2017 (8) TMI 367 - AT - Income Tax

Deduction u/s. 80-IA(4)(ii) - telecommunication services - infrastructure facilities - assessee is mere trader in purchasing and selling of internet services or is engaged in providing ISP - business of dealing in bandwidth - network and support services - eligibility to claim deduction where excess of expenditure is more than income - Held that - A wholesale purchaser of bandwidth, in our opinion, cannot be equated with an undertaking providing infrastructure facilities i.e. broadband network and Internet services. In case of deductions the onus on the assessee is much more higher. Claiming a deduction and filing necessary evidences in its support are not mundane matters -rather same are the foundation stones of claim of deduction. There is no credible material on record before any of the authorities, including us, to show that procurement and sale of bandwidth represented rendering Internet services as envisaged by the provisions of section 80IA of the Act. No evidence that could prove that the assessee was not engaged in purchase and sale of bandwidth. In short,income earned by the assessee account of sale of bandwidth is not derived from the eligible business and it is not entitled for claiming deduction in that regard. As far as network and support service fees it is found that same were received from RGSL for providing Internet services to its customers in India. It is also found that the assessee had paid similar fees to RDSIPL for installing PoP for rendering Internet services to its customer. Thus,the only income for rendering Internet services is the network and support fee of ₹ 2.21 crores. But if the expenditure of ₹ 3.06 crores on network and support fees paid is considered it would result in a loss on operation of Internet services provided by the assessee. In these circumstances,we are of the opinion that the FAA has rightly held that assessee was not entitled to any deduction u/s. 80 IA of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Deduction under Section 80-IA(4)(ii) of the Income Tax Act.
2. Addition of ?1.31 crores due to discrepancy in income reflected in TDS certificates.
3. Dismissal of appeal due to delay in filing and imposition of penalty under Section 271(1)(c).

Detailed Analysis:

1. Deduction under Section 80-IA(4)(ii) of the Income Tax Act:
The primary issue was whether the assessee was entitled to claim a deduction under Section 80-IA(4)(ii) of the Act. The assessee, engaged in the business of bandwidth and network support services, claimed a deduction of ?1.34 crores under this section. The Assessing Officer (AO) disallowed the deduction, arguing that the assessee was merely a trader in bandwidth and not an Internet Service Provider (ISP) as required by the section. The AO noted that the assessee purchased bandwidth from various ISPs and sold it to other ISPs without providing any actual broadband network or internet services. The First Appellate Authority (FAA) upheld the AO's decision, stating that the revenue generated was from the sale of bandwidth and not from rendering internet services, and thus, the income was not eligible for deduction under Section 80-IA.

Upon appeal, the Tribunal analyzed the nature of internet services and bandwidth. It was concluded that the assessee was primarily engaged in the wholesale procurement and sale of bandwidth, and not in providing broadband network or internet services as required by Section 80-IA. The assessee's activities were deemed purely commercial, involving the sale of bandwidth rather than the development of infrastructure. The Tribunal emphasized that the assessee admitted to purchasing and selling bandwidth, and there was no credible material to establish that the sale of bandwidth represented rendering internet services. Therefore, the claim for deduction under Section 80-IA was disallowed.

2. Addition of ?1.31 crores due to discrepancy in income reflected in TDS certificates:
The second issue pertained to the addition of ?1.31 crores due to a discrepancy between the income reflected in TDS certificates and the income credited in the assessee's Profit & Loss account. The Tribunal found that this issue required further verification and directed the AO to re-examine the claim made by the assessee. The AO was instructed to provide a reasonable opportunity for the assessee to present its case. Thus, this ground of appeal was decided in favor of the assessee, in part, for further verification.

3. Dismissal of appeal due to delay in filing and imposition of penalty under Section 271(1)(c):
The third issue involved the dismissal of the assessee's appeal by the FAA due to a delay in filing and the imposition of a penalty of ?45.57 lakhs for furnishing inaccurate particulars of income and concealment of income. The assessee argued that the delay was due to an inadvertent error of filing the appeal before the Deputy Commissioner of Income Tax (DCIT) instead of the FAA. The FAA found the explanation unconvincing and dismissed the appeal as time-barred.

Before the Tribunal, the assessee contended that the delay was not deliberate and was a procedural lapse. The Tribunal agreed, noting that the appeal was filed within 30 days but before the wrong authority. The Tribunal emphasized that tax matters should be decided on merits rather than technicalities. Therefore, the Tribunal directed the FAA to decide the penalty appeal on merits, considering the reasonable cause for the delay. This ground of appeal was decided in favor of the assessee, in part.

Conclusion:
Both appeals filed by the assessee were partly allowed. The Tribunal upheld the disallowance of the deduction under Section 80-IA but directed further verification for the addition of ?1.31 crores and allowed the appeal on the penalty issue to be decided on merits by the FAA.