2021 (9) TMI 763 - AT - Income Tax

Disallowance of deduction u/s 80-IA - assessee is engaged in the business of providing telecommunication services, which inter-alia, provide broadband and Internet services - AO denied the deduction as assessee has not maintained separate books of accounts for 80IA eligible unit and non 80IA unit and apportionment of the expenses are not based on the revenue ratio of eligible and non eligible units resulting into higher profit in eligible units than the profits in non eligible units - HELD THAT - AO has simply disbelieved the allocation made by the assessee on the ground that the expenses must have been allocated on revenue ratio of eligible and non eligible units whereas the allocation of expenses exhibited hereinabove clearly shows that either they are on actual basis or on revenue ratio basis and some of the expenses are directly attributable to the units. In our considered opinion, allocation is based on actual scientific basis duly certified by the CA in Form No. 10CCB and therefore, the same cannot be faulted with. This claim is not for the first time but initial Assessment Year of claim is 2007-08 wherein the Assessing Officer has accepted the claim of deduction. In our considered view, unless the claim is disturbed in the initial Assessment Year, the same cannot be disturbed in the subsequent Assessment Years of the block. AO had allowed claim of deduction in Assessment Year 2011-12 onwards also. Therefore, the Rule of Consistency squarely applies on the facts of the case. In so far as the allocation of other income we find that the same was never claimed as eligible for deduction u/s 80IA of the Act. Therefore, the action of the Assessing Officer is without any basis. Considering the facts of the case in totality, as discussed hereinabove, we direct the Assessing Officer to allow the claim of deduction u/s 80IA of the Act as claimed by the assessee. Nature of expenses - Non confirming of the addition on account of licence fee which was held as capital in nature by the Assessing Officer - HELD THAT - As pursuant to the directions of the ld. CIT(A), the Assessing Officer, vide order passed u/s 250 r.w.s 143(3) of the Act, deleted the addition made on account of licence fee paid to DOT by following the decision of the Hon'ble Delhi High Court in the case of Bharti Hexacom 2013 (12) TMI 1115 - DELHI HIGH COURT - Since the quarrel has now been settled, we do not find any merits in the appeals of the Revenue. The same are accordingly, dismissed.

Summary

Issues:
1. Disallowance of deduction under section 80-IA of the Income-tax Act, 1961 for Assessment Years 2008-09 and 2009-10.
2. Disallowance of deduction based on the allocation of expenses and other income.
3. Disallowance of a portion of the licence fee as capital expenditure.

Analysis:
1. The appeals involved a common issue regarding the disallowance of deduction under section 80-IA of the Income-tax Act for the Assessment Years 2008-09 and 2009-10. The Assessing Officer disallowed a portion of the deduction claimed by the assessee, citing reasons such as the lack of separate books of accounts for eligible and non-eligible units and incorrect allocation of expenses. The Tribunal considered the arguments presented by both parties and analyzed the allocation of expenses and income to determine the eligibility of the deduction claimed.

2. The Tribunal observed that the assessee maintained an ERP-based accounting system with separate codes for each head of expenditure, which was deemed acceptable for claiming deductions under the Act. The Tribunal referred to previous cases where similar accounting systems were upheld for claiming deductions under different sections of the Act. The Tribunal also noted that the expenses were allocated based on actual scientific principles and certified by a Chartered Accountant, indicating a valid basis for the allocation.

3. Regarding the allocation of other income and the consistency of claims, the Tribunal emphasized that the claim for deduction had been accepted in the initial Assessment Year of 2007-08. The Tribunal held that unless the claim was disturbed in the initial year, it could not be challenged in subsequent years. Additionally, the Tribunal highlighted that the Assessing Officer had allowed the deduction in later Assessment Years, invoking the Rule of Consistency to support the assessee's claim.

4. Another issue in the appeals concerned the disallowance of a portion of the licence fee as capital expenditure. The Assessing Officer initially disallowed a significant amount of the fee as capital expenditure, but upon directions from the appellate authority and in compliance with a decision of the Hon'ble Delhi High Court, the Assessing Officer later deleted the addition. The Tribunal, considering the settlement of the issue, dismissed the Revenue's appeals related to this matter.

5. In conclusion, the Tribunal partly allowed the assessee's appeals and dismissed the Revenue's appeals, based on the analysis of the disallowance of deductions under section 80-IA, allocation of expenses, and treatment of the licence fee as capital expenditure. The Tribunal's decision was pronounced on 14.09.2021 in the presence of both parties' representatives.