2012 (5) TMI 254 - AT - Income Tax

Deduction u/s.80IA - AO observed that majority of the receipt was from E-Tendering services which is not eligible for deduction as it is not a receipt from providing Infrastructure services - In fact, the assessee company was using the Internet Infrastructure of MTNL by paying rent of Rs.20.88 lakhs per annum - the contention of the AO that the assesee has not made any investment in the infrastructure is not relevant as this section nowhere requires that certain investments need to be made for this purpose - Held that - the assessee at this stage has filed new evidence which was not before the AO and ld. CIT(A) to show that providing E-Tendering is equivalent to providing Internet service eligible for deduction u/s.80IA(4)(ii) of the Act and the Revenue authorities without examining the issue as to whether E-Tendering is eligible for deduction u/s.80IA(4)(ii), denied the deduction claimed by the assessee - Decided in favor of the assessee by way of remand to AO

Summary

Issues Involved:
1. Eligibility for deduction under section 80IA of the Income Tax Act, 1961.
2. Nature of services provided by the assessee.
3. Investment in infrastructure for telecommunication services.
4. Compliance with requirements for telecommunication licenses.
5. Previous assessments and orders under section 263.
6. Submission of new evidence during appeal.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA:
The primary issue revolves around whether the assessee company qualifies for a deduction under section 80IA of the Income Tax Act, 1961. The assessee claimed a deduction of Rs. 97,29,026/- for providing E-Tendering services, Cyber Cafe services, and sale of Internet packs. The AO disallowed this deduction, asserting that the majority of the receipts were from E-Tendering services, which do not qualify as infrastructure services under section 80IA.

2. Nature of Services Provided by the Assessee:
The AO noted that the assessee's income primarily came from E-Tendering services provided to its parent company, MTNL, and not from providing telecommunication services. The CIT(A) upheld this view, stating that the assessee was not providing basic or cellular telecommunication services and had not made substantial investments in plant and machinery for such services. The CIT(A) also noted that the assessee was using MTNL's infrastructure by paying rent, further disqualifying it from the deduction.

3. Investment in Infrastructure for Telecommunication Services:
The CIT(A) observed that the assessee had not made substantial investments in infrastructure necessary for telecommunication services. The balance sheet did not reflect any significant investment in broadband or internet services infrastructure, and the assessee was using MTNL's infrastructure.

4. Compliance with Requirements for Telecommunication Licenses:
The CIT(A) noted that although the assessee had obtained a telecommunication license, it had not provided the required bank guarantee of Rs. 2 crores to the Department of Telecommunication, as stipulated in Schedule B of the license. This non-compliance was considered a factor in denying the deduction.

5. Previous Assessments and Orders under Section 263:
The CIT(A) referenced an earlier order under section 263 for the assessment year 2003-04, where the deduction was disallowed, and the order was set aside as erroneous and prejudicial to the interests of revenue. The assessee did not rectify defects in the appeal before the ITAT, leading to its dismissal.

6. Submission of New Evidence During Appeal:
During the appeal, the assessee submitted a detailed note on E-Tendering Internet Services, which was not previously provided to the AO or CIT(A). The Tribunal noted that the new evidence was essential for determining whether E-Tendering services qualify as internet services eligible for deduction under section 80IA(4)(ii).

Conclusion and Tribunal's Decision:
The Tribunal observed that the assessee had not provided sufficient material to demonstrate that E-Tendering services qualify as internet services eligible for deduction under section 80IA(4)(ii). Given the new evidence submitted during the appeal, the Tribunal set aside the orders of the AO and CIT(A) and remanded the case back to the AO for fresh consideration. The AO was directed to examine the new evidence and decide the matter afresh, providing the assessee with a reasonable opportunity to be heard.

Order Pronounced:
The appeal was partly allowed for statistical purposes, and the matter was remanded back to the AO for a fresh decision in light of the new evidence and observations made by the Tribunal.