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2020 (8) TMI 954 - AT - Income TaxRevision u/s 263 - claim of depreciation on the spectrum fees and allowability of depreciation u/s 32(1)(ii) - whether the deduction is to be allowed thereon as depreciation u/s. 32 of the Act over a period of time, or whether the same has to spread over the years as per section 35ABB ? - HELD THAT - We observe that AO had examined/ verified the cost of acquisition of the 3G spectrum and then allowed the claim of depreciation u/s 32(1)(ii) as claimed by the assessee, by treating this right as an intangible asset after due examination and application of mind. We also observe that the AO had conducted enquiries during the course of proceedings, however, CIT merely change of opinion by reappraising evidence is not within the parameters of revisional jurisdiction u/s 263 as laid down in the case of Gabriel India Limited 1993 (4) TMI 55 - BOMBAY HIGH COURT . It is also well settled that where two views are possible and the AO has taken one of the possible views which might result in prejudice to the revenue, then also proceedings u/s 263 cannot be initiated. Reliance in this regard is placed on the decisions of Malabar Industrial Co. Ltd 2000 (2) TMI 10 - SUPREME COURT Spectrum fees so paid by the assessee, we observed that Spectrum fees is part of the license fees and they are not distinct or independent. There is a clear distinction between payment for use of spectrum and the license to provide telecom services . This is clear from the fact that any new telecom operator who wished to provide 3G services was separately required to obtain a Unified Access Services ( UAS )/ Cellular Mobile Telephone Service ( CMTS ) license to provide the telecom services. Grant of 3G spectrum does not in itself entitle a company to provide telecom services unless a license has been granted to such company to provide telecom services. In fact, 3G spectrum cannot be granted to a bidder unless it has already obtained a UAS/CMTS license. The eligibility criteria to participate in the Auction is referred in the 3G Bidding document placed. Provisions of Section 35 ABA was inserted by the Finance Act, 2016 w.e.f. 01-04-2016, hence the provision of this Section is not applicable to the year under consideration. We also observed that this amendment clearly suggests that right to use spectrum is not covered by the provisions of Section 35ABB of the Act. Accordingly, the assessee had correctly claimed depreciation u/s 32 of the Act prior to insertion of Section 35ABA under the statute. With regard to invocation of powers under section 263 of the Act for declining the claim of bad debts and allowability of deduction under section 36(1)(vii) we observe that the assessee had created a Provision of Bad and Doubtful Debts of INR 32,23,50,209 reflected in Schedule 17 of the Profit Loss Account and simultaneously reduced such amount from Sundry Debtors in Schedule 7 of the Balance Sheet. From such provision of bad and doubtful debts, the assessee had written off an amountof INR 37,57,77,446 as bad debts after expiry of period of 180 days since the debt had become irrecoverable. In response to the specific query of the AO regarding deductibility of the bad debts, the assessee filed submissions dated March 30, 2015 wherein details regarding the policy adopted by the assessee for treating any amount as bad debts and the process generally followed by the assessee for collection of the outstanding dues was outlined. We also found that such debt was earlier accounted as income, and this fact is duly evidenced from clause 13 of the Tax Audit Report for the subject AY and also the accounting policies followed by VIL as reported in schedule 19 to the audited financial statement relevant for the subject AY. From the order of the AO, we also found that during the course of the assessment proceedings, due enquiries regarding the allowability of bad debts was made by the AO in response to which a detailed submission was filed by the assessee vide its submission dated March 30, 2015. After considering the submissions of the assessee, the AO allowed the claim of bad debts in accordance with the provisions of the Act. Thus, as the claim has been allowed after proper examination and due application of mind, exercise of power under section 263 of the Act was bad in law. We also observe that the issue with regard to deduction u/s 36(1)(vii) of the Act is no more res-integra and has been settled in the case of TRF Limited 2010 (2) TMI 211 - SUPREME COURT and Vijay Bank 2010 (4) TMI 46 - SUPREME COURT wherein it has been held that if an assessee has written off debts in its books of accounts, then deduction under section 36(1)(vii) of the Act is necessarily to be given to the assessee. Reliance is also placed on the Circular No 12 of 2016 dated May 30, 2016 issued by the Central Board of Direct Taxes ( CBDT ), wherein it has been categorically mentioned that where an assessee writes off a debt as irrecoverable in books of account, such claim will be admissible u/s 36(1)(vii) of the Act. Thus we quash the revisionary order passed by the PCIT, as being bad in law. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Time-barred nature of the revisionary order under Section 263. 3. Claim of depreciation on spectrum fees under Section 32(1)(ii). 4. Allowability of bad debts under Section 36(1)(vii). 5. Examination of expenses capitalized for acquiring 3G spectrum. Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The primary issue was whether the Principal Commissioner of Income Tax (PCIT) had the authority to initiate proceedings under Section 263 of the Income Tax Act. The assessee argued that the order passed by the Assessing Officer (AO) was neither "erroneous" nor "prejudicial" to the interests of the revenue, as the AO had conducted adequate inquiries and taken a permissible view. The tribunal found that the AO had indeed conducted detailed inquiries and the PCIT's invocation of Section 263 was not justified. The tribunal relied on several judicial pronouncements, including Gabriel India Ltd. and Malabar Industrial Co. Ltd., to conclude that the revisionary proceedings were not maintainable. 2. Time-barred nature of the revisionary order under Section 263: The assessee contended that the revisionary order was time-barred as the only order that could have been revised was the draft assessment order, which was passed on March 31, 2015, and could have been revised only up to March 31, 2017. The tribunal did not specifically address the time-barred nature in its final conclusion, focusing instead on the substantive issues of jurisdiction and the merits of the case. 3. Claim of depreciation on spectrum fees under Section 32(1)(ii): The tribunal examined whether the depreciation claimed by the assessee on the right to use 3G spectrum as an intangible asset under Section 32(1)(ii) was correct. The PCIT had directed the AO to amortize this cost under Section 35ABB instead. However, the tribunal found that the AO had made specific inquiries regarding the addition of spectrum fees and allowed the claim after due examination. The tribunal relied on the decision in Idea Cellular Ltd., which held that spectrum fees are not covered by Section 35ABB, and upheld the depreciation claim under Section 32(1)(ii). 4. Allowability of bad debts under Section 36(1)(vii): The PCIT had directed the AO to examine the customer-wise breakup of bad debts to verify if individual accounts had been written off. The tribunal noted that the AO had already conducted inquiries into the bad debts and allowed the claim after proper examination. The tribunal referenced the Supreme Court rulings in TRF Ltd. and Vijay Bank, which established that once an assessee writes off a debt as irrecoverable in its accounts, the deduction under Section 36(1)(vii) should be allowed. The tribunal quashed the PCIT's order on this ground. 5. Examination of expenses capitalized for acquiring 3G spectrum: The PCIT had also directed the AO to examine the expenses capitalized by the assessee for acquiring the right to use 3G spectrum. The tribunal found that the AO had already scrutinized these expenses during the assessment proceedings. The tribunal emphasized that the AO had exercised due diligence and the PCIT's direction for further examination was unwarranted. Conclusion: The tribunal quashed the revisionary order passed by the PCIT under Section 263, holding that the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The tribunal allowed the appeal of the assessee, affirming the AO's original decisions on depreciation and bad debts.
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