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ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income-tax Act (‘Act’) is directed against the order of ld. Commissioner of Income-tax (Appeals)- 50, Mumbai [hereinafter referred as ld. CIT(A)] dated 30.03.2017 for Assessment Year 2003-04. The assessee has raised the following grounds of appeal:
The following grounds of appeal are without prejudice to one another.
1. On the facts and circumstances of the Appellant's case and in Law, the notice issued under section 274 read with section 271(1)(c) by the Ld. Assessing Officer without recording any satisfaction is bad in law and the consequential penalty order passed under section 271(1)( c) of the Act is bad in law and not sustainable in the eyes of law.
2. On the facts and circumstances of the appellant's case and in law the Ld Commissioner of Income Tax (Appeals) erred in confirming the action of Mum 2017-M/s Eros International Media Ltd.
Ld. Assessing Officer's in imposing penalty on the claim of website development expenses amounting to Rs.5,45,968/-. The appellant prays this Hon'ble Tribunal to delete the addition/disallowances made by the Ld. Assessing Officer, which is confirmed by the Ld. Commissioner of Income Tax (Appeals). 2. Brief facts of the case are that the assessee-company is engaged in the business of export of Indian motion pictures and TV software, providing post production studio services and selling in recorded DVD, VCD discs and VHS cassettes. The assessee filed its return of income on 28.11.2003 declaring total income of Rs. 1,07,30,115/-. The return of income was selected for scrutiny. The assessment was completed under section 143(3) of the Act on 17.03.2006. The assessee claimed expenses of Rs. 13,64,920/- on account of website software development expenses. In the books of account, the assessee treated these expenses as capital expenses and deferred the expenses over a period of two years. In computation of income; the assessee treated these expenses as revenue expenditure. The Assessing Officer treated the website development expenses as a software development expenses and by treating it capital expenditure allowed depreciation @ 60% thereby allowed Rs. 8,18,952/- and consequently disallowed Rs. 5,45,968/-. No further appeal was filed by assessee against such treatment and disallowance. The Assessing Officer initiated the penalty under section 271(1)(c) of the Act. The notice under section 274 read with section 271(1)(c) of the Act was issued on 11.02.2013. The assessee filed its reply vide reply dated 12.03.2013. In 2 Mum 2017-M/s Eros International Media Ltd. the reply, the assessee contended that the disallowance does not lead to establish the charge of furnishing of any inaccurate particular. There is no material on record to substantiate that claim was fabricated, inflated or excessive. Therefore, no case exists for furnishing of any inaccurate particular at their end. It was also contended that mere addition in assessment does not attract the charge of furnishing inaccurate particulars of income and it is not the case that there is any material available on record to draw any adverse inference or something has not been brought to disprove the claim of assessee. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that assessee furnished inaccurate particulars within the meaning of clause (A) of Explanation -1 of section 271(1)(c). The Assessing Officer levied the penalty @ 100% of the tax sought to be evaded vide order dated 25.03.2013. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the submission of both the parties and gone through the order of authorities below. We have also deliberated on various case relied by lower authorities and by ld. AR for the assessee while making his submissions. Ground No. 1 relates to validity of notice under section 274 rws 271(1)(c). The ld. AR for the assessee not argued anything, therefore, this ground is treated as not pressed and hence dismissed. 3 ITA No. 4716 Mum 2017-M/s Eros International Media Ltd.
Ground No.2 relates to levy of penalty on addition of Rs. 5,45,968/- on account of website development expenses. The ld. AR submits that assessee claimed expenditure on account of website development expenses. However, the Assessing Officer treated the same as capital in nature. The Assessing Officer allowed the depreciation @ 60% of expenses of Rs. 13,64,920/-. The Assessing Officer further held that expenditure was made by assessee on software development. The ld. AR for the assessee submits that in fact the assessee incurred expenses on website development and required upgradation in every year. Website is not software. The assessee disclosed all the particulars while filing return of income. No particulars of income were found to be inaccurate nor did the assessee conceal any particular of income. The disallowance was made on the basis of change of opinion as the Assessing Officer not agreed with the contention of assessee. The ld. AR for the assessee submits that on similar facts and on identical disallowances the Chandigarh Tribunal in ACIT vs. Torque Pharmaceuticals (P.) Ltd. [2017] 82 taxmann.com 47 (Chandigarh-Trib) deleted the similar penalty. The ld. AR for the assessee submits that the assessee is not liable for penalty merely the claim of deduction was denied. In support of his submission, the ld. AR of the assessee relied upon the decisions of Hon’ble Bombay High Court in Sesa Resources Ltd. vs. ACIT [2013] 38 taxmann.com 224 (Bombay). 4 Mum 2017-M/s Eros International Media Ltd.
On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR for the revenue further submits that the assessee developed the website. The software operates the website. The assessee know it very well since beginning that the expenditure incurred on website development is a capital expenditure. It is not mere a change of opinion. The assessee incurred expenses on software development and the Assessing Officer rightly treated as capital expenditure and allowed depreciation accordingly.
We have considered the rival submissions of the parties and have gone through the orders of authorities below. The assessing officer during the assessment treated the website development expenses as a software development expenses as capital expenses and allowed depreciation @ 60%. The assessee claimed expenses of Rs. 13,64,920/- on account of website development expenses. The assessing officer allowed depreciation @ 60% being Rs. 8,18,952/-, thereby disallowed Rs. 5,45,968/-. No further appeal was filed by the assessee against such additions/ disallowance. The assessing officer levied penalty @ 100% of tax sought to be evaded on such addition/ disallowance. The assessing officer while levying penalty concluded that Clause (A) of Explanation - 1 of 271(1)(c) is attracted. Clause (A) of Explanation 1 of section 271(1)(c) is attracted when the assessee failed to offer explanation to assessing officer or the explanation furnished by the assessee to be false. 5 Mum 2017-M/s Eros International Media Ltd. We have noted that the assessee filed its reply dated 12.03.2013, in response to the show cause notice under section 271(1)(c), which is duly recorded by assessing officer in para 6 of his order. Thus, it is not the case that the assessee offered no explanation. We have further noted that the assessing officer has not recorded his satisfaction as to how the reply /explanation furnished by the assessee is false. 7. The assessing officer while making addition has made disallowances on the basis of the material available on the record. It is not the case of assessing officer that the disallowances are based on the investigation or enquiries made by him during the assessment or the claims made by the assessee were found to be false. Al the facts leading to the disallowances were available on the information and the documents furnished by the assessee. The assessee claimed the expenses incurred on website development as revenue expenditure, however, the assessing officer treated the same as capital expenditure and allowed 60% depreciation. In our view it is merely a change of opinion. The Hon’ble Bombay High Court in Sesa Resources Ltd. vs. ACIT (supra) held that the assessee is not liable for penalty merely because the claim for deduction was denied.
Further, the coordinate bench of Chandigarh Tribunal in ACIT Vs Torque Pharmaceuticals (P) Ltd (supra) on almost similar facts held that where the assessee claimed the expenditure on account of web software development expenses to be revenue in nature, however, the assessing 6 Mum 2017-M/s Eros International Media Ltd. officer took it view to be capital in nature, it was mare change of opinion and as such would not warrant levy of penalty. Therefore, considering the decision of coordinated bench of Chandigarh Tribunal, in our view no penalty under section 271(1)(c) was leviable on such disallowance made by assessing officer. Hence, we direct the assessing officer to delete the entire penalty levied under section 271(1)(c) of the Act.
The submissions of ld. DR for the revenue that it was not the change of opinion is not acceptable to us. As we have already observed that on almost similar facts the Chandigarh Tribunal in Torque Pharmaceuticals (P) Ltd (supra) held that where the assessee’s claim on the expenditure on account of web software development expenses is revenue in nature.
No contrary facts or law was brought to our notice. In the result the ground No.2 of the appeal is allowed. 9. In the result, appeal of the assessee is allowed.