SONY DADC MANUFACTURING (INDIA) P. LTD ( FORMERLY KNOWN AS SONY MUSIC ENTERTAINMENT (I) P. LTD), MUMBAI V. ADDL CIT RG 11(1), MUMBAI

ITA 2461/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8398 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 05-11-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 17-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIVIN KUMAR
• Assessee Lawyers: J D MISTRY
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 2461/MUM /2009 ASSESSMENT YEAR : 2003-04 SONY DADC MANUFACTURING (INDIA) PVT. LTD., (FORMERLY KNOWN AS SONY MUSIC ENTERTAINMENT (I) PVT. LTD.), C-106, TRANS THANE CREEK, MIDC INDUSTRIAL AREA, PAWANE VILLAGE, NAVI MUMBAI 400 705. PAN AACCS1614B VS. THE ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE 11(1), AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI J.D. MISTRY DEPARTMENT BY : SHRI PRIVIN KUMAR DATE OF HEARING 05-11-2012 DATE OF PRONOUNCEMENT 09-11-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DTD. 16-1-2009 PASSED BY THE LD. CIT(A) XI, MUMBA I FOR THE A.Y. 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY M/S SONY MUSIC ENTERTAINMENT (I) PVT. LTD. IS ENGAGED I N MANUFACTURING AND TRADING OF PRE-RECORDED MUSIC AND OTHER ENTERTAINME NT SOFTWARE IN CASSETTE, COMPACT DISC AND OTHER FORMATS. THE RETU RN WAS FILED DECLARING ITA NO. 2461/MUM/2009 2 LOSS OF RS.24,72,90,346/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AFTER MAKING VARIOUS DISALLOWANCES AT A LOSS OF RS. 9,33, 58,500/-, VIDE ORDER DTD. 31-3-2005 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL . 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF INTERNET/WEB SITE EXPENSES. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. NOTED THAT THE ASSESSEE HAS DEBITED RS. 10,88,657/- ON ACCOUNT OF INTERNET/WEBSITE COST. THE A.O. OBSERVED THAT WHEN WEBSITE IS DEVEL OPED, EXPENSES WERE INCURRED TO CREATE THE SAME. IT BESTOWED ENDURING B ENEFIT TO THE ASSESSEE. THE ASSESSEE WAS ASKED AS TO WHY THE SAME SHOULD NOT BE TREATED AS CAPITAL IN NATURE. THE ASSESSE REPLIED THAT THE WEBSITE WAS SET UP TO ADVERTISE ALBUMS WHICH THE COMPANY WAS THEN T RADING IN. THIS REQUIRED REVAMPING OF THE WEBSITE FREQUENTLY. WITH EVERY NEW RELEASE OF MUSIC ALBUM, THE WEBSITE HAD TO UNDERGO A CHANGE TO INCLUDE PICTURES/SCENES OF THE MOVIE ETC. THEREFORE, IT IS NOT THE CASE OF DEVELOPMENT OF NEW WEBSITE. THE WEBSITE REQUIRES C HANGES EVERY YEAR. IN ANY CASE, OUT OF THE TOTAL OF RS. 10,88,657/-, R S. 3,00,000/- WAS INCURRED FOR REDESIGNING THE WEBSITE WHILE THE BALA NCE AMOUNT OF RS. ITA NO. 2461/MUM/2009 3 7,88,657/- WAS INCURRED FOR MAINTENANCE, HOSTING ET C. OF THE WEBSITE. SUCH ARGUMENTS DID NOT FIND FAVOUR WITH THE A.O. T HE A.O. OBSERVED THAT THE WEBSITE WAS A PROFIT EARNING APPARATUS AND AN INTERFACE FOR THE ASSESSEE COMPANY. IT PROVIDED ENDURING BENEFIT TO THE ASSESSEE. THE A.O. TREATED THE SAME AS CAPITAL IN NATURE ALLOWING DEPRECIATION @ 25%. ON APPEAL, THE LD. CIT(A) FOLLOWING THE APPELLATE O RDERS FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03 UPHELD THE DIS ALLOWANCE MADE BY THE A.O. 6. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 194/MUM/ 2007 FOR A.Y. 2001-02 DTD. 9-9-2010 WHEREIN THE TRIBUNAL VIDE PAR A 4 OF ITS ORDER DELETED THE DISALLOWANCE MADE BY THE A.O. 7. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE ORD ER OF THE A.O. AND THE LD. CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE PRESENT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL (SUPRA) WHEREIN THE TRIBUNAL VIDE PARA 4 O F ITS ORDER HAS HELD AS UNDER:- ITA NO. 2461/MUM/2009 4 BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDIAN VISIT.COM (P) LTD., 13 DTR (DEL) 258 WHEREIN HONBLE DELHI HI GH COURT HAS HELD THAT EXPENDITURE ON DEVELOPMENT OF WEBSITE IS NOT A CAPITAL EXPENDITURE AND THAT PURPOSE BEHIND THE SAME IS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING INFORMATION ABOUT THE ASSESSEE AMONG ITS CLIENTS. SIMILAR VIE W HAS BEEN EXPRESSED BY HONBLE DELHI BENCH OF THE ITAT IN THE CASE OF POLYPLEX CORPORATION LTD. VS. ITO, VOL-176 TAXMAN ( MAG) 56. WE ARE ALSO OF THE VIEW THAT SUCH WEBSITES DEVELOPED B Y THE ASSESSEE HAS A VERY SHORT LIFE AND IMMEDIATELY AFTER RELEASE OF THE PICTURE OR MUSIC ALBUM AND AFTER LAPS OF A FEW MONTH THESE WEB SITES ARE HARDLY VISITED BY ANYBODY. THUS, WE ARE OF THE VIE W THAT IT CANNOT BE SAID THAT THE ASSESSEE DERIVES AN ENDURING BENEF IT. WE THEREFORE DIRECT THAT THE ADDITION MADE BY THE ASSE SSING OFFICER AND CONFIRMED BY LEARNED CIT(A) BE DELETED. 9. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BRO UGHT ON RECORD BY THE LD. D.R., WE RESPECTFULLY FOLLOWING THE DECISIO N OF THE TRIBUNAL (SUPRA) HOLD THAT INTERNET/WEBSITE EXPENSES INCURRED BY THE ASSESSEE ARE REVENUE IN NATURE AND, HENCE, THE SAME ARE ALLOWABL E AS BUSINESS EXPENDITURE AND ACCORDINGLY WE WHILE REVERSING THE ORDER PASSED BY THE A.O. AND THE LD. CIT(A) ON THIS ACCOUNT, ALLOW THE GROUND TAKEN BY THE ASSESSEE. 10. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF PROVISION FOR STOCK OBSOLESCENCE WRITTEN BACK RS. 3 ,73,80,638/-. 11. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE DEBITED THE SAID AMOUNT AS PROVISION FOR S TOCK OBSOLESCENCE. THE ASSESSEE WAS ASKED TO CLARIFY. THE ASSESSEE, I N REPLY, CONTENDED THAT THESE STOCKS WERE HELD BY THE COMPANY FOR A PERIOD MORE THAN THE POTENTIAL SALE PERIOD. SINCE IT WAS A PROVISION IT WAS NOT CLAIMED AS ITA NO. 2461/MUM/2009 5 DEDUCTION IN THE COMPUTATION OF INCOME IN THE YEAR IN WHICH THE SAME WAS CREATED. NOW THE SAME WAS WRITTEN BACK SINCE T HE AMOUNT TO BE PROVIDED AT THE END OF THE YEAR WAS LOWER THAN THE PROVISION MADE. THAT, THE STOCK WAS IN THE NATURE OF STOCK-IN-TRADE I.E. MUSIC CASSETTES, CDS, VCDS MANUFACTURED BY THE COMPANY IN EXPECTATION OF SALE. THE MUSIC ALBUMS HAVE A VERY SHORT SPAN OF LIFE GIVING RISE T O HIGHER OBSOLESCENCE OF PHYSICAL STOCK. HOWEVER, THE A.O. OBSERVED THAT ACC ORDING TO THE A.O. IT IS ONLY A PROVISION FOR OBSOLESCENCE WITH NO SCIENT IFIC BASIS FOR CALCULATION. NORMALLY, CLOSING STOCK IS VALUED AT MARKET PRICE OR COST PRICE WHICHEVER IS LESS. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION FOR PROVISION OF OBSOLESCENCE IMPLYING TH AT EFFECTIVE CREDIT CLOSING STOCK IN P&L ACCOUNT (AS VALUED PROVISION FOR OBSOLESCENCE) TAKES IN TO AN ACCOUNT A POSSIBLE FUTURE FALL IN TH E MARKET PRICE THEREBY VALUING THE STOCK AT A PRICE LOWER THAN THE CURRENT MARKET PRICE. THIS VALUATION METHOD IS CERTAINLY UNACCEPTABLE AND CONT RARY TO WELL SETTLED ACCOUNTING PRINCIPLES. THE DEDUCTION FOR OBSOLESCE NCE IN STOCK IS TO BE GIVEN ONLY IN THE YEAR IN WHICH STOCK BECAME OBSOLE TE AND THIS DEDUCTION IS INTEREST IN VALUING THE CLOSING STOCK OF AT MARK ET PRICE. IN OTHER WORDS, IF THE STOCK IS ACTUALLY OBSOLETE, ITS MARKET PRICE WILL REFLECT ACCORDINGLY AND THE SAME WILL BE TAKEN INTO ACCOUNT IN VALUATIO N OF CLOSING STOCK AND ACCORDINGLY THE A.O. HELD THAT THE ASSESSEE HAD MER ELY CREATED A PROVISION AND THERE IS NO SCIENTIFIC BASIS FOR CALC ULATION OF OBSOLESCENCE AND HENCE THE A.O. AFTER DISALLOWING RS. 3,73,80,63 8/- ADDED THE SAME ITA NO. 2461/MUM/2009 6 TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, TH E LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE A.O. UPHELD THE DISA LLOWANCE MADE BY THE A.O. 12. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE IS CONSISTENTLY MAKING SIMILAR PR OVISION IN THE BOOKS OF ACCOUNTS IN EARLIER YEARS AND IN THE RETURN OF INCO ME THE ASSESSEE SUO MOTU AFTER DISALLOWING THE SAME IS CLAIMING ACTUAL AMOUNT OF PROVISION FOR STOCK OBSOLESCENCE WRITTEN BACK IN THE CURRENT YEAR AND IN SUPPORT HE REFERS THE RELEVANT EXTRACTS OF FINANCIAL STATEMENT S FOR THE ASSESSMENT YEARS 1999-2000, 2000-01, 2002-03 AND 2003-04 AND C OPY OF THE ASSESSMENT ORDERS FOR A.Y. 2001-02 AND 2002-03 APPE ARING AT PAGE 21 TO 63 OF THE ASSESSEES PAPER BOOK. HE, THEREFORE, SU BMITS THAT THE DEDUCTION CLAIMED BY THE ASSESSEE BE ALLOWED. 13. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING O N THE ORDER OF THE A.O. AND THE LD. CIT(A) SUBMITS THAT SINCE THIS ISS UE HAS NOT BEEN CONSIDERED BY THE A.O. AS PER CONSISTENT PRACTICE F OLLOWED BY THE ASSESSEE, THEREFORE, IN THE INTEREST OF JUSTICE THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE A.O. TO DECIDE THE SAME AFR ESH. 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND MERIT IN THE PLEA OF THE LD. D.R. THAT THE ISSUE HAS NOT BEEN PROPERLY A PPRECIATED BY THE A.O. ITA NO. 2461/MUM/2009 7 AND THE LD. CIT(A) IN THE LIGHT OF THE CONSISTENT M ETHOD OF ACCOUNTING PRACTICE FOLLOWED BY THE ASSESSEE AND CLAIM MADE BY THE ASSESSEE. 15. IN SONY MUSIC ENTERTAINMENT INDIA PRIVATE LIMIT ED VS. ADDL. CIT IN ITA NO. 6569/MUM/2010 FOR A.Y. 2005-06 ORDER DTD. 1 8-7-2012 THE ISSUE BEFORE THE TRIBUNAL WAS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 20 [ CIT (A)] HAS ERRED IN ACCEPTING THE LEARNED ADDITIONAL COMMISSIO NER OF INCOME TAXS ORDER AND TREATING THE PROVISION FOR STOCK OB SOLESCENCE WRITTEN BACK AMOUNTING TO RS. 11,391,166/- AS INCOM E TAXABLE IN THE HANDS OF THE APPELLANT INSPITE OF ALL THE RELEV ANT INFORMATION AND DETAILED RESPONSES FILED BEFORE THE LEARNED CIT (A) IN SUPPORT OF ITS CLAIM THAT THE PROVISION WAS ALREADY DISALLOWED IN PRECEDING ASSESSMENT YEARS AND HENCE CANNOT BE CHARGEABLE TO TAX IN HANDS OF THE APPELLANT AGAIN IN THE YEAR UNDER THE APPEAL . THE TRIBUNAL HAS HELD AS UNDER:- 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE CLAIM OF THE ASSESSEE WAS DENIED BY THE A. O. WITHOUT CONSIDERING THE SAME AND WITHOUT PASSING ANY SPEAKI NG ORDER ON THE ISSUE. WE FURTHER FIND THAT BEFORE THE LD. CIT (A) THE ASSESSEE HAS FILED DETAIL SUBMISSION ALONG WITH SUPPORTING S TATEMENTS APPEARING AT PAGE 1 TO 14 OF THE ASSESSEES PAPER B OOK, HOWEVER, THE LD. CIT(A) WHILE OBSERVING THAT NO RELEVANT IN FORMATION IS AVAILABLE ON RECORD IN SUPPORT OF THE CLAIM, REJECT ED THE CLAIM OF THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL TO SH OW THAT THE ASSESSEE HAS FILED ANY SUCH SUPPORTING MATERIAL BEF ORE THE A.O. OR SUCH MATERIAL WAS EXAMINED BY THE A.O. DURING THE C OURSE OF ASSESSMENT PROCEEDING OR THE LD. CIT(A) HAS CALLED FOR THE REMAND REPORT FROM THE A.O. ON THE IMPUGNED ISSUE, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD G O BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK T HE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH AND IN ACCORDANCE WITH LAW AFTER PROVIDING A REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2461/MUM/2009 8 RESPECTFULLY FOLLOWING THE ABOVE DECISION AND IN TH E INTEREST OF JUSTICE WE CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHO ULD GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND SEND BACK THE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE OBSERVATIONS OF THE TRIB UNAL IN THE CASE CITED (SUPRA) AND ACCORDING TO LAW AFTER PROVIDING REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY T HE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 16. GROUND NO. 3 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF COMPUTER SOFTWARE EXPENSES. 17. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 5,69,340/- AS J.D. ADVERT SOFTWARE EXPENSES. IT WAS EXPLAINED BY THE ASSESSE E THAT THE AMOUNT INVOLVED FEES PAID TO SONY MUSIC INTERNATIONAL INC. TOWARDS FEES FOR USE OF J.D. ADVERT SOFTWARE. THE FEES WAS PAID ON THE BASIS OF USAGE ANNUALLY. IT WAS IN THE NATURE OF REVENUE PAYMENT WITHOUT ANY ENDURING BENEFITS. IT WAS FURTHER EXPLAINED THAT THE SAID P ACKAGE WAS ENTERPRISE RESOURCE PLANNING SOFTWARE AND USED BY THE COMPANY FOR ACCOUNTING PURPOSES. NO INITIAL PAYMENT WAS MADE BY THE COMPA NY. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSION AND H ELD THAT THE SAME IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE ITAT I N THE CASE OF MARUTI UDYOG LTD. (2005) 92 ITD 119 (DEL). HOWEVER, THE A .O. HAS ALLOWED ITA NO. 2461/MUM/2009 9 DEPRECIATION @ 60% THEREON. ON APPEAL, IT WAS INTE R ALIA CONTENDED BY THE ASSESSEE THAT THE A.O. SHOULD HAVE ALLOWED DEPR ECIATION UNDER SIMILAR HEAD FOR ASSESSMENT YEARS 2001 -02 AND 2002 -03. THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE A.O., DIRECTED THE A.O. TO ALLOW DEPRECIATION ON VERIFICATION. 18. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. AMWAY INDIA ENTERPRISES (2012) 65 DTR (DEL) 313 WHEREIN THEIR L ORDSHIPS AFTER FOLLOWING THE DECISION IN CIT VS. ASAHI INDIA SAFET Y GLASS LTD. (2011) 64 DTR (DEL) 63 HELD THAT THE EXPENDITURE INCURRED ON PURCHASE OF SOFTWARE APPLICATIONS IS ALLOWABLE AS REVENUE EXPENDITURE. HE ALSO PLACED ON RECORD THE COPY OF THE SAID DECISIONS. 19. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 20. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 21. IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD. (S UPRA), THE ISSUE WAS AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSES SEE ON ACCOUNT OF SOFTWARE AND PROFESSIONAL EXPENSES WAS A REVENUE EX PENDITURE. THEIR LORDSHIPS WHILE OBSERVING THAT THE EXPENSES OUGHT N OT GIVE A COLOUR TO ITA NO. 2461/MUM/2009 10 THE EXPENDITURE INCURRED AS ONE EXPENDED ON CAPITAL ACCOUNT,, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 22. IN AMWAY INDIA ENTERPRISES (SUPRA), THEIR LORDS HIPS FOLLOWING THE DECISION IN ASAHI INDIA SAFETY GLASS LTD. (SUPRA), DECIDED THE ISSUE AGAINST THE REVENUE. 23. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE A RE OF THE VIEW THAT THE SOFTWARE EXPENDITURE INCURRED BY THE ASSESSEE A RE REVENUE IN NATURE AND HENCE THE SAME ARE ALLOWABLE AS BUSINESS EXPEND ITURE AND THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOW ANCE MADE BY THE A.O. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALL OWED. 24. GROUND NO. 4 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF FOREIGN EXCHANGE LOSS OF RS. 6,19,18,490/- AND, IN ALTERNAT IVE, TO ALLOW DEPRECIATION. 25. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE DEBITED RS. 3,20,03,281/- AS INTEREST ON E CB UK. THE BREAK- UP FURNISHED BY THE ASSESSEE HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER. THE ASSESSEE WAS ASKED TO FILE SUPPORTING M ATERIAL TO SHOW THAT THE LOAN WAS NOT TAKEN FOR PURCHASE OF ASSET. IT W AS POINTED OUT BY THE A.O. THAT THE REPLY FILED BY THE ASSESSEE WAS EVASI VE ABOUT THE USE OF BORROWINGS AND COPIES OF RELEVANT AGREEMENTS WERE N OT FILED. FURTHER THE FOREIGN EXCHANGE RATE DIFFERENCE CAN BE ALLOWED AS REVENUE EXPENDITURE ITA NO. 2461/MUM/2009 11 ONLY WITHOUT RELATED BORROWINGS ON REVENUE ACCOUNT. IN RESPONSE IT WAS SUBMITTED BY THE ASSESSEE THAT ECB LOAN WAS TAKEN F OR THE PURPOSE OF CARRYING ON BUSINESS OF THE COMPANY AND TO MEET WOR KING CAPITAL NEEDS. PART OF THE LOAN WAS UTILIZED FOR PURCHASE OF CAPIT AL ASSET. THE COMPANY HAD FILED THE RELEVANT DETAILS WITH THE RESERVE BAN K OF INDIA. THE LOAN WAS ALSO UTILIZED FOR IMPORT OF RAW MATERIALS AND P AYMENT OF ROYALTY AND THE NOMINAL PART OF THE LOAN WAS UTILIZED FOR PURCH ASE OF CAPITAL ASSET. IT WAS FURTHER SUBMITTED THAT IN THE COMPUTATION OF IN COME RS. 27,37,890/- PERTAINING TO PURCHASE OF CAPITAL ASSET S OUT OF ECB A/C WAS DISALLOWED BY THE ASSESSEE. HOWEVER, THE A.O. OBSER VED THAT THE TOTAL FOREIGN EXCHANGE LOSS AMOUNTED TO RS. 1,29,77,521/- OUT OF WHICH THE ASSESSEE TOOK 21% OF THE TOTAL ECB LOAN FOR CREDITO RS OF CAPITAL GOODS AND ACCORDINGLY DISALLOWED RS. 27,37,890/-. THE BA LANCE AMOUNT OF RS. 1,02,39,631/- WAS TAKEN AS REVENUE DEDUCTION BECAUS E THE ASSESSEES PLEA WAS THAT THE LOAN PORTION WAS UTILIZED FOR SUN DRY CREDITORS FOR RAW- MATERIALS. FROM THE DETAILS OF UTILIZATION OF ECB FUND, THE A.O. NOTED THAT MAJOR PART WAS UTILIZED FOR PAYMENT OF ROYALTY . ROYALTY WAS PAID FOR PURCHASE OF MUSIC RIGHTS. THE A.O., THEREFORE, CON CLUDED THAT THE FOREIGN EXCHANGE LOSS SHOULD BE CAPITALIZED. HENCE, HE DIS ALLOWED THE SAME. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE MAJ OR PART OF THE FUND WAS UTILIZED FOR PAYMENT OF ROYALTY AND THE PAYMENT ON ACCOUNT OF PURCHASE OF MUSIC RIGHTS IS CAPITAL IN NATURE AND UPHELD THE DISALLOWANCE MADE BY THE A.O. ITA NO. 2461/MUM/2009 12 26. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT IN ABSENCE OF ANY D ETAIL, THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 195/M/2007 FOR A.Y. 2002-03 ORDER DTD. 22-10-2010 VIDE PARA 9 OF ITS ORDER HAS SET ASIDE T HE SIMILAR ISSUE TO THE FILE OF THE A.O. HE FURTHER SUBMITS THAT THERE IS N O DISPUTE THAT THE ASSESSEE IN THE COMPUTATION OF INCOME HAS SUO MOTU DISALLOWED RS. 27,37,890/- PERTAINING TO PURCHASE OF CAPITAL ASSET S OUT OF ECB ACCOUNT, THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE S UPREME COURT IN CIT VS. WOODWARD GOVERNOR INDIA P. LTD. (2009) 312 ITR 25 4 (SC), THE BALANCE AMOUNT IS ALLOWABLE AS REVENUE EXPENDITURE. 27. THE LD. D.R., ON THE OTHER HAND, WHILE RELYING ON THE ORDER OF THE A.O. AND LD. CIT(A) FURTHER SUBMITS THAT IN VIEW OF THE AMENDMENT MADE U/S 43A OF THE ACT, THE ISSUE MAY BE SET SIDE TO TH E FILE OF THE A.O. TO DECIDE THE SAME ACCORDING TO LAW. 28. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND MERIT IN THE PLEA OF THE LD. D.R. WE FIND THAT IN THE ABSENCE OF ANY DET AILS, THE TRIBUNAL IN ASSESEES OWN CASE FOR THE A.Y. 2002-03 (SUPRA) HAS SET ASIDE THE ISSUE TO THE FILE OF THE A.O. WE FURTHER FIND THAT THE ISSUE HAS NOT BEEN EXAMINED IN THE LIGHT OF THE AMENDED PROVISIONS OF SECTION 4 3-A OF THE ACT. THEREFORE, IN THE INTEREST OF JUSTICE, AND KEEPING IN VIEW THE CONSISTENCY ITA NO. 2461/MUM/2009 13 WE ARE OF THE VIEW THAT THE MATTER SHOULD GO BACK T O THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY TH E REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FIL E OF THE A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE OBSERVATIONS HE REINABOVE AND IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASS ESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 29. GROUND NO. 5 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF ADVANCE WRITTEN OFF AMOUNTING TO RS. 47,08,980/-. 30. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM TH E P&L ACCOUNT THE A.O. OBSERVED THAT THE ASSESSEE HAS CLAIMED ADVANCE WRITTEN OFF AMOUNTING TO RS. 47,08,980/-. IT WAS SUBMITTED THA T THE ASSESSEE COMPANY HAD CLAIMED REFUND FROM EXCISE DEPTT. AMOUN TING TO RS. 95,75,110/- AND OUT OF IT THE EXCISE DEPTT. GRANTED REFUND OF RS. 46,66,130/-. THE COMPANY WROTE OFF THE BALANCE AMO UNT OF RS. 47,08,980/-. HOWEVER, THE A.O. IN THE ABSENCE OF A NY DOCUMENTARY EVIDENCE, DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) IN THE ABSENCE OF ANY EVIDENCE CONFIRMED THE DISALL OWANCE MADE BY THE A.O. 31. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE ITA NO. 2461/MUM/2009 14 LD. CIT(A) FURTHER SUBMITS THAT THE ASSESSEE HAS PR ODUCED THE BOOKS OF ACCOUNTS, THEREFORE, THE CLAIM MADE BY THE ASSESSEE BE ALLOWED. 32. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 33. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT PRODUCED ANY DOCU MENTARY EVIDENCE IN SUPPORT OF THE CLAIM. WE FURTHER FIND THAT THE REV ENUE AUTHORITIES WITHOUT EXAMINING THE BOOKS OF ACCOUNT HAS REJECTED THE CLAIM OF THE ASSESSEE. IN THIS VIEW OF THE MATTER WE CONSIDER I T FAIR AND REASONABLE THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. A ND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES O N THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE A.O. TO DEC IDE THE SAME AFRESH IN THE LIGHT OF THE OBSERVATION HEREINABOVE AND IN ACC ORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 34. GROUND NO. 6 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF ROYALTY EXPENSES. ITA NO. 2461/MUM/2009 15 35. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE ASS ESSING OFFICER OBSERVED THAT THE ROYALTIES WERE PAID TO ARTISTS, M USIC PRODUCERS AND FILM PRODUCERS ON SALE OF MUSIC ALBUMS. NO RECOUPABLE M INIMUM GUARANTEE CONSIDERATION WAS PAID TO ARTISTS ETC. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM. IN RESPONSE IT WAS SUBMITTED THAT THE CO MPANY WOULD OBTAIN RIGHTS IN MUSIC AND PAID ROYALTIES FOR USE OF SUCH RIGHTS. THE RIGHTS IN MUSIC WERE OBTAINED AS RIGHTS ON LICENSING OF MUSIC AMOUNTING TO RS. 4,24,89,052/- AND RIGHTS IN COPYRIGHT OF THE ORIGIN AL SOUNDTRACK (OST) OF THE MUSIC AMOUNTING TO RS. 4,86,98,117/-. IN CASE O F RIGHTS OF LICENSING MUSIC, THE COMPANY DID NOT ACQUIRED THE RIGHTS. IT ONLY GETS THE LICENSING RIGHTS TO USE THE MUSIC FOR A SPECIFIC TE RM AS MUTUALLY AGREED UPON. NO COPYRIGHT IS ACQUIRED. IN CASE OF OST, TH E COMPANY ACQUIRED MUSIC RIGHTS FROM THE OST OF ARTISTS, FILM PRODUCER S ETC. THE ASSESSEE PAID ROYALTY FOR ACQUIRING SUCH RIGHTS. THE SHELF- LIFE OF FILM MUSIC IS ABOUT 3 TO 6 MONTHS. NO RIGHTS WERE ACQUIRED DURING THE YEAR WHICH WERE CHARGED UNLESS THE ALBUMS WERE RELEASED. HOWEVER, T HE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSION. THE A.O. AFTER C ONSIDERING THE BREAK- UP OF THE ROYALTY TREATED THAT COPY RIGHT OF THE OR IGINAL SOUNDTRACK (OST) RS. 4,86,98,117/- AS CAPITAL IN NATURE AND HENCE DI SALLOWED THE SAME. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE EXPENDITURE WAS CERTAINLY CAPITAL IN NATURE UPHELD THE DISALLOWANCE MADE BY THE A.O. ITA NO. 2461/MUM/2009 16 36. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 195/ MUM/2007 FOR A.Y. 2002-03 DTD. 22-10-2010 FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL FOR A.Y. 2001-02 HAS ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, FOLLOWING THE SAME, THE DISALLOWANCE MADE BY THE A.O. AND SUS TAINED BY THE LD. CIT(A) BE DELETED. 37. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING O N THE ORDER OF THE A.O. AND LD. CIT(A) ALSO RELIED ON THE DECISION IN CIT V. M. SUBRAMANIAM (2005) 272 ITR 525 (MAD.). 38. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE. 39. IN M. SUBRAMANIAM (SUPRA) RELIED ON BY THE LD. D.R., IT HAS BEEN HELD AS UNDER (HEADNOTE) : HELD, THAT THE AGREEMENT CLEARLY PROVIDED FOR ASSI GNMENT OF THE RIGHTS OF THE PRODUCER OF THE MUSIC OF THE MOVIE TO THE AS SESSEE. THE COPYRIGHT SO ASSIGNED WAS IN THE NATURE OF A CAPITAL ASSET. T HE ASCERTAINED SUM OF RS. 501 PAID BY THE ASSESSEE TO THE PRODUCER AT THE TIME OF ENTERING INTO THAT AGREEMENT WAS CLEARLY A CAPITAL EXPENSE. HOWEV ER, AS REGARDS THE ROYALTY PAYABLE TO THE ASSIGNOR, THAT WAS VARIABLE AND WAS UNKNOWN AT THE TIME THE AGREEMENT WAS ENTERED INTO. AT THAT PO INT OF TIME, IT WAS NOT POSSIBLE TO PREDICT THE VOLUME OF SALE AS ALSO THE PRICE AT WHICH THE CASSETTE WAS TO BE SOLD, AND AS A RESULT THE AMOUNT THAT WOULD BECOME DUE AND PAYABLE TO THE ASSIGNOR IN FUTURE WAS NOT K NOWN. THE ROYALTIES PAID BY THE ASSESSEE WERE THEREFORE, REQUIRED TO BE REGARDED AS FALLING WITHIN THE FIELD OF REVENUE EXPENDITURE. ITA NO. 2461/MUM/2009 17 40. IN ASSESSEES OWN CASE THE TRIBUNAL (SUPRA) AFTER F OLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2001-02 HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR A.Y. 2002-03 VIDE PAR A 6 OF ITS ORDER HOLDING THAT IT IS A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL AND KEEPING IN VIEW THAT THE DECISION CITED BY THE LD. D.R. IS IN FAVOUR OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUST IFIED IN SUSTAINING THE DISALLOWANCE MADE BY THE A.O. THE A.O. IS DIRECTED TO ALLOW THE ROYALTY EXPENDITURE AS REVENUE EXPENDITURE. THE GROUND TAK EN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 41. GROUND NO. 7 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF PF AND ESIC. 42. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT OF PF AND ESIC AFTER THE DUE DATE, THEREFORE, HE DISALLOWED RS. 1,81,392/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) FOR THE SA ME REASON CONFIRMED THE DISALLOWANCE MADE BY THE A.O. 43. AT THE TIME OF HEARING BOTH THE PARTIES HAVE AG REED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE HONBLE SUPREME COURT IN CIT V. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC), THEREFORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. ITA NO. 2461/MUM/2009 18 44 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS DEPOSITED THE ENTIRE AMOUNT OF PF AND ESIC MUCH BEF ORE THE DUE DATE OF FILING OF RETURN. THE ISSUE RELATING TO RETROSPECT IVE OPERATION OF OMISSION OF SECOND PROVISO TO SECTION 43B WAS CONSIDERED BY THE HONBLE SUPREME COURT IN CIT VS. ALOM EXTRUSIONS LTD. [2009] 319 I TR 306/185 TAXMAN 416 (SC) WHEREIN IT WAS HELD THAT IT IS CURATIVE IN NATURE AND WOULD APPLY RETROSPECTIVELY, WITH EFFECT FROM 1-4-1988. THE H ONBLE DELHI HIGH COURT IN CIT VS. AIMIL LTD. (2010) 321 ITR 508 (DEL) HAS HELD THAT IF THE EMPLOYEES SHARE OF CONTRIBUTION IS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1), THEN NO DISALLOWANCE CAN BE MADE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND THE CONSISTENT VI EW OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS. 1,81,3 92/- SUSTAINED BY THE LD. CIT(A) IS NOT SUSTAINABLE IN LAW AND ACCORDINGL Y WE DELETE THE SAME. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALL OWED. 45 . IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 09-11-2012 SD/- (N.K. BILLAIYA ) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 09-11-2012 ITA NO. 2461/MUM/2009 19 RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- XI, MUMBA I 4. COMMISSIONER OF INCOME TAX XI, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH I, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI