Telecom Company Secures Complete Victory Across Major

Telecom Company Secures Complete Victory Across Major Corporate, International Tax, and Accounting Reconciliation Issues

Issue

Whether multiple ad hoc additions and disallowances made by the Assessing Officer concerning business discounts, international interconnect charges, spectrum amortisation, outstanding government loans, timing-based ledger mismatches, and rule-based calculations without actual exempt income can be legally sustained under the Income-tax Act.

Facts Point Wise

Discounts & IUC Charges: The assessee, a telecom company, provided business discounts to its distributors/franchisees and paid Interconnect Usage Charges (IUC) to foreign operators to enable cross-border network connectivity.
Spectrum Amortisation: The assessee paid one-time charges for 3G and BWA spectrum, claiming $1/20\text{th}$ amortisation under section 35ABB. This service was actively running, with 24.60 lakh subscribers logged by March 31, 2011.
Licence Fee Enhancement: The Commissioner (Appeals) made an ad hoc 15% enhancement disallowance on the remaining licence fees and spectrum charges, ignoring prior Tribunal rulings on the exact same matter.
Government Loan Liability: The Assessing Officer applied section 43B to an outstanding principal loan of Rs. 983.18 crores owed to the Government of India, treating it as an unpaid statutory liability.
Inventory & Circle Mismatches: A timing-gap difference of Rs. 40.27 crores emerged between the General Ledger and Stores Ledger across 700 stores. Separately, internal assets moving between 47 circles created a transit balance of Rs. 1,527.40 crores. The Assessing Officer added both as unexplained items/income.
Depreciation on Village Support: The company received Rs. 720 crores as budgetary support for Village Public Telephones. This was offered and taxed as revenue under the Vivad se Vishwas Act, 2020, yet the AO reduced this sum from the asset block to cut depreciation.
DoT Balances: Current account differences recorded under ‘Claims recoverable/payable to DoT’ were treated by the AO as unconfirmed, taxable recoveries.
Exempt Income Disallowance: The AO applied section 14A read with Rule 8D to disallow expenses using CBDT Circular No. 5/2014, despite the assessee earning zero exempt or dividend income during the year.

Decision Point Wise

Discounts & IUC Upheld: Discounts to distributors do not trigger TDS under section 40(a)(ia). Furthermore, because foreign telecom operators lacked a Permanent Establishment (PE) in India, IUC payments are exempt from Indian tax and cannot be disallowed under section 40(a)(i).
Spectrum Deductions Allowed: Since 3G and BWA operations had actively commenced during the year, the $1/20\text{th}$ amortisation claim under section 35ABB is fully allowable. Consequently, the ad hoc 15% enhancement on licence fees was ordered deleted based on historical consistency.
Section 43B Inapplicable to Principal: Outstanding principal loan amounts do not fall under any statutory category listed in section 43B. There is no legal requirement to repay principal debt to avoid business disallowances.
Reconciliation Additions Deleted: The Rs. 40.27 crore inventory gap and Rs. 1,527.40 crore inter-circle remittances represent non-taxable internal asset transits and timing differences. They are neither profits nor losses.
Double Taxation Avoided on Depreciation: Since the Rs. 720 crore village telephony support was already taxed as revenue, reducing it from the capital asset block would result in an impermissible double disallowance.
DoT Additions Quashed: The balances were verified as internal clearing accounts with the government, and the AO’s comparison formula was found to be mathematically and factually incorrect.
No Section 14A Disallowance Without Exempt Income: Section 14A cannot be triggered if no exempt income was actually earned during the financial year. CBDT Circular No. 5/2014 cannot override the express provisions of the Act.

Key Takeaways

No Exempt Income, No Section 14A: Tax authorities cannot make national expense disallowances under Section 14A based on investments if the core investment generated zero tax-free income during the relevant year.
Circulars Cannot Override the Act: Executive circulars issued by the CBDT are binding on the department but cannot scale up or override clear statutory provisions or judicial interpretations of the law.
Internal Transits are Not Income: Accounting timing lags between distinct internal branches (Store Ledger vs. General Ledger) or asset transits across circles are matters of routine balance sheet reconciliation and cannot be arbitrarily treated as suppressed revenue or unexplained expenditure under Section 69C.
International Connectivity Rules: Payment of Interconnect Usage Charges (IUC) to foreign telecom providers constitutes business profits for those non-residents. In the absence of an Indian Permanent Establishment (PE) under relevant tax treaties, such amounts escape Indian taxation, eliminating any domestic TDS liability.

IN THE ITAT DELHI BENCH ‘F’

ACIT

Bharat Sanchar Nigam Ltd.

Sudhir Kumar, Judicial Member
and S. Rifaur Rahman, Accountant Member

IT Appeal Nos.961, 962 (DEL) of 2016 and1772, 2448 (DEL) of 2018
CO No.241 (Del) 2016
[Assessment years 2011-12 and 2013-14]

APRIL 27, 2026

Ms. Monika Singh, CIT DR for the Appellant. Ajay Vohra, Sr. Adv., Prashant Meharchandani, Arijit Ghosh, Advs., Shivam and Aman, CAs for the Respondent.

ORDER

S. Rifaur Rahman, Accountant Member.- These cross appeals are filed by the assessee and Revenue against the order of ld. Commissioner of Income Tax (Appeals)-2 and 30, New Delhi [“Ld. CIT(A)”, for short] dated 28.12.2015 and 11.01.2018 for the Assessment Years2011-12 and 2013-14 respectively. The assessee has also filed cross objections in the Revenue’s appeal for AY 2011-12.

2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. First We take up assessee’s appeal being ITA No.962/Del/2016 for AY 2011-12.

3. Ground No.1 is general in nature, hence not adjudicated.

4. Grounds No.2 to 4.1 is regarding disallowance under section 40(a)(ia) of the Act on account of discount given to distributors/franchises. In this regard, ld. AR of the assessee submitted that this issue is covered by the decisions of ITAT in case of assessee for AYs 2007-08 to 2009-10 in favour of the assessee. Further the appeals filed by the Revenue in AYs 2007-08 and 2009-10 before the Hon’ble Delhi High Court are decided against the Revenue and the Hon’ble High Court upheld the orders of the ITAT and also against the orders of Hon’ble Delhi High Court, no appeals are filed by the Revenue before the Hon’ble Apex Court. Accordingly, he pleaded that these grounds be allowed.

5. On the other hand, ld. DR of the Revenue did not dispute aforesaid submissions.

6. Considered the rival submissions and material placed on record. Since the issue is already decided in favour of the assessee in earlier assessment years, respectfully following the precedents, we allow above grounds in favour of the assessee.

7. Grounds No.5 to 8 are with regard to disallowance u/s 40(a)(i) of IUC charges paid to international operators. Ld. AR submitted that this issue is also covered in favour of the assessee by the decisions of ITAT vide orders dated 14.12.2022, 20.02.2023 and 25.10.2017 for Assessment Years 2007-08, 2008-09 and 2009-10. Further he submitted that these orders of ITAT in AYs 2007-08 and 2009-10 are upheld by the Hon’ble Delhi High Court and against these orders, the Revenue has not filed any appeal before the Hon’ble Apex Court.

8. On the other hand, ld. DR of the Revenue did not controvert the aforesaid submissions.

9. Considered the rival submissions and material placed on record. Since the issue is already decided in favour of the assessee in earlier assessment years, respectfully following the precedents, we allow ground nos.5 to 8 in favour of the assessee.

10. Grounds No.9 & 10 is regarding addition on account of spectrum charges [3G & Broadband Wireless Access (BWA)] payment payable/ paid to DoT.

11. During AY 2011-12, assessee company paid Rs.10,186.58 crores and Rs.8,313.80 crores as one time charge for 3G spectrum and BWA spectrum, respectively. The same is evident from letters issued by the Ministry of Communications & IT. Thereafter, assessee company launched 3G services from 27 February 2009 and this fact is evident from copy of letter placed at PB Pg no. 122 and copy of letter regarding review of tele service, placed at PB Pg. 146J.

12. Assessee company has amortized Rs.925.01 crores, being 1/20^th of total spectrum charges of Rs.18,500.38 crores paid during AY 2011-12 u/s 35ABB of the Act.

13. AO disallowed the above-mentioned claim of the assessee, stating that the fee paid to DOT for obtaining 3G spectrum and BWA spectrum does not fall within the ambit of section 35ABB of the Act.

14. Thereafter, Ld. CIT(A) confirmed the disallowance made by AO.

15. At the time of hearing, ld. AR of the assessee submitted that in respect of 3G/ BWA spectrum charges claimed as deduction by assessee company during subject year u/s 35ABB of the Act, it is submitted that section 35ABB of the Act provides as under:

“35ABB. (1) In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure.”

(Emphasis supplied)

16. As evident from above, following conditions are required to be satisfied to claim deduction under section 35ABB of the Act:

Expenditure incurred should be capital in nature; and

Expenditure should have been incurred to acquire a right to operate telecommunication services.

17. It is also submitted that a telecom license (National Long Distance/ International Long Distance/ Unified Access License, etc) is required to be obtained as pre-requisite to render services as a telecom operator. The telecom license enables the telecom operator to provide telecom services in India. Once the telecom license has been obtained, the telecom operator is required to bid for relevant spectrum used for rendering telecom services. The spectrum bidding is done separately for different telecom circles designated by Government and a telecom operator cannot render telecom services in a relevant circle unless the spectrum for those circles has been allotted to the telecom operator under an auction. (For example, for a telecom operator to render 3G services in Delhi, 3G spectrum should be allotted to that telecom operator under an auction).

18. In the view of above-mentioned facts, he submitted that it is evident that the expenditure incurred by assessee are capital in nature and expenditure have been incurred to acquire a right to operate telecommunication services and the same is allowable u/s section 35ABB of the Act.

19. Hence, in view of above-mentioned submissions, disallowance made AO and confirmed by Ld. CIT(A), should be deleted.

Allowable under Section 32

20. Without prejudice to above, it is submitted that one-time spectrum charges paid by the assessee company are in the nature of payment for obtaining commercial right and hence, depreciation u/s 32 of the Act should be allowed on the same (as accepted in the assessment order by AO in para 7.5 Page no. 17 of the assessment order). Therefore, while the AO and Ld. CIT (A) do not dispute that depreciation u/s 32 is allowable, depreciation has been allowed based on a perverse allegation that the assessee company has not started operating the 3G services and therefore, did not allow depreciation u/s 32 of the Act. Furthermore, Ld. CIT(A) in his order at Para 7.3.4 at Pg no.61, agreed with the observation made by AO.

21. In this regard, Ld AR submitted that the allegation is contrary to the record which demonstrates that assessee company launched 3G services from 27 February 2009 and this fact is evident from copy of letter placed at PB Pg no.122 and copy of letter regarding review of tele services, placed at PB Pg. 146J.

22. Therefore, in view of the above-mentioned submission, he submitted that depreciation u/s 32 of the Act should be allowed on one-time spectrum charges paid by the assessee company and this contention of assessee is also supported by Hon’ble ITAT Delhi judgment in the case of Tata Teleservices Limited v. ACIT [ITA No. 4150(Del) of 2017, dated 26-8-2025] (CLC Pg no. 285311), wherein Hon’ble Tribunal relying upon the Hon’ble ITAT Mumbai judgment in the case of Idea Cellular Limited v. Pr. CIT [ITA No. 360(Mum) of 2016, dated 6-12-2017] (CLC Pg. no. 312-324), held that depreciation should be allowed on the spectrum charges. Relevant findings of the Hon’ble ITAT Delhi are reproduced below-

“43. Heard both the parties and perused the material available on record. From the perusal of order of Ld. CIT(A), it is seen that the Ld. CIT(A) allowed the depreciation on 3G Spectrum license fee by relying upon the judgment of Hon’ble Co-ordinate Bench of Mumbai Tribunal in the case of Idea Cellular Ltd. v. PCIT (supra) which order is followed by the Co-ordinate Bench of Mumbai ITAT in assessee’s group company case of TTML (supra). Admittedly there is no change in the facts and circumstances and the allegation of the AO while making disallowance of depreciation claimed by the assessee. The Ld. CIT while allowing the deprecation has made the following observations in para 8.2 of its order:

44. Before us, Revenue has miserably failed to bring any material to convert the findings of Ld. CIT(A) who followed the order of Co- ordinate Mumbai Bench of ITAT in case of Idea Cellular (supra). Thus, by following the said order, we hereby upheld the order of Ld. CIT(A) in allowing the depreciation of 3G Spectrum license cost incurred by the assessee. Accordingly, ground of appeal No. 3 of the revenue is dismissed. Other grounds of appeal of Revenue are general in nature needs no adjudication.”

(Emphasis supplied)

Amortisation claimed by the Assessee ought to be Accepted – Directing to allow Depreciation u/s 32 a Revenue Neutral Exercise

23. It is submitted that by the payment of one-time 3G and BWA Spectrum Charges, assessee company has obtained a Spectrum license for 20 years starting the present AY 2011-12. It is submitted that till date, assessee company has throughout claimed an amortisation of the concerned/ subject Spectrum license fee paid u/s 35ABB of the Act. AO has disallowed the claim for amortisation only for the first three Assessment Years (i.e. AY 2011-12 till AY 2013-14). For all other years as may be applicable till date, which have been selected for scrutiny, the amortisation claim on this amount has been accepted.

24. It is submitted that if the claim under Section 32, as accepted by the AO and the Ld. CIT (A), is allowed for the first three assessment years, it will only result in an increase in the Appellant’s unabsorbed depreciation claim and the same will in fact be detrimental to the Revenue.

25. Therefore, it is submitted that in light of the position which has been consistently accepted by the AO on an year-on-year basis and in light of the fact that changing the claim from amortisation to depreciation u/s 32 will only be detrimental exercise for the Department, the amortisation as originally claimed by the assessee ought to be accepted and this disallowance should to be deleted.

26. Furthermore, he submitted that there is no dispute regarding the fact that one-time 3G and BWA Spectrum Charges paid by the assessee company are in the nature of capital expenditure. The only question which is under consideration is whether to allow amortization u/s35ABB of the Act or depreciation u/s 32 of the Act. In either of the case, assessee company is eligible to claim expenditure and therefore Revenue is not deprived of any tax.

27. In this regard, reliance is placed on Hon’ble Supreme Court judgment in the case CIT v. Mafatlal Industries (P.) Ltd (SC)/

2013 (10) TMI 324 – Supreme Court (LB), dated October 8, 2013, wherein Hon’ble Apex Court held that if there is no loss of tax to Revenue then there is no need for the Revenue to continue with litigation when it was quite clear that not only it will be fruitless but also that it may not have added anything much to the public coffers.

28. Further, reliance is placed upon Hon’ble Delhi High Court judgment in the case of Eicher Motors Ltd. v. CIT (Delhi)/ 2017 (9) TMI 1043 – DELHI HIGH COURT, Dated:- September 15, 2017, wherein Hon’ble High Court while considering the question that whether a particular expense is allowable as revenue or capital expenditure, set aside the order of ITAT wherein the issue was remanded back to AO for determining the nature of expenditure and held that if expense is allowable either Revenue or Capital, then in remanding the matter to AO is a fruitless exercise.

29. The case of assessee company is on much better footing, as there is no dispute about the nature of expenditure and the only point of contention is whether to allow amortization u/s 35ABB of the Act or depreciation u/s 32 of the Act.

30. Further reliance is also placed upon CIT v. Bilahari Investment (P.) Ltd. 299 ITR 1 (SC) [27-02-2008.

31. On the other hand, ld. DR of the Revenue brought to our notice para 7 at pages 14 to 17 of the assessment order and submitted that assessee has claimed deduction u/s 35AB of the Act on the basis of amortization of one time payment towards license to operate as telecom operator and however AO has found that assessee has not submitted relevant material to show that assessee has commenced the commercial usage of the right and started subscription of 3G and BWS services during the year under consideration. Therefore, assessee is not eligible to claim deduction u/s 35ABB or section 32(1)(ii) of the Act. Therefore, she heavily relied on the findings of the lower authorities in this regard.

32. Considered the rival submissions and material placed on record. We observed that assessee claimed 1/20^th of the total spectrum fees paid for obtaining the spectrum for 3G and BWA services in the year under consideration. In this regard, assessee has brought to our notice the relevant memo from Ministry of Communication and IT, Department of Telecommunication dated 12.06.2010 towards allocation and demand to pay Rs.8313.80 crores towards allotment of BWA spectrum which is placed at page 123 of the paper book. Further he brought to our notice similar advice dated 02.05.2010 towards allotment of 3G spectrum and with the demand to pay of Rs.10,186.58 crores. Further we noticed that assessee has remitted the abovesaid demand to operate 3G spectrum during the year under consideration. It is fact on record that 3G spectrum was allocated to the assessee during the year under consideration and also assessee had paid the amount in the year under consideration. Accordingly, assessee has claimed the deduction of 1/20^th portion of the total spectrum charges during the year under consideration. We noticed that the AO has rejected the claim of the assessee u/s 35ABB of the Act and also opined that assessee is also not eligible to claim depreciation for the reason that assessee has not started operating these services during the year under consideration, implying that the assessee has not put to use the right to operate 3G spectrum during the year. The same was also sustained by the ld. CIT(A). From the record, we observed that in the annual report for the FY 2010-11 published by the assessee and specifically in the Director’s Report, assessee has submitted a physical performance of various services as under:-

S.No.	Parameter		2010-11
		Status as on 31.03.2010	Target	Achievement	Status as on 31.3.2011
1	Fixed connections
	Land Line	278.31	-27	-26.06	252.25
	WLL	61.45	15	-5.79	55.65
	Total – Fixed Connections	339.75	-12	-31.85	307.90
2	Broadband
	Wireline
	DSL	53.76	30	21.15	74.91
	FTTH	0.00	5	0.01	0.01
	Total – Wireline	53.76	35.00	21.16	74.92
	Wireless
	3G	11.20	35	13.40	24.60
	WiMAX	0.01	3.5	0.09	0.10
	EvDO	0.96	1.5	0.20	1.16
	Total – Wireless	12.16	40.00	13.70	25.87
	Total – Broadband	65.92	75	34.86	100.79
3	Mobile	633.05	200	229.64	862.69

33. From the above chart, we observed that assessee has commenced 3G services to its customers and the status as on 31.03.2011, the assessee had 24.60 lakhs subscribers. It clearly shows that assessee has started operating these services during the year under consideration. Further we also observed that Minister for State of Communication and Information Technology in written reply to a question in Rajya Sabha has informed the Hon’ble Rajya Sabha that BSNL has been able to capture 20,32,564 3G subscribers in its network upto 31.10.2010. The relevant communication is reproduced below:-

“BSNL Target of 3G Services

As on 31.10.2010 Bharat Sanchar Nigam Limited (BSNL) have launched 3G services in 671 cities. BSNL has been able to launch 3G network on Pan India basis except Delhi and Mumbai. BSNL has provided various Value Added Services (VAS) like High Speed Broadband on Wireless Video Calling, Mobile TV, Music, Video Download etc. With the persistent marketing effort service roll out BSNL has been able to capture 20,32,564 of 3G subscribers in its network up to 31.10.2010.

In Delhi and Mumbai, MTNL has made all its existing 2G subscriber base of about 5 million, 3G enabled and MTNL Customers using 3G enabled devices are able to access high speed data, video calling facility and other 3G Value Added Services (VAS) MTNL has also made 3G services affordable at par with 2G Tariff for the benefit of customers.

This information was given by the Minister of State for Communications & Information Technology. Shri Sachin Pilot in written reply to a question in Rajya Sabha today.”

34. From the above, it is amply clear that BSNL has started operating 3G and BWA services during the year under consideration, therefore, there is no doubt that assessee should be allowed to claim deduction u/s 35ABB of the Act. Therefore, we do not like to adjudicate on the eligibility of depreciation u/s 32(1)(ii) of the Act at this stage for the reason that assessee is directly eligible to claim deduction u/s 35ABB of the Act for the simple reason that there is direct deduction available to the assessee under the provisions of section 35ABB of the Act for the year under consideration. With the above observation, we are inclined to allow grounds no.9 & 10 raised by the assessee.

35. Ground No.11 is with regard to Enhancement of Rs.157 crores made by CIT(A).In this regard, it is submitted that by virtue of the payment of one-time 3G and BWA Spectrum Charges, assessee company has obtained a Spectrum license for 20 years and assessee company has amortized Rs.925.01 crores, being 1/20^th of total spectrum charges of INR 18,500.38 crores paid during AY 2011-12, u/s 35ABB of the Act. This sum of INR 18,500.38 crores has been capitalized in the books of account as Entry License Fee.

36. Apart from the above, assessee company also paid fees to DoT on year-to-year basis which is debited to P&L. The same is amounted to INR 1971.72 Crores in the subject FY.

37. The AO has limited the disallowance to spectrum fee of INR 925 crores which is the sum that has been claimed by the assessee company on amortization basis.

38. However, when the issue of disallowance u/s 35ABB travelled to Ld. CIT(A), he wrongly assumed that INR 925.01 crores disallowance was made by Ld. AO out of the expenditure of INR 1971.72 crores and this fact is evident from para 7.3.5 of Page 45, of the CIT(A) order.

39. Thereafter, Ld. CIT(A) on wrong assumption of facts made enhancement of INR 157 crores, being 15% of the difference of these amounts, i.e., INR 1046.71 crores (INR 1971.72 crores – INR 925.01 crores). This disallowance (of 15%) has been made by simply following the order of CIT(A) for AY 2003-04 and this fact is evident from para 7.3.6 of Page of 62 of the CIT(A) order.

40. In this regard, it is submitted that assessee company filed an appeal before Hon’ble ITAT against the order of his predecessor relied upon by Ld. CIT(A), and Hon’ble Tribunal in its order bearing ITA No. 3718/Del/2006 & others (CLC Pg.no. 330-348) for AY 2003-04 and multiple AYs, held that license fee and spectrum charges paid by assessee, have to be allowed in full. Relevant finding of the Hon’ble ITAT is reproduced below:

“4. Allowability of License Fee: We first take up the assessee’s ground which is against the disallowance of license fees and spectrum charges by the A.O.

4.1. This issue arises in the assessee’s appeal as ground no.2 for the A.Y. 2003-04 and as ground no.1 for the A.Y. 2005-06 to 2007-08, as ground no.4 for the A.Y. 2008-09. This issue also arises in the revenue’s appeals.

4.2. The A.O. disallowed the amount on the ground that the expenditure incurred on license fee was not allowable u/s 37 of the Act. He noted that for the earlier years the Ld. CIT(A) allowed the claim of the assessee on the basis of an ITAT decision in the case of MTNL, but as the Revenue has not accepted this decision, the addition is being made. Alternatively, he held that license fee and spectrum fee were statutory liabilities and had to be paid by the assessee without any option before the due date specified for such payment. He held that the amount cannot be allowed in view of S.43B of the Act, for the reason that, the amount of INR 1,332.05 crores was paid after the due date of filing of the return and as a difference of INR 85.05 crores remained unpaid.

On appeal the First Appellate Authority held that as far as spectrum charges and national long distance license fee are concerned, there is a categorical qualification made by the auditors of the assessee company in their audited report, that the amount in question was not in line with the agreement and that the effect there of could not be determined and that such claim; was made merely based on estimates without any specific scientific method adopted by the assessee and therefore in view of these facts and in the absence of such details, the claim of the assessee that the entire amount should be allowed as deduction cannot be accepted. He further held that the assessee company does not have specific details by which deviation of estimated license fee in respect of NLD could be determined with reference to the actual amount of license fee available and that it is not possible to determine the NLD revenues earned during the year, which forms part of the AGR. He restricted the disallowance to 15% of the total amount claimed under this head on adhoc basis. On the alternative ground of disallowance made by the AO u/s 43B of the Act, he followed the decision of Hon’ble Calcutta High Court in the case of CIT v. Vares International Pvt. Ltd. 225 ITR 831 and held that, the license fee in question cannot be treated as tax, duty, cess or fees as has been envisaged u/s 43B of the Act and hence a disallowance cannot be made under this Section. Aggrieved with this order both the assessee as well as the Revenue have filed appeals.

4.4. After hearing rival contentions, we find that the issue in question is no more res integra. The ITAT Mumbai “D” Bench in the case of Videsh Sanchar Nigam Ltd. v. JCIT (2002) reported in 81 ITD 456 (Mumbai) vide order dt. 14th September 2000 held as follows.

4.5. The above decision has been followed by Delhi F Bench of ITAT in the case of MTNL v. JCIT in ITA No.377/Del/2001 for the A.Y. 1997-98 and in ITA Nos. 3448, 3449 and 3450/Del/2003 and 2919/Del/2004 for the AY 1998-1999 to 2002-03 vide order dt. 3rd Feb., 2006.

4.6. Further the AO himself for the A.Y. 2004-05 did not make any disallowance of licence fee paid by following the opinion given by the Attorney General of India who had given an opinion in favour of the assessee.

The contentions of the Ld. D.R. that he amount of license fee is not ascertainable has been answered by the assessee by giving an affidavit before this Bench, wherein it is stated that the amount paid to the government as license fee and debited by the BSNL in its Profit and Loss a/c has not been disputed till date and that the quantification by B.S.N.L. has been accepted by the government. When a particular amount of license fee is calculated and paid as a full and final payment by the assessee to the government and when the government has not disputed the same till date, the question of holding that the amount is not ascertainable at this length of time does not arise. As regards invoking the provisions of S.43B of the Act, we uphold the findings of the First Appellate Authority. The quantum of the license fee paid is neither tax, duty, cess or fees. The Ld. CIT(A) has rightly relied on the decision of Hon’ble Calcutta High Court in the case of CIT v. Varas International Pvt. Ltd. reported in 225 ITR 831 . The ‘license fees’ being a charge received by the government for parting with rights, is neither a tax, nor a duty, nor a fee, nor a cess within the meaning of S.43B of the Act. Hence this Sec.43B cannot be applied.

4.8. In view of the above discussion, we allow the appeal of the assessee and dismiss the appeal of the Revenue on this issue. As we have held so, the alternative contentions raised by the assessee need not be adjudicated as it would be an academic exercise.

5.2. In view of our finding that the license fee and spectrum charges have to be allowed in full, we delete this adjustment made to the book profit u/s 115JB of the Act to the extent sustained by the First Appellate Authority. In the result, consistent with the view taken on the issue of allowability of license fee and spectrum charges, we allow the ground of the assessee and dismiss the ground of revenue”

(Emphasis supplied)

41. In view of the above-mentioned submissions and judicial pronouncement in assessee’s own case, ld. AR pleaded that the enhancement by way of disallowance of 15% amounting to Rs.157 crores, ought to be deleted.

42. On the other hand, ld. DR of the Revenue relied heavily on the detailed findings of Ld CIT(A) and submitted that the Ld CIT(A) had rightly enhanced the same.

43. Considered the rival submissions and material placed on record. With regard to ground no.11, we observed that ld. CIT (A) has enhanced the addition of Rs.157 crores for the reason that assessee has claimed Rs.925.01 crores u/s 35ABB on account of amortization of payments made for obtaining BWA Spectrum and 3G spectrum. He observed that assessee has made the payment as one time charge towards the 3G and BWA spectrum. The abovementioned payment made to Government of India during the current FY under consideration for a period of 20 years from the date of warranty of right to commercial use the allocated spectrum block. He observed that it is in the nature of capital expenditure for operating telecom services for which the payments were made. He further observed that assessee has debited a total amount of Rs.1971.72 crores as expenditure as licence fees and spectrum fees to its Profit & Loss account for the year under consideration. He observed that this amount consists of licence fees and spectrum charges for 3G and BWA services besides other charges as well. Since the AO while passing the assessment order has made a disallowance of Rs.925.01 crores out of Rs.1971.71 crores as discussed above, he observed that the balance amount Rs.1046.71 crores i.e. Rs.1971.71 crores minus Rs.925.01 crores, was also to be disallowed. He noticed that the erstwhile ld. CIT (A) in earlier assessment years has disallowed 15% of the spectrum charges were disallowed. Taking cue from the above findings, he also enhanced the disallowance to the extent of Rs.157 crores being 15% of Rs.1046.71 crores. Before us, ld. AR of the assessee brought to our notice that the disallowances made in the earlier assessment years were considered by the coordinate Bench in assessee’s own case and decided the issue in favour of the assessee. He brought to our notice relevant findings of the coordinate Bench in AY 2003-04 and other assessment years, in particular in ITA No.3712/Del/2006 as under :-

“4. Allowability of License Fee: We first take up the assessee’s ground which is against the disallowance of license fees and spectrum charges by the A.O.

4.2. The A.O. disallowed the amount on the ground that the expenditure incurred on license fee was not allowable u/s 37 of the Act. He noted that for the earlier years the Ld. CIT(A) allowed the claim of the assessee on the basis of an ITAT decision in the case of MTNL, but as the Revenue has not accepted this decision, the addition is being made. Alternatively, he held that license fee and spectrum fee were statutory liabilities and had to be paid by the assessee without any option before the due date specified for such payment. He held that the amount cannot be allowed in view of S.43B of the Act, for the reason that, the amount of INR1,332.05 crores was paid after the due date of filing of the return and as a difference of INR85.05 crores remained unpaid.

4.3. On appeal the First Appellate Authority held that as far as spectrum charges and national long distance license fee are concerned, there is a categorical qualification made by the auditors of the assessee company in their audited report, that the amount in question was not in line with the agreement and that the effect there of could not be determined and that such claim was made merely based on estimates without any specific scientific method adopted by the assessee and therefore in view of these facts and in the absence of such details, the claim of the assessee that the entire amount should be allowed as deduction cannot be accepted. He further held that the assessee company does not have specific details by which deviation of estimated license fee in respect of NLD could be determined with reference to the actual amount of license fee available and that it is not possible to determine the NLD revenues earned during the year, which forms part of the AGR. He restricted the disallowance to 15% of the total amount claimed under this head on adhoc basis. On the alternative ground of disallowance made by the AO u/s 43B of the Act, he followed the decision of Hon’ble Calcutta High Court in the case of CIT v. Vares International Pvt. Ltd. 225 ITR 831 and held that, the license fee in question cannot be treated as tax, duty, cess or fees as has been envisaged u/s 43B of the Act and hence a disallowance cannot be made under this Section. Aggrieved with this order both the assessee as well as the Revenue have filed appeals.

………….

4.7. The contentions of the Ld. D.R. that he amount of license fee is not ascertainable has been answered by the assessee by giving an affidavit before this Bench, wherein it is stated that the amount paid to the government as license fee and debited by the BSNL in its Profit and Loss a/c has not been disputed till date and that the quantification by B.S.N.L. has been accepted by the government. When a particular amount of license fee is calculated and paid as a full and final payment by the assessee to the government and when the government has not disputed the same till date, the question of holding that the amount is not ascertainable at this length of time does not arise. As regards invoking the provisions of S.43B of the Act, we uphold the findings of the First Appellate Authority. The quantum of the license fee paid is neither tax, duty, cess or fees. The Ld. CIT(A) has rightly relied on the decision of Hon’ble Calcutta High Court in the case of CIT v. Varas International Pvt. Ltd. reported in 225 ITR 831 . The ‘license fees’ being a charge received by the government for parting with rights, is neither a tax, nor a duty, nor a fee, nor a cess within the meaning of S.43B of the Act. Hence this Sec.43B cannot be applied.

…………

5.2. In view of our finding that the license fee and spectrum charges have to be allowed in full, we delete this adjustment made to the book profit u/s 115 JB of the Act to the extent sustained by the First Appellate Authority. In the result, consistent with the view taken on the issue of allowability of license fee and spectrum charges, we allow the ground of the assessee and dismiss the ground of revenue”

44. Respectfully following the above, we are inclined to delete the additions made by the ld. CIT (A) and accordingly allow ground no.11 raised by the assessee.

45. Grounds No.12 to 15 are against the addition of Rs.983.47 crores u/s 43B as well as u/s 115JB of the Act on account of outstanding principal amount of loan from GOI.

46. At the outset, it is relevant to mention that the outstanding balance of 15-year Government of India loan as on 31 March 2011 is Rs.983.18 crores and Ld.AO has wrongly considered the same as Rs.983.47 crores.

47. Furthermore, it is submitted that Rs.983.18 crores represent the principal portion of the outstanding loan as on 31 March 2011 and the same is evident from Pg no.56 of the Annual report, copy of office memorandum placed at PB Pg no. 146N and also from copy of letter along calculation sheet received from Department of telecommunication dated 17 June 2010 (PB 2 Pg no. 147-148).

48. Furthermore, during the course of proceeding before Ld. CIT(A), assessee company filed its submission dated 13 May 2025 (PB Pg no. 131-134) and reiterated its submission that Rs.983.18 crores represent the principal portion of the outstanding loan as on 31 March 2011.

49. Therefore, it is evident from above mentioned submissions that Rs.983.18 crores represent the principal portion of the outstanding loan as on 31 March 2011.

50. It is also submitted that Ld. AO has made the above-mentioned addition by engaging in surmises and conjecture and this fact is evident from assessment order itself wherein Ld. AO has made addition without specifying any specific clause of section 43B of the Act.

51. Furthermore, during the course of proceeding before Ld. CIT(A), Ld. AO submitted remand report (PB Pg no. 81), wherein Ld. AO has alleged that the outstanding balance of INR 983.18 crores is statutory dues and clauses (d) & (e) of section 43B will be applicable.

52. In this regard, it is submitted that the amount of INR 983.18 crores does not pertain to any statutory liability such as tax, duty, cess, or fee payable under any law for the time being in force and Clauses (d) and (e) of Section 43B are applicable only on interest payable to public financial institutions, State financial corporations, State industrial investment corporations, or scheduled banks. The present case does not involve any such interest liability; hence these provisions are not applicable.

53. In the view of the above-mentioned submissions, addition made by AO and confirmed by Ld. CIT(A) u/s 43B as well as u/s 115JB of the Act deserves to be deleted.

54. On the other hand, ld. DR of the Revenue submitted only status report vide email dated 28.01.2026 and submitted that ld. CIT(A) confirmed the addition made by the AO and relied on the orders of the authorities below.

55. Considered the rival submissions and material placed on record. We observed that the assessee had declared in its balance sheet that it has outstanding loan of Rs. 983.18 crores to GOI as on 31.03.2011. The same was treated as due payable under the category of statutory payment u/s 43B of the Act. On the contrary, we observed that the same is outstanding principal amount to GOI. Therefore, the above said outstanding is not related to any category mentioned say clause (d) or (e) u/s 43B of the Act. Moreover, it is relating to interest portion and there is no requirement in the above section to settle the outstanding principal amount due to GOI. Therefore, the addition proposed by the lower authorities are deserved to be deleted. In the result, grounds raised by the assessee are allowed.

56. Ground No.16 is against the addition of Rs.40.27 crores on account of difference between general ledger and store ledger for inventory.

57. At the outset, ld. AR of the assessee submitted that it is relevant to mention that both Ld. AO and Ld. CIT(A) have engaged in surmises and conjectures while making the addition.

58. Ld. AR submitted that the assessee has 47 circles and 700 stores/accounting units and it maintains the record of its inventory at the store level as well as the general level. The general ledger is updated on regular intervals based upon the store ledgers. During the period under question, the movement in the inventory was recorded in the accounts manually and hence, there was always a time-gap in reporting the exit and entry of an inventory while reconciling the general ledger with the store ledgers unlike today when recording of inventory gets updated on a real time basis. Therefore, this difference was merely a time difference and an ongoing reconciliation issue.

59. Moreover, the difference of Rs.40.27 crores is because the amount reported in the general store ledger is higher than the amount in the store ledgers and hence, there is no question of an addition in this scenario.

60. AO simply made an addition based on the difference between the two ledgers. When the issue travelled in appeal, Ld. CIT(A) without any basis or information, made a completely perverse and incorrect finding that the amount in the store ledger is higher than the amount in the general ledger and made an addition u/s 69C of the Act.

61. The Ld. CIT(A) has drawn an erroneous conclusion that store ledger is excess of amount reflected in general ledger (refer para 9.4.2 of his order). However, this is not the case as general ledger is excess of the amount reflected in store ledger. It is further submitted that the financial statements including profit and loss account have been prepared considering the general ledger. The excess balance in general ledger over stores ledger, means that such excess balance (i.e. excess income) has only been considered/ reported for the purpose of accounting as well as taxability. Therefore, any further addition, would lead to a double disallowance/ taxation.

62. In this regard, it is submitted that it is settled position in law that AO and Ld. CIT(A) have to examine the facts of the case in the light of the explanation provided by the assessee and the explanation provided by the assessee cannot be rejected without brining any corroborative material on record. This contention of assessee is supported by Supreme Court judgment in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC)/ 1959 (5) TMI 12 – Supreme Court, Dated: – May 14, 1959.

63. Furthermore, Ld. CIT(A) has failed to bring on record any evidence that would support his allegation that certain purchases made by assessee company has not been recorded in the financial statement and therefore, addition made by Ld. AO and confirmed by Ld. CIT(A), should be deleted.

64. On the other hand, ld. DR of the Revenue relied on the orders of the authorities below.

65. Considered the rival submissions and material placed on record. We observed that there was difference observed between General Ledger and Stores Ledger for inventory. It is brought to our notice that assessee has 47 circles and 700 stores and it maintains record of its inventory at store level as well as general level. We noticed that there is a time gap in reporting the inventory movements on real time basis. It is fact on record that there may be difference of stock between Stocks Ledger and General Ledger maintained by the assessee. The difference observed is of Rs.40.27 crores for the simple reason that the amount reported in the general store ledger is higher than the amount in the store ledger. There is a time gap between reporting of movement of stock between the store and head office and the difference may even lesser than the amount reported in general ledger. It is the difference of reporting which needs to be reconciled by the assessee. The same cannot be subject matter of addition simply because there is excess stock in general ledger compared to store ledgers. In our considered view, Revenue authorities could have asked the assessee to file reconciliation in respect of making the addition. It cannot be the reason for the assessee to claim the difference in case assessee reports lesser amount in general and store ledger, therefore, there is no justification to make addition when the assessee itself had not claimed any deduction in its computation or in the profit and loss statement. This is only stock reconciliation and what is relevant is the stock movement as reported by the statutory auditors. What is necessary to be seen is the reconciliation of movement of stock reported by the assessee in Form 3CD which is duly audited by the statutory auditors. In absence of any reports on this aspect by the auditors adversely, there is no requirement to make any adjustment, therefore, we are inclined to allow the ground no. 16 raised by the assessee.

66. Ground No.17 is against the addition of Rs.1527.40 crores on account of Inter/Intra Circle remittance balance by alleging the same to be difference between store ledger and control ledger.

67. In this regard, it is submitted that assessee company consists of about 47 Circles and their 700 Accounting Units spread over the different states of the country and conduct of assessee company operations involves movement of assets, capital work in progress, and other business liabilities/ other items between the abovementioned Circles/ Accounting Units.

68. At the time of movement between Circles (e.g., from West Bengal Circle to Odisha Circle), one Circle (i.e., West Bengal Circle) raises an Advice of Transfer of Debit (‘ATD’) upon the latter (i.e., Odisha Circle). The item then moves to the other Circle (i.e., Odisha Circle) and is required to be inspected, verified and recorded by the authorized personnel upon receipt at the other Circle (i.e., Odisha Circle). Once the item is inspected, verified and recorded, the other circle (i.e., Odisha Circle) raises a corresponding Advice of Credit (‘ATC’) upon the former Circle (i.e., West Bengal Circle).

69. The above-mentioned exercise of raising ATC may not be completed with respect to many items in transit on or before 31 March of the year. However, for control purposes, ATD shall continue to reflect as pending between the Circles, representing an item ‘In Transit’ between the two Circles. The said exercise is an ongoing process and balance, if any, lies in the balance sheet, reflecting as Inter/Intra Circle Remittance Balance, on which the liability is yet to be recorded.

70. It is also submitted that amount of Rs.1527.40 crores for AY 2011-12, primarily reflects the abovementioned value of assets which are in transit between the Circles and have not been accepted, verified and recorded by the receiving Circles.

71. The accounting entry recorded at the time of recording the asset acquired by the transferring Circle (i.e., West Bengal Circle) and subsequent transfer of the said asset to the receiving circle (i.e., Odisha Circle) is as follows:

At the time of purchase/ acquisition of asset by West Bengal Circle (say on 1 April 2010):

Fixed Assets (West Bengal) A/c	Dr.	1,000
To Vendor/ Supplier A/c		1,000

At the time of transfer of asset by West Bengal Circle (say on 25March 2011):

Inter/Intra Circle Remittance A/c	Dr.	1,000
To Fixed Assets (West Bengal) A/c		1,000

At the time of receipt/ recoding of asset by Odisha Circle (say on 4 April 2011):

Fixed Assets (Odisha) A/c	Dr.	1,000
To Inter/Intra Circle Remittance A/c		1,000

72. As is evident from the above accounting entry, there is no liability/ expense recorded in the Profit & Loss account with respect to the above items in transit between Circles and pending confirmation from the receiving Circle of the assessee company. Accordingly, there is no tax deduction claimed by the company with respect to the above items in transit in the return of income.

73. Furthermore, the difference recorded in the Inter/ Intra Circle Remittance Balance Account, represents a timing difference and gets accounted for in the subsequent year(s), once the subject asset/ liability/ income/ expenditure is recorded by the receiving Circle.

74. Assessee company in support of its contention has furnished a certificate placed PB Pg no. 146E-146F.

75. In the view of above-mentioned submissions, addition made by Ld.AO and confirmed by Ld. CIT(A), deserves to be deleted.

76. On the other hand, ld. DR of the Revenue submitted status report and relied on the orders of the authorities below.

77. Considered the rival submissions and material placed on record. With regard to addition of Rs.1527.40 crores on account off inter/intra circle remittances, we observed that assessee has about 47 circles and 700 accounting units spread over the country and it involves movement of assets, capital work-in-progress and other business items between the circles are internal movement of the assessee and assessee records the same by passing transfer entries by way of passing general entries between the circles. These movement of stocks are nothing but stock in transit between the circles and accounting units. It is also an item of reconciliation within the organisation and if there is any difference what is required to be seen is whether the assessee claims the same or not. It is a matter of audit and reporting within the unit. It is also one of the primary duties of respective auditors to report the reconciliation and if there is any pilferage in movement of stock, they have to report the same as part of statutory reporting. We observed that assessee has never claimed the same as an expenditure and in this regard, we observed that assessee also filed a certificate which is placed at pages 146E and 146F of the paper book. A certificate from the management which is placed at pages 146E & F of the paper book clearly indicates that it is only movement of assets between the circles. It cannot be treated as neither loss or profit. We noticed that tax authorities have added the same as addition to the income of the assessee which is uncalled for. Accordingly, ground no.17 raised by the assessee is allowed.

78. Ground No.18 is with regarding to penalty proceedings u/s 271(1)(c) of the Act, which is premature.

79. In the result, the assessee’s appeal being ITA No.962/Del/2016 for AY 2011-12 is allowed as per above terms.

80. Now we take up assessee’s appeal being ITA No.1772/Del/2018 for the AY 2013-14.

81. Grounds No.1 & 1.1 is against the addition of Rs.926,27,00,000 on account of amortisation of amount paid for 3G and BWA spectrum.

82. We observed that these grounds are similar to grounds no.9 & 10 of assessee’s appeal for AY 2011-12 and we have decided the issue in favour of the assessee vide paras 10 to 18 above. Accordingly, following the same findings, grounds no.1 & 1.1 of assessee’s appeal are allowed.

83. Ground No. 2 & 2.1 is with regard to addition of Rs.20,68,60,898 on account of income relatable to undisclosed TDS.

84. At the time of hearing, ld. AR of the assessee submitted that Ld. CIT(A), agreed with the contention of assessee that the addition made by AO is arbitrary, however, Ld. CIT(A) remanded the matter back to AO.

85. Now, the assessee has filed an appeal before ITAT against the action of Ld. CIT(A), remanding the matter back to AO.

86. It is pertinent to mention that during the course of assessment proceedings, assessee company submitted that all receipts pertaining to the AY 2013-14 has been duly accounted for in the financial statements.

87. However, AO without rejecting the abovementioned submission, made the arbitrary addition, without application of mind. Hence, the arbitrary addition made Ld. AO, should be deleted.

88. On the other hand, ld. DR of the Revenue brought to our notice the findings of the AO and ld. CIT (A) and relied on the orders of the authorities below and other submissions in favour of the orders of the authorities below.

89. In rejoinder, ld. AR of the assessee submitted as under :-

In this regard, it is submitted that at the time of filing of return of income for the subject AY, assessee company has claimed a credit of taxes deducted at source (‘TDS’) amounting to INR 392,35,47,732, based on Form 16A available with the assessee company.

Thereafter, during the course of assessment proceedings, the TDS credit amount reflecting in the form 26AS stood revised to INR 394,19,69,646 (likely due to revision of TDS return by the customers). Hence, there was a difference of INR 1,84,21,914 in the amount of TDS claimed by the assessee company vis-a-vis TDS reflected in revised/updated form 26AS.

On the basis of the above-mentioned difference in the TDS claimed by assessee company, Ld. Assessing Officer (‘AO’) arbitrarily proceeded to make the addition of INR 20,68,60,898, without application of mind.

Aggrieved by the order of Ld. AO, assessee company filed an appeal before Ld. Commissioner of Income Tax (Appeal) [hereinafter referred as Ld. CIT(A)].

The Ld. CIT(A) accepted the assessee’s contention that the Ld. AO should not have made the addition on the basis of mere extrapolation. Ld. CIT(A) set aside the assessment qua this issue and. remanded the matter to the Ld. AO with direction to furnish the necessary details to the assessee, provide adequate opportunity of being heard, verify the assessee’s claim, and grant requisite relief. This is evident from Page 25, para 8.1 of the Ld. CIT(A)’s order dated 11 January 2018, under section (‘u/s’) 250 of the Income Tax Act (‘the Act’)

On merits, it is submitted that delayed withholding of tax by a customer out of income accounted for on accrual basis, resulting in credit reflecting in Form 26AS subsequently, cannot lead to addition of income already accrued and offered to tax.

That apart, thereafter, it is respectfully submitted that, as on date, the Ld. AO has not yet passed an order to give effect to the directions contained in the order of Ld. CIT(A) passed u/s250 of the Act and thereby resulting in order being barred by period of limitation.

In this regard, it is submitted that section 153(6) of the Act specifically deals with situation where assessment, reassessment or computation is to be made to give effect to any direction contained in the an order passed u/s 250 of the Act.

As per section 153(6) of the Act, Ld. AO should pass an order to give effect to direction contained in an order u/s 250, on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Chief Commissioner or Chief Commissioner or] Principal Commissioner or Commissioner, as the case may be. Relevant extract of section 153(6) of the Act is reproduced below:

“(6) Nothing contained in sub-sections (1) [, (1A)] and (2) shall apply to the following classes of assessments, reassessments and recomputation which may, subject to the provisions of sub-sections (3), (5) and (5A), be completed—

(1) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act, on or before the expiry of twelve months from the end of the month in which such order is received or passed by the [Principal Chief Commissioner or Chief Commissioner or] Principal Commissioner or Commissioner, as the case may be; ”

10.

In the present case, the order of Ld. CIT(A) was received by the Revenue on 7 February 2018 (as evident from the Form 36 filed by Revenue in its appeal) and accordingly as per section 153(6) of the Act, Ld. AO should have passed an order giving effect to direction contained in the order of Ld. CIT(A) by 28 February 2019. However, Ld. AO has failed to pass an order within the time limit stipulated as per section 153 of the Act and therefore, the order has now become time barred.

In view of the above, since, Ld. AO has failed to pass an order within the time limit stipulated as per section 153 of the Act as per the directions of the Ld. CIT(A), the addition made by the Ld. AO does not, in any case, survive. Noting the aforesaid, the addition made by the Ld. AO ought to be deleted.”

90. Considered the rival submissions and material placed on record. On careful consideration, we observed that the Ld CIT(A) had remitted the matter to the AO to allow the claim of the assessee after due verification, there is no prejudice caused to the assessee, therefore, we are inclined to direct the AO also to verify the claim of the assessee and allow the claim as per law. In the result, the ground raised by the assessee is allowed for statistical purpose.

91. Ground No.3 is with regarding to penalty proceedings u/s 271(1)(c) of the Act, which is premature.

92. In the result, the assessee’s appeal being ITA No.1772/Del/2018 for AY 2013-14 is allowed as per above terms.

93. We now proceed with Revenue’s appeal being ITA No.961/Del/2018 for AY 2011-12 and cross objections filed by the assessee in AY 2011-12.

94. Ground No.1 is against the disallowance of depreciation of Rs.216 crores by treating borrowing of Rs.720 Crores received from Government of India as Capital Subsidy. The assessee also filed cross objection vide Ground No.1 against Ground No.1 of Revenue’s appeal.

95. At the time of hearing, ld. DR of the Revenue submitted/brought to our notice findings of AO and pleaded to uphold the same.

96. On the other hand, ld. AR of the assessee submitted that the AO while passing the assessment order for the subject AY has alleged that the loan of Rs. 720 crores received by assessee company from GOI for Village Public Telephones Program (‘VPT’) program, is a capital subsidy and the same should be reduced from the cost of assets and hence disallowed 30% of such loan amount by claiming it to be excess depreciation claimed by assessee company.

97. In this regard, it is submitted that the above-mentioned loan from Government of India was received during FY 2002-03 as a budgetary support for VPT program of assessee company, which was intended to provide telephone connectivity services to all panchayats of India.

98. The said amount was alleged as a revenue receipt by the Ld. AO’s predecessors in the assessment proceedings concluded for AY 2003-04 on the reasoning that the same is a loan in perpetuity i.e., grant in aid for the purposes of providing telephone service in village areas and that the said subsidy received in revenue in nature. The said addition was also affirmed by Ld. CIT(A) in the order passed for AY 2003-04.

99. Thereafter, the said addition was confirmed by the Hon’ble ITAT vide order dated 22 January 2016 passed for AY 2003-04 Bharat Sanchar Nigam Ltd. v. ACIT [ITA Nos. 3440 and 3718/ DEL/ 2006 , dated 22-1-2016].

100. Thereafter, assessee company filed an appeal before Hon’ble Delhi High Court (‘DHC’) against the order of Hon’ble Tribunal.

101. Thereafter, the assessee company settled the dispute under the Direct Tax Vivad se Vishwas Act, 2020 (‘VSV’) and AO passed consequential effect order dated 19 June 2024.

102. Therefore, loan of Rs.720 crores, received from GOI has already been offered to tax and disallowance made by the Ld. AO in the order passed for the subject AY in respect of alleged excess depreciation claimed by assessee company on the amount of Rs. 720 crores will lead to double disallowance of the said amount in the hands of assessee company.

103. Ld. CIT(A) considering the fact that the loan of Rs.720 crores, received from GOI has already been offered to tax, deleted the disallowance made by Ld.AO and the same is evident from para 6.4.3 at Page no. 53 of the CIT(A) order.

104. In view of the above-mentioned submission, ld. AR submitted that the order of CIT(A) deleting the disallowance made by AO, should be upheld.

105. Considered the rival submissions and material placed on record. We observed that the AO while passing the assessment order for the subject AY has alleged that the loan of Rs. 720 crores received by assessee company from GOI for Village Public Telephones Program (‘VPT’) program, is a capital subsidy and the same should be reduced from the cost of assets and hence disallowed 30% of such loan amount by claiming it to be excess depreciation claimed by assessee company. We further observed that the above-mentioned loan from Government of India was received during FY 2002-03 as a budgetary support for VPT program of assessee company, which was intended to provide telephone connectivity services to all panchayats of India. And the said amount was alleged as a revenue receipt by the Ld. AO’s predecessors in the assessment proceedings concluded for AY 2003-04 on the reasoning that the same is a loan in perpetuity i.e., grant in aid for the purposes of providing telephone service in village areas and that the said subsidy received in revenue in nature. We further observed that the said addition was also affirmed by Ld. CIT(A) in the order passed for AY 2003-04 and in appeal before ITAT, the same is also dismissed and the assessee filed an appeal before Hon’ble Delhi High Court against the order of Tribunal. Further we observed that thereafter, the assessee company settled the dispute under the Direct Tax Vivad se Vishwas Act, 2020 (‘VSV’) and AO passed consequential effect order dated 19 June 2024, therefore, loan of Rs.720 crores, received from GOI has already been offered to tax and disallowance made by the AO in the order passed for the subject AY in respect of alleged excess depreciation claimed by assessee company on the amount of Rs.720 crores will lead to double disallowance of the said amount in the hands of assessee company. We further observed that ld. CIT(A) considering the fact that the loan of Rs.720 crores, received from GOI has already been offered to tax, deleted the disallowance made by AO and the same is evident from para 6.4.3 at Page no. 53 of the CIT(A) order. In view of the aforesaid position, we are inclined to uphold the findings of the ld. CIT (A) and accordingly ground no.1 raised by the Revenue is dismissed. As we dismissed the ground no.1 of Revenue, ground no.1 of the cross objections is also dismissed.

106. Ground No.2 is against the addition of Rs.13789.65 crores on account of Unconfirmed and unreconciled amount recovered from DOT. The assessee also filed cross objection vide Grounds No.2 to 4 against Ground No.2 of Revenue’s appeal.

107. At the time of hearing, ld. DR of the Revenue read out the findings of the AO and pleaded to uphold the same.

108. On the other hand, in this regard, it is submitted by the ld. AR that the AO erroneously made the addition of Rs.13,789.65 crores, being the difference between net amount recoverable from DOT of Rs.2,483.97 crores as on 31 March 2011 and the net payable of Rs.16,273.62 crores as on 31 March 2010.

109. In this regard, it is also submitted that GOI transacts with the assessee company as an entity through DOT, being the parent organization. The numerous transactions between GOI and the assessee company are therefore routed through DOT vide accounts named ‘Claims recoverable from DoT’ and ‘Claims payable to DoT, which are in the nature of current accounts. These include transactions relating notional interest on loan received from GOI, etc.

110. During the year under consideration, following balances were outstanding from/to DOT:-

(iii)
Sr. No.	Particulars	Balance as on 31 March 2011	Balance as on 31 March 2010	Change	Remarks	Source
1	Amount recoverable from DOT on Current Account (Dr)	2,957.9 1	2,482.37	475.54	Increase in amount Recoverable from DOT representing BSNL has not received anything from DOT	Schedule K- Loans & Advances
2	Claims Payable to DOT (Cr)	473.9 4	18,755.9 9	18,282.0 5	Decrease in claims payable to DOT representing BSNL has made payments to DOT	Schedule L – Current Liabilities
3	Net Balance of DOT (Sr 1-2)	2,483.9 7	(16,273.62) Net Payable to DOT	18,757.59 Amount paid by BSNL to DOT during FY 10-11	BSNL has a recoverable balance as on 31.03.2011 as compared to payable balance as on 31.03.2010, on account of the payment made by BSNL. Out of the same, amount of Rs. 18,500.38 crores are on account of entry license fee	Addition of Rs. 18500.38 Crores in Fixed Assets schedule shown in Sch D of F.Y 09-10

111. Hence, it is evident that AO erroneously made the addition of Rs.13,789.65 crores, being the difference between net amount recoverable from DOT of Rs.2,483.97 crores as on 31 March 2011 and the net payable of Rs.16,273.62 crores as on 31 March 2010. The same shows that assessee company has made payment of Rs.18,757.59 crores to DOT instead of any recovery during AY 2011-12 as claimed by the AO. Further out of total payment of Rs.18,757.59 crores, Rs.18,500.38 crores is related to Spectrum fee for 3G and BWA services paid to the DoT.

112. In view of his above submission, ld. AR submitted that Ld. CIT(A) has rightly deleted the addition made AO and therefore, order of Ld. CIT(A) should be upheld.

113. Considered the rival submissions and material placed on record. For the sake of brevity, we are reproducing the findings of the ld. CIT (A) as under:-

“10.4.1 I have gone through the assessment order as well as the submissions of the appellant’s AR. The Assessing Officer has made an addition of Rs.13,789.65 crores to the income of the appellant under the heading “Unconfirmed and un-reconciled amount recovered from DOT with the following remarks :-

“10.3 ….From this, it is not clear as to what is the character of the amount recoverable from the DOT. The assessee company has also not explained it. Further from the notes to accounts, it comes out that in the previous year the amount recoverable were Rs.16273.62 crores and this year the amount is shown as 2483.97 crores implying thereby that an amount of Rs.13789.65 has been recovered during the year which remained unexplained. The onus of explaining the matter was on the assessee which it failed to discharge. The reply of the assessee company also is evasive and not substantiated. Keeping in view the facts as narrated in Para 3 of this order, the undersigned is left with no other option but to disallow this amount as unexplained and add back in the income of the assessee company…..”

10.4.2 In appeal before me, the AR of the appellant submitted that on perusal of the final accounts of the appellant, it is clear that the following balances were outstanding to/from the Department of Telecommunication:-

S.No.	Item	Balance as on 31.3.2011	Balance as on 31.03.2010	Change	This Represents:	Source
1	Amount recoverable from DOT on current Account (Dr)	2,95,791	2,48,237	47,554	An increase in Amount Recoverable from DOT, i.e. BSNL has not received anything from DOT	Schedule K Loans & Advance
2	Claims Payable to DOT (Cr.)	47,394	1875.599	(1828.205)	DECREASE in claims payable to DOT, i.e. BSNL has paid to DOT	Schedule L: Current Liabilities
	Net Balance of DOT (Sr.1 – Sr.2)	2,48,397 Net recoverable from DOT	(16,27362) Net Payable to DOT	18,75,759 Net amount paid by BSNL to DOT during F.Y. 10-11	BNSL has a Recoverable balance as on 31.3.11 as compared to a Payable balance as on 31.3.10, which is due to the payment made by BSNL	Addition of Rs.18,500.38 Crores as Entry License Fees to FA Sch shown in Sch D of F.Y. 09-10

10.4.3 From the submission of the appellant as well as the final accounts (alongwith schedules thereto), which were also before the Assessing Officer, it is evident that whether the amounts recoverable from the DOT/payable to DOT are considered separately in isolation of each other or their net effect is considered, the appellant has during the year under appeal not recovered Rs.13789.65 crores from the DOT, as averred by the A.O. in the assessment order. Rather it is the appellant which has made overall payment of Rs.18,757.59 crores to the DOT during the financial year relevant to the assessment year under appeal.

10.4.4 In exercise of the powers vested in the undersigned u/s 250(4), the Assessing Officer was required to examine the submissions of the appellant, including those relating to this ground of appeal. The Assessing Officer was also, vide this office letter no.CIT(A)-2 Delhi/ 2014-15/45 dated 05.01.2015 given an opportunity to appear before the undersigned in order to explain the additions to income made by him/her, which was not availed. However, in her remand report, forwarded vide letter dated 23.02.2015, the Assessing Officer has merely reiterated the stand taken in the assessment order with the following words:-

VII. Unconfirmed and unreconciled amount recovered from DOT

The Assessing Officer observed that it was not clear as to what was the character of the amount recoverable from the DOT. The assessee company had also not explained the same. The onus of explaining the matter was on the assessee which it failed to discharge. Accordingly, the Assessing Officer correctly made an addition of Rs.13789.65 crore to the total income of the assessee

10.4.5 From the above it is observed that the Assessing Officer, had neither at the assessment nor at the remand stage, properly appreciated; applied his mind to the accounting entries in the books of the appellant and as reflected in its final accounts. On perusing the balance sheet of the appellant as on 31.03.2009, it is revealed that a net amount of Rs.775.20 crores was recoverable from the DOT by the appellant (net of Rs.1051.10 crores recoverable as pet schedule K and Rs.275.81 crores being payable to DOT as per schedule ‘L’) as on that date. During the financial year 2009-10 relevant to assessment year 2010-11, there has been addition to the intangible assets of the appellant under the head “entry license fees” for an amount of Rs.18500.38 crores [schedule ‘D’ : Fixed Assets to the final accounts). It was clarified by the appellant that this represented the BWA and 3G spectrum allocated to the appellant by the DOT, corresponding to which a liability for the same amount was created in the balance sheet as claim payable to DOT (schedule ‘L’ of the balance sheet tor financial year 2009-10). being payment for entry license fees for the 3G and BWA spectrum That is how the net amount payable to DOT went up drastically to Rs.16.273.62 crores as on 31.03 2010. As evidence, the appellant has filed copies of letters nos. P-11014/3/2008-PP of May 2010 and P-11014/13/2008-PP of June, 2010, referring to earlier letters dated 08.08.2008 of the Department of Telecommunications (DOTs), as per which BSNL was required to make payment of Rs.10,186.58 crores for 3G spectrum allotted to it and Rs.8,313 crores for BWA spectrum allotted to it.

10.4.6 In exercise of the powers vested in the first appellate authority u/s 250(4) and also in view of the fact that the Assessing Officer had not properly examined the issue at hand either at the assessment or the remand stage, the appellant was further asked to produce evidence in support of the payment of Rs.18.500.38 crores during the year. In response to this query raised vide this office letter dated 28.04.2015, the appellant has provided copy of letter no.11-1/2015/TPF dated 06.05.2015 from the DOT confirming the payment of Rs.18,500.38 crores during financial year 2010-11 (Rs.8313.80 crores on account of BWA spectrum option and Rs.10,186.58 crores on account of 3G spectrum option).

10.4.7 With the above, the balances payable to/from DOT are explained. The Assessing Officer appears to have arrived at the addition on this account by taking the difference between payable of the previous year (Rs.1,627,362 lakh) and net recoverable at the end of this year (Rs.248.397 lakh) [Rs.16,27,362/- – Rs.2,48,397/- = Rs.13,78,965/-] which is incorrect. Accordingly, the addition so made is directed to be deleted. This ground of appeal is allowed.”

114. After going through the findings of ld. CIT(A) and the submissions of both the parties, we are of the opinion that ld. CIT (A) has given well reasoned findings. It is only current account maintained by the assessee for the transaction between the GOI and DOT. Accordingly, we are inclined not to disturb the findings of ld. CIT(A). Hence, ground no.2 raised by the Revenue in AY 2011-12 is dismissed and as we dismissed the revenue’s ground, the grounds no.2 to 4 raised by the assessee in cross objections are also dismissed.

115. In the result, the Revenue’s appeal being ITA No.961/Del/2018 for AY 2011-12 is dismissed and cross objections filed by the assessee for AY is also dismissed.

116. Now we take up Revenue’s appeal being ITA No.2448/Del/2018 for AY 2013-14.

117. Ground No.1 is against the Disallowance of Rs.57,94,20,512/- u/s 40(a)(ia) on account of Interconnectivity usage (‘IUC’) charges paid to overseas entities.

118. Similar ground is dealt by us in Grounds No.5 to 8 in assessee’s appeal for AY 2011-12 vide para 7 above and following the decisions of ITAT in assessee’s own case vide orders dated 14.12.2022, 20.02.2023 and 25.10.2017 for Assessment Years 2007-08, 2008-09 and 2009-10, we allowed the grounds in favour of the assessee. Following our above findings, we dismiss this ground of Revenue’s appeal.

119. Ground No.2 is against the disallowance of Rs.1,71,17,491/- u/s 14A of the Act.

120. At the time of hearing, ld. DR of the Revenue relied on the order of the Assessing Officer.

121. On the other hand, ld. AR of the assessee that Assessee company has made investments of INR 200 crores in 7% redeemable cumulative preference shares of ITI Ltd, from its own interest free funds during FY 2002-03. Accordingly, no interest or other expenses have been incurred in relation to such investments during the subject AY. Further, as evident from the financial statements for the subject AY, assessee company has not received any dividend income during the subject AY from such investments.

122. It is submitted that it is not in dispute that the Assessee company has not earned any dividend/exempt income from such investments during the subject AY. Admitting this fact, the AO still proceeded to make an addition u/s 14A relying upon the CBDT circular no.5/2014 and the same is evident from para 10.4 Pg.11 of the Assessment order. In this regard, it is submitted that similar addition was made by AO in the assessment order in the case of assessee for AY 2008-09.Thereafter, addition made by AO was deleted by Ld. CIT(A) and appeal filed by the Revenue against the order of Ld. CIT(A) was dismissed by Hon’ble Tribunal vide its order in bearing ITA No. 3718/Del/2006 & others (CLC Pg.no. 330-348), relevant finding of the Hon’ble Tribunal is reproduced below:

“20. The next issue is on disallowance u/s 14A of the Act r.w.Rule 8D. This ground is raised by the Revenue as ground no.4 in the appeal for the A.Y. 2008-09. Admittedly the assessee has no exempt income during the year. Hence no disallowance can be made u/s 14A of the act as held by the Hon’ble Delhi High Court in CIT v. Holecim India reported in 272 CTR 282 and Cheminvest Ltd. in ITA 747/2014 judgment dated 2nd December,2015. In the result this ground of Revenue is dismissed.”

123. During the year under consideration, Ld. CIT(A) has deleted the addition made AO, relying upon its own order for AY 2012-13, wherein Ld. CIT(A) recorded the same finding as were made by Hon’ble ITAT in the abovementioned case.

124. It is also submitted that the reliance placed by the AO upon the CBDT circular no.5/2014 erroneous as the said circular has been considered by the Hon’ble Jurisdictional Delhi High Court in the case of Pr. CIT v. IL & FS Energy Development Company Ltd. [2017] 399 ITR 483 (Del), wherein Hon’ble Delhi High Court held that the CBDT Circular dated 11th February 2014 could not override the express provisions of Section 14A read with Rule 8D. In view of the abovementioned submission, the order of CIT(A) deleting the addition made by AO, should be upheld.

125. Considered the rival submissions and material paled on record. We observed that it is not in dispute that the assessee company has not earned any dividend/exempt income from such investments during the subject AY and admitting this fact, the AO still proceeded to make an addition u/s 14A relying upon the CBDT circular no.5/2014. We further observed that similar addition was made by AO in the assessment order in the case of assessee for AY 2008-09 and the same addition made by AO was deleted by Ld. CIT(A) and appeal filed by the Revenue against the order of Ld. CIT(A) was dismissed by coordinate bench vide its order in bearing ITA No. 3718/Del/2006 & others and the relevant finding of the Tribunal is already reproduced above. Further, we observed that during the year under consideration, Ld. CIT(A) has deleted the addition made AO, relying upon its own order for AY 2012-13, wherein Ld. CIT(A) recorded the same finding as were made by the coordinate bench in the above-mentioned appeal. It is also observed that the reliance placed by the AO upon the CBDT circular no.5/2014 is erroneous as the said circular has been considered by the Hon’ble Jurisdictional Delhi High Court in the case of IL & FS Energy Development Company Ltd.(supra), wherein Hon’ble Delhi High Court held that the CBDT Circular dated 11th February 2014 could not override the express provisions of Section 14A read with Rule 8D. Accordingly, we are inclined not to disturb the findings of ld. CIT (A) and dismiss ground no.2 raised by the Revenue.

126. Ground No.3 is against the deletion of addition of Rs.106,54,00,000/- on account of Unconfirmed and un-reconciled amount recovered from DOT.

127. This ground is similar to Ground No.2 of Revenue’s appeal for AY 2011-12 and we dismissed the ground no.2 of Revenue’s appeal in AY 2011-12 vide paras 88 to 96 above. Accordingly, ground no.3 raised by the Revenue in AY 2013-14 is also dismissed.

128. Ground No.4 is against the Disallowance of depreciation of Rs.105,84,00,000/- by treating borrowing of INR 720 Crores received from Government of India (‘GOI’) as Capital Subsidy.

129. Ld. DR of the Revenue relied on the order of the Assessing Officer.

130. On the other hand, ld. AR of the assessee submitted that the abovementioned loan from GOI was received during FY 2002-03 as a budgetary support for VPT program of assessee company, which was intended to provide telephone connectivity services to all panchayats of India.

131. The said amount was alleged as a revenue receipt by the Ld. AO’s predecessors in the assessment proceedings concluded for AY 2003-04 on the reasoning that the same is a loan in perpetuity i.e., grant in aid for the purposes of providing telephone service in village areas and that the said subsidy received in revenue in nature. The said addition was also affirmed by Ld. CIT(A) in the order passed for AY 2003-04.

132. Thereafter, the said addition was confirmed by the Hon’ble ITAT vide order dated 22 January 2016 passed for AY 2003-04 (ITA No. 3718/ DEL/ 2006 and ITA No. 3440/DEL/2006).

133. Thereafter, assessee company filed an appeal before Hon’ble Delhi High Court (‘DHC’) against the order of Hon’ble Tribunal.

134. Thereafter, the assessee company settled the dispute under the Direct Tax Vivad se Vishwas Act, 2020 (‘VSV’) and Ld. AO passed consequential effect order dated 19 June 2024.

135. Therefore, loan of INR 720 crores, received from GOI has already been offered to tax and disallowance made by the Ld. AO in the order passed for the subject AY in respect of alleged excess depreciation claimed by assessee company on the amount of INR 720 crores will lead to double disallowance of the said amount in the hands of assessee company.

136. Ld. CIT(A) considering the fact that the loan of INR 720 crores, received from GOI has already been offered to tax and following its own order for AY 2011-12, deleted the disallowance made by Ld.AO.

137. In view of the above-mentioned submission, ld. AR submitted that the order of CIT(A) deleting the disallowance made by AO, should be upheld.

138. Considered the rival submissions and material placed on record. We have already dealt with this issue in paras 76 to 87 above while dealing with Ground No.1 of Revenue’s appeal in AY 2011-12 and dismissed that ground. Accordingly, following the same finding, we delete ground no.4 of Revenue’s appeal in AY 2013-14.

139. In the result, the Revenue’s appeal being ITA No.2448/Del/2018 for AY 2013-14 is dismissed.

140. To sum up : assessee’s appeal for AYs 2011-12 and 2013-14 are allowed and Revenue’s appeals for AYs 2011-12 and 2013-14 and cross objections filed by the assessee for AY 2011-12 in Revenue’s appeal are dismissed.