GROUP M MEDIA INDIA PRIVATE LIMITED ,MUMBAI vs. PRINCIPLE COMM. OF INCOME TAX-1(3)(1), MUMBAI

Date of Hearing 04.10.2022 Date of Pronouncement 12.12.2022 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the ld. PCIT-1, Mumbai, dated 27.03.2022 for A.Y. 2016- 17. The assessee has raised the following grounds before us: “On validity of initiation of revision proceedings 1. erred in initiating revision proceedings under Section 263 of the Act without appreciating that revisionary proceedings cannot be initiated unless the conjunctive conditions as laid out under Section 263 are satisfied i.e. the assessment order passed is erroneous in law as well as prejudicial to the interests of the revenue. A.Y.2016-17 2 Group M Media India Pvt. Ltd. VS. Pr.CIT-1(3)(1) 2. erred in initiating revisionary proceedings u/s 263 of the Act without appreciating that Section 263 cannot be invoked in case where the view taken by the learned PCIT is based on the presumption of inadequate enquiry being made at the time of regular assessment proceedings (and it is not the case of no enquiry done by learned Assessing Officer), without pointing out any specific error to show the order is erroneous which is prejudicial to the interest of the revenue. 3. erred in initiating revisionary proceedings under Section 263 of the Act without appreciating that requisite details in relation to expenses (including software expenses) were already submitted with the learned Assessing Officer during the course of Assessment Proceedings and basis that the learned Assessing Officer had already taken one possible view in the matters 4. erred in violating "principal of natural justice' wherein 263 notice was issued on 22 March 2022 and 263 order was passed with 5 days i.c. on 27 March 2022 thereon not granting sufficient opportunity of being heard and making ensure proceedings bad in law. On merits of the issues involved in the revision proceedings 5. erred in stating that software expenses of amount Rs 3.56,09,248 has not been added back to income even though the Appellant has suo moto disallowed a sum of Rs.3,56,09,248 under Section 40(a)(1) of the Act for non-deduction of TDS in its return of income. 6. erred in treating the software expenditure of Rs 3,74,12,192 incurred by the Appellant as capital expenditure under Section 37 of the Act and thereby directing the learned Assessing officer to disallow the same. 7. erred in contending that learned Assessing Officer has not carried out necessary verification and enquiry on disallowance of Rs. 6,90,134 towards interest for default of deduction/remittance of IDS u/s 201(1A) even though out of the said amount, Rs. 1,80,681 has been disallowed by the Appellant in AY 2016-17 itself and the balance Rs. 5,09,453 has been disallowed by the Appellant in AY 2017-18. GroupM India craves leave to add, alter, vary, omit, amend or delete the above grounds of appeal/ at any time before, or at the time of, hearing of the appeal, so as to enable the Hon'ble Appellate Tribunal to decide the appeal in accordance with the law.”

2. The fact in brief is that return of income declaring total income of Rs.2,03,24,83,770/- was filed on 20.11.2016. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 30.07.2017. The assessment u/s 143(3) of the Act was completed on 30.12.2019 assessing the total income at Rs.2,17,82,71,210/-. Subsequently, the ld. Pr.CIT after verification of the record noticed that assessee has claimed software expenses to the amount of A.Y.2016-17 3 Group M Media India Pvt. Ltd. VS. Pr.CIT-1(3)(1) Rs.3,74,12,192/- and the said expenditure was enduring in nature. Therefore, the A.O should have treated the same as capital in nature. The ld. Pr.CIT has also observed that as per audit report u/s 44AB the auditor has quantified an amount of Rs.6,90,134/- being interest under Sec.201 (1A) of the Act. The Pr.CIT stated that this interest for default of deduction of TDS was panel in nature, therefore, the same should have been disallowed in accordance with explanation to Sec. 37(1) of the Act. On query the assessee explained that during the course of assessment several notices were issued and the assessee company has made detailed submission before the A.O. The A.O concluded the assessment proceedings after considering the detailed submission filed by the assessee. The assessee also submitted before the Pr.CIT that out of the amount of Rs.3,74,12,192/- pertaining to software expenses the assessee had suo moto disallowed the sum of Rs.3,56,09,248/- u/s 40(a)(i) of the Act for non-deduction of TDS in its return of income and only balance amount of Rs.18,02,949/- was claimed as revenue expenses in the books of account. The assessee also explained that in respect of amount of Rs.6,90,134/- reported as interest paid towards Section 201(1A) of the Act in the tax audit report, it has only debited an amount of Rs.1,80,681/- to the profit and loss account for assessment year 2016-17 and the said amount of Rs.1,80,681/- has been suo motto disallowed by the assessee while filing return of income for the year under consideration. The balance amount of Rs.5,09,453/- (6,90,134 - 1,80,681) has been disallowed by the assessee while filing return of income of assessment year 2017-18. However, the ld. Pr.CIT has not agreed with the submission of the assessee and held that in respect of the aforesaid two expenses the A.O A.Y.2016-17 4 Group M Media India Pvt. Ltd. VS. Pr.CIT-1(3)(1) has failed to conduct a necessary inquiry and held that assessment order is erroneous insofar as it is prejudicial to the interest of revenue.

3. During the course of assessment proceedings before us the ld. counsel has filed paper book comprising copies of document and detail furnished before the lower authorities and also filed copies of various judicial pronouncements. During the course of appellate proceedings the ld. counsel referred the various pages of the paper book and contended that during the course of assessment proceedings the assessee has made various submission in compliance to the notices issued by the A.O. The ld. Counsel also submitted that break-up of different expenses were provided to the A.O which he had considered after making comparison of the similar expenses incurred by the assessee in the earlier years. On the other hand, the ld. D.R has contended that no inquiry has been made by the A.O the order has been passed without making any inquiry. The ld. D.R. supported the order of Pr.CIT.

4. Heard both the sides and perused the material on record. The ld. Pr.CIT vide order u/s 263 of the Act held that order passed u/s 143(3) of the Act dated 30.12.2019 is erroneous insofar as it is prejudicial to the interest of revenue on the ground that A.O has neither verified nor enquired about the claim of software expenses claimed as revenue expenditure and the A.O had also not verified disallowance that assessee should have made u/s 201(1A) of the Act. It is undisputed fact that assessee had debited software and computer expenses amounting to Rs.3,74,12,192/- in the P & L account out of which the assessee had itself disallowed Rs.3,56,09,248/- for not deducting TDS u/s 40(a)(i) of the Act. Therefore, during the year the assessee had only claimed software expenses to the amount of Rs.18,02,944/-. Regarding interest A.Y.2016-17 5 Group M Media India Pvt. Ltd. VS. Pr.CIT-1(3)(1) on default in deduction/remittance of TDS which was also filed before the assessing officer during the course of assessment proceedings u/s 201(1A) of the Act, the assessee itself has disallowed an amount of Rs.1,80,681/- out of the total amount of Rs.6,90,134/- reported in the tax audit report and the remaining amount of Rs.5,09,453/- has been disallowed while filing return of income for assessment year 2017-18. We have verified from the copy of computation of income of assessment year 2017-18 reflecting disallowance of interest on delayed payment of TDS for the year placed at page no. 234/239 of the paper book filed on 27.11.2017 much before the issuing of notice dated 22.03.2022 by the Pr.CIT. The ld. Pr.CIT could not controvert these fact that once the assessee had already made the entire disallowance before initiating the proceedings u/s 263 of the Act then under such circumstances but verification and inquiry is required to be made by the A.O. Regarding software expenses we have perused the audited financial statement for the year ended 31.03.2016 placed at page No. 79 to 92 of the paper book which was also filed before the Assessing Officer during the course of assessment proceedings. At page no. 92 the assessee has given comparative detail of other expenses for the year ended 31.03.2016 and for the year ended 31.03.2015 respectively under the sub-head software expenses. The assessee had shown software expenses to the amount of Rs.3,74,12,192/- as against such expenses claimed in the preceding year to the amount of Rs.4,02,58,437/-. We have also perused the submission of the assessee dated 19.09.2019 placed at page no. 143 to 145 of the paper book filed before the A.O during the course of assessment proceedings. This statement was made in response to notice u/s 142 of the Act at serial no. 8 of the submission the assessee had given detail of other expenses shown in the ITR with comparative details