DCIT, NEW DELHI vs. M/S INTEGRATED SUBSCRIBERS MANAGEMENT SERVICES LTD.,, NEW DELHI

ORDER

PER BEENA A. PILLAI, JM:

(Assessment year 2007-08) 1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 47,41,035/- made out of smart card support fees; 2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. (Assessment year 2008-09)

1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 69,53,120/- made out of smart card support fees;

2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. (Assessment year 2009-10)

1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 56,84,920/- made out of smart card support fees; and ITA no.2858/Del/13

2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.

S. Asst. Yr. Date of filing Declared income in No. of return Rs.

2. 2008-09 27/11/2008 Nil

The case was selected for scrutiny and notices under section 143 (2) alongwith the questionnaires were issued and served upon the assessee within the prescribed period. The representatives of the assessee appeared before the Assessing Officer in respect of these assessment years. During assessment proceedings Ld. AO observed that assessee was providing control access system (CAS) services to dish TV. Dish TV is engaged in providing DTH services to its customers and offers various packages/up options. It was observed that each package has some restrictions being the number of channels, period etc., and a smartcard being a hardware embedded with ITA No. 3497/Del/14 and security module to control the conditional access of set-top boxes. Ld. AO after going through the submissions made by assessee observed that it had claimed expenditure on account of smartcard support fee and license fee paid by assessee, that was considered by assessee as revenue expenditure. Ld. AO disallowed the smartcard support fee by holding that the expenditure should be increased in proportion of the revenue. Aggrieved by the order of Ld. AO, assessee preferred an appeal before Ld. CIT (A) on these additions.

3. Before Ld. CIT (A) the assessee disputed the disallowance made of expenditure of the smart card support fees. It was submitted that the smartcard support fees has increased by 95% whereas the receipts have gone up only by 68% because of which Ld. AO disallowed the proportionate difference between the increase in expenses and receipts. It was submitted before the Ld. CIT (A) that Assessing Officer had not pointed out any other specific reason for disallowance except increase in the expenses as compared to the receipts. Ld. CIT (A) on going through the detailed submissions advanced by assessee allowed the claim of the assessee in respect of the smartcard support fees.

“As regards, the disallowance of Rs.47,41,035/- on account of support fee expenses the argument of the appellant is that the AO has failed to appreciate that income and expenditure cannot increase or decrease in same proportionate ratio particularly in service industry. Referring to the copy of the agreement under which the appellant has incurred the expense of smart card support fee of Rs. 1,31,56,4397- as payable to Conax Access System (P) Ltd. and in particular Para 2.1 & 2.2 as well as clause 1 of Schedule 2 of the agreement the appellant has argued that such service fee payment is calculated per user smart card and that Conax shall invoice Essel monthly for the CA service operation and consulting services , rendered under this agreement , in the preceding month. It has been argued that based on such terms and conditions such fee payable is a revenue expense. Reliance has also been placed on the various decisions of the Hon'ble Courts wherein it is held that the revenue cannot put himself in the arm chair of the businessman and assume the role to decide how much of the expense is reasonable expense having regard to the circumstances of the case. In my considered view, in view of the nature of expenses as narrated in the agreement between the assessee and Conax it is held that the support fee expense is a revenue expense allowable u/s 37(1) of the I.T. Act. In this connection it is seen that even the AO has not made any disallowance on this account on the ground that the same is a capital expense. This fact Is apparent from the fact that out of the total support fee expense claimed of Rs.l,31»56,439/-, the and ITA no.2858/Del/13 expense of Rs.84,15,404/- has been allowed by the AO himself. I am also in agreement with the argument of the AO that there cannot be any one to one direct co-relation between earning of income and incurring of expenditure in a business, particularly in service sector. In view thereof and also in agreement with the finding of the CIT(A)-XV in appellant's own case for AY 2008-09 who has vide order dated 26.3.2013 deleted the addition made with respect to smart card support fee itself , the appeal is allowed and the addition made for Rs.47,41,035/- is directed to be deleted.”