2022 (1) TMI 1207 - AT - Income Tax

Revision u/s 263 by CIT - As per CIT 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 - 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 - HELD THAT - 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 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. 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. So the question No.II framed is also decided in favour of the assessee and against the Revenue. Impugned order passed by the Ld. PCIT under section 263 of the Act by invoking revisionary jurisdiction is not sustainable in the eyes of law, hence hereby quashed. Resultantly, appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Disallowance of tax depreciation on spectrum.

Issue-wise Detailed Analysis:

1. Validity of Order under Section 263:
The primary issue is whether the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, is valid. The assessee argued that the order dated 31 March 2021, passed under Section 263, is without jurisdiction, illegal, and void ab-initio. The PCIT had held that the assessment order dated 29 December 2017, passed by the Deputy Commissioner of Income Tax (DCIT) under Section 143(3) of the Act, was erroneous and prejudicial to the interests of revenue. The assessee contended that the assessment order was neither erroneous nor prejudicial to the interest of the revenue, as the AO had made adequate inquiries and necessary verifications during the assessment proceedings. The assessee also cited a previous order by the Mumbai ITAT, which had quashed proceedings under Section 263 for a prior assessment year, holding that the depreciation claimed under Section 32 on spectrum was valid.

The Tribunal examined the arguments and found that the AO had indeed made a discreet inquiry into the depreciation claim on spectrum fees, treating it as an 'intangible asset' under Section 32. The Tribunal held that it was not a case of non-application of mind or inadequate inquiry by the AO. Therefore, invoking revisionary jurisdiction by the PCIT under Section 263 was not sustainable. The Tribunal also noted that the PCIT had not mentioned the invocation of Explanation 2 to Section 263 in the show cause notice, which was necessary as per the Supreme Court's decision in Principal Commissioner of Income Tax vs. Shreeji Prints (P.) Ltd.

2. Disallowance of Tax Depreciation on Spectrum:
The second issue was whether the depreciation claimed by the assessee at 25% on the spectrum fee was allowable under Section 32 of the Act or if it had to be amortized on a pro-rata basis over the period of the license under Section 35ABB. The PCIT had directed the AO to disallow the depreciation and instead allow a deduction under Section 35ABB, treating the spectrum as an extension of the original telecom license.

The Tribunal referred to a previous decision in the assessee's own case for the assessment year 2011-12, where it was held that the depreciation on spectrum fees was allowable under Section 32 and that Section 35ABB was not applicable. The Tribunal found that the PCIT had admitted this fact but chose to keep the issue alive because the department had not accepted the Tribunal's decision and had filed an appeal before the High Court. The Tribunal emphasized that judicial discipline required the PCIT to follow the Tribunal's order.

The Tribunal concluded that the assessee's claim for depreciation on spectrum fees was allowable under Section 32, as the provisions of Section 35ABB were not applicable. Therefore, the assessment order passed by the AO was not erroneous, and the PCIT's order under Section 263 was quashed.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the order passed by the PCIT under Section 263 was not sustainable in law. The Tribunal affirmed that the depreciation claimed by the assessee on spectrum fees was valid under Section 32, and the provisions of Section 35ABB did not apply.