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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the revenue and the assessee against the orders of ld. CIT(A)-16, New Delhi dated 29.01.2018.
In following grounds have been raised by the revenue: & 3124/Del/2018
2. Times Internet Ltd. “1. The Ld. CIT (A) has erred on the facts and circumstances of the case in not appreciating the fact that AO made the disallowance in accordance with sec. 14A r.w.r 8D of the I.T Act only.
2. The Ld. CIT (A) has erred on the facts and circumstances of the case by deleting the addition made by the AO on account of disallowance of expenses on account of sale of content.
3. The Ld. CIT (A) has erred on the facts and circumstances of the case by deleting the addition made by the AO on account of software expenses.
4. The Ld. CIT (A) has erred on the facts and circumstances of the case by deleting the addition made by the AO on account of depreciation claim of software.
The Ld. CIT (A) has erred on the facts and circumstances of the case by partly allowing the addition made by the AO on account of consultancy expenses of legal and professional expenses.”
In , following grounds have been raised by the assessee:
“1. That the learned Commissioner of Income Tax (Appeals)-16 has erred both in law and on facts in upholding disallowance of entire sum of Rs. 600000/- towards consultancy charges for valuation of shares upon merger of another group company, claimed by the appellant company as revenue expenses.
1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the expenses on merger are allowed @20% in five consecutive years u/s 35DD. Accordingly, Rs 120000/- should have been allowed in this AY and balance in next 4 years.
2. That the learned Commissioner of Income Tax (Appeals)-16 has erred both in law and on facts in upholding disallowance of sum of Rs.5,50,000/- towards consultancy charges for consultancy related to the ongoing website magicbricks.com of the appellant in regular course of business.
& 3124/Del/2018 3 Times Internet Ltd. 2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the total expenses paid to consultant Rs 61,60,754 are pursuant to the agreement specifying various business related services, on account of which a sum of Rs5610754/- was allowed by AO as revenue in nature, thus there is no justification of a different# inference for the remaining Rs 5,50,000/-.” A.Y. 2014-15: (Revenue) Disallowance u/s 14A:
During the year, the assessee earned dividend from mutual fund of Rs.1,03,60,745/- and suo moto disallowed an amount of Rs.5,57,215/- u/s 14A. The AO by resorting the provisions of Rule 8D(2)(ii) computed disallowance to Rs.96,28,052/-.
5. The ld. CIT (A) directed the AO to recompute the disallowance u/s 14A by considering the investments from which dividend has been earned by the appellant company and relying on the order of the Special Bench of ITAT in the case of CIT Vs Vireet Investments Pvt. Ltd. 82 Taxman 415, we hereby direct that only the investments which yielded the exempt income be considered for computation of disallowance u/s 14A r.w. Rule 8D.
Disallowance of Expenses on account of sale of content:
This issue pertaining to disallowance of expenses on a presumption basis with regard to the income received on syndication services has been a repetitive issue from the years 2006-07 to 2014-15. This issue has been decided by the Hon’ble Delhi High Court in assessee’s own case in assessment years 2004-05 and 2005-06 in & 188/2016 dated 14.03.2016 further in assessment year 2006-07, 2007-08 and ITA No.2210 & 3124/Del/2018 4 Times Internet Ltd. 2008-09 in 724 & 753/2017 dated 06.09.2017, the issue has been adjudicated in favour of the assessee. Since, the issue has been repetitively held in favour of the assessee and since the ld. CIT (A) has followed the earlier orders of the Tribunal, we decline to interfere with the order of the ld. CIT(A).
Software Expenses and Depreciation claim of software:
The assessee incurred an expenditure of Rs.35.59 Crores on account of software, content and web hosting. The AO disallowed an amount of Rs.75.55 lacs out of the expenditure holding that the software utilized is capital in nature. The depreciation on software claimed @ 60% by the assessee has been scaled down to 25% by the Assessing Officer.
The ld. CIT (A) deleted the addition based on the decision of the Hon’ble Delhi High Court in assessee’s own case in assessment years 2004-05 and 2005-06 also in subsequent years 2006-07, 2007-08, 2008-09. Since, the matter of software utilized in content production, the software embedded with hardware is an integral part of the computer equipment, the issue has been repetitively held in favour of the assessee and since the ld. CIT (A) has followed the earlier orders of the Tribunal, we decline to interfere with the order of the ld. CIT(A).
Legal & Professional expenses:
The assessee claim an expenses of consultancy charges of Rs.12,94,46,194/- and 10,67,61,340/- under the head legal and & 3124/Del/2018 5 Times Internet Ltd. professional expenses. The details of the expenses are as under:
Consultancy charges Date Name Narration Amount Remarks 31/03/2014 RAJU & PRASAD FINANCE PROVISION 2012- 120,752 Prior period CHARTERED 13_TDS expenses ACCOUNTANTS RETURN,CERTIFICATES 31/03/2014 ERNST & YOUNG FINAL MILESTONE_FINAL 522,362 Merger LLP HEARING_HIGH Expenses, COURTJVIERGER capital expenses 31/03/2014 S.B.G. & CO VALUATION AND SHARE 600,000 Merger SWAP RATIO_MERGER Expenses, WITH TBSL PR capital expenses 31/03/2014 ERNST & YOUNG FINANCE PROVISION 2012- 621,825 Prior period LLP 13_VARIOUS SERVICES expenses 31/03/2014 DIPTI TANDON CONSULTATION FEE FOR 550,000 capital SPECIFIC PROJECT expenses Total 2,414,940 Legal and professional expenses Date Name Narration Amount 19/12/2013 ASP LEGAL CHRGS_MERGER OF TWL AND TML 150,000 ADVOCATES WITH TIL LEGAL S 19/12/2013 ASP LEGAL CHRGSJV1ERGER OF TWL AND TML 150,000 ADVOCATES WITH TIL LEGAL S 31/01/2014 ASP FILLING THE 2ND MOTION PETITION WITH 150,000 ADVOCATES HCJV1ERGER LEG 31/01/2014 ASP ISSUANCE OF NOTICE TO RD,ROC,OL BY DLH 100,000 ADVOCATES HC_MERGER L 31/03/2014 ASP PROV 13-14_LEGAL CHRGS TWRDS 106,750 ADVOCATES MERGER_REPLY TO RD/OL TOTAL 656,750
The AO held that some of the expenses relating to shares subscription, making to due diligence report are not allowable as revenue expenses and they have to be capitalized or amortized. The AO disallowed an amount of Rs.24,14,940/- out of consultancy charges and Rs.6,56,750/- out of professional expenses. The ld. CIT (A) has gone through each and every item of expenditure and also the computation of income wherein & 3124/Del/2018 6 Times Internet Ltd. an amount of Rs.21,39,865/- spent on account of merger expenses have been suo moto disallowed by the assessee.
On going through the entire facts, the ld. CIT (A) held that an amount of Rs.6,00,000/- spent towards valuation of shares for the purpose of merger of the company and Rs.5,50,000/- paid to independent consultant are in the nature of capital expenditure.
Since, the ld. CIT (A) has gone through the details of expenditure and since the assessee has already disallowed an amount of Rs.21,39,865/-, we hereby hold that the grounds of appeal of the revenue on this issue cannot be sustained.
13. With regard to the amount of Rs.6,00,000/- confirmed by the ld. CIT (A), the ld. AR relied on the judgment in the case of CIT Vs Monnet Industries 332 ITR 627(Del.) and CIT Vs Prithvi Insurance Company Ltd. 63 ITR 632.
Section 35DD of the Income Tax Act states as under:
“Amortization of expenditure in case of amalgamation or demerger.
35DD (1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place.
& 3124/Del/2018 7 Times Internet Ltd. (2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act.”
We find that the Section 35DD clearly specifies amortization of expenditure in case of amalgamation and demerger. Since, the expenditure is in connection with the valuation of shares relating to merger, the same needs to be treated in accordance with the provisions of Section 35DD.
With regard to the consultancy charges paid of Rs.5,50,000/-, the revenue swayed away by the mention of “specific project” expenses and treated them as capital expenditure in nature whereas the fact remains that the consultant has been paid for providing services in development of new products and enhancement of existing features on the website which cannot be treated as a new arena of the business operations. Hence, the amount paid should be treated as revenue expenditure.
In the result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes. Order Pronounced in the Open Court on 06/08/2021.