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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-14, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-14/IT-425/13-14 dated & 2839/Mum/2016 25.01.2016. The assessment was framed by the Deputy Commissioner of Income Tax, Circle- 7(3), Mumbai (in short DCIT) for the assessment year 2011-12 order dated 27.02.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is as regards to the order of CIT(A) deleting the addition of dubbing expenses by treating the same as Revenue, whereas the AO held the same as capital and allowed amortization for five years allowing 1/5th of the expenses in instant year. For this Revenue has raised the following ground No. 1: -
1. Whether on facts and in circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of dubbing expenses of Rs. 1,64,46,407/- by AO treating the dubbing as capital and amortize the same over five years allowing 1/51h of the expense in the instant year."
At the outset, the learned Counsel for the assessee stated that there is no dispute in facts and the issue is squarely covered against assessee and in favour of Revenue by the decision of co-ordinate Bench in assessee’s own case for AY 2009-10 in order dated 13-03- 2016, wherein, the bench has taken the view vide para 34 and 35 as under: - “34. While the argument of the learned counsel that there is no concept of deferred revenue expenditure, and, as such, once an expenditure is revenue expenditure, it should be allowed in the year in which the expense is incurred, does indeed seem ITA No. 1939 & 2839/Mum/2016 very attractive at the first blush, it may not hold good in the present case. It is a case in which entire useful period, during which the assessee will reap the fruits for investment in the dubbing costs, is known at the point of time when expenses are incurred. The period for which the assessee holds the licence to use the program is known with precision. The benefit of dubbing the program will be available at least for this period. It is in this background that we may refer to the following observations of Hon ble Supreme Court in the case of Madras High Court in Madras Industrial Investment Corpn. Ltd. vs. CIT [(1997)) 225 ITR 802 (SC)]:.
"...Sec. 37(1) further requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of the business, that it may be regarded as an integral part of the profit making process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded & 2839/Mum/2016 as revenue expenditure. Any liability incurred for the business of obtaining a loan would be revenue expenditure.
Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purposes of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debenture, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of debentures
These observations will be equally applicable in the fact situation before us, particularly as the period over which the benefits will be enjoyed by the assessee is clearly established. The dubbing costs should indeed be, therefore, amortized over this period. In this view of the matter, we see no infirmity & 2839/Mum/2016 in the stand of the authorities below. We confirm the order of the CIT(A) on this point and decline to interfere in the matter."
As the issue is squarely covered, we find no infirmity in the view taken by the AO. Hence, the order of CIT(A) is reversed and the order of AO is confirmed. The appeal of Revenue is allowed on this issue.
The first issue in assessee’s appeal is against the order of CIT(A) confirming the action of the AO in disallowing the Central Support Fee of ₹ 4,38,58,000/-. For this assessee has raised the following ground No. 1: -
1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-14, Mumbai [ClT(A)] has erred in confirming the disallowance of central support fee of Rs.4,38,58,000/- made by the Assessing Officer ('AO')."
At the outset, the learned Counsel for the assessee filed Tribunal order in for AY 2010-11 in assessee’s own case vide order dated 12/07/2017. The Tribunal exactly on identical facts allowed the appeal of the assessee vide Para 5 & 6 as under:-
“5. We find that as far as the disallowance made by invoking the provisions of section 40A(2)(b) of the Act, the CIT(A) agreed with the assessee that the same cannot be applied in the absence of any market standard and Revenue has not preferred the appeal against this finding. It means that the deletion made by CIT(A) for disallowance under & 2839/Mum/2016 section 40A(2)(b) of the Act has become final. The learned counsel for the assessee also drew out attention to Tribunal’s order in assessee’s own case for AY 2008-09, wherein Revenue’s appeal was dismissed by the Tribunal on the very same issue by observing as under: - “8. When we put it to the learned Departmental Representative as to how the conditions under section 40A(2)(b) are satisfied in this case, he did not have much to say beyond placing his reliance on the stand of the Assessing Officer. We can understand his plight. The stand of the Assessing Officer is indeed indefensible. As learned counsel points out, the efforts of applying disallowance under section 40A(2) on the notion of group entities, without specifically fulfilling the conditions set out in Section 40A(2)(b), have been repelled by Hon’ble High Court in the case of CIT Vs VRV Breweries & Bottling Industries Ltd [(2012) 347 ITR 249 (Del)]. While doing so, Their Lordships have, inter alia, observed as follows:
This brings us to the issue as to whether the AO could have invoked the provisions of s. 40A(2)(a) of the Act in the facts and circumstances of the present case. As is noticed in the earlier part of our judgment, the AO in the asst. yr. 1997-98 after recording & 2839/Mum/2016 that the shares of the assessee were held by six (6) entities goes on to observe that the assessee "became a subsidiary of Shaw Wallace Group of Companies". There is no finding recorded by the AO that SWCL had acquired substantial interest i.e., 20 per cent or more of the share capital with attending voting rights, whether directly or beneficially. If that is so, then the provisions of s. 40A(2)(a) could not have got triggered. It is noticed that the CIT(A) in the asst. yr. 1998- 99 has returned a finding that there were five (5) limited companies apart from two (2) individuals who held shares in the assessee, but none of the entities adverted to, by the AO, both in the asst. yr. 1997-98 and 1998- 99 is SWCL. As a matter of fact, the CIT(A) in asst. yr. 1998-99 records that not a single share in the assessee is held by SWCL. The CIT (A) further records a finding of fact that, on a perusal of list of shareholders, it is clear that even the employees of SWCL did (sicnot) have ownership of a controlling share holding interest in the assessee. CIT(A) records that six (6) individuals held ten (10) shares each in the assessee while, one gentleman by the name of Mr. Suraj P. Gupta held 8,61,610 shares who was ITA No. 1939 & 2839/Mum/2016 neither an employee of the assessee and nor was any payment made to Mr. Suraj P. Gupta or his relative or to a company of which he was a director. The CIT(A) went on to hold that, in the instant case, payments had not been made to persons specified under s. 40A(2)(b) and therefore, the provisions of s. 40A(2) were not applicable. Both CIT(A) as well as the Tribunal have also accepted the explanation given by the assessee with regard to difference in payment of bottling charges vis-à- vis Balbir Industries Ltd. and the assessee. The reference to which we have already made hereinabove. We find no perversity in the findings of the Tribunal and those recorded by CIT(A) in asst. yr. 1998- 99.
Therefore, for the foregoing reasons, we are of the view that the Tribunal in the impugned judgment and the CIT(A) in its order dt. 15th May, 2000 passed in the asst. yr. 1998-99 has correctly appreciated the provisions of s. 40A(2) of the IT Act thus the contention of the Revenue even on this aspect has to be rejected.
9. In view of these discussions, as also bearing in mind entirety of the case, we approve the wellreasoned findings of the & 2839/Mum/2016 learned CIT(A) and decline to interfere in the matter.”
Hence, the deletion by the CIT(A) on account of disallowance u/s 40A(2)(b) of the Act has become final and need no interference.
6. As regards to the disallowance made by CIT(A) under section 37 of the Act, the learned Counsel for the assessee Shri Farookh V Irani made submissions that under section 37 of the Act it is not open to the department to adopt a subjective standard of reasoning’s. We find that the assessee has given complete details of central support fee claimed by assessee, which are filed by AO as well as before CIT(A) as Annexure-4 and reproduced in the order of CIT(A). The assessee entered into agreement TWDCI which is for providing services as per clause 2 to the assessee by the TWDCI. The services as per schedule 1 provide as under: - a. Production and programming services b. Advertising sales services c. Affiliate distribution services d. Marketing services e. Accounting/ finance services. f. Legal services. g. Information Technology services. h. Personal Services. & 2839/Mum/2016 There are also a separate facility agreement entered into with TWDCI for reimbursement of facilities which is for the use of premises situated at 4 th Floor, Peninsula Tower-1, Peninsula Corporate Park, Ganpatrao Kadam marg, Off Senapati Bapat Marg, Lower Parel, Mumbai-4000 013 and premised situated C-301, 3rd Floor Ansal Plaza, Hudco Place, Andrews Ganj, Near South extension, Khel Gaon marg, New Delhi-110. And also use of premises at The Millenia, “C”Annexe, next to Citibank ATM, no.1 &2 Marfi Road, Ulsoor, Bangalore, 560 008, use of premises situated at Singravelu Street, 4th Floor, C.V.R Complex T Nagar, Chennai 600 017 and also use of premises situated at 309 DBS house, 1-7-43- 46 Sardar Patel Road, Secunderabad 500 003. The other facilities includes electricity, air-conditioning, canteen facilities, dedicated communication facilities, housekeeping services, repairs and maintenance services for all information technology equipment, other equipments and materials, internet facilities, administration, information technology support service, water facility and security personnel. We find that these expenses are claimed by the assessee with a scientific basis and use of facilities. In such circumstances, it is not open to the Revenue to adopt a subjective standard of reasonableness and disallow a part of business expenditure as being unreasonably large or decide what type of expenditure the assessee should incur and in what circumstances. Once the Revenue authorities has accepted in part and there is no allegation as regards to genuineness of expenditure, part of expenditure cannot be disallowed. & 2839/Mum/2016 Accordingly, we allow the claim of the assessee and this issue of assessee’s appeal is allowed."
The learned Sr. Departmental Representative did not dispute the factual position and admitted that the facts are exactly identical. In view of the above facts and respectfully following the earlier years decision of this Tribunal in assessee’s own case, we delete the disallowance and allow the appeal of assessee. The orders of the lower authorities are reversed and this issue of the assessee’s appeal is allowed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition of ₹6,77,898/- made by the AO on account of non-reconciliation of Income Tax System (‘ITS’) data. For this assessee has raised following ground No. 2:-
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not deleting the addition of Rs. 6,77,898 made by the AO on account of non- reconciliation of ITS data.
At the outset, the learned Counsel for the assessee stated that the AO simply has not gone into the details of reconciliation filed before him and CIT(A) also without going into the reconciliation confirmed the addition. The learned Counsel for the assessee drew our attention to Tribunal’s order in assessee’s own case for AY 2010-11 in order dated 12-07-2017, wherein, the Tribunal has restored the matter back after following the order of AY 2009-10 wherein directions are given. The Tribunal in Para 8 and 9 restore the matter as under:-
ITA No. 1939 & 2839/Mum/2016 “8. At the outset, the learned Counsel for the assessee took us through the Tribunal orders in assessee’s own case for AY 2009-10 in order dated 31-03-2016 where Tribunal has set aside the matter to the file of the AO by observing in Para 30 as under: -.
30. Having heard the rival contentions and having perused the material on record, we are of the considered view that the matter is required to be remitted to the file of the Assessing Officer for adjudication de novo by way of a speaking order and in accordance with the law. The nature of ITS detail, which is not reflected in the books of the assessee, needs to be set out and the assessee be asked to explain the particular entries which are not so reflected in the books of accounts. The non reconciliation of ITS detail can only be a starting point of exploring the matter further with respect to making the additions in respect of the revenues which are not accounted for but just because there is some reconciliation difference, the amount of difference cannot be added to income of the assessee. In any event, these inputs are to be dealt with on merits of each input and the explanation of the assessee is to be taken into account for that purpose. Keeping in view these discussions, as also bearing in mind entirety of the case, the matter stands restored to the file of the Assessing Officer on this point. & 2839/Mum/2016 9. On query from the Bench the learned Sr. DR fairly conceded the position and stated that the matter can be restored back to the file of the AO to file the direction as given in AY 2009-10. We have heard the rival contention and gone through the facts and circumstances of the case and we also restore the matter back to the file of the AO to decide in term of directions in Tribunal’s order for AY 2009-10. This issue of assessee’s appeal remanded back to the file of the AO for fresh adjudication. This issue of assessee’s appeal is allowed for statistical purposes.
The learned Counsel for the assessee stated that this issue can be remitted back to the file of the AO for verification of reconciliation and also follow the tribunals order for AY 2009-10. The learned Sr. Departmental Representative has not objected for setting aside. After hearing both the sides and going through the facts, we restore the matter back to the file of the AO for re-adjudication.
In the Result, the appeal of Revenue is allowed and that of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 28-02-2018.