The DCIT, (1), Indore V. M/s Astute Systems Technology P. Ltd., Indore

ITA 29/IND/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61971 (ITAT-INDORE)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Keywords: Additional evidence

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.29/IND/2012 A.Y.2008-09 DY. COMMISSIONER OF INCOME TAX 1(1), INDORE :: APPELLANT VS M/S ASTUTE SYSTEMS TECHNOLOGY P. LTD., INDORE PAN AACCA 7842F :: RESPONDENT APPELLANT BY SHRI ARUN DEWAN RESPONDENT BY SHRI MANOJ GUPTA DATE OF HEARING 16.04.2012 DATE OF PRONOUNCEMENT 19.04.2012 O R D E R PER JOGINDER SINGH , JUDICIAL MEMBER THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 17.10.2011 WHEREIN THE LEARNED FIRST APPELLATE AUTH ORITY DELETED THE ADDITION OF RS.82,80,050/- MADE ON ACCOUNT OF C APITALIZATION OF DEVELOPMENT EXPENSES BY APPRECIATING ADDITIONAL EVIDENCE, 2 WITHOUT AFFORDING OPPORTUNITY TO THE LEARNED AO AND FURTHER BY HOLDING SUCH EXPENSES OF REVENUE IN NATURE. 2. DURING HEARING, WE HAVE HEARD SHRI ARUN DEWAN, L EARNED SR. DR WHO SUPPORTED THE ASSESSMENT ORDER AND SHRI MANOJ GUPTA, LEARNED COUNSEL FOR THE ASSESSEE, WHO DEFEND ED THE IMPUGNED ORDER. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF DEVELOPMENT OF M OBILE APPLICATION FOR BOLLYWOOD MOVIES I.E. GAMES, RING T ONES, SONGS AND WALL PAPERS, ETC. THE ASSESSEE AFTER DEVELOPING SUCH APPLICATIONS GIVES THE SAME TO MOBILE COMPANIES FOR KEEPING THE SAME ON THEIR WEB PORTAL FOR DOWN LOADING BY THE MO BILE USERS FOR WHICH SUCH COMPANIES CHARGE A FIXED AMOUNT PER APPL ICATION FROM THE USERS AND THE REVENUE SO GENERATED IS SHAR ED BETWEEN THE DEVELOPERS AND MOBILE TELECOM COMPANIES ON THE BASIS OF PREDECIDED PER CENTAGE. THE ASSESSEE COMPANY STARTE D ITS BUSINESS IN THE FINANCIAL YEAR 2004-05, CAPITALIZED THE MOBILE APPLICATION AS INTANGIBLE ASSET AS ASSUMING THE MAR KET USEFUL LIFE (IN SHORT MUL) FOR AT LEAST 2 3 YEARS. AS PER T HE ASSESSEE, DUE TO ENTRY OF LARGE NUMBER OF PLAYERS IN THE MARKET, THE MUL 3 STARTED DIMINISHING AND THE CONTENTS BECAME STALE A ND THEREAFTER VALUELESS. THE STAND OF THE ASSESSEE IS THAT AFTER THE ENTRY OF I- PHONE IN 2007, IN INDIA THE SCENARIO FURTHER CHANGE D AND SUCH I- PHONES ARE NOW PROVIDING MOBILE GAMES, SONGS AND OT HER APPLICATIONS FREE OF CHARGE TO THE USERS. IT WAS FU RTHER CLAIMED THAT BLACK BERRY, I-PHONE, AIRTEL AND NOKIA DEVELOP ED THEIR OWN APPLICATION AND PROVIDED SUCH APPLICATIONS FREE OF CHARGE TO THE CUSTOMERS IN THE COMPETITIVE MARKET, THEREFORE, THE SHARING PER CENTAGE FURTHER REDUCED. THE ASSESSEE CLAIMED THAT DUE TO CUT THROAT COMPETITION, THE PRACTICE OF CAPITALIZING CO ST WAS DISCONTINUED AS INTANGIBLE ASSET AND THE ASSESSEE D ID NOT CAPITALIZE ANY MOBILE APPLICATION COMMENCING FROM A SSESSMENT YEAR 2008-09 AND ONWARDS. THE STAND OF THE REVENU E IS THAT THE ASSESSEE ADOPTED AN EVASIVE APPROACH IN ACCOUNTING THE EXPENSES AND THE AUDITOR ALSO GAVE AN INCOMPLETE AT TENTION, THEREFORE, THE AMOUNT OF RS.82,80,050/-, BEING 46.6 6% OF THE TOTAL EXPENSES BOOKED AT RS.1,88,45,504/- WAS TREAT ED AS CAPITALIZED AS INTANGIBLE ASSET. ON APPEAL, THE CIT (A) DELETED THE ADDITION. THE AGGRIEVED REVENUE IS IN APPEAL BEFOR E THE TRIBUNAL. BEFORE COMING TO ANY CONCLUSION, THE ABSTRACT OF TH E FEW MOBILE APPLICATION ARE REPRODUCED HEREUNDER :- 4 APPLICATION NUMBER : HEYY BABYY (B) ZONE SERVICE PROVIDER TATA TELESERVICES LTD. PERIOD BILL NO. NUMBER OF DOWNLOADS AUGUST 2007 AST/0708/068 43,746 SEPTEMBER, 2007 AST/0708/074 41,444 OCTOBER, 2007 AST/0708/093 