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TMI Blog2020 (8) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten 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. - SHRI R.C. SHARMA, AM AND SHRIRAMLAL NEGI, JM For the Assessee by Shri Salil Kapoor (AR) For the Revenue by Shri Parag Vyas (Special Counsel) (CIT-DR) ORDER PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of the ld. Pr.CIT- 8, Mumbai U/s 263 of the Income Tax Act, 1961 (in short, the Act) dated 28/03/2019 for the A.Y. 2011-12. The assessee has taken following grounds of appeal: 1. On the facts and circumstances of the case and in law, the learned Principal Commissioner of Income Tax 8, Mumbai (hereinafter referred to as the 'learned PCIT') has erred in initiating proceedings under section 263 of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice to the Ground No 3 above, on the facts and in circumstance of the case and in law, the learned PCIT has grossly erred in observing that since it is the Appellant's plea that spectrum is different from a telecom license, the Appellant should therefore neither be eligible to claim deduction under section 35ABB nor section 37 of the Act. 6. On the facts and in circumstance of the case and in law, the learned POT has erred in directing the learned AO to examine the expenses capitalized by the Appellant together with the costs incurred for acquiring the right to use 3G spectrum. 7. On the facts and in circumstance of the case and in law, the learned PCIT has erred in directing the learned AO to examine the customer-wise breakup of bad debts, thereby directly violating the principles enunciated by the Hon'ble Apex Court in the case of TRF Ltd v CIT 323 ITR 397 and Vijaya Bank v CIT (323 1TR 166), wherein it has been held that once the assessee has debited its profit and loss account and simultaneously reduced the amount from Sundry Debtors/loans and advances depicted in balance sheet at the close of the year, the assessee is entitled to deduction of such bad debts. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- in the books of accounts whereas the amount capitalized for income tax purpose was Rs. 35,77,10,81,245/- for acquisition of 3G spectrum. Thus, the assessee has capitalized an excess amount of Rs. 54,72,81,245/- (35,77,10,81,245 - 35,22,38,00,000) for income-tax purpose on account of 3G spectrum and has claimed excess deduction on account of depreciation on this excess amount. As per ld CIT, these issues prima facie warranted disallowances on the facts and circumstances of the case, have not been done and the claims were allowed without proper examination. On the facts and circumstances of the case, it is clear that in respect of the aforesaid aspects, the order of the A.O. suffers from error within the meaning of Section 263 of the I.T. Act, 1961. This error has resulted in prejudice to the revenue within the meaning of Section 263 in as much as the claim of the assessee is allowed in excess and /or income of the assessee has been under assessed. Accordingly, in respect of the aforesaid aspects, provision of Section 263 of the Income Tax Act, 1961 were to be invoked. Therefore, a show cause notice was first issued on 15.11.2016 and a final show cause notice dated 15.03.2018 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deduction on account of bad debt is allowable if the amount of bad debt has been written off as irrecoverable in the accounts. However, the deduction was claimed directly in the computation of income, therefore, should not have been allowed. As per section 36(1)(vii), the deductions shall be allowed in computing the income in respect of the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. 6. After considering the assessee s contention, the ld. Pr.CIT(A) has held as under: 8.5.1 Essentially, the policy and method followed in writing of bad debts is under examination. It is to be understood that write off of the bad debts implies that firstly it has become bad (irrecoverable) and that it was actually written off. However, here the assessee has a practice of putting a 90 day limit and then classifying it as bad and writing off by way of provision for bad debts. It is also mentioned in the written submissions that legal cases are filed subsequently indicating perusal of such bad debts. Thus, it is not clear whether the debtor account is actually written off or it is written off' by crediting the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the difference between the amount capitalized in the books (INR 35,22,38,00,000) and the amount considered for income tax purposes (INR 35,77,10,81,245) and disallow the claim of depreciation on such differential sum of INR 54,72,81,245. As per ld. AR of the assessee, the leaned PCIT erred in directing the AO to examine the customer wise break up of bad debts and verify whether individual accounts have been written off for allowing the claim of deduction of bad debts of INR 37,57,77,446. 9. As regards invocation of powers by the ld. PCIT under section 263 of the Act, the ld. AR of the assessee submitted that on basis of the disclosure made in the financial statement and tax audit report, the AO had conducted a detailed investigation of facts as also examined the additions of the right to use 3G spectrum to the fixed assets and allowability of depreciation thereon, which is manifest from the following: (i) Notice dated January 14, 2015 issued by the AO (refer page 82 of the paper book) wherein in point 4 of the notice, the AO had specifically enquired about the working of addition to spectrum fees duly supported by evidence, as also, amortization of the spectrum fees. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia and Anr. (2009) 315 ITR 84 (Bom). Wherein Hon ble Bombay High Court has held that where an issue as to whether income is to be treated as Capital Gain or Casual income is not decided, the same cannot be considered as a change of opinion and it cannot be said that the AO has applied his mind on the relevant issue. On similar lines, in the present case since the AO has not examined and applied his mind whether the provisions of Section 35ABB of the Act are applicable and has not made any inquiry in this regard. Section 263 of the Act has rightly been invoked. The details submitted by the assessee during assessment proceedings are not on allowability or /non applicability under section 35ABB of the Act.. The ld. DR further contended that the decision of the Tribunal in the case of Idea Cellular Ltd. in ITA No. 360/Mum/2016 has not considered the amended section 263 of the Act. 14. As per ld. DR, the decisions relied upon by the ld. AR in the case of Gabriel India Ltd, 203 ITR 108 (Bom) and Malabar Industrial Co. Ltd. vs CIT , 243 ITR 83 (SC) are not applicable since there is no opinion formed by the AO on applicability of Section 35ABB of the Act. In fact, Malabar Industrial Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the Revenue. 17. The ld. DR also argued that provisions of Section 35ABA is inserted to the Act w.e.f. A.Y. 2017-18 and hence from A.Y. 2017-18 onwards only Section 35ABB would not be applicable to Spectrum payments. The Hon ble Supreme Court of India in the case of Britania Industries Ltd. reported in 278 ITR 546 while dealing with specific provisions dealing with Guest House expenditure would have to be applied instead of the general provisions in Section 30, 31 and 32. 18. Further arguing Spectrum Fees, the ld. DR argued that the assessee is confusing spectrum fees for grant Telecommunication License. Spectrum Fees are fees for acquisition of a right to transmit signals over specific bands (higher bands) and, therefore, squarely falls within the ambit of the Section 35ABB of the Act being in the nature of a right related to operating of telecommunication services. Section 35ABB being special provision would have preference over Section 32. As per ld. DR, the decision of Tribunal in the case of Idea Cellular Ltd in ITA No. 360/Mum/2016, has not considered the above as the fact that without Spectrum (radio waves) there can be no provision of telecommunication service. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed in respect of the irrecoverable debts which were written off in the books of accounts. The return was selected for scrutiny. After examining the requisite disclosures made by the assessee in the financial statements, tax audit report, computation of income etc. regarding the claim of depreciation u/s 32(1)(ii) on the right to use 3G spectrum and bad debts, and after being satisfied with the explanation submitted by the assessee in response to the specific questions raised during the course of the assessment proceedings, the AO passed the assessment order allowing the aforesaid claims and making additions on other issues. Being aggrieved by the additions, the assessee filed its objections before the Dispute Resolution Panel-II, Mumbai ( DRP ). The objections were dealt by the DRP and directions under section 144C of the Act were issued wherein partial relief was given on some of the proposed disallowances. Subsequently, the AO passed the final assessment order dated January 28, 2016 raising the total disputed tax demand of INR 1,31,83,65,620. Against such final assessment order, an appeal was filed by the assessee before this Hon ble Tribunal which is pending disposal. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 (relevant pages 155 and 156 of the paper book) were filed by the assessee wherein details regarding acquisition of right to use 3G spectrum, the cost of such acquisition, additions made in the books of accounts, break-up of the cost for tax purposes, claim of depreciation under section 32(1)(ii) of the Act, copy of the 3G spectrum and BWA spectrum license, relevant approvals from DOT, etc. were furnished during the course of the original assessment proceedings on the specific directions of the AO. We also observed that these details were called for by the AO vide Notice dated January 14, 2015 issued by the AO wherein in point 4 of the notice, the AO had specifically enquired about the working of addition to spectrum fees duly supported by evidence, as also, amortization of the spectrum fees. It is not understood, as to how can it be the case of the Revenue that, the AO while examining the issue and allowing the claim of depreciation vis- -vis the amount in the question has not examined the provisions of section 35ABB of the Act. 24. Tested in light of the law laid down by the jurisdictional Bombay High Court in the case of Gabriel India Ltd. (203 ITR 108), it can be concluded th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mumbai Bench of the ITAT does not merely decide the ground of appeal raised on the applicability of the provisions of Section 263 of the Act but also decides that even on the merit of the case the payment in question is not covered by the provision of Section 35ABB of the Act and has upheld the allowability of depreciation u/s 32 of the Act. 27. We further observed that in the instant submissions filed by the Revenue, no particular submissions have been made on this aspect of the matter, thereby accepting that on the merits, the issue stands covered in favour of the assessee by the decision of the Mumbai Bench of the ITAT 28. We also observed that the issue as to how the decision of the Bombay HC in the case of Gabriel India Ltd. (203 ITR 108) and the Supreme Court in the case of Malabar Industrial Co. Ltd. (243 ITR 83) are applicable in similar fact set, has been accepted and acknowledged by the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016). 29. Accordingly, we can safely conclude that on the merits of the issue, the Mumbai Bench of the ITAT in the case of Idea Cellular Ltd. (ITA No. 360/Mum/2016) has already held that the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Idea Cellular Limited (ITA No. 360/Mum/2016) dated December 6, 2017. In this context, we highlight that the Tribunal in identical fact pattern for the same assessment year has not only upheld claim of depreciation on the 3G spectrum fees under section 32(1)(ii) of the Act treating the right to use 3G spectrum as an intangible asset, but has also quashed the revisionary proceedings initiated by the Revenue authorities. The key observations of the Hon ble Tribunal are as under: a. On maintainability of revisionary proceedings under section 263 of the Act: The Hon ble Tribunal categorically held that since the assessment order was passed after conducting a detailed enquiry and adopting one of the legally permissible view, the revisionary proceedings initiated on such issue has no legs to stand on and is thus liable to be quashed. Refer paras 13 to 16 of the order (page no 19 to 25 of the order). b. On merits of allowability of depreciation claimed on 3G spectrum fees: The Hon ble Tribunal observed that the telecom license and spectrum are independent of each other and 3G spectrum fee merely provides a right to use a particular frequency/spectrum while providing telecommuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse 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 at page 242 and 243 of the paper book). 37. We also observe that 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. 38. 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) of the Act, we observe that the assessee had created a Provision of Badand Doubtful Debtsof 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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