9911796707
TMI Blog2024 (12) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... support of this proposition, the learned AR rightly placed reliance on the decision of Dalmia Power Ltd [ 2019 (12) TMI 991 - SUPREME COURT] Since, the due notices were issued to the income tax department before sanctioning of the scheme by the competent court, the binding nature of the scheme cannot be questioned or challenged at the time of implementation of the scheme as the scheme had attained statutory force not only between the transferor or transferee company but also between statutory authorities to whom notices were issued by the Court. The action of the learned CIT(A) in the instant case before us merging both the schemes, is wrong. It is to be noted that parties to the scheme in the first step of demerger are different and parties to the scheme in the 2nd step of merger are different. By merging both schemes together, the learned CIT(A) is only try to rewrite the scheme which is not permissible. Under the erstwhile provisions of the Companies Act, 1956, there is specific provision in Section 394(7) of the Companies Act, 1956 wherein, liberty was given to the tax department to challenge the scheme of arrangement sanctioned by the competent court before the higher court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogress (CWIP) written off - HELD THAT:- The genuineness of incurrence of such expenditure is also not doubted by the revenue. The only grievance of the revenue is that the expenses were incurred by the assessee for setting up of a new tower site which is capital in nature and since the said project of setting up of tower site got abandoned / aborted, the said entries of expenditure continues to remain as capital in nature and the abandoned project loss would only have to be construed as capital loss and not revenue business loss. The fact of the project getting aborted/ abandoned is not disputed by the revenue. That the project is linked with the primary business of the assessee is not doubted. Hence, if such business project gets abandoned, the amount already spent on the said project would only have to be construed as a business loss when the same is written off in the books and hence squarely allowable as deduction. This issue is also no longer res integra in view of the decision of Idea Cellular Ltd [ 2016 (10) TMI 181 - BOMBAY HIGH COURT] wherein held that since the new cellular towers were constructed in addition to the existing towers and no new business was being set up by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f SLA credits made by the assessee is made on a scientific basis having proper rationale for the same as it is akin to provision made for warranty. In view of the decision of Rotork Controls Pvt Ltd [ 2009 (5) TMI 16 - SUPREME COURT] we hold that the aforesaid provision of SLA credit would have to be construed as an ascertained liability eligible for deduction both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. Accordingly, ground raised by the assessee are allowed. Disallowance of interest paid u/s 36(1)(iii) - HELD THAT:- As in the instant case that there is no extension of existing business. The assessee has merely got new circles to render telecom services wherein towers are installed. Accordingly, in our considered opinion, proviso to section 36(1)(iii) of the Act per se is not applicable. Further, we find that the issue in dispute is covered in favour of the assessee by the decision of this Tribunal in assessee s own case for AY 2009-10 [ 2019 (6) TMI 474 - ITAT DELHI] . Once it is held that borrowed capital has been utilized for the purpose of business of the assessee, the interest paid on such loan becomes an allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t base of tower site in order to measure the cost of fixed assets capitalized and depreciation there on. In view of the modus operandi adopted by the assessee which stood uncontroverted by the revenue before us and in view of the report of the Special auditor, we hold that no fault could be attributed on the basis of derivation of provisional capitalization by the assessee as narrated and detailed supra. Accordingly, we hold that the depreciation on aforesaid provisional capitalization deserves to be allowed as the corresponding assets thereon are already ready for use. We find that the learned CITA had duly appreciated this contention of the assessee and on which, we do not find any infirmity. Accordingly Ground raised by the revenue is dismissed . Disallowance of depreciation on tower sites from RFAI notice generation date - HELD THAT:- We find that the Hon ble Courts have already held that the term use as referred to in Section 32 of the Act is not restricted to actual use , but also includes passive use i.e. assets kept ready for use which should also be considered for the purpose of claim of depreciation. The date on which the depreciation is being claimed by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax return as the same are very much required for determination of the issue in dispute before him. DR before us could not draw our attention to any errors or deficiencies in the said reconciliation statement submitted before the Learned CITA. CITA on due verification of the said reconciliation statement was convinced that there was no difference in the turnover declared in the income tax return vis- -vis the service tax return. Hence we do not find any infirmity in the order of the Learned CITA granting relief to the assessee in this regard - Ground raised by the revenue is hereby dismissed. Disallowance on account of upfront fees - CIT(A) deleted addition - HELD THAT:- The issue in dispute is no longer res integra in view of the decision of this Tribunal in assessee's own case for assessment year 2009-10 [ 2019 (6) TMI 474 - ITAT DELHI] wherein the loan upfront fees paid by the assessee was held to be revenue expenditure, also confirmed by HC [ 2023 (11) TMI 88 - DELHI HIGH COURT] dated 31-10-2023 - Ground raised by the revenue is hereby dismissed. Disallowance of unverifiable expenses - CIT(A) deleted addition - HELD THAT:- From the perusal of the details filed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the business of providing passive infrastructure (PI) telecommunication services to the telecom operators. The return of income for AY 2010-11 was filed by the assessee on 30.09.2010 declaring total loss of Rs. 403.85 crores. In the meanwhile, Vodafone Infrastructure Limited ('VInfL'), Bharti Infratel Ventures Limited ('BIVL') and Idea Cellular Towers Infrastructure Limited ('ICTIL') (hereinafter referred to as 'transferor companies' or 'TowerCos') jointly filed a scheme of arrangement (hereinafter referred to as the 'Scheme') under sections 391 to 394 of the Companies Act, 1956, seeking approval/ sanction of the Court for merger of the transferor companies with the assessee. The Scheme was sanctioned by the Hon'ble Delhi High Court vide its order dated April 18, 2013, with the appointed date being 1-4-2009. Pursuant thereto, the assessee revised its financial statements to give effect to the Scheme approved by the Hon ble High Court and basis the same, filed a revised return of income on 29.11.2013 after giving due effect to the aforesaid merger, reporting a loss of (Rs.793,20,41,502/-) under normal provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harti Infratel Limited ('BIL'), Vodafone India Limited ('VIL') and Aditya Birla Telecom Limited ('ABTL') [referred as Operating Companies- OpCos.] and was incorporated on 20-11-2007 with the objective of providing Pl support services to the telecom operating entities of the shareholder groups [OpCos.] and other independent telecom operators. For consolidation of their PIAs, the shareholders (including the relevant group entities) entered into a Framework agreement dated 8-12-2007, which inter-alia provided a two-step restructuring with effect from 1-4-2009:- -Step 1 - Transfer of the PIAs owned by the shareholder groups to their respective Tower Companies ('TowerCo(s)') under a Court approved scheme (hereinafter referred to as 'Transfer Scheme'); and -Step 2- Merger of the TowerCos with applicant under a Court approved Merger Scheme. 3.5 The aforesaid Framework was entered pursuant to Project MOST (Mobile Operator Shared Towers) conceived by the telecom operators in pursuant to recommendation of Telecom Regulatory Authority of India (TRAI) for sharing of Passive Infrastructure. Framework Agreement is placed at pages 1114 to 1201 of Vol. II of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ep 2, the TowerCos (i.e. VInfL, BIVL and ICTIL) were merged into the assessee under a scheme of amalgamation (i.e. the Merger Scheme) which took effect from the appointed date of 1-4-2009. The merger was duly sanctioned vide the order dated 18-4-2013 passed by the Hon'ble Delhi High Court. Importantly, merger of TowerCos under Step 2 with the assessee undisputedly qualified as tax neutral amalgamation under section 2(1B) of the Act. 3.12 Since the merger of TowerCos with the assessee undisputedly qualified as an amalgamation', as defined under section 2(1B) of the Act, as per Explanation 2 to section 43(6) of the Act, the tax WDV of the PIAs in the hands of the TowerCos became the actual cost of such assets in the hands of the assessee and accordingly, the assessee claimed tax depreciation for FY 2009-10 (AY 2010-11) with reference to such tax WDV. 3.13 The assessee submitted that gift of PIAs by operating companies to tower company as part of first step was specifically considered and approved by the Hon'ble High Court, which fact is not accepted by the revenue which has given rise to instant proceedings before us. Further, the fact that the second step of merger of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o separate steps of restructuring as one and consequently alleged that the ultimate result of the transaction was transfer of PIAs by OpCos to the assessee for consideration (being shares issued pursuant to second step of amalgamation), and thus there was no 'gift' in step (1) above. d) The learned AO alleged that essential element of gift, being divesture of ownership was missing, inasmuch as ownership was retained by the Opcos in a circuitous manner as Opcos were allotted shares by the assessee pursuant to amalgamation. e) There is a consideration involved inasmuch as Rs. 484 crores is paid by ABTL and VIL to BIL. f) There was no intent to commission the transfer as a 'gift, nor was there an offer or an acceptance of PIAs as a 'gift'. g) The transfer has not been registered through an instrument of gift deed and accordingly, procedure laid down under section 123 of Transfer of Property Act, 1882 (TPA) has not been followed. As regards step 2 of the restructuring, the learned AO has accepted that the merger of the TowerCos with the assessee qualifies as an amalgamation defined u/s 2(1B) of the Act. 3.17 The learned CIT(A) upheld the action of the learned AO by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grievance of the assessee is that the learned CIT(A) had referred to the wrong paragraph of the said judgment. If the core issue in ITA No. 1962/Del/2023 vide above mentioned ground is decided, the appeal of the assessee against section 154 order in ITA No. 2762/Del/2023 gets subsumed and no separate finding need to be given thereon. 3.19 The learned AR drew our attention to the substituted provision of Section 47(iii) of the Act by the Act by the Finance (No. 2) Act, 2024 w.e.f. 01.04.2025 wherein, company has been restricted from making gifts. In other words, if any company has made gift up to 31.03.2024, the same shall not be regarded as transfer as per Section 47(iii) of the Act and whereas the same would be regarded as transfer w.e.f AY 2025-26 onwards. We find that the powers of a company to make a gift was subject matter of adjudication by the Hon ble Madras High Court in the case of PCIT Vs. Redington India Ltd reported in 430 ITR 298 (Mad) wherein in para 38 of the said decision, Hon ble Madras High court had upheld the power of a company to execute the gift. Though that decision was ultimately rendered against the assessee on the issue in dispute before the Hon ble Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding on the tax Department. It is undisputed that the tax Department can examine the taxability as observed by the Court(s), but it cannot be construed that the tax Department is entitled to disregard the character of transaction which is expressly held to be 'gift' by the Court. The tax liability can be determined by the Revenue as per the provisions of the Act, considering the fundamental nature of the transaction to be 'gift'. Moreover, although the term 'gift' is not defined under the Act, the same is defined under section 122 of TPA as a) transfer of; b) existing movable or immovable property; c) by any living person (includes company); d) made voluntarily; and e) without any consideration. Even as per section 2(xii) of erstwhile Gift Tax Act, 1958, 'gift' was defined to mean 'transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth... . Thus, impugned transfer qualifies as 'gift' as per ascribed statutory meanings. AO/ CIT(A) treated two separate steps of restructuring as one consolidated consequently step alleged and that ultimate result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and lifting of corporate veil of, inter alia, the TowerCos which is blatantly contrary to the order of the High Courts and in clear disregard to the express acceptance of the two steps by all the regulatory and governing authorities, which is grossly impermissible. Be that as it may, structure involving multiple entities cannot be ignored/ disregarded by the Revenue at whims and fancies without any justifiable reason. It may be pointed out that multilayered holding subsidiary company structure is well recognized by the apex court in the case of Vodaphone International Holdings B. V. V. Union of India 341 ITR 1. The Court categorically held that one has to merely look at the transaction and not look through the same. OpCos have circuitously retained ownership of PIAs due to their shareholding in the appellant and hence there is no divesture of title to treat the transfer as 'gift'. The AO has grossly erred in holding that merely due to their shareholding