9911796707
TMI Blog2025 (2) TMI 1070X X X X Extracts X X X X X X X X Extracts X X X X ..... During the relevant year ending on 31.03.2020, the assessee company gave effect to the demerger of consumer mobile business undertaking of M/s Tata Tele Services Ltd. with the assessee on 1st July, 2019 being the effective and the appointed date of the scheme of arrangement u/s 230 to 232 of the Companies Act, 2013. The case of the assessee was selected for complete scrutiny assessment through CASS for various reasons and statutory notices were issued. In the mean time, reference to the TPO was made by the National Faceless Assessment Centre after getting necessary statutory approval for determination of arm's length price for the international transaction undertaken by the assessee during the year under consideration. 3. Thereafter, due to restructuring of case for the reasons of merger, amalgamation, demerger, etc., it was transferred out of Faceless Assessment Centre u/s 144B(8) of the Act to the jurisdictional Assessing Officer. The assessment was completed on 10.10.2023 by adjustments recommended by the TPO u/s 92CA of the Act making addition of Rs. 457,64,80,114/-. Further, Ld. AO has made a disallowance on account of ESOP expenses; a disallowance u/s 40(a)(ia) was made on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ], under section 263 of the Income Tax Act, 1961 ('the Act') enhancing the assessment (on some issues) and setting aside the assessment (on some other issues)is without jurisdiction, illegal, bad in law, void ab initio and liable to be quashed. 2. That on the facts and circumstances of the case, the impugned order having been passed by the PCIT in undue haste without: (a) affording reasonable opportunity of being heard; (b) considering the request for deferment to file submissions on certain issues (in particular residuary issues (referred infra); (c) considering the supplementary submissions filed; (d) first disposing off the legal objections by passing a separate speaking order; (e) issuing any show-cause notice of the proposed addition/ variation; and (f) granting oral/ personal hearing, is illegal, bad in law and liable to be quashed/ set aside. 3. That the PCIT erred on facts and in law in exercising revisionary powers under section 263 of the Act on various issues in the impugned order, without satisfying the twin jurisdictional conditions of the assessment order being: (a) erroneous; and (b) prejudicial to the interests of the Revenue and consequently, the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure and no part thereof could be regarded as capital in nature. 8.3. That the PCIT erred in holding/ directing disallowance of SUC of Rs. 2,975 crores, without appreciating that the decision of the apex Court in CIT vs. Bharti Hexacom: (2023) 458 ITR 593(SC) was applicable only in respect of variable license fee and that SUC was always, without any dispute, allowed as revenue deduction. 8.4. That the PCIT erred in holding/ directing disallowance of entire variable license fees of Rs. 5,082 crores, without appreciating that substantial part thereof, including but not limited to fees relating to expired licenses, was allowable as deduction in its entirety. 8.5. That the PCIT erred in not: (a) considering the rectification application filed, suo-motu, by the appellant before the assessing officer appropriately modifying the claim of deduction in respect of variable license fee in light of the decision of the apex Court (supra); (b) issuing any show-cause notice and/ or granting hearing. 8.6. Without prejudice, the PCIT erred in not allowing and/ or directing the assessing officer to allow benefit of section 35ABB of the Act in respect of the amount held to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the PCIT had no jurisdiction to direct its denial in the year under consideration. 9.6. That the PCIT erred in mechanically initiating penalty proceedings under section 270A for 'misreporting of income' perversely alleging that the appellant made a fraudulent claim. Qua Alleged gain on acquisition of business 10. That on the facts and circumstances of the case and in law, the PCIT erred in enhancing the income by directing addition of Rs. 1,230.01 crores under section 56(2)(x) of the Act on account of alleged gain on acquisition of consumer wireless business of TTSL. 10.1. That the PCIT erred in making aforesaid addition without even issuing any show-cause notice indicating any such proposal and/ or setting out the conclusion sought to be drawn on the aforesaid issue and without affording any opportunity to the appellant. 10.2. That the PCIT erred in invoking provisions of section 56(2)(x) of the Act without appreciating that sanctioned demerger of consumer wireless business of TTSL fell within the exception provided in the said section. 10.3. Without prejudice, the PCIT erred in not appreciating that even otherwise, acquisition of 'business' does not constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in vaguely directing the assessing officer to make disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules. 14. That the PCIT erred in vaguely directing the assessing officer to verify the following transactions: (a) Claim of depreciation made by the assessee; (b) Violation of section 269SS of the Act; (c) Huge expenses claimed by the assessee; (d) Liabilities, to ascertain whether the same are genuine. 15. That the PCIT erred in alleging that no objection was raised by the appellant against invocation of revisionary jurisdiction in respect of the aforesaid issues. 16. That the PCIT failed to appreciate that the revisionary jurisdiction under section 263 of the Act is not meant for such perverse/ vague/ open ended directions to the assessing officer to undertake roving/ fishing enquiries. The appellant craves leave to add, to amend or vary the above grounds of appeal on or before the date of hearing." 6. Ld. Sr. Counsel has laid lot of stress on the fact that the PCIT, has passed the impugned order in undue haste and has arbitrary enhanced the assessment on some issues and set aside the assessment on some other issues, on complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant with the Department of Telecom (DoT), the Telecom companies are required to pay license fee (LF) and Spectrum Usage Charges (SUC) to DoT. Further in terms of the National Telecom Policy, 1999 (NTP)/ Agreement with DoT, the License fee and SUC are paid on revenue sharing basis, being a fixed percentage of Gross Adjusted Revenue ('AGR'). The computation of license fees and SUC payments was subject matter of divergent interpretation between the telecom companies and DoT since beginning whereby the telecom industry believed that the license fees and SUC rates should be applied to telecom revenues only while DoT was demanding it on entire revenue of telecom companies. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) had earlier passed an order deciding that out of the revenue line items disputed by the telecom companies, specified items of revenue shall be included for the purpose of AGR while on few others relief was provided. Both DoT and telecom companies challenged the TDSAT order before the Hon'ble Supreme Court. In accordance with the same, telecom companies while making payment of license fee to DoT were excluding certain items of revenue which were not connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res (which included interest of Rs. 556 crores from 01.04.2020 to 30.06.2020) in the statement of profit & loss account which was disclosed as an exceptional item. Thus it is apparent that the appellant had initially claimed the above amount(s) of Rs. 28,498 crores and Rs. 10,689 crores in the return of income filed for assessment year(s) 2020-21and 2021-22 respectively. However, during the course of assessment proceedings, the appellant, in view of the fact that the additional liability actually stood crystallized pursuant to the first order of the Hon'ble Supreme Court vide order dated 24.10.2019 and the subsequent order dated 01.09.2020, merely re-affirmed the view, filed letter dated 19.09.2023 before the assessing officer seeking withdrawal of deduction in respect of the balance additional liability of Rs. 10,133 crores [Rs.10,689 - Rs. 556] which was inadvertently claimed in the return of income filed for the financial year 2020-21. In other words, the claim of deduction in respect of additional liability of license fee and SUC stood enlarged/enhanced to Rs. 38,631 crores as against the initial claim of Rs. 28,498 crores made in the return of income. Further, as a necessary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharti Hexacom: (2023) 458 ITR 593(SC) leaves no doubt that expenditure claimed under license fees is a capital expenditure and is to be allowed over a period of time as provided in section 35ABB. PCIT further observed that the assessing officer has allowed this expenditure without applying mind. PCIT further observed amount of interest or penalty arising on account of non-payment of license fees cannot have a different character and the said expenditure is also capital in nature. Accordingly, the order passed by the AO was held to be erroneous and prejudicial to the interests of the Revenue. 10.1 In the consequential assessment order passed u/s. 143(3)/ 263, the assessing officer has taken note of the bifurcation of Rs. 39,251 crores (correct amount is Rs. 38,631 crores) claimed by the assessee during AY 2020-21. Secondly, AO held that Spectrum Usage Charges and corresponding interest and penalty aggregating to Rs. 11,742 crores were never considered for amortization in any earlier years and were also not part of the dispute before the Supreme Court. AO accordingly allowed the said amount claimed as revenue expenditure. Thirdly, as regard amount of Rs. 26,889 crores on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof. In view of the aforesaid, assumption of jurisdiction to disallow, inter alia, interest and penalty on the basis of the aforesaid judgement of the apex Court is invalid and bad in law. (b) In so far as interest/ penalty, the PCIT initially in the SCN observed that the same was penal in nature and disallowable in terms of Explanation 1 to section 37 of the Act. However, in the impugned order finally concluded that interest and penalty shall acquire the same character as principal payment and therefore, held the same to be capital in nature. In this regard it is submitted as under: * Interest and penal interest have been determined on the basis of contractual agreement between the appellant and Department of Telecommunication (DoT). Therefore, the amounts determined as payable by the appellant is merely a compensatory levy by DoT for non-payment of license fee at the particular threshold in time. Thus, the same being merely in the nature of compensation levied in pursuance of terms of the contract is allowable as deduction under section 37(1) of the Act. Reliance, in this regard, is placed on the following cases, wherein, the Courts have held that damages paid for bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act cannot, in our submission, be doubted, much less resulting in any prejudice to the Revenue. Being so, the original assessment order allowing deduction of the same cannot be treated as 'erroneous' causing any prejudice to the Revenue for justifying exercise of revisionary jurisdiction by the PCIT. * That apart and more importantly, considering the substantive reasons/ grounds/ explanation set out herein-above, it is clearly evident that the view taken by the assessing officer accepting/ allowing the claim of interest/ penalty to the appellant is, in any case, a correct view in law. The view taken by the assessing officer cannot, therefore, by any stretch of argument, be regarded as unsustainable in law, so as to be regarded as "erroneous" causing any prejudice to the Revenue, warranting exercise of revisionary jurisdiction[refer Malabar Industrial Co. Ltd. v. CIT: 243 ITR 83(SC) and CIT v Kwality Steel Suppliers Complex: 395 ITR 1 (SC)]. (c) It is also pertinent to mention, with all emphasis at the appellant's command, that it is also trite law that the question whether an expenditure is capital or revenue is a vexed question of law and is, by its very nature, highly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f AO order) * That apart, it may thus be noted that the appellant had initially claimed the above amount(s) of Rs. 28,498 crores and Rs. 10,689 crores in respect of variable license fee, SUC charges and corresponding interest and penalty in the return of income filed for assessment year(s) 2020-21and2021-22respectively. * However, during the course of assessment proceedings, the appellant, in view of the fact that the additional liability actually stood crystallized pursuant to the first order of the Supreme Court vide order dated 24.10.2019 and the subsequent order dated 01.09.2020, merely re-affirmed the view, filed letter dated 19.09.2023 before the assessing officer seeking claim of deduction in respect of the balance additional liability of Rs. 10,133 crores [Rs.10,689 - Rs. 556] which was inadvertently claimed in the return of income filed for the financial year 2020-21. In other words, the claim of deduction in respect of additional liability of license fee and SUC stood enlarged/enhanced to Rs. 38,631 crores as against the initial claim of Rs. 28,498 crores made in the return of income. (@ pages 3365 to 3370 of paper book Vol.III). As a necessary consequence, the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sunbeam Auto Ltd: 332 ITR 167 (Del) * CIT v. International Travel House: 344 ITR 554 (Del) * CIT vs. Vikas Polymers: 341 ITR 537 (Del) * Gulmohar Finances Limited: 170 Taxman 483 (Del.) * Fab India Overseas vs. CIT: 244 CTR 380 (Del.) * CIT vs. Vodafone Essar: 212 Taxman 184 (Del.) * CIT vs. DLF Ltd.: 350 ITR 555 (Del) * CIT v. Ratlam Coal Ash Co: 171 ITR 141 (MP) * CIT vs. Ganpat Ram Bishonoi: 152 Taxman 242 (Raj.) * CIT vs. Mehrotra Brothers : 270 ITR 157 (MP) * CIT vs. Associated Food Profits (P) Ltd.: 280 ITR 377 (MP) * CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) * For the aforesaid reason, the impugned revisionary order is liable to be quashed on the aforesaid issue at the threshold." 10.4 As with regard to this issue, after taking into consideration the aforesaid notices and submissions cited from the assessment proceedings, we are of the considered view that there is substance in the contention of the ld. Sr. Counsel that it is not a case where AO had not made relevant enquires at the time of assessment. After taking into consideration the sequence of events with regard to contest of the issue of nature of license fee being revenue or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments in the said case was traceable to different subject matters. In the instant case, the license issued under section 4 of the Telegraph Act is a single license issued for establishing, maintaining and operating the telecommunication services. The license is not granted for divisible rights that conceived divisible payments; hence, the apportionment of license fee as capital expenditure and revenue expenditure is without any legal basis. The High Court decision would have sustained if the facts were such that, even if the taxpayer does not make the payment of variable annual license fee based on the annual gross revenue, the taxpayer would be able to hold the right for establishing the network and running the business. The fact that the failure to pay the variable annual license fee will lead to revocation of the license vindicates the legal position that the said fees is paid towards the right to operate the telecommunication services. Although the license fee is paid in a deferred manner, the nature of the payment flowing from the licensing conditions cannot be re-characterised. A single transaction cannot be split up in an artificial manner into capital payment and rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that aforesaid conclusions in Bharti Hexacom's case (supra), have been considered out of context by the PCIT thus there was inherent fallibility in the approach of PCIT to examine the question with regard to taxability of interest/penalty as payable by the assessee under the license agreement entered into between the assessee and the Department of Telecommunication by reference the judgement of the Hon'ble Supreme Court in Bharti Hexacom's case (supra). Thus on this aspect alone the direction of PCIT are liable to be quashed. 10.7 Still to examine the issue, for completeness, we will like to reproduce the relevant clauses of agreement, copy of which is available at page no.368 to 3752 of PB Volume III, here in below:- "10. Suspension, Revocation or Termination of License; 10.2(i) The LICENSOR may, without prejudice to any other remedy available for the breach of any conditions of LICENSE, by a written notice of 60 Calendar days from the date of issue of such notice to the LICENSEE at its registered office, terminate this LICENSE under any of the following circumstances: If the LICENSEE: a) fails to perform any obligation(s) under the LICENSE including timely payments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive of installation charges, late fees, sale proceeds of handsets (or any other terminal equipment etc.), revenue on account of interest, dividend, value added services, supplementary services, access or interconnection charges, roaming charges, revenue from permissible sharing of infrastructure and any other miscellaneous revenue, without any set-off for related item of expense, etc 19.2 For the purpose of arriving at the "Adjusted Gross Revenue (AGR)" the following shall be excluded from the Gross Revenue to arrive at the AGR: I. PSTN related call charges (Access Charges) actually paid to other eligible/entitled telecommunication service providers within India; II. Roaming revenues actually passed on to other eligible/entitled telecommunication service providers; and III. Service Tax on provision of service and Sales Tax actually paid to the Government if gross revenue had included as component of Sales Tax and Service Tax 20. Schedule of payment of ANNUAL LICENSE FEE and other dues: 20.1 For the purposes of the License Fee, the 1st year shall end on 31st March following the date of commencement of the License Agreement and the License fee for the First year shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year shall be made based on the gross revenue figures duly certified by the AUDITORS of the LICENSEE in accordance with the provision of Companies Act, 1958. 20.7 A reconciliation between the figures appearing in the quarterly statements submitted in terms of the clause 20.4 of the agreement with those appearing in annual accounts shall be submitted along with a copy of the published annual accounts audit report and duly audited quarterly statements, within 7 (seven) Calendar days of the date of signing of the audit report. The annual financial account and the statement as prescribed above shall be prepared following the norms as prescribed in Annexure. 20.8 In case, the total amount paid as quarterly License Fee for the 4 (four) quarters of the financial year, falls short by more than 10% of the payable License Fee, it shall attract a penalty of 150% of the entire amount of short payment. However, if such short payment is made good within 60 days from the last day of the financial year, no penalty shall be imposed. This amount of penalty shall be payable within 15 days of the date of signing the audit report on the annual accounts, failing which interest shall be further c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, which are part of consideration for license, the licensor has right to revoke or terminate the license but in case of default in payment of interest and penalty the licensor Department of Telecommunication had no right for suspension, revocation and termination of the license agreement. Thus the principle which Hon'ble Supreme Court has accepted, that the failure to pay the variable annual license fee will lead to revocation of the license vindicates the legal position that the said fees is paid towards the right to operate the telecommunication services and then to hold that license fee is part of capital expenditure, is not applicable in case of interest payments or penalty. Thus, in the absence of rights of revocation/termination of the agreement for default in payment of penalty/interest cannot be equated with consequences arising out of default in payment of the license fee which as per the judgement of the Hon'ble High Court in the case of Bharti Hexacom (supra) was similar to one time entry fee. Therefore, the interest/penalty payment arising out of default in payment of the license fee is merely compensatory in nature. 10.10 Then we are of the view that delayed payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business expediency of the assessee is not disputed. PCIT should have been cognizant of the fact that since there was a dispute between the assessee and the licensor Department of Telecommunication with regard to various heads of revenue, as part of AGR, on which the license fee was payable and which has been ultimately settled by the Hon'ble Supreme Court only, thus, for valid reasons there was delay on the part of the assessee to make payment of the license fee and it is only subsequent to the determination of the issue finally that the assessee had to revise its claim in the context of license fees which has been accepted. This shows that the interest and penalty have arisen not out of an act of voluntary nature or in the background of contractual obligation to pay interest and penalty as part of the principal liability, but this expenditure of interest and penalty as arisen out of a contingency due to attempt of the assessee to contest the issue of quantum of license fee itself. Therefore, the incidence of interest and penalty is outcome of a business decision to defend the license fee quantum and, thus, it cannot be considered to have submerged with the license fee and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Therefore, on the basis of the aforesaid discussion, we are of the considered view that on the one hand the assessee has established that the issue was genuinely examined by the AO before passing of the assessment order and on the other hand, it is established that the conclusion drawn by the PCIT and as followed by the AO at the time of effect giving order to colour the interest and penalty component similarly to license fee, and hold them to be of capital expenditure is not sustainable under law. This issue no. 1 is decided in favour of the assessee and consequently ground nos 8-8.3 are sustained to the extent of relief not granted by the AO in consequential order. 11. Issue No.2: This issue is with regard to allowability of carry forward of accumulated business loss and unabsorbed depreciation relatable to the consumer wireless undertaking of M/s Tata Tele Services Ltd. (hereinafter referred to as Tata Business or in short, TTSL). The PCIT in his order dated 19.01.2024 u/s 263 of the Act had directed the AO to deny the benefit of section 72A of the Act and withdraw the allowance of brought forward business loss and unabsorbed depreciation relatable to the consumer wireless un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PB/2018, vide order dated 30.01.2019(@ pages 397 of paper book Vol.I). That apart, the no-objection was duly granted by the assessing officer to the NCLT prior to approval of the Scheme (@page 448 of paper book Vol. I).Copy of order of NCLT alongwith copy of Scheme of arrangement was duly filed before the assessing officer vide letter dated 09.05.2023. It is submitted, that as a necessary consequence of the aforesaid demerger, accumulated loss of Rs. 145,85,05,66,980 and unabsorbed depreciation of Rs. 7,147,93,79,862 relatable to the consumer wireless mobile undertaking of TTSL stood transferred to the appellant in terms of section 72(4) of the Act. However, no loss/ depreciation was transferred from TTML. The year wise details of accumulated business loss and unabsorbed depreciation of TTSL which stood transferred pursuant to demerger, were also duly furnished before the AO vide response dated 21.09.2023(@ page 503 of paper book Vol.II) It is submitted that the consumer wireless mobile business undertaking of TTSL was always incurring losses since inception and thereby the entire business loss of Rs. 14,585 crores related to the said undertaking alone. In so far as accumulated dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and Alleged Gain on acquisition of TTSL Vide notice dated 30.12.2022, the appellant was directed to furnish details/ documents with respect to amalgamation or demerger taken place during the year along with comprehensive note explaining whether all conditions of tax neutral amalgamation and demerger have been complied with or not along with proper evidence. (@ pages 352 to 356 of paper book Vol.I) Thereafter, vide notice dated 11.09.2023, details/ documents qua accumulated business loss and unabsorbed depreciation of consumer wireless mobile business of TTSL which stood transferred to the appellant was enquired. (@ pages 449 to 452 of paper book Vol.I) The appellant vide reply dated 09.05.2023 submitted comprehensive response explaining the scope and terms of scheme of arrangement and submitted copy of Scheme of Arrangement, NCLT order. Further, the appellant also explained how the demerger was tax neutral in terms of the provisions of the Act. (@ pages 357 to 448 of paper book Vol.I) The appellant vide letter dated 21.09.2023, filed detailed submission providing complete details of accumulated business loss and unabsorbed depreciation of consumer wireless mobile undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. If the shares get redeemed after 18 months, it would mean these shareholders would no longer be the shareholders of the Resulting company. This is nothing short of making mockery of a statutory condition. The issue of shares to 3/4th shareholders is not just a formality which can be accomplished one day and nullified the other day. 5. It needs to be kept in mind that preference shares are classified according to their nature. The preference shares of this kind are regarded as being in the nature of debt instruments and not being equity. Where is participation in the capital of the company if they are mandatorily to be redeemed after 18 months. These don't have voting rights. 6. Further, one of the other conditions is that all the assets and liabilities of the demerging company be transferred to the Resulting company. The scheme does not provide for the list of the assets transferred. The definition of undertaking does make reference to certain but what assets really got transferred and what did not was specifically not looked into. 7. In the case of liabilities, the net asset value of the business was arrived at Rs. 1263.9 crores but the preference shares of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets have been retained by TTSL and transferred to the appellant, strictly in terms of section 72A(4) of the Act. 11.7 When the aforesaid observations of the PCIT are considered in context to relevant provisions of the Act, we find that PCIT has not taken any cognizance of vital pieces of material in the form of Composite Scheme of Arrangement, copy of which is available at pages 432-433 of the paper book. We are of considered view that without citing anything from the record or relevant material that the action of demerger was outcome of some extraneous factors and not a genuine reorganization of the business by the assessee. Now as settled proposition of law a scheme of arrangement approved by the Court carries the force of a statute and reliance can be placed on catena of decisions as cited before us including of Delhi Bench in Aamby Valley Ltd. vs ACIT vide decision dated 22.02.2019 in ITA No.1148/Del/2017 (Delhi Trib.) ; Priapus Developers (P) Ltd vs ACIT: 176 ITD 223 (Delhi Trib.); Indus Towers Ltd (formerly known as Bharti Infratel Ltd) v. DCIT: ITA No. 1962/Del/2023 dated 10.12.2024 11.8 Having considered the observation of PCIT as recorded on pages 156-157 of impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 2(19AA) of the Act stood complied. 11.11 The attempt of the ld. DR in supporting the order of PCIT that only issuance of equity shares would have led to compliance of clause (iv) and (v) of section 2(19AA) of the Act is completely misplaced as there is no specific definition or reference to a particular type of shares being issued for clause (iv) and (v) of the Act. In this regard, it can be seen that clause (v) of section 2(19AA) of the Act provides that "the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share-holders of the resulting company or companies by virtue of the demerger". Thus, the condition required to be satisfied is that the ¾ shareholders of the demerged company shall become 'shareholders' of the resulting company. The said 'shareholders', the law does not necessitates, must only be equity shareholders (and not preference shareholder). In other words, there is no bar on issuance of preference shares by the resulting company to the shareholders of the demerg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the decision of the Constitution Bench of the Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Co.: (2018) 95 taxman.com 327 wherein the Hon'ble Apex Court held that that once the eligibility conditions for availing exemption/ benefit are satisfied, the same needs to be liberally construed so as to confer the exemption/ benefit rather than frustrate the same and same certainly applies to the case of assessee here. 11.14 To conclude we will like to observe that the ld. Sr. Counsel has sufficiently established on the basis of the queries which were raised by the AO that a comprehensive response was submitted to the AO explaining the scope and terms of the schemes of arrangement. The details of the accumulated business loss and unabsorbed depreciation of consumer wireless mobile undertaking of TTSL were provided to the AO. Still, PCIT has held that the AO had not conducted in-depth inquiries. On the contrary we are of the firm view that if this all was part of assessment record then PCIT was supposed to take that first into consideration and then examine the issue. Rather, from the conclusions which have been drawn by the PCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 2(19AA) of the Act were satisfied the issue can be decided in favour of assessee. 12.2 On merits, we find that it is submitted by ld. Sr. Counsel that Section 56(2)(x)(c) of the Act, are not applicable and we appreciate the same as Section 56(2)(x)(c) of the Act inter alia, provides that where a property other than immovable property is received without consideration or for consideration which is less than fair market value ('FMV') of such property by any person, then, the FMV or difference between the consideration and FMV, as the case maybe, would be taxable under the head "Income from other sources" in the hands of the recipient. Section 56(2)(x) of the Act essentially attempts to tax receipt of money, immovable property (being land or building) and specified movable assets, without or for inadequate consideration. Pertinently, a business undertaking, as in the case of the appellant, which is a separate and independent property, is not covered within the definition of 'property' for the purpose of section 56(2)(x) of the Act. That apart, it may be noted that clause (IX) of the proviso to section 56(2)(x) specifically excludes the transaction of demerger from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the TPO, in the course of transfer pricing proceedings for the assessment year 2020-21, conducted extensive/ necessary enquiries/ investigations, as required in law. It was submitted that after considering the replies furnished by the appellant, the TPO, vide order dated 11.05.2023 (@ pages 3906 to 3977 of paper book Vol.IV) made substantial TP adjustment(s) aggregating to Rs. 457,64,80,114/- . It was submitted that the appellant vide reply dated 31.03.2023, requested the TPO that without prejudice to its arguments on merits, even if comparable companies considered by the TPO is to be upheld, arm's length principle should be restricted to international transactions undertaken by the appellant with its associated enterprise. As for this assessee had relied catena of decisions, where pro-rata adjustment is recognized. On consideration of the above, the TPO @ para 7 & 8 of the computation specifically allowed for pro-rata adjustment of arm's length price to the extent of Rs. 249.04 crores and the adjustment was restricted to the value of international transaction alone. 13.2 Ld. Sr. Counsel has submitted that admittedly, the issue is covered in favour of the appellant by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on being non-treaty countries and the same is based on an order passed u/s 201(1) of the Act. No adverse inference was drawn by the AO in respect of other payments and he was satisfied with the evidences submitted by the assessee. In view of the aforesaid effect giving order dated 14.01.2025, the assessee's grievance is only with regard to the disallowance in respect of Rs. 141,47,898/-. Pertinent to mention here itself is that an order dated 18.05.2023 under section 201 of the Act for the year under consideration was passed by ITO Ward, International Taxation 1(1)(2), Delhi [refer page 3984-4007 of PB (Vol IV)]wherein no adverse inference was drawn qua communication charges and bandwidth charges paid to non-residents in respect of countries with which India has entered into a Double Tax Avoidance Agreement (DTAA).Copy of order dated 18.05.2023 passed under section 201 of the Act is enclosed @ pages 3984 to 4007 of paper book Vol. IV.Being so, no disallowance under section 40(a)(ia) of the Act is called for in this regard. In the aforesaid order dated 18.05.2023, the appellant was held to be in default for communication charges to the extent of Rs. 60,15,629 paid to residents of Gh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning requisition, coordination, feedback, Delivery of services." 14.2 Assessee had responded to these queries by reply dated 16.09.2023 [pages 2593 to 2621 of paper book (Vol. III)]. In response to the aforesaid queries, the appellant submitted detailed explanation along with supporting documents (pages 2593 to 2621 & 2622 to 2924 of paper book Vol.III) It is evident from the above that specific and pointed queries were raised, in respect of possible violations under section 40(a)(i), by the AO during the course of assessment and all the relevant supporting documents were duly filed by the appellant. The appellant had explained the nature of each of the payment to non-resident on which tax was not deducted and reason for the same. It was only on considering the detailed explanations and supporting documents filed by the appellant that AO drew no adverse inference in this regard. 14.3 Then ld. Sr. Counsel has submitted that the nature of expenditures involved are Communication charges/ bandwidth charges and the rationale for non-deduction of tax at source on the payments made on account of telecom services received from foreign telecom operators is as under:- "The appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessarily involve a human element. The Revenue assailed the order passed by the Delhi High Court by way of Special Leave Petition (SLP) before the Supreme Court. The Supreme Court vide order dated 12/08/2010, in SLP No. 16452 of 2009 agreed in principle with the aforesaid observation of the Delhi High Court regarding involvement/presence of human element in order for 'technical services' to be said to have been rendered in terms of Explanation 2 to section 9(1)(vii) of the Act. The Court, however, directed the Revenue to determine whether, on facts, there was any human intervention involved in rendering cellular services. (b) In the decision of this Hon'ble Tribunal in appellant's own case for assessment years 2008-09 to 2011-12 [Bharti Airtel Limited: 67 Taxmann.com 223- refer pages 2746 to 2877 of PB (Vol III)], the Tribunal examined in detail the fact pattern of arrangement between telecom operators and payments of IUC to FTOs as well as analyzed the legal provisions under the Act and Double Taxation Avoidance Agreements (DTAA). The Tribunal, after considering arguments of both the appellant and the revenue, after relying upon clauses of agreements with FTOs, held that payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including where payees are from non-treaty countries. Thus, the said issue squarely covers the case of the appellant. On the basis of aforesaid, we are of the considered view that not only the issue was duly examined by the AO during the assessment but the law, at time of assessment, stood settled that when the payments are not in regard to royalty or FTS under the Act, then also, in respect of non-treaty countries the payments on account of bandwidth charges to non-residents are not subject to TDS provisions. Thus the issue did not require any fresh enquiry by AO by interference under section 263 of the Act. Consequently, we are inclined to decide this issue in favour of the assessee and corresponding grounds nos. 12 to 12.4 are allowed. 15. Issue No.6: This issue concerns disallowance u/s 14A in regard to which ld. PCIT had observed that ld. AO has failed to make disallowance u/s 14A in the light of the Hon'ble Supreme Court decision in the case Maxopp Investment Ltd. vs. CIT (2018) 91 taxmann.com 154 (SC). No adverse inference has been drawn by the AO after due verification and examination during the effect giving proceedings and the ground concerning the same no more survive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions were through banking channel only. The ld. Sr. Counsel has pointed out various notices and replies communicated between the AO and the assessee during the assessment proceedings. However, in the effect giving order, no adverse inference was drawn by the AO and he was satisfied by the evidences of the assessee and upon verification of the same, therefore, as such, no grievance of the assessee survives substantially. In any case, we are satisfied that as issue was considered duly by AO vide notice dated 06.09.2023 and response of assessee dated 16.09.2023 copies of which are part of PB page 2593 to 2621 of PB Vol. III, we are of considered view that issue did not deserved to be interfered u/s 263 of the Act. We thus allow the ground no. 14(b). 18. Issue No.9: This issue concerns the observations of the ld. PCIT that genuineness of claim with regard to huge expenses were not examine by the AO and no supporting documentary evidences were called. Compliance with TDS provisions were allegedly not verified by the AO. The case of the assessee is that the issue was extensively examined and, in that regard, the ld. Sr. Counsel has pointed out about the notice dated 06.09.2023 av ..... X X X X Extracts X X X X X X X X Extracts X X X X
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