Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 31.10.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.
The grounds raised
by the assessee are as under:
1. (a) The Hon'ble Commissioner of Income Tax (Appeal) - 16, Mumbai [CIT(A)] erred in confirming the disallowance of Rs. 24,42,029/- being expenses incurred for development of educational web portal.
The Appellant, in the facts and circumstances of the case, submits that the expenses incurred for acquiring educational web portal are genuine expenses incurred in the course of carrying on the business; hence, the disallowance made by the AO and confirmed by the CIT (A) shall be deleted.
2 M/s. Acroseas Consultancy Pvt. Ltd. (b) The CIT (A) erred in holding that the educational web portal being an asset is not into existence; hence, the alternate plea of the Appellant for allowing the depreciation u/s 32 of the Act cannot be allowed.”
The facts in brief are that the AO during the course of assessment proceedings observed that the assessee has debited Rs.27,37,349/- in the P&L Account as business promotion expenses during the year increasing the claim of the assessee drastically to this amount vis-à-vis Rs.2,88,051/- in the immediately preceding previous year. Accordingly the AO called upon the assessee to furnish the details of the said expenses along with the supporting evidences which was replied by the assessee vide letter dated 12.08.2015 that Rs.24,42,029/- was paid to M/s. Acme Housing India Pvt. Ltd. a related party of the assessee for purchase of web portal called www.gyancentral.com. The assessee is engaged in the business of medical transcriptions i.e. transcriptions and converting various recorded reports as dictated by the physicians or other healthcare personnel in two formats and thus the assessee is providing information to various Indian medical and other universities /institutions in India and abroad such type of services. The said web portal was acquired by the assessee under an agreement with ACME for disseminating information about various possible options available in educational field and to enable students for further studies in medical, engineering and other fields and covers the latest information and opportunities available in India and abroad. The assessee in order to expand its business has purchased the said portal in order to attract more students. The said portal was started by ACME years ago and assessee company has paid Rs.24,42,049/- to ACME towards website updating and adding
3 M/s. Acroseas Consultancy Pvt. Ltd. contents to the portal. The AO did not find any merit in the contentions of the assessee for the reason that the said portal was acquired on 31.03.2013 at fag end of the year and no business was transacted through the said portal and no income was generated during the year. The AO also issued notice under section 133(6) to ACME on 16.10.2015 which was responded by the said supplier vide letter dated 04.11.2015 in which it was confirmed by the said related party that the web portal in fact supplied to the assessee. The AO also during the course of assessment proceedings tried to access the said web portal on 15.10.2015, however, it was found that the said portal was not functional. Thus the AO came to the conclusion that the said transaction was sham/adjustment to reduce the tax liability in the garb of purchase of web portal. Ultimately, the said amount was added to the income of the assessee by framing the assessment under section 143(3) of the Act dated 18.12.2015 besides making other additions.
In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee by observing and holding as under: “6.2.3 During appellate proceedings the Id.A.R. once again reiterated the submissions made before the A.O. and no fresh evidences in support of existence of website were produced. At the time of appellate proceedings I specifically asked the A.R. to produce ANY of the evidences which can prove that the website was in existence and it was commercially utilized by the appellant. In response to this the appellant could not produce even a single evidence which can prove that website was actually in existence and commercially exploited by the appellant company. It was specifically asked to the Id. Counsel that whether any revenue was earned by the appellant during the year under consideration or till date i.e. 31.10.2017. If at all any revenue was earned then please furnish the details of the same. The appellant could not give any specific reply. In absence of any documentary evidences in support of the claim of the appellant, 1 have no reason to interfere with the order passed by the A.O. which is based on proper facts and inquiries conducted by him and as a result this ground of appeal is dismissed.
4 M/s. Acroseas Consultancy Pvt. Ltd. 6.2.4 The appellant has taken an alternative plea regarding allowability of depreciation u/s.32 of the l.T.A ct. As held in earlier paras, the asset was not in existence, therefore no depreciation can be allowed.”
After hearing both the parties and perusing the material on record, we observe that in this case the web portal was bought by the assessee from related party ACME vide agreement dated 31.03.2013 in order to expand its business in the field of medical prescriptions and other arenas by taking attracting more students to these fields. The letter issued by the AO under section 133(6) to ACME was duly responded and it was confirmed that the said portal was supplied to the assessee by the said company only on book value by making reimbursement of the expenditure incurred by the said company including expenses of addition and updation of the said portal. It is true that the said web portal was acquired at the year end and no revenue could be fetched from the said portal till 31.03.2013. However, once it is established that portal was there which was installed and acquired on 31.03.2013 then the same can not be treated as sham transaction primarily to circumvent the tax liability by the assessee. Even the supplier has confirmed the transaction in response to notice issued under section 133(6) of the Act. We can not also doubt the installation of the portal as the web portal was already in place and also updated by the supplier ACME who is a related party and portal was also purchased on cost to cost basis. Therefore, we are of the view that the said expenditure is admissible as revenue expenditure even though it has not earned any income during the year as it is connected to the activities existing and also the proposed activities of the assessee. Ld. A.R. also filed before the Bench the detailed documentations of the said portal. It is not material
5 M/s. Acroseas Consultancy Pvt. Ltd. whether the portal was functional on a particular day when checked by the AO In view of these facts, we are inclined to allow the appeal of the assessee by setting aside the order of Ld. CIT(A). The AO is directed accordingly.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 14.05.2019.