in the appellant company, the Opcos have not divested themselves of the property in the PIAs. As regards gift, it is essential that the donor should divest himself of the ownership and dominion over the subject of the gift, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interim Sites was agreed to be shared between the shareholders of the appellant in the proportion of their shareholding in the appellant. However, to avoid a situation where the Interim Sites to be transferred to the appellant by the respective groups are not in accordance with the agreed ratio, it was provided that where the costs incurred by any party (or parties) for development of the Interim PIAs was in excess of the costs that it ought to have incurred in to accordance with the specified ratio, then such excess shall be compensated by the other shareholders to keep is the specified ratio intact. As per the agreement, any excess costs incurred by any party for development of the Interim PIAs shall be compensated by the other shareholders to keep the specified ratio intact. Pursuant to the above, a Supplement to the Framework Agreement dated 19th December, 2008 (enclosed at pages 1179-1201 of PB Vol II), as referred by the AO in the impugned assessment order, was entered between the parties, wherein it was agreed that party incurring lesser costs (i.e. shortfall) was obligated to pay the shortfall to appellant and such an amount would be payable by the appellant to such party i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany was just a pass through, or escrow agent as far as said transaction is concerned. In this regarded, it is humbly submitted that payment of Rs. 484.4 crores was settled between the shareholders towards excess interim sites constructed by BIL. The appellant only acted as an intermediary for settlement of such dues. Accordingly, such consideration cannot be alleged to be a consideration for transfer of Pl assets by BIL or for that matter the other shareholders to their Tower Cos under the Demerger Schemes. There was no intent to commission the transfer as gift nor was there an offer or acceptance of PIAs as a gift. The transaction is in the nature of demerger. Neither the OpCos nor the TowerCos or appellant have ever contended that transfer of the PIAs from the OpCos to TowerCos qualified as a demerger within the ambit of section 2(19AA) of the Act. Accordingly, it was never intended that benefits envisaged under the Act with respect to a demerger should be applicable in relation to the subject transfer. Therefore, tax depreciation was never claimed by the Tower Cos. The AO failed to appreciate the fact that even if for the sake of argument, it is agreed that the intent of the O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds transferred to the transferee without any document or instrument. It is submitted that the PIAs have legally vested into the TowerCos, pursuant to approval of Transfer Schemes by the respective High Courts. Reliance in this regard is placed on the Hon'ble Punjab and Haryana High Court in the case of Hotel skylark Restaurant (P) Ltd v CIT 221 ITR 283 wherein it has been held that ownership can be can also be transferred by Court decree and it is not mandatory the modes provided in the TPA are not exhaustive. 3.21 It was vehemently pleaded by the learned AR that the transfer of PIAs under Step 1 of the arrangement being considered as gift stands settled by the decision of the Hon ble High Court and consequentially the actual cost of the asset to the assessee shall be WDV of the assets in the hands of the transferor and thus depreciation thereon would be allowable. 3.22 Per contra, the learned DR drew our attention to the decision of the Hon'ble Delhi High Court in Company Petition No. 334 of 2009 by reading the various paragraphs thereon and submitted that the question of gift has not attained finality at the level of Hon ble High Court. Further, the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court in the case of Dalmia Power Ltd Vs. ACIT reported in 420 ITR 339 (SC). Since, the due notices were issued to the income tax department before sanctioning of the scheme by the competent court, the binding nature of the scheme cannot be questioned or challenged at the time of implementation of the scheme as the scheme had attained statutory force not only between the transferor or transferee company but also between statutory authorities to whom notices were issued by the Court. Needless to mention that every scheme of arrangement and amalgamation must provide for an appointed date which is the date on which the assets and liabilities of the transferor company vest in, and stand transferred to the transferee company so that the scheme comes into effect from the appointed date unless the same is modified by the Court. 3.24 Further, we also find that the Hon ble Madras High Court in the case of Ponni Sugars (Erode) Ltd Vs. ACIT in WP No. 12510 and 12511/2004; 12255/2006; 3830/2007; 1054/2008, 2629/2009 among others dated 16.10.2020 had also considered the aspect of slump sale under the demerger scheme. The issue that was before the Hon ble Madras High Court was w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly try to rewrite the scheme which is not permissible. Now coming to the liberty given by the Hon'ble Delhi High Court to the Income Tax Department to question any possible tax evasion in the scheme of arrangement sanctioned by the court, the same had to be understood only in the context of any tax evasion being carried out by the assessee while giving effect to the scheme need to be looked into by the Income tax department if there is some tax evasion as liberty is given by the Hon'ble High Court while sanctioning the scheme. But the very basis of sanction of the scheme per se cannot be challenged or looked into by the tax department at the time of implementation of the scheme. Under the erstwhile provisions of the Companies Act, 1956, there is specific provision in Section 394(7) of the Companies Act, 1956 wherein, liberty was given to the tax department to challenge the scheme of arrangement sanctioned by the competent court before the higher court. This admittedly was not done in the instant case before us by the income tax department. Hence, the scheme of arrangement under 2 independent steps carried out in the instant case before us cannot be questioned at all. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only for tax evasion and no taxes on these transactions have been paid. The Balance Sheet of ABTL indicates that the investment in Indus, have increased from Rs. 1,90,000/- as on 31-3-2009 to Rs. 7330,75,56,000/- as on 31-3-2010 as ABTL fair valued its investment in Indus. Since the assessee is a holding company of ABTL, therefore, this increase in fair valuation of Indus is due to the transfer of PIAs from Idea Cellular Ltd. to Indus. The fair valuation of ABTL's investments in Indus has increased by Rs. 7330,75,56,000/- as a result of receipt of PIAS of Idea Cellular Ltd. by Indus Therefore, this increase in fair valuation of investment in Indus of Rs. 7330,75,56,000/- is, effectively the fair market value of PIAS of Idea Cellular Ltd. which were transferred at book value at Rs. 1622,77,60,000/-through a scheme of De-merger and subsequent Amalgamation. Therefore, I have reason to believe that the difference of Rs. 5707,97,96,000/- (Rs.7330,75,56,000 -Rs.1622,77,60,000) is the value of benefit received by Idea Cellular Ltd. from business which has escaped assessment due to failure on the part of the assessee to disclose all material facts at the time assessment u/s 143(3) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vodafone Essar Gujarat Limited, by an Order dated 9th December 2010, the Hon'ble Gujarat High Court had accepted the submissions of the Income-tax Department upholding the locus of the Income-tax Department and rejected similar Scheme of Arrangement proposed by Vodafone Essar Gujarat Limited under sections 391 to 394 of the Companies Act, 1956 vide Company Petition No. 183 of2009. That the present Scheme of Arrangement in the assessee's case also had been challenged bythe Department before the Hon'ble Gujarat High Court vide Civil Application No. 2933 of 2013. (c) The ld. AO held that since the entire undertaking of the PIAs had been transferred ultimately to Indus, the gains accruing to the assessee had to be considered as flowing from the slump sale as per section 50B of the Act. The revaluation of ABTL's investment in Indus at Rs. 7330,75,56,000/- ason 31-3-2010 which was apparently because of the transfer of PIAs from the assessee to Indus was treated as the full consideration and the book value of the PIAs of Rs. 1622,77,60,000/- was taken as the cost of acquisition. In this manner, the ld. AO computed short term capital gains of Rs. 5707,97,96,000/-. (d) The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to by the ld. AO was reversed by the decision of the Division Bench of the Hon'ble Gujarat High Court which approved the demerger scheme in the case of Vodafone Essar Gujarat Ltd. v. Department of Income-tax(2013) 353 ITR 222 dated August 27, 2012. In this case, the Hon'ble Division Bench of the Gujarat High Court, while appreciating that the ultimate effect of the Scheme of Demerger without consideration may result into some tax benefit or tax avoidance, nevertheless, approved the Scheme of Demerger considering the commercial rationale advocated by the applicant which was also backed by the Government directive. The objective was to separate non-telecom assets of the was approved by the DOT to provide passive infrastructure services on competitive basis. (h) The Department had further filed SLP before the Hon'ble Supreme Court against the order of the division bench. The Hon'ble Supreme Court vide its order dated 15 April 2015 dismissed the SLP filed by the Department and confirmed the division bench decision of the Hon'ble Gujarat High Court. In the assessee's case, the petition filed by the Department [C.A. (OJ) No. 693 of 2013] before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e device would result in benefit u/s. 28(iv) of the Act to the assessee in the sum of Rs. 5707,97,96,000/- (7330,75,56,000-1622,77,60,000). Even if the entire contentions of the revenue and the ld. DR are to be accepted it is ABTL who had revalued its shares for Rs. 7330,75,56,000/- in Indus Towers Ltd. It is ABTL pursuant to the merger of ICTIL with Indus Towers were issued shares in Indus Towers Ltd. Hence, by way of a scheme of demerger and merger if the Passive Infrastructure Assets worth Rs. 1622,77,60,000 has been transferred to ICTIL (by way of demerger) and subsequently by way of merger with Indus Towers, for Nil consideration, the benefit, if any, on this entire transaction, would only arise for ABTL and certainly not the assessee herein. Hence, the applicability of the provisions of section 28(iv) of the Act in the hands of the assessee absolutely fails in the instant case. We are making it very clear that we are not even suggesting that the said sum of Rs. 5707,97,96,000/- would become benefit u/s. 28(iv) of the Act in the hands of the ABTL. The above observations are made only for the limited purpose of addressing the issue that provisions of section 28(iv) of the Act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets by way of demerger tantamount to gift. The case of the Revenue is also that the company cannot gift its assets. The Revenue also says that the demerger is not section 2(19AA) compliant and that ICTIL is merely a paper company prior to amalgamation with Indus. 8.6. We are unable to comprehend ourselves to accept to the aforesaid averments made by the ld. AO in his assessment order which were also heavily relied upon by the ld. DR before us. It is pertinent to note that the single Bench decision of the Hon'ble Gujarat High Court which has been heavily relied upon by the ld. AO and the ld. DR before us has been reversed by the Division Bench order of the Hon'ble Gujarat High Court itself. The date of decision of the single Bench of the Hon'ble Gujarat High Court order is 09/12/2010. The date of the Division Bench order of Hon'ble Gujarat High Court is Vodafone Essar Gujarat Ltd. v. Department of Income-tax [2013] 35 taxmann.com 397/216 Taxman 187 (Mag.)/353 ITR 222, 27/08/2012. It is also further pertinent to note that this Division Bench order of the Hon'ble Gujarat High Court has been approved by the Hon'ble Supreme Court in the case DIT v. Vodafone Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l stand merged with the transferee company from the appointed date i.e. 01.04.2009. Thus the stand of the assessee before the AO was that since the above said infrastructure assets were transferred to the subsidiary company at Nil consideration therefore there has been a resultant loss on such transfer effected on 05.05.2011 for Rs. 5992,05,10,000/-. This loss was added back in the computation of income by the assessee. The AO has however held that the provision of Section 45 of the Act are applicable to such transfer of assets made by the appellant company to its wholly owned subsidiary and has computed Short Term Capital Gain on the same. The working of such short term capital gain has been made by taking the value of sale consideration of the transferred assets based on the value assigned to such assets (which remained with the assessee company after the transfer) in the red herring prospectus issued on 11.12.2012 for the purposes of IPO. Further for computing the Short Term Capital Gain the AO in his assessment order has referred to the Explanation 7A to Section 47 of the LT. Act 1961 for determining the actual cost which has been taken by him as per the books of the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Petition no 334/2009 and that since these objections stand dismissed in that petition therefore no separate orders are required to be passed in the Petition No. 324/2009. It is a matter of record that the scheme of arrangement approved by the Hon'ble High Court in assessee's case entails transfer of the passive infrastructure assets at Nil consideration. Moreover the AO has not brought any fact on record to controvert the assessee's claim that the said transfer was effected without consideration. Therefore, such transaction being without consideration, falls within the definition of gift in terms of Transfer of Property Act, 1882 which also movable assets. While on this issue it is relevant to note that in Company Petition No 334/2009 in the case of M/s Vodafone Essar Infrastructure Ltd the Income Tax Department had while objecting to the approval of the Scheme of Arrangement had raised a broad submission that Section 391 of the Companies Act, 1956 does not contemplate a gift from one party to the Scheme to the other party for the reason that the expression of arrangement with members contemplated an arrangement in the nature of the contract with a consideration inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted, viz, the accrual of the income or its receipt, but the substance of the matter is income. If income does not result at all, there cannot be tax, even through in book keeping, an entry is made about hypothetical income , which does not materialize . Based on the above discussion the AO was not justified in computing Short Term Capital Gain on the transfer of assets and hence the Ground 1 to 1.7 are allowed in favour of the appellant and the addition made for Rs. 505,72,00,000/- is directed to be deleted. 10. The above finding on fact is not rebutted by the Revenue by placing any contrary material before us. We find that Ld.CIT(A) has taken note of the judgement of Hon'ble Delhi High Court in Company Petition No.324/2009 in the case of Vodafone Essar Infrastructure Ltd. wherein the Revenue had raised similar objection in respect of the taxability of transaction. The Hon'ble High Court after considering the arguments of the Revenue ruled in favour of the assessee. Therefore, in view of the binding precedents, we do not see any reason to interfere in the finding of Ld.CIT(A), the same is hereby affirmed. Thus, Ground. No.1(i) of Revenue's appeal is dismissed bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as reduction under clause (iia) of Explanation 1 to section 115JB of the Act. Consequentially, the Learned AO made an upward adjustment of Rs 1112.30 crores on account of this transaction while computing book profit under section 115JB of the Act. This was reduced to Rs 1030.95 crores by the Learned CITA rectifying the factual errors committed by the Learned AO. 3.33 We have already held that transaction of gift of assets under the first step court approved scheme as a genuine gift. The transfer of assets at fair value to the assessee has already been accepted as genuine as the same was done in accordance with the approved schemes of the Hon ble High Courts. Hence the claim of book depreciation on fair value of assets cannot be questioned by the department. The same does not tantamount to revaluation. It is pertinent to note that the entire accounting treatment in the books of tower companies on receipt of PIAs from operating companies under court approved scheme with specific reference to accounting treatment in the books of the transferee company and the accounting treatment pursuant to merger of tower companies into assessee had already been part of the approved sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the ld. CIT (A) too cannot be upheld for the same reason. 3.35 Hence the assessee would be entitled for claim of depreciation in the computation of book profits under section 115JB of the Act. Accordingly, the Ground Nos. 10 11 raised by the assessee are allowed. 4. Ground Nos. 3 to 3.1 raised by the assessee is challenging the disallowance of Capital Work In Progress (CWIP) written off amounting to Rs. 9,71,61,370/-. 4.1. We have heard the rival submissions and perused the material available on record. During the relevant assessment year, the assessee had debited an amount of Rs. 9,71,61,370/- in its profit and loss account under the head Provision for obsolescence of capital work in progress/services . The said amount represents the amount actually written off by the assessee in its books of account in relation to part completed projects/ tower sites which are abandoned/ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating any revenue out of it and the expenditure incurred thereon would have to be ultimately written off by the assessee as there would be no value/ benefit by retaining the same in the books of account. The purpose of incurrence of such expenditure is intricately and inextricably linked with the primary business of the assessee vis- -vis the project that is aborted due to aforesaid reasons beyond the control of the assessee, is not doubted by the revenue in the instant case. The genuineness of incurrence of such expenditure is also not doubted by the revenue. The only grievance of the revenue is that the expenses were incurred by the assessee for setting up of a new tower site which is capital in nature and since the said project of setting up of tower site got abandoned / aborted, the said entries of expenditure continues to remain as capital in nature and the abandoned project loss would only have to be construed as capital loss and not revenue business loss. The fact of the project getting aborted/ abandoned is not disputed by the revenue. That the project is linked with the primary business of the assessee is not doubted. Hence, if such business project gets abandoned, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original condition at the time of termination of the lease agreement. Accordingly, Site Restoration Obligation (SRO) arises in respect of the setting-up, installation, alteration or modification, which the assessee undertakes for the purpose of setting-up of towers on the leased premise. 5.2 The assessee placed copies of sample lease agreement which contained such obligations to be performed by the assessee before the lower authorities in order to restore the site to its original condition as agreed in the lease agreement. The assessee had to incur substantial expenditure to be incurred on un-installation and restoring back the premises to its original condition. Accordingly, the assessee estimated the site restoration cost to be incurred at the end of lease period on a reasonable and scientific basis and made a provision thereon in accordance with Accounting Standard-29 (AS-29) (provisiond, contingent liability and contingent assets) issued by the Institute of Chartered Accountants of India (ICAI) on account of expenses for ARO/ SRO. During the year under consideration, the assessee created a provision of Rs. 2129 crores. The estimated cost of dismantling of the tower per site wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be altered; the appellant may not remove tower at all on its expenses. -Cost of removal of tower after period of 20 years cannot be reliably determined at the beginning of the lease term. -In the books of accounts, the appellant is capitalizing such obligation but for the purpose of the Act, same is being claimed as revenue expense. -Had the provision been made on the basis of adopting any scientific or technical basis or on the basis of past experience, there could not have been such a huge balance in the provision for ARO obligation account. There is no doubt that the provision are made in excess without any basis; if provisions are based on scientific basis and if working is robust, then the question of reversal in the subsequent year(s) may not arise in a significant way. 5.4 Further, the ld AO made the following observations as regards the quantification of SRO provisions:- -The assessee company has not provided any evidence in support of the estimate- consideration of base rate is arbitrary; -The change in base rate of SRO /ARO would be considered as error on account of significant variation and hence, effect is to be given retrospectively and excessive depreciation claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute that the said lease agreement was entered during the course of regular business of the assessee and provisions made on account of SRO/ ARO is part of regular business activity of the assessee. Hence, the expenditure provided thereon becomes an expenditure wholly and exclusively for the purpose of business of the assessee. This issue was subject matter of consideration of the Hon ble Rajasthan High Court in the case of Udaipur Mineral Development Syndicate Pvt Ltd vs DCIT reported in 261 ITR 706 (Raj) wherein, the Hon'ble Court was dealing with the facts where there existed a clause in the agreement between the assessee and the state that the lessee (assessee) should restore the surface land so used to its original condition (in the similar nature of SRO). With regard to allowability of expenses, the Court held that very moment assessee dug pits, liability did arise, and it was entitled for deduction of expenses which it was supposed to incur for filling those pits, as it was following mercantile system of accounting. 5.6 Similarly the Hon ble Madras High Court in the case of Vedanta vs JCIT in Tax Case (Appeal) Nos. 2117 to 2119/2008 dated 23.01.2020 had held that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n April 2010 or May 2010. For these expenses, the expenditure is provided on accrual basis in the month of March 2010 itself to depict the true and fair state of affairs of the company and also to ensure that only 12 months expenditure are reflected under each head of expenditure. Accordingly, the assessee had recognized the following provision for expenses as on 31.03.2010:- Operating expenses Rs. 343.30 crores Rate and taxes Rs. 19.57 crors Salary Rs. 18.33 crores Power and fuel Rs. 469.02 crores Total Rs. 850.22 crores. 6.2 The ld AO considered the aforesaid provision for expenses as unascertained liabilities having no rational/ scientific basis and accordingly, disallowed an amount of Rs 583.17 crores both under the normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act after restricting the disallowance relating to power and fuel expenses to 201.97 crores. While doing so, the ld AO doubted the estimation of quantification of provision. The ld CIT(A) further restricted the said disallowance to Rs 518.83 crores as under:- Operating expenses 343.30 crores Rate and taxes 19.57 crores Power and fuel 155.26 Total 518.83 cores. 6.3 It was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic Sites) and at 99.99% for all strategic sites in that circle. Pursuing the relevant Schedule-2 of the MSA, the SLA (Service Level Agreement) credit is the amount of credit to be given to the operators on account of deficiency in the provision of services which become payable upon the settlement of the dispute with the operators. Since SLA credit is determined post raising of the invoice, the same is passed on to the telecom operator through subsequent credit notes. It is thus evidently clear that SLA credit is nothing but reversal of revenue owing to deficiency in the provision of services. Since SLA credit is determined post raising of the invoice, the same is passed on to the telecom operator through subsequent credit notes. 7.2 The ld AO treated the aforesaid provision for SLA credits as unascertained liability and proceeded to disallow the same both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. The ld AR submitted that the aforesaid SLA provision is based on the automated report known as downtime report reflected from dedicated software and there is absolutely no manual intervention in generation of downtime report and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure telecommunication services to the telecom service providers in various circles. Even prior to the merger of the tower companies into the assessee, assessee was engaged in providing such passive infrastructure services. Out of the aforesaid interest expenditure, the ld AO disallowed a sum of Rs. 91,80,00,000/- (net of 15% depreciation) applying proviso to Section 36(1)(iii) of the Act holding that interest expenditure relates to acquisition/ construction of tower sites and is therefore a capital expenditure. The said amount was computed by the ld AO by applying 12% interest on total borrowed capital utilized for capital expenditure for the period of 150 days (alleged to be average days for construction/ acquisition of tower sites). The ld CIT(A) held that the borrowed funds are utilized for construction of tower sites. For computation of the amount of interest attributable to construction of tower sites, the CIT(A) considered the amount of CWIP in excess of capex creditors; the said difference is held to be amount funded through borrowed funds. Applying the rate of 12% for 150 days, interest allegedly attributable to acquisition of tower sites is determined at Rs. 4,10,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voltage levels - Temperature below 35 degrees Celsius inside the shelter room all the time. 9.2 To ensure uninterrupted power supply at the tower sites at the required temperature level, besides the power connection taken from the respective state electricity boards, the assessee has installed following energy saving equipments:- Auto Mains Failure (AMF) Panel Switch Mode Power Supply (SMPS) Free Cooling Unit (FCU) Power Factor Capacitors (PFC) Power Management Systems (PMS)/Power Interface Unit (PIU) Integrated Power Management Systems (IPMS) AC/DC Energy Meters 9.3 In the return of income, the assessee had inadvertently claimed depreciation on abovementioned energy saving devices at the rate of 15%, whereas the same qualify for depreciation at the rate of 80%, being energy saving devices. Accordingly, claim for higher depreciation was raised before the ld AO vide letter dated 06.02.2019. To substantiate that the specified assets qualify as 'Energy Saving Device', the assessee had also furnished a detailed technical report from a Chartered Engineer defining nature and functionality of each of above-mentioned devices and how these devices help in saving energy and how such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able standard and was claimed as reduction while computing book profits under section 115JB of the Act. The Learned AO since had treated that PIAs were received for nil consideration, observed that accounting of PIAs in the books by the assessee at its fair value tantamount to revaluation and accordingly depreciation on the so-called revalued amount would not be allowed as reduction under clause (iia) of Explanation 1 to section 115JB of the Act. Consequentially, the Learned AO made an upward adjustment of Rs 1112.30 crores on account of this transaction while computing book profit under section 115JB of the Act. This was reduced to Rs 1030.95 crores by the Learned CITA rectifying the factual errors committed by the Learned AO. 10.2 We have already held that transaction of gift of assets under the first step court approved scheme as a genuine gift. The transfer of assets at fair value to the assessee has already been accepted as genuine as the same was done in accordance with the approved schemes of the Hon ble High Courts. Hence the claim of book depreciation on fair value of assets cannot be questioned by the department. The same does not tantamount to revaluation. It is pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per accounting standard. The profit and loss account has been approved by the Statutory Auditors and also laid before the Members in the AGM, which is sacrosanct for computing the book profit u/s. 115JB. Thus, once the accounts have been prepared in accordance with the Companies Act duly certified by statutory auditors and approved by Company AGM, then same cannot be disturbed as held by Hon'ble Supreme Court in the case of Apollo Tyres (supra). Here the Assessing Officer cannot tinker with such profit and loss account or treat the part of capital reserve by holding that it should have been routed through regular profit and loss account. The reasoning given by the ld. CIT (A) too cannot be upheld for the same reason. 10.4 Hence the assessee would be entitled for claim of depreciation in the computation of book profits under section 115JB of the Act. Accordingly, the Ground Nos. 10 11 raised by the assessee are allowed . 11. Ground No. 15 raised by the assessee is challenging the interest u/s 234B of the Act, which is consequential in nature and does not require any specific adjudication. 12. In the result, the appeal of the assessee in ITA No. 1962/Del/2023 for Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ites simultaneously in a particular geographical area and furnish their invoices for approval to the appellant on time-to-time basis. -The invoices are sent for approval by the relevant team and the same are then accounted and recorded under Capital Work in Progress ( CWIP') account. Therefore, on a need basis, the procured materials and engaged vendors are directed to the identified sites in order to set-up/ configure such sites. Such process of issuing of invoice by the vendors and subsequent accounting in books may extend up to a considerable period of time usually beyond date of completion of setting-up of tower site. -Once a tower site is set-up (i.e., all the necessary structure and equipment have been installed) and is 'ready to use', the same is capitalized from the Ready for Active Installation ('RFAI) notice generation date, i.e, transferred from CWIP account to fixed assets account and depreciation (i.e. book depreciation as well as tax depreciation) is claimed by the assessee from such date. When a tower site is set-up and ready to use, all the cost incurred in relation to various equipment such as tower structure, shelter, complex electrical fittings, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as (ii) year-end provisional capitalization as on 31st March of the financial year. As against this provisional capitalization for 31st March of previous year, the actual cost is identified in next year and any excess or deficient cost as compared to provisional capitalization is adjusted in the tax fixed asset register of the next year. 13.3 Further it is pertinent to note in the special audit report issued for the assessment year 2010-11, the special auditor has categorically accepted the accounting policy/ basis adopted by the assessee and had specifically noted that provisional capitalization needs to be added to the cost base of tower site in order to measure the cost of fixed assets capitalized and depreciation there on. 13.4. In view of the modus operandi adopted by the assessee which stood uncontroverted by the revenue before us and in view of the report of the Special auditor, we hold that no fault could be attributed on the basis of derivation of provisional capitalization by the assessee as narrated and detailed supra. Accordingly, we hold that the depreciation on aforesaid provisional capitalization deserves to be allowed as the corresponding assets thereon are alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is obligated to rectify, thereby meaning that such tower sites were not ready for use on RFAI Notice Generation Date; and (iii) assessee is entitled to raise invoice for billing from RFAI date only considering that generally billing start date and RFAI date are same except in few cases of practical difficulties. The view of the AO is based on the observations of the Special Audit report for the subject years, viz., assessment year 2010-11. Accordingly, the AO has considered the RFAI date (which is normally after 14 days of RFAI notice generation date) as date of put to use of telecom tower and has disallowed an amount of Rs. 17,78,55,500 (being the amount of depreciation calculated at half of applicable rate on the additions of Rs. 1,77,62,29,934 made during 20.09.2009 to 02.10.2010 and depreciation claimed by the assessee at half of applicable rate on additions of Rs. 93,87,48,394 made during 19.03.2011 to 31.03.2011. 14.3. The Learned CITA held that the passive infrastructure assets were ready for use on the RFAI notice generation date. Accordingly by following the various rulings of the Hon ble Jurisdictional High Court, the Learned CITA held that the assessee would be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs Triveni Engineering and Industries Limited reported in 196 Taxman 94 (Del) and decision of Hon ble Supreme Court in the case of Excel Industries Limited reported in 358 ITR 295 (SC). 14.5. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we hold that depreciation on tower sites are to be allowed from RFAI notice generation date. Hence, we do not find any infirmity in the order of the Learned CITA granting relief to the assessee. Accordingly, Ground No. 2 raised by the revenue is hereby dismissed. 15. The Ground No. 3 raised by the revenue is challenging the action of capitalization of salary expenses. 15.1 We have heard the rival submissions and perused the materials available on record. During the year under consideration, the learned AO disallowed salary expenditure aggregating to Rs. 13,29,08,545/- relating to employees working for Supply Chain Management (SCM), Site Acquisition and Infra Quality teams of the assessee, treating the same to be capital expenditure. While holding the expenditure to be capital in nature, the learned AO observed as under: (a) That the functions performed by the staff engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support engineers who are responsible at ground level for safe and continuous working of telecom towers sites and function on 24x7x365 days basis. Responsible for tower site maintenance such as replacement of parts, etc. Responsible for upgradation of various equipment, tower design, etc. Site acquisition It is responsible for servicing landlord community which is one of the most critical part of the business. In this regard, it is responsible for ensuring timely payment, updation renewal of rental agreements, handling issues such as property tax liabilities faced by the landlords, the interface between landlords site-maintenance department. The acquisition of new tower site is just an incidental aspect of the department. Over the years, while the number of towers has increased, the number of telecom sites have come down but the strength of this department has gone up due to single reason as explained above, i.e., their involvement in current operations rather than one time nature of their task. 6,13,46,065 Moreover as the name suggests, the land acquisition division is also undertaking only pre-capitalization work Responsible for maintaining landlord relations. Responsible for en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Learned CITA while granting the relief to the assessee. Hence we do not find any infirmity in the order of the Learned CITA granting relief to the assessee. Accordingly, the Ground No. 3 raised by the revenue is hereby dismissed. 16. The Ground Nos. 4 and 5 raised by the revenue are challenging the partial deletion of disallowance made on account of provision for expenses, treating it as an ascertained liability are already discussed by us in assessee s appeal vide Ground Nos. 5, 5.1, 9 and 13 supra. Hence the decision rendered thereon in assessee s appeal shall apply mutatis mutandis for Ground Nos. 4 and 5 of revenue's appeal. We have already held that the provision has been made for expenses on a rational basis by strictly following the principles mandated for mercantile system of accounting and those provided in AS-29 issued by ICAI and they are to be construed only as an ascertained liability consequentially allowable as deduction. Accordingly, we do not find any infirmity in the order of the learned CITA granting relief to the assessee qua the same. Accordingly, the Ground Nos. 4 and 5 raised by the revenue are dismissed. 17. The Ground No. 6 raised by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us could not draw our attention to any errors or deficiencies in the said reconciliation statement submitted before the Learned CITA. The Learned CITA on due verification of the said reconciliation statement was convinced that there was no difference in the turnover declared in the income tax return vis- -vis the service tax return. Hence we do not find any infirmity in the order of the Learned CITA granting relief to the assessee in this regard. Accordingly, the Ground Nos. 6 and 7 raised by the revenue are hereby dismissed. 18. The Ground No. 8 raised by the revenue is challenging the deletion of disallowance of Rs 75,79,87,500/- made on account of upfront fees. 18.1. We have heard the rival submissions and perused the materials available on record. The assessee has paid upfront fee aggregating to rupees 89,17,50,000/- to various banks for processing application of new loans / for sanction and disbursement of loans to the assessee. The party wise details of the said upfront fees are enclosed in page 4263 of volume VII of the Paper Book filed before us. The aforesaid expense of upfront fee was claimed as deduction for income tax purposes by the assessee. The assessee also en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the assessee. The special auditor selected a sample of about 400 transactions from various expenses heads aggregating to approximately Rs 680 crores and directed the assessee to furnish documentary evidences in the form of invoices, agreements, supporting workings basis which invoices are raised, evidences of tax withholding done on the same, if any, etc. After analysis of the documents and explanation submitted by the assessee, the special auditor noted that some of the evidences were not supported by documentary evidences or backup workings. The Special auditor observed that in the absence of such information, the accuracy of the same cannot be verified and accordingly the special auditor reported the details of 39 such transactions in his special audit report and requested the learned AO to verify such expense. During the course of assessment proceedings, the assessee once again reached out to the various circle officers and requested the data / documents corresponding to 39 cases / transactions pointed out by the special auditor. Accordingly, the following documents were submitted during the assessment proceedings in support of the contentions of the assessee:- 1. Copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rule 46A of the Income Tax Rules. The said additional evidences were duly admitted by the Learned CITA. The Learned CITA duly appreciated the said additional evidences and proceeded to delete the disallowance made by the Learned AO. From the perusal of the details filed by the assessee, we find that assessee has not only placed the invoices, but also agreements of almost all the vendors for the 17 transactions, both during the assessment proceedings as well as before the Learned CITA proceedings. The assessee on its part had duly discharged its onus of genuineness of the expenditure. These facts were not appreciated by the Learned AO, whereas the Learned CITA appreciated the same and granted relief to the assessee. Nowhere the incurrence of the expenditure wholly and exclusively for the purpose of business has been doubted by the Learned AO. Hence the expenses becomes an allowable deduction in accordance with the mercantile system of accounting followed by the assessee. Accordingly, the Ground No. 11 raised by the revenue is dismissed. 21. The Ground No. 12 raised by the revenue is challenging the deletion of disallowance of unverifiable expenses in the sum of Rs 16,24,22,328/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al errors are bound to be present. In any event, the books of accounts of the assessee were not rejected by the learned AO. 21.4. With regard to the discrepancies mentioned, the following documents submitted by the assessee prove the genuineness of the incurrence of the expenditure for the purpose of business beyond reasonable doubt:- Sr No Particulars Cases Amount (INR) Remarks 1 Repeated Observation 3 1,18,17,895 The AO seems to have inadvertently reported the following transaction over multiple line items which has led to double disallowance: Aggarwal Electric store: Transaction value of INR 73,83,245 [Refer item no 23 of Table at Pg 194 and Item 13 of Table at Pg 196 of impugned assessment order] Shivam Infocom Pvt Ltd: Transaction value of INR 6,37,050 and INR 37,97,600 [Refer item no 34.35 of Table at Pg 194 and Item 11 of Table at Pg 196 of impugned assessment order] Please refer to Sr No 2 3 below for details of documents/evidences supporting the above transactions. 2 Incorrect Observation 2 79,89,541 The Ld, AO has noted that incorrect PAN has been mentioned for Vidyut Engineers (PAN as mentioned: AAAHA7593Q) and Lloyd Insulations (India) Ltd (PAN as mentioned: AAACL0486E) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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