DCIT, New Delhi V. M/s Integrated Subscribers Management Services Ltd., New Delhi

ITA 2863/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6996 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Revenue expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 37(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER APPELLANT BY : SH. ANIL KUMAR SHARMA, SR. DR. RESPONDENT BY : SH. SANJEEV SAPRA, FCA DATE OF HEARING : 10.01.2017 DATE OF PRONOUNCEMENT : 19.01.2017 I.T.A. NO. 2863/DEL/2013 (ASSESSMENT YEAR 2008-09) I.T.A. NO. 3497/DEL/2014 (ASSESSMENT YEAR 2007-08) DCIT CIRCLE 11(1), NEW DELHI. (APPELLANT) VS INTEGRATED SUBSCRIBERS MANAGEMENT SERVICES LTD., B-10, ESSEL HOUSE, LAWRENCE ROAD, INDL. AREA, NEW DELHI GIR/PAN : AABCI1535J (RESPONDENT) I.T.A. NO. 2858/DEL/2014 (ASSESSMENT YEAR 2009-10) DCIT CIRCLE 11(1), NEW DELHI. (APPELLANT) VS M/S ESSEL BUSINESS PROCESSORS, LTD., B-10, ESSEL HOUSE, LAWRENCE ROAD, INDL. AREA, NEW DELHI GIR/PAN : AABCI1535J (RESPONDENT) ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 2 OF 8 ORDER PER BEENA A. PILLAI, JM: 1. THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE REV ENUE AGAINST ORDER DATED 14.03.2014 FOR ASSESSMENT YEAR 2007-08 AND ORDER DATED 26.03.2013 FOR ASSESSMENT YEAR 2008 -09 AND 2009-10 PASSED BY LD. CIT (A)-5 AND LD. CIT (A)-15, NEW DELHI RESPECTIVELY ON THE FOLLOWING GROUNDS OF APPEAL. (ASSESSMENT YEAR 2007-08) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 47,41,035/- MADE OUT OF SMART CARD SUPPORT FEES; 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. (ASSESSMENT YEAR 2008-09) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 69,53,120/- MADE OUT OF SMART CARD SUPPORT FEES; 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. (ASSESSMENT YEAR 2009-10) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 56,84,920/- MADE OUT OF SMART CARD SUPPORT FEES; ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 3 OF 8 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE YEA RS UNDER CONSIDERATION AS UNDER: S. NO. ASST. YR. DATE OF FILING OF RETURN DECLARED INCOME IN RS. 1. 2007 - 08 31/10/2007 NIL 2. 2008 - 09 27/11/2008 NIL 3. 2009 - 10 29/09/2009 ( - )17,60,66,161/ - THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDE R SECTION 143 (2) ALONGWITH THE QUESTIONNAIRES WERE IS SUED AND SERVED UPON THE ASSESSEE WITHIN THE PRESCRIBED PERI OD. THE REPRESENTATIVES OF THE ASSESSEE APPEARED BEFORE THE ASSESSING OFFICER IN RESPECT OF THESE ASSESSMENT YEARS. DURIN G ASSESSMENT PROCEEDINGS LD. AO OBSERVED THAT ASSESSEE WAS PROVI DING CONTROL ACCESS SYSTEM (CAS) SERVICES TO DISH TV. DI SH TV IS ENGAGED IN PROVIDING DTH SERVICES TO ITS CUSTOMERS AND OFFERS VARIOUS PACKAGES/UP OPTIONS. IT WAS OBSERVED THAT EA CH PACKAGE HAS SOME RESTRICTIONS BEING THE NUMBER OF C HANNELS, PERIOD ETC., AND A SMARTCARD BEING A HARDWARE EMBED DED WITH ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 4 OF 8 SECURITY MODULE TO CONTROL THE CONDITIONAL ACCESS O F SET-TOP BOXES. LD. AO AFTER GOING THROUGH THE SUBMISSIONS M ADE BY ASSESSEE OBSERVED THAT IT HAD CLAIMED EXPENDITURE O N ACCOUNT OF SMARTCARD SUPPORT FEE AND LICENSE FEE PAID BY AS SESSEE, THAT WAS CONSIDERED BY ASSESSEE AS REVENUE EXPENDITURE. L D. AO DISALLOWED THE SMARTCARD SUPPORT FEE BY HOLDING THA T THE EXPENDITURE SHOULD BE INCREASED IN PROPORTION OF TH E REVENUE. AGGRIEVED BY THE ORDER OF LD. AO, ASSESSEE PREFERRE D AN APPEAL BEFORE LD. CIT (A) ON THESE ADDITIONS. 3. BEFORE LD. CIT (A) THE ASSESSEE DISPUTED THE DISAL LOWANCE MADE OF EXPENDITURE OF THE SMART CARD SUPPORT FEES. IT WAS SUBMITTED THAT THE SMARTCARD SUPPORT FEES HAS INCRE ASED BY 95% WHEREAS THE RECEIPTS HAVE GONE UP ONLY BY 68% B ECAUSE OF WHICH LD. AO DISALLOWED THE PROPORTIONATE DIFFERENCE BETWEEN THE INCREASE IN EXPENSES AND RECEIPTS. IT WAS SUBMI TTED BEFORE THE LD. CIT (A) THAT ASSESSING OFFICER HAD NOT POI NTED OUT ANY OTHER SPECIFIC REASON FOR DISALLOWANCE EXCEPT INCREA SE IN THE EXPENSES AS COMPARED TO THE RECEIPTS. LD. CIT (A) O N GOING THROUGH THE DETAILED SUBMISSIONS ADVANCED BY ASSESS EE ALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF THE SMARTCA RD SUPPORT FEES. 4. AGGRIEVED BY THE RELIEF GRANTED BY LD. CIT (A) THE REVENUE IS IN APPEAL BEFORE US NOW. 5. LD. DR RELIED UPON THE ORDER PASSED BY THE ASSESSI NG OFFICER. ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 5 OF 8 6. LD. AR HAS FILED THE WRITTEN SUBMISSIONS REFERRING TO VARIOUS PAGES OF THE PAPER BOOK FILED AND HAS RELIE D UPON VARIOUS JUDGMENTS THEREIN. HE SUPPORTED THE FINDING S OF LD. CIT (A). 7. WE HAVE PERUSED THE CONTENTIONS ADVANCED BY BOTH T HE SIDES IN THE LIGHT OF THE RECORDS AND THE SUBMISSIO NS PLACED BEFORE US. 8. ALL THESE ASSESSMENT YEARS UNDER CONSIDERATION INV OLVE A COMMON ISSUE REGARDING RELIEF GRANTED BY LD. CIT (A ) IN RESPECT OF SMARTCARD SUPPORT FEES PAID BY ASSESSEE. WE ARE, THEREFORE, INCLINED TO DISPOSE OF THIS GROUND FOR ALL THESE YE ARS BY WAY OF A COMMON ORDER. 9. IT HAS SUBMITTED BY LD. AR IN WRITTEN SUBMISSION T HAT ASSESSEE HAS MADE THE PAYMENT TOWARDS SMARTCARD SUP PORT CHARGES AS PER THE AGREEMENT DATED 20.01.2004 ENTER ED INTO BETWEEN ASSESSEE AND M/S CONAX ACCESS SYSTEMS PVT. LTD., WHICH HAS BEEN PLACED AT PAGES 41 TO 58 OF THE PAPER BOOK. IT HAS ALSO BEEN SUBMITTED IN THAT SMARTCARD SUPPORT C HARGES PAID TO M/S CONAX ACCESS SYSTEMS PVT. LTD., IS A DE DUCTIBLE EXPENDITURE FOR THE PREVIOUS ASSESSMENT YEARS 2004- 05 TO 2006-07 WHICH HAS BEEN ALLOWED BY THE AUTHORITIES B ELOW. THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 WAS CO MPLETED UNDER SECTION 143(3) VIDE ORDER DATED 28.11.2008 WH EREIN THIS EXPENDITURE HAS BEEN CONSIDERED BY ASSESSING OFFICE R AND ALLOWED. IT IS OBSERVED THAT LD. AO HAS NEITHER DOU BTED THE GENUINENESS OF SUCH EXPENSES NOR HAS POINTED OUT EV EN A SINGLE ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 6 OF 8 INSTANCE WHERE EXPENSES WERE NOT SUPPORTED BY ANY EV IDENCES. LD. AO HAS PROCEEDED TO MAKE AN AD HOC DISALLOWANCE WITHOUT ANY BASIS. LD. CIT (A) HAS OBSERVED AS UNDER FOR AS SESSMENT YEAR 2007-08 WHILE DECIDING THE ISSUE: AS REGARDS, THE DISALLOWANCE OF RS.47,41,035/- ON ACCOUNT OF SUPPORT FEE EXPENSES THE ARGUMENT OF THE APPELLANT IS THAT THE AO HAS FAILED TO APPRECIATE T HAT INCOME AND EXPENDITURE CANNOT INCREASE OR DECREASE IN SAME PROPORTIONATE RATIO PARTICULARLY IN SERVICE INDUSTR Y. REFERRING TO THE COPY OF THE AGREEMENT UNDER WHICH THE APPELL ANT HAS INCURRED THE EXPENSE OF SMART CARD SUPPORT FEE OF R S. 1,31,56,4397- AS PAYABLE TO CONAX ACCESS SYSTEM (P) LTD. AND IN PARTICULAR PARA 2.1 & 2.2 AS WELL AS CLAUSE 1 OF SCHEDULE 2 OF THE AGREEMENT THE APPELLANT HAS ARGUE D THAT SUCH SERVICE FEE PAYMENT IS CALCULATED PER USER SMA RT CARD AND THAT CONAX SHALL INVOICE ESSEL MONTHLY FOR THE CA SERVICE OPERATION AND CONSULTING SERVICES , RENDERE D UNDER THIS AGREEMENT , IN THE PRECEDING MONTH. IT HAS BEE N ARGUED THAT BASED ON SUCH TERMS AND CONDITIONS SUCH FEE PA YABLE IS A REVENUE EXPENSE. RELIANCE HAS ALSO BEEN PLACED ON THE VARIOUS DECISIONS OF THE HON'BLE COURTS WHEREIN IT IS HELD THAT THE REVENUE CANNOT PUT HIMSELF IN THE ARM CHAI R OF THE BUSINESSMAN AND ASSUME THE ROLE TO DECIDE HOW MUCH OF THE EXPENSE IS REASONABLE EXPENSE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IN MY CONSIDERED VIEW, IN VIEW OF THE NATURE OF EXP ENSES AS NARRATED IN THE AGREEMENT BETWEEN THE ASSESSEE AND CONAX IT IS HELD THAT THE SUPPORT FEE EXPENSE IS A REVENU E EXPENSE ALLOWABLE U/S 37(1) OF THE I.T. ACT. IN THIS CONNEC TION IT IS SEEN THAT EVEN THE AO HAS NOT MADE ANY DISALLOWANCE ON THIS ACCOUNT ON THE GROUND THAT THE SAME IS A CAPIT AL EXPENSE. THIS FACT IS APPARENT FROM THE FACT THAT O UT OF THE TOTAL SUPPORT FEE EXPENSE CLAIMED OF RS.L,3156,439 /-, THE ITA NO. 2863/DEL/2013, ITA NO. 3497/DEL/14 AND ITA NO.2858/DEL/13 PAGE 7 OF 8 EXPENSE OF RS.84,15,404/- HAS BEEN ALLOWED BY THE AO HIMSELF. I AM ALSO IN AGREEMENT WITH THE ARGUMENT O F THE AO THAT THERE CANNOT BE ANY ONE TO ONE DIRECT CO-RELAT ION BETWEEN EARNING OF INCOME AND INCURRING OF EXPENDITURE IN A BUSINESS, PARTICULARLY IN SERVICE SECTOR. IN VIEW THEREOF AND ALSO IN AGREEMENT WITH THE FINDING OF THE CIT(A)-XV IN APPE LLANT'S OWN CASE FOR AY 2008-09 WHO HAS VIDE ORDER DATED 26.3.20 13 DELETED THE ADDITION MADE WITH RESPECT TO SMART CARD S UPPORT FEE ITSELF , THE APPEAL IS ALLOWED AND THE ADDITION MADE FOR RS.47,41,035/- IS DIRECTED TO BE DELETED. 10. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE FINDINGS WHICH IS BACKED BY A CONSISTENT APPROACH BY THE DEPARTMENT I N THE PREVIOUS ASSESSMENT YEARS. WE ARE, THEREFORE, INCLI NED TO UPHOLD THE SAME AND DISMISS THE APPEALS FILED BY THE REVEN UE FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. ACCORDINGLY THE REVENUES APPEAL FILED FOR ASSESSME NT YEAR 2007-08, 2008-09 AND 2009-10 STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2017. SD/- SD/- (J. S.REDDY) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 19.01.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI)