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6. Claim of the assessee was that license fee expenditure paid under Phase -I of license regime is allowable in full during the year under consideration in accordance with sub-section (2) of section 35ABB, For this main reliance of the assessee was on the provision of section 35ABB(2) and also the notification issued by the Govt, of India Notification No. 39 dated 9th January, 2004,whereby under the proviso to clause (k) of sub-section (1) of section 2 of the TRAI Act, 1997 as amended, the scope of the expression telecommunication services was increased to include the broadcasting services and cable services also. Based on such Notification, the license fee expenditure as earlier claimed by the assessee u/s 37 of I.T. Act had been recomputed and claim was made u/s 35ABB on proportionate basis over the term of the license period since assessment year 2004-05 onwards. It was one of the arguments that word „transfer‟ is not defined in section 35ABB and accordingly, it should be looked elsewhere in the Income Tax Act. For this Assessee relied on the definition of "transfer" u/s 2 (47) of and for definition of capital assets u/s 2 (14) of the Act. Further he submitted that Section 35ABB specifically deals with expenditure for obtaining license to operate telecommunication services and accordingly, the license as obtained by the Assessee for operating FM radio station was clearly a "capital asset" and therefore, such wide definition of transfer given in sub-clauses (i) and/or (ii) of section 2(47) read with Explanation 2, which deals with capital assets (like license) will apply to the facts of Assessee‟s case. Assessee‟s claim was also based on the facts that assessee had opted to migrate to revenue sharing Phase - II policy regime, whereby it had relinquished its rights in capital asset, which stood extinguished or had parted with capital asset or interest in such capital asset i.e. fixed fee Phase-I license as issued vide agreement dated 27/10/2000 in exchange for a new license called Grant of permission Agreement (GOPA) dated 02/03/2007 under Phase -II which was made effective w.e.f. 01/04/2005. Accordingly it was claimed that such relinquishment/ extinguishment/exchange/ parting of asset or rights therein in capital asset in any manner whatsoever clearly amounted to "transfer" as per the definition of transfer u/s 2(47) read with Explanation 2. Therefore his first argument was that there is transfer of license due to migration from phase - I to phase -II of the policy and provision of sub section 2 of section 35ABB should apply. As there is no consideration received the full amount of amount outstanding shall be allowed as deduction to the assessee. Alternatively it is not a case of „transfer‟ of license because the Phase -I license had come to an end when the Assessee opted to migrate to Phase -II license, in that situation also license fee expenditure deserves to be allowed in full during the year. Assessee had also made the claim of such license fees as intangible assets depreciable.

Assessment & Appellate history of the claim

7. Claim of deduction pertaining to Phase- I of licensing fee was disallowed by the AO holding that same is a capital loss as the license was not transferred as required u/s 35ABB (2) of the act. On appeal before CIT (A) who in turn rejected claim of deduction of whole of license fees paid under phase -I holding that as there is no transfer as per section 35ABB (2) of the act. However he was of the view that as it is migration of license of assessee from Phase-I to phase -II of the licensing policy for F M radios, remaining unallowed expenditure u/s 35ABB becomes part and parcel of the licensing fee payable for phase- II and same shall be added to the license fee of phase - II, hence CIT (A) granted deduction of 1/10th of license fees of Phase -I. Against the Appeal filed by the Department, ITAT has dismissed the same vide their consolidated order dated 24-11-2015 and confirmed the findings of CIT (A) for granting deduction u/s 35ABB being 1/10th of license fees of Phase -I every year over 10 year period of Phase-ll License Fee commencing from AY 2006-07 onwards. Appeal as filed by the Assessee for allowing the entire deduction of phase

Decision and Reasons

13. We have carefully considered the rival contentions. On the issue of claim of deduction u/s 35ABB of the act AO has disallowed the whole of the claim holding it as capital expenditure. Before appellate authorities the issue was decided in altogether in a different manner discussing the claim of deduction u/s 35ABB of the act. There is no The Ld. CIT (A) has deleted the penalty u/s 271(1) (c) of the act holding that in such a debatable issue the penalty u/s 271(1) (c) cannot be levied as assessee has disclosed full particulars of its claim. He deleted the penalty holding as under :-

"5.2 I have considered the submission of the appellant, observation of the Assessing Officer and various case laws. It is seen that appellant company was engaged in the business of Radio Broadcasting at Delhi under the channel identity 93.5 Red F.M. During the year, the appellant had claimed deduction u/s 35ABB of Rs.12,65,82,440/- under the head 'license fee' in the revised return of income filed with the Assessing Officer as revenue expenditure and also shown interest income as business income instead of income from other sources. During the course of assessment proceedings the Assessing Officer has held that appellant was not entitled to claim the remaining license fee of Phase-I as revenue expenditure due to migration from Phase-I license to Phase-II license. The Assessing Officer held that because of migration from Phase- I to Phase-II, the earlier license of Phase-I has come to an end and therefore, the loss incurred under Phase-I on account of license fee was a capital loss. The Assessing Officer also treated the interest income as income from other sources against business income shown by the appellant. The CIT(A) vide its order dated 29.07.2011 has held that license fee expenditure of Rs.l2,65,82,440/-claimed as revenue expenditure cannot be totally disallowed and directed the Assessing Officer that same be allowed proportionately over the ten years license term starting from A.Y. 2006-07 onwards. In other words the CIT (A) allowed l/10lh of license fee in the A.Y. 2006-07 and balance was directed to be allowed over the next nine years in accordance with section 35ABB of the IT Act. The CIT(A) confirmed the decision of Assessing Officer with regard to interest income treated as income from other sources. After receipt of the CIT(A) order Assessing Officer issued show cause notice and levied penalty u/s 271(l)(c) of the IT Act of Rs.3,96,39,894/-on the amount of Rs.l2,65,82,440/-of the license fee claimed u/s 35 ABB and the amount of Rs.38,41,383/-treated as income from other sources as against business income shown by the appellant. The claim of the revenue expenditure u/s 35ABB made by the appellant was disallowed, however, CIT(A) allowed 1/10th of such expenditure u/s 35ABB and rest of the amount was to be allowed in next nine years.