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TMI Blog2017 (12) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... ircles. In year 2001-02 it acquired rights for Himachal Pradesh, Uttar Pradesh East and thereafter in the year 2007-08 for Jammu & Kashmir. Even if 3G Spectrum was not applied or allotted, assessee could have still continued providing telecommunication services under existing license. The license to operate telecom services is issued u/s. 4 of the Indian Telegraph Act, 1885 which provide rights to establish and operate telecom services. As stated above, without such license one is not ever eligible to bid for 3G Spectrum. 3G Spectrum fees are merely for right to use a particular frequency/spectrum while providing telecommunication services. In view of the above, even the provisions of section 35ABB of the act are not applicable to such payment. In view of these facts, we are of the view that the assessee is entitled for claim of depreciation on merits also and AO has rightly allowed the claim while framing assessment under section 143(3) of the Act and the revision order of CIT Under section 263 of the Act is bad in law. - Decided in favour of assessee. - ITA No. 360/Mum/2016 - - - Dated:- 6-12-2017 - SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM For The Assessee : Jehan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on the same on the ground that the 3G spectrum was only an extension of the original license for operating telecom services and not a separate intangible asset. The Appellant prays that it be held that on the facts and circumstances, invoking section 263 for directing disallowance of depreciation on 3G Spectrum cost and treating such cost as an extension of the original telecom license, is not in accordance with law and that disallowance of said depreciation is not called for. WITHOUT PREJUDICE TO GROUND NO.III: GROUNDNO.III On the facts and circumstances of the case and in law, the Learned Pr.CIT erred in not accepting the claim of the Appellant that the entire 3G Spectrum cost was deductible under section 37(1) of the Act on the ground that the Appellant has not made such claim in the return of income and that the said expenditure not incurred wholly and exclusively for the purpose of business of the relevant year. The Appellant prays that the entire 3G Spectrum cost ought to be allowed to the Appellant under section 37(1) of the Act in computing business income. 3. Brief facts of the case are that the assessee company is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue. 4. The Pr.CIT finally passed revision order under section 263 of the Act as under:- 4. I have carefully considered the assessee's submission and arguments. The same is discussed on merit iii the following paragraphs. 4.1.i. At the outset, the assessee has stated that the conditions laid down in section 263 that the assessment order is erroneous as well as prejudicial to the interest of Revenue do not exist. They have also stated mere non-discussion of the facts is not enough to invoke the provisions of section 263. They have further stated that the invocation of section 263 is only merely a change of opinion. The A.R. of the assessee has also relied on certain case laws which have not been repeated for the sake of brevity. 4.2.i. The argument of the assessee that the conditions laid down in the provisions of section 263 are not satisfied cannot be accepted on the facts and merits of the case which is discussed in the following paragraphs. 4.2.ii On the legal front, the Hon'ble Supreme Court in the case of M/s Malabar industrial Co. Ltd. 243 ITR 83 (SC) has laid down the conditions precedent by which the CIT can invoke the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect to state as a broad proposition that an order of Assessing Officer cannot be erroneous, if the Assessing Officer has taken one of the two views possible. In such cases the order of the Assessing Officer is erroneous provided the Commissioner holds and is able to demonstrate that the view taken by the Assessing Officer was not plausible, being legally unsustainable and incorrect . 4.2.ii The argument that two views possible at the time of passing the assessment order, will hold good only in respect of questions of fact - When it comes to questions of law, the law laid down by the competent constitutional Courts has to be invariably followed. It is a settled law that when the Supreme Court or a High Court declares the law on a subject, the declaration go back to the date of enactment of that particular law so as to state that the law, from the date of the enactment itself was in the manner decided by courts subsequently. Hence when the Assessing Officer was passing the assessment order, the law on the subject was always the law as explained by the jurisdictional High Court or Supreme Court. Thus by super imposition made by the judicial pronouncement, the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same are rejected. 4.3 Coming to the facts and merits of the case, the same are discussed under: 43. i. The assessee was allotted spectrum for 20 years and paid onetime cost. The assessee capitalized the payment in his books as shown as intangible assets and claimed depreciation @ 25% u/s.32 of the l.T. Act on the spectrum under the head license . The spectrum allotted to the assessee on the basis of telecom license which the assessee company procured long back without having license to operate telecom service in particular circle the assessee cannot apply for allotment of spectrum. Thus the allocation of 3G spectrum is only extension of original license for operating telecom services and no separate intangible assets as claimed by the assessee. Thus the assessee is entitled to claim deduction of 1/20th of the spectrum fees paid as per provision of section 35 ABB of the I.T. Act. It is further pertinent to mention here that one of the eligibility criteria of the bidders who could participate in 3G auction was that any entity that holds Unified Access services. (UAS)/Cellular Mobile Telephone Service (CMTS) Licensee can participate in bid for auction of 3G spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee replied against the same. The summary of the submission filed before the AO and disclosures given in various documents by the assessee are as under: Sr. NO Particulars Remarks As regards depreciation claimed under section 32(1) of the Act on 3G spectrum 1. Director Report for the caption financial year See heading capital Expenditure and launch of 3G services under Significant Developments under the Director Report (see page No. 1 to 6 of APB) 2. Schedule -5 Fixed Assets to the Audited Financials Statement. See Page No. 19 of APB 3. Note B1 to Schedule 22 to the Audited Financial statements See page No. 30 of APB 4. Explanatory notes to the Revised Return of income filed under section 139(5) of the Act Para 2 of Explanatory Notes to revised ROI filed on July 19, 2013 with the AO (see page No. 50 to 57 of APB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n specified radio spectrum frequencies in the 2.1 GHZ band (the 3G Spectrum band ) and in the 2.3 GHZ band (the BWA Spectrum band ) by means of auctions in various telecom service areas in India. The Notice inviting Applications dated 25.02.2010 ( the Notice ), which is available in public domain, sets out the objectives of the spectrum auction as under: a) Obtain a market determined price of 3G/BWA spectrum through a transparent process; b) Ensure efficient use of spectrum and avoid hoarding; c) Stimulate competition in the sector, d) Promote rollout of 3G and Broadband services; e) Maximize revenue proceeds from the Auctions; f) Resolve congestion issues related to second generation ( 2G ) mobile services. The learned Counsel referred to pages no. 256 to 368 of APB for the relevant extracts of the Notice Inviting Applications dated 25.02.2010. 7. He referred to the Clause 2.1 of the Notice specified that under the auction process, the Successful Bidders would be granted the right to use spectrum at specified frequencies (2.1 GHz, poured in blocks of 5 MHz, i.e. each block of 2x 5 MHz) for 20 years from the date of award of right to commercially use the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomers of consequential withdrawal of service by giving 30 calendar days notice to each of them. The operator shall pay all fees payable by it until the date on which the surrender of the spectrum becomes effective. Thus, the spectrum so allotted is capable of being surrendered upon which it stands extinguished for the allottee. He further explained that once the DOT received the Bid Amount for the spectrum, it allocated specific frequencies in the respective service areas to the Successful Bidder by issuing the LOI which have already been submitted before the AO and now at pages no. 78 to 255 of APB. The successful bidders were allowed to use the spectrum frequencies for commercial operations from the designated date. As per clause 6.4 of the Notice, specific frequencies were earmarked for the Successful Bidders which shows that there was an identified block of spectrum available for use by the bidders. Thus, during the period of allotment, spectrum was used by the allottee to provide mobile telephone services or, in other words, it was an apparatus used in the telecom business to generate revenues. 9. In view of the above facts, he explained the legal provision of Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to revision under sub-section 263(l) of the Act is in the nature of supervisory jurisdiction and the same can be exercised only if the conditions specified therein exist. He referred to the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment as defined in Black's Law Dictionary. According to the definition 'erroneous' means involving error deviating from the Law. 'Erroneous assessment' refers to an assessment that deviates from the law and creates a jurisdictional defect, and is therefore, invalid. It is a defect that is jurisdictional in its nature, and does not refer to the judgment of the AO. Similarly, 'erroneous judgment' has been defined as a judgment issued by a court with jurisdiction to issue it, but containing an improper application of law. The phrase prejudicial to the interest of revenue is not an expression of art and is not defined in the Act. Understood in the ordinary meaning, it is of wide import and is not confined to loss of tax. This phrase has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal Vs. Commissioner of Income-tax, West Bengal (1973) 88 ITR 323 (SC). 14. Similarly, the learned Counsel for the assessee relied on the judgment of Hon ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.), wherein it is held as under: - 14. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner. 15. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Successful Bidders that it is distinct from the UAS/CMTS license of the awardees. This is also evident from the individual Letters of Intent ( LAM ) issued by the WPC Wing for earmarking spectrum frequency in the respective service areas submitted to the AO with assessee s letter dated 04.03.2014, since each LOI specifically states that It is not a license . Hence, we are of the view that on jurisdiction the revision order passed by CIT cannot be sustained and accordingly, reversed. 17. Now, coming to merits of the case, the learned Counsel stated that the AO after going through the facts of the case particularly note B.1 to the audited financial statements for the year ended on 31.03.2011 gave the disclosure on the accounting treatment of the 3G spectrum charges. Also, in note 2 to the explanatory letter dated 19.07.2013 filed before AO during assessment proceedings explains the tax treatment adopted by assessee in respect of the said charges. He argued, on merits, that the assessee has rightly claimed the depreciation being beneficial owner of the spectrum allotted and it is entitled to use it for the purpose of its business under the Act. It is settled that the owner of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for which it is owned by the assessee. The assessee claimed that the telecom license and the spectrum are independent of each other and there is no case to allow deduction in respect of the spectrum cost over 20 years period, in the absence of any specific provision under the Act that permits such amortisation. 19. Before us, the learned Counsel for the assessee relied on the decision of the Hon ble Supreme Court for the proposition that license is an asset under Explanation 3(b) to section 32(1) of the Act and, thus, it is eligible for depreciation. He relied on CIT vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), wherein Hon ble Supreme Court has considered the issue of goodwill and held as under: - 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [ Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: Explanation 3.-- For the purposes of this sub-section, the expressions assets' and block of assets' shall mean- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Smifs Securities Ltd. (supra) and the facts of the present case, it is clear that the assessee has rightly claimed depreciation under section 32 of the Act on 3G spectrum. It means that the expenditure towards 3G Spectrum is not expenditure for acquiring any right to operate telecommunications services. Out of the service areas in which 3G spectrum was won by the assessee, it had acquired the rights to operate telecommunication services in the year 1995-1997 for Maharashtra, Gujarat, Uttar Pradesh West, Madhya Pradesh, Haryana. Andhra Pradesh, Kerala, Punjab telecom circles. In year 2001-02 it acquired rights for Himachal Pradesh, Uttar Pradesh East and thereafter in the year 2007-08 for Jammu Kashmir. Even if 3G Spectrum was not applied or allotted, assessee could have still continued providing telecommunication services under existing license. The license to operate telecom services is issued u/s. 4 of the Indian Telegraph Act, 1885 which provide rights to establish and operate telecom services. As stated above, without such license one is not ever eligible to bid for 3G Spectrum. 3G Spectrum fees are merely for right to use a particular frequency/spectrum while provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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