ACIT, NEW DELHI vs. M/S. T.V. TODAY NETWORK LTD., NEW DELHI

The appellant reserves the right to add, alter, amend, delete and modify any/all grounds of appeal

Therefore the same has been challenged before us by the learned authorised representative. He submitted that above sum is incentive meant for employees which is pertaining for the financial year 2003 – 04. He further stated that incentives which are based on the performance of the employees become due and payable to them based on certain criteria such as collection on sales, determination of profits after audit of the annual account. He further stated that the tax could have been deducted at source only at the time of payment as the above amount is chargeable to tax under the head salaries in the hands of the employees. He therefore submitted that above amount of expenditure is ascertained and accrued during the year therefore same should have been allowed.

The learned departmental representative vehemently supported the order of the lower authorities and submitted that when assessee could not furnish details of the expenditure before the lower authorities and also could not show that how above expenditure has been incurred by assessee during the year, therefore same has been correctly disallowed.

We have carefully considered the rival contention and find that the assessee has made a provision for the performance based incentive of the employees. The assessee has given a complete detail of these expenditure of the provisions made for the year. The assessee has also stated that no tax is required to be deducted u/s 192 of the income tax act unless the salaries are paid to those employees. The assessee has also stated that the performance is with respect to the sales, collection of sales etc. On perusal of page Nos. 1 to 7 of the details furnished by assessee before the learned CIT(A) which shows that the assessee has submitted the complete detail of the employee wise accrued incentive as well as the closing balance as on 31- 3-2004, amount debited during the year and actual payment made by the assessee in the subsequent year. The above provision has been made by the assessee on year-to-year basis on the basis of the performance of the employees. The excess provision is always written back to the profit and loss account in the subsequent year, if it is found to be short, further provision is made. This accounting practice is carried on by the assessee consistently. As the expenditure has been incurred for the incentive of the employees of the company raised on their performance for the same year for which the actual services have been rendered by the employees, above expenditure has been incurred by the assessee during the year only and exclusively for the purposes of the business. As the above expenditure has been made on the basis of the performance of the employees and allocated to each of the employees it is an ascertained provision. According to us it is a definite and accrued liability of the assessee for the year for which the services have been rendered by the employees. It is nothing but additional variable salaries payable to the employees. Same partakes character of salary.

Accordingly we reverse the finding of the lower authorities and allow the ground number 2 of the appeal of the assessee directing the learned assessing officer to delete the disallowance of Rs. 20569764/- on account of accrued incentive of the staff. Accordingly, ground No. 2 of the appeal of the assessee is allowed.

Ground number 3 of the appeal of the assessee is against the confirmation of disallowance of depreciation of Rs. 1552 6521/– on OB vans which has been purchased by the assessee and used by the assessee for business during the assessment year 2004 – 05. The brief facts are that during the year the assessee has shown an addition in plant and machinery of Rs. 2 47367635 on which depreciation has been claimed by the assessee. Out of the above addition, of Rs. 137183653/- was made by the assessee in the month of March 2004 and therefore the AO further enquired into the detail. The details furnished revealed that the addition of Rs. 10351014/– has been made by purchase of 12 OB Vans amounting to Rs. 124212168/–. Assessee submitted that above vans were used for the purposes of the business from 27/03/2004 to 31/03/2004. The assessee submitted that above Vans were purchased initially in the form of Tata 207 which were already granted temporary registration and the bodies were built on them by the builder.

The assessee challenged the same before the learned CIT – A. The learned CIT (A) held that the assessing officer has made this disallowance on the appreciation primarily on the ground that since only temporary registration have been provided to these Vans. It implied that these Vans were not ready for use and only because of that regular registration has not been granted to these Vans. Secondly, he noted that the details regarding the shooting time during the period of the last week of March 2004 was disputed by the Assessing Officer, as according to the AO, it was not possible to telecast the period as claimed by the assessee and therefore actual use of these once cannot be accepted. He further noted that the authorised representative of the assessee has not provided any documents to establish that these Vans had actually been used during the year. There is no explanation from the AR about the temporary registration of these vehicles. The learned CIT(A) therefore upheld the disallowance.

The assessee challenging the above disallowance contested before us that that assessee has purchased Vans during the year and used them for the purposes of the business. He further referred to the copies of the invoices raised by HFCL satellite communication Ltd in the name of the assessee company which shows that the Vans have been ready and by the assessee. He further referred to the date wise detail of Showtime by these vans which has also been filed before the learned assessing officer. He further stated that the learned assessing officer himself has granted depreciation on these vans for assessment year 2005-06, on the opening WDV after allowing the depreciation for assessment year 2004 – 05. He therefore stated that, as assessee has satisfied the ownership test as well as the user test of these Vans depreciation has to be allowed to the assessee.

The learned departmental representative vehemently supported the order of the lower authorities and submitted that when the assessee has not got these vans registered permanently in its name and only the temporary registration continues, these vans have not been available for use by the assessee before 31st of March 2004. He further relied upon the finding of the learned assessing officer with respect to shoot time of each of the van and stated that these are not related to these Vans as these vans were not ready for use. He therefore submitted that the disallowance of the depreciation has been correctly made by the learned assessing officer and confirmed by the learned CIT – A.

We have carefully considered the rival contentions and find the fact that the assessee has purchased certain vans during the assessment year 2004 – 05. Though, these Vans were purchased as Tata 207 vehicles and, thereon, the body was required to be built. All these vehicles were undisputedly registered temporarily with the Road Transport Authorities. It is also an undisputed fact that these vehicles have not been registered as permanent registration up to 31/3/2004. The assessee has made an attempt to justify that these vans have been used by it by showing the shooting time which has been disputed by the learned assessing officer. The assessee has produced the copy of the invoices of body building raised by HFCL satellite communication Ltd in the name of the assessee company, which shows that these vans have been returned back to the assessee before the 31/03/2004. All the 12 invoices with respect to the bodybuilding are dated 22/3/2004 to 25/3/2004. Further the report of the utilisation has also been filed with the assessing officer, which shows that these vans have been used by the assessee on or before 31/3/2004. Merely because these vehicles are having temporary registration up to 31/3/2004, could not be registered as a permanent registration on or before that date, it does not show that these vehicles have not been actually owned by the assessee and used for the purposes of the business by the assessee. The assessee has also given the time for which these vehicles have been used for the shooting. The assessee has also stated that after shooting of the news items, it is required to be edited and only after that they can be telecast. Therefore the claim of the AO that shooting time exceeded the actual time available to the assessee does not support the fact that these vehicles have not been used by the assessee for its business. Further it is the fact that for the next assessment year 2005 – 06, the learned assessing officer has allowed the depreciation on written down value of these vans after reducing the depreciation for the assessment year 2004 – 05. Therefore, it is apparent that the learned assessing officer in AY 2005-06 has already reduced the written down value of these vans by the amount of depreciation actually allowed to the assessee. However on the fact that the assessee has shown the purchase of these vehicles, obtained the temporary registration of these vehicles, shown that after bodybuilding they have been received back by the assessee from 22 to 25/03/2004, and they have been used for the purposes of the shooting during the year, it cannot be said that assessee has not used these vans for the purpose of the business of the assessee. Therefore according to us, assessee has also satisfied user test for allowability of depreciation. Accordingly, we reverse the finding of the lower authorities and direct the learned assessing officer to delete the disallowance of the depreciation. Accordingly, ground number 3 of the appeal is allowed.

Ground number 1 of the appeal of the assessee is general in nature. Therefore same is dismissed.

Accordingly, appeal of the assessee for assessment year 2004 – 05 in ITA number 2452/Del/2013 is partly allowed.

Now we come to the appeal of the revenue in ITA number 6080/Del/2012 for assessment year 2008 – 09 wherein the order of the learned CIT(A)-XI dated 14/8/2012 is challenged.

The revenue has raised the following grounds of appeal in for the Assessment Year 2008-09:- “1. On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs.80,861/- made by the AO on account of advances returned by the assessee."

The learned departmental representative relied on the order of the learned AO and the learned authorised representative relied on the order of the learned CIT – A.

We have heard the rival contentions and found that the amount given to the employees have not been returned by them of the advances given for the various expenses as imprest. Such sum has been written off in the books of accounts as a loss. The learned CIT – A has applying the decision of the honourable Supreme Court allowed the claim of the assessee. Hence, advances were given to employees for the purposes of business, such advances have become bad as employees left the assessee. They are not in the nature of bad debt so, not required to have been credited to Profit and Loss A/c in earlier periods. Conditions of allowability of bad debts do not apply to business losses. We do not find any infirmity in the order of the learned CIT – A and therefore the order of the learned CIT – capital is confirmed.

The 2nd ground of appeal is with respect to the disallowance deleted by the learned CIT appeal of Rs. 6254353/- made by the AO on account of interest payable to Prasahar Bharti for non-deduction of tax. The brief fact shows that the assessee has paid interest to Prasahar Bharti and has not deducted tax at source. According to the AO tax is required to be deducted u/s 194A of the income tax act and therefore the disallowance was made. The learned CIT – A held that it is a corporation established by or under the Central act which is under any law for the time being in force exempt from income tax on its income. He further noted that as per the Prasar Bharti Act 1990, Prasar Bharti is not liable to pay any income tax. Therefore he held that no tax was required to be deducted thereon. Hence he deleted the disallowance.

The learned departmental representative vehemently supported the order of the learned assessing officer whereas the learned authorised representative submitted that that there is no requirement of tax deduction at source on interest paid to any corporation established under the act income of which is being exempt. He also supported the order of the learned CIT – A.

We have carefully considered the rival contention and perused the orders of the lower authorities. The learned CIT–A has deleted the disallowance since Prashar Bharti is a corporation and not liable to pay income tax on its income as provided under 196 (ii) of the income tax act. Though we find that Prasar Bharti has been established under the Prasar Bharti Act. However, the ld CIT(A) has not given any reason that how interest earned by it is exempt from tax. Provisions of section 10(23BBH) exempts income of Prasar Bharti . Above section was inserted w.e.f. 01.04.2013 (i.e AY 2013- 14). Therefore, up to that Assessment Year income of Prasar Bharti was not exempt. Hence, as the impugned assessment year is prior to the date of Assessment Year 2012-13, we are of the opinion that assessee should have deducted tax at source on income of interest paid to Prasar Bharti. Accordingly, we reverse the order of the ld CIT(A) and restore the order of the AO. Ground No. 2 is dismissed.

Ground number 3 of the appeal is with respect to the disallowance deleted of Rs. 427172/- on account of software expenses by treating it as a capital expenditure. During the year, assessee has claimed the software expenses of Rs. 1067931/– and debited is to profit and loss account as expenditure, however, the learned Assessing Officer was of the view that the software expenses are capital in nature he disallowed it. The assessee explained that these are the upgradation or purchase of the application software and revenue expenditure in nature because there is no enduring benefit available to the assessee. The learned assessing officer rejected the explanation of the assessee and granted assessee 60% of the depreciation holding that software expenditure is a capital expenditure in nature. The assessee challenged the same before the learned CIT – A who held that software expenditure incurred by the assessee is an application software for upgradation. The assessee has not incurred any expenditure on acquiring any asset of enduring nature. He further relied upon the decision of the Hon‟ble Delhi High Court in case of Ashahi Glass Works Limited. In view of this we do not find any infirmity in the order of the learned CIT – A in deleting the above disallowance.

The ground number 4 of the appeal is with respect to the deletion of the addition of Rs. 34059992/– on account of provision consumption of debtors. The learned assessing officer noted that assessee has credit balance of debtors of Rs. 67735487/–. The learned AO noted that it included the provision consumption debtors amounting to Rs. 34059992/-. The assessee submitted the details of these expenditure and stated that assessee company has given discount to its debtors based on its consumption of Airtime during the financial year. It was further stated that the working of the debtors shows that company has given discount to debtors based on the consumption of Airtime during the financial year 2007-08. The assessee also submitted the working of the consumption debtors of Rs. 34,000,000, copies of deal in respect of certain clients and copy of the rate card. The learned assessing officer considered the explanation of the assessee, however rejected stating that nature of accounting head is a provision for discount and is not asset and liability debited to the accounts of the parties. Therefore he made the disallowance of Rs. 34059992/–. The assessee challenged the same before the learned CIT – A who deleted the above disallowance.

The learned departmental representative relied upon the order of the learned assessing officer whereas the learned authorised representative relied upon the order of the learned CIT(A) and reiterated submission before him.

We have carefully considered the rival contention and found that the claim of the assessee is that company has given discount to its debtors based on consumption of Airtime during the current year. It filed its detail of the credit balance of the debt. From the details of credit balance of debtors, the learned assessing officer enquired about the details of the consumption debtor of Rs. 34,000,000/- which was explained by the assessee, that this is a discount account which is credited by the company by passing an accounting entry by crediting one control account having details of all the parties separately. As the assessee is in the business of the media the main source of income of the assessee company is broadcasting of advertisement in its channel. The assessee company sale space in its channels to advertiser usually a unit of sale of space is 10 seconds. The assessee company gave various schemes to its advertiser like consumption incentive, series discount etc. In case of consumption incentive, the advertisers are given an offer that in case if it consumes particular amount of time during the given period for broadcasting and advertising then it will be entitled to the consumption incentive. During the year, assessee has passed on this consumption incentive of Rs. 34059992/–. Learned CIT(A) has held that this is the expenditure in the nature of incentive to the advertiser and the assessee has also shown income against this expenditure. Before the learned CIT – A the assessee demonstrated by producing the copies of the deals of some of the parties and shown that it is not an asset or liability but actual expenditure. In view of this, he held that assessee is eligible for deduction of the above expenditure. The learned departmental representative could not point out any infirmity in the order of the learned CIT(A). Therefore, we confirm the order of the learned CIT(A) and dismiss ground number 4 of the appeal of the AO.

Ground number 5 is general in nature and therefore dismissed 32. In the result, filed by the learned Assessing Officer for assessment year 2008 – 09 is dismissed.

Now we come to the appeal of the assessee for Assessment Year 2009-10 in ITA No. 3657/Del/2013.

This appeal is filed by the assessee company against the order of the learned Commissioner of Income Tax (Appeals) – 19, New Delhi dated 28/3/2013.

The assessee has raised the following grounds of appeal in ITA No. 3657/Del/2013 for the Assessment Year 2009-10:- “1. That the order of the Learned Commissioner of Income Tax (Appeals) is bad in Law on the facts and in the circumstances of the case;

That the Learned Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 20,33,900/- towards interest payable to Prasar Bharti; 4. That the Learned Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 9,87,315/- towards claim of Software Expenses; 5. That the Learned Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs.36, 73,276/-; 6. That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowance a sum of Rs.2,37,97,880/- towards leave encashment.” 36. The 1st ground of appeal

The 2nd ground of appeal

The learned departmental representative vehemently submitted that when the details have not been furnished by the assessee either before the assessing officer or before the learned CIT appeal as well as before the coordinate bench, it cannot be ascertained whether the expenditure incurred by the assessee on the software expenditure are revenue expenditure or capital expenditure. He therefore submitted that the above disallowance needs to be confirmed.

We have carefully considered the rival contention and found that the assessee has not furnished the adequate details before the lower authorities to demonstrate that the software expenditure incurred by the assessee is whether revenue expenditure or capital expenditure. In absence of the adequate details, it cannot be held that these expenses incurred by the assessee is a revenue expenditure. Reliance on the order of the appellate authorities in earlier years does not support the case of the assessee as it is required to be demonstrated each year whether the expenditure incurred by the assessee is for capital expenditure or revenue nature. As the assessee has not submitted any details before the lower authorities, this ground of appeal

The learned authorised representative relied upon the decision of the Hon‟ble Calcutta High Court whereas the learned authorised representative relied upon the order of the learned CIT – A.

We have carefully considered the rival contention and find that the decision of the Hon‟ble Calcutta High Court based on which the assessee has claimed deduction of the leave encashment expenditure has been stayed by the Hon‟ble Supreme Court. As the provisions of section 43B (f) of the income tax act is very clear. Therefore, we upheld the disallowances of leave encashment expenditure under section 43B of the income tax act. Accordingly, ground number 6 of the appeal of the assessee is dismissed.

Accordingly ITA number 3657/Del/2013 filed by the assessee for assessment year 2009 – 10 is partly allowed.

The revenue has raised the following grounds of appeal in Assessment Year 2009-10:- “1. "Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.64,58,780/- made by the AO on account of accrued incentive to staff." 2. "Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.2,45,45,215/- made by the AO on account of consumption debtors."

Accordingly, ITA number 4097/Del/2013 filed by the learned assessing officer for assessment year 2009 – 10 is dismissed.

This appeal is filed by the assessee against the order of the learned CIT – A – 19, New Delhi dated 28/2/2013 for assessment year 2010 – 11.

The assessee has raised the following grounds of appeal in for the Assessment Year 2010-11:- “1. That the Learned Commissioner of Income Tax (Appeals) has erred in law and on the facts and in the circumstances of the case;

The 1st ground of appeal

The learned authorised representative submitted that the above expenditure is revenue in nature. The learned departmental representative vehemently submitted that the when the assessee could not produce any details before the lower authorities about the nature of the software along with the invoices. Therefore, it cannot be determined whether the above expenditure is revenue in nature or not. He held that the learned assessing officer has treated the same as capital expenditure and granted depreciation to the assessee.

We have carefully considered the rival contention and find that the identical issue has been considered in case of the assessee for assessment year 2009 – 10, wherein, on the identical facts and circumstances of the case, the lower authorities have confirmed the addition of software expenditure holding it to be a capital in nature as the assessee failed to produce the necessary evidences along with the nature of software before them. The same is the fact before us for this year too. Therefore, in view of a direction for assessment year 2009 – 10, we also set aside this issue back to the file of the learned assessing officer with a direction to the assessee to submit the copy of the invoices and the nature of software used by the assessee and to demonstrate that these expenses are revenue in nature. Accordingly, ground number 4 of the appeal of the assessee is set aside to the file of the learned assessing officer.

Ground number 5 is with respect to the disallowance of Rs. 1285000/- under section 14 A of the income tax act. The learned assessing officer found that assessee has made investment in shares and mutual fund for earning exempt income. Therefore, the assessee was asked to explain why expenses should not be disallowed under section 14 A of the income tax act applying the rule 8D of the income tax rules. The assessee submitted that it has disallowed a sum of Rs. 101140/- which is disclosed in form number 3 CD of the income tax act rules. However the learned assessing officer proceeded to disallow the expenditure applying rule 8D of the income tax rules 1962. It disallowed a sum of Rs. 1386140/– being 0.5% of the average value of the investment. As assessee has disallowed a sum of RS. 1 01140 Page | 22 in its computation of the total income as well as in form number 3 CD the learned assessing officer made the net disallowance of Rs. 1285000/–. The learned CIT – A, confirmed the above disallowance and therefore the assessee is in appeal before us.

The arguments of the authorised representative as well as the learned departmental representative remains the same as it was therein assessment year 2009 – 10.

We have carefully considered the rival contention and found that during the course of assessment proceeding the assessee was raised the query that why disallowance should not be made under section 14 A of the income tax act applying Rule 8D of the income tax rules 1962. The assessee submitted that it has disallowed a sum of Rs. 101140/–. However, without recording satisfaction of the assessing officer about the correctness of the claim of the assessee, learned assessing officer disallowed the sum of RS. 1 386140 applying the provisions of rule 8D of the income tax rules. As the learned assessing officer has failed to record any satisfaction about the correctness of the claim of the assessee that it has only incurred a sum of Rs. 101140/– on account of earning exempt income and further the same has been disclosed in form number 3CD of the income tax rules, being the tax audit report the above disallowance cannot be sustained. Therefore, for the similar reasons given by us for assessment year 2009 – 10, we also delete the disallowance of Rs. 1285000/–. Accordingly, ground number 5 of the appeal of the assessee is allowed.

Ground number 6 of the appeal of the assessee is with respect to the disallowance of Rs. 13033241/– on account of leave encashment accrued to the employees. Both the parties submitted that the identical issue has been considered in appeal of the assessee for assessment year 2009 – 10, wherein the assessee has made claim according to the decision of the honourable Calcutta High Court whereas the learned assessing officer has made the disallowance applying the provisions of section 43B (f) of the income tax act.

We have carefully considered the rival contention and perused that the assessee has claimed leave encashment expenditure without making any payment. As we have held in the assessment year 2009 – 10 in the appeal Page | 23 of the assessee confirming the above disallowance, we also confirm disallowance of Rs. 13033241/– on account of leave encashment expenditure for the similar reasons. Accordingly, ground number 6 of the appeal of the assessee is dismissed.

In the result appeal of the assessee is partly allowed.

Accordingly, all the appeals of the assessee as well as the revenue pertaining to this assessee are disposed of by this common order. Order pronounced in the open court on 28/03/2019. -Sd/- -Sd/- (BEENA A PILLAI) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER