DCIT Vs. Indus Towers Ltd. (ITAT Delhi)
It is pertinent to note that the assessee had taken loans from banks and financial institutions amounting to Rs. 1850 crores for operating its business and banks charges Rs. 21,87,50,000/- as one time processing fees (upfront fee). The entire amount of loans processing fees was claimed as revenue expenditure u/s 37 of the Act. The Ld. AR contented that for accounting purposes assessee amortised the total fees over the period of respective loan by debiting an amount of Rs. 4,45,38,521 to its P&L, based on number of years for which loan was used in this assessment year. The aforesaid expense incurred for getting the finance for normal business operations and does not provide any enduring benefit to the assessee. Business need funding from time to time and thus this expense is routine business expense claimed as revenue in nature. In fact, CIT(A) gave finding with respect to disallowance of interest and depreciation that “none of the loans related to incomplete towers shown as CWIP as the appellant has yet to make payment for such suppliers” i.e. loans were not utilized for construction of telecom towers. In view of this finding, expense related to loan cannot be capital in nature and allowable as revenue expenditure. These contentions of the Ld. AR are acceptable as the funding is required in business necessities from time to time and these expenses are regular business expenses claimed by the assesse. The assessee has filed the relevant evidence before the Revenue authorities as to the expenses and there is no adverse finding that these expenses are not utilized for the business. Thus, the assessee rightly claimed it as revenue expenses.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals are filed by the Revenue as well as by the assessee against the order dated 31/01/2014 passed by CIT(A)-XV, New Delhi for Assessment Year 2009-10.
2. The grounds of appeal are as under:-
“1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 42,25,273/- made on account of disallowance of gratuity payments.
2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 30,32,30,226/- made on account of net accrual of equalization reserve.
3. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,23,75,65,807- made on account of disallowance interest on loan and respectively erred in deleting the addition of Rs. 1,07,50,16,411/- on account of disallowance of depreciation on telecom
4. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in restricting the addition of Rs. 31,03,91,544/- made on account of disallowance of IRU charges to the extent of Rs. 3,87,51,992/-.”
I.T.A. No. 1040/DEL/2014
“1. That in the facts and circumstances of the case & in law, the Ld. CIT(A) erred in disallowing an amount of Rs. 3,87,51,992/- towards Indefeasible Right to Use (‘IRU’) charges while holding the said amount to be excessive and unreasonable, without appreciating that the entire amount of IRU charges claimed were duly confirmed by the recipient parties u/s 133(6) of the Act.
1.1. That the Ld. CIT (A) erred in not appreciating the relevant clauses of IRU agreement(s) wherein it was categorically stated that the Appellant was bound to pay fixed monthly amount for IRU charges irrespective of the number of telecom sites leased.
2. That the Ld. CIT(A) erred in treating loan processing fee of Rs.21,87,50,000/- which is revenue in nature allowable under section 3 7(1) of the Act, as capital expenditure and thereby allowing depreciation instead of allowing it as revenue expenditure u/s 3 7(1) of the Act.
That the above grounds of appeal are without prejudice to each other.”
3. The assessee is a public limited company registered under the Companies Act, 1956 and was incorporated 011 20.11.2007. The assessee is a joint venture among Bharti Infratel Ltd., Vodafone Essar Limited and Aditya Birla Telecom Ltd in the ratio of 42,42,16 respectively. The company has been formed with the main object of sharing telecom infrastructure among the various telecom service providers. It renders telecom supports services to several telecom operators viz. Bharti Airtel, Vodafone, Idea, Reliance, Aircel, Uninor, Datacom, Loop, BSNL, BNSL etc in 16 telecom circles through 93,723 telecom sites, out of which 79,239 telecom sites are taken under indefeasible right to use 011 01.01.2009 and remaining 14,484 sites are built and personalized by the assessee on its own during the financial year. The assessee company filed its E-return of income on 30.09.2009 declaring total loss, at Rs.452,16,70,660/- which was subsequently revised on 30.09.2010 revising the total loss at Rs.61 1,62,44,502/- (including unabsorbed depreciation of Rs.525, 17,02,779/-). The return of income so revised is treated as valid return as it is furnished within the statutory time limit. The return was accompanied by the copies of final accounts and tax audit report u/s 44AB of the I.T. Act. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued and duly served on the assessee. In response to the above notices, Vice President-Taxation and Assistant Tax Manager of the company attended the proceedings from time to time, filed the details asked for as well as produced books of accounts which are examined by the Assessing Officer. On commencement of the hearing for assessment, the assessee filed a letter dated 28.3.2011 wherein, it is informed that Hon’ble Delhi High Court has passed an order dated 07.03.2011 directing the completion of the assessment for the year under consideration by 15.06.2011 while disposing off of writ petition in the case of M/s Indus Towers Ltd (the assessee) Vs. Commissioner of Income Tax (TDS), Delhi. The department filed a miscellaneous application seeking extension of time for completion of the assessment till 30.09.2011. The Hon’ble High Court extended the time period for the completion of the assessment upto 31.08.2011 vide its order dated 03.06.2011. During the year under consideration, the assessee has claimed an expenditure of Rs. 9,79,20,569/- mainly 011 account of foreign exchange loss which is debited to the P&L a/c considering it as revenue in nature. To ascertain the actual nature of the expenditure, the assessee was asked to furnish the actual nature of expenditure and as to why the same should not he treated as capital expenditure, provided it relates to the acquisition of the capital asset. The assessment order was passed by the Assessing Officer thereby assessing loss of (-) Rs. 292, 27,98,604/- after making following additions/disallowances as under:-
