MEDIA MATRIX WORLDWIDE LTD., MUMBAI V. A.C.I.T. C.C.32, MUMBAI

ITA 2442/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79458 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-07-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYANARAYAN RAJU
• Assessee Lawyers: R C JAIN; SANDEEP MAHESHWARI
• Keywords: Depreciation; Bonafide mistake; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2442/MUM/2012 ASSESSMENT YEAR: 2003-04 M/S. MEDIA MATRIX WORLDWIDE LIMITED. 3 RD FLOOR, INTERFACE, BUILDING- 16, B-WING, MIND SPACE, MALAD (W), MUMBAI-64 VS. ACIT, CC-32 MUMBAI (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACL 2966 P ASSESSEE BY : SHRI R.C JAIN & SANDEEP MAHESHWARI REVENUE BY : SHRI SATYANARAYAN RAJU DATE OF HEARING : 15.07.2014 DATE OF PRONOUNCEMENT : 18.07.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-3, MUMBAI DATED 27.01.2012 CONFIRMING THE PENALTY OF RS.8,55,135/- LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME-TAX AC T FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF TRADING AND PRODUCTION OF T.V. SERIALS, FILM MEDIA SOFTWARE , ADVERTISEMENT, TELEPHONIC DOCUMENTARY ETC. IN THE RETURN OF INCOME HAD DECLAR ED A TOTAL INCOME AT RS.5,93,727/-. DURING THE ASSESSMENT PROCEEDING, TH E AO NOTICED THAT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.23,26,900/- UNDER THE HEAD SOFTWARE EXPENSE FOR OWN USE AS DEDUCTION. ACCORDING TO THE ASSESSEE, I T WAS IN THE FORM OF FINANCIAL STATEMENT THAT THE POLICY OF THE COMPANY WAS TO WRI TE OFF DEFERRED REVENUE EXPENDITURE BEING ON COMPUTER SOFTWARE OVER A PERIO D OF FOUR YEARS IN EQUAL AMOUNT. HOWEVER, THE AO, AFTER OBSERVING THAT THE A SSESSEE DID NOT SHOW THE DEFERRED EXPENDITURE NEITHER IN THE BALANCE SHEET N OR ANY WRITE OFF IN THE P/L ITA NO. 2442/MUM/2012 M/S. MEDIA MATRIX WORLDWIDE LIMITED. ASSESSMENT YEAR: 2003-04 2 ACCOUNT, ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. SINCE, THE SOFTWARE WAS ACQUIRED FOR LESS THAN SIX MONTHS, THE AO ALLOW ED DEPRECIATION ON THE SOFTWARE EXPENDITURE @ 30%. IN THE QUANTUM APPEAL, THE LD.CI T(A) UPHELD THE FINDINGS OF THE AO. CONSEQUENTLY, IN THE PENALTY PROCEEDING, TH E AO LEVIED A PENALTY @ 100% TO THE TUNE OF RS.8,55,135/-. ON APPEAL AGAINST THE PENALTY ORDER, THE LD.CIT(A) UPHELD THE LEVY OF PENALTY. AGGRIEVED BY THE IMPUGN ED DECISION, THE ASSESSEE IS IN APPEAL BEFORE US. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, IT IS NOTED THAT THE ASSESSEE INCURS EXPENDITURE THE ON SOFTWAR E USED YEAR IN AND YEAR OUT AND IT FOLLOWS THE STANDARD ACCOUNTING POLICY OF TREATI NG THE SAME IN ITS BOOKS OF ACCOUNTS AS DEFERRED REVENUE EXPENDITURE BY WRITING OFF EQUALLY OVER A PERIOD OF FOUR YEARS. IN THE RETURN OF INCOME FILED BY THE AS SESSEE IN EACH YEAR, THE EXPENDITURE BEING REVENUE IN NATURE, THE ASSESSEE C LAIMED THE SAME AS PERMISSIBLE DEDUCTION AND THE SAID CLAIM OF THE ASSESSEE HAS BE EN ALLOWED BY THE DEPARTMENT IN THE INCOME TAX ASSESSMENTS UP TO AND INCLUDING THE ASSESSMENT YEAR 2002-03. ACCORDINGLY, THE ASSESSEE, IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO HAS CLAIMED 100% DEDUCTION IN RE SPECT OF SOFTWARE EXPENDITURE. IN THIS CONNECTION, IT IS RELEVANT TO MENTION THAT UP TO THE ASSESSMENT YEAR 2002 03, SOFTWARE IS NOT FORMING PART OF COMPUTER IN APPENDIX-1 OF DEPRECIATION RATES UNDER INCOME TAX RULES 1960. HOWEVER, FROM ASSESSME NT YEAR 2003-04, SOFTWARE HAS BEEN INCLUDED UNDER THE HEADING COMPUTER IN T HE SAID APPENDIX-1. THE PERUSAL OF THE DEPRECIATION CHART UP TO ASSESSMENT YEARS 20 02-03 AND 2003-04 ON WARDS INDICATES THAT UP TO ASSESSMENT YEAR 2002-03 SOFTWA RE EXPENDITURE WAS ADMISSIBLE AS REVENUE EXPENDITURE WHILE FOR ASSESSMENT YEAR 20 03-04 ON WARDS THE SAME IS TO BE CONSIDERED AS CAPITAL EXPENDITURE ELIGIBLE FOR D EPRECIATION @ 60%. IN THE LIGHT OF THE SAID CHANGES, WE ARE INCLINED TO ACCEPT THE ARG UMENT OF THE ASSESSEE THAT THE SAID CLAIM OF 100% DEDUCTION OF SOFTWARE EXPENDITUR E HAS BEEN MISTAKENLY CLAIMED BY THE ASSESSEE BASED ON THE PAST RECORDS. FURTHER, IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE SAME MISTAKE HAS BEEN COMMITTED BY THE ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEAR 2004-05 ALSO AND VIDE PARA 8 OF THE ASSESSMENT ORDER THE AO HAS ALLOWED DEPRECIATION AT 60% ON SOFTWARE EXPENDITURE FOR THE SAID ASSESSMENT YEAR. ITA NO. 2442/MUM/2012 M/S. MEDIA MATRIX WORLDWIDE LIMITED. ASSESSMENT YEAR: 2003-04 3 HOWEVER, THE AO HAS NOT INITIATED ANY PENALTY PROCE EDINGS FOR THE YEAR 2004-05, AS THE AO HAS PRESUMABLY ADMITTED THAT THE SAME IS A B ONAFIDE MISTAKE ON THE PART OF THE ASSESSEE. CONSIDERING THE ENTIRETY OF THE FACTS , WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF 100% EXPENDITURE ON THE SOFTWARE HAS BEEN DUE TO THE BONAFIDE MISTAKE OF THE ASSESSEE HAPPENED ON ACCOUNT OF INAD VERTENT OVERSIGHT IN NOT CONSIDERING THE CHANGE OF LEGAL POSITION BROUGHT BY AMENDMENT AND THE SAID MISTAKE, IN OUR VIEW, CANNOT BE BROUGHT WITHIN THE MISCHIEF OF SECTION 271(1)(C) OF THE ACT. THEREFORE, THE IMPUGNED PENALTY LEVIED/ CO NFIRMED BY THE AO/LD.CIT(A) STANDS DELETED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF JULY 2014. SD/- SD/- (SANJAY ARORA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 18.07.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.