17,581 DECEMBER 2007 AST/0708/143 17,365 JANUARY 2008 AST/0708/164A 17,361 FEBRUARY, 2008 AST/0708/174 2,883 MARCH 2008 AST/0708/194 15 JUNE 2008 AST/0709/013 2 JULY 2008 AST/0709053 2 APPLICATION NAME : NAQAAB THE MOVIE (B) ZONE SERVICE PROVIDER : TATA TELESERICES LTD. PERIOD BILL NO. NUMBER OF DOWNLOADS JULY 2007 AST/0708/62 19,285 AUGUST 2007 AST/0708/068 7,928 SEPTEMBER 2007 AST/0708/074 3,198 OCTOBER, 2007 AST/0708/93 3,439 DECEMBER, 2007 AST/0708/143 2,080 JANUARY 2008 AST/0708/164A 1,721 FEBRUARY, 2008 AST/0708/174 283 MARCH, 2008 AST/0708/194 3 SEPTEMBER 2008 AST/0809/089 2 APPLICATION NAME : MY VALENTINE (B) GAME SERVICE PROVIDER : HUCHISON CAT PERIOD BILL NO. NUMBER OF DOWNLOADS FEBRUARY 2008 AST/0708/180 156 MARCH 2008 AST/0708/197 160 APRIL 2008 AST/0809/09 106 MAY 2008 AST/0809/010 4 JUNE 2008 AST/0809/033 3 5 JULY 2008 AST/0809/084 1 AUGUST 2008 AST//0809/085 1 SEPTEMBER, 2008 AST/0809/0124 1 IF THE SUBMISSIONS MADE BY THE LEARNED RESPECTIVE C OUNSELS, CONTENTIONS RAISED IN THE ASSESSMENT ORDER AND THE CONCLUSION DRAWN IN THE IMPUGNED ORDER ARE KEPT IN JUXTAPOSITI ON AND ANALYSED IN THE CHANGED SCENARIO, IT IS A FACT THAT THE MOBILE APPLICATIONS ARE HAVING SHORT SPAN OF LIFE AND THER EAFTER THERE REMAINS NO COMMERCIAL VALUE. THE EXPENSES SO INCUR RED FOR DEVELOPMENT OF SUCH APPLICATIONS ARE REVENUE IN NAT URE. THE PRESUMPTION OF THE LEARNED AO THAT THE MOBILE APPLI CATIONS ARE HAVING LONGER LIFE IS NOT SUBSTANTIATED WITH EVIDEN CE. IF THE AFORESAID TABLES ARE ANALYSED, THE NUMBER OF DOWNLO ADS IN THE MONTH OF AUGUST, 2007 WERE 43,746 WHICH REMAINED JU ST 2 IN JUNE AND JULY, 2008 (HEYY BABYY (B) ZONE TATA TELESERVICES LIMITED. IN THE CASE OF NAQAAB THE DOW NLOADS IN JULY, 2007 WERE 19,285 WHICH REMAINED ONLY 2 IN SEPTEMBER, 2008. IDENTICALLY, FOR MYVALENTINE(B) GAME THE NUM BER OF DOWNLOADS IN FEBRUARY, 2008 WERE 156 WHICH REMAINED 1 IN SEPTEMBER, 2008, MEANING THEREBY THE APPLICATIONS R EMAINED FOR A SHORT SPAN OF TIME, CONSEQUENTLY, THE OPINION OF THE LEARNED AO 6 THAT SUCH APPLICATIONS REMAINS LIFELONG IS UNSUBSTA NTIATED, THEREFORE, THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE. 4. SO FAR AS THE CONTENTION OF THE LEARNED CIT DR T HAT ADDITIONAL EVIDENCES WERE ADMITTED WITHOUT AFFORDIN G OPPORTUNITY TO THE AO AND THUS THERE IS A VIOLATION OF RULE 46A OF THE INCOME TAX RULES IS CONCERNED, WE FIND THAT IN THE IMPUGNE D ORDER THE SUSPICION RAISED BY THE LEARNED AO HAS BEEN DEALT W ITH AND WE FURTHER FIND THAT THE ASSESSEE HAS FILED NET LOSS R ETURN AT RS.30,63,582/-. IT IS NOT THE CASE THAT THE ASSESS EE IS TRYING TO REDUCE ITS TAX LIABILITY. WE FURTHER OBSERVE THAT O UT OF THE TOTAL EXPENSES OF RS.97,87,559/- (DURING A.Y. 2007-08) TH E ASSESSEE CAPITALIZED RS.45,66,669/- AS INTANGIBLE ASSET WHIC H WORKS OUT TO 46.66% AND FILED THE RETURN AT A NET LOSS OF RS.30, 63,582/-. SO FAR AS THE ARGUMENT OF THE LEARNED SENIOR DR THAT T HE EXPENDITURE ON DEVELOPMENT OF MOBILE APPLICATIONS W AS WRONGLY HELD AS EXPENSES OF REVENUE IN NATURE, SINCE THE LI FE OF SUCH APPLICATIONS IS FOR A LESSER PERIOD APPROXIMATELY A BOUT 1 YEAR OR LESS THAN A YEAR THEN THESE CANNOT BE SAID TO BE CA PITAL IN NATURE BECAUSE THERE IS A DIFFERENCE BETWEEN HARDWARE AND SOFTWARE APPLICATIONS. AS MENTIONED EARLIER THE LIFE OF THES E SOFTWARE APPLICATIONS ARE VERY LESS, THEREFORE, THE LEARNED CIT(A) IS JUSTIFIED 7 IN TREATING THE IMPUGNED AMOUNT AS REVENUE IN NATUR E AND ARE ALLOWABLE IN THE VERY YEAR OF INCURRENCE. THE STAND OF THE CIT(A) IS AFFIRