DCIT, New Delhi V. M/s. Interzing Solutions Pvt. Ltd., New Delhi

ITA 2646/DEL/2012

• Counselvise Citation: 264620114 RSA 2012
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 31-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI I.C. SUDHIR , JM & SHRI A.N. PAHUJA, AM ITA NO.2646/DEL./2012 ASSESSMENT YEAR : 2007-08 D.C.I.T.,CIRCLE-11(1), ROOM NO.312, C.R. BUILDING, IP ESTATE NEW DELHI V/S . INTERZING SOLUTIONS PVT. LTD., M-69, MARKET, 2 ND FLOOR, G.K.-I, NEW DELHI [PAN :AAA CI 6928 C] (APPELLANT) (RESPONDENT) APPELLANT BY NONE RESPONDENT BY SHRI NEERAJ KUMAR,. DR DATE OF HEARING 01-08-2012 DATE OF PRONOUNCEMENT 24-08-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 31 ST MAY, 2012 BY THE REVENUE AGAINST AN ORDER DATED 07.03.2012 OF THE LD. CIT(A)-XV, NEW DE LHI RAISES THE FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` `17,28,832/- MADE ON ACCOUNT OF MISCELLANEOUS EXPENSES BEING TRE ATED AS CAPITAL IN NATURE. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` `5,64,945/- MADE ON ACCOUNT OF DISALLOWANCE OF LEGAL AND PROFESSIONAL F EE AND INTEGRATION FEE. 3) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G . ITA NO.2646/DEL./2012 2 2. AT THE OUTSET, NONE APPEARED BEFORE US ON BEHAL F OF THE ASSESSEE NOR SUBMITTED ANY REQUEST FOR ADJOURNMENT. ACCORDI NGLY, CONSIDERING THE NATURE OF ISSUES & FINDINGS OF THE LD. CIT(A), THE BENCH P ROCEEDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. DR. 3. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF ` `53,02,959/- FILED ON 14.11.2007 BY THE ASSESSEE, HAVING ONLINE TRAVEL PORTAL, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE DEBITED A SUM O F ` ` 17,28,832/- TOWARDS MISCELLANEOUS EXPENSES BY WAY OF DEFERRED REVENUE E XPENDITURE. TO A QUERY BY THE AO AS TO WHY THESE AMOUNTS BE NOT CAPITALIZED, THE ASSESSEE REPLIED THAT EXPENDITURE HAD BEEN INCURRED FOR WEB HOISTING IN P RECEDING YEARS AND WAS WRITTEN OFF IN FIVE EQUAL INSTALLMENTS. HOWEVER, T HE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE ENTI RE AMOUNT ON THE GROUND THAT THE AMOUNT WAS CAPITAL IN NATURE, HAVING BROUG HT ENDURING BENEFIT TO THE ASSESSEE. 3.1 BESIDES, THE AO DISALLOWED AN AMOUNT ` ` 1,72,105/- OUT OF LEGAL AND PROFESSIONAL CHARGES & ` 3,92,840/- TOWARDS INTEGRATION EXPENSES ON THE GRO UND THAT THE AMOUNT WAS MERELY A PROVISION AND LIABILIT Y HAD NOT CRYSTALLIZED. 4. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 4. GROUND NO.1 RELATES TO DISALLOWING OF THE DE FERRED REVENUE EXPENSE (BEING 1/5 OF ` ` 86,44,159/-) INCURRED ON WEB DESIGNING IN EARLIER YEAR, WHICH APPELLANT TREATED AS DEFERRED REVENUE EXPENSE, WHEREAS THE ASSESSING OFFICERS VI EW WAS THAT IT IS AN ITEM OF CAPITAL NATURE. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APP ELLANT SUBMITTED THAT ON THE SIMILAR ISSUE THE CIT(A) IN ASSESSMENT YEAR 2006-07, ITA NO.2646/DEL./2012 3 HAS ALLOWED THE 1/5 EXPENSES CLAIMED BY THEM AS DEF ERRED REVENUE EXPENDITURE TO THE EXTENT OF ` `17,28,832/-. I HAVE GONE THROUGH THE APPELLANTS SUBMISSION AND CIT(A)-VIIIS ORDER DATED 23.02.2010, IN WHICH AFTER A DETAILED D ISCUSSION, THE CIT(A)-VIIIS HAS ADMITTED THE EXPENSES OF ` ` 86,44,159/- INCURRED BY THEM IN ASSESSMENT YEAR 2005-06, AS DEFERRED REV ENUE AND THEREBY HE HAS ALLOWED 1/5 OF THE TOTAL EXPENSES AM OUNTING TO ` ` 17,28,832/- AS AN ALLOWABLE CLAIM IN ASSESSMENT YEA R 2006-07. SINCE, IN THIS YEAR ALSO THE FACTS ARE SAME AND I D O NOT SEE ANY REASON TO DISAGREE WITH THE FINDINGS GIVE IN CIT(A) -VIIIS ORDER, ACCORDINGLY, IN THIS YEAR I UPHOLD THE APPELLANTS CLAIM AND DELETE THE ADDITION MADE BY ASSESSING OFFICER ON THIS ISSU E. 5. WITH REGARD TO GROUND NO.2 RELATING TO DISALLO WANCE OF LEGAL AND PROFESSIONAL FEE (` ` 1,72,105) AND INTEGRATION FEE (` ` 3,92,840/-) THE APPELLANT FILED THE DETAILS WHICH W ERE SUBMITTED TO THE ASSESSING OFFICER ALSO AT THE TIME OF ASSESSMEN T PROCEEDINGS. ON GOING THROUGH THE DETAILS OF BILLS, IT IS SEEN T HAT THESE EXPENSES HAVE BEEN INCURRED TOWARDS TRADEMARK APPLICATION, N OTICES, CONSULTATION CHARGES, APPEARANCES BEFORE THE COURTS ETC. AND WHICH IN MY VIEW ARE NORMAL BUSINESS EXPENDITURE AND FURT HER I DO NOT UNDERSTAND WHEN ALL BILLS FALL WITHIN THE FINANCIAL YEAR 2006-07, ON WHAT BASIS ASSESSING OFFICER REACHED THE CONCLUSION AND DISALLOW THE EXPENSES, ON THE GROUND THAT THE LIABILITY HAVE NOT BEEN CRYSTALLIZED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR CONTENDED TH AT BEFORE THE AO THE ASSESSEE DID NOT FURNISH ANY DETAILS REGARDING LEGAL AND PRO FESSIONAL FEE AND THE LD. CIT(A) WITHOUT ANY BASIS CONCLUDED THAT ALL THE BILLS FELL WITHIN THE FINANCIAL YEAR UNDER CONSIDERATION. 6 WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FA CTS OF THE CASE. INDISPUTABLY, THE ASSESSEE INCURRED EXPENDITURE OF ` `86,44,159/- ON WEB DESIGNING IN THE PERIOD RELEVANT TO THE AY 2005-06 AND CLAIMED THE SAME AS DEFERRED REVENUE. IN THE AY 2006-07, THE ASSESSEE C LAIMED 1/5TH OF THE EXPENDITURE .THOUGH THE AO DISALLOWED THE SAME, TH E LD. CIT(A) VIDE HIS ORDER DATED 23.02.2010 ALLOWED 1/5 OF THE TOTAL EXPENSES. SINCE THE FACTS IN THE YEAR UNDER CONSIDERATION WERE SIMILAR TO THE FACTS OBTA INING IN THE PRECEDING YEARS, ITA NO.2646/DEL./2012 4 THE LD. CIT(A) IN THE IMPUGNED ORDER ALLOWED THE CL AIM. THERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT THE REVENUE PREFERRED ANY APPEAL IN THE AY 2006- 07. IN ACIT VS. ASHIMA SYNTEX LTD.,310 ITRSP 1(SB,A HMEDBAD), IT WAS OBSERVED THAT THE CONCEPT OF DEFERRED REVENUE E XPENDITURE IS ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVA NT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPENDITURE. DEFE RRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MA DE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FO R VARIOUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRIT TEN OFF OVER A PERIOD OF TIME E.G., EXPENDITURE ON ADVERTISEMENT, SALES PROMOTION ETC. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE, KEEPING IN VIEW THE FACT TH AT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERIVED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE ASSESSEES HAVE B EEN AMORTISING THE SAME OVER THE EXPECTED TIME PERIOD OVER WHICH THE BENEFI TS ARE LIKELY TO ACCRUE THEREFROM. ACCORDINGLY, ONLY A PROPORTION OF SUCH E XPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APPROPRIATE ADJUSTME NT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENTIRE AS ALLOW ABLE REVENUE EXPENDITURE IN TERMS OF PROVISIONS OF SECTION 37 (1) OF THE ACT. T HE EXPENDITURE WHICH IS TREATED AS DEFERRED REVENUE IN THE BOOKS, ALMOST IN ALL CAS ES COMPRISES OF ITEMS, THE BENEFITS DERIVED WHEREFROM ARE EPHEMERAL AND TRANSI TORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART OF A CONTINUOUS PROCES S AND NEED TO BE EXPENDED IN ORDER TO GENERATE AND INCREASE THE BRAND RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMERS. MOREOVER, THE DEFERRED REVENUE EXPENDIT URE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAME AS DEFERR ED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF THE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILITY OF ANY EX PENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNISE OF ANY CONCEPT OF DEFERRED REVENUE EX PENDITURE. IN THE INSTANT CASE, EVEN IN THE PRECEDING YEAR I.E. AY 2006-07, S IMILAR CLAIM OF EXPENSES HAS BEEN ALLOWED BY THE LD. CIT(A) AND THERE IS NOTHIN G TO SUGGEST AS TO WHETHER OR NOT THE REVENUE PREFERRED APPEAL IN THAT YEAR.. IN A NUMBER OF JUDGMENTS VIZ. ITA NO.2646/DEL./2012 5 AMAR RAJA BATTERIES LTD. V. ASSTT. CIT [2004] 91 IT D 280 (HYD.), JT. CIT V. MODI OLIVETTI LTD. [2005] 4 SOT 859 (DELHI), ASSTT. CIT V. MEDICAMEN BIOTECH LTD. [2005] 1 SOT 347 (DELHI), HERO HONDA MOTORS LTD. V. JT. CIT [2005] 3 SOT 572 (DELHI) AND CHARAK PHARMACEUTICALS V. JT. CIT [2005 ] 4 SOT 393 (MUM.), IT HAS BEEN AFFIRMED THAT WHERE ANY EXPENDITURE IS TREATED AS A DEFERRED REVENUE EXPENDITURE, IT PRESUPPOSES THAT THE CONCERNED EXPE NDITURE, CREATING BENEFIT IS IN THE REVENUE FIELD AND IS A REVENUE EXPENDITURE, BUT CONSIDERING ITS ENDURING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESUL T IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIEL D, THE SAME IS REQUIRED TO BE TREATED DISTINCTLY FROM CAPITAL EXPENDITURE. HOWEVE R, WHERE ANY IDENTIFIABLE CAPITAL ASSET, TANGIBLE OR INTANGIBLE COMES INTO EX ISTENCE AS A RESULT OF THE AMOUNT EXPENDED, THE SAME WILL HAVE TO BE TREATED A S A CAPITAL EXPENDITURE AND DEPRECIATION ALLOWABLE THEREON AS PER THE PRESCRIBE D RULES AND PROCEDURES UNDER THE INCOME-TAX ACT. IN THE INSTANT CASE, INDISPUTA BLY, EXPENSES TOWARDS WEB DESIGNING HAVE BEEN TREATED AS REVENUE IN NATURE T HE PRECEDING YEARS NOR ANY MATERIAL HAS BEEN PLACED BEFORE US BY THE REVENUE, SUGGESTING THAT ANY TANGIBLE OR INTANGIBLE ASSET HAS BEEN CREATED BY THE ASSESSE E. IN VIEW OF THE FOREGOING, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY TH E REVENUE. THEREFORE, GROUND NO. 1 IN THE APPEAL OF THE REVENUE IS DISMISSED. 7. AS REGARDS LEGAL AND PROFESSIONAL FEES & INTEGR ATION EXPENSES, THE LD. CIT(A) ON PERUSAL OF DETAILS OF BILLS FOUND THA T EXPENDITURE WAS INCURRED TOWARDS TRADEMARK APPLICATION, NOTICES, CONSULTATIO N CHARGES, APPEARANCES BEFORE COURTS ETC. .SINCE THE AMOUNT WAS NORMAL BUS INESS EXPENDITURE AND ALL THE BILLS RELATED TO THE YEAR UNDER CONSIDERATION, THE LD. CIT(A) ALLOWED THE CLAIM. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER. IN THE ABSENCE OF ANY MATERIAL , WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.2 IN THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2646/DEL./2012 6 8. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO.3 IN THE APPEAL, ACCORDINGLY, T HIS GROUND IS DISMISSED. 9. IN RESULT, APPEAL IS DISMISSED. SD/- SD/- (I.C. SUDHIR) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1 ASSESSEE 2. D.C.I.T.,CIRCLE-11(1),ROOM NO.312, C .R. BUILDING, IP ESTATE NEW DELHI 3. CITCONCERNED 4. CIT(A)-XV, NEW DELHI. 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT