Vodafone Idea Limited Vs PCIT (ITAT Mumbai)
ITA allows depreciation @ 25% on spectrum fee and held that provisions contained under section 35ABB are not applicable to spectrum fee and it further held that PCIT cannot keep an issue alive on the pretext that the order passed by the Tribunal is not accepted by the Department.
Since the issue as to the allowability of depreciation on spectrum fee as claimed by the assessee under section 32 of the Act and the provisions contained under section 35ABB are not applicable has already been decided in favour of the assessee by the Tribunal, the order of the Tribunal cannot be allowed to be disobeyed by Ld. PCIT merely on the pretext that the department has not accepted the said decision and appeal has already been filed before the Hon’ble High Court. In order to maintain judicial discipline Ld. PCIT had no option but to follow the order.
Following the order passed by the co-ordinate Bench of the Tribunal, we are of the considered view that even on merits the assessee’s claim for depreciation on “spectrum fee” is allowable under section 32 of the Act as the provisions contained under section 35ABB of the Act being not applicable to the issue at hand. Hence, the order passed by the AO is not erroneous. So we are of the considered view that the AO has rightly allowed the claim by virtue of the assessment order framed under section 143 of the Act.
we are of the considered view that the AO has allowed the depreciation @ 25% claimed by the assessee company on spectrum fees by treating the same as ‘intangible assets’ under section 32 of the Act by making a discreet enquiry and as such it is neither a case of non application of mind on the part of the AO nor a case of inadequate enquiry. Hence, invoking revisionary jurisdiction by the Ld. PCIT under section 263 of the Act is not sustainable in the eyes of law and the question No.I framed in the preceding para is answered in favour of the assessee, that the assessment order passed by the AO under section 143(3) of the Act allowing depreciation claimed by the assessee @ 25% on “spectrum fee” under section 32 of the Act was not erroneous in so far as prejudicial to the interest of revenue.
In order to address the second question framed in the preceding para that “As to whether depreciation claim made by the assessee @ 25% on the spectrum fee is allowable on merits under section 32 of the Act or it has to be amortized on pro-rata basis over the period of license in force under the provisions contained under section 35ABB of the Act as has been held by the PCIT?” the Ld. A.R. for the assessee contended that this issue has already been decided in favour of the assessee by the co-ordinate Bench of the Tribunal in assessee’s own case titled as Idea Cellular Ltd. vs. Principal Commissioner of Income Tax-14, Mumbai vide order dated 06.12.2017 in ITA No.360/M/2016 and as such the AO has legally and validly allowed the depreciation on spectrum fee claimed by the assessee under section 32 of the Act and section 35ABB is not applicable. This factual and legal position has not been controverted by the Ld. D.R. for the Revenue nor by the Ld. PCIT while passing the order under section 263 of the Act.
A perusal of para 5.13 of the impugned order passed by the Ld. PCIT shows that the Ld. PCIT has himself admitted this fact that on identical issue order passed under section 263 of the Act in assessee’s own case for A.Y. 2011-12 has been set aside but he has kept this issue alive on the pretext that the order passed by the Tribunal is not accepted by the Department.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Appellant Vodafone Idea Limited (hereinafter referred to as the ‘assessee’) by filing present appeal sought to set aside the impugned order passed by Pr. Commissioner of Income Tax (hereinafter referred to as PCIT) under section 263 of the Income Tax Act (for short the Act) by invoking the revisionary jurisdiction qua the assessment order dated 29.12.2017 framed by the Assessing Officer (for short the AO) under section 143(3) of the Act on the grounds inter-alia that:-
“1. Re.: Validity of Order u/s. 263:
1.1 On the facts and in the circumstances of the case and in law, the impugned Order dated 31 March 2021 passed under section 263 of the Income-tax Act 1961 is without jurisdiction, illegal, bad in law and void ab-initio.
Without prejudice to the above,
1.2 On the facts and circumstances of the case and in law, the Principal Commissioner of Income Tax (“PCIT”) has erred in passing the Order dated 31 March 2021 u/s. 263 of the Income-tax Act, 1961.
1.2.1 On the facts and circumstances of the case and in law, the PCIT has erred m holding that the Order dated 29 December 2017 passed by the Deputy Commissioner of Income Tax – 14(2)(1) (“DCIT”) u/s. 143(3) of the Income-tax Act, 1961 was erroneous and prejudicial to the interests of revenue and in thereby revising the same.
1.2.2. On the facts and circumstances of the case and in law, the Appellant submits that the Order passed by the Ld DCIT was neither erroneous nor prejudicial to the interest of the revenue and hence the revision of the same by the PCIT u/s. 263 of the Income-tax Act, 1961 is erroneous and bad in law.
1.2.3. The learned AO had not only made adequate inquires, but had also undertaken necessary verification basis the details/ documents sought from the Appellant during the course of assessment proceedings, and hence, the assessment order dated 29 December 2017 passed by learned AO is neither ‘erroneous’ nor ‘prejudicial’ to the interest of the revenue. Also, the Mumbai ITAT vide its order dated 6 December 2017 (ITA No. 360/Mum/2016) has quashed the proceedings u/s 263 of the Act in AY 2011-12 and held that the VIL has rightly claimed tax depreciation under section 32 of the Act on spectrum so acquired.
1.2.4 The learned PCIT passed the revisionary order on the issues not following binding judicial precedents (also submitted during the revisionary proceedings) leading to unwarranted litigation.
1.3 On the facts and circumstances of the case and in law, the Appellant prays that the impugned Order passed u/s. 263 of the Income-tax Act, 1961 by the PCIT is to be struck down.
Without prejudice to the aforesaid grounds:
2. Re: Disallowance of tax depreciation on spectrum :
2.1 On the facts and in circumstance of the case and in law, the learned PCIT has erred in concluding that the order passed by the learned AO, accepting the depreciation Claimed by the Appellant under section 32(1) of the Act on the right to use spectrum, is erroneous as well as prejudicial to the interest of the revenue and thereby, erred in directing the learned AO to amortize the spectrum acquired by the Appellant.
2.2 On the facts and circumstances of the case and in law, the Learned PCIT erred m directing the AO to disallow depreciation on Spectrum as claimed by the Appellant under section 32(1) of the Act and in further directing the AO to instead allow deduction under section 35ABB of the Act on the same on the ground that the spectrum was only an extension of the original license for operating telecom services and not a separate intangible asset.
The Appellant prays that it be held that on the facts and Circumstances, invoking section 263 for directing disallowance of depreciation on Spectrum cost and treating it as an extension of the original telecom license, is not in accordance with law and that disallowance of said depreciation is not called for.
2.3 On the facts and in circumstance of the case and in law, the Order of the PCIT directing the AO to reexamine the issue needs to be struck down.
The Appellant craves to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”
2. Briefly stated facts necessary for adjudication of the controversy at hand are that; assessee company is into the business of providing cell phone and data services. In its books of accounts assessee company amortized amount spent on acquiring 3G spectrum and claimed 1/20th of the expenditure for the year as fee paid for spectrum. However, for the income tax purposes the assessee company capitalized the item and claimed depreciation @ 25% treating the spectrum as an ‘intangible asset’. The assessee company by filing return of income for A.Y. 2015-16 declared total income at Rs.4350,27,68,335/- by claiming depreciation to the tune of Rs.1682.48 crores @ 25% on the spectrum fees paid by treating it as ‘intangible asset’, which was allowed by the AO under section 32 of the Act.
3. However, the Ld. PCIT by invoking the revisionary jurisdiction called upon the assessee company by way of issuance of notice under section 263 of the Act, as to why the spectrum fee claimed as depreciation by the assessee company, should not have been amortized on pro-rata basis over a period of license in force as per provisions of section 35AB of the Act as the assessment order is erroneous in so far as prejudicial to the interest of the Revenue.
4. After considering the written submissions and contentions raised by the assessee company the Ld. PCIT reached the conclusion that the AO has neither questioned nor examined nor verified qua the issue of depreciation claim made by the assessee on spectrum fee and as such depreciation claim allowed by the AO is incorrect being not examined in accordance with provisions contained under section 35ABB and thereby held the assessment order framed under section 143(3) of the Act under consideration, erroneous in so far as prejudicial to the interest of the Revenue.
5. Aggrieved with the impugned order passed by the Ld. PCIT under section 263 of the Act, the assessee company has come up before the Tribunal by way of filing the present appeal.
6. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the order passed by the Ld. Lower Revenue Authorities in the light of the facts and circumstances of the case and case law relied upon.
7. Undisputedly, the assessee has claimed depreciation of Rs.1682.48 crores @ 25% on the spectrum fees paid by treating it as ‘intangible asset’ which was allowed by the AO under section 32 of the Act. It is also not in dispute that by exercising revisionary jurisdiction under section 263 of the Act the Ld. PCIT sought to amortize spectrum fee on pro-rata basis over the period of license under section 35AB of the Act and held the assessment order erroneous insofar as prejudicial to the interest of the revenue.
8. In the backdrop of the aforesaid facts and circumstances of the case two questions arise for determination are :-
“I. As to whether the assessment order passed by the AO under section 143(3) of the Act by allowing depreciation claimed by the assessee @ 25% on the spectrum fees under section 32 of the Act was erroneous in so far as prejudicial to the interest of the revenue as has been held by the Ld. PCIT?.
II. As to whether depreciation claim made by the assessee @ 25% on the spectrum fee is allowable under section 32 of the Act or it has to be amortized on pro-rata basis over the period of license in force under the provisions contained under section 35ABB of the Act?”
9. Addressing the argument on first question framed in this case the Ld. A.R. for the assessee contended inter-alia that the assessment order passed in this case is neither erroneous nor prejudicial to the interest of the revenue nor it is a case of no application of mind on the part of the AO; that AO has duly thrashed the issue as to the allowability of depreciation @ 25% on spectrum fees as claimed by the assessee company by raising repeated queries and has taken the Bench to numerous letters/questionnaire issued by the AO and reply filed thereto.
10. However, on the other hand, to repeal the argument addressed by the Ld. A.R. for the assessee company, the Ld. D.R. for the Revenue contended inter-alia that the AO has failed to do adequate enquiries rather accepted the claim of the assessee without raising any specific question as to the use of spectrum as well as qua the claim of depreciation on “spectrum fee” made by the assessee; that in all the questionnaires the AO raised generic queries which lead to the conclusion that no enquiry has been made by the AO; that impugned order under section 263 of the Act has been rightly passed by the Ld. PCIT under explanation 2 to section 263 of the Act as depreciation claim has been allowed without making enquiry and relied upon the case cited as Malabar Industrial Co. Ltd. vs. CIT (2000) 109 taxman 66 (SC).
11. First of all, the Ld. A.R. for the assessee has taken us to the page 76 of the paper book wherein detail qua claim of depreciation on spectrum as made by the assessee company has been given under the head “Background on claim of depreciation” on spectrum fee by the assessee and assessment proceedings and drew our attention towards financial statements – “Note 2d and 12-fixed assets” and tax audit report. Thereafter, the Ld. A.R. has taken us to page 79 wherein detail of depreciation claim on ‘intangible assets’ amortized on straight-line method has been given. Then on page 82 particulars of allowable depreciation in respect of the each block of assets has been given under the head ‘intangible asset’ by the assessee company.
12. In the backdrop of the claim of the assessee company qua depreciation on “spectrum fees” and detail thereof the Ld. A.R. for the assessee drew our attention towards page 84 of the paper book which is a notice issued under section 142(1) read with section 129 of the Act by the AO wherein detail of addition to the fixed assets, rate of depreciation claimed, proof of installation etc. is sought vide question no.13 which is extracted for ready perusal as under:
“13. Details of addition to fixed assets and capital work in progress along with items purchased, date of purchase and its value, rate of depreciation claimed and proof of installation with copy of individual assets above Rs.2 lakh.
14. Details of Unsecured Loans & Advances (including squared up loans) in the following format:
