Case Law Details

Case Name : Bharti Airtel Ltd. Vs. ACIT (ITAT Mumbai)
Appeal Number : Appeal No: ITA No. 398/Mum/2006
Date of Judgement/Order : 25/06/2010
Related Assessment Year : 2002- 2003
Courts : All ITAT (4337) ITAT Mumbai (1439)

DECIDED BY: ITAT MUMBAI BENCH `I’: MUMBAI, IN THE CASE OF: Bharti Airtel Ltd. Vs.  ACIT, APPEAL NO: ITA No. 398/Mum/2006, DECIDED ON June 25, 2010,

ORDER

Per D.K. AGARWAL (JM).

These cross appeals preferred by the assessee and the revenue are directed against the separate orders dated 11.11.2005 for the Assessment Year 2002-03 and combined order dated 20.3.2009 for the Assessment Years 2003-04 and 2004-05 passed by the ld. CIT(A). The assessee has also filed cross objection for the Assessment Year 2002-03. Since facts are identical and issues involved are common, all these appeals and C.O. are disposed of by this common order for the sake of convenience.

2. Briefly stated facts of the case extracted from ITA No.398/M/2006 for Assessment Year 2002-03 are that the assessee company is engaged in the business of digital communication services for data, fax and video using Satellite technology, Internet Virtual Private Network (VPN) and trading and maintenance of equipment used in providing these services. The return was filed declaring total business loss of Rs.4,58,54,400/-. However, the assessment was completed at an income of Rs.10,10,11,270/- including the dis allowance of DOT license fee Rs.4,53,14,736/- Space Segment Charges Rs.6,92,95,350/-, extra-ordinary items Rs.2,80,89,642/- and dis allowance u/s.40A(2)(b) Rs.41,66,122/-, vide order dated 10.3.2005 passed u/s.143(3) of the Income tax Act, 1961 (the Act). On appeal, the ld. CIT(A) partly allowed the appeal.

3. Being aggrieved by the order of the ld. CIT(A) the assessee and revenue both are in appeal before us. ITA No.398/Mum/2006 (By Assessee) (A.Y. 2002-03):

4. Ground No.1 is against the sustenance of dis allowance of license fee Rs.4,53,14,736/- .

5. The brief facts of the above issue are that from the accounts of the assessee it was observed by the Assessing Officer that the assessee has claimed an expense of Rs.6,04,19,645/- on account of DOT license fee. The Assessing Officer further noted that for the Assessment Years 2000-01 and 2001-02 the said expenses were treated as capital expenses and the ld. CIT(A) also confirmed the dis allowance for these two years. Accordingly the assessee was asked to explain as to why the DOT license fee should not be disallowed. In response the assessee vide letter dated 4.11.2004 stated that (extracted from para 3.3 of assessment order):

“The license fee is payable annually, in advance. The Company has paid the fee in quarterly installments at the beginning of the each quarter, in accordance with option provided in the Agreement. The condition in the License Agreement that non payment of license fee due, for any quarter would lead to the termination of Agreement establish that the quarterly payments do not create benefit of enduring nature.”

However, the Assessing Officer was of the view that the assessee’s submissions are not acceptable. According to the Assessing Officer “the facts and circumstances of the case are not different from those in preceding years. On perusal of the license agreement it is seen that the license is to “establish, maintain and operate closed user group domestic 64 KBPS Data Network via INSAT Satellite System in extended C Band in frequencies assigned from time to time using VSAT throughout India” and the license has been granted “in consideration of the license fee”. The minimum license fee is Rs. One crore per year for the fist two years, Rs.1.5 crore in the third year and to be reviewed thereafter. The license fee can be paid in equal quarterly installments also. The license is initially for 10 years, though it is non-exclusive, non-transferable, is subject to termination under certain conditions, and is subject to some other conditions. Under Schedule `B’ to the Agreement, it is clearly provided “Communication Resources and other support facilities provided by the DOT.” The license was procured in Assessment Year 1995-96 and therefore, it is valid up to Assessment Year 2005-06″. He further observed that “the license is an intangible capital asset as per the provisions of section 32(1)(ii) of the Act. However, in the instant case depreciation cannot be given as there is a specific section 35ABB by virtue of which, an expense incurred for obtaining license to operate telecommunication services is to be amortized over the period of license”. The Assessing Officer after relying on the order of the ld. CIT(A) for the earlier Assessment Year i.e. Assessment Year 2001-02 and the decisions in (1) Henriksen Vs. Grafton 11 ITR Suppl.10, 18 (CA) ; (2) Southwell vs. Savill 4 TC 430 ; (3) Morse vs. Stedeford 18 TC 457 ; (4) Pendleton vs. Mitchells 45 TC 341 ; (5) Strick vs. Regent 43 TC 1, 37-38, 51(HL) ; (6) Kneeshaw vs. Abertolli 9 ITR Suppl 121 ; (7) Assam Bengal Cement vs. CIT 27 ITR 34 (SC) and (8) Kirloskar Oil Engines Ltd vs. CIT (1994) 206 ITR 13(Bom.) disallowed the DOT license fee Rs.6,04,19,645/-. However, he was of the view that the amount paid is amotrised over a period of four years i.e. over the remaining period of the license and hence he allowed Rs. 1,51,04,912/- and disallowed balance amount of Rs.4,53,14,736/- and added to the total income of the assessee. On appeal, the ld. CIT(A) following the earlier appellate order dated 23.11.2004 while agreeing with the findings of the Assessing Officer that the amount is admissible as deduction only in the manner provided u/s.35ABB of the Act, upheld the dis allowance made by the Assessing Officer.

6. At the time of hearing the ld. Counsel for the assessee, at the outset, submits that the impugned issue is covered in favor of the assessee vide para 8-9 of the order of the Tribunal in assessee’s own case in Comsat Max Limited vs. DCIT (2009) 29 SOT 436(Del.) He therefore, submits that the dis allowance made by the Assessing Officer and sustained by the ld, CIT(A) be deleted.

7. On the other hand ld. DR at the outset submits that he does not agree that the issue is covered in favor of the assessee by the order of the Tribunal (supra), in view of the following decisions:

i) Pingle Industries Limited vs. CIT (1960) 40 ITR 67 (SC) wherein it has been held that the payment made for acquisition of right to extract stones is capital expenditure.

ii) CIT vs. Tata Services Limited (1980) 122 ITR 594(Bom.) and(iii) CIT vs. Sterling Investment Corporation Limited (1980) 123 ITR 441(Bom.) wherein it has been observed that “Under section 2(14) of the Income-tax Act, 1961, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The word “property” used in section 2(14) of the Act is a word of the widest amplitude and the definition has reemphasized this by the use of the words “of any kind”. Any right which can be called property will be included in the definition of “capital asset”. According to the ld. DR the license obtained by the assessee is a right and hence, it falls under the definition of capital asset as contemplated by section 2(14) of the Act. iv) P.N.B. Finance Limited vs. CIT (2001) 252 ITR 491 (Del.) wherein it has been observed that the expression “capital asset” has a wide connotation. It brings within its ambit property of any kind held by the assessee, except what has been expressly excluded by clauses (i) to (iv) of section 2(14) of the Income tax Act, 1961 thereunder. The term “property” has no statutory meaning but is of widest import and subject to any limitations which the context may require, it signifies every possible interest which a person can acquire hold or enjoy.

v) Rajendra Mining Syndicate vs. CIT (1961) 43 ITR 460(AP) wherein it has been held that the leasehold rights in the mines which the assessee transferred fell within the scope of “capital asset” as defined in and contemplated by sections 2(4A) and 12 B of the Indian Income tax Act, 1922.

vi) CIT vs. General Industrial Society Limited (2003) 262 ITR 1 (Cal.) wherein it has been held that the amount received on transfer of the licence, a capital asset within the meaning of section 2(14) of the Act.

vii) Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) wherein it has been held that the right to carry on business unfettered by any competition was a capital asset and as such the entire amount of Rs.40,000/- incurred annually for securing that end was capital expenditure, not allowable u/s.10(2)(xv) of the IT Act, 1922. The ld. Departmental Representative while relying on the ratio of above decisions, submits that the licence is a capital asset within the meaning of section 2(14) and, therefore, the DOT license fee paid by the assessee is a capital expenditure and hit by section 35ABB of the Act. He further submits that if the same is not treated as capital expenditure then section 35ABB of the Act will become redundant. The ld. DR further submits that since it is a question of law, therefore, the decision relied on by the ld. Counsel for the assessee in assessee’s own case supra, has no binding force and the same can be readjudicated by this Tribunal and for this proposition the reliance was also placed in C.K. Gangadharan and Another vs. CIT (2008) 304 ITR 61(SC); CIT vs. Oswal Agro Mills Ltd. (2009) 313 ITR 24(SC); DCIT vs. Divya Investment P. Ltd. (2009) 313 ITR 363(SC); and CIT vs. Alpine Solvex Ltd. (2003) 259 ITR 719(SC). He further submits that the other decisions of the Tribunal in Mahanagar Telephone Nigam Ltd. vs. ACIT (2006) 100 TTJ (Del.) 1 and Videsh Sanchar Nigam Ltd. Vs. JCIT (2002) 81 ITD 456(Mum.) referred by the assessee in his paper book appearing at page-101 to 146 are also distinguishable on facts inasmuch as the case of Videsh Sanchar Nigam Ltd.(supra) is prior to insertion of section 35ABB which has been inserted by the Finance Act, 1997, w.r.e.f. 1.4.1996. He, therefore, submits that the order passed by the ld. CIT(A) confirming the dis allowance of DOT license fee Rs.4,53,14,736/- be upheld.

8. In the rejoinder, the ld. Counsel for the assessee submits that the Tribunal in the assessee’s own case after considering the terms of license granted to the assessee has held that the expenditure being specific to the year under appeal only and not extending the benefit of subsequent years cannot be considered as capital expenditure or and enduring benefit and hence, allowable as business expenditure u/s.37(1) of the Act. The ld. Counsel for the assessee while distinguishing the decisions relied on by the ld. DR further submits that those decisions are not applicable to the facts of the present case. He further submits that in both cases namely Mahanagar Telephone Nigam Ltd.(supra) and Videsh Sanchar Nigam Ltd.(supra), licence fee has been treated as revenue expenditure allowable u/s.37 of the Act. He therefore, submits that the disallowance of licence fee made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.

9. We have carefully considered the submissions of the rival parties and perused the material available on record. Here it is necessary to take note of relevant section 35ABB (1) of the Act which reads as under:

“(1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a license, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure”.

10. The scope and effect of the new provisions of section 35ABB inserted by the Finance Act, 1997 w.r.e.f. 1.4.1996 was explained by the Board in a Circular No.763 dated 18.2.1998 reported in (1998) 230 ITR (St.) 54, as under : – “Amortisation of telecom license fees. – 19.1 In order to give a fillip to the telecom sector, a new section 35ABB has been inserted in the Income-tax Act. The section provides that any capital expenditure, incurred by an assessee on the acquisition of any right to operate telecom services and for which payment has actually been made to obtain a licence, will be allowed as a deduction in equal installments over the period for which the license remains in force. It further provides that where the license is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the license has been transferred. It also provides that where the license is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the license has been transferred. It further provides for amortization of unallowed expenses in a case where a part of the license is transferred and to which provisions of sub-section (3) do not apply. The provisions of sub-sections (2), (3) and (4) pertaining to transfer shall not apply in relation to a transfer in a scheme of amalgamation whereby the license is transferred by the amalgamating company to the amalgamated company, the latter being an Indian company”.

11. According to Sampat Iyengar’s Law of Income tax 10th Edition 2nd Volume at page 2935 ” The amendment made to section 35ABB meant for telecommunication rules out deduction for depreciation u/s.32(1) but it does not rule out application of section 35D being preliminary expenditure nor does it rule out section 37 which allows revenue expenditure. The clause implies that expenditure on original licence would not ordinarily be deductible. But if it is so deductible, it cannot rule out that such deduction merely because it may also fall under section 35ABB in the absence of any prohibition as for deduction of depreciation. It would also mean that payment made for renewal of licence should not fall u/s. 35ABB as it would fall more appropriately u/s.37.”

12. From the reading of the provisions of section 35ABB(1) it is clear that any capital expenditure incurred by an assessee on the acquisition of any right to operate telecom services and for which payment has actually been made to obtain a license, will be allowed as a deduction in equal installments over the period for which the license remains in force. It means that expenditure in obtaining original license would not ordinarily be deductible. It would also mean that payment made for renewal of license should not fall u/s.35 ABB as it would fall more appropriately u/s.37 of the Act.

13. In the case of the assessee we find that the dis allowance was made on the ground that on perusal of the license agreement it was observed by the Assessing Officer that the license is to “establish, maintain and operate closed user group domestic 64 KBPS Data Network via INSAT Satellite System in extended C Band in frequencies assigned from time to time using VSAT throughout India” and the license has been granted “in consideration of the license fee”. The minimum license fee is Rs. One crore per year for the first two years, is Rs.1.5 crore in the third year and to be reviewed thereafter. The license fee can be paid in equal quarterly installments also. The license is initially for 10 years, though it is non-exclusive, nontransferable, is subject to termination under certain conditions, and is subject to some other conditions. Under Schedule `B’ to the Agreement, it is clearly provided “Communication Resources and other support facilities provided by the DOT.” The license was procured in Assessment Year 1995-96 and therefore, it is valid up to Assessment Year 2005-06 and in support the Assessing Officer also relied on the order of the ld. CIT(A) in assessee’s own case for Assessment Year 2001-02 and other cases as mentioned above. On appeal, the ld. CIT(A) upheld the dis allowance made by the Assessing Officer for the same reasons that the same was confirmed by the ld. CIT(A) vide order dated 23.11.2004 in the appeal for the preceding Assessment Year.

14. We further find that the Tribunal in the assessee’s own case in Comsat Max Limited vs. DCIT and vice versa supra, since reported in (2009) 29 SOT 436 (Del.) has held (page 445): “…The only reason for treating the expenditure as capital was that the assessee received an enduring benefit. Since the benefit endures only for the year under appeal and could not have been extended to the subsequent years, the licence fee does not give the assessee any enduring benefit in the relevant assessment years. But for the payment of licence fee the assessee ITA No.Bharti Airtel (7 appeals) A.Y:02-03, 03-04 & 04-05 13 could not have carried on the business during the year. For non-payment of licence fee, the licence could have been revoked. Therefore, the expenditure being specific to the year under appeal only and not extending the benefit of subsequent years cannot be considered as capital expenditure or an enduing benefit. We, therefore, hold that the expenditures being incurred in the course of carrying on the business are allowable as business expenditure u/s.37(1) of the Act. 9. Similarly the payment made to WPC Wing of Ministry of Communication is also the pre- condition for carrying on the business and based on the yearly user of the facility are to be considered as revenue expenditure. The expenditure allowable u/s.35ABB is only that expenditure which is capital expenditure and not the expenditure which are otherwise revenue in nature and allowable u/s.37(1). The decision in the case of Triveni Engg. Works (supra), relied on by the ld. DR on the contrary, supports the case of the assessee. In the said case the Hon’ble Delhi High Court held that the payment for technical know how and services for a period of ten years was not capital expenditure but revenue expenditure. We, therefore, delete the disallowance made for both the years. “

15. However, the contention of the ld. DR is that since license is a capital asset therefore, any expenditure incurred on a licence fee is also a capital expenditure and in support he placed reliance on the following judgments which are as under :

16. In Pingle Industries Ltd. supra, it has been held (head note): “Held (per Kapur and Hidayatullah, JJ.: S.K. Das, J., dissenting) that the assessee acquired by his long-term lease the right to win stones, and the leases conveyed to him a part of land. The stones in situ were not his stock in- trade in a business sense but a capital asset from which after extraction he converted to stones into his stock-in-trade. The payment, though periodic in fact, was neither rent nor royalty but a lump payment in installments for acquiring a capital asset of enduring benefit to his trade. The amounts were outgoings on capital account and were not allowable deductions”.

17. In Tata Services Limited, supra, it has been observed (headnote): “Under section 2(14) of the Income-tax Act, 1961, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The word “property” used in section 2(14) of the Act is a word of the widest amplitude and the definition has re-emphasized this by the use of the words “of any kind”. Any right which can be called property will be included in the definition of “capital asset”. A contract for sale of land is capable of specific performance. It is also assignable. Therefore, a right to obtain conveyance of immovable property is clearly property as contemplated by section 2(14) of the Act.” 18. In Sterling Investment Corporation Ltd. supra, it has been observed (head note ) : “Under s. 2(14) of the I.T. Act, 1961, and s. 2(4A) of the Indian I.T. Act, 1922 (which is the corresponding provision under the Act of 1922), a capital asset means property of any kind. The contractual right of a purchase to obtain title to immovable property for a price, which right is assignable, can be considered as a property and, therefore, a capital asset: CIT v. Tata Services Ltd. [1980] 122 ITR 594 (Bom) followed”.

19. In P.N.B. Finance Ltd. supra, it has been observed that(head note): “The expression “capital asset” has a wide connotation. It brings within its ambit property of any kind held by the assessee, except what has been expressly excluded by clauses (i) to (iv) of section 2(14) of the Income tax Act, 1961 thereunder. The term “property” has no statutory meaning but is of widest import and subject to any limitations which the context may require, if signifies every possible interest which a person can acquire hold or enjoy”. ITA No.Bharti Airtel (7 appeals) A.Y:02-03, 03-04 & 04-05 15 20. In Rajendra Mining Syndicate, supra it has been held (head note): “Held,(i) that the leasehold rights in the mines which the assessee transferred fell within the scope of “capital asset” as defined in and contemplated by sections 2(4A) and 12B of the Indian Income-tax Act, 1922;”

21. In General Industrial Society, supra it has been held [head note (iii)] “(iii) That what was received on transfer of the license, a capital asset within the meaning of section 2(14), was not an income from business under section 28(iv) and though chargeable under the head “Capital gains” under section 45, since it was not computable by reason of sections 48 and 49 read with section 55(2) as it stood in the assessment year 1986-87, it could not be assessed as capital gains”.

22. In Assam Bengal Cement Co. Ltd. supra, it has been observed and held (head note): “The appellant company acquired from the Government of Assam, for the purpose of carrying on the manufacture of cement, a lease of certain limestone quarries for a period of twenty years for certain half-yearly rents and royalties. In addition to the rents and royalties the appellant agreed to pay the lessor annually a sum of Rs. 5,000 during the whole period of the lease as a protection fee and in consideration of that payment the lessor undertook not to grant to any person any lease, permit or prospecting license for limestone in a group of quarries without a condition that no limestone should be used for the manufacture of cement. The appellant also agreed to pay Rs. 35,000 annually for five years as a further protection fee and the lessor in consideration of that payment gave a similar undertaking in respect of the whole district. The question was whether in computing the profits of the appellant the sums of Rs. 5,000 and Rs. 35,000 paid to the lessor by the appellant could be deducted under section 10(2) (xv) of the Indian Income-tax Act, 1922. The Income-tax authorities, the Appellate Tribunal and High Court on a reference under section 66(1) held that the amount was not an allowable deduction under section 10(2)(xv). on appeal to the Supreme Court: Held, that the payment of Rs. 40,000 was a capital expenditure and was therefore rightly disallowed as a deduction under section 10(2)(xv) of the Act.”

23. Whereas in the case before us the facts are entirely different inasmuch as it is nobody’s case that the payment has been made for acquisition of licence. It is also not the case of the revenue that the right is assignable. In the case of the assessee though the license was granted for 10 years initially, however, as per terms of licence the assessee is required to pay license fee payable every year on quarterly basis. Therefore, the benefit available by making the payment of annual license fee lasts for that year only. If the assessee wishes to carry on the business in terms of license agreement, license fee is payable for subsequent year also. Therefore, the benefit of license fee paid during the year endures only till the end of relevant financial year and does not extend to subsequent financial year. Further, admittedly the license is non exclusive, non-transferable and is subject to termination under certain conditions. In this view of the matter all the aforementioned decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case.

24. The other decisions relied on by the ld. DR namely C.K. Gangadharan and Another supra; Oswal Agro Mills Ltd. supra; Divya Investments P. Ltd. supra and Alpine Solvex Limited supra are on the issue that there is no bar for the department to prefer an appeal in another case where the department has not preferred an appeal in one case or on the issue of consistency or on the issue of substantial question of law. There is no quarrel on the ratio of the above decisions. However, it is not the case of the assessee that the department is not entitled to file any appeal being a covered matter or the issue involved does not have any question of law, or the revenue is not entitled to adjudicate the matter afresh, therefore, the decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the case.

25. In Videsh Sanchar Nigam Ltd. supra, it has been held by the Tribunal vide para-31 of order “that the amount of Rs.282.60 crores paid by the assessee to DOT as licence fee is an allowable expenditure u/s.37(1) of the Act in computing the profits of the assessee’s business.” There is no dispute that the above case is pertaining to the Assessment Year 1995-96 i.e. prior to insertion of the provisions of section 35 ABB of the Act. No contrary material has been placed on record by the ld. D.R as to why the same is not relevant for the purpose of section 37(1) of the Act.

26. In Mahanagar Telephone Nigam Limited supra, the Assessment Years involved are 98-99 to 2000-01 and 02-03. It has been held vide para 47 and 48 of the order that payment of licence fee is wholly and exclusively incurred for the purpose of the business carried on by it. The same is therefore, an allowable deduction u/s.37 of the Act. We do not find any merit in the plea of the ld. DR that the aforesaid case is prior to the insertion of the provisions of section 35 ABB of the Act or as to how the same is not applicable to the facts of the present case.

27. Since the license fee does not confer any enduring advantage, the license granted can be revoked on the breach of any of the conditions subject to which it was issued or any default of payment of any fee payable for the license and the lenience is non exclusive, nontransferable and it is open to the Government of India to grant similar license to other persons as well by virtue of powers conferred upon it u/s.4 of the Telegraph Act, thus there is no monopoly right conferred upon the assessee and further though the license was granted for 10 years initially, however, as per terms of the license, the assessee is required to pay license fee payable every year on quarterly basis, therefore, the benefit available for making the payment of annual license fee lasts for that year only and, therefore, the benefit of license fee paid during the year endures only till the end of the relevant Financial Year and does not extend to the subsequent Financial Year and, hence, the license fee is not in the nature of capital expenditure falls u/s.35ABB of the Act, but the same is revenue in nature, allowable u/s.37(1) of the Act.

28. This view also finds support from the order of the Tribunal in ITO vs. Ever growth Telecom Ltd. in ITA No. 5652/Mum/07 for Assessment Year 1998-99 dated 9.9.2009 in which one of us (JM) was a party wherein it has been observed and held vide para 8,9, and 10 of its order as under :-

28. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the holding company J.T. Mobile Ltd. received the Telecom licence from the Department of Telecommunication (DOT) to provide cellular mobile services in the Punjab Service Area for a period of ten years. The assessee company was appointed by J.T. Mobile Ltd. as operator and accordingly the company was providing cellular mobile services in the Punjab Circle. The assesee company has shown license operating fee under the head miscellaneous expenditure as balance sheet item and amortized the same over the validity period of license i.e. 10 years. The assessee company spread over the license fee over 10 years period and has written off the amount of Rs.47.46 crores during the year under consideration in the books of account. However, in the computation of income, the amount of Rs.1,15,09,09,090/- being licence fee for the year was claimed as allowable u/s. 37(1) of the Act. The Tribunal in the assessee’s own case(supra) has allowed the similar amount of license fee as revenue expenditure vide finding recorded in para 4 of its order dated 29.3.07, which is reproduced as under:-

