Auditors by issuing certificate. The ld.Counsel for the assessee submitted that this technical defect cannot supersede the larger issue. The documents on record clearly suggest that the assessee commenced telecommunication services – radio paging services and cellular mobile services after 01/04/1995. The ld.Counsel for the assessee submits that merely for the reason that Pagers were sold during the Financial Year 1994-95 would not mean that the services commenced before 01/04/1995. The assessee by no means could have started radio paging services/cellular telephone services before allocation of interface / service approval and assignment of radio frequency.
5.7 On the objections raised by the ld.Departmental Representative with respect to the observations of Chandigarh Bench of Tribunal in ITA No.706/CHD/2010 while deciding the appeal of the assessee against the order passed u/s. 263 of the Act for assessment year 2005-06, the ld.Counsel for the assessee submits that directions of the Bench were not to place reliance on the findings given in the assessment order passed u/s.143(3) for assessment year 2006-07. The directions of the Tribunal nowhere states that no reference could be made to assessment order for assessment year 1995-96 and 1996-97.
5.8 On the objections raised by the Department in assessee not maintaining separate books of account for radio paging service and cellular telephone service, the ld. Counsel for the assessee submits that the provisions of section 80IA nowhere mandates maintenance of separate books of account for two different divisions. The ld. Counsel for the assessee in support of his submissions placed reliance on the decision in the case of CIT vs. Micro Instrument Company reported as 388 ITR 46(P&H). The ld. Counsel for the assessee asserted that in any case radio paging services and cellular mobile services commenced only after 01/04/1995, hence, the arguments raised by the ld. Departmental Representative becomes irrelevant. The Department has erred in not considering the fact that deduction u/s. 80IA is available to an undertaking and not to an assessee.
5.9 On argument by the ld. DR that the business of the assessee has been formed by reconstruction/merger of two different undertakings, the ld. Counsel placed reliance on CBDT Circular 5 of 2005 dated 15/7/2005 and the findings of the CIT(A).
5.10 As regards additional evidences filed by the Department, the ld.Counsel for the assessee strongly objected to the admission of additional evidences. The ld.Counsel for the assessee submits that the assessment order for assessment year 2005-06 was made four times. The matter travelled to and fro between Assessing Officer and CIT(A), the Department never thought fit to furnish the additional evidences either during assessment proceedings or during the first appellate stage in four rounds. No reason whatsoever has been given by the Department for not submitting additional documents during the course of assessment proceedings. Now, additional evidences at thisbelated stage should not be admitted. The Revenue cannot seek re-examination of the entire issue by placing reliance on additional documents which were never part of record in earlier four rounds of litigation.
5.11 In respect of alternate claim of the Department that if at all deduction u/s. 80IA is to be allowed to the assessee it should be allowed @ 30%, the ld.Counsel for the assessee placed reliance on CBDT Circular No.1 of 2016 dated 15/02/2016.
6. Rebutting the arguments made on behalf of the assessee, the ld. Departmental Representative submitted that the submissions made on behalf of the assessee were already considered by Chandigarh Bench of the Tribunal while adjudicating the appeal of assessee in ITA No.706/CHD/2010 (supra). The Tribunal after considering the submissions rejected the same and upheld the validity of order u/s. 263 of the Act. The ld. Departmental Representative further pointed that the decision of Ahmadabad Bench of the Tribunal in the case titled ACIT vs. Vodafone Essar Gujarat Ltd.(supra) was rendered on 29/01/2010. The same was available with the assessee at the time of appeal proceedings arising out of order passed u/s. 263 of the Act. The Chandigarh Bench of the Tribunal passed the order on 18/09/2012. For the reasons best known to the assessee, the assessee did not furnish the decision of Ahmadabad Bench of the Tribunal before the Chandigarh Bench. The ld. Departmental Representative referring to the assessment order for assessment year 1995-96 submitted that the findings of the Assessing Officer in para 4.2 of the said order are based on the reply field by the assessee. The Assessing Officer has not returned the findings on the basis of his own independent enquiry. The ld. Departmental Representative referring to the approval granted by CBDT u/s. 10(23G) of the Act pointed that approval has been granted only with respect to cellular services and not paging services, hence, reliance cannot be placed on the approval granted by CBDT. The ld. Departmental Representative finally submits that the expression “commencement of business” should not be given narrow meaning. The Hon’ble Delhi High Court in the case of CIT vs. ESPN Software (supra) has held that a business is commenced as soon as an essential activity of business is started. A business is commenced with the first purchase of stock- in- trade, the date when first sale is made is not material. In the present case, the assessee purchased Pagers and sold the Pagers prior to 01/04/1995, hence, the sale and purchase of Pagers is inextricably linked to the assessee providing radio paging services. For all intent and purpose the business of assessee commenced prior to 01/04/1995, therefore, the assessee fails to qualify the pre-condition set out in section 80IA(4)(ii) of start of telecommunication services after 1/4/1995 to claim the benefit under the said section.
FINDINGS:
7. We have heard extensive submissions made by rival sides and examined the orders of authorities below. We have also considered various documents and decisions on which the respective sides have placed reliance in support of their arguments.
8. The assessment for assessment year 2005-06 has a chequered history of a protracted litigation. The assessee claimed deduction u/s. 80IA of the Act in respect of profits and gains derived from telecommunication service in AY 2005-06 for the first time. The claim of the assessee was initially allowed by the Assessing Officer in order dated 03/09/2007 passed u/s. 143(3) of the Act. The CIT invoked revisional jurisdiction u/s. 263 of the Act on the ground that the Assessing Officer without examining the claim has allowed the benefit of deduction u/s. 80IA of the Act to the assessee, hence, the assessment order was set aside. The Assessing Officer in second round passed the assessment order u/s. 143(3) r.w.s. 263 of the Act dated 30/12/2010 disallowing assessee’s claim of deduction u/s. 80IA of the Act. In the meantime, the assessee had also challenged the validity of order passed by CIT u/s.263 of the Act before the Tribunal. The Chandigarh Bench of the Tribunal in ITA No.706/CHD/2010 (supra) vide order dated 18/09/2012 upheld the order passed u/s. 263 of the The assessee had also assailed the assessment order passed u/s. 143(3) r.w.s. 263 of the Act dated 30/12/2010 before the CIT(A) but remained unsuccessful. Thereafter, the assessee carried the issue in appeal before the Tribunal in ITA NO.1172/CHD/2011. The Tribunal allowed the appeal of assessee for statistical purpose and restore the issue back to the file of Assessing Officer for denovo assessment. The Assessing Officer in the third round of assessment vide order passed u/s. 143(3) r.w.s. 263 r.w.s. 254 of the Act dated 29/11/2013 again disallowed the claim of deduction u/s.80IA of the Act. The said order was challenged by the assessee in Writ Petition No.3359 of 2013. The Hon’ble Bombay High Court without commenting on the merits of the issue set aside the assessment order for de-novo assessment. Consequent to the order of Hon’ble High Court, assessment order was passed fourth time for assessment year 2005-06 vide order dated 05/03/2014. In the fourth assessment order, the Assessing Officer again disallowed assessee’s claim of deduction u/s. 80IA of the Act. The assessee assailed the findings of Assessing Officer in disallowing claim of deduction u/s. 80IA before the CIT(A). The CIT(A) vide impugned order dated 21/06/2017 allowed assessee’s claim of deduction u/s. 80IA of the Act. Hence, the present appeal by the Revenue.
The primary reason for rejecting assessee’s claim by the Assessing Officer is that the assessee started providing telecommunication service in the Financial Year 1994-95 i.e. prior to 01/04/1995. As per the provisions of section 80IA the undertaking is eligible for benefit of deduction u/s. 80IA(4)(ii), if the undertaking started or starts providing telecommunication service on or after 1st day of April 1995. According to the Assessing Officer since, the assessee has started providing telecommunication services prior to 01/04/1995 the assessee is not eligible for claiming deduction u/s. 80IA of the Act. The assessee claimed deduction u/s. 80IA of the Act for the first time in AY 2005- 06.
9. Two issues have emerged from the submissions and the grounds of appeal raised by the Department:
(i) Whether the assessee started providing telecommunication services before 01/04/1995 or thereafter; and
(ii) Whether the assessee is eligible to claim deduction u/s. 80IA(4)(ii) of the Act .
10. The primary reason for rejecting assesses claim of deduction u/s. 80 IA(4)(ii) of the Act by the Department is that the assessee started providing telecommunication services prior to 01/04/1995. Whereas, the claim of assessee is that the assessee started providing telecommunication services after 0 1/04/1995.
11. Before proceeding further to decide this issue, it would be imperative to refer to the provisions of section 80 IA(4)(ii) of the Act. The relevant extract of the same are reproduced herein below:
Section 80IA(4)(ii)
“(ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 2005.”
12. The Department in order to prove that the assessee started providing telecommunication services which includes radio paging services and cellular telephone services inter-alia placed reliance on following documents:
(i) Form No. 10CCB furnished by the assessee for AYs 2005-06 & 2006-07;
(ii) Return of income of assessee for A.Y. 1995-96 and 1996-97;
(iii) Information extracted from Web portal of Max Telecom (predecessor of the assessee);
(iv) Licence agreement dated 29/11/1994;
(v) Telecom Commission report;
(vi) Additional evidences filed by the Department viz. communication between the assessee and Principal General Manager, Department of Telecommunication (in short ‘ the DoT’), invoices, etc.
13. On the other hand, the assessee in order to substantiate that the assessee started providing telecommunication services after 01/4/1995 interalia placed reliance on following documents:
(i) Assessment order for Assessment Year 1995-96 and 1996-97;
(ii) Letter of approval and letter of clearance issued by DoT Government of India;
(iii) Auditors Certificate clarifying date of commencement of services;
(iv) Interface/Service approval Certificate;
(v) Radio frequency assignment letter;
(vi) Approval from CBDT u/s. 10(23G) of the Act, etc.
14. Hutchison Max Telecom Pvt. Ltd. (predecessor of the assessee) was incorporated on 21/02/1992 with the main object of providing radio paging services and cellular telephone services in India. Initially, the assessee claimed that the business of assessee commenced in Financial Year 1994-95 i.e. the period relevant to the Assessment Year 1995-96. The assessee in the return of income for Assessment Year 1995-96 claimed interest expenditure and depreciation, accordingly. The Assessing Officer issued a questionnaire dated 16/12/1997 making specific enquiries regarding the details of commencement of paging and cellular services and details of machinery, equipment and installation required for operating paging and cellular services. The Assessing Officer after making detailed enquiries came to conclusion that cellular services were started by the assessee on 16/11/1995. Even pilot services prior to commencement of commercial services were started on 27/07/1995 and radio paging services commenced during the period May 1995 to June 1995. The Assessing Officer in assessment order dated 09/03/1998 for Assessment Year 1995-96 categorically held that the assessee’s business was not set up by 31/03/1995. The relevant extracts from the assessment order for 1995-96 are reproduced herein below:
“6. After taking into account all the facts relevant to the issues and the submissions made by the assessee, it is held that the assessee’s business was not set up in 1992. It is also held that the business of the assessee has not been set up till the closure of the accounting year relevant to the assessment year under consideration i.e. 31/03/1995. The reasons for holding so are discussed below:
A. xxxxx
B. xxxxx
C. xxxxx
D. The nature of the business of the assessee is such that it requires a large scale development of highly sophisticated communication equipment. These equipment’s could be operationalized only after developing the requisite software for that area. There is no evidence provided by the assessee company on record to show that necessary equipment’s and the required software was installed by the assessee on31/03/1 995. It is pertinent to note that even the pilot services for cellular telephone and the paging services were started 2 to 4 months after the closure of the previous year under consideration. This means that the required equipment’s and software were installed by the assessee only after 2 to 3 months of the closure of the previous year in question.”
[Emphasized by us]
The assessee filed appeal against the aforesaid assessment order before theCIT(A), however, the said appeal was withdrawn by the assessee. No revision proceedings were carried out by the Department for the Assessment Year 1995-96. Thus, the aforesaid assessment order attained finality.
In the assessment order for 1996-97 dated 09/01/1999 passed u/s. 143(3) of the Act, the Assessing Officer in para 3 recorded, “The assessee’s business has commenced in the financial year pertaining to current asstt. year. The cellular services had started on 16/11/1995 and paging services in 7 cities were also started in May/June 1995.” The Assessing Officer in assessment order for Assessment Year 1996-97 in para -3.1 of the order further observed, “The issue regarding setting up of business has already been decided in the case of assessee company in Asst.year 1 995-9 6 by passing a detailed order.”The Assessing Officer after recording the above facts allowed assessee’s claim of depreciation in Assessment Year 1996-97. The aforesaid findings given in the assessment order for Assessment Year 1996-97 were confirmed by the CIT(A) vide order dated 11/09/2000. No further appeal was filed by either of the sides thereafter, hence, the findings in the assessment order for Assessment Year 1996-97 became final.
15. The assessee in order to substantiate that cellular services commenced after 01/04/1995 referred to the communication dated 31/05/1995 from DoT, Wireless Planning and Co-ordination (WPC) Wing (at page 113 of Assessee’s paper book -1), whereby Radio Frequency Channels for GSM Cellular Network in Mumbai was assigned to the assessee. Our attention was also drawn to the letter dated 13/10/1995 at page 116 of the Paper Book-1, whereby Ministry of Communications (WPC Wing) accorded permission for launching cellular mobile telephone services at Mumbai subject to final clearance from Director (VAS-I), DoT. The said clearance was accorded to the assessee by Director (VSA-I) vide letter dated 20/10/1995 (at page 117 of Paper Book-1). Although, the license agreement was executed between the assessee and DoT in November, 1994 the assessee could not have started cellular mobile telephone services till the time radio frequency was assigned and all clearances prior to commencement of cellular mobile telephone services are obtained by the assessee. A perusal of the said agreement (Condition -20) clearly mentioned that a separate license shall be required from the WPC Wing of Ministry of Communication which will permit utilization of appropriate radio frequency spectrum for establishment and operation of cellular mobile telephone services. Thus, without allocation of radio frequency the assessee could not have commenced cellular mobile telephone services. As is evident from permits/assignment letters from the DoT referred above it is evident that the said permissions/clearances were granted to the assessee after 01/04/1995.
In so far as radio paging services is concerned the assessee received Interface/Service approval Certificate for the seven cities (Telecom District) in the month of April/May 1995. The date-wise details of the same are tabulated herein below:
