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2014 (9) TMI 119 - AT - Income TaxExpenses on abandoned project capital or revenue in nature - expenditure was incurred by the assessee for the purpose of construction/erection of cellular towers which were abondoned due to the reason that the same were not found suitable - Held that - the towers were being erected for the purpose of assessee s own business of providing cellular services to its customers - when the towers are not exclusively meant for leasing out to third parties for earning the revenue but used for transmission of telephone signals of assessee s own cellular services then it cannot be said that the towers which are used for the assessee s own business are new source of income - A cellular tower can be a new independent source of income if it is erected exclusively for leasing out to the other operators - to examine the allowability of such expenditure u/s 37(1), the only requirement which has to be seen is that the expenditure is of revenue nature and not capital nature relying upon CIT Vs. Tata Robins Fraser Ltd 2012 (10) TMI 59 - JHARKHAND HIGH COURT - the expenditure has been incurred for the project which could not be accomplished and it was intended to facilitate the assessee s business activity to be carried out more conveniently and profitably, the expenditure is an allowable revenue expenditure Decided in favour of assesssee. Claim u/s 35ABB disallowed Amortization of license fee - Held that - The assessee has claimed the amortization of license fee relating to the TATA Cellular Ltd only for post amalgamation period of three months w.e.f 1.1.2000 to 31st March 2001, however during the course of assessment proceedings the assessee made a claim for the entire year u/s 35ABB for the license fee paid in respect of the TATA Cellular Ltd amalgamated with the assessee - The restriction on the jurisdiction for entertaining a fresh claim otherwise than a revised return is applicable only of the AO and not of the appellate authorities relying upon National Thermal Power Corporation Ltd. Vs. CIT 1996 (12) TMI 7 - SUPREME Court - there is no bar in entertaining the present claim in question by the CIT(A) even without filing the revised return - the provisions of section 35ABB(6) permits such claim only in the hands of the amalgamated company and not in the hands of the amalgamating company - Sub-section (6) makes it clear that in a scheme of amalgamation if the amalgamating company sales or transfer the license to the amalgamated company then license fee paid for the entire year is eligible for amortization u/s 35ABB only in the hands of amalgamated company - the claim of amortization of license fee relating to Tata Cellular Ltd merged with assessee for entire year u/s 35ABB Decided in favour of assessee. License fee u/s 37(1) Held that - So far as the admissibility of the fresh claim first time before the appellate authority is concerned, the SC in National Thermal Power Corporation Ltd. Vs. CIT 1996 (12) TMI 7 - SUPREME Court has dealt with the issue when it is found that non taxable item is taxed or a permissible deduction is denied, there was no reason as to why the assessee should be prevented from raising that question before the Tribunal first time so long as relevant facts are on record in respect of that item - when a claim which is otherwise allowable /permissible but was not allowed as the assessee did not claim the same in the return of income, there is nothing under law to prevent the assessee to raise the claim before the appellate authorities if the facts relating to new claim are already on record and do not require any investigation Decided in favour of assessee. Foreign exchange loss disallowed Principle amount not utilized for acquisition of capital assets Held that - As decided in assessee s own case it has been held that, the CIT(A) was justified in coming to the conclusion that the exchange loss claimed by the assessee in P&L Account relates to loan availed for the purpose of meeting revenue expenditure - when the revenue is consistently allowing the claim of the assessee or taxing the gain arising from the foreign exchange fluctuation as income of the assessee for all three assessment years prior to the assessment year under consideration and four subsequent assessment years, there was no reason to interfere with the order of CIT(A) in allowing the claim of the assessee - Decided against revenue.
Issues Involved:
1. Disallowance of Expenses on Abandoned Projects. 2. Disallowance of Additional Claim under Section 35ABB of the Income Tax Act. 3. Allowability of Revenue Share Expenses under Section 37 of the Income Tax Act. 4. Disallowance of Foreign Exchange Loss. Detailed Analysis: 1. Disallowance of Expenses on Abandoned Projects: Facts and Arguments: The assessee incurred expenses of Rs. 3,94,75,619 on abandoned cell sites, claiming these as business expenditure. The AO disallowed the claim, treating the expenses as capital in nature, arguing they were spent to bring new assets and sources of income into existence. The CIT(A) upheld this view. Judgment: The Tribunal noted that the expenses were incurred for the construction of cellular towers for the assessee's existing business, not for a new business. It referred to the Jharkhand High Court decision in CIT Vs. Tata Robins Fraser Ltd., which held that pre-operational expenses on abandoned projects can be treated as revenue expenditure. The Tribunal concluded that since the towers were meant to facilitate the existing business and no new asset came into existence, the expenditure is allowable as revenue expenditure under Section 37(1). The Tribunal set aside the orders of the authorities below and allowed the claim. 2. Disallowance of Additional Claim under Section 35ABB: Facts and Arguments: The assessee took over TATA Cellular Ltd and claimed the license fee paid by TATA Cellular Ltd up to December 31, 2000, under Section 35ABB. The AO disallowed the claim as it was made through a letter without filing a revised return. The CIT(A) upheld the AO's decision. Judgment: The Tribunal held that the provisions of Section 35ABB(6) allow the amalgamated company to claim the license fee paid by the amalgamating company. It cited the Supreme Court decision in National Thermal Power Corporation Ltd. Vs. CIT, which permits claims to be raised before appellate authorities even if not claimed in the return of income. The Tribunal found that the CIT(A) erred in not admitting the claim and allowed the amortization of the license fee for the entire year under Section 35ABB. 3. Allowability of Revenue Share Expenses under Section 37: Facts and Arguments: The assessee did not claim the deduction for revenue sharing expenses in the return but raised it before the CIT(A), who rejected it as it did not emerge from the assessment order. Judgment: The Tribunal referred to the Supreme Court decision in National Thermal Power Corporation Ltd. Vs. CIT, which allows new claims before appellate authorities if relevant facts are on record. It cited multiple decisions, including CIT Vs. Bharati Hexacom Ltd., which held that license fees on a revenue-sharing basis are allowable as revenue expenditure. The Tribunal admitted the additional ground and allowed the claim, noting that the CIT(A) erred in not admitting the ground. 4. Disallowance of Foreign Exchange Loss: Facts and Arguments: The AO disallowed the foreign exchange loss of Rs. 22,38,39,000, arguing it led to an increase in liability towards loan repayment, thus treating it as a capital item. The CIT(A) allowed the claim, following precedents including the Supreme Court decision in UPSIDC. Judgment: The Tribunal noted that a similar issue was decided in favor of the assessee for A.Y. 1998-99, allowing the foreign exchange loss as revenue expenditure. It cited the Supreme Court decision in CIT Vs. Woodward Governor India P. Ltd., which supports treating such losses as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, rejecting the revenue's appeal, emphasizing consistency in treatment across assessment years. Conclusion: The Tribunal allowed the assessee's appeal on all grounds, treating the expenses on abandoned projects and revenue share expenses as revenue expenditure and allowing the additional claim under Section 35ABB. It also upheld the CIT(A)'s decision to allow the foreign exchange loss as revenue expenditure, dismissing the revenue's appeal.
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