DCIT, CIRCLE-1, MEERUT vs. MEERUT CABLE NETWORK PVT. LTD., MEERUT

In ground no.1 of the appeal, the grievance of the Revenue is that Ld. CIT(A) has erred in deleting the addition of Rs.2 lac made by the AO under the head ‘copyright charges’.

The brief facts of the case are that from perusal of Profit and Loss account of the assessee, the Assessing Officer observed that the assessee had debited copyright charges of Rs.2 lac. In his opinion, this was a capital expenditure, and therefore, he show cause the assessee why this expenditure should not be disallowed. The Assessee submitted that as per agreement with Shiv International, they are providing services to produce and display electronic copies or production of any work, to perform or display any work publicly which fall under the head ‘copyrights’, to sale or assign these rights to other, to transmit or display by radio or video including the cable, news films, songs, messages, advertisement, reality shows or journalism. From these the AO concluded that the nature of work shows that it was giving long term enduring benefits to the assessee company and that the company was renewing it each year, therefore, he disallowed Rs.2 lac holding it to be a capital expenditure.

On appeal, the Ld. CIT(A) vacated the disallowance by observing that on going through the agreement with M/s. Shiv Entertainment, he was of the view that the expenditure is not capital in nature. He observed that expenditure of similar nature of Rs.3 lac was incurred to the concern authority in the Assessment Year 2008-

The Assessing Officer in assessment order passed u/s.143(3) allowed the same, it was evident from copy of assessment order filed by the assessee. The Assessing Officer has not brought any material to show that any distinction between the nature of expense incurred in the immediately preceding year viz-a-viz, in this year, therefore, by following the decision of Hon’ble Supreme Court in the case of Radhasoamy Satsang Vs CIT, (1992) 193 ITR 321 (SC) he held that the expenditure being of revenue in nature and allowed the ground of appeal of the assessee.

The brief facts of the case are that the Assessing Officer observed that from the letter of DEN dated 9.2.2009, it is clear that it was already providing these services which are mentioned in the said letter when no new services are being provided the amount given in excess payment of Rs.42,97,500/- is not allowable. Hence, he added the same in the income of the assessee.

Ld. DR has relied upon the order of the Assessing Officer whereas the Ld. AR supported the order of the Ld. CIT(A).

After considering the rival submissions and perusing the material on record, we find that although the Ld. DR has relied upon the order of the AO, he could not point out any specific error in the order of the Ld. CIT(A). He could not bring any material on record to show that the amount paid of Rs.42,97,500/- was in fact not for additional services but was paid for the existing services rendered by DEN to the assessee. In absence of any material brought on record, we do not find any reason to interfere with the order of the Ld. CIT(A) which is hereby confirmed and the ground of the Revenue is dismissed.

In ground no.3 of the appeal of the Revenue, the grievance of the Revenue is that the Ld. CIT(A) has erred in deleting the addition of Rs.40 lac made by the AO under the head ‘placement expenses’.

The brief facts of the case are that the AO observed from the P&L account of the assessee, company that it had debited Rs.40 lac as placement expenses, which was ‘Nil’ last year. He called for the details of services rendered.

The AO observed that the services were being rendered by Shri Manoj Mishra and Smt. Neeta Mishra for which the assessee- company has made agreement with both the above mentioned persons. The Assessing Officer observed that from perusal of the details given, it was found that Shri Manoj Mishra and Smt. Neeta Mishra are not rendering the services themselves. They are taking services from Shiv International which is an AOP in which Mr. Romi Shiva is a member and also working as a Director in Meerut Cable Networks. Shri Manoj Mishra and Smt. Neeta Mishra are close relatives of Shri Romi Shiva which was clear from the statement given by Smt. Neeta Mishra, therefore, the Assessing Officer held that as all the work was being done by Shiv International and all the payments are actually going to Shiv International, in which Director, Meerut Cable Network, Mr. Romi Shiva is a member. He disallowed Rs.40 lac and added to the income of the assessee.

On appeal, the Ld. CIT(A) deleted the disallowance on the ground that the expenditure was in pursuance to an agreement dated 1.11.2008 executed separately by the assessee with Shri Manoj Mishra and Smt. Neeta Mishra. The Assessing Officer has not doubted the services provided to the assessee. In the assessment order, he has stated that the services are actually being rendered by Shiv International. The objection of the Assessing Officer is that Shri Manoj Mishra and Smt. Neeta Mishra have not provided the services personally but through Shiv International an AOP in which Shri Romi Shiv is a member and also a Director in the assessee-company. The AO has stated that Shri Manoj Mishra and Smt. Neeta Mishra are close relatives of Shri Romi Shiv. Thus, although admitting the services have been rendered, but the expenses have been disallowed. He observed that there is no prohibition or bar at all in the agreement or in the statute that this kind of work cannot be outsourced. In case, the service provider and service receiver are satisfied there is no embargo for getting the service provided by outsourcing the same. He was of the view that it was not fatal for allowing such expenditure under the Income Tax Act. The close relationship between Shri Manoj Mishra and Smt. Neeta Mishra and Shri Romi Shiv, who is also a Director in the assessee-company, cannot be a valid reason for disallowing the expenditure incurred for business purposes. The Assessing Officer should have examined the quantum of expenditure with respect to Section 40A(2) (b). He has not done so, therefore, he deleted the addition.

Ld. DR has relied upon the order of the AO whereas the Ld. AR has relied upon the order of the Ld. CIT(A).

After considering the rival submissions and perusing the material on record, we find that the assessee has filed the copy of agreement between the assessee and Shri Manoj Mishra and Smt.

In the result, the appeal of the Revenue is partly allowed.