CHEERS INTERACTIVE (INDIA) PVT. LTD.,MUMBAI V. INCOME TAX OFFICER-6(2)(1), MUMBAI, MUMBAI

ITA 6798/MUM/2024

AI Insights

The case involves Cheers Interactive (India) Pvt. Ltd., which appealed against the order of the National Faceless Appeal Center/Commissioner of Income Tax (Appeals) that confirmed the additions and disallowances made by the Assessing Officer under various sections of the Income Tax Act, 1961 for the Assessment Year 2014-2015. The main issues in the appeal were the disallowance of depreciation on intangible assets, foreign exchange fluctuation loss, and the carry forward and set off of business loss and unabsorbed depreciation. The Tribunal found merit in the assessee's claims regarding the depreciation and foreign exchange loss, aligning with a previous decision in a similar case, but remanded the issue of business loss and unabsorbed depreciation for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471320 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Depreciation; Principle of natural justice; Unabsorbed depreciation
• Section: 143(3); 250; 32; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “C” BENCH, MUMBAI | - BEFORE SHRI NARENDER KUMAR CHOUDHRY, JM . AND SHRI PRABHASH SHANKAR, AM oer sid U/ITA No.6798/MUM/2024 (Prafor af; Assessment Year :2014-2015) ITO-6(2)(1), Mumbai Cheers Interactive (India) Pvt) Vs. Ltd _ Office No.173, 24 Floor, Pitru-Chhaya Jain Society, Sion Mumbai-400020 . ; Bia weal G./PAN No. : AABCC 3894 L mE 3 7 (yal / Respondent) = {3/02/2025 Teor a ante Date of Pronouncement | 25/02/2025 amar/O RDER PER NARENDER KUMAR CHOUDHRY JM: ‘This appeal has been preferred by the assessee against the order dated 28. 10. 2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2014-2015. ITA No.6798/Mum/2024 2. In the instant case, the AO vide assessment order dated 26.12.2016 u/s.143(3) of the Act, has made the following additions: - i) Rs. 1,87,89,855/- - Depreciation on intangible assets. ti) Rs. 97,80,000/-. - Foreign Exchange Fluctuation Loss iii) Rs. 48,834/- - Premium on ESOP iv) (-) Rs.2,79,10, 732 - Set off and carry forward business loss 3. The. assessee being aggrieved challenged the said additions/disallowances before the Id. CIT(A), who vide impugned order affirmed the same by dismissing the appeal of the assessee. 4. The assessee being aggrieved has preferred the instant appeal and has raised the following grounds of appeal: - -1.° The Ld. CIT(A) has erred in law and in facts in passing the - order u/s. 250 of the Act dated 28.10.2024 dismissing the appeal of the appellant and confirming the order passed © by the AO u/s 143(3) of the Act which is bad and invalid in the eyes of law. 2. The Ld. CIT(A) has erred in law and in facts in passing the order in violation of principles of natural justice. 3... The Ld. CIT(A) has erred in law and in facts in confirming ; the action of Ld. AO in disallowing depreciation on intangible assets amounting to Rs. 1,87,89,855/-. 4,° The Ld. CIT(A) has erred in law and in facts in confirming. the action of Ld.AO in disallowing foreign exchange loss of Rs. 97,80, 000/-. 5. The Ld. CIT(A) has erred in law and in facts in confirming | . the action of Ld. AO in disallowing carry forward and set off of business loss and unabsorbed depreciation against assessed income of the appellant. 6, The Ld. CIT(A) has erred in law and in facts in making addition in respect of shares issued under ESOP scheme u/s 56(2)(viib) of the Act amounting to Rs. 48,834/- ITA No.6798/Mum/2024 .. 7. The appellant craves leave to add to, alter, amend and / or delete in all the foregoing grounds of appeal. 5. During the course of hearing the assessee did not press Ground . Nos.2 and 6 specifically and grounds no. 1.and 7 are formal in nature, | therefore, these grounds need no adjudication. 6. Coming to Ground No.3 which pertains to disallowance made by the AO and confirmed by the Id. CIT(A) on account of depreciation on intangible assets, the assessee has claimed that in assessee's own case for the A.Y.2012-2013 (ITA No.2418/Mum/2024) vide order ‘dated 24.01.2025, the Hon'ble coordinate bench of the Tribunal has dealt with the identical issue. and allowed the alternative claim of the assessee as revenue expenditure allowable u/s.37(1) of the Act, by. observing and holding as under :- 7. Before us, Id. Counsel for the assessee reiterated various clauses and terms and conditions contained in the agreement entered into by the assessee with EADS which are. not repeated for the sake of brevity. The sole thrust of the contentions is that assessee has acquired an intangible asset . ‘in the form of commercial rights as explained in Explanation 3 in respect of intangible assets wherein commercial rights are included, hence eligible for depreciation at the rate of 25% u/s.32 of the Act. Since the incurring of expenditure/ amount - paid by the assessee is not in dispute in terms of the. aforesaid agreement, in the alternate, it is submitted that if ~ the claim of depreciation is not accepted then it is allowable u/s.37(1) as revenue expenditure incurred wholly and .. exclusively for the purpose of business of the assessee. Ld. . Counsel also referred to. quantum of aggregate revenue of _Rs.4,89,68,666/- generated . during the period from 01.04.2010 to 31.03.2017 i.e. during the period of agreement ITA No.6 ae to demonstrate that. benefi ts had accrued to the assessee under the said agreement with EADS. Details of the said revenue from the ledger account of EADS, France.as contained in page - 77 of the paper book is extracted below: yee 7.1, Per contra, Id. Sr. DR strongly placed reliance on the orders of the authorities below. 8. We have heard both the parties and perused the material on record. \"Business or commercial rights of similar nature\" has to be understood in the facts and circumstances of every business or commercial arrangement undertaken by assessee. For this purpose,.we analysed the terms and conditions set forth in the agreement entered into between the assessee and EADS which is titled as \"Agreement for services related to support of licensing activities\". Assessee has capitalized the consideration under this agreement payable to EADS as an Intangible asset’ claiming depreciation on the same which the Id. Assessing Officer as disallowed. Recognition of \"business or commercial rights of similar nature\" as its peculiar nuances. In the present case, Cheers Interactive (India) Put. Ltd., AY 2012-13 facts of undertaking business transaction by the assessee with EADS in terms of aforesaid agreement is not in dispute. The sole issue is regarding whether to recognize the same as an asset eligible for depreciation u/s. 32 of as ' ITA No.6798/Mum/2024 revenue expenditure eligible for deduction u/s. 37(1) of: the Act. To put it.differently, it is only a matter of timing difference on the allowability of the claim, i.e. spread over several years by way of charging depreciation or in one go in the year under consideration. Since assessee has taken an alternate plea of ~ considering the claim as revenue expense for allowability u/s. 37(1) if the treatment of Id. Assessing Officer is not negated, we are inclined to consider the same for adjudicating this appeal. 8.1. In the above paragraphs, we have already analysed the contents of the agreement entered by the assessee with EADS for rendering commercialisation services cooperation in technology licensing initiative for specified time period upto 31.12.2021, commencing from 28.07.2011. Assessee has demonstrated generation of revenue under this agreement over the period from 01.04.2010 to 31.03.2017, tabulated above. In terms of section 37(1), assessee has incurred the - expenditure which is laid out wholly and exclusively -for the. purposes of the business. Keeping the above terms and conditions in the agreement in perspective with the alternate claim made by the assessee of treating the amount payable under the aforesaid agreement as a \"revenue expenditure\" allowable u/s. 37(1) of the Act, we find it proper to allow the said alternate claim. Ld.. Assessing Officer is directed. to recompute the total income while giving effect to the aforesaid finding of considering the claim. allowable u/s 37(1). Accordingly, ground no. 3(e) raised by the assessee. is allowed. 7. Considering the facts and circumstances of the case, as the finding ‘of the Tribunal in the case referred to above, has not been controverted by the Id. Sr. DR by placing on record any judgment or material. contrary and therefore on same. reasoning as given by the Tribunal in the. aforesaid case, we are Inclined to allow the claim of the Assessee. Thus the AO is. directed to recompute the tax liability secondinaty. Resultantly, ground No.3 raised by. the assessee allowed. ITA No.6 i sii inlet 8. Coming to the Ground No.4, which relates. to disallowance of foreign exchange loss of Rs.97,80,000/-, we observe that the Hon'ble coordinate bench of the Tribunal has also dealt with the identical issue and held as under: 8.2. In ground no. 4 also, assessee has — alternative claim towards foreign exchange loss of Rs.22,13,375/- actually paid as revenue expenditure which tt. has considered _as part of cost of intangible. This ground is covered by our above stated observations and finding since it stems from the same transaction of impugned agreement under which assessee had recognized it as an intangible asset, having consequential effect. Accordingly, in terms of our aforesaid _ finding, ground no. 4(c) is allowed. Ld. Assessing Officer is — directed to give appropriate effect in computing the. total - income. , 9. Respectfully following the decision of the Hon'ble coordinate bench of the Tribunal, qua the issue in hand, we are inclined to allow the instant ground raised by the assessee and consequently direct the AO to consider foreign eyetrantie: less if Rs.97,80,000/- as revenue expenditure and to. give appropriate effect in compliting the ‘total income in same terms, as siirectet by the Hon'ble coordinate bench of the Tribunal in the case referred to above. Thus, ground No.4 is also: allowed. 10. Coming to Ground No.5, the assessee has claimed that the Id.CIT(A) has erred in law in fact in confirming the action of the AO in’ _ disallowing the carry forward and set off of business loss. and unabsorbed depreciation against the assessed income of the ‘ITA No:6798/Mum/2024 Assessee. The AO has disallowed the set off the business loss of | Rs.2,79,10,732/- while computing the total income of the assessee ‘and the Id. Commissioner has also held that there is no balance carry forward loss available for carrying to the subsequent year as per law and consequently he confirmed the disallowance of set off of unabsorbed depreciation. The Assessee therefore has raised the claim that both the authorities below have not considered the carry. forward and set off of business loss and unabsorbed depreciation in its right perspective and also not decided correctly and, therefore, this issue may be remanded to the file of the Id. AO for decision afresh.. | 11. On the other hand, Id. Sr. DR refuted the claim of the assessee. | 12. We have given our thoughtful considering to the facts and circumstances of the case and rival claims of the parties and are of the considered view. that to cut short the litigation and substantial justice, it would be appropriate to remand the instant issue to the file - of the AO for decision .afresh,. while considering the claim of the assessee qua loss claimed in respect of earlier years of assessment or alternatively considering such business loss or unabsorbed depreciation and its allowability for setting off in the assessment year under consideration on the basis of the appellate order passed by the Id. Commissioner. Thus, the instant issue is remanded to the file of the Id.AO. Resultantly, ground No.5 is allowed for statistical purposes. ITA No.6 798/Mum/2024 13. In the result, appeal of the assessee is allowed partly for statistical purposes. Order pronounced in the open court on 25/02/2025. s/d s/d | (PRABHASH SHANKAR) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER W]as/Mumbai; aren wt ufaferit sifta/Copy of the Order forwarded to : 1. odteneif/ The Appellant- . Cheers Interactive (India) Pvt. Ltd Office No.173, 2\"¢ Floor, Pitru Chhaya Jain Society, Sion Mumbai-400020 2. well The Respondent- | — SASRIFTAR/ BY ITO-6(2)(1), Mumbai ~ ORDER, SIT SyaA(stAe) / The CIT(A), 4, oe anya / CIT | 5. Runt wath, meepe onttcha often, ist / (Assistant DR, ITAT, Mumbai Registrar) 6. M1 Wied / Guard file. sare See aiftrepzur, Has / wetted wie //True C /inrue Copy/t ITAT, Mumbai ITA No.6798/Mum/2024 Details Date Draft dictation sheets are|. attached | : Sr.PS/PS Draft dictated on Sr.PS/PS | Sr.PS/PS Draft Placed before author 4 Draft proposed & placed before the Second Member JM/AM JM/AM Sr.PS/PS Sr.PS/PS Sr.PS/PS Draft discussed/approved by - Second Member 1 ‘Approved Draft comes to the Sr.PS/PS oo Order pronouncement on P| File sent to the Bench Clerk | | Z Date on which the file goes to. the Head clerk Date on which file goes to the AR ; Date of Dispatch of order "