The ACIT, Circle-8,, Ahmedabad v. M/s. Vodafone Essar(Gujarat) Limited, Ahmedabad

ITA 1878/AHD/2009 | 2006-2007
Pronouncement Date: 29-01-2010 | Result: Dismissed

Appeal Details

RSA Number 187820514 RSA 2009
Assessee PAN AAACF1190P
Bench Ahmedabad
Appeal Number ITA 1878/AHD/2009
Duration Of Justice 7 month(s) 25 day(s)
Appellant The ACIT, Circle-8,, Ahmedabad
Respondent M/s. Vodafone Essar(Gujarat) Limited, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-01-2010
Date Of Final Hearing 28-10-2009
Next Hearing Date 28-10-2009
Assessment Year 2006-2007
Appeal Filed On 04-06-2009
Judgment Text
THE AYIN THE INCOME_TAX APPELLATE TRIBUNAL A BEN CH AHMEDABAD BEFORE SHRI H.L.KARWA JM AND SHRI A.N.PAHUJA AM ITA NO.18 78/AHD/2009 (ASSESSMENT YEAR : 2006-07) A.C.I.T. CIRCLE 8 4 TH FLOOR AJANTA COOMERCIAL CENTR A WING ASHRAM ROAD AHMEDABAD. VS. VODAFONE ESSAR GUJARAT LTD. VODAFONE HOUSE CORPORATE ROAD PRAHLADNAGAR OFF. S.G.ROAD AHMEDABAD. [PAN:AAACF1190P] (APPELLANT) (RESPONDENT) ITA NO.1361/AHD/2009 (ASSESSMENT YEAR : 2006-07) VODAFONE ESSAR GUJARAT LTD. VODAFONE HOUSE CORPORATE ROAD PRAHLADNAGAR OFF. S.G.ROAD AHMEDABAD. VS. THE A.C.I.T. CIRCLE 8 AHMEDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.E.DASTUR WITH SHRI S.N.SOPAR KAR & DHINAL SHAH ARS. REVENUE BY : SHRI RAJEEV AGARWAL DR ( )/ ORDER A.N.PAHUJA: THESE CROSS APPEALS BY THE REVENUE AND THE ASSES SEE DIRECTED AGAINST AN ORDER DATED 30.3.2009 OF THE LD . CIT (A)-XIV AHMEDABAD RAISE THE FOLLOWING GROUNDS: ITA NO.1878/AHD/2009[REVENUE] 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES AMOUNTING TO RS. 48 935/-. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE OF CLAIM FOR DEDUCTION U/S 80IA FROM R EVENUE OF SHARING OF CELL SITE OF RS.2 75 30 602/-. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION TO THE BOOK PROFIT OF RS.9 52 20 000/- ON A/C OF PROVISION FOR MUNICIPAL TAXES FOR THE COMPUTATION OF MAT LIABILIT Y. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD COMMISSIONER OF INCOME-TAX (A)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2 ITA NO.1878& 1361/AHD/2009 2 5. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LE ARNED LD. COMMISSIONER OF INCOME TAX(A)-XIV AHMEDABAD MAY B E SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.1361/AHD/2009[ASSESSEE] .: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN CONFIRMING THE FINDING OF THE ASSIS TANT COMMISSIONER OF INCOME TAX CIRCLE 8 AHMEDABAD (HEREINAFTER REFERR ED TO AS THE AO') HOLDING THAT THE APPELLANT HAS STARTED PROVIDING TE LECOMMUNICATION SERVICES DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR 1996-97. 1.1 THE CIT(A) ERRED IN STATING THAT: I. THE APPELLANT HAS STARTED PROVIDING COMMUNICATIO NS SERVICES AS SOON AS IT UNDERTOOK THE FIRST ACTIVITY OF INSTALLATION OF SITES AND TOWERS II. THE DIRECTORS REPORT FOR THE YEAR ENDING MARCH 31 1996 SHOWS THAT SITE PREPARATION WAS NEAR COMPLETION BY MARCH 31 1996 III. THE APPELLANT HAS COMPLETED 25 PER CENT OF THE ACTIVITY WHICH WAS REQUIRED TO LAUNCH COMMERCIAL OPERATIONS BY MARCH 31 1996. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED IN NOT APPRECIATING THAT WHETHER THE BUSINESS HAS COMMENCED IN A.Y. 1996-97 HAS BEEN DECIDED BY THE AO IN THAT YEA R AND THE AO IN A.Y. 2006-07 CANNOT TAKE A VIEW CONTRARY TO THE VIE W TAKEN IN A.Y. 1996-97. 1.3 WITHOUT PREJUDICE EVEN IT IS PRESUMED THAT THE BUSINESS IS SET UP IN A.Y. 1996-97 THE CIT(A) ERRED IN NOT APPRECIATI NG THAT DEDUCTION UNDER SECTION 80IA(4) IS AVAILABLE ONLY AFTER THE A SSESSEE STARTS PROVIDING TELECOMMUNICATION SERVICE WHICH HAPPENED IN JANUARY 1997 RELEVANT TO THE ASSESSMENT YEAR 1997-98 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN CONFIRMING THE ACTION OF HE AO IN HOLDING THAT T HE APPELLANTS CLAIM FOR DEDUCTION IN AY 2006-07 WOULD BE GOVERNED BY TH E PROVISIONS OF SECTION 80IA OF THE ACT AS IT STOOD IN AY 1996-97 A ND NOT THE RELEVANT AY I.E.AY 2006-07. 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE CIT(A) ERRED IN HOLDING THE APPELLANT HAS EXERCISED ITS OP TION OF MAKING A CLAIM FOR DEDUCTION U/S 80IA THE AY 1997-98 AND HEN CE THE PROVISIONS OF SECTION 80IA AS SUBSTITUTED FROM THE AY 2002-03 WOULD NOT APPLY. 2.2 THE CIT(A) ERRED IN HOLDING THAT THE OPTION TO CLAIM DEDUCTION FOR TEN OUT OF FIFTEEN YEARS UNDER THE SUBSTITUTED SECT ION 80IA WAS AVAILABLE ONLY TO CONCERNS WHICH WERE GRANTED A LICENSE AFTER 1.4.1995 BUT COULD NOT START OPERATIONS TILL 1.4.2002. 3 ITA NO.1878& 1361/AHD/2009 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN SETTING OFF L OSSES OF EARLIER ASSESSMENT YEARS 1997-98 TO 2000-01 AMOUNTING TO RS . 75 98 22 036/- WITHOUT GIVING EFFECT TO THE PROVISI ONS OF SECTION 79 OF THE ACT WHILE COMPUTING DEDUCTION U/S 80IA OF THE A CT 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN HOLDING THAT THE LICENSE FEES PAID BY THE APPELLANT OF RS. 67.51 CRORES ON A REVENUE S HARING BASIS IS A CAPITAL EXPENDITURE INCURRED FOR THE PURPOSE OF ACQ UIRING THE LICENSE AND NOT ELIGIBLE FOR DEDUCTION AS REVENUE EXPENDITU RE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN HOLDING THAT THE MISCELLANEOUS INCOME OF RS.16 6 0 841 AND SCRAP SALES OF RS.4 99 681 ARE NOT INCOME DERIVED FROM BU SINESS OF THE APPELLANTS INDUSTRIAL UNDERTAKING AND HENCE NOT EL IGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN LEVY OF INTER EST UNDER SECTION 234B & 234C WHERE THE TOTAL INCOME WAS COMPUTED UNDER TH E PROVISIONS OF SECTION 115JB OF THE ACT THE APPELLANT CRAVES LEAVE TO ADD TO AMEND VARY OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. ADVERTING FIRST TO GROUND NO.1 TO 1.3 IN TH E APPEAL OF THE ASSESSEE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT THE E-R ETURN DECLARING INCOME OF RS. 2 27 38 451/- FILED ON 28.12.2006 BY THE ASSESSEE A CELLULAR SERVICE PROVIDER IN THE STATE OF GUJARAT AFTER BEING PROCESSED U/S1 43(1) OF THE INCOME-TAX ACT 1961 (HEREINAFTER TO BE REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 26-10- 2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION FOR AN AMOUNT OF RS. 3 5 3 51 55 037/- U/S 80IA(4)(II) OF THE ACT. THE ASSESSEE COMPANY WAS I NCORPORATED ON 14-03- 1995 IN THE NAME OF M/S. FASCEL LIMITED . SINCE CE RTIFICATE OF COMMENCEMENT OF BUSINESS WAS ISSUED TO THE COMPANY ON 04-04-1995 THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INITIAL YEAR FOR CLAI MING DEDUCTION U/S 80IA(4) OF THE ACT MAY NOT TAKEN AS ASSESSMENT YEAR 1996-1997 INSTEAD OF 1997-1998 CLAIMED BY IT. IN RESPONSE THE ASSESSEE SUBMITTED VIDE LETTER DATED 19-12- 2008 THAT AFTER OBTAINING A CERTIFICATE OF COMMENCE MENT OF BUSINESS ON 04-04- 1995 THE ASSESSEE ENTERED INTO A LICENSE AGREEMENT WITH TELECOM AUTHORITY IN THE MONTH OF JANUARY 1996 TO ESTABLISH MAINTAIN AN D OPERATE CELLULAR MOBILE TELEPHONE SERVICE IN THE STATE OF GUJARAT. THEREAF TER THE ASSESSEE STARTED 4 ITA NO.1878& 1361/AHD/2009 4 IMPLEMENTING THE PROJECT AND LAUNCHED ITS COMMERCIA L OPERATIONS ONLY ON 24- 01-1997 AS IS EVIDENT FROM THE AUDITED ACCOUNTS F OR THE YEAR ENDING 31-03- 1997. SINCE TELECOM BUSINESS WAS CAPITAL INTENSI VE INVOLVING CONSIDERABLE GESTATION PERIOD AFTER IDENTIFICATION IT TOOK TIM E IN INSTALLING THE EQUIPMENT AT VARIOUS SITES. THEREAFTER THE TELECOM AUTHORITY UN DERTOOK NECESSARY PERFORMANCE TESTS TO ASCERTAIN THE QUALITY OF SERVI CE BEFORE LAUNCHING COMMERCIAL OPERATIONS. WHILE REFERRING TO THE ASSE SSMENT ORDER FOR THE AY 1996-97 U/S 143(3) OF THE ACT THE ASSESSEE POINTE D OUT THE FOLLOWING RELEVANT EXTRACTS FROM THE SAID ORDER : SINCE THIS IS THE FIRST YEAR OF OPERATION OF THE A SSESSEE COMPANY AND NO BUSINESS ACTIVITIES ARE CARRIED OUT THE INCOME IS ASSESSED AS DECLARED IN THE RETURN AT NIL. 2.1 THE ASSESSEE FURTHER POINTED OUT THAT SINCE THE AO HIMSELF COMPUTED BUSINESS LOSS IN THE ASSESSMENT ORDER FOR THE AY 19 97-1998 APPARENTLY INITIAL YEAR FOR STARING TELECOMMUNICATION ACTIVITY WAS AY 1997-1998 AND NOT THE AY 1996-1997. HOWEVER THE ASSESSING OFFICER REJECTED THESE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT CERTIFICATE OF COMMENCE MENT OF BUSINESS WAS ISSUED IN THE PERIOD RELEVANT TO THE AY 1996-1997 A ND LICENSE AGREEMENT WITH TELECOM AUTHORITY WAS ALSO EXECUTED ON 11.1.1996. REFERRING TO NOTE NO. B-9 OF SCHEDULE 7 TO THE AUDITED ACCOUNTS FOR THE FINAN CIAL YEAR 1995-1996 AS ALSO DECISIONS IN THE CASE OF CIT VS. ESPN SOFTWARE INDI A PRIVATE LIMITED 301 ITR 368(DELHI) CIT VS. SAURASHTRA CEMENT AND CHEMICAL I NDUSTRIES LIMITED 91 ITR 170(GUJARAT) THE AO CONCLUDED THAT DATE OF LIC ENSE SHOULD BE TAKEN AS DATE OF COMMENCEMENT OF BUSINESS. ACCORDINGLY IT WAS HELD THAT THE FIRST YEAR OF PROVIDING TELECOMMUNICATION SERVICES WAS AY 1996-97 & NOT THE AY 1997-1998 AS CLAIMED BY THE ASSESSEE. 3. ON APPEAL IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT MERE SIGNING THE LICENSE AGREEMENT WITHOUT HAVING ANY INFRASTRUC TURE FOR RENDERING TELECOM SERVICES DOES NOT LEAD TO THE CONCLUSION THAT THE A SSESSEE HAD STARTED PROVIDING THE TELECOM SERVICES. IN FACT THE ASSESS EE LAUNCHED ITS COMMERCIAL SERVICES IN AHMEDABAD & GANDHINAGAR ON 24.1.1997. W HILE REFERRING TO THE DECISIONS IN THE CASE OF JCIT VS. SARDAR SAROVAR NA RMADA NIGAM LIMITED 93 TTJ 965(AHMEDABAD) WESTERN INDIA VEGETABLE PRODUCT S LIMITED VS. CIT 26 ITR 151(BOMBAY) AND SPONGE IRON INDIA LIMITED 201 ITR 770 (AP) THE 5 ITA NO.1878& 1361/AHD/2009 5 ASSESSEE CONTENDED THAT THE RECEIPT OF CERTIFICATE OF COMMENCEMENT BUSINESS IS NOT A CONCLUSIVE TEST FOR COMMENCEMENT OF ACTIVI TIES BY THE ASSESSEE. THE ASSESSEE FURTHER INVITED THE ATTENTION OF THE LD. C IT(APPEALS) TO LIST OF CELLULAR MOBILE SERVICES LICENSES PUBLISHED BY THE DEPARTMEN T OF TELECOMMUNICATIONS REFLECTING THE DATE OF START OF TELECOM SERVICE ON 21-01- 1997. RELYING ON THE PRINCIPLES OF CONSISTENCY IT WAS CONTENDED THAT THE DEPARTMENT HAVING ACCEPTED THE POSITION OF THE ASSE SSEE FOR EVERY ASSESSMENT YEAR SINCE THE AY 1996-1997 CANNOT NOW ADOPT A CONTRARY POSITION TO CONTRADICT ITS OWN FINDINGS. IN THIS CO NNECTION THE ASSESSEE RELIED UPON THE DECISIONS IN THE CASE OF RADHASWAMI SATSAN G VS. CIT 193 ITR 321 (SC) CIT VS. LAGANKALA UPVAN 259 ITR 489(DEL.) CIT VS. N.P MATHEW 280IT 44 CIT VS. KOCHIN GOODS TRANSPORT ASSOCIATION 236 I TR 996(KER) LOVELY BALSHIKSHA PARISHAD 266 ITR 349(DEL.) CIT VS. NIRMA L COMMERCIAL LTD. 213 ITR 361(BOM.) ITO VS. TEJMALBHAI & COMPANY 100TTJ 8 98(RAJKOT) AND. CIT V. BHARTESH JAIN (310 ITR 82) (DELHI). WHILE RELYIN G UPON THEIR SUBMISSIONS BEFORE THE AO THE ASSESSEE ADDED THAT THE AO CAN N OT CHANGE THE INITIAL YEAR IN THE ASSESSMENT PROCEEDINGS FOR THE YEAR UND ER CONSIDERATION. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS THE LD.. CIT(A) UPHELD THE FINDINGS OF THE AO MENTIONING THAT NOTES TO THE ACC OUNTS OF THE ASSESSEE FOR THE FY 1995-96 REVEALED THAT THE ASSESSEE STARTED CONSTRUCTION WORK OF INSTALLATION OF SITES AND TOWERS BY 31-3-96. REFER RING TO THE DECISIONS IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES AND ESPN SOFTWARE INDIA P. LTD. RELIED UPON BY THE A.O. AND NOTE B-9 TO SC HEDULE 7 OF THE ANNUAL ACCOUNTS FOR THE F.Y. 1995-96 AS ALSO THE DIRECTOR S REPORT FOR THE YEAR ENDING 31.03.1996 THE LD. CIT(A) CONCLUDED THAT COMMENCE MENT OF BUSINESS OPERATION OF THE APPELLANT HAS TAKEN PLACE BY 31.03 .1996 AS SOON AS IT HAS UNDERTAKEN THE FIRST ACTIVITY OF CONSTRUCTION AND T HEREFORE THE FIRST YEAR OF COMMENCEMENT OF BUSINESS IN THE CASE OF THE ASSESSE E IS HELD AS A.Y. 1996- 97.WHILE REJECTING THE CONTENTIONS ON BEHALF OF THE ASSESSEE FOR FOLLOWING THE RULE OF CONSISTENCY AND RELYING UPON VARIOUS DECISI ONS THE LD. CIT(A) FURTHER CONCLUDED THAT DECISION TAKEN IN REGARD TO AN EARLI ER ASSESSMENT YEAR DOES NOT OPERATE AS RES JUDICATA IN THE SUBSEQUENT YEAR. 6 ITA NO.1878& 1361/AHD/2009 6 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS).THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE IMPUGNED ORDERS AND THE RE LEVANT DOCUMENTS IN THE PAPER BOOK SUBMITTED THAT THE COMPANY WAS INCORPORA TED ON 14-03-1995 WHILE CERTIFICATE OF COMMENCEMENT OF BUSINESS WAS G RANTED ON 04-04-1995. THE COMPANY ENTERED INTO AN AGREEMENT WITH THE GOVE RNMENT FOR PROVIDING TELECOMMUNICATION SERVICES IN THE STATE OF GUJARAT VIDE AGREEMENT DATED 11- 01-1996 WHILE THE COMMERCIAL SERVICES WERE LAUNCHED ONLY ON 24-01-1997. WHILE INVITING OUR ATTENTION TO THE PROVISIONS OF S ECTION 80IA(4)(II) OF THE ACT THE LD. AR SUBMITTED THAT THE WORDS USED IN THE SEC TION ARE STARTS PROVIDING TELECOMMUNICATION SERVICES. IN VIEW OF THESE SPECI FIC WORDS IT CANNOT BE SAID THAT THE COMPANY STARTED PROVIDING TELECOMMUNICATIO N SERVICES WHEN CERTIFICATE OF COMMENCEMENT OF BUSINESS WAS GRANTED SINCE FOR PROVIDING TELECOMMUNICATION SERVICES HUGE INFRASTRUCTURE IS N ECESSARY. WHILE REFERRING TO PAGE 51 AND 52 OF THE PAPER BOOK THE LD. AR PO INTED OUT THAT AS ON 31-03- 1996 ONLY CAPITAL ADVANCE OF RS. 1 06 50 000/- SHOW N UNDER THE HEAD FIXED ASSETS WAS GIVEN BESIDES PAYMENT OF LICENSE FEE OF RS. 46 34 54 000/-. REFERRING TO PAGE 59 OF THE PAPER BOOK THE LD. AR POINTED OUT THAT COMPANY STARTED COMMERCIAL OPERATION IN AHMEDABAD ONLY ON 2 4-01-1997 AND ACCORDINGLY SALES AND SERVICE REVENUE WAS REFLECTED FOR THE FIRST TIME IN THE BALANCE SHEET AS ON 31-03-1997 TO THE EXTENT OF RS. 4 32 28 337/- THE LIST OF CELLULAR PROVIDERS AS ON 31-03-2006 ( COPY PLACED A T PAGE 4 OF THE PAPER BOOK) ALSO MENTIONS THE DATE OF START OF INITIAL S ERVICES AS 21-01-1997 WHILE EVEN THE ASSESSMENT ORDER DATED 29-01-1999 IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1996-97 CONCLUDED THAT NO BUSINESS ACTIVITIES WERE CARRIED OUT. WHILE REFERRING TO THE IMPUGNED ASSES SMENT ORDER THE LD. AR POINTED OUT THAT WHILE PASSING THE ORDER THE AO IS RECORDING FINDINGS RELEVANT FOR THE ASSESSMENT YEAR 1996-97 AND 1997-98. ACCOR DING TO THE LD. AR FIRST YEAR WHEN DEDUCTION WAS CLAIMED BY THE ASSESSEE IS AY 2005-06; HOWEVER THE AO DID NOT ALLOW THE DEDUCTION U/S 80IA OF THE ACT. WHILE REFERRING TO PAGE 94 OF THE PAPER BOOK THE LEARNED AR ADDED THAT THO UGH THE ASSESSEE EARNED PROFITS IN THE ASSESSMENT YEAR 2004-2005 IT DID NO T CLAIM DEDUCTION U/S 80IA OF THE ACT. WHILE CARRYING US THROUGH PAGE 46 54 55 OF THE PAPER BOOK THE LEARNED AR FURTHER SUBMITTED THAT TERMS AND CONDITI ONS IN THE LICENSE 7 ITA NO.1878& 1361/AHD/2009 7 AGREEMENT WERE NOT RELEVANT. THE ISSUE IN THIS CAS E WAS WHETHER THERE WAS ANY MATERIAL THAT TELECOM SERVICES WERE RENDERED IN THE ASSESSMENT YEAR 1996-1997 WHICH HAS BEEN TREATED AS FIRST YEAR OF P ROVIDING TELECOMMUNICATION SERVICES BY THE ASSESSING OFFICER . THE LD. AR SUBMITTED THAT THE DECISIONS RELIED UPON BY THE AO IN CIT VS. ESPN SOFTWARE INDIA PRIVATE LIMITED 301 ITR 368(DELHI) CIT VS. SAURASH TRA CEMENT AND CHEMICAL INDUSTRIES LIMITED 91 ITR 170(GUJARAT) WERE NOT RE NDERED IN THE CONTEXT OF PROVISIONS 80IA OF THE ACT. WHILE RELYING UPON THE DECISIONS REPORTED IN RADHA SOAMI SATSANG VS. CIT 193 ITR 321 (SC) AND CI T VS. INDIA FORGE & DROP STAMPINGS 240 ITR 208 (MADRAS) THE LD. AR SUB MITTED THAT IN THE LIGHT OF THE PRINCIPLES OF CONSISTENCY THE AO & THE LD. CIT (A) WERE NOT JUSTIFIED IN HOLDING THAT THE AY 1996-97 WAS THE FIRST YEAR WHEN THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SERVICES. ON THE OTHER HAND THE LEARNED DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS REFERRED TO BEFORE US. THE I SSUE BEFORE US IS AS TO WHEN THE ASSESSEE STARTED PROVIDING TELECOM SERVICES IN TERMS OF PROVISIONS OF SECTION 80IA(4)(II) OF THE ACT. THE ISSUE IS NOT AS TO WHEN THE ASSESSEE SET UP OR COMMENCED BUSINESS AS HAS BEEN CONSIDERED BY THE LD. CIT(A). UNDISPUTEDLY AFTER SIGNING THE LICENSE AGREEMENT O N JANUARY 11 1996 THE ASSESSEE STARTED THE PROCESS OF INSTALLATION OF VA RIOUS INFRASTRUCTURAL FACILITIES LIKE TELECOM TOWERS LEASED LINES DATA CIRCUITS AN D OTHER COMMUNICATION EQUIPMENTS ETC. AT VARIOUS SITES. MERE RECEIPT OF L ICENSE TO PROVIDE TELECOMMUNICATION SERVICES WITHOUT ANY INFRASTRUCTU RE OR RESOURCES WOULD NOT RESULT IN PROVIDING TELECOMMUNICATION SERVICES. IN THIS CONNECTION IT WOULD BE RELEVANT TO READ THE FOLLOWING NOTE B-1 TO THE ANNU AL ACCOUNTS FOR F.Y. 1995- 96 WHICH REVEALS AS UNDER; AS THE COMPANY HAS NOT COMMENCED ITS COMMERCIAL SERVICES DURING THE YEAR UNDER REVIEW NO SEPARATE PROFIT AND LOSS ACCOUNT HAS BEEN PREPARED. INSTEAD THE STATEM ENT ON INCIDENTAL EXPENDITURE DURING CONSTRUCTION PERIOD P ENDING ALLOCATION HAS BEEN PREPARED. FURTHER THE NOTE B-6 READS AS UNDER: AS THE COMPANY HAS NOT STARTED COMMERCIAL SERVICES DURING THE YEAR UNDER REVIEW INFORMATIONS STATED IN PARAGRAPH 3 AND 4A OF 8 ITA NO.1878& 1361/AHD/2009 8 PART II OF SCHEDULE VI TO THE COMPANIES ACT 1956 A RE NOT APPLICABLE. 6.1 AS POINTED OUT BY THE LD. AR WE FIND THA T AS ON 31-03-1996 ONLY CAPITAL ADVANCE OF RS. 1 06 50 000/- SHOWN UNDER TH E HEAD FIXED ASSETS WAS GIVEN BESIDES PAYMENT OF LICENSE FEE OF RS. 46 34 54 000/-. THE COMPANY STARTED THEIR COMMERCIAL OPERATIONS IN AHME DABAD/GANDHINAGAR ONLY ON 24-01-1997 AND ACCORDINGLY SALES AND SERVI CE REVENUE WAS REFLECTED FOR THE FIRST TIME IN THE BALANCE SHEET A S ON 31-03-1997 TO THE EXTENT OF RS. 4 32 28 337/- THE LIST OF CELLULAR PROVIDERS AS ON 31-03-2006 ( COPY PLACED ON PAGE 4 OF THE PAPER BOOK) ALSO MENTIONS T HE DATE OF START OF INITIAL SERVICES AS 21-01-1997 .EVEN THE ASSESSMENT ORDER DATED 29-01-1999 IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 199 6-97 CONCLUDED THAT NO BUSINESS ACTIVITIES WERE CARRIED OUT. THESE EVIDEN CES LEAD ONLY TO ONE CONCLUSION THAT THE ASSESSEE DID NOT START PROVIDIN G TELECOMMUNICATION SERVICES IN THE PERIOD RELEVANT TO THE AY 1996-97.W E ARE FURTHER OF THE OPINION THAT WHETHER OR NOT THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SERVICES IN ANY YEAR HAS TO BE DECIDED IN THE ASS ESSMENT PROCEEDINGS FOR THAT YEAR IN THE LIGHT OF THE RELEVANT FACTS AND CI RCUMSTANCES OBTAINING IN THAT ASSESSMENT YEAR ALONE. HERE WE MAY REFER TO THE FOLLOWING PASSAGE OCCURRIN G IN NEW JEHANGIR VAKIL MILLS CO. LTD. V. CIT [1963] 49 ITR 137 (SC) 142: ' THE EXTENT TO WHICH A DECISION GIVEN BY AN INC OME-TAX OFFICER FOR ONE ASSESSMENT YEAR AFFECTS OR BINDS A DECISION FOR ANO THER YEAR HAS BEEN CONSIDERED BY COURTS SEVERAL TIMES AND SPEAKING GEN ERALLY IT MAY BE STATED THAT THE DOCTRINE OF RES JUDICATA OR ESTOPPEL BY RE CORD DOES NOT APPLY TO SUCH DECISIONS; IN SOME CASES IT HAS BEEN HELD THAT THOU GH THE INCOME-TAX OFFICER IS NOT BOUND BY THE RULE OF RES JUDICATA OR ESTOPPE L BY RECORD HE CAN REOPEN A QUESTION PREVIOUSLY DECIDED ONLY IF FRESH FACTS COM E TO LIGHT OR IF THE EARLIER DECISION WAS RENDERED WITHOUT TAKING INTO CONSIDERA TION MATERIAL EVIDENCE ETC.' 6.2 IN THE CASE UNDER CONSIDERATION THE AO HAS NOT REOPENED THE ASSESSMENT PROCEEDINGS FOR THE AY 1996-97 . INSTE AD THE FINDINGS RECORDED IN THE AY 1996-97 ARE BEING RECONSIDERED IN THE YEA R UNDER CONSIDERATION. THIS APPROACH OF THE AO IS AGAINST THE SETTLED POS ITION IN LAW. AS OBSERVED BY THE HONBLE APEX COURT IN THEIR AFORESAID DECISION AO CAN REOPEN A QUESTION PREVIOUSLY DECIDED ONLY IF FRESH FACTS COME TO LIGH T OR IF THE EARLIER DECISION WAS RENDERED WITHOUT TAKING INTO CONSIDERATION MATE RIAL EVIDENCE ETC. NO 9 ITA NO.1878& 1361/AHD/2009 9 SUCH MATERIAL HAS BEEN PLACED BEFORE US ON BEHALF O F THE REVENUE THAT CERTAIN FRESH FACTS CAME TO LIGHT OR THAT RELEVANT MATERIAL EVIDENCE WAS IGNORED AT THAT TIME IN THE PROCEEDINGS FOR THE AY 1996-97. IN THESE CIRCUMSTANCES WE FIND MERIT IN THE UNDISPUTED CONTENTIONS OF TH E LD. AR THAT PRINCIPLES OF CONSISTENCY SHOULD HAVE BEEN ADHERED TO. IN THIS CO NNECTION HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN THE CASE OF TARABEN RAMANBHAI PATEL & ANOTHER (SUPRA) IN THE CONTEXT OF LEVY OF P ENALTY U/S 271(1)(A) OBSERVED AS UNDER: IT IS NO DOUBT TRUE THAT THE STRICT RULE OF THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO PROCEEDINGS UNDER THE INCOME-TAX ACT. AT T HE SAME TIME IT IS EQUALLY TRUE THAT UNLESS THERE IS A CHANGE OF CIRCUMSTANCES THE AUTHORITIES WILL NOT DEPART FROM PREVIOUS DECISIONS AT THEIR SWEET WILL IN THE ABSENCE OF MATERIAL CIRCUMSTANCES OR REASONS FOR SUCH DEPARTURE : JOINT FAMILY OF UDAYA CHINUBHAI V. CIT [1967] 63 ITR 416 (SC) AIR 1967 SC 762 ; RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 (SC) ; AIR 1992 SC 377 ; H. A. SHAH AND CO. V. CIT/EPT [1956] 30 ITR 618 (BOM). IN THE LAST MENTIONED CASE IT WAS OBSERVED THAT IF THE QUESTION WAS NOT CONSIDERED IN DETAIL IN EARLIER PROCEEDINGS IT IS OPEN TO THE AUTHORITIES TO CONSIDER THOSE DOCUMENTS AND TO COME TO A DIFFERENT CONCLUSION. BUT IF THE QUESTION IS ALREADY DECIDED ON THE BASIS OF THE FAC TS AND THERE IS NO CHANGE IN THAT FACTUAL POSITION IT CANNOT BE REOPENED. IN TH E INSTANT CASE AS OBSERVED BY US HEREINABOVE THE FACT WAS BROUGHT TO THE NOTI CE OF THE RESPONDENT AUTHORITY BY THE PETITIONERS THAT LITIGATION WAS GO ING ON BETWEEN THE PARTIES AND THE RECEIVER WAS APPOINTED BY THE HIGH COURT OF BOMBAY. THAT FACT WAS ALSO ACCEPTED BY THE DEPARTMENT FOR THE ASSESSMENT YEAR 1978-79 AND EVEN FOR THE YEAR 1982-83 IN RESPECT OF A NUMBER OF APPE ALS FILED BY OTHER CO- OWNERS AS ALSO BY SOME OF THE PETITIONERS. IN OUR O PINION THERE WAS NO GOOD AND JUSTIFIABLE CAUSE TO TAKE A DIFFERENT VIEW WHEN SOME APPEALS CAME BEFORE A DIFFERENT OFFICER WITHOUT THERE BEING ANY CHANGE IN THE FACTUAL POSITION AND WHEN THE EARLIER DECISION WAS NOT CHALLENGED BY THE DEPARTMENT. 6.3 THE AFORESAID DECISION HAS BEEN FOLLOWED B Y THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR SUBSEQUENT DECISION IN LALLUDAS CHILDREN TRUST VS CIT 251 ITR 50(GUJ) .SIMILAR VIEW HAS BEEN TAKEN IN THE SEVERAL CASES INCLUDING IN DIT VS. LOVELY BAL SHIKHA PARISHAD 266 ITR 349(DEL.) DIT VS. GURU NANAK VIDHYA BHANDAR TRUST 272 ITR 379(DEL.) CIT VS. LEADER VALVES LTD. 295 ITR 273(P&H) AND CIT VS. DS PROMOTERS & DE VELOPERS PVT. LTD. 25 DTR (DEL) 8 ARIHANT BUILDERS DEVELOPERS & INVESTORS (P.) LTD V. ITAT [2005] 277 ITR 239 (MP) ASSTT. CIT V. GENDALAL HAZARILAL & CO. [2003 ] 263 ITR 679 (MP) CIT V. NEO POLY PACK (P.) LTD [2000] 245 ITR 492 (DELHI) . DHANSIRAM AGARWALLA V. CIT [1996] 217 ITR 4 (GAUHATI) CIT V. SHIV SAGAR ESTATE [2002] 10 ITA NO.1878& 1361/AHD/2009 10 257 ITR 59 (SC) AND UNION OF INDIA V. SATISH PANNALAL SHAH [2 001] 249 ITR 221 (SC).IN OUR OPINION THERE WAS NO GOOD AND JUSTIFI ABLE CAUSE TO TAKE A DIFFERENT VIEW AND CONCLUDE IN THE ASSESSMENT PROC EEDINGS FOR THE YEAR UNDER CONSIDERATION THAT THE AY 1996-97 WAS THE FIR ST YEAR WHEN THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SERVI CES WITHOUT THERE BEING ANY CHANGE IN THE FACTUAL POSITION AND WHEN THE EAR LIER DECISION WAS NOT CHALLENGED BY THE DEPARTMENT. AS POINTED OUT IN THE DIRECTORS REPORT FOR THE AY 1997-98 AND THE RELEVANT ACCOUNTS FOR THAT YE AR THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SERVICES ONLY IN THE PE RIOD RELEVANT TO THE AY 1997-98. THE EVIDENCE BROUGHT TO OUR NOTICE BY THE LD. AR ON BEHALF OF THE ASSESSEE AND UNCONTROVERTED BY THE REVENUE UNMISTAK EABLLY POINTS OUT THAT THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SE RVICES IN THE PERIOD RELEVANT TO THE AY 1997-98 AND THIS HAS ALREADY BEE N CONCLUDED IN THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT AY 1997-98. IN VIEW THEREOF WE HAVE NO HESITATION IN VACATING THE FINDINGS OF THE LOWER AUTHORITIES ON THIS ISSUE AND. THEREFORE ALLOW GROUND NOS. 1 TO 1.3 IN THE APPEAL OF THE ASSESSEE. 7. NEXT GROUND NOS. 2 2.1 & 2.2 RELATE TO CLAIM FOR DEDUCTION U/S 80IA OF THE ACT IN TERMS OF PROVISIONS RELEVANT FOR THE AY 1996-97. SINCE THE AO CONCLUDED THAT THE ASSESSEE STARTED PROVIDING TELEC OMMUNICATION SERVICES IN THE PERIOD RELEVANT TO THE AY 1996-97 ACCORDINGLY HE WAS OF THE OPINION THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTIO N 80IA ONLY UPTO THE AY 2005-2006. IN RESPONSE TO A SHOW CAUSE NOTICE PRO POSING TO APPLY THE PROVISIONS OF SECTION 80IA OF THE ACT AS THESE STOO D BEFORE THE AMENDMENT BROUGHT ABOUT BY FINANCE ACT 1999 WITH EFFECT FROM 01-04-2000 THE ASSESSEE EXPLAINED VIDE LETTER DATED 17-11-2008 TH AT THEY HAD STARTED PROVIDING TELECOMMUNICATION SERVICES IN THE PERIOD RELEVANT TO THE AY 1997- 1998. SINCE THE AMENDED PROVISIONS ALONE WOULD BE A PPLICABLE IN THE YEAR UNDER CONSIDERATION THEY WERE ENTITLED TO DEDUCTI ON @ 100% OF THE PROFITS AND GAINS OF THE UNDERTAKING. ACCORDING TO THE AO THE ASSESSEE HAD NO OPTION TO CHOOSE INITIAL ASSESSMENT YEAR IN TERMS O F PROVISIONS OF SECTION 80IA OF THE ACT AS EXISTED IN THE AY 1996-1997. SINCE T HERE WAS NO OPTION FOR THE ASSESSEE IT HAD TO CLAIM DEDUCTION IN THE AY 1996- 1997 ITSELF AND FOR SUBSEQUENT NINE YEARS AND NOT FROM ANY OTHER YEAR. HOWEVER THE ASSESSEE PLEADED BEFORE THE AO THAT IN APRIL 2002 SECTION 8 0IA WAS AMENDED AND THE 11 ITA NO.1878& 1361/AHD/2009 11 PERIOD FOR WHICH DEDUCTION WAS AVAILABLE BECOME 10 CONSECUTIVE YEARS OUT OF 15 BEGINNING FROM THE YEAR IN WHICH UNDERTAKING ST ARTED PROVIDING TELECOMMUNICATION SERVICES. IN BOTH PRE-AMENDED AN D POST AMENDED SECTIONS 100% DEDUCTION OF ELIGIBLE PROFITS WAS AV AILABLE FOR THE FIRST 5 YEARS AND THE 30% IN NEXT 5 YEARS. BEFORE THE ASSESSING OFFICER THE ASSESSEE CLAIMED THAT THEY STARTED AVAILING DEDUCTION U/S 80 IA OF THE ACT ONLY FROM THE ASSESSMENT YEAR 2005-06 I.E. AFTER THE PERIOD FROM WHICH THE AMENDMENT HAD BEEN INSERTED. HOWEVER THE AO DID NOT ACCEPT THESE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT ONCE THE ASSESSEE START ED PROVIDING TELECOMMUNICATION SERVICES WITH EFFECT FROM THE AY 1996-97 DEDUCTION UNDER SECTION 80IA WOULD BE AVAILABLE TO IT FROM THE ASSE SSMENT YEAR 1996-97 ONWARDS FOR 10 CONSECUTIVE YEARS AS PER THE EXTANT PROVISIONS. 7.1 THE AO FURTHER NOTICED FOUND THAT THE ASSESS EE EXERCISED ITS OPTION OF NOT CLAIMING DEDUCTION UNDER SECTION 80IA FROM THE FIRST YEAR OF OPERATION IN THE ASSESSMENT YEAR 1997-1998 IN VIEW OF LOSS IN T HAT YEAR AS WAS EVIDENT FROM THE NOTE ATTACHED TO THE COMPUTATION OF THE IN COME FOR THE AYS 1997-98. SIMILAR WAS THE POSITION IN THE AY 1998-99 & 1999-2 000. HOWEVER IN THE RETURN FOR THE AY 2000-2001 THE ASSESSEE RECORDED A FOLLOWING NOTE IN THE COMPUTATION OF INCOME. IN VIEW OF THE PROVISIONS OF SUBSECTION (2) OF SEC TION 80IA OF THE INCOME TAX(SIC.) ACT 1961 THE COMPANY EXERCISES I TS OPTION NOT TO CLAIM RELIEF FOR TAX HOLIDAY IN THE PRESENT YEAR IN VIEW OF THE LOSSES AND WOULD CLAIM THE SAME FROM THE YEAR IN WHICH IT HAS GROSS TOTAL INCOME. THIS NOTE WAS RECORDED IN VIEW OF THE AMENDMENT IN THE PROVISIONS OF SECTION 80IA OF THE ACT BY FINANCE ACT 1999 WITH EFFECT FR OM 01-04-2000 . THE AO OBSERVED THAT THE ASSESSEE HAVING EXERCISED THE OPT ION IN THE ASSESSMENT YEAR 1997-1998 1998-1999 1999-2000 COULD NOT CHA NGE ITS STAND TO TAKE SHELTER BEHIND A NEW AND MORE BENEFICIAL PROVISION S. THE AO ALSO CONCLUDED THAT AMENDMENT MADE IN APRIL 2002 WAS NOT A RETROSP ECTIVE AMENDMENT AND THAT THE OPTION AVAILABLE POST APRIL 2002 WAS ONLY FOR THOSE CONCERNS WHICH COULD NOT AVAIL DEDUCTION UNDER SECTION 80IA OF THE ACT UPTO APRIL 2002 FOR WANT OF LICENSE. SINCE THE ASSESSEE HAD GOT LICENS E TO PROVIDE TELECOMMUNICATION SERVICES IN THE PREVIOUS YEAR REL EVANT TO THE AY1996-1997 12 ITA NO.1878& 1361/AHD/2009 12 THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION IN T HE YEAR UNDER CONSIDERATION. 7.2 WITHOUT PREJUDICE TO HIS AFORESAID FINDINGS THE AO ALSO OBSERVED THAT EVEN IF INITIAL YEAR IS TAKEN AS AY 1997-98 THE AS SESSEE WOULD BE ENTITLED TO DEDUCTION @30% OF THE ELIGIBLE PROFITS AND NOT @100 % AND THAT TOO AFTER SET OFF OF THE LOSSES OF EARLIER YEARS. 8. ON APPEAL THE ASSESSEE CONTENDED SINCE THE ASSE SSEE COMPANY STARTED PROVIDING TELECOMMUNICATION SERVICES IN THE PERIOD RELEVANT TO THE AY 1997-98 IT WAS ENTITLED TO DEDUCTION IN TERMS OF PROVISIONS OF SEC. 80IA OF THE ACT . IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80IA(2) OF THE ACT THE ASSESSEE CAN CLAIM DEDUCTION @ 100% OF THE ELIGIBLE PROFITS FOR THE FIRST FIVE YEARS AND 30% FOR THE NEXT 5 YEARS SO LONG AS OPTIO N TO CLAIM DEDUCTION UNDER SECTION 80 IA IS EXERCISED AT ANY TIME DURING THE 15 YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING STARTS PROVIDING TELECOMMUNICATION SERVICES. WHILE EXPLAINING THE PROVISIONS OF SECTION 80IA OF THE ACT AMENDED BY THE FINANCE ACT 1999 WITH EFFECT FROM 01-04-2000 THE A SSESSEE CONTENDED THAT WHEREVER LEGISLATURE INTENDED TO BRING SUCH AN AMEN DMENT INTO EFFECT IT HAD BEEN CLEARLY SPECIFIED THEREIN; FOR EXAMPLE IN THE NEW SECTION 10A OF THE ACT REPLACING THE OLD SECTION 10A WITH EFFECT FROM 01-0 4-2001 IT WAS CLEARLY PROVIDED THAT THE UNDERTAKINGS WHICH CLAIMED DEDUCT ION UNDER THE OLD SECTION SHALL BE ENTITLED FOR DEDUCTION UNDER NEW SECTION ONLY FOR THE UNEXPIRED PERIOD. SINCE THE AMENDED PROVISIONS OF SECTION 80 IA USED THE WORDS WHICH HAS STARTED OR STARTS PROVIDING TELECOMMUNICATION S ERVICE AS AGAINST THE MERE USE OF WORDS WHICH STARTS PROVIDING TELECOMMUNICAT ION SERVICE IN THE OLD SECTION 80IA THE INTENTION FOR SPECIFICALLY INSE RTING THE WORDS HAS STARTED PRIOR TO THE WORDS OR STARTS WAS TO PROVIDE THE T AX HOLIDAY TO UNDERTAKING WHICH HAD ALREADY STARTED PROVIDING TELECOMMUNICATI ON SERVICES PRIOR TO THE INSERTION OF AMENDED PROVISIONS. WHILE REFERRING T O CIRCULAR NO. 779 DATED 14- 09-1999 AND CIRCULAR NO. 14 OF 2001 AND RELYING UPO N THE DECISIONS IN CASE OF UNION OF INDIA V. AZADI BACHAO ANDOLAN 263 ITR 706 (SC) NAVNIT LAL C. JAVERI V. K.K. SEN 56 ITR 198 (SC) CWT V. VASUDEO V . DEMPO 196 ITR 216 (SC) . ELLERMAN LINES LTD 82 ITR 913 (SC) K.P. VAR GHESE V. ITO 131 ITR 597 (SC) COMMISSIONER OF CUSTOMS V. INDIAN OIL CORPORAT ION LTD. 267 ITR 13 ITA NO.1878& 1361/AHD/2009 13 272(SC) RATAN MELTING 2008-TIOL-194-SC-CX-CB THE ASSESSEE CONTENDED THAT THE AFORESAID CIRCULARS WERE BINDING ON THE AO . RELYING UPON THE DECISIONS IN THE CASE OF RELIANCE JUTE & INDUSTRIES VS. CIT 120 ITR 921(SC) MAHARAJAH OF PITHAPURAM VS. CIT MADRAS (13 ITR 221) (PC) KARIMTHARUVI TEA ESTATE LTD. VS. STATE OF KERALA (6 0 ITR 262) (SC) AND CIT VS. GOSLINO MARIO AND OTHERS (241 ITR 314) (SC) TH E ASSESSEE FURTHER ARGUED THAT SUBSTANTIVE LAW HAS TO BE APPLIED FOR ANY ASSESSMENT YEAR AS IT STANDS ON THE FIRST DAY OF THE ASSESSMENT YEAR. WHI LE POINTING OUT THAT THE ASSESSEE EXERCISED ITS OPTION AND STARTED CLAIMING DEDUCTION ONLY FROM THE AY 2005-06 ONWARDS IT WAS CONTENDED THAT THE AO ACCE PTED THE POSITION IN THE AY 2005-06 THAT THE AMENDED PROVISIONS OF THE ACT W ERE APPLICABLE.THEIR CLAIM FOR DEDUCTION FOR ASSESSMENT YEAR 2006-2007 H AS TO BE CONSIDERED ON THE BASIS OF PROVISIONS OF THE ACT AS ON 01-04-2006 AND ACCORDINGLY THE ASSESSEE OPTED FOR CLAIMING DEDUCTION FROM THE AY 2 005-2006 FOR A PERIOD OF 10 YEARS. RELYING UPON THE DECISION OF CHENNAI BEN CH OF THE ITAT IN THE CASE OF MOHAN BREWERIES & DISTILLERIES LTD. (114 TT J 532) (MAD) AND BANK OF BARODA VS. S.C. SHRIVASTAVA 12 TAXMAN 330(BOM.) ACI T VS AURANGABAD HOLIDAY RESORTS (P) LIMITED 111 TTJ 741(PUNE) SI EMENS INDIA LIMITED 143 ITR 120 BAJAJ TEMPO LTD. |196 ITR 188(BOM.) CIT M ADRAS VS. SOUTH ARCOT DISTRICT COOPERATIVE MARKETING SOCIETY LTD (176 ITR 117) (SC) CIT LUCKNOW VS. U.P. CO-OPERATIVE FEDERATION LTD. (176 ITR 435 441) (SC) AND BROACH DISTT. CO-OPERATIVE COTTON SALES GINNING AND PRESS ING SOCIETY LIMITED APPELLANT VS. COMMISSIONER OF INCOME TAX AHMEDABAD (117 ITR 418) (SC) THE ASSEESSEE CONTENDED THAT THE ASSESSEE IS ENTITL ED TO DEDUCTION @100% OF THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERTA KING. THE ASSESSEE FURTHER POINTED OUT WHILE REFERRING TO THE PROVISIONS OF S EC. 80IA(2) OF HE ACT THE WORD CLAIMED USED IN THE SAID SECTION MEANS ACTUALLY C LAIMED. IF THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION IT CAN NOT BE SAID TO B E ALLOWED TO HIM. 9. IN THE LIGHT OF THE AFORESAID SUBMISSIONS THE L D. CIT(APPEALS) CONCLUDED AS UNDER: 3.5 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A.R. CAREFULLY ALONGWITH CASE LAWS RELIED UPON. THE AO HELD IN THE ASSESSMENT ORDER THAT THE PROVISIONS OF SEC. 80IA AS IT EXISTED DURING THE A.Y. 96-97 ARE APPLICABLE TO THE APPELLANT WHEREAS THE A.R. HAS ARGUED THAT THE PROVISIONS OF AMENDED SECTION 80IA ARE 14 ITA NO.1878& 1361/AHD/2009 14 APPLICABLE AS THE SAME EXISTED FOR A.Y. 2006-07 . T HE A.O. HAS CONSIDERED THAT THE FIRST YEAR OF CLAIM OF DEDUCTIO N U/S. 80IA IS A.Y. 96- 97 AND THEREFORE THE 10 TH YEAR OF CLAIM IS A.Y. 2005-06 AND THEREFORE THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S. 801 A FOR THIS YEAR. THE APPELLANT HAS TAKEN A STAND THAT PROVISIONS OF SEC. 80IA WERE AMENDED AND AS PER AMENDED PROVISIONS THE APPELLANT CAN CL AIM FOR DEDUCTION U/S. 80IA IN ANY OF 10 YEARS WITHIN A PERIOD OF 15 YEARS AT THE OPTION OF THE APPELLANT. ACCORDING TO THE A.R. THE APPELLANT STARTED CLAIMING FOR THE FIRST TIME DEDUCTION U/S.80IA IN A.Y. 2005-06 AS AGAINST THIS THE AO HAS STATED THAT UNDER THE OLD PROVISIONS THERE WAS NO QUESTION OF EXERCISING OPTION AND THE FIRST YEAR OF CLAIM OF TH E APPELLANT WAS A.Y. 1996-97. THEREFORE THE ISSUE IS WHICH IS THE FIRST YEAR FOR CLAIMING DEDUCTION U/S. 80IA. THE A.R. HAS STRONGLY ARGUED T HAT FIRST YEAR OF CLAIM IS A.Y. 2005-06 WHEN THE APPELLANT HAS STARTE D EXERCISING OPTION FOR CLAIMING DEDUCTION U/S. 801A AND EVEN THOUGH IT HAD PROFITS IN A.Y. 2004-05 IT HAD NOT CLAIMED DEDUCTION U/S. 80IA IN A .Y. 2004-05 AND THE A.R. HAS ALSO CONTENDED THAT DEDUCTION CANNOT BE TH RUST UPON THE APPELLANT FOR A.Y. 97-98 AS THE APPELLANT HAD NOT CLAIMED DEDUCTION IN A.Y. 1997-98 .I DO NOT AGREE WITH THE CONTENTION OF THE A.R. AND CONSIDERING THE TOTALITY OF FACTS IN THIS CASE I AM INCLINED TO AGREE WITH THE OBSERVATION OF THE A.O. THAT THE FIRST YEAR OF CLAIMING OF DEDUCTION U/S. 801A IN THE CASE OF THE APPELLANT IS A.Y. 1996 -97 AND THE APPELLANT IS ENTITLED TO DEDUCTION FOR 10 YEARS FROM THE YEAR INCLUDING THE INITIAL ASSESSMENT YEAR AS THE PROVISIONS EXISTED BEFORE THE AMENDMENT IN SECTION 80IA . AS NO OPTION WAS PROVIDED IN THE OLD PROVISIONS OF SECTION 80IA THE APPELLANT DID NOT HAVE ANY OPTION BUT TO CLAIM THE DEDUCTION U/S.80IA FOR 10 YEARS STARTING FROM A.Y. 1996-97. THE PROVISIONS WERE AMENDED TO EXTEND AND PROVIDE INCEN TIVE BENEFIT TO THE ASSESSEES WHO WERE GRANTED LICENSE FROM 1-4-1995 BU T COULD NOT START THE COMMERCIAL OPERATIONS TILL 1-4-2002 BY EXTENDIN G THE SCHEME TO 15 YEARS. THEREFORE THE PERIOD OF 10 YEARS FOR CLAIMI NG DEDUCTION EXPIRES IN A.Y. 2005-06 AND THEREFORE THE A.O. HAS RIGHTL Y CONCLUDED THAT THE APPELLANT IS NOT ENTITLED FOR ANY DEDUCTION U/S. 80 IA FOR THIS YEAR. THE A.O. HAS DISCUSSED THE NOTES ATTACHED BY THE APPELL ANT TO THE COMPUTATION OF INCOME FOR A.Y. 97-98 98-99 & 1999- 2000 WHEREIN IT WAS MENTIONED THAT 'DEDUCTION U/S. 80IA HAS NOT BEE N CLAIMED IN VIEW OF LOSS CLAIMED BY THE COMPANY. THEREFORE IT IS C LEAR THAT THE APPELLANT HAD STARTED EXERCISING ITS OPTION TO CLAIM DEDUCTIO N U/S. 80IA FROM A.Y. 1997-98 AND AS THERE WAS NO POSITIVE PROF IT THE APPELLANT WAS NOT ENTITLED TO ANY DEDUCTION. IT IS SEEN THAT THE APPELLANT HAS CHANGED THE NOTES FROM A.Y. 2000-01 AFTER THE AMEND MENT WAS MADE IN SECTION 80IA TO SUIT ITS CONVENIENCE. FURTHER T HE AMENDMENT MADE IN APRIL 2002 IS NOT A RETROSPECTIVE AMENDMENT AND THEREFORE IT HAS NOT ANNULLED THE PROVISIONS OF SECTION 80IA WHICH E XISTED BETWEEN A.Y. 1997-98 AND A.Y. 2002-03. THEREFORE THE APPELLANT IS ENTITLED TO DEDUCTION U/S. 80IA FROM A.Y. 97-98 FOR 10 YEARS. T HE PROVISIONS WERE EXTENDED TO 15 YEARS BUT THE CLAIM WAS LIMITED TO ANY 10 YEARS OUT OF 15 YEARS AT THE OPTION OF THE APPELLANT BECAUSE TH OSE ASSESSEES WHO OBTAINED LICENSE BUT COULD NOT START OPERATION TIL L 2002 THEY WERE GIVEN THE BENEFIT OF INCENTIVE PROVISIONS BY SUCH EXTENSI ON. THE A.R. HAS CLAIMED THAT DEDUCTION U/S.80IA CAN NOT BE THRUST O N THE APPELLANT IN A.Y. 1997-98 AS THE APPELLANT HAS NOT CLAIMED THE S AME AND THAT 15 ITA NO.1878& 1361/AHD/2009 15 CLAIMED MEANS ACTUALLY ALLOWED. FOR THIS THE A.R. H AS RELIED UPON THE DECISION OF MAHENDRA MILLS LTD.243 ITR 56(SC). HOW EVER I DO NOT AGREE WITH THE CONTENTION OF THE A.R. AS DEDUCTION OF DEPRECIATION WAS THE ISSUE IN MAHENDRA MILLS LTD AND IN MY VIEW DEPR ECIATION AND DEDUCTION U/S.80IA STAND ON DIFFERENT FOOTINGS AS S ECTION 80IA IS AN INCENTIVE PROVISION AND DEPRECIATION IS ALLOWED ON ACCOUNT OF WEAR AND TEAR OF ASSETS AND SECONDLY INCENTIVE U/S.80IA IS A LLOWED ONLY IN CASE THE APPELLANT HAS PROFITS WHEREAS THE DEPRECIATIO N IS A STATUTORY DEDUCTION ALLOWED EVEN IF THE ASSESSEE HAS LOSS. TH E RELIANCE HAS BEEN MADE BY THE A.R. ON THE DECISION OF MOHAN BREW ERIES AND DISTILLERIES LTD. (114 TTJ 532)(CHENNAI). BUT WHAT THAT DECISION SAYS IS THAT SECTION 80IA AS AMENDED BY FINANCE ACT 1999 GI VES AN OPTION TO THE ASSESSEE WITH EFFECT FROM 1-4-2000 TO CLAIM REL IEF FOR ANY 10 CONSECUTIVE ASSESSMENT YEARS AND BEFORE THE AMENDME NT THE INITIAL ASSESSMENT YEAR WAS DEFINED IN THE ACT WHICH MEANS THERE WAS NO OPTION TO THE ASSESSEES .THE DECISION CITED BY THE A.R. OF RELIANCE JUTE AND INDUSTRIES LTD. 120 ITR 921 IS ON DIFFEREN T FACTS AND THE SAID DECISION IS APPLICABLE IN THE PARTICULAR FACTS OF T HE INDIVIDUAL CASE AS HELD IN THE CASE OF SUN ENGINEERING WORKS REPORTED IN 198 ITR 297(SC) 'SUCH AN INTERPRETATION WOULD BE READING TH AT JUDGMENT TOTALLY OUT OF CONTEXT IN WHICH THE QUESTIONS AROSE FOR DEC ISION IN THAT CASE. IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE ' LAW ' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ A S A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERE D IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT. A DECIS ION OF THIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WHILE APPLYING THE DECISION TO A LATE R CASE THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT DIVORCED FROM THE CONTEXT OF THE QUESTION S UNDER CONSIDERATION BY THIS COURT TO SUPPORT THEIR REASO NING.' THE A.R. HAS REFERRED TO CIRCULAR NO.717 OF 1995 AND CLAUSE 34.5 THEREOF SAYING THE ASSESSEE HAVE OPTION TO CHOOSE INITIAL ASSESSMENT Y EAR OUT OF 12 YEARS BUT 12 YEARS PERIOD WAS PROVIDED FOR CO-OPER ATIVE SOCIETIES AND OPTION WAS GIVEN TO CHOOSE ANY 10 YEARS OUT OF 12 Y EARS AND FOR COMPANIES THE PERIOD WAS 10 YEARS AND THERE WAS NO OPTION. IN VIEW OF THE ABOVE FACTS AND THE DETAILED REASONING GIVEN BY THE A.O. I CONFIRM THE FINDING OF THE A.O. AND HOLD THAT NO DEDUCTION U/S. 80IA IS AVAILABLE TO THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. THIS GROUND OF THE APPELLANT IS THUS DISMISSED. 10. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A) .THE LD. AR ON BEHALF O F THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) SUBMITTED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION AT THE RATE OF 100% OF THE PROFITS OF THE INDUSTRIAL UNDERTAKING IN THE YEAR UNDER CONSIDERATION IN TERM S OF PROVISIONS OF SEC. 80IA OF THE ACT AND NOT @ 30%. IN THE PERIOD RELE VANT TO THE ASSESSMENT 16 ITA NO.1878& 1361/AHD/2009 16 YEAR 1997-98 WHEN THE ASSESSEE STARTED PROVIDING T ELECOMMUNICATION SERVICES IT WAS ENTITLED TO DEDUCTION @100% OF THE PROFITS FOR THE FIRST FIVE YEARS & @30% IN THE SUBSEQUENT FIVE YEARS. THE ASSE SSEE DID NOT ACTUALLY CLAIM ANY SUCH DEDUCTION IN THE PERIOD RELEVANT TO THE AY 1997-98 UNTIL THE AY 2003-04 IN VIEW OF LOSSES. MEANWHILE PROVISIONS O F SEC. 80IA WERE AMENDED BY THE FINANCE ACT 1999 WITH EFFECT FROM 01-04-200 0 AND THE ASSESSEE EXERCISED ITS OPTION AND CONSECUTIVELY BECAME ENTIT LED TO DEDUCTION @ OF 100% OF THE PROFITS THE FIRST YEAR BEING ASSESSMEN T YEAR 2005-2006. BEFORE THIS THE ASSESSEE DID NOT MAKE ANY CLAIM FOR DEDU CTION U/S 80IA OF THE ACT. WHILE SUBMITTING THAT THE WORDS USED IN SECTION 80I A(4)(II) ARE HAS STARTED OR STARTS AND REFERRING TO PARA 48.2 OF CIRCULAR IS SUED BY THE CBDT EXPLAINING THE PROVISIONS RELATING TO DIRECT TAXES STIPULATED IN THE FINANCE ACT 2001 AND RELYING UPON THE DECISION IN THE CASE OF BAJAJ TEM PO LIMITED 196 ITR 188(SC) LEARNED AR SUBMITTED THAT ORDINARILY A P ROVISION IN A TAXING STATUTE GRANTING INCENTIVES HAS TO BE CONSTRUED LIBERALLY A ND SIMULTANEOUSLY THE RESTRICTION ON IT TOO HAS T BE CONSTRUED SO AS TO A DVANCE THE OBJECTS OF THE PROVISIONS. 10.1. CONTINUING THE LD. AR WHILE RELYING UPON TH E DECISION IN THE CASE OF RELIANCE JUTE & INDUSTRIES LTD VS. CIT 120 ITR 921 (SC) THE LD. AR ON BEHALF OF THE ASSESSEE ARGUED THAT LAW AS ON FIRST DAY OF APRIL 2006 HAS TO BE APPLIED FOR EXAMINING ENTITLEMENT TO DEDUCTION U/S 80IA OF THE ACT AND THE SUB- SECTION (2A) HAS TO BE GIVEN FULL IMPORT. HE ADDED THAT THE ISSUE IS NO LONGER RES-INTEGRA IN VIEW OF THE DECISION DATED 17 .6.2008 OF ITAT IN MASTAK LIMITED IN ITA NO. 1688 & 4352/AHD/2003 WHERE IN IT WAS HELD THAT ONCE THE CONDITIONS STIPULATED IN SECTION 10A OF THE ACT WER E FULFILLED IN TERMS OF AMENDED PROVISIONS PROVIDING DEDUCTION FOR 10 CONS ECUTIVE ASSESSMENT YEARS INSTEAD OF FIVE EARLIER THE ASSESSEE CAN NOT BE DENIED THE CLAIM FOR DEDUCTION. 10.2 . THE LD. AR ON BEHALF OF THE ASSESSEE FURTH ER RELIED UPON THE DECISION OF THE CHENNAI BENCH OF THE ITAT IN THE CASE OF MOH AN BREWERIES AND DISTILLERIES LTD. V. ASSISTANT COMMISSIONER OF INCO ME-TAX 116 ITD 241 [CHENNAI]. REFERRING TO CIRCULAR NO.717 OF 85 ISSUE D BY THE CBDT THE LD. AR PLEADED THAT THE ASSESSEE ARGUED THAT THEY ARE EN TITLED TO DEDUCTION @100% 17 ITA NO.1878& 1361/AHD/2009 17 OF THE PROFITS FIRST YEAR BEING THE AY 2005-06. IN THE PERIOD RELEVANT TO THE AY 1997-98 THERE WAS NO SUCH PROVISIONS OF EXERCISING OPTION AND THEREFORE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSEE EXERC ISED THE OPTION IN THE AY 1997-98 IS NOT CORRECT. WHILE REFERRING TO THE PROV ISIONS OF SEC. 10A(8) AND 115I OF THE ACT THE LD. A CONTENDED THAT WHEREVER THERE IS PROVISION FOR OPTION FOR NON-APPLICABILITY IT HAS BEEN SPECIFICALLY PRO VIDED IN THE STATUTE. 11. ON THE OTHER HAND THE LEARNED DR POINTED OUT T HAT PROVISIONS RELATING TO RELIEF ARE NOT TO BE CONSTRUED LIBERALLY AS HAS BEEN HELD IN THE CASE OF IPCA LABORATORY LIMITED 266 ITR 591(SC) HE ADDED THAT PRIOR TO 01-04-1999 THERE WAS NO PROVISION FOR OPTING INITIAL YEAR FOR CLAIMI NG DEDUCTION U/S 80IA OF THE ACT. SINCE THE ASSESSEE STARTED PROVIDING TELECOMMU NICATION SERVICES IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 1997-98 APPARENT LY IT HAD NO OPTION TO CHOOSE THE INITIAL ASSESSMENT YEAR BECAUSE INITIA L ASSESSMENT YEAR WAS FIXED UNDER THE STATUTE AND THE ASSESSEE COULD NOT SUO-MOTU CHANGE. HE ADDED THAT PROVISION FOR OPTION WAS AVAILABLE TO TH OSE UNDERTAKING WHO HAD AFTER THE INSERTION OF THE RELEVANT PROVISIONS STAR TED PROVIDING TELECOMMUNICATION SERVICES AND EVEN THEREUNDER OPTI ON IS FOR SELECTION OF 10 YEARS AND NOT LESSER NUMBER OF YEARS. THE LD. DR F URTHER SUBMITTED THAT ONCE THE ASESSEE STARTED PROVIDING TELECOMMUNICATION SE RVICES HE HAD NO OPTION IN TERMS OF THE EXTANT PROVISIONS APPLICABLE FOR TH E AYS 1997-98. HE ADDED THAT CLAIM FOR DEDUCTION U/S 80IA OF THE ACT HAS BE EN EXAMINED ONLY IN THE YEAR UNDER CONSIDERATION AND NOT IN THE PRECEDING A SSESSMENT YEARS. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AND THE DECISIONS CITED BEFORE US. THE ISSUE BEFORE US AS TO WHETHER OR NOT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80I A IN TERMS OF THE PROVISIONS AMENDED W.E.F 1.4.2000 EVEN WHEN THE AS SESSEE HAD ALREADY STARTED PROVIDING TELECOMMUNICATION SERVICES IN THE PERIOD RELEVANT TO THE AY 1997-98. BEFORE PROCEEDING FURTHER WE MAY HAVE A L OOK AT THE PROVISIONS RELEVANT TO THE AY 1997-98 AND SUBSEQUENT AMENDED P ROVISIONS. THE RELEVANT PROVISIONS OF SEC. 80IA SO FAR AS APPLIC ABLE IN THE CASE OF THE ASSESSEE READ AS UNDER: 18 ITA NO.1878& 1361/AHD/2009 18 80-IA. DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM INDU STRIAL UNDERTAKINGS ETC. IN CERTAIN CASES. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN I NDUSTRIAL UNDERTAKING OR A HOTEL OR OPERATION OF A SHIP OR DE VELOPING MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILI TY OR SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPMENT OR PROVIDIN G TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULA R (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGI BLE BUSINESS) TO WHICH THIS SECTION APPLIES THERE SHALL IN ACCO RDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOW ED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUC TION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO THE PE RCENTAGE SPECIFIED IN SUB-SECTION (5) AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS IS SPECIFIED IN SUB-SECTION (6). . (4C) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH STARTS PROVIDING TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULAR AT ANY TIME ON OR AFTER THE 1ST DAY OF APRIL 1995 BUT BEFORE THE 31ST DAY OF MARCH 2000. (5) THE AMOUNT REFERRED TO IN SUB-SECTION (1) SHALL BE - (IC) IN THE CASE OF AN UNDERTAKING REFERRED IN SUB -SECTION (4C) HUNDRED PER CENT. OF THE PROFITS AND GAINS DE RIVED FROM SUCH BUSINESS FOR THE INITIAL FIVE ASSESSMENT YEARS AND THEREAFTER TWENTY-FIVE PER CENT. OF THE PROFIT S AND GAINS DERIVED FROM SUCH BUSINESS: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS 'TWENTY-FIVE PER CENT.' THE WORDS 'THIRTY PER CENT.' HAD BEEN SUBSTITUTED; (6) THE NUMBER OF ASSESSMENT YEARS REFERRED TO IN S UB-SECTION (1) SHALL INCLUDING THE INITIAL ASSESSMENT YEAR BE - (VI) TEN IN THE CASE OF AN ASSESSEE BEING AN UNDE RTAKING REFERRED TO IN SUB-SECTION (4C) DERIVING PROFITS A ND GAINS FROM TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULA R; (12) FOR THE PURPOSES OF THIS SECTION - (C) 'INITIAL ASSESSMENT YEAR' - (4) IN THE CASE OF AN UNDERTAKING REFERRED TO IN S UB- SECTION (4C) MEANS THE ASSESSMENT YEAR RELEVANT TO THE 19 ITA NO.1878& 1361/AHD/2009 19 PREVIOUS YEAR IN WHICH THE UNDERTAKING STARTS TO PR OVIDE THE TELECOMMUNICATION SERVICES WHETHER BASIC OR CEL LULAR ; 12.1 THE RELEVANT PROVISIONS OF SEC. 80IA AM ENDED BY THE FINANCE ACT 1999 W.E.F 1.4.2000 READ AS UNDER: '80-IA. DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT ETC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF AN INDUSTRIAL UN DERTAKING OR AN ENTERPRISE REFERRED TO IN SUB-SECTION (4) (SUCH BUS INESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOW ED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION FROM SUCH PROFI TS AND GAINS OF AN AMOUNT EQUAL TO HUNDRED PER CENT. OF PROFITS AND GA INS DERIVED FROM SUCH BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMEN CING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) AND THEREAFTER TWENTY- FIVE PER CENT. OF THE PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS: PROVIDED THAT WHERE THE ASSESSEE IS A COMPANY THE PROVISIONS OF THIS SUB- SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS 'TWEN TY-FIVE PER CENT' THE WORDS 'THIRTY PER CENT.' HAD BEEN SUBSTITUTED. (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY AT THE OPTION OF THE ASSESSEE BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRI BUTION OF POWER: (4) THIS SECTION APPLIES TO--- . (II) ANY UNDERTAKING WHICH HAS STARTED OR STARTS P ROVIDING TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULAR INCLUDING RADIO PAGING DOMESTIC SATELLITE SERVICE OR NETWORK OF TRUNKING AND ELECTRONIC DATA INTERCHANGE SERVICES AT ANY TIME ON OR AFTER THE 1ST DAY OF APRIL 1995 BUT BEF ORE THE 31ST DAY OF MARCH 2000. . 12.2 FOLLOWING CLAUSE (2A) WAS INSERTED IN SEC. 80IA W.E.1.4.2001: (2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1) OR SUB-SECTION (2) THE DEDUCTION IN COMPUTING THE TOTAL INCOME OF AN U NDERTAKING PROVIDING 20 ITA NO.1878& 1361/AHD/2009 20 TELECOMMUNICATION SERVICES SPECIFIED IN CLAUSE (II ) OF SUB-SECTION (4) SHALL BE HUNDRED PER CENT. OF THE PROFITS AND GAINS OF THE E LIGIBLE BUSINESS FOR THE FIRST FIVE ASSESSMENT YEARS COMMENCING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) AND THEREAFTER THIRTY PER CENT. OF SUCH PROFITS AND GAINS FOR FURTHER FIVE ASSESSMENT YEARS. 12.3 THE RELEVANT PROVISIONS AS EXISTING IN THE YEAR UNDER CONSIDERATION AND THE PRECEDING ASSESSMENT YEAR 2005-06 READ AS U NDER: 80-IA. DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM IND USTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT ETC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDAN CE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT. OF PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS. (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY AT THE OPTION OF THE ASSESSEE BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH T HE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVEL OPS AN INDUSTRIAL PARK OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB- SECTION (4) OR GENERATES POWER OR COMMENCES TRANSMI SSION OR DISTRIBUTION OF POWER OR UNDERTAKES SUBSTANTIAL RENOVATION AND M ODERNIZATION OF THE EXISTING TRANSMISSION OR DISTRIBUTION LINES : PROVIDED THAT WHERE THE ASSESSEE DEVELOPS OR OPERAT ES AND MAINTAINS OR DEVELOPS OPERATES AND MAINTAINS ANY I NFRASTRUCTURE FACILITY REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THE EXPLANATION TO CLAUSE (I) OF SUB-SECTION (4) THE P ROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS ' FIFTEEN YEARS' THE WORDS 'TWENTY YEARS' HAD BEEN SUBSTITUTED. (2A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1) OR SUB-SECTION (2) THE DEDUCTION IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES SPECIFIED IN CLAUSE (II) OF SUB- SECTION (4) SHALL BE HUNDRED PER CENT. OF THE PROF ITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE FIRST FIVE ASSESSMENT YEA RS COMMENCING AT ANY TIME DURING THE PERIODS AS SPECIFIED IN SUB-SECTION (2) AND THEREAFTER THIRTY PER CENT. OF SUCH PROFITS AND GAINS FOR FURT HER FIVE ASSESSMENT YEARS (4) THIS SECTION APPLIES TO--- (II) ANY UNDERTAKING WHICH HAS STARTED OR STARTS P ROVIDING TELECOMMUNICATION SERVICES WHETHER BASIC OR CELLULA R INCLUDING RADIO PAGING DOMESTIC SATELLITE SERVICE NETWORK O F TRUNKING 21 ITA NO.1878& 1361/AHD/2009 21 BROADBAND NETWORK AND INTERNET SERVICES ON OR AFTER THE 1ST DAY OF APRIL 1995 BUT ON OR BEFORE THE 31ST DAY OF MA RCH 2005 . 12.4 THE LEGISLATIVE HISTORY OF PROVISIONS OF SEC. 80-IA REVEALS THAT THE SAID SECTION WAS ORIGINALLY INSERTED BY FINANCE (NO .2) ACT 1991 WITH EFFECT FROM APRIL 1 1991. THE SAID SECTION WAS LATER DIV IDED INTO SECTION 80IA AND 80IB BY FINANCE ACT 1999 WITH EFFECT FROM APRIL 1 2000. THE SECTION AS IT EXISTED IN THE PERIOD RELEVANT TO THE AY 1997-98 S TIPULATED THAT DEDUCTION IS ADMISSIBLE INCLUDING THE INITIAL ASSESSMENT YEAR @ 100% OF THE PROFITS AND GAINS OF THE UNDERTAKING FOR THE INITIAL FIVE ASSES SMENT YEARS AND 30% FOR THE BALANCE FIVE ASSESSMENT YEARS BEGINNING WITH THE A SSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING START S PROVIDING TELECOMMUNICATIONS SERVICES WHETHER BASIC OR CELLU LAR AT ANY TIME ON OR AFTER APRIL 1 1995 BUT BEFORE MARCH 31 2000. SECTION 80 IA AS IT STANDS TODAY AFTER THE AMENDMENT PROVIDES FOR AN OPTION TO THE ASSESSE E TO CLAIM DEDUCTION FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING WITH THE YEAR IN WHICH THE UNDERTAKING STARTS PROVIDING TELE COMMUNICATION SERVICES. IT IS NOT DISPUTED BEFORE US THAT THE ASSESSEE STARTED PROVIDING TELECOMMUNICATION SERVICES IN THE STATE OF GUJRAT I N THE PERIOD RELEVANT TO THE AY 1997-98. SINCE THE ASSESSEE INCURRED LOSS IN THE AYS 1997-98 1998-99 & 1999-2000 THE ASSESSEE DID NOT CLAIM ANY DEDUCTI ON IN TERMS OF PROVISIONS OF SECTION 80IA OF THE ACT. THEREAFTER PROVISIONS OF SEC. 80IA OF THE ACT WERE AMENDED AND CLAUSE (2) OF THE AMENDED PROVISIONS AL LOWED AN OPTION TO THE ASSESSEE TO CLAIM BENEFIT FOR ANY 10 CONSECUTIVE Y EARS OUT 15 YEARS COMMENCING FROM THE YEAR IN WHICH THE ASSESSEE STAR TS PROVIDING TELECOMMUNICATION SERVICES. CLAUSE (4)(II) OF THE S AID SECTION STIPULATED THAT THIS SECTION (80IA) APPLIED TO ANY UNDERTAKING WHIC H HAS STARTED OR STARTS PROVIDING TELECOMMUNICATION SERVICES. SIMULTANEOUSL Y DEFINITION OF INITIAL YEAR IN TERMS OF THE OLD PROVISIONS WAS REMOVED. CONSEQU ENTLY THE ASSESSEE EXERCISED ITS OPTION OF CLAIMING THE DEDUCTION U/S 80IA FROM THE AY 2005-06. THE AO AND THE LD. CIT(A) ARE OF THE OPINION THAT THE RELEVANT PROVISIONS AS THESE STOOD IN THE PERIOD RELEVANT TO AY 1996-97 WO ULD DETERMINE THE DEDUCTION U/S 80IA OF THE ACT IN THE YEAR UNDER CON SIDERATION. SINCE THE ASSESSEE DID NOT HAVE ANY OPTION IN CHOOSING THE IN ITIAL YEAR AS DEFINED IN THE PROVISIONS RELEVANT FOR THE AY 1997-98 NOR THE ASSE SSEE COULD HAVE CLAIMED ANY DEDUCTION U/S 80IA OF THE ACT IN THE AY 1996-9 7 TO 1999-2000 OR EVEN 22 ITA NO.1878& 1361/AHD/2009 22 AFTER UNTIL THE AY 2003-04 DUE TO LOSSES WHILE THE AMENDED PROVISIONS PROVIDED OPTION TO THE UNDERTAKING WHICH HAD START ED PROVIDING TELECOMMUNICATION SERVICES ON OR AFTER 1.4.1995 AND THE ASSESSEE FULFILLED ALL OTHER CONDITIONS STIPULATED U/S 80IA OF THE ACT WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE A SSESSEE HAVING EXERCISED OPTION IN THE AY 1997-98[EVEN WHEN THERE WAS NO SUC H PROVISION PROVIDING AN OPTION TO THE ASSESSEE] WAS NOT ENTITLED TO EXERCI SE OPTION IN TERMS OF THE AMENDED PROVISIONS APPLICABLE IN THE AY 2000-01 ONW ARDS. UNDISPUTEDLY NO DEDUCTION WAS CLAIMED BY THE ASSESSEE IN THE PERIOD RELEVANT TO THE AY 1997- 98 TO 1999-2000 THE AMENDED PROVISIONS APPLICABLE W.E.F. 1.4.2000 ALLOWED OPTION TO EVEN THOSE UNDERTAKINGS WHICH HAD ALREADY STARTED PROVIDING TELECOMMUNICATION SERVICES ON OR AFTER 1.4.1995. WE ARE OF THE OPINION THAT THAT THE ASSESSEE COULD NOT BE DENIED BENEFIT OF TH E AMENDED PROVISIONS ONCE IT FULFILLED THE CONDITIONS STIPULATED IN THE RELEVANT PROVISIONS . WHILE CONSTRUING BENEFICIAL PROVISIONS IT BECOMES NECESS ARY TO RESORT TO A CONSTRUCTION WHICH IS REASONABLE AND PURPOSIVE TO M AKE THE PROVISION MEANINGFUL. IN CIT V. STRAWBOARD MANUFACTURING CO. LTD. [1989] 177 ITR 431 (SC) IT WAS HELD THAT THE LAW PROVIDING FOR CONCES SION FOR TAX PURPOSES TO ENCOURAGE INDUSTRIAL ACTIVITY SHOULD BE LIBERALLY C ONSTRUED. IF THE INTERPRETATION ADOPTED BY THE REVENUE AUTHORITIES IS ACCEPTED T HE WORDS USED IN SEC. 80IA(4)(II) HAS STARTED BECOME REDUNDANT. SUCH CA N NOT BE THE INTENTION OF THE LEGISLATURE. HONBLE APEX COURT IN BAJAJ TEMPO LTD. (SUPRA) REFERRED TO BY THE LD. AR OBSERVED THAT ORDINARILY A PROVISIONS I N A TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHO ULD BE CONSTRUED LIBERALLY; AND SINCE A PROVISION INTENDED FOR PROMO TING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY THE RESTRICTION ON IT TO O HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE SECTION AND NOT TO FRU STRATE IT. HONBLE APEX COURT IN ANOTHER DECISION IN THE CASE OF CIT VS. CE LLULOSE PRODUCTS OF INDIA LTD. 192 ITR 155(SC) OBSERVED THAT WHEN THERE IS A GENUINE DOUBT ABOUT THE INTERPRETATION OF A FISCAL STATUTE OR TWO OPTIONS A RE CAPABLE OF BEING FORMED THAT A RULE OF INTERPRETATION THAT A PROVISION GRAN TING RELIEF SHOULD BE CONSTRUED SO AS TO EFFECTUATE THE OBJECT OF THEREOF MAY BE TA KEN RECOURSE TO. MOREOVER CIRCULAR NO. 14 OF 2001 ISSUED BY THE CBDT IN TERMS CONSEQUENCE OF FINANCE ACT 2001 WHILE EXPLAINING THE PURPOSE OF AMENDMENTS TO SEC. 80IA OF THE ACT MENTIONED AS UNDER: 23 ITA NO.1878& 1361/AHD/2009 23 48.2 THE COUNTRY'S TELECOMMUNICATION SERVIC ES ARE MODERNIZING RAPIDLY AND ARE CRITICALLY POISED. WITH A VIEW TO PROMOTING COMMUNICATION CAPACITY AND CONVERGENCE BY ENCOURAGING INVESTMENT LEVELS IN THESE SEGMENTS THE TWO TIER BENEFIT IS BEING EXTENDED TO INCLUDE INTER NET SERVICE PROVIDERS AND BROADBAND NETWORKS. THE BENEFIT IS BEING SIMILARLY LIBERALIZED AND SHALL UNIFORMLY COVER ALL UNDERTAKINGS SET UP AFTER 1ST APRIL 1995 BUT ON OR BEFORE 31ST MARCH 2000 AND WILL ALSO INCLUDE UNDERTAKING S SET UP AFTER 31ST MARCH 2000. 12.41 IN THE LIGHT OF AFORESAID DECISIONS A ND THE CIRCULAR ISSUED BY THE CBDT AT THE COST OF REPETITION WE MAY REITERATE T HAT THE ASSESSEE COULD NOT BE DENIED THE BENEFIT OF THE AMENDED PROVISIONS ON CE IT FULFILLED THE CONDITIONS STIPULATED IN THE RELEVANT PROVISIONS OF SEC. 80IA OF THE ACT . THESE PROVISIONS HAVE TO BE CONSTRUED IN CONSONANCE WITH THE AVOWED AIM AND OBJECT OF THE LEGISLATURE IN ENACTING THESE PROVISI ONS AND TO FURTHER THESE AND NOT TO DEFEAT THESE. THE PROVISIONS OF SEC. 80IA HA VE TO BE CONSTRUED REASONABLY IN THE CONTEXT OF THE PURPOSE FOR WHICH THESE PROVISIONS HAVE BEEN AMENDED. AS EXPLAINED IN THE AFORESAID CIRCULAR NO. 14 OF 2001 THE PROVISIONS HAVE BEEN LIBERALIZED IN ORDER TO PROMOTE COMMUNICA TION CAPACITY AND MODERNIZE AND THEREFORE TAX BENEFIT HAS BEEN PROVID ED UNIFORMLY TO ALL UNDERTAKINGS WHICH STARTED PROVIDING TELECOMMUNICAT ION SERVICES ON OR AFTER 1.4.1995 BUT ON OR BEFORE 31 ST MARCH 2005. 12.5 IT HAS BEEN BROUGHT TO OUR NOTICE ON BEH ALF OF THE ASSESSEE THAT WHILE ADJUDICATING A CLAIM FOR DEDUCTION U/S 10A OF THE A CT IN THE LIGHT OF AMENDED PROVISIONS IN THE CASE OF MASTEK LTD.(SUPRA) THE I TAT ALLOWED THE CLAIM FOR DEDUCTION. IN THAT CASE THE ASSESSEE HAD THREE UNIT S. IN RESPECT OF ONE OF THE UNITS VIZ. 106 THE ASSESSEE CLAIMED EXEMPTION UNDE R SECTION 10A OF THE ACT FOR THE ASSESSMENT YEARS 1991-92 TO 1995-96. THEREA FTER FOR THE ASSESSMENT YEARS 1996-97 TO 98-99 THE ASSESSEE CLAIMED DEDUC TION UNDER SECTION 80HHE OF THE ACT. THE SAID CLAIM FOR DEDUCTION U/S 80HHE IS STATED TO HAVE BEEN REJECTED IN THE AY 1996-97 ON THE GROUND THAT THE DETAILS OF EXPORT REALIZATIONS WERE NOT AVAILABLE AND RECEIPTS INCLUD ED AMOUNTS ON ACCOUNT OF RECRUITMENT AND TRAINING CHARGES AND INTEREST INCOM E AND FOREIGN EXCHANGE FLUCTUATION. THEREAFTER SECTION 10A OF THE ACT WA S AMENDED WITH EFFECT FROM 01.04.1999 WHEREFROM THE DEDUCTION UNDER SECTION 1 0A OF THE ACT WAS MADE AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMEN T YEARS INSTEAD OF FIVE 24 ITA NO.1878& 1361/AHD/2009 24 CONSECUTIVE ASSESSMENT YEARS OUT OF EIGHT YEARS. SI NCE THE ASSESSEE IN THAT CASE HAD ALREADY AVAILED DEDUCTION UNDER SECTION 10 A FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS OUT OF EIGHT YEARS AND IN BETWEEN CLAIMED DEDUCTION UNDER SECTION 80HHE OF THE ACT FOR THE TH REE ASSESSMENT YEARS THE AO DISALLOWED THE CLAIM FOR DEDUCTION UNDER SECTIO N 10A OF THE ACT FOR THE ASSESSMENT YEARS 1999-2000 & 2000-01.ON APPEAL TH E LD. CIT(A) UPHELD THE FINDINGS OF THE AO. ON FURTHER APPEAL THE ITAT HELD THAT 7.3. IN THE LIGHT OF AFORESAID DECISIONS AND AF TER CONSIDERING THE RELEVANT PROVISIONS OF LAW AS ALSO FACTS OF THE CASE ESPECI ALLY WHEN THE REVENUE HAS NOT DISPUTED THAT THE TAXPAYER FULFILLED THE CONDIT IONS STIPULATED UNDER THE SECTION 10A OF THE ACT IN THE YEARS UNDER CONSIDERA TION WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DENYING TH E CLAIM FOR EXEMPTION U/S 10A OF THE ACT. THE RELEVANT PORTION OF THE MEMORANDUM EXPLAINING THE PROVISIONS OF INCOME-TAX(SECOND AMENDMENT)BILL 1998 READ AS UN DER; CLAUSE 3 SEEKS TO AMEND SECTION 10A OF THE INCOME- TAX ACT. UNDER THE EXISTING PROVISIONS TAX HOLIDAY IS AVAILABLE TO NE WLY ESTABLISHED INDUSTRIAL UNDERTAKINGS SET UP IN FREE TRADE ZONES AND TO UNI TS SET UP IN SOFTWARE TECHNOLOGY PARKS FOR FIVE YEARS OUT OF BLOCK OF INI TIAL EIGHT YEARS SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. THE PROPOSED AME NDMENT SEEKS TO EXTEND THE PERIOD OF HOLIDAY FROM FIVE YEARS TO TEN YEARS IN ORDER TO GIVE ADDED THRUST TO EXPORTS. CLAUSE 4 SEEKS TO SIMILARLY EXTEND THE FIVE YEAR TAX HOLIDAY PERIOD TO 10 YEARS TO THE EXPORT ORIENTED UNITS UNDER SECT ION 10B OF THE INCOME-TAX ACT. 7.4 AS IS EVIDENT FROM THE AFORESAID ME MORANDUM THE PERIOD OF TAX HOLIDAY IS EXTENDED FOR AND FROM THE AY 1999-2000 F ROM FIVE YEARS TO TEN YEARS IN ORDER TO GIVE ADDED THRUST TO EXPORTS. THE CONDITION ABOUT THE BLOCK OF INITIAL YEARS HAS ALTOGETHER BEEN REMOVED. THE CASE OF THE TAXPAYER FOR THE ASSESSMENT YEARS UNDER CONSIDERATION FALLS WITHIN T HE AMENDED PROVISIONS. THE FINDING OF THE LD. CIT(A) ABOUT THE IDENTITY OF THE UNIT IN THE INTERVENING YEARS WHEN TAXPAYER CLAIMED DEDUCTION U/S 80HHE O F THE ACT IS IN OUR OPINION IRRELEVANT ESPECIALLY WHEN CLAIM FOR EXEM PTION HAS TO BE EXAMINED IN EACH YEAR IN ACCORDANCE WITH THE RELEVANT PROVIS IONS OF LAW. THERE IS NOTHING IN THE AMENDED PROVISIONS OF SECTION 10A OF THE ACT DEBARRING THE TAXPAYER FOR CLAIMING EXEMPTION UNDER SECTION 10A IN THE EXTENDED PERIOD EVEN WHEN IT HAD ALREADY AVAILED THE EXEMPTION FOR A PERIOD OF FIVE YEARS OUT OF EIGHT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. IN THE LIGHT OF DECISION OF THE ITAT BANGALORE BENCH B IN ITA NO. 602/BANG/05 (SUPRA) WE HAVE NO ALTERNATIVE BUT TO REVERSE THE ORDER OF THE LOWER AUTHORITIES ON THIS ISSUE AND THE AO I S DIRECTED TO ALLOW THE CLAIM FOR EXEMPTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PROFITS AND GAINS DERIVED BY THE TAXPAYER IN ITS INDUSTRIAL UNDERTAKI NG I.E. UNIT 106 IN ACCORDANCE WITH LAW... 25 ITA NO.1878& 1361/AHD/2009 25 12.6 OUR ATTENTION WAS ALSO DRAWN TO A DECISI ON IN THE CASE OF MOHAN BREWERIES AND DISTILLERIES LTD.(SUPRA) WHEREIN WHI LE ADJUDICATING A CLAIM FOR DEDUCTION U/S 80IA OF THE ACT CHENNAI BENCH OF THE ITAT HELD AS UNDER: SECTION 80-IA AS ENACTED BY FINANCE ACT 1999 WITH EFFECT FROM 1-4- 2000 AS STATED EARLIER GIVES AN OPTION TO THE ASSES SEE WITH EFFECT FROM 1-4- 2000 TO CLAIM RELIEF UNDER THIS SECTION FOR ANY 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS BEGINNING FROM THE YEAR ENDIN G IN WHICH THE UNDERTAKING OR ENTERPRISE DEVELOPS OR BEGINS TO OPERATE ANY INF RASTRUCTURE FACILITY ETC. IT IS LEFT TO THE ASSESSEE AT ITS WILL TO CLAIM THIS RELI EF FROM THE FIRST ASSESSMENT YEAR OR FROM THE SECOND OR FROM THE THIRD OR SO AS IT MIGHT THINK FIT. ONCE THE ASSESSEE HAS OPTED THE FIRST YEAR OF RELIEF THEN IT CONTINUES FOR FURTHER 9 CONSECUTIVE YEARS. TO CLAIM THIS RELIEF THE UNDERTA KING IS TO BE SET UP DURING THE PERIOD 1-4-1993 TO 31-3-2006. THIS IS AS PER SE CTION 80-IA(4)(IV). SECTION 80-IA(2) CLEARLY STATES THAT ASSESSEE CAN OPT FOR Y EAR OF DEDUCTION FOR ANY 10 CONSECUTIVE YEARS OUT OF 15 YEARS TAKEN FROM THE FI RST YEAR IN WHICH THE UNDERTAKING OR ENTERPRISE DEVELOPS AND BEGINS TO OP ERATE ANY INFRASTRUCTURE ACTIVITY. IT CAN BE SEEN THAT SECTION 80-IA(2) DOES NOT MANDATE THAT FIRST YEAR OF 10 CONSECUTIVE ASSESSMENT YEARS SHOULD BE ALWAYS THE FIRST YEAR OF SET UP OF ENTERPRISE. IF THE INTENTION OF THE LEGISLATURE IS THAT THE FIRST YEAR OF SET UP IS THE INITIAL ASSESSMENT YEAR TO CLAIM DEDUCTION UNDE R SECTION 80-IA THEN THERE IS NO MEANING GIVING OPTION TO THE ASSESSEE TO CLAI M DEDUCTION FOR 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15TH YEARS. THE MEANING OF THE SECTION 80-IA(2) IS THAT THE ASSESSEE CAN- EXERCISE THE OPT ION IN ANY 10 CONSECUTIVE YEARS STARTING FROM THE FIRST YEAR IN WHICH THE UND ERTAKING BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY. IF THE ASSESSEE OPTS T O EXERCISE THE CLAIM FOR FIRST YEAR IT SHOULD CONTINUE TO CLAIM THE DEDUCTION FOR ANOTHER 9 YEARS. IF IT OPTED THE SECOND YEAR TO CLAIM DEDUCTION IT SHOULD CONTI NUE FOR ANOTHER 9 YEARS TILL THE 11TH YEAR; SIMILARLY IF IT OPTED TO CLAIM RELIE F FROM THE 3RD YEAR IT WILL END IN THE 12TH YEAR; IF IT OPTED TO CLAIM FROM THE 4TH YE AR THEN IT WILL END IN THE 13TH YEAR; IF IT OPTED TO CLAIM FROM THE 5TH YEAR IT WIL L END IN THE 14TH YEAR AND IF IT OPTED TO CLAIM FROM THE 6TH YEAR IT WILL END IN THE 15TH YEAR. .. 6. ADVERTING TO THE FACTS OF THE CASE THE INITIAL A SSESSMENT YEAR IN THIS CASE STARTS FROM 2004-05. SINCE THE ASSESSEE HAS OPTED T O CLAIM THIS DEDUCTION ONLY IN THIS ASSESSMENT YEAR THE INITIAL ASSESSMEN T YEAR CANNOT BE THE YEAR IN WHICH THE UNDERTAKING COMMENCED ITS OPERATIONS AND IN THIS CASE THE INITIAL ASSESSMENT YEAR IS THE ASSESSMENT YEAR IN WHICH ASS ESSEE HAS CHOSEN TO CLAIM DEDUCTION UNDER SECTION 80-IA... . 12.61 AS OBSERVED BY THE ITAT IN THE AFORECITE D DECISIONS WE ARE OF THE OPINION THAT SECTION 80-IA(2) OF THE ACT NOWHERE PR OVIDES THAT FIRST YEAR OF 10 CONSECUTIVE ASSESSMENT YEARS SHOULD BE ALWAYS THE F IRST YEAR WHEN THE ASSESSEE STARTS PROVIDING TELECOMMUNICATION SERVICE S. IF THAT WERE SO THEN THE WORDS USED IN SEC. 80IA(4)(II) HAS STARTED B ECOME OTIOSE. WE MAY POINT OUT THAT THE PROVISIONS OF SEC. 80IA OF THE ACT A RE BENEFICIAL PROVISIONS AND THESE HAVE TO BE CONSTRUED IN SUCH A MANNER SO AS T O ADVANCE THE OBJECTS OF 26 ITA NO.1878& 1361/AHD/2009 26 THE PROVISIONS AND NOT TO FRUSTRATE IT. IF THE INTE NTION OF THE LEGISLATURE WAS THAT THE FIRST YEAR OF START OF TELECOMMUNICATION SERVIC ES IS THE INITIAL ASSESSMENT YEAR TO CLAIM DEDUCTION UNDER SECTION 80-IA OF THE ACT THEN THE PROVISION OF OPTION TO THE UNDERTAKINGS WHICH HAD ALREADY STARTE D PROVIDING TELECOMMUNICATION SERVICES WOULD BE MEANINGLESS. 12.7 EVEN OTHERWISE WHILE ASCERTAINING THE ADMI SSIBILITY OF ANY DEDUCTION LAW AS ON 1 ST APRIL OF THE RELEVANT YEAR IS TO BE APPLIED. IT IS A CARDINAL PRINCIPLE OF THE TAX LAW THAT THE LAW TO BE APPLIED IS THAT I N FORCE IN THE ASSESSMENT YEAR UNLESS OTHERWISE PROVIDED EXPRESSLY OR BY NECESSARY IMPLICATION : CIT V. ISTHMIAN STEAMSHIP LINES [1951] 20 ITR 572 (SC) AND KARIMTHARUVI TEA ESTATE LTD. V. STATE OF KERALA [1966] 60 ITR 262 (SC) FOLLOWED IN RELIANCE JUTE & INDUSTRIES LTD VS. CIT 120 ITR 921(SC). IN C IT VS. GOSLINO MARIO [2000] 241 ITR 314 (GAUHATI) IT WAS ALSO HELD THAT THE LAW TO BE APPL IED IS THAT WHICH IS IN FORCE IN THE RELEVANT ASSESSMENT YEAR U NLESS OTHERWISE PROVIDED EXPRESSLY OR BY NECESSARY IMPLICATION. 12.8 IN VIEW OF THE FOREGOING WE ARE OF THE OP INION THAT THE ASSESSEE WAS JUSTIFIED IN EXERCISING OPTION IN TERMS OF THE AMEN DED PROVISIONS ESPECIALLY WHEN THE PROVISIONS OF SEC. 80IA(4)(II) CLEARLY STI PULATE THAT THE OPTION IS AVAILABLE EVEN TO THOSE UNDERTAKINGS WHICH HAD STAR TED PROVIDING TELECOMMUNICATION SERVICES ON OR AFTER 1.4.1995. TH EREFORE WHEN THE ASSESSEE FULFILLED ALL OTHER STIPULATED CONDITIONS IN TERMS OF THE RELEVANT PROVISIONS OF SEC. 80IA OF THE ACT THE LD. CIT(A ) WAS NOT JUSTIFIED IN HOLDING THAT THE BENEFIT OF SUBSTITUTED PROVISIONS WAS AVAI LABLE ONLY TO THOSE UNDERTAKINGS WHICH WERE GRANTED A LICENSE AFTER 1.4 .1995 AND COULD NOT START OPERATIONS UNTIL 1.4.2002. WE ARE OF THE OPINION TH AT SUCH AN RESTRICTIVE INTERPRETATION DOES NOT EMERGE FROM THE AMENDED PRO VISIONS. THE LD. CIT(A) WAS ALSO NOT JUSTIFIED IN CONCLUDING THAT THE ASS ESSEE HAVING EXERCISED OPTION IN THE PERIOD RELEVANT TO THE AY 1997-98[EVE N THOUGH THERE WAS NO SUCH PROVISION OF EXERCISING OPTION AND THE ASSESSE E COULD NOT CLAIM ANY SUCH DEDUCTION IN VIEW OF LOSS] PROVISIONS OF SEC. 80IA OF THE ACT SUBSTITUTED FROM THE AY 2002-03 WOULD NOT APPLY. 27 ITA NO.1878& 1361/AHD/2009 27 12.9 IN VIEW OF THE FORGOING GROUND NOS. 2 2.1 & 2.2 IN THE APPEAL OF THE ASSESSEE ARE ALLOWED. 13. NEXT GROUND NO.3 IN THE APPEAL OF THE ASSESSEE RELATES TO CONFIRMATION OF THE ACTION OF THE AO IN SETTING OF LOSSES OF EA RLIER ASSESSMENT YEARS 1997- 98 TO 2000-01 WITHOUT GIVING EFFECT TO THE PROVISIO NS OF SECTION 79 OF THE ACT WHILE COMPUTING THE DEDUCTION U/S 80IA OF THE ACT. WHILE REFERRING TO THE PROVISIONS OF SEC. 80IA(5) OF THE ACT AND FOLLOWING THE DECISION OF THE LD. CIT(A) FOR THE AY 2005-06 AS ALSO RELYING UPON THE DECISIONS IN THE CASE OF ADDITIONAL CIT VS. ASHOK ALCO-CHEM LIMITED 96 ITD 160(MUM.) ACIT VS. GOLD COIN SHARES AND FINANCE LIMITED 302 ITR (AT)80 (SB)AHMEDABAD AND OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SHIRKE CONSTRUCTION EQUIPMENT LIMITED 291 ITR 380 THE AO SET OFF THE BROUGHT FORWARD LOSSES OF EARLIER YEARS FOR THE PURPOSE OF COMPUTING DEDUCTIO N UNDER SECTION 80IA OF THE ACT. . 14. ON APPEAL THE ASSESSEE RELIED UPON THE DECISIO N OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN BREWERIES & DISTI LLERIES LTD. VS. DCIT 114 TTJ 532 AND CONTENDED THAT THE ITAT AHMEDABAD BENC H IN THE ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2005-06 HAD UPHELD THE FINDINGS OF THE ASSESSING OFFICER WITHOUT CONSIDERING THE SAID DECI SION IN THE CASE OF MOHAN BREWERIES & DISTILLERIES LTD.. HOWEVER THE LEARNE D LD. COMMISSIONER OF INCOME TAX(APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE RELYING INTER- ALIA ON THE DECISION OF ITAT IN ASSESSEES OWN CAS E IN ITA NO. 1369&2000/AHD/2009 FOR THE ASSESSMENT YEAR 2005-200 6. 15. THE REVENUE IS NOW IN THE APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS). BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 09- 01-2009 BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-20 06. 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN ITA NO. 1369 & 2000/AHD /2008 A CO-ORDINATE BENCH OF THE ITAT IN THE ASS ESSEES OWN CASE FOR THE AY 2005-2006 VIDE THEIR ORDER DATED 9.1.2009 WHILE REJECTING THE CONTENTIONS 28 ITA NO.1878& 1361/AHD/2009 28 ON BEHALF OF THE ASSESSEE THAT THERE BEING CHANGE I N SHAREHOLDING OF THE ASSESSEE-COMPANY DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2001-02 THE ACCUMULATED LOSSES FOR THE AYS. 1997-9 8 TO 2001-02 LAPSED BY VIRTUE OF THE PROVISIONS OF SECTION 79 OF THE ACT OBSERVED THAT SINCE THE PROVISIONS OF SECTION 80IA(5) ARE OVERRIDING IN N ATURE THE UNABSORBED LOSSES UNABSORBED DEPRECIATION RELATING TO EARLIER YEARS AND RELATING TO THE ELIGIBLE UNDERTAKING ARE TO BE TAKEN INTO ACCOUNT I N DETERMINING THE QUANTUM OF DEDUCTION U/S.80IA(1) EVEN THOUGH THESE MAY ACTU ALLY HAVE BEEN SET OFF AGAINST THE PROFITS OF THE ASSESSEE FROM OTHER SOUR CES. INTER ALIA THE ITAT RELIED UPON THE DECISIONS IN GOLDMINE SHARES AND FI NANCE PVT. LTD. (SUPRA) ASHOK ALCO CHEM LTD. (SUPRA) . ACCORDINGLY THE ITA T CONCLUDED IN THE AY 2005-06 THAT THE GROSS TOTAL INCOME OF THE ASSESSEE -COMPANY HAS FIRST GOT TO BE DETERMINED AFTER ADJUSTING LOSSES ETC. AND IF TH E GROSS TOTAL INCOME OF THE ASSESSEE WILL REMAIN THEN THE ASSESSEE WILL BE ENT ITLED TO BE DEDUCTION U/S.80IA(1) OF THE ACT ON THAT GROSS TOTAL INCOME. IN CASE THE GROSS TOTAL INCOME OF THE ASSESSEE IS NIL THE ASSESSEE WOULD N OT BE ENTITLED DEDUCTION U/S.80I(1) OF THE ACT. 17. IN THE LIGHT OF VIEW TAKEN BY A CO-ORDINATE BEN CH IN THE ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR WE HAVE NO ALTERNATIVE BUT TO DISMISS GROUND NO. 3 IN THE APPEAL OF THE ASSESSEE. 18. GROUND NO.4 IN THE APPEAL OF THE ASSESSEE RELAT ES TO UPHOLDING THE ACTION OF THE AO IN HOLDING THAT LICENCE FEES OF RS . 67.51 CRORES PAID BY THE ASSESSEE ON A REVENUE SHARING BASIS IS CAPITAL EX PENDITURE INCURRED FOR THE PURPOSE OF ACQUIRING THE LICENSE. DURING THE COURS E OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD C LAIMED DEDUCTION OF RS. 23 82 42 552/- U/S 35ABB OF THE ACT ON ACCOUNT OF F IXED LICENCE FEES PAID UPTO JULY 1999 AS ALSO FOR AN AMOUNT OF RS. 67.51 CRORE S FOR THE YEAR UNDER CONSIDERATION IN PURSUANCE TO NEW TELECOM POLICY AN NOUNCED IN 1999. IT WAS EXPLAINED ON BEHALF OF THE ASSESSEE THAT PRIOR TO M IGRATION TO NEW TELECOM POLICY THE ASSESSEE WAS REQUIRED TO PAY ON THE FIX ED FORMULA BASIS WHILE UNDER THE NEW POLICY FEE WAS CHARGED ON REVENUE SHARING BASIS. THE AO WAS OF THE VIEW THAT LICENSE FEE WAS IN THE NATURE OF CAPITAL EXPENDITURE HAVING BEEN INCURRED TO KEEP IN FORCE THE LICENSE TO OPERATE THE TELECOM 29 ITA NO.1878& 1361/AHD/2009 29 SERVICES. ACCORDINGLY RELYING UPON THE DECISIONS O F THE HON'BLE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT COMPANY LI MITED VS. CIT 57 ITR 492 AND BALLIMAL NAVAL KISHOR & ANOTHER VS. CIT 22 4 ITR 414 THE AO RESTRICTED THE CLAIM U/S 35ABB OF THE ACT AND DISA LLOWED THE REMAINING AMOUNT TO 61.89 CRORES TREATING THE SAME AS CAPITA L EXPENDITURE. 19. ON APPEAL THE ASSESSEE CONTENDED THAT THEY ENT ERED INTO LICENSE AGREEMENT WITH GOVERNMENT OF INDIA ON 11.1.1996 FOR OPERATING AND PROVIDING TELECOMMUNICATION SERVICES IN THE STATE OF GUJARAT . THE LICENSE FEE UNDER THE SAID AGREEMENT BEING FOR ACQUIRING THE TELECOM LICE NSE THE AMOUNT WAS CAPITALIZED IN THE BOOKS AND APPROPRIATE DEDUCTION WAS CLAIMED IN THE RETURN IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35ABB OF THE ACT. SUBSEQUENTLY IN PURSUANCE TO A NEW TELECOMMUNICATION POLICY APPL ICABLE WITH EFFECT FROM 01-08-1999 THE GOVERNMENT ALLOWED OPTION TO MIGRAT E FROM FIXED LICENSE FEE TO REVENUE SHARING FEE. IN TERMS OF MIGRATION PACK AGE VIDE LETTER DATED 22-07- 1999 THE LICENSE FEES WERE BIFURCATED INTO 2 COMPO NENTS VIZ. A) ONE TIME ENTRY FEE WHICH WOULD BE THE LICENSE FEE PAYABLE BY THE EXISTING LICENSEES UPTO 31-07-1999 AND B) WITH EFFECT FROM 01-08-1999 PAYABLE AS PERCENTAGE OF THE GROSS REVENUE ON AN ANNUAL RECURRING BASIS. ACCORDINGLY THE ANNUAL LICENSE FEE PAYABLE FOR MAINTAINING THE LICENSE WA S CLAIMED AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. RELYING UPON THE DECISION OF ITAT (BOMBAY) BENCH IN THE CASE OF VIDESH SANCHAR NIGAM LIMITED 81 ITD 456 THE ASSESSEE CONTENDED THAT FEES PAID TO DOT FOR USE OF LICENSE ARE IN THE NATURE OF REVENUE EXPENSES. HOWEVER THE LD. CIT(APPEALS) REJECTED THESE CONTENTIONS OF THE ASSESSEE AND UPHELD THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER HOLDING AS UNDER: 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE A.R. FROM THE DETAILS FURNISHED IT IS SEEN THA T THE LICENSE FEE WAS IN THE NATURE OF CAPITAL EXPENDITURE AS IT WAS PAID TO ACQUIRE AND KEEP IN FORCE THE LICENSE/RIGHT TO OPERATE THE TELECOMMU NICATION SERVICES. FURTHER THE FEE PAID TO KEEP THE LICENSE IN FORCE HAD AN ENDURING BENEFIT SINCE THE APPELLANT HAD OBTAINED A RIGHT TO OPERATE THE TELECOMMUNICATION SERVICES FOR A PERIOD BEGINNING J ANUARY 1997 AND ENDING IN DECEMBER 2016. I THEREFORE HOLD THAT T HE DISALLOWANCE MADE BY THE A.O. ON THIS ACCOUNT IS QUITE JUSTIFIED AND THIS GROUND IS DISMISSED. 30 ITA NO.1878& 1361/AHD/2009 30 20. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORE SAID FINDINGS OF THE LD. CIT(APPEALS). WHILE INVITING OUR ATTENTION TOWARDS PAGE 7 AND 36 OF THE PAPER BOOK THE LEARNED AR ON BEHALF OF THE ASSESSEE ARG UED THAT UPTO 31-07-1999 THE AMOUNT WAS CAPITALIZED. SUBSEQUENTLY IN TERMS O F NEW TELECOMMUNICATION POLICY (COPY PLACED ON PAGE 87 TO 89 OF THE PAPER B OOK) THE ASSESSEE STARTED PAYING LICENSE FEE AT A PERCENTAGE OF REVENUE COLLE CTED BY IT. TO A QUERY BY THE BENCH THE LEARNED AR ADDED THAT THE AO ALLOW ED THE CLAIM FOR DEDUCTION IN THE AY 2001-2002 TO 2005-06. HOWEVER WHEN THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT FOR THE AY 2005-06 THE ASSESSEE MOVED HON'BLE JURISDICTIONAL HIGH COURT AND PROCEED INGS RELATING TO REOPENING OF THE ASSESSMENT WERE STAYED. RELYING UPON THE DECISION IN THE CASE OF COMSAT MAX LTD. VS. DCT 29 SOT 436(DELHI) A ND JYOTI ELECTRICAL LIMITED 255 ITR 345(GUJ) THE LD. AR CONTENDED TH AT THEIR CLAIM IS ADMISSIBLE. ON THE OTHER HAND THE LD. DR WHILE RE LYING UPON THE DECISION IN THE CASE OF ASSAM BENGAL CEMENT CO. LIMITED(SUPRA) SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. AFTER THE HEARING. THE LD . AR SUBMITTED A COPY OF ORDER DATED 29-05-2009 IN THE CASE OF BHARTI CELLUL AR LIMITED IN ITA NO.5335/DELHI/2003 FOR THE ASSESSMENT YEAR 2000-200 1 WHEREIN ALSO CLAIM FOR DEDUCTION OF THE LICENSE FEE WAS ALLOWED BY THE ITAT. 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. . WE HAVE BEFORE US A COMPANY ENTRUSTED WITH THE OBJECT OF PROVIDING TELECOMMUNICATION SER VICES BY THE GOVERNMENT OF INDIA. THE VERY PURPOSE OF INCORPORATION OF THE COM PANY IS THAT. OBVIOUSLY THE OBJECT OF INCORPORATING THE COMPANY IS TO ESTAB LISH AND RUN IT AS A COMMERCIAL VENTURE. IN ORDER TO PROVIDE SERVICES TO THE GENERAL PUBLIC THE COMPANY HAS BEEN PERMITTED TO USE THE TELECOM NETWO RK FOR PAYMENT OF A PRICE. WE FIND ON PERUSAL OF A COPY OF THE LICENSE AGREEMENT EXECUTED ON 11 TH JANUARY 1996-PG. 7 TO 43 OF THE PAPER BOOK] THAT L ICENSE HAS BEEN DEFINED IN CLAUSE (M) TO MEAN A LICENSE GRANTED OR DEEMED TO HAVE BEEN GRANTED UNDER SECTION 4 OF THE INDIAN TELEGRAPH ACT 1885 & INDIAN WIRELESS TELEGRAPHY ACT 1993. A PERUSAL OF THE RELEVANT PROVISIONS OF THE TELEGRA PH ACT 1885 AND THE AFORESAID AGREEMENT REVEALS THA T THE LICENSE HAS BEEN GRANTED TO ESTABLISH MAINTAIN AND OPERATE CELLULA R MOBILE TELEPHONE SERVICES UP TO SUBSCRIBERS TERMINAL CONNECTION IN THE GUJRAT CIRCLE INITIALLY FOR 31 ITA NO.1878& 1361/AHD/2009 31 A PERIOD OF TEN YEARS EXTENDABLE BY FIVE YEARS UNL ESS TERMINATED UNDER THE TERMS AND CONDITIONS OF THE AGREEMENT. THE PAYMENT OF 'LICENCE FEE' AS PER CONDITION NO. 19 SCHEDULE B TO THE AGREEMENT IS @ RS. 163.10 CRORES FOR THE FIRST FIVE YEARS AND @ RS. 195.72 CRORES FOR THE SU BSEQUENT 5 YEARS THE LICENSE FEES FOR THE FIRST YEAR WAS REQUIRED TO PA ID IN LUMP SUM PRIOR TO THE SIGNING OF THE AGREEMENT WHILE FOR THE SUBSEQUENT Y EARS IN QUARTERLY INSTALMENTS IN ADVANCE. UNDISPUTEDLY DEDUCTION FOR LICENSE FEES HAS BEEN ALLOWED IN THE PRECEDING ASSESSMENT YEARS UNTIL TH E AY 2005-06 . HOWEVER WHEN THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASS ESSMENT FOR THE AY 2005-06 THE ASSESSEE MOVED HON'BLE JURISDICTIONAL HIGH COURT AND PROCEEDINGS RELATING TO REOPENING OF THE ASSESSMEN T WERE STAYED. FOR THE YEAR UNDER CONSIDERATION THE LD. CIT(A) UPHELD THE DISALLOWANCE OF CLAIM TREATING THE AMOUNT AS CAPITAL EXPENDITURE. . 21.1. IN THE LIGHT OF AFORESAID FACTS WE NOW PR OCEED TO AN INDEPENDENT CONSIDERATION AS TO WHETHER THE LICENSE FEE OF RS. 67.51 CRORES PAID BY THE ASSESSEE ON REVENUE SHARING BASIS IS ALLOWABLE AS BUSINESS EXPENDITURE. IN ORDER TO PROVIDE THE TELECOM SERVICES IT IS ESSEN TIAL THAT THE ASSESSEE MAKES USE OF THE TELECOM NETWORK OWNED BY DOT. UNDER SECT ION 4 OF THE INDIAN TELEGRAPH ACT 1885 THE EXCLUSIVE PRIVILEGE OF EST ABLISHING MAINTAINING AND WORKING TELEGRAPHS REMAINS WITH THE CENTRAL GOVERNM ENT WHICH UNDER THE FIRST PROVISO MAY BE PARTED WITH BY GRANTING A LICENSE TO ANY PERSON ON SUCH CONDITIONS AND IN CONSIDERATION OF SUCH PAYMENTS AS IT THINKS FIT. IT IS ONLY IN ACCORDANCE WITH THIS PROVISO THAT THE ASSESSEE WAS GIVEN A NON-EXCLUSIVE LICENSE TO MAKE USE OF THE TELECOM NETWORK OWNED BY DOT SO AS TO ESTABLISH MAINTAIN AND OPERATE CELLULAR MOBILE SER VICE . IT IS FOR ACQUIRING THE USE OF THE NETWORK THAT THE ASSESSEE HAS BEEN REQUI RED TO PAY CONSIDERATION IN THE NAME OF LICENSE FEE. THE LICENSE AGREEMENT D ATED 11-1-1996 EXPRESSLY STATES THAT THE LICENSE WAS GRATED IN EXERCISE OF THE POWERS CONFERRED UNDER SECTION 4 OF THE INDIAN TELEGRAPH ACT. IN HARI SHAN KAR V. DY. EXCISE AND TAXATION COMMISSIONER AIR 1975 SC 1121 IT WAS HELD THAT LICENSE FEE IS THE PRICE FOR THE CONSIDERATION WHICH THE GOVERNMENT CH ARGES TO THE LICENSEES FOR PARTING WITH ITS PRIVILEGES AND GRANTING THEM TO TH E LICENSEE AND AS THE STATE CAN CARRY ON A TRADE OR BUSINESS SUCH A CHARGE IS THE NORMAL INCIDENT OF A TRADING OR BUSINESS TRANSACTION. THE AMOUNT CHARGED TO THE LICENSEES IS IN THE 32 ITA NO.1878& 1361/AHD/2009 32 NATURE OF THE PRICE OF THE PRIVILEGE WHICH THE PURC HASER HAS TO PAY IN ANY TRADING OR BUSINESS TRANSACTION. SIMILAR VIEW WAS T AKEN IN PANNALAL & ORS. V. STATE OF RAJASTHAN (AIR 1975 SC 2000) STATE OF HAR YANA V. JAGE RAIN AIR 1980 SC 2018 GOVERNMENT OF ANDHRA PRADESH V. ANABE SHAHI WINE & DISTILLERIES (P.) LTD AIR 1988 SC 771. ALL THESE JU DGMENTS WERE CONSIDERED BY THE HONBLE CALCUTTA HIGH COURT IN CIT V. VARAS INT ERNATIONAL (P.) LTD. [1997] 225 ITR 831 IN THE CONTEXT OF SECTION 43B OF THE ACT. AFTER RE FERRING TO THE AFORESAID FOUR JUDGMENTS OF THE SUPREME COURT THE HONBLE CALCUTTA HIGH COURT HELD THAT THE LICENSE FEE WHICH AN ASSESSEE W AS REQUIRED TO PAY TO THE WEST BENGAL GOVERNMENT UNDER THE BENGAL EXCISE ACT FOR GETTING THE LICENSE FOR THE MANUFACTURE OF COUNTRY LIQUOR IS NOT A TAX OR CESS OR FEE AND THEREFORE CANNOT BE DISALLOWED ON THE GROUND OF NON-PAYMENT UNDER SECTION 43B OF THE ACT. THESE AUTHORITIES SHOW THAT THE AMOUNT PAID BY THE ASSESSEE FOR THE GRANT OF THE LICENSE UNDER THE FIRST PROVISO TO SEC TION 4 OF THE INDIAN TELEGRAPH ACT IS A PRICE PAID IN CONSIDERATION FOR THE PRIVI LEGE GRANTED TO IT AND IS THEREFORE PART OF THE BUSINESS OR TRADING EXPENDITU RE. THE PAYMENT OF LICENSE FEES UNDISPUTEDLY HAS BEEN MADE FOR THE USE OF THE FACILITIES PROVIDED BY THE DOT AND DERIVES ITS AUTHORITY ONLY FROM THE STATUTE . THE PAYMENT IS THEREFORE INEXTRICABLY BOUND UP WITH THE VERY BUSINESS OF THE ASSESSEE AND WHEN IT COMES TO THE QUESTION OF TAXING THE PROFITS OF THAT VERY BUSINESS IT CANNOT BE SAID THAT THE CLAIM TO DEDUCT THE PAYMENT OF THE LI CENSE FEE WILL NOT BE ALLOWED. IN OUR OPINION THE AMOUNT CAN NOT BE TREA TED AS CAPITAL IN NATURE THE AO HIMSELF HAVING ALLOWED THE CLAIM IN THE PRE CEDING ASSESSMENT YEARS. THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS OF P ROVIDING TELECOM SERVICES SINCE THE AY 1997-98 . THERE IS NO CHANGE IN THE NATURE OF THE SERVICES RENDERED BY THE ASSESSEE SINCE THEN. THE A SSESSEE IS ALREADY IN THE BUSINESS OF PROVIDING TELECOM SERVICES TO THE PUBL IC WHILE THE LICENSE FEE IS FOR GRANTING THE ASSESSEE PERMISSION TO MAKE USE OF THE TELECOM NETWORK OWNED BY THE DOT. FURTHER IN THE YEAR UNDER CONSIDE RATION THE LICENSE FEE IS NOT A FLAT OR FIXED FEE BUT IS LINKED TO THE REV ENUE GENERATED. THUS IT IS DIRECTLY RELATED TO ACTUAL WORKING OF THE ASSESSEE' S BUSINESS. IN BOMBAY STEAM NAVIGATION'S CO. 1953 LTD'S CASE IT WAS HELD THAT THE QUESTION WHETHER A PARTICULAR EXPENDITURE IS REVENUE EXPENDITURE INC URRED FOR THE PURPOSE OF BUSINESS MUST BE VIEWED IN THE LARGER CONTEXT OF BU SINESS NECESSITY OR EXPEDIENCY. IT WAS HELD THAT IF THE OUTGOING OR EXP ENDITURE IS SO RELATED TO THE 33 ITA NO.1878& 1361/AHD/2009 33 CARRYING ON OR THE CONDUCT OF THE BUSINESS THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT EARNING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER THE POSSESSION OF WHICH IS A CONDITION TO THE CARRYING ON OF THE BUSINESS THE EXPENDITURE MAY BE REGARDED AS REVENUE EXPENDITURE. THE PAYMENT MADE BY THE ASSESSEE IN TH E PRESENT CASE SATISFIES THIS TEST. THE PAYMENT IS RELATED TO THE CARRYING O N OR OF THE CONDUCT OF THE BUSINESS. UNLESS THE NETWORK IS UTILISED BY THE ASS ESSEE THE ASSESSEE IN TURN CANNOT PROVIDE THE TELECOMMUNICATION SERVICES TO T HE PUBLIC AT LARGE. THUS THE UTILISATION OF THE NETWORK OF THE DOT IS CLOSEL Y RELATED TO THE ACTUAL CARRYING ON OR THE CONDUCT OF THE BUSINESS. THE PAY MENT DOES NOT SECURE FOR THE ASSESSEE ANY ASSET OR RIGHT OF A PERMANENT CHAR ACTER. THE LICENSE IN OUR OPINION DOES NOT CONFER ANY SUCH ENDURING ADVANTAG E BECAUSE UNDER CONDITION NO. 15 OF THE SCHEDULE B THE LICENSE G RANTED UNDER SECTION 4 CAN BE REVOKED ON THE BREACH OF ANY OF THE CONDITIONS S UBJECT TO WHICH IT WAS ISSUED OR ANY DEFAULT OF PAYMENT OF ANY CONSIDERATI ON PAYABLE FOR THE LICENSE. FURTHER THE LICENSE IS A NON-EXCLUSIVE LICENSE AND IT IS OPEN TO THE GOVERNMENT OF INDIA TO GRANT SIMILAR LICENSES TO OT HER PERSONS AS WELL BY VIRTUE OF POWERS CONFERRED UPON IT UNDER SECTION 4 OF THE TELEGRAPH ACT. THUS THERE IS NO MONOPOLY RIGHT CONFERRED UPON THE ASSES SEE. 21.2 THE AFORESAID VIEW WHICH WE HAVE TA KEN IS SUPPORTED BY THE DECISION OF A CO-ORDINATE BENCH IN THE CASE OF COMS AT MAX LTD. VS. DCIT 29 SOT36(DELHI). FOLLOWING THIS DECISION AS ALSO THE D ECISION IN THE CASE OF MAHANAGAR TELEPHONE NIGAM LTD. 100 TTJ 1 THE ITAT DELHI BENCH IN THEIR ORDER DATED 29.5.2009 ALLOWED A SIMILAR CLAIM IN T HE CASE OF BHARTI CELLULAR LTD. VS. DCIT IN ITA NO.5335/DEL./2003 IN THE AY 20 00-01 21.3 . IN VIEW OF THE FOREGOING ESPECIALLY WHEN T HE AO HIMSELF ALLOWED THE CLAIM IN THE PRECEDING ASSESSMENT YEARS WE HOLD TH AT THE AMOUNT OF RS. 67.51 CRORES PAID BY THE ASSESSEE TO DOT AS LICENSE FEES IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT IN COMPU TING THE PROFITS OF THE ASSESSEE'S BUSINESS . 22. NEXT GROUND NO. 5 RELATES TO THE DEDUCTION UNDER SECTION 80IA OF THE ACT ON THE MISCELLANEOUS INCOME OF RS. 16 60 841/ - AND SCRAP SALES OF 34 ITA NO.1878& 1361/AHD/2009 34 RS.499681/-. SINCE MISCELLANEOUS INCOME AND SCRAP SALES WERE NOT DERIVED FROM THE ACTIVITY OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE THE AO DENIED THE CLAIM FOR DEDUCTION UNDER SECTION 80IA OF THE A CT RELYING INTER ALIA ON THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX(APPE ALS) IN THE ASSESSMENT YEAR 2005-2006 AND DECISIONS OF THE HON'BLE APEX CO URT IN CIT VS. PANDIAN CHEMICALS LTD. 262 ITR 278 (SC) AND CIT VS. STERLIN G FOODS (SC). 23. ON APPEAL THE ASSESSEE CONTENDED THAT MISC INC OME COMPRISE THE FOLLOWING AMOUNTS: S.NO. PARTICULARS AMOUNT (RS.) 1. RECOVERY FROM CALL CENTER 11 06 190 2. CHEQUE BOUNCING CHARGES 1 88 383 3. INTEREST ON INCOME TAX REFUND 2 20 510 4. INSURANCE CLAIM 14 600 5. INTER USER CONNECT CHARGES 67 060 6. DISCOUNT ON CREDIT CARDS 33 378 7. MISCELLANEOUS CREDIT ENTRIES IN ACCOUNTS 30 723 TOTAL 16 60 841 THE ASSESSEE ARGUED THAT THE AFORESAID AMOUNTS ARE INEXTRICABLY LINKED WITH TELECOMMUNICATION BUSINESS AND ACCORDINGLY ELIGIB LE FOR DEDUCTION UNDER SEC. 80IA OF THE ACT. AS REGARDS SCRAP THE ASSESS EE CONTENDED THAT OCCASIONALLY OR SEASONALLY ASSESSEE LAUNCHED VARIOU S SCHEMES AND ACCORDINGLY PRINTED OUT BOOKLETS AND SET UP HOARDI NGS AND NEON SIZES ETC. ONCE THE PERIOD OF SCHEME GOT OVER THEN THIS MATER IAL WAS OF NO USE. RELYING UPON THE DECISIONS IN THE CASE OF ITO VS. J AGRAON EXPORTS 124 TAXMANN 220(DEL.)(MAG) DCIT VS. MIRA INDUSTRIES 87 ITD 475(AHD.) P INDUSTRIES 124 TM 76(HYD.)(MAG.) AND METRO TYRES L IMITED 79 ITD 75(DEL.) THE ASSESSEE ARGUED THAT THE AFORESAID INCOME IS I NEXTRICABLY LINKED WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND THEREFO RE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IA.. HOWEVER THE LD. COMMISSI ONER OF INCOME TAX(APPEALS) REJECTED THESE CONTENTIONS OF THE ASSE SSEE ON THE GROUND THAT THE AFORESAID RECEIPTS ON ACCOUNT OF MISC. INCOME A ND SCRAP SALES WERE NOT 35 ITA NO.1878& 1361/AHD/2009 35 DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING RELYING ON THE DECISION IN THE CASE OF PANDIAN CHEMICALS AND STERL ING FOODS(SUPRA). 24. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHALF OF THE ASSESSEE CONTENDED THAT ASSESSEE IS NOT PRESSING THE GROUND FOR DEDUCTION U NDER SECTION 80IA ON THE INCOME ON ACCOUNT INTEREST ON REFUND WHILE RECOVER Y FROM CALL CENTER WOULD GO TO REDUCE COST OF THE ASSESSEE. AS REGARDS SCRAP SALES THE LD. AR RELIED ON THE DECISION IN THE CASE OF HARJIVANDAS JUTHABHA I ZAVERI & ANOTHER 258 ITR 785(GUJ). SINCE THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER NOR CONSIDERED THE ISSUE IN PROPER PERSPECTIVE THE LD. AR ARGUED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR R EADJUDICATION ON THE OTHER HAND LEARNED DR RELIED UPON THE DECISION IN THE CAS E OF CAMBAY ELECTRICAL SUPPLY CO. LTD. VS. CIT 113 ITR 84 (SC) AND CONTEN DED THAT SCRAP HAVING NOT BEEN GENERATED OUT OF PRODUCTION PROCESS THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IA OF THE ACT. HE FUR THER RELIED UPON THE DECISION IN THE CASE OF PANDIAN CHEMICALS 262 ITR 2 78 (SC) AND ALPINE SOLVEX (MP) AND CONTENDED THAT THE MISCELLANEOUS I NCOME AND SCRAP SALES WERE NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT . 25. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. A MERE GLANCE AT THE OBSERVATIONS OF THE LD. CIT(A) IN PARA 8.3 OF HIS ORDER REVEALS THAT THE LD. CIT(A) HAVE NOT PASSED A SPEAK ING ORDER. WE ARE OF THE OPINION THAT THE APPLICATION OF MIND TO THE MATERIA L FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSI NG OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATIO N THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT FROM T HE IMPUGNED ORDER IN OUR OPINION THE ORDER PASSED BY THE LD. CIT(A) IS CRYP TIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS RE ASONED ORDER WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHOR ITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE REQUIREMENT OF RECORDING OF R EASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CO NCEPT OF FAIR PROCEDURE AND SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY CHECKS 36 ITA NO.1878& 1361/AHD/2009 36 THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSID ERATIONS AND MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MA Y POINT OUT THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. I T EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHT IAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. IN VIEW OF THE FORE GOING ESPECIALLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER WE CONS IDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE ISSUE RAISED IN THIS GROUND TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL THE LEARNED C IT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS GROUND NO. 5 IS DISPOSED OF. 26. GROUND NO. 6 RELATES TO LEVY OF INTEREST U/S 234B AND 234C OF TH E ACT WHILE DETERMINING BOOK PROFITS IN TERMS OF SECTION 115JB OF THE ACT. SINCE THE INCOME COMPUTED UNDER NORMAL PROVISIONS OF THE ACT EXCEEDED THE BOOK PROFITS DETERMINED U/S 115JB OF THE ACT THERE IS D ISCUSSION ON THIS ISSUE IN THE ASSESSMENT ORDER. ON APPEAL THE LD. COMMISSION ER OF INCOME TAX(APPEALS) WHILE RELYING UPON THE DECISION OF HON 'BLE MADRAS HIGH COURT IN THE CASE OF GITARAMAKRISHNA MILLS PRIVATE LIMITED 288 ITR 489 AND DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF ADDITIONAL CIT VS. ASHIMA SYNTEX LTD. 310 ITR (AT)1 UPHELD THE LEVY OF INTEREST U/ S 234B AND 234C OF THE ACT WHILE DETERMINING BOOK PROFITS U/S 115JB OF THE ACT . 27. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS). BOTH THE PARTIES AGREED THA T ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT SPECIAL BENCH IN THE CASE O F ASHIMA SYNTEX LIMITED.(SUPRA) AS ALSO DECISION OF THE 3 RD MEMBER IN THE CASE OF M/S. KANEL OIL AND EXPORT INDUSTRIES LIMITED VS. JCIT 2009-TI OL-646 ITAT- AHD-TM. 28. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON .WE FIND THE HON BLE TM IN THE CASE OF KANEL OIL AND EXPORT INDUSTRIES LIMITED(SUPRA) WHIL E RELYING UPON THE DECISION IN THE CASE OF ASHIMA SYNTEX LIMITED.(SUPRA) CONCL UDED THAT INTEREST UNDER SECTION 234B AND 234C OF THE ACT IS CHARGEABLE WHIL E DETERMINING BOOK 37 ITA NO.1878& 1361/AHD/2009 37 PROFITS IN TERMS OF PROVISIONS OF THE SECTION 115JB OF THE ACT. IN LIGHT OF THE VIEW TAKEN IN THE AFORESAID DECISIONS BY THE ITAT W E HAVE NO ALTERNATIVE BUT TO REJECT THE GROUND RAISED BY THE ASSESSEE. THERE FORE GROUND NO. 6 IN THE APPEAL OF THE ASSESSEE IS DISMISSED. 29. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF THE RESIDUARY GROUND ACCORDINGLY THIS GROUND IS DISMISSED. ITA NO.1878/AHD/2009 30. NOW ADVERTING TO THE APPEAL OF THE REVENUE GRO UND NO.1 RELATES TO DELETION OF DISALLOWANCE OF RS. 48935/- ON ACCOUNT OF SALE PROMOTION EXPENSES. THE AO NOTICED THAT THE ASSESSEE DEBITED TO THE PROFIT AND LOSS ACCOUNT EXPENDITURE ON ACCOUNT OF GIFTS OF RS. 48 9 35/- TO THE STAFF ON THE OCCASIONS OF MARRIAGE ETC. AND THE GIFT VOUCHERS TO THE EMPLOYEES OF THE COMPANY ON VARIOUS OCCASIONS SUCH AS DIWALI. RELYI NG UPON HIS OWN FINDINGS IN THE PRECEDING ASSESSMENT YEAR THE AO CONCLUDED THAT MARRIAGE GIFTS ARE PERSONAL OBLIGATION OF THE DIRECTOR OF THE COMPANY WHILE THE GIFT VOUCHERS TO THE EMPLOYEES OF THE COMPANY ON VARIOUS OCCASIONS C OULD NOT BE TERMED AS BUSINESS EXPENDITURE.. ACCORDINGLY THE AO DISALLO WED THE ENTIRE AMOUNT. 31. ON APPEAL THE LD. CIT(APPEALS)WHILE RELYING UPON AN ORDER DATED 09-01- 2009 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY2005-2006 ALLOWED THE CLAIM OF THE ASSESSEE. 32. THE REVENUE IS NOW IN THE APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS). BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 09- 01-2009 BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-20 06. 33. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR IS SUE IN ITA NO. 1369 & 2000/AHD /2008 A CO-ORDINATE BENCH OF THE ITAT I N THE ASSESSEES OWN CASE FOR THE AY 2005-2006 VIDE THEIR ORDER DATED 9 .1.2009 CONCLUDED AS UNDER: 38 ITA NO.1878& 1361/AHD/2009 38 46. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF TRIBUNALS ORDER IN ITA NO.1930/AHD/2007 DATED 17-08-2007 IN ASSESSEES OWN CASE (FOR THE A.Y. 2003-04) AND STATED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE WHEREIN THE TRIBUNAL HAS DEALT WITH THE I SSUE VIDE PARA-21 WHICH READS AS UNDER:- 21. AS REGARDS GROUND NO.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED A SUM OF RS.46.39 MILLION TOWARDS SALES PROMOTION WHICH INCLUDED ENTERTAINMENT EXPENSES INCURRED WHILE DEAL ING WITH DEALERS & DISTRIBUTORS VENDORS ETC. EXPENSES ON SPONSORSHI P OF EVENTS FESTIVALS MUSICAL NIGHTS ETC. EXPENSES ON CORPORATE GIFS E XPENSES ON PROMOTIONAL SCHEMES FOR DISTRIBUTORS DEALERS SALARY AND INCEN TIVES GIVEN TO TEMPORARY SALES STAFF COMMISSION TO DIRECT SALES REPRESENTAT IVES GIFTS GIVEN TO STAFF MARRIAGE GIFTS GIFT VOUCHERS AND EXPENSES FOR UNIF ORMS TO STAFF DRESSES FOR CUSTOMER CARE STAFF AND EXPENSES DIRECTLY RELATED T O FRANCHISE AND RETAIL SHOPS. ACCORDING TO HIM GIFTS GIVEN TO STAFF AS MA RRIAGE GIFTS GIFT VOUCHERS AND EXPENSES FOR UNIFORMS FOR STAFF ARE NOT FOR ANY BUSINESS EXPEDIENCY OF THE ASSESSEE. THESE ARE IN THE NATURE OF PERQUISITES. NEITHER THE ASSESSEE NOR THE EMPLOYEES HAD PAID ANY TAX. THE ASSESSEE EVEN HAD NOT FURNISHED ANY DETAILS OF THE ABOVE EXPENSES. HE THEREFORE DISAL LOWED AN AMOUNT EQUAL TO 1/10 TH OF THE TOTAL EXPENSES TREATING THE SAME AS NOT INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASS ESSEE. ACCORDINGLY THE TRIBUNAL CONFIRMED THE DELETION OF THE ADDITION VIDE PARA-24 AS UNDER- 24. RIVAL SUBMISSIONS OF THE PARTIES HAVE BEEN CON SIDERED CAREFULLY AND THE RECORDS GONE THROUGH. NOTHING HAS BEEN BROUGHT BEF ORE US ON RECORD TO JUSTIFY HE DISALLOWANCE BY ADOPTING 1/10 TH FORMULA. THE EXPENDITURE ON THE EMPLOYEES ARE COVERED BY THE DECISION OF THE SUPREM E COURT IN THE CASE OF SHAHZADA NAND AND SONS 108 ITR 358 WHEREIN IT HAS BEEN HELD THAT IT IS FOR THE ASSESSEE TO DECIDE THE COMMERCIAL EXPEDIENC Y AS TO WHAT IS TO BE GIVEN TO THE EMPLOYEES AND THE SAME CANNOT BE DISAL LOWED. SIMILARLY OUT OF GENERAL EXPENSES NO RESTRICTIONS BEING THERE. IN T HE CURRENT YEAR THERE SEEMS O BE NO JUSTIFICATION FOR DISALLOWING WHICH W AS INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE CIT(A) IS RIGHT IN DELETING BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER. ACCORDINGL Y WE UPHOLD THE ORDER OF THE CIT(A) ON THESE TWO GROUNDS. FROM THE ABOVE DECISION OF THE TRIBUNAL IT IS CLEA R THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AS THE CIT(A) HAS CATEGOR ICALLY HELD THAT THE FACTS BEING SIMILAR TO EARLIER YEAR. THE RELEVANT FINDING OF C IT(A) IN PARA-2 READS AS UNDER:- 2. THE FIRST GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF SALES PROMOTION EXPENSES AMOUNTING TO RS.11 63 048/-. THE AO HAS D ISALLOWED THIS AMOUNT OUT OF SALES PROMOTION EXPENSES ON THE GROUND THAT THESE RELATE TO MARRIAGE GIFTS AND GIFT VOUCHERS TO STAFF MEMBERS ON VARIOUS OCCASIONS SUCH AS DIWALI 39 ITA NO.1878& 1361/AHD/2009 39 ET. THESE EXPENSES ARE NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND THESE ARE PERSONAL OBLIGATION OF DIRECTORS OF THE COMPANY . THE APPELLANT HAS SUBMITTED THAT SIMILAR DISALLOWANCE MADE IN EARLIER YEAR HAS BEEN DELETED BY THE CIT(APPEALS) AS WELL AS THE HON'BLE. ITAT IN A. Y. 2003-04 VIDE ITA NO.1930/AHD/2007 DATED:17 TH AUGUST 2007. AFTER CONSIDERING THE FACTS OF THE CASE AND BY FOLLOWING THE APPELLATE ORDERS OF C I(APPEALS) AS WELL AS IAT IN EARLIER YEAR AS THE FACTS ARE SIMILAR TO THE FA CTS OF EARLIER YEAR I DIRECT THE AO TO DELETE THE DISALLOWANCE MADE ON THIS COUNT. T HIS APPELLANT GETS RELIEF ON THIS POINT. RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER WE UPH OLD THE ORDER OF CIT(A) DELETING THE DISALLOWANCE. THIS ISSUE OF THE REVENUES APPEAL I S DISMISSED . 34. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DEC ISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2003-04 & 2005-06 WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF LD. CIT(APPEALS) DEL ETING THE DISALLOWANCE. THEREFORE GROUND NO.1 IN THE APPEAL OF THE REVENU E IS DISMISSED. 35. GROUND NO. 2 IN THE APPEAL OF THE REVENUE REL ATES TO DELETION OF DISALLOWANCE OF CLAIM FOR DEDUCTION U/S 80IA OF THE ACT ON THE REVENUE OF RS.2 75 30 602/- ON A/C OF SHARING OF CERTAIN COM MON FACILITIES . THE AO NOTICED THAT DURING THE YEAR UNDER CONSIDERATION T HE ASSESSEE RECEIVED RS.2 75 30 602/- ON ACCOUNT OF SHARE IN PASSIVE INF RASTRUCTURE SUCH AS CELL PHONE TOWERS AIR CONDITIONERS AND D.G. SETS ETC. W ITH THE OTHER OPERATORS. SINCE THE ASSESSEE WAS NOT IN THE BUSINESS OF LEASI NG OUT OF ITS ASSETS RELYING UPON THE DECISIONS IN THE CASE OF CIT VS. P ARAS OIL EXTRACTION LTD. 230 ITR 266 PANDIAN CHEMICALS LIMITED 262 ITR 278 (SC) CIT VS. STERLING FOODS AND HIS OWN FINDINGS FOR THE ASSESSMENT YEAR 2005-2006 AS ALSO ON THE ORDER OF THE LD. CIT(A) FOR THE AY 2005-06 T HE AO CONCLUDED THAT THE SAID INCOME WAS NOT DERIVED FROM THE BUSINESS OF TH E INDUSTRIAL UNDERTAKING AND ACCORDINGLY DISALLOWED CLAIM FOR DEDUCTION UND ER SECTION 80IA OF THE AFORESAID AMOUNT. 36. ON APPEAL THE LD. CIT(APPEALS)WHILE RELYING U PON AN ORDER DATED 09- 01-2009 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY2005-2006 ALLOWED THE CLAIM OF THE ASSESSEE. 40 ITA NO.1878& 1361/AHD/2009 40 37. THE REVENUE IS NOW IN THE APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS). BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 09- 01-2009 BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-20 06. 38. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN ITA NO. 1369 & 2000/AHD /2008 A CO-ORDINATE BENCH OF THE ITAT IN THE ASS ESSEES OWN CASE FOR THE AY 2005-2006 VIDE THEIR ORDER DATED 9.1.2009 CONCL UDED AS UNDER: 35WE FIND FROM THE ABOVE FACT THAT THE INCOME GENE RATED ON ACCOUNT OF BANDWIDTH CAPACITY AND SITE SHARING WHICH HAS D IRECT NEXUS WITH THE BUSINESS INCOME OF THE INDUSTRIAL UNDERTAKING IT M EANS THAT THE INCOME DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAK ING IS ELIGIBLE FOR DEDUCTION U/S. 80IA(1) OF THE ACT. IN SECTION 80IA THE EXPRESSION USED IS PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF INDUSTRIAL UNDERTAKING CLEARLY SHOWS THE INTENTION OF THE LEG ISLATURE WHILE INSERTING THE WORDS ANY BUSINESS OF WAS TO GIVE B ENEFIT OF DEDUCTION NOT ONLY PROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING BUT ALSO TO GIVE BENEFIT OF DEDUCTIONS IN RESPECT OF INCOME HAVING A CLAUSE AND DIRECT NEXUS WITH THE PROFITS AND GAINS OF THE INDU STRIAL UNDERTAKING. THE WORD BUSINESS IS A WORD OF WIDE AMPLITUDE SO AS TO COVER ANY TRADE INDUSTRY OR ANY ACT OF ADVENTURE IN THE NATU RE OF TRADE WHEREAS THE WORD INDUSTRY IS A WORD OF VERY LIMITED MEANI NG. WHENEVER THE LEGISLATURE HAD INTENDED TO GIVE BENEFIT OF DEDUCTI ON TO THE WIDER EXTENT OF INCOME AND NOT ONLY TO THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING IT USED THE EXPRESSION LIKE PROFIT AT TRIBUTED TO. THUS TO GIVE MORE EXTENDED BENEFIT THE STATUTE HAS USED THE EXPRESSION INCOME DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTA KING. THUS THE LEGISLATURE CERTAINLY WANTED TO GIVE BENEFIT OF DED UCTION NOT ONLY TO THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING BUT TO I NCOME WHICH IS DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING MEA NING THEREBY THAT ALL SORT OF INCOME WHICH IS INEXTRICABLY RELATED TO THE CARRYING ON THE BUSINESS OF INDUSTRIAL UNDERTAKING IS TO BE CONSIDE RED FOR COMPUTING DEDUCTION UNDER SECTION 80-IA. THUS IF AN ACT IS REQUIRED TO BE UNDERTAKEN ESSENTIALLY FOR CARRYING ON OF THE BUSIN ESS OF INDUSTRIAL UNDERTAKING AND IF ANY INCOME IS GENERATED OUT OF S UCH ACT THE SAME IS TO BE CONSIDERED FOR COMPUTING DEDUCTION UNDER SECT ION 80IA. IN THE PRESENT CASE THE INCOME FROM SALE OF EXCESS BANDWID TH CAPACITY AND REVENUE FROM SITE SHARING ARE DIRECTLY AND INEXTRIC ABLY LINKED TO THE BUSINESS INCOME OF THE INDUSTRIAL UNDERTAKING AND T HUS DEDUCTION IS ALLOWABLE U/S. 80IA OF THE ACT. ACCORDINGLY THESE ISSUES OF THE ASSESSEES APPEAL ARE ALLOWED. 39. IN THE LIGHT OF THE AFORESAID DECISION OF THE I TAT IN THE ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR WE HAVE NO ALTERNATIVE BUT TO UPHELD 41 ITA NO.1878& 1361/AHD/2009 41 THE FINDINGS OF THE LD. CIT(A).THEREFORE GROUND NO .2 IN THE APPEAL OF THE REVENUE IS DISMISSED. 40. NEXT GROUND NO.3 RELATES TO DELETION OF ADDITIO N OF RS. 9 52 20 000/- ON ACCOUNT OF PROVISION FOR MUNICIPAL TAX WHILE DETERM INING BOOK PROFITS IN TERMS OF PROVISIONS OF SECTION 115JB OF THE ACT. THE AO NOTICED THAT THE ASSESSEE MADE A PROVISION OF RS.9.52 CRORES FOR MUNICIPAL TA XES AND CLAIM DEDUCTION WHILE COMPUTING BOOK PROFITS IN TERMS OF THE PROVIS IONS OF SECTION 115JB OF THE ACT. SINCE PROVISION HAD BEEN MADE ON ESTIMAT ED BASIS AND WAS NOT TOWARDS AN ASCERTAINED LIABILITY THE AO DISALLOWED THE CLAIM. 41. ON APPEAL THE LD. CIT(APPEALS)WHILE RELYING UPON AN ORDER DATED 09-01- 2009 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY2005-2006 ALLOWED THE CLAIM OF THE ASSESSEE. 42. THE REVENUE IS NOW IN THE APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS). BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 09- 01-2009 BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-20 06. 43. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT WHILE ADJUDICATING A SIMILAR ISSUE IN ITA NO. 1369 & 2000/AHD /2008 A CO-ORDINATE BENCH OF THE ITAT IN THE ASS ESSEES OWN CASE FOR THE AY 2005-2006 VIDE THEIR ORDER DATED 9.1.2009 CONCL UDED AS UNDER: 40. AFTER HEARING THE RIVAL CONTENTIONS AND GOING THROUGH THE PROVISIONS OF SECTION 115JB OF THE ACT IT IS SEEN THAT THERE IS NO PROVISION UNDER WHICH MUNICIPAL TAXES CAN BE ADDED WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. MOREOVER THE A SSESSEE ARGUED THAT IT HAS TAKEN SITES ON RENT IN VARIOUS PARTS OF GUJA RAT. IN THE AREAS COVERED BY THE MUNICIPAL CORPORATIONS THE MUNICIPA L TAX BILLS ARE GENERALLY RECEIVED REGULARLY. HOWEVER IN THE RURA L/INTERIOR AREAS WHERE SEVERAL SITES ARE INSTALLED THE BILLS FROM T HE LOCAL AUTHORITIES ARE NOT RECEIVED IN TIME. ACCORDINGLY THE ASSESSEE HA S MADE PROVISION FOR MUNICIPAL TAXES IN CASES WERE THE BILLS FROM THE LO CAL AUTHORITIES ARE NOT RECEIVED IN TIME EITHER FROM THE MUNICIPAL CORPORAT ION OR FROM OTHER LOCAL AUTHORITY BASED ON THE TAX LIABILITY THAT ARO SE IN THE PRECEDING YEARS OR ON SOME OTHER BASIS. THE ACCOUNTING STAND ARDS NOTIFIED UNDER SECTION 145(2) PARA 4(I) OF ACCOUNTING STANDARD-1 P ROVIDE THAT PROVISION SHOULD BE MADE FOR KNOWN LIABILITIES AND LOSSES EVEN THOUGH 42 ITA NO.1878& 1361/AHD/2009 42 THE AMOUNT CAN BE DETERMINED WITH SUBSTANTIAL ACCUR ACY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVA ILABLE INFORMATION. IT SEEMS THAT THE PROVISIONS MADE FOR MUNICIPAL TAX LI ABILITY ON THE BASIS OF REASONABLE ESTIMATE MADE BY THE MANAGEMENT ON TH E BASIS OF THE RELEVANT INFORMATION CANNOT BE ADDED AND CANNOT BE CALLED UNASCERTAINED LIABILITY. ACCORDINGLY WE DELETE TH E SAME AND ALLOW THE CLAIM OF THE ASSESSEE. THIS ISSUE OF THE ASSESSEE S APPEAL IS ALLOWED. 44. IN THE LIGHT OF THE AFORESAID DECISION OF THE I TAT IN THE ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE. THEREFORE GROUND NO.3 IN THE APPEAL OF THE REVENUE IS DISMISS ED. 45. GROUND NOS.4 AND 5 IN THE APPEAL OF THE REVENUE BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION AN D ARE THEREFORE DISMISSED. 46. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED WHILE THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 29 TH JANUARY 2010. SD/- SD/- /- (H.L. KARWA) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED: 29 /1/2010 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. A.C.I.T. CIRCLE 8 AHMEDABAD 3. CIT(A)-XIV AHMEDABAD 4. THE CIT CONCERNED 5. THE DR AHMEDABAD A BENCH 6. THE GUARD FILE. BY ORDER ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES AHMEDABAD.