“4. We find that the fees paid by the assessee, as evident from a copy of the license agreement placed before us at pages 1 to 6 of the paper books, is an annual fees in nature and not a one time fees – as obviously was the erroneous assumption of the Assessing Officer. Once the fees paid is for the period covered by the relevant previous only, there is no question of amortization of expenses over a period of ten years; entire amount of the fees so paid should have been allowed as deduction as revenue expenditure. The other aspect of the matter of the question whether or not the business had commenced in the relevant previous year. Ld. Assessing Officer’s conclusion against the assessee on this issue were based on observations made by the auditor to the effect that “the assessee has not started (in the relevant previous year) providing cellular mobile telephone services”. In doing so, however, Assessing Officer clearly erred in not appreciating the all important distinction between commencement of a business and starting of core commercial activity of that business. It is not in dispute that the assessee had set up dealer network, undertaken advertisement campaign and even accepted deposits from the subscribers under these circumstances; and just because cellular mobile service had not commenced, it could not be said that the assessee had not commenced business. In view of the above discussions, as also bearing in mind entirety of the case, we approve and confirm well reasoned conclusions arrived at by the ld. CIT(A) and decline to interfere in the matter.”

29. In Comsat Max Ltd. (supra), the licence fee paid to DOT was treated by the Assessing Officer as capital expenditure. On appeal, the ld. CIT(A) held that the same allowable u/s.35 ABB of the Act. On further appeal, the Tribunal held that since the benefit endured only for the year under appeal and could not have been expanded to the subsequent years, the license fee did not give the assessee any enduring benefit in the relevant assessment year. But for the payment of license fee the assessee could not have carried on the business during the year. For non-payment of license fee, the license could have been revoked. Therefore, the expenditure being specific to the year under appeal only and not extending the benefit to the subsequent years, could not be considered as capital expenditure or an enduring benefit. It was, therefore, to be upheld that the expenditure being incurred in the course of carrying on the business was allowable as business expenditure u/s. 37(1) of the Act. 10. In the absence of any distinguishing feature or contrary decision brought on record by the ld. DR we respectfully following the above decisions do not find any error in the order of the ld. CIT(A) in deleting the addition made by the Assessing Officer and accordingly the grounds taken by the revenue are rejected.” 29. This view also finds support from the order of the Tribunal in ACIT vs. Vodafone Essar Gujarat Ltd. (2010) 38 SOT 51 (Ahd.) wherein the Tribunal after considering section 4 of the India Telegraph Act, 1985 and various decisions including Assam Bengal Cement Co. Ltd. vs. CIT Supra, Videsh Sanchar Nigam Ltd. vs. JCIT supra, Comsat Max Ltd. vs. DCIT supra, Hari Shankar vs. Dy. Excise and Taxation Commissioner AIR 1975 (SC) 2008, State of Haryana vs. Jage Ram AIR 1980 (SC) 2018, Government of Andhra Pradesh vs. Anabeshahi Wine and Distilleries (P.) Ltd. AIR 1988 (SC) 771, CIT vs. Varas International (P.) Ltd. (1997) 225 ITR 831 (Cal.), Bombay Steam Navigation Co. (1953) (P.) Ltd. vs. CIT (1965) 56 ITR 52 (SC) , MTNL vs. Addl. CIT (2006) 8 SOT 376(Del.) and M/s. Bharti Cellular Ltd.(supra) has held (page 87) : “.. the license, in our opinion, does not confer any such enduring advantage because under condition No.15 of the schedule B the license granted u/s.4 can be revoked on the breach of any of the conditions subject to which it was issued or any default of payment of any consideration payable for the license. Further, the license is nonexclusive license and it is open to the Government of India to grant similar licenses to other persons as well by virtue of powers conferred upon it u/s.4 of the Telegraph Act. Thus, there is no monopoly right conferred upon the assessee. The Tribunal after taking support from the decision of the company-ordinate Bench in the case of Comsat Max Limited supra, MTNL vs. Addl. CIT (2006) 8 SOT 376(Del.) and M/s. Bharti Cellular Ltd.(supra) has held that the amount of Rs.67.51 crores paid by the assessee to DOT as licence fee is an allowable expenditure u/s.37(1) of the Act in computing the profits of the assessee’s business”.

30. For the reasons as discussed above we hold that the addition of Rs.4,53,14,736/- out of the DOT licence fee paid Rs.6,04,19,645/- is an allowable expenditure u/s.37(1) of the Act in computing the profits of assessee’s business and accordingly the Assessing Officer is directed to allow the same. The ground taken by the assessee is, therefore, allowed.

31. Ground No.2 is against the sustenance of dis allowance of arrears of license fee Rs.1,94,97,604/- and interest Rs.78,37,773/-.

32. The brief facts of the above issue are that from the accounts of the assessee it was observed by the Assessing Officer that the assessee company interalia claimed arrears of licence fee Rs.1,94,97,604/- and interest on delayed payment Rs.78,37,773/-. The assessee was asked as to why these expenses should not be disallowed. In response it was interalia submitted by the assessee “that the demand notices have been received for DOT and hence, the liability of the aforesaid amount has been crystallised during the year under consideration and is allowable”. However, the Assessing Officer was of the view that an amount of Rs.78,37,773/- was on account of penal interest for delayed payment of licence fee. As the nature of payment was in the nature of penal interest, the same is not allowable as per provisions of section 37(1) of the Act. Further the arrear of licence fee of Rs.1,94,97,604/- was relating to the licence fee payable by the assessee for the period March 2000 to October 2001. Thus, an amount of Rs.71,83,330/- is relating to the license fee for Assessment Year 2002-03 and the balance of Rs.1,23,14,274/- relates to the expense of Assessment Year 2001-02. The Assessing Officer after applying the provisions of section 35ABB allowed Rs.24,62,855/- and Rs.17,95,833/- being 1/5th of Rs.1,23,14,247/- and Rs.71,83,330/- respectively.

33. On appeal, the ld. CIT(A), observed and held (page 6 CIT(A) order): “25. However, the liability related to payment of license fee of the earlier period has the same character as of license fee payable for the relevant accounting year. Hence the amount related to license fee cannot be allowed as deduction in full. The deduction of the said amount is to be made in terms of section 35ABB of the Act, after taking the license fees payable as the liability of the present accounting year. 26. In so far as the question of admissibility of expenditure of by way of interest payment amounting to Rs.78,37,773/- is concerned, the Assessing Officer has made the dis allowance holding that the interest payment is of penal nature and therefore is not allowable. This finding is without any supporting material. The appellant company had made the payment of the impugned sum on account of revision of rates of license fee payable from a retrospective date. There is no infraction of law that has resulted in the payment of interest amount. Hence, the nature of payment is required to be held as of compensatory nature making it admissible as deduction. However, since the interest relates to payment of licence fees, the admissibility of which is to be in accordance with the provisions of section 35ABB of the Act, the interest amount is also to be taken as part thereof and the deduction in respect of the amount is to be allowed only in the manner provided in section 35ABB of the Act.”

34. At the time of hearing the ld. Counsel for the assessee submits that the payment of licence fee is covered in favor of the assessee by the decision of Tribunal in assessee’s own case in Comsat Max Limited supra, therefore, the same be allowed as business expenditure. With regard to the dis allowance of interest he submits that interest is not akin to license fee and in any case it is covered by the decision of the Delhi Bench of the Tribunal in the case of Bharati Cellular Limited vs. Dy. CIT in ITA No. 5335/Del/2003 for Assessment Year 2000-01 order dated 29.5.2009.

35. On the other hand the ld. DR while relying on the order of the Assessing Officer and the ld. CIT(A) submits that the plea taken by him in assessee’s ground No.1 may be considered while deciding the impugned ground taken by the assessee .

36. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the ld. CIT(A) while agreeing that both the payments are allowable in the year under consideration held that the same are allowable only in the manner provided u/s.35 ABB of the Act. For the reasons as discussed in ground No.1 of this appeal in paras 27 to 30 of this order and keeping in view that it has been held by the Tribunal in Bharati Cellular Ltd. supra, that the variable revenue sharing fee paid pursuant to the migration of the assessee to the New Telecom Policy of 1999 is revenue expenditure, consequently the interest on the license fee paid would also be in the revenue field, deleted the addition made by the Assessing Officer, we are of the view that provisions of section 35 ABB of the Act are not applicable as both expenses are revenue in nature, allowable u/s.37(1) of the Act in computing the profits of the business. The grounds taken by the assessee are therefore, allowed.

37. Ground No.3 is against the sustenance of dis allowance of interest Rs.41,66,122/- u/s.40A(2) of the Act.

38. The brief facts of the above issue are that on perusal of the audit report filed by the assessee it was observed by the Assessing Officer that there are some payment made to persons specified u/s.40A(2)(b) of the Act. The assessee was asked to explain as to why disallowance should not be made u/s.40A(2)(b) of the Act. It was explained by the assessee that it was paying interest @ 16.81% to ICICI Bank and to its sister concern @ 7% to 18%. In the subsequent letter dated 2.2.2005 the assessee stated that it was paying interest to ICICI bank @ 14%. However, the Assessing Officer was of the view that the assessee company borrowed loans during Financial Years 2000-01 and 2001-02. The market rate of interest during that period was about 12%. Hence, it is clear that the assessee company has paid excess interest to its sister concerns covered u/s.40A(2)(b) of the Act. The Assessing Officer after relying on the decision in Anandji Shah vs. CIT (1990) 181 ITR 171 (Ker.) was of the view that interest exceeding 12% is not for the purpose of business and hence, he disallowed the interest paid over 12% which he worked out to Rs.41,66,122/- and added to the income of the assessee. On appeal, the ld. CIT(A) while agreeing with the view of the Assessing Officer upheld the disallowance made by the Assessing Officer.

39. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the Assessing Officer and the ld. CIT(A) further submits that terms of the loan taken from ICICI bank are so onerous. The cash credit facility sanctioned by ICICI bank specifies certain maximum limit for draw down and there was a penal interest @ 2.42% per annum charged for excess drawing above the sanctioned limit. In order to tide over its poor funds position the appellant borrowed funds from its related parties which were available immediately without any procedural delay and on easy terms and conditions. Therefore, no such dis allowance is called for. He further submits that once it is accepted that the transaction is for business purposes, the rate has to be left to the decision of the businessman unless proved otherwise. He further submits that fair market value or basis adopted has not been established by the Assessing Officer. Further, no dis allowance of interest was made on the same facts in the earlier year. The reliance was also placed on the following decisions: 1. Pondy Metal & Rolling Mills 107 TTJ 336(Del.), 2. Voltamp Transformers 129 ITR 105(Guj.), 3. S.K. Engineering vs. Jt.CIT 103 ITR 97 (Bang.), 4. CIT vs. Edward Keventer 86 ITR 370(Cal.); approved in 115 ITR 149(SC), 5. Gujarat Guardian 114 TTJ 565 (Del.), 6. Astt. CIT vs. Kin Ship Services(India)(P.) Ltd.(2009) 31 SOT 375(Cochin), 7. Batilivala & Karani 2 SOT 379(Mum.), 8. Udaipur Distillery 316 ITR 426(Raj.), 9. CIT vs. Walchand and Co. Private Ltd. 65 ITR 381(SC), 10. J.K. Woolen 72 ITR 612(SC), 11. CIT vs. Amrit Soap Co. 308 ITR 287, 12. Asstt. CIT vs. shiv Agrevo Ltd. (2009) 123 TTJ 416, 34 SOT 1 (Jp.) (URO) and 13. Satya Narain Kesho Ram (P.) Ltd. vs. Dy. CIT (2009) 122 TTJ (Luck.) 839 He therefore submits that the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.

40. On the other hand the ld. DR supports the order of the Assessing Officer and the ld. CIT(A).

41. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that there is no dispute that the loans were taken for the business purposes. The only dispute is with regard to the excess payment of interest. The assessee has made the payment of interest to its sister concerns at 7% to 18% per annum as against 16.81% paid by the assessee to ICICI bank. According to the Assessing Officer the reasonable rate of payment of interest is 12% and hence he disallowed the excess payment of 29 interest u/s.40A(2)(b) of the Act which on appeal has also been confirmed by the ld. CIT(A).

