SCRABBLE ENTERTIANMENT LTD, MUMBAI V. ASST CIT 11(1), MUMBAI

ITA 1742/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0479 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Proportionate interest; Fair market value; Difference of opinion; Capital receipt; Revenue expenditure
• Section: 115JB; 194C; 68

Judgement Text

1 SCRABBLE ENTERTAINMENT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NOS.1742/MUM/2016 (ASSESSMENT YEAR: 2011-12) SCRABBLE ENTERTAINMENT LTD 3 RD FLOOR, VALUABLE TECHNO PARK, PLOT NO.53/1, ROAD NO.7, MIDC, ANDHERI (E), MUMBAI-400 093 PAN : AALCS6153Q VS ACIT-11(1), MUMBAI APPELLANT RESPONDEDNT I.T.A NO. 2808/MUM/2016 (ASSESSMENT YEAR: 2011-12) ACIT-11(1), MUMBAI VS SCRABBLE ENTERTAINMENT LTD 3 RD FLOOR, VALUABLE TECHNO PARK, PLOT NO.53/1, ROAD NO.7, MIDC, ANDHERI (E), MUMBAI-400 093 PAN : AALCS6153Q APPELLANT RESPONDEDNT ASSESSEE BY SHRI NITESH JOSHI REVENUE BY SHRI RAJAT MITTAL DATE OF HEARING 08-11-2017 DATE OF PRONOUNCEMENT 31-01-2018 O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-4, MUMBAI DATED 11-01-2016 2 SCRABBLE ENTERTAINMENT LTD AND THEY PERTAIN TO ASSESSMENT YEAR 2011-12. SINCE BOTH THE APPEALS PERTAIN TO THE SAME ASSESSEE, FOR THE SAKE OF CONVE NIENCE, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER. ITA NO.1742/MUM/2016 2. T HE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF SALES OF DFL PROJECTORS AND RELA TED ACCESSORIES OF DEPLOYMENT OF DIGITAL CINEMA. THE ASSESSEE HAS FIL ED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 27-09-201 1 DECLARING TOTAL INCOME AT NIL. THE ASSESSMENT WAS COMPLETED U/S 14 3(3) ON 27-03- 2014 DETERMINING THE TOTAL INCOME AT NIL AFTER SETT ING OFF OF BROUGHT FORWARD LOSSES BY MAKING ADDITION TOWARDS UNEXPLAIN ED CASH CREDITS TOWARDS SHARE CAPITAL AND SHARE PREMIUM, EXPENDITUR E INCURRED ON UAE BRANCH, DISALLOWANCE OF INTEREST ON INTER-CORPORATE LOANS, ADDITION TOWARDS CESSATION OF LIABILITY U/S 41(1), TOWARDS U NPROVED SUNDRY CREDITORS, DISALLOWANCE OF EXPENDITURE FOR FAILURE TO DEDUCT TDS / SHORT DEDUCTION OF TDS U/S 194C, ADDITION TOWARDS AIR MIS MATCH AND DISALLOWANCE OF AMORTIZATION OF SUBSIDIZED COST. T HE AO ALSO RECOMPUTED BOOK PROFIT U/S 115JB BY MAKING ADJUSTME NTS TOWARDS ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF AMORTIZ ATION OF SUBSIDIZED COST. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE FILE D APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FI LED ELABORATE WRITTEN 3 SCRABBLE ENTERTAINMENT LTD SUBMISSIONS TO CONTEST EACH AND EVERY ADDITION MADE BY THE AO. THE CIT(A), FOR THE DETAILED DISCUSSION IN HIS ORDER D ATED 11-01-2016 PARTLY ALLOWED APPEAL FILED BY THE ASSESSEE, WHEREIN HE HA S DELETED ADDITIONS MADE BY THE AO TOWARDS UNEXPLAINED CASH CREDITS U/S 68 TOWARDS SHARE CAPITAL AND SHARE PREMIUM, DISALLOWANCE OF EXPENDIT URE INCURRED FOR STTING UP UAE BRANCH, DISALLOWANCE OF EXPENDITURE U /S 40(A)(IA) FOR FAILURE TO DEDUCT TDS / SHORT DEDUCTION OF TDS AND ADDITION TOWARDS AIR MISMATCH; HOWEVER, CONFIRMED RECOMPUTATION OF BOOK PROFIT U/S 115JB BY MAKING ADJUSTMENTS TOWARDS DISALLOWANCE OF AMORT IZATION OF SUBSIDIZED COST IN RESPECT OF SALE OF PROJECTORS AN D ACCESSORIES ON THE GROUND THAT THE ASSESSEE HAS WRITTEN OFF SUBSIDIZED COST INCURRED ON SALES OF PROJECTORS BY CHANGING ITS ACCOUNTING POLI CY WITHOUT ANY VALID REASONS FOR CHANGE IN STANDARD ACCOUNTING POLICIES FOLLOWED IN THE EARLIER YEARS. ACCORDING TO THE CIT(A), THE ASSESS E HAS CONSISTENTLY FOLLOWED THE POLICY OF ACCOUNTING SUBSIDIZED COST O VER A PERIOD OF AGREEMENT AND CHARGED TO P&L ACCOUNT. HOWEVER, DUR ING THE CURRENT YEAR, WITHOUT ANY CHANGES IN FACTS, CHARGED SUBSIDI SED COST FULLY TO THE P&L ACCOUNT WHICH RESULTS INTO UNDER-STATEMENT OF P ROFIT TO THE EXTENT OF RS.2,34,89,480 WHICH IS EVIDENT FROM THE FACT THAT THIS FACT HAS BEEN MENTIONED IN THIRD PARA OF NOTE NO.5 OF PART B OF S CHEDULE 22 IN THE BALANCE-SHEET. SINCE THE ASSESSEE COMPANY HAS CHAN GED ITS ACCOUNTING POLICY DURING THE YEAR WITHOUT ANY VALID REASON FOR CHANGES IN 4 SCRABBLE ENTERTAINMENT LTD ACCOUNTING POLICY THEREBY REDUCED THE NET PROFIT. THEREFORE, MADE AN ADDITION OF RS.2,34,89,480 TOWARDS BOOK PROFIT COMP UTED U/S 115JB OF THE INCOME-TAX ACT5, 1961. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD .AO FAILED TO APPRECIATE THE FACT THAT BOOK PROFIT COMPUTED U/S 1 15JB OF THE ACT HAS TO BE COMPUTED BASED ON THE NET PROFIT AS PER THE P&L ACCOUNT PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI OF THE COMPANIESACT, 1956. ASSESSEE HAS PREPARED ITS P&L ACCOUNT IN ACC ORDANCE WITH PARTS II AND III OF SCHEDULE VI OF THE COMPANIESACT AND THE SAME HAS BEEN DULY AUDITED BY THE AUDITORS AND ALSO APPROVED BY T HE BOARD OF DIRECTORS. THEREFORE, THERE IS NO REASON FOR THE A O TO RECOMPUTE BOOK PROFIT ONLY ON THE BASIS OF NOTES GIVEN TO FINANCIA L STATEMENTS WHEREIN FOR THE PURPOSE OF DISCLOSURE OF FINANCIAL STATEMENTS, THE ASSESSEE HAS GIVEN A NOTE REGARDING CHANGES IN ACCOUNTING POLICY FOR TREATMENT OF SUBSIDISED COST IN ITS FINANCIAL STATEMENTS. THE A SSESSEE FURTHER SUBMITTED THAT THE IMPUGNED EXPENDITURE HAS BEEN AL READY INCURRED BY THE ASSESSEE AND ONLY FOR THE PURPOSE OF DISCLOSURE IN FINANCIAL STATEMENTS IN CONSONANCE WITH MATCHING CONCEPT PRIN CIPLES DECIDED TO AMORTISE SUBSIDISED COST OVER A PERIOD OF AGREEMENT . HOWEVER, DUE TO CHANGED CIRCUMSTANCES, THE MANAGEMENT HAS DECIDED T O CHARGE SUBSIDISED COST IN THE YEAR OF ITS INCURRENCE. THE REFORE, THE TREATMENT GIVEN FOR AMORTISATION OF SUBSIDISED COST IS IN ACC ORDANCE WITH 5 SCRABBLE ENTERTAINMENT LTD ACCOUNTING STANDARDS. ACCORDINGLY THE AO WAS INCOR RECT IN MAKING ADJUSTMENT TOWARDS BOOK PROFIT. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS APOLLO TYRES LTD (2002) 122 TAXMAN 562 (SC). THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TA PARIA TOOLS LTD VS JCIT (2015) 372 ITR 605 (SC). 5. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDER O F THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE ASSESSEE HAS TREATED SUBSIDISED COST ON SALE OF PROJECTORS A ND ITS ACCESSORIES AS DEFERRED REVENUE EXPENDITURE AND AMORTISED OVER A P ERIOD OF AGREEMENT. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS CHANGED ITS ACCOUNTING POLICY SO AS TO CHARGE TOTAL SUBSIDISED COST INCURRED TO THE P&L ACCOUNT IN THE YEAR IN WHICH SU CH COST HAS BEEN INCURRED AND SUCH CHANGES HAS BEEN DISCLOSED IN THE NOTES TO ACCOUNTS. THE AO MADE ADDITION TO THE BOOK PROFIT COMPUTED U/ S 115JB ON THE GROUND THAT THE ASSESSEE HAS FAILED TO MAKE POSITIV E ADJUSTMENTS TOWARDS AMORTISATION OF SUBSIDISED COST EVEN THOUGH SUCH EXPENDITURE IS NOT DEDUCTIBLE DURING THE YEAR UNDER CONSIDERATION BECAUSE OF ITS OWN TREATMENT IN THE EARLIER FINANCIAL YEAR. THE AO FU RTHER OBSERVED THAT THE ASSESSEE ITSELF HAS CONSIDERED SUBSIDISED COST AS D EFERRED REVENUE EXPENDITURE AND AMORTISED OVER A PERIOD OF AGREEMEN T BY FOLLOWING 6 SCRABBLE ENTERTAINMENT LTD MATCHING CONCEPT PRINCIPLES OF ACCOUNTING. HOWEVER , WITHOUT ANY MATERIAL CHANGES IN FACTS, CHANGED ITS ACCOUNTING P OLICY TO CHARGE SUBSIDISED COST IN THE YEAR OF INCURRENCE. THEREFO RE, HE OPINED THAT ITS FINANCIAL STATEMENTS ARE NOT IN ACCORDANCE WITH PAR TS II AND III OF SCHEDULE VI OF THE COMPANIES ACT AND HENCE MADE AD JUSTMENTS TOWARDS AMOUNT WRITTEN OFF TO THE BOOK PROFIT. IT IS THE CONTENTION OF THE ASSESSEE THAT ONCE ITS FINANCIAL STATEMENTS ARE PRE PARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI OF THE COMPANI ESACT AND SAID FINANCIAL STATEMENTS HAVE BEEN AUDITED AND APPROVED BY THE BOARD, THERE IS NO SCOPE FOR THE AO TO RECOMPUTE BOOK PROF IT U/S 115JB OF THE INCOME-TAX ACT, 1961. THE ASSESSEE FURTHER CONTEND ED THAT ADJUSTMENT MADE BY THE AO TO RECOMPUTE BOOK PROFIT U/S 115JB, IS NOT IN ACCORDANCE WITH EXPLANATION 1 TO SECTION 115JB AS T HE ITEM OF ADJUSTMENT IS NOT IN THE LIST OF POSITIVE ADJUSTMEN TS. THEREFORE, THE AO WAS INCORRECT IN MAKING ADJUSTMENT TOWARDS AMORTISA TION OF SUBSIDISED COST TO THE BOOK PROFIT IN CONTRAVENTION OF PROVISI ONS OF SECTION 115JB. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS APOLLO TYRES LTD (2002) 122 TAXMAN 5 62 (SC) AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TA PARIA TOOLS LTD VS JCIT (SUPRA). 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL S ON RECORD, WE FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT THE ENTIRE 7 SCRABBLE ENTERTAINMENT LTD EXPENDITURE INCURRED TOWARDS SUBSIDISED COST ON SAL E OF PROJECTORS AND ITS ACCESSORIES WAS INCURRED AND IT WAS THE ASSESSE E, WHO WANTED TO SPREAD OVER SUCH EXPENDITURE OVER A PERIOD OF AGREE MENT IN CONSONANCE WITH MATCHING CONCEPT OF PRINCIPLES OF ACCOUNTING. NORMALLY, THE REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YE AR IN WHICH IT IS INCURRED. BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE BENEFIT MAY BE ALLOWED WHEN IT WAS FOUND THAT THERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE ASSESSE O VER THE ENTIRE PERIOD. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY THE OR DINARY RULE IS TO BE APPLIED, VIZ. REVENUE EXPENDITURE INCURRED IN A PAR TICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THEN THE DEPARTMENT CANNOT DENY THE SAME . HOWEVER, IN THAT CASE, WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD TH E EXPENDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY I F THE PRINCIPLES OF MATCHING CONCEPT IS SATISFIED. IN THE PRESENT CASE , ADMITTEDLY, THE ASSESSEE HAS INCURRED SUBSIDISED COST ON SALE OF PR OJECTORS AND ACCESSORIES AND SUCH COST HAS BEEN TREATED AS REVEN UE EXPENDITURE AND ALSO AMORTISED OVER A PERIOD OF AGREEMENT. HOWEVER , DUE TO CHANGED CIRCUMSTANCES, IT HAS CHANGED ITS ACCOUNTING POLICI ES SO AS TO CHARGE TOTAL SUBSIDISED COST INCURRED IN THE YEAR IN WHICH SUCH EXPENDITURE HAS BEEN INCURRED. THE ASSESSEE ALSO DISCLOSED SUCH CH ANGES IN ACCOUNTING POLICIES IN THE NOTES TO ACCOUNTS FOR BE TTER DISCLOSURE OF ITS 8 SCRABBLE ENTERTAINMENT LTD FINANCIAL STATEMENTS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS PREPARED ITS ACCOUNTS IN ACCORDANCE WITH PARTS II A ND III OF SCHEDULE VI OF THE COMPANIESACT, 1956. THE ACCOUNTS OF THE AS SESSEE HAS BEEN AUDITED BY THE STATUTORY AUDITORS AND ALSO APPROVED BY THE BOARD. ONCE, ACCOUNTS ARE PREPARED IN ACCORDANCE WITH PARTS II A ND III OF SCHEDULE VI OF THE COMPANIESACT AND SUCH ACCOUNTS HAVE BEEN AP PROVED BY THE BOARD OF DIRECTORS OF THE COMPANY, THEN THERE IS NO SCOPE FOR THE AO TO MAKE ANY ADJUSTMENT TOWARDS BOOK PROFIT COMPUTED U/ S 115JB. IN THIS CASE, SUCH ADJUSTMENT IS NOT IN ACCORDANCE WITH EX PLANATION 1 TO SECTION 115JB OF THE ACT. WE FURTHER NOTICE THAT T HE ADJUSTMENTS MADE BY THE AO TOWARDS AMORTISATION OF SUBSIDISED COST I S NOT AN ITEM OF POSITIVE ADJUSTMENT PROVIDED UNDER EXPLANATION 1 TO SECTION 115JB OF THE ACT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCORRECT IN MAKING ADJUSTMENTS TOWARDS BOOK PROFIT IN RESPECT OF AMORTISATION OF SUBSIDISED COST. THIS LEGAL PROPOS ITION IS SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F APOLLO TYRES LTD VS CIT (SUPRA) WHEREIN IT WAS OBSERVED THAT THE AO IS NOT PERMITTED TO MAKE ANY ADJUSTMENT TOWARDS BOOK PROFIT, ONCE THE A CCOUNTS ARE PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCH EDULE VI OF THE COMPANIES ACT, 1956. WE FURTHER NOTICE THAT THE C LAIM OF THE ASSESSEE THAT DEDUCTION TOWARDS EXPENDITURE INCURRED IS COVE RED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOO LS LTD VS JCIT 9 SCRABBLE ENTERTAINMENT LTD (SUPRA) WHEREIN IT WAS HELD THAT MERLEY BECAUSE A D IFFERENT TREATMENT WAS GIVEN IN THE BOOKS OF ACCOUNT CANNOT BE A FACTO R WHICH WOULD DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE EXPEN DITURE AS A DEDUCTION. THEREFORE, WE ARE OF THE CONSIDERED VIE W THAT THE AO WAS INCORRECT IN MAKING ADDITION TOWARDS AMORTISATION O F SUBSIDISED COST TO THE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. HEN CE, WE DIRECT THE AO TO DELETE ADDITION TOWARDS BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ITA NO. 2808/MUM/2016 9. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION FROM REVENUES APPEAL IS ADDITION TOWARDS SHARE CAPITAL AND SHARE PREMIUM U/S 68 OF THE INCOME-TAX ACT, 1961 AS UNEXPLAINED CASH CREDIT. T HE AO MADE ADDITION TOWARDS SHARE CAPITAL AND SHARE PREMIUM ON THE GROUND THAT THE ASSESSEE WAS FAILED TO JUSTIFY ISSUE OF SHARES AT A PREMIUM AND NO EVIDENCE / DOCUMENTS HAVE BEEN FILED TO PROVE THE I DENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES . ACCORDING TO THE AO, THE ASSESSEE HAS ISSUED SHARES OF FACE VALUE OF RS. 10/- AT A PREMIUM OF RS.1,033 PER SHARE WITHOUT ANY JUSTIFICATION FOR OF FER OF SHARES AT A HUGE PREMIUM. ACCORDING TO THE AO, THE MARKET VALUE OF THE SHARES AS ON THE DATE OF ISSUE OF SHARE AT A PREMIUM IS RS.88 AND HE NCE, THE PREMIUM SHOULD HAVE BEEN CHARGED AT RS.78/-, WHEREAS THE AS SESSEE HAS CHARGED EXCESS PREMIUM OF RS.955 PER SHARE. THEREF ORE, HE DOUBTED 10 SCRABBLE ENTERTAINMENT LTD THE GENUINENESS OF TRANSACTIONS AND ACCORDINGLY MAD E ADDITION BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAJOR METALS VS UOI 2016-LL-0517-33 IT IS THE CONTE NTION OF THE ASSESSEE THAT IT IS ENGAGED IN CONVERTING MAJORITY OF THE MULTIPLEXES AND FROM TIME TO TIME SINGLE SCREENS IN THE COUNTRY TO DIGITAL CINEMA INITIATIVE PLATFORM AND ENJOYS THE PRIVILEGE OF BEING INDIAS DCI COMPLIANT ENTITY HAVING VIRTUAL PRINT FEE CONTRACTS. THE ASSESSEE I S NOW LISTED ON THE BOMBAY STOCK EXCHANGE AND THE NATIONAL STOCK EXCHNA GE HAS ISSUED SHARES TO UFO AT A PRICE OF RS.1,043 PER SHARE HAVI NG A FACE VALUE OF RS.10/-. SUCH SHARES HAS BEEN ISSUED TO HOLD CONTR OLLING INTEREST CONSIDERING THE GROWTH IN NUMBER OF SCREENS. THE A SSESSEE HAS FILED VARIOUS DETAILS BEFORE THE AO TO JUSTIFY ISSUE OF S HARES AT A PREMIUM. THE ASSESSEE ALSO FILED DETAILS TO PROVE IDENTITY, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE PARTIES. T HEREFORE, THERE IS NO REASON FOR THE AO TO DOUBT GENUINENESS OF TRANSACTI ONS SO AS TO MAKE ADDITION U/S 68. 10. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED MATER IAL AVAILABLE ON RECORD. THE AO MADE ADDITION TOWARDS SHARE PREM IUM U/S 68 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO J USTIFY ISSUE OF SHARES AT A PREMIUM WHEN ITS MARKET VALUE WAS FAR LESS THA N THE VALUE OF SHARES ISSUED AT A PREMIUM TO UFO. EXCEPT THIS, TH E AO HAS NOT DOUBTED IDENTITY, CREDITWORTHINESS OF THE SUBSCRIBE R. THE AO DOUBTED 11 SCRABBLE ENTERTAINMENT LTD THE GENUINENESS OF TRANSACTIONS ONLY ON THE BASIS O F ISSUE OF SHARES AT PREMIUM. ON THE OTHER HAND, THE ASSESSEE HAS JUSTI FIED WITH NECESSARY EVIDENCES, ISSUE OF SHARES AT PREMIUM AND ALSO EXPL AINED THE REASONS FOR ISSUE OF SHARES AT PREMIUM. ACCORDING TO THE A SSESSEE, UFO HAD ACQUIRED MINORITY STOCK IN THE ASSESSEE AS STRATEGI C INVESTMENT BY CONSIDERING THE GOODWILL AND OTHER ASPECTS OF REVEN UE IN THE BUSINESS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO REASON FOR THE AO TO DOUBT THE GENUINENESS OF TRANSACTION ONLY ON THE BASIS OF ISSUE OF SHARES AT A PREMIUM WHEN THE ISSUE OF SHARES AT A P REMIUM IS NOT AT ALL RELEVANT FOR THE PURPOSE OF ADDITION MADE U/S 68 OF THE ACT. WHAT NEEDS TO BE CONSIDERED FOR THE PURPOSE OF UNEXPLAINED CAS H CREDIT U/S 68 IS, IDENTITY, GENUINENESS OF TRANSACTION AND CREDITWORT HINESS OF THE PARTIES. IN THIS CASE, THE ASSESSEE HAS PROVED ALL THE 3 ING REDIENTS BY FILING NECESSARY EVIDENCES AND HENCE, THERE IS NO REASON F OR THE AO TO MAKE ADDITION TOWARDS SHARE PREMIUM WHEN SHARE PREMIUM C ANNOT BE CONSIDERED AS UNEXPLAINED CREDIT U/S 68 OF THE ACT. THE CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DELETED ADDI TION MADE BY THE AO. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W:- 6. I HAVE CONSIDERED THE FINDINGS OF THE AO AS WEL L AS RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. THE APPELLANT IS INDIA'S LARGEST DIGITAL CINEMA DISTRIBUTION NETWORK. IT OPERATES INDIA'S LARGEST S ATELLITE-BASED DIGITAL CINEMA DISTRIBUTION NETWORK USING ITS UFO-M4 PLATFO RM. ALSO INVOLVED IN INDIA'S LARGEST D-CINEMA NETWORK AND E-CINEMA MOVIE DELIVERY PLATFORM. THE COMPANY IS ALSO LISTED ON THE BOMBAY STOCK EXCH ANGE AND THE NATIONAL STOCK EXCHANGE. MAJORITY OF THE SHAREHOLDE RS IN THIS YEAR ARE 3I RESEARCH (MAURITIUS) LIMITED, THE VALUABLE GROUP AN D APOLLO GROUP. IT IS 12 SCRABBLE ENTERTAINMENT LTD VERY OBVIOUS FROM THE EVIDENCES ON RECORD THAT UFO HAD ACQUIRED MINORITY STAKE IN THE APPELLANT AT THE PRICE OF RS. 1,043.11 PER SHARE INCLUDING SHARE PREMIUM AS STRATEGIC INVESTMENT WITH THE APPE LLANT. UFO AND THE APPELLANT, AS CLAIMED BY THE APPELLANT, ARE UNRELAT ED AND INDEPENDENT PARTIES. OVER THE YEAR. UFO HAS ACQUIRED MAJORITY S TAKE IN THE APPELLANT HAVING 26.41% IN FY 2011-12 AND WAS HAVING 51.85% JN FY 2012-13 IT WAS HAVING 76.42% AND IN FY 2013-14 THE HOLDING WAS OF 91.33%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. AR OF THE APPELLANT HAS SUBMITTED VARIOUS DOCUMENTS LIKE SHARE SUBSCRIPTION AND SHARE HOLDERS AGREEMENT, COPY OF BANK STATEMENT SHOWING RECEIPT O F SHARE APPLICATION MONEY, COPY OF FORM NO.2 FILED WITH REGISTRAR OF CO MPANIES, CERTIFIED COPY OF BOARD RESOLUTIONS AND ANNUAL ACCOUNTS OF UFO. AL L THESE EVIDENCES ARE VERY RELEVANT TO THE ISSUE UNDER CONSIDERATION. FUR THER, THE AO HAS NOT APPRECIATED IT PROPERLY AND HAS WRONGLY PRESUMED TH AT THE APPELLANT HAS NOT PRODUCED ANY CONCRETE EVIDENCE. 7. AS REGARDS THE FAIR MARKET VALUE OF COMPAN IES SHARE, THE WORKING GIVEN BY AO IS UNTENABLE BECAUSE IT IS MECHANICAL CALCULATION HAVING NO REFERENCE TO THE GOODWILL, PROSPECTS-FACTOR OF REVENUE IN THE BUSINE SS. OBVIOUSLY THE AO MADE THE ADDITION U/S.68 OF THE AC T WITHOUT MAKING OUT ANY CASE. THERE IS NOTHING WHICH CAN BE PRESUMED TO BE UNEXPLAINABLE BECAUSE UFO IS AN EXISTING PARTY, TRANSACTION IS DO NE THROUGH BANKING CHANNEL AND EVERYTHING IS VERIFIABLE. THE AO HAS FA ILED TO EXPLAIN AS TO HOW A SUM FOUND CREDITED IN THE BOOKS OF THE APPELL ANT IS UNEXPLAINED OR NO EXPLANATION HAS BEEN OFFERED ABOUT THE NATURE AN D SOURCE OF SUCH CREDIT. OBVIOUSLY THE AO HAS NOT SHOWN ANYTHING CON TRARY TO THE CLAIM OF THE APPELLANT, THEREFORE PROVISION OF LAW U/S,68 CA NNOT BE APPLIED TO THE FACTS OF THE CASE. 8. AS REGARDS CHARGE OF SHARE PREMIUM, NONE OF THE ARGUMENTS OF THE AO IS CONVINCING ONE OR TENABLE, IN THE EYE OF LAW. FURTHERMORE, IT IS VERY IMPORTANT TO POINT OUT THAT HON'BLE SUPREME COURT I N THE CASE OF CIT VS STANDARD VACCUM OIL CO. (1966) 59 ITR 685 HAS HELD THAT PREMIUM REALIZED FROM THE ISSUE OF SHARES REPRESENTED RESER VE ACCOUNTS WHICH IS A 'CAPITAL RECEIPT' CANNOT BE INCLUDED IN COMPUTING PROFIT OF THE COMPA NY. RECENTLY HON'BLE BOMBAY HIGH COURT IN THE CASE OF V ODAFONE INDIA SERVICES (P) LTD VS UNION OF INDIA (2014) 50 TAXMAN N.COM 300 HAS HELD THAT RECEIPT OF SHARE PREMIUM CANNOT BE CONSIDERED AS INCOME, HENCE CANNOT BE TAXED. SIMILARLY, THE HON'BLE JURIDICTION AL MUMBAI TRIBUNAL IN THE CASE OF GREEN INFRA LTD VS ITO (38 TAXMANN.COM 253) DATED 23-08-2013 HAS HELD THAT SUCH 'SHARE PREMIUM' IS A 'CAPITAL RECEIPT', HENCE NOT TAXABLE INCOME. AS REGARDS REFERENCE OF THE AO IN T HE CASE OF MAJOR METALS VS UNION OF INDIA, IT IS PERTINENT TO MENTIO N THAT THE AO HAS RELIED UPON THE DECISION WITHOUT BRINGING OR UNDERSTANDING THE FACTUAL ASPECT OF THE ISSUE OF THAT CASE. IN THAT CASE SHARE TRANSACT ION ITSELF WAS DOUBTFUL AND ON ENQUIRY, INVESTOR COMPANIES WERE NOT FOUND A T THE GIVEN ADDRESS. FURTHER ENTIRE TRANSACTION WAS ALSO FOUND DOUBTFUL BY THE SETTLEMENT COMMISSION, HENCE WHILE PASSING THE ORDER AGAINST T HE CLAIM OF THAT APPELLANT ISSUE OF HIGH SHARE PREMIUM WAS ALSO SUBJ ECTED TO REASONING. HERE THE CASE IS NOT LIKE THAT. IT IS VERY OBVIOUS THAT THE AO HAS MADE THE ADDITION OF RS.1,83,12,324/- U/S.68 OF THE ACT, WIT HOUT ANY CONTRARY 13 SCRABBLE ENTERTAINMENT LTD EVIDENCE IN POSSESSION. HE HAS ALSO NOT APPRECIATED THE ROLE OF UFO MOVIES INDIA LTD AND RELEVANCE OF HIGH SHARE PREMIU M. THE AO ALSO NOT ANALYSED THE BUSINESS SCENARIO AND BUSINESS PROSPEC TS FOR WHICH SHARE PREMIUM CHARGED. WHEN CREDITORS OR INVESTORS ARE EX ISTING ONE AND THEIR ACCOUNTS ARE IFIABLE. NO SUCH ADDITION CAN BE MADE U/S.68 OF INCOME TAX ACT. VIDE:- CIT VS ANIA INVESTMENT PVT. LTD. (2010) 322 ITR 394 (BOM). CIT VS STELLER INVESTMENT ( (2001) 251 ITR 263 (SC). FURTHER, SHARE CAPITAL AND SHARE PREMIUM IS CAPITAL RECEIPT WHICH CANNOT B E TAXED WHEN SOURCE OF RECEIPT IS EXPLAINED AND DOCUMENTARY EVIDENCE ARE O N RECORD, THEREFORE I FIND NO JUSTIFICATION TO APPROVE SUCH BASELESS ADDITION MADE BY THE AO U/S.68 OF THE ACT. THE AO IS THEREFORE DIRECTED TO DELETE RS. 1,83,12,324/-. 11. FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO BRIN G ON RECORD ANY EVIDENCES TO CONTROVERT THE FINDINGS OF FACTS RECOR DED BY THE LD.CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF CI T(A) AND REJECT GROUND RAISED BY THE REVENUE. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF EXPENDITURE FOR S ETTING UP OF UAE BRANCH. THE AO DISALLOWED EXPENDITURE INCURRED FOR SETTING UP OF UAE BRANCH ON THE GROUND THAT THE ASSESSEE HAS NOT CARR IED OUT ANY COMMERCIAL ACTIVITY; HENCE, EXPENDITURE IS TO BE CO NSIDERED AS PRELIMINARY AND PREOPERATIVE EXPENSES U/S 35D OF TH E INCOME-TAX ACT, 1961 AND ALSO AMORTISED OVER A PERIOD OF 5 YEARS FR OM THE DATE OF COMMENCEMENT OF ITS BUSINESS ACTIVITY. IT IS THE C ONTENTION OF THE ASSESSEE THAT EXPENDITURE INCURRED FOR SETTING UP UAE BRANCH IS A NORMAL BUSINESS EXPENDITURE INCURRED TO ESTABLISH B RANCH OFFICE IN UAE IN CONNECTION WITH ALREADY EXISTING BUSINESS. THER EFORE, THERE IS NO REASON FOR THE AO TO DISALLOW EXPENDITURE INCURRED BY HOLDING THAT THE 14 SCRABBLE ENTERTAINMENT LTD EXPENDITURE IS COMING WITHIN THE PURVIEW OF SECTION 35D OF THE ACT. 13. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR TH E REASON THAT THE ASSESSEE HAS INCURRED VARIOUS EXPENDITURE INCLUDING REGISTRATION CHARGES, RENT OF PREMISES, TRAVELLING EXPENSES OF I TS PERSONNEL AND OTHER MISCELLANEOUS EXPENSES TO SET UP A BRANCH OFFICE IN UAE IN CONNECTION WITH ITS EXISTING BUSINESS. THE ASSESSEE IS ALREAD Y IN THE BUSINESS OF SALES IN UAE AND ONLY FOR FACILITATION OF ITS BUSIN ESS HAS SET UP A BRANCH OFFICE. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT EXPENDITURE INCURRED BY THE ASSESSEE IS A REVENUE EXPENDITURE W HICH CANNOT BE CONSIDERED AS PRELIMINARY AND PREOPERATIVE EXPENSES COMING WITHIN THE PURVIEW OF SECTION 35D OF THE ACT. THE CIT(A), AFT ER CONSIDERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A). HENCE, WE ARE INCLIN ED TO UPHOLD THE FINDINGS OF THE CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF INTEREST EXPENSES OF RS.2,14, 561. THE AO DISALLOWED INTEREST EXPENSES ON THE GROUND THAT THE ASSESSEE HAS DIVERTED INTERE ST BEARING FUNDS TO GIVE LOANS AND ADVANCES TO GROUP COMPANIES. IT IS THE CONTENTION OF THE ASSESSEE THAT ITS LOANS AND ADVANCES TO GROUP COMPA NIES IS OUT OF ITS OWN FUNDS AND ALSO AS THE LOANS ARE GIVEN IN COMMER CIAL INTEREST, THE AO WAS INCORRECT IN DISALLOWING INTEREST. 15 SCRABBLE ENTERTAINMENT LTD 15. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR TH E REASON THAT THE ASSESSEE HAS DEMONSTRATED WITH EVIDENCE THAT LOANS TO GROUP COMPANIES ARE OUT OF ITS OWN FUNDS AND ALSO SUCH LO ANS HAS BEEN GIVEN IN COMMERCIAL INTEREST, THEREFORE, THE AO WAS INCOR RECT IN DISALLOWING PROPORTIONATE INTEREST ON LOANS GIVEN TO GROUP COMP ANIES. THE ASSESSEE IS HOLDING MORE THAN 33% EQUITY STAKE IN T HE COMPANY FOR WHICH LOANS HAVE BEEN GIVEN AND ALSO DERIVED COMMER CIAL BENEFIT. THEREFORE, THE AO WAS INCORRECT IN HOLDING THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO GIVE LOANS TO GR OUP COMPANIES. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDI NGS OF THE CIT(A) AND DISMISS GROUND RAISED BY THE REVENUE. 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S ADDITION OF OUTSTANDING SUNDRY CREDITORS OF RS.80,52,899 U/S 41 (1). THE AO MADE ADDITION TOWARDS UNPROVED SUNDRY CREDITORS ON THE G ROUND THAT THE ASSESSEE HAS FAILED TO FILE ANY EVIDENCE TO PROVE T HE SUNDRY CREDITORS APPEARING IN THE BOOKS OF ACCOUNT. IT IS THE CONTE NTION OF THE ASSESSEE THAT THE AO WAS INCORRECT IN MAKING ADDITION TOWARD S SUNDRY CREDITORS U/S 41(1) WITHOUT APPRECIATING THE FACT THAT THE AS SESSEE HAS NOT DERIVED ANY CASH OR KIND BENEFIT BY CESSATION OF LIABILITY AND SUCH LIABILITY HAS 16 SCRABBLE ENTERTAINMENT LTD BEEN PAID IN THE SUBSEQUENT FINANCIAL YEAR. THEREF ORE, THE AO WAS INCORRECT IN DISALLOWING SUNDRY CREDITORS U/S 41(1) OF THE ACT. 17. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN THE A RGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE LD.CIT(A) HAS RECO RDED A CATEGORICAL FINDING THAT THE ASSESSEE HAS PAID ALL SUNDRY CREDI TORS IN THE SUBSEQUENT FINANCIAL YEAR AND PROOF FOR SUCH PAYMENT HAS BEEN FURNISHED. THE AO HAS MADE ADDITION TOWARDS SUNDRY CREDITORS WITHOUT BRINGING ON RECORD ANY EVIDENCE TO PROVE THAT THERE IS CESSATION OF LI ABILITY IN THE IMPUGNED FINANCIAL YEAR AND ALSO, THE ASSESSEE HAS DERIVED B ENEFIT OUT OF SUCH CESSATION OF LIABILITY. THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT THE CIT(A) WAS RIGHT IN DELETING ADDITION MADE BY THE A O TOWARDS SUNDRY CREDITORS U/S 41(1) OF THE ACT. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A) AND THEREFORE, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 18. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) FOR SHORT DEDUCTION OF TA X AT SOURCE U/S 194C OF THE INCOME-TAX ACT, 1961. THE AO MADE DISALLOWANCE OF EXPENDITURE ON THE GROUND THAT DIGITAL PRINT FEE IS INCURRED FOR T HE SERVICES RENDERED WHICH IS PROFESSIONAL / TECHNICAL SERVICE; HENCE, P ROVISIONS OF SECTION 194J IS APPLICABLE WHEREAS THE ASSESSEE HAS DEDUCTE D TDS U/S 194C. THUS, THERE IS SHORT DEDUCTION OF TDS WHICH ATTRACT S DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT. IT IS THE CO NTENTION OF THE ASSESSEE 17 SCRABBLE ENTERTAINMENT LTD THAT THE AO HAS ERRONEOUSLY DISALLOWED GENUINE EXPE NDITURE WITHOUT APPRECIATING THE ACTUAL NATURE OF TRANSACTIONS AND SERVICES RENDERED BY THE RECIPIENTS. THE ASSESSEE HAS MADE PROPER TDS U /S 194C AS THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE IS S QUARELY COMING WITHIN THE PURVIEW OF SECTION 194C, BUT NOT U/S 194 J OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT EVEN ASSUMING THAT THERE IS SHORT DEDUCTION OF TDS, THE QUESTION OF DISALLOWANCE OF E XPENDITURE U/S 40(A)(IA) CANNOT BE CONSIDERED AS THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SK TEKRIWAL 46 TAXMAN.COM 444 (CAL) HELD TH AT EVEN IF THERE IS LESSER DEDUCTION OF TDS, NO DISALLOWANCE CAN BE MAD E U/S 40(A)(IA) OF THE ACT. 19. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSE SSEE FOR THE REASON THAT ONCE THERE IS COMPLIANCE TO TDS PROVISIONS, EV EN IF THERE IS SHORT DEDUCTION OF TDS OR TDS HAS BEEN DEDUCTED UNDER DIF FERENT SECTIONS, THERE IS NO SCOPE FOR THE AO TO DISALLOW EXPENDITUR E U/S 40(A)(IA) OF THE ACT AS THE PROVISIONS U/S 40(A)(IA) IS APPLICABLE O NLY WHEN THERE IS NO TDS DEDUCTION. THIS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS S K TEKRIWAL (SUPRA) WHEREIN IT WAS HELD THAT IF THERE IS LESSER DEDUCTI ON OF TDS DUE TO ANY DIFFERENCE OF OPINION, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. IF THERE IS SHORT DEDUCTION, THE REVENUE IS F REE TO PROCEED TO PASS 18 SCRABBLE ENTERTAINMENT LTD AN ORDER U/S 201 OF THE ACT, BUT NO DISALLOWANCE CA N BE MADE U/S 40(A)(IA) OF THE ACT. THE CIT(A), AFTER CONSIDERIN G RELEVANT FACTS HAS RIGHTLY DELETED ADDITION MADE BY THE AO. THEREFORE , WE UPHOLD THE FINDINGS OF CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 20. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S ADDITION MADE BY THE AO TOWARDS AIR MISMATCH FOR RS.62,900. THE AO HAS MADE ADDITION OF RS.62,900 ON THE GROUND THAT THE ASSESS EE HAS MADE TDS CLAIM OF RS.1,258 WITHOUT CONSIDERING CORRESPONDING RECEIPTS IN THE BOOKS OF ACCOUNT. IT IS THE CONTENTION OF THE ASSE SSEE THAT IT HAS FURNISHED RECONCILIATION OF TDS DIFFERENCE AND EXPL AINED THAT CERTAIN PARTIES HAVE DEDUCTED EXCESS TDS. THE ASSESSEE FUR THER CONTENDED THAT IT HAD NOT CLAIMED TDS CREDIT OF RS.1,258 BY F ILING RETURN OF INCOME; HOWEVER, CORRESPONDING INCOME WAS OFFERED TO TAX. HENCE, THERE WAS NO LOSS OF REVENUE. THEREFORE, THERE IS NO REASON FOR MAKING ADDITION ON THE BASIS OF TDS. 21. HAVING CONSIDERED MATERIAL ON RECORD, WE FIND MERIT S IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT WHEN T HE ASSESSEE HAS FILED RECONCILIATION STATEMENT EXPLAINING DIFFERENC E IN TDS CLAIM, THERE IS NO REASON FOR THE AO TO RESORT TO NOTIONAL ADDITION ON THE BASIS OF TDS CLAIM. THE CIT(A), AFTER CONSIDERING RELEVANT FACT S HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A); HENCE, WE ARE INCLINED TO UPHO LD THE FINDINGS OF THE 19 SCRABBLE ENTERTAINMENT LTD CIT(A) AND REJECT GROUND RAISED BY THE REVENUE. 22. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. 23 . AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI