2023 (4) TMI 1168 - AT - Income Tax

Nature of expenditure - Addition of licence fee as capital expenditure - as per AO Act provides for such capital expenditure to be amortised as per provision of section 35ABB over unexpired portion of the licence. The unexpired portion of the licence from assessee s document is 8.5 years - assessee has contended that in three preceding AY(s) and in succeeding AY 2011-12 the said payment of licence fee has been allowed as revenue expenditure - HELD THAT - A different view has been taken by the Ld. AO in AY 2010-11 presently under consideration. The contention of the assessee could not be controverted by the Ld. DR. In our view, a different approach without there being variation in facts or in law is not justified. CIT(A) has placed reliance on the decision of Bharti Hexacom Limited 2013 (12) TMI 1115 - DELHI HIGH COURT as also on the decision of Delhi Tribunal in the case of M/s. MTNL 2006 (2) TMI 224 - ITAT DELHI-G for recording his findings in favour of the assessee with which we concur. Accordingly ground No. 1 of the Revenue is rejected. Addition u/s 41(1) - unexplained creditors - entire amount standing in the name of sundry creditors as reflected in the Balance Sheet as on 31.03.2010 for want of submission by the assessee of details as per the format devised by him under section 41(1) - addition deleted by the Ld. CIT(A) - HELD THAT - As per CIT-A addition under section 41(1) can be made only if a genuine trade liability has ceased to exist for the reasons enumerated in section 41(1) of the Act. We agree. CIT(A) has recorded the finding that the Ld. AO has not made the impugned addition by holding that these liabilities ceased to exist during the year. None of the conditions precedent for applicability of the provisions of section 41(1) is fulfilled in the case of the assessee. The Ld. AO was thereof not justified at all to invoke the provisions of section 41(1) to make the impugned addition and the Ld. CIT(A) has rightly observed that the impugned addition can be deleted on this ground alone.O was not justified in treating the entire trade creditors as bogus when majority of them were well-established public sector undertakings or limited companies e.g. BSNL, MTNL, Bharti Airtel Ltd., HCT Info-systems Ltd. and Tata Tele Services Ltd. etc. as observed by the Ld. CIT(A) whose identity cannot be questioned. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 3,90,40,000/- on account of Licence Fee as capital expenditure.
2. Addition of Rs. 23,60,79,000/- under section 41(1) on account of unexplained creditors.

Summary:

Issue 1: Addition of Rs. 3,90,40,000/- on account of Licence Fee as capital expenditure

The Revenue challenged the deletion of the addition of Rs. 3,90,40,000/- by the CIT(A), which the AO had treated as capital expenditure. The AO argued that the licence fee paid to the Department of Telecommunication provided an enduring benefit and should be amortized under section 35ABB of the Income Tax Act, 1961. The CIT(A) disagreed, noting that the fee was a recurring annual payment based on revenue sharing, not a one-time capital expenditure. The CIT(A) relied on precedents like Bharti Hexacom Ltd. and MTNL, which supported the treatment of such fees as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's ground, emphasizing the consistent treatment of the fee in previous and subsequent assessments.

Issue 2: Addition of Rs. 23,60,79,000/- under section 41(1) on account of unexplained creditors

The AO added Rs. 23,60,79,000/- as unexplained creditors under section 41(1) due to the assessee's failure to provide details and confirmations of creditors. The CIT(A) found that the liability had not ceased and that payments were made to creditors in subsequent years, thus invalidating the addition under section 41(1). The CIT(A) also noted that most creditors were well-established entities, making the demand for detailed confirmations unreasonable. The Tribunal agreed with the CIT(A), citing the Delhi High Court's decision in Hotline Electronics Ltd., which required evidence of debt remission or cessation for section 41(1) to apply. The Tribunal found no basis for the AO's claim of bogus creditors and upheld the CIT(A)'s deletion of the addition.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues, and pronounced the order on 24th April, 2023.