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a. Migrate to Phase - II policy regime with fresh term of 10 years provided they had operationalised their FM channels and paid off all license fees dues of Phase -I license up to the cut-off date of 1st April 2005 and were not in default of any other license conditions till the date of migration to phase - II.

b. Continue to remain under Phase - I policy regime c. Surrender their FM channel under Phase -I license in order to exit. In phase -II license regime, the fee structure was changed from phase -I. In Phase

-II the fixed fee structure was done away with and one time Entry Fees (OTEF) system was introduced. Accordingly New applicant was required to bid a price towards one time entry fee and the highest bidder equal to the number of new license to be issued in each of the metro station were declared as successful bidders. Reserve OTEF limits for each of the city was kept at 25 % of the highest valid bid in that city and all the bids below the reserve limits were rejected summarily. The One time entry fee is the charge / fee for the new successful bidder for a period of 10 years with effect from 1.4.2005. Over and above OTEF each successful bidder is also required to pay an annual license fees on revenue sharing basis @ 4 % of gross revenue for the year or 10 % of the OTEF for the concerned city, whichever is higher. On exercise of option given to the exiting broadcasters to migrate to phase - II , they were required to pay one time entry fee which is equal to average of all successful bids received under phase - II in that city. All these assessee on migration to phase - II paid one time entry fee and accordingly got a new grant of permission agreement executed with the ministry of Information and broadcasting. Then they moved to revenue sharing model of phase -II for a fresh period of 10 years with effect from 1.04.2005. Claim of the assessee on which penalty is levied

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.

"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.