42. To start with we may gainfully quote the provisions of section 40A(2)(a) which read as under:- “(2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.”

43. Thus, a look at this provision does show, that it is only if, the Assessing Officer is of the opinion, that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, or the legitimate needs of the business or profession of the assessee, or the benefit derived by or accruing to him therefrom, so much of the expenditure, as is so considered by him to be excessive or unreasonable, shall not be allowed as a deduction. ITA No.Bharti Airtel (7 appeals) A.Y:02-03, 03-04 & 04-05 30

44. In S.A. Builders vs. CIT(A) and Another(2007) 288 ITR 1(SC) it has been observed by Their Lordships (at placitum 35 appearing at page-9 of the ITR ) : ” ….that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be complelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman….”.

45. In Anandji Shah vs. CIT supra, the assessee firm paid interest to the estate of Late Smt. Taramathi S. Shah worked out at 24% per annum. The Assessing Officer held that the payment of interest at 24% was excessive and invoking provisions of section 40A(2) of the Act, allowed interest only at 12% per annum. The ld. CIT (A) held that interest at 18% per annum will be reasonable and restricted the disallowance to only the amount in excess of the same. The Tribunal affirmed the order of the ld. CIT(A). On reference it has been held that the Tribunal was right in holding that the payment of interest @ 24% per annum by the assessee firm to the estate of Smt. Taramathi S. Shah was excessive and that only interest @ 18% per annum could be said to be reasonable.

46. We further find that in the immediately preceding year i.e. 2001- 02 the Assessing Officer after considering the provisions of sec.40A(2)(b) on the payment of consultancy and advisory services did not make any such disallowance of interest u/s.40A(2)(b) of the Act vide assessment order dated 15.3.2004 passed u/s.143(3) of the Act.

47. Applying the ratio laid down in the above cases to the facts of the assessee’s case, in the absence of any material to show that the payment of interest made by the assessee is in excess of fair market value , and keeping in view that no such disallowance was made in the immediately preceding year and also keeping in view that in the case relied on by the Assessing Officer 18% rate of interest was considered as reasonable, we are of the view that interest paid by the assessee was wholly and exclusively laid out for the purpose of the business and hence the disallowance of interest of Rs.41,66,122/- made by the Assessing Officer and sustained by the ld. CIT(A) is not sustainable in law and accordingly the same is deleted. The ground taken by the assessee is, therefore, allowed.

48. Ground No.4 is against the levy of interest u/s.234D of the Act.

49. At the time of hearing the ld. Counsel for the assessee submits that the consequential relief in respect of levy of interest u/s.234D be allowed to the assessee.

50. On the other hand the ld. DR supports the order of the Assessing Officer and ld. CIT(A).

51. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the issue of levy of interest u/s.234D of the Act is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in ITO vs. Ekta Promoters P. Ltd. (2008) 305 ITR (AT) 1(Del.)(SB) wherein it has been held (page-33 ): “In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from the Assessment Year 2004-05 and it could not be charged for earlier years even though regular assessment for these years are framed after June 1, 2003, or the refund was granted for those years after the said date.” Applying the ratio of the above decision to the facts of the present case we find that the assessment order was passed on 10.3.2005 i.e. after June 1, 2003 for the Assessment Year under consideration i.e. 2002-03, the interest u/s.234D is not chargeable as the same is chargeable from the Assessment Year 2004-05 and accordingly the ground taken by the assessee is allowed. 33 ITA No.422/M/06 (Revenue Appeal) (A. Y.2002-03):

52. Ground No.1 is against the deletion of disallowance of Rs.6,92,95,350/- out of Rs.9,23,93,800/- made by the Assessing Officer on account of space segment charges.

53. The brief facts of the above issue are that it was interalia observed by the Assessing Officer that the assessee has claimed Rs.9,23,93,800/- on account of space segment and leased line charges. These payments were made to DOT as per the licence agreement. The payment was for the licence given to the assessee for operating WPC and V-SAT. This licence fee was also a part of the same agreement by which the DOT permitted the assessee company to operate the V-SAT. The Assessing Officer after noting that for the Assessment Year 2001-02 the same has been held to be capital expenditure asked the assessee to explain as to why space segment charges could not be disallowed. In response it was submitted by the assessee (extracted from para 4.3 of the assessment order): “The license agreement entered into between the Company and DOT has been made by the company in order to establish, maintain and operate Closed User Group Domestic 64 KBPS Data Network via INSAT satellite system on extended C Band, in frequencies assigned from time to time using Very Small Aperture Terminals throughout India. It is also stated that economic benefits comprised in the payment expire at the end of the year and hence if VSATs are `nil’, the fee payable would be nil, conversely, if VSATs were double, the fee payable would double too. It is thus linearly related to and impacted by the operating activity level.” The Assessing Officer after considering the assessee’s submission was of the view that the payment for licence to use transponders on satellite of DOT is capital expenses on the same line as in the case of licence fee and accordingly he capitalised Rs.9,23,93,800/- and amotrized u/s.35ABB over a period of 4 years and after allowing Rs.2,30,98,450/- disallowed the balance of Rs.6,92,95,350/- and added to the income of the assessee. On appeal, the ld. CIT(A) following the appellate order dated 23.11.2004 in assessee’s own case while holding that the liability of space segment charges has accrued during the accounting year and the same is of revenue in nature, deleted the disallowance made by the Assessing Officer.

54. At the time of hearing the ld. DR submits that for the same reasons and plea as taken in ground No.1 in assessee’s appeal in respect of disallowance of licence paid to DOT, the ld. CIT(A) was not justified in deleting the disallowance made by the Assessing Officer. He therefore, submits that the disallowance made by the Assessing Officer be restored.

55. On the other hand the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) submits that the Tribunal in assessee’s own case, vide para-25 of its order supra, has upheld the order of the ld. CIT(A) in deleting the disallowance made by the Assessing Officer. He therefore, submits that the order passed by the ld. CIT(A) be upheld.

56. After hearing the rival parties and perusing the material available on record we find that the Tribunal in assessee’s appeal in Comsat Max Ltd. vs. DCIT and vice versa (supra), has observed and held as under: “25. ….The payment having been made for allocation of space segment charges and for the use of satellite does not bring into existence any capital asset. The fees being payable for the use of facility and not for the facility itself are allowable as revenue expenditure.” Respectfully following the same and keeping in view of our finding recorded in paras 27 – 30 of this order and also the rule of consistency we are of the view that the payment having been made and for the allocation of space segment charges and for the use of satellite does not bring into existence any capital asset. The fees being payable for the use of facility and not for the facility itself are allowable as revenue expenditure and accordingly the order passed by the ld. CIT(A) in deleting the disallowance is upheld.

57. Ground No.2 is against the deletion of disallowance of extraordinary items Rs.3,37,68,238/-.

58. The brief facts of the above issue are that from the accounts of the assessee the Assessing Officer noted that the assessee company had claimed following expenses under the head extraordinary items: Licence fee Rs.1,94,97,604/- Interest on delayed payments Rs. 78,37,773/- Rs.2,37,35,337/- Space Segment Charges Rs. 64,32,901/- Rs.3,37,68,238/- The Assessing Officer was of the view that since the DOT licence fee and space segment charges have been held to be capital expenses, the expenses claimed under the head `extraordinary items’ amounting to Rs.3,37,68,238/- are disallowed and after allowing the amortization u/s.35ABB Rs.56,78,596/- he added the balance amount of Rs.2,80,69,642/- to the income of the assessee. On appeal, the ld. CIT(A) while holding that the payment of space segment charges as revenue expenditure, directed the Assessing Officer to re-compute the deduction admissible u/s.35 ABB of the Act.

59. At the time of hearing the ld. DR submits that for the same reasons and plea as taken in ground No.1 in assessee’s appeal in respect of disallowance of licence paid to DOT, the ld. CIT(A) was not justified in deleting the disallowance made by the Assessing Officer. He therefore, submits that the disallowance made by the Assessing Officer be restored.

60. On the other hand the ld. Counsel for the assessee submits that in view of his earlier plea taken in ground No.2 in assessee’s appeal and in ground No.1 in revenue’s appeal all the above items are revenue expenditure and are allowable u/s.37(1) of the Act.

61. Having carefully heard the submissions of the rival parties and perusing the material available on record and keeping in view of our finding record in ground No.2 of assessee’s appeal in para -36 and ground No. 1 in revenue’s appeal in para -56 of this order, we are of the view that the above expenses claimed by the assessee are allowable as revenue expenditure and accordingly we while deleting the disallowance made by the Assessing Officer, reject the ground taken by the revenue. 62. Ground No.3 and 4 are general in nature and in the absence of any specific plea the same are therefore rejected. C.O. No.176/M/08 (By Assessee )(A.Y.2002-03):

63. At the time of hearing the ld. Counsel for the assessee submits that all the grounds taken in the C.O. are the same and covered in assessee’s appeal in ITA No.398/M/06 for the Assessment Year 2002- 03, therefore the C.O. filed by the assessee may be treated as infructuous which was not objected to by the ld. DR .

64. That being so, and in the absence of any contrary material placed on record by the parties, and keeping in view of our findings recorded in assessee’s appeal as above, the grounds taken by the assessee in its C.O. do not require any fresh adjudication and accordingly the same are rejected being infructuous. ITA No. 2935/Mum/2009(By Assessee) (A.Y.2003-04) ITA No. 3611/Mum/2009(By Revenue) (A.Y.2003-04) ITA No. 2936/Mum/2009(By Assessee) (A.Y.2004-05) ITA No. 3609/Mum/2009(By Revenue) (A.Y.2004-05)

65. At the time of hearing both parties have agreed that the facts and the issues raised in the aforesaid appeals except ground No.3 in revenue’s appeal relating to deduction u/s.80IA for Assessment Years 2003-04 and 2004-05 are the same as in the assessee’s and revenue’s appeal for the Assessment Year 2002-03, therefore, the plea taken by them in both the appeals may be considered while deciding these appeals.

66. That being so, and in the absence of any contrary material placed on record by the parties and keeping in view of our finding recorded in assessee’s and revenue’s appeal for the Assessment Year 2002-03, we direct the Assessing Officer to follow our finding recorded in the assessee’s appeal in ITA No.398/Mum/2006 and in revenue’s appeal in ITA No.422/Mum/2006 for the Assessment Year 2002-03 and allow the claim of the assessee on all the issues. We hold and order accordingly. The grounds taken by the assessee are allowed and the grounds taken by the revenue are rejected.

67. Common Ground No.3 in revenue’s appeal for Assessment Years 2003-04 and 2004-05 reads as under “3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to verify the facts from records and allow the deduction u/s. 80IA of the Act as the assessee never claimed such deduction in the Computation of Income and by directing the Assessing Officer to verify the fact and allow the deduction, the ld. CIT(A) has indirectly allowed deduction u/s.80IA of the Act to the assessee without appreciating the facts of the case.”

68. At the time of hearing the ld. Departmental Representative supports the order of the Assessing Officer.

69. On the other hand the ld. Counsel for the assessee relied on the order of the ld. CIT (A).

70. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that before the ld. CIT(A) it was submitted by the assessee that where the income of the assessee is assessed at a positive figure as a result of addition made by the Assessing Officer, the assessee would be entitled to claim a deduction of 100% of the business profits u/s.80IA of the Act. The ld. CIT(A) while observing that the said ground is consequential to the above grounds, no specific adjudication is called for, however, directed the Assessing Officer to verify the facts from the records and allow the deduction accordingly.

71. Since the ground raised by the assessee before the ld. CIT(A) is a legal ground, and keeping in view the ratio of decision in National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC) we are of the view that the ld. CIT(A) has rightly considered the same and directed the Assessing Officer to verify the facts from records and allow deduction accordingly. This being so we are of the view that the common ground raised by the revenue is devoid of any merit and accordingly the same is rejected.

72. In the result, the assessee’s appeals are allowed and the assessee’s C.O. and revenue’s appeals stand dismissed. Order pronounced in the open court on 25.6.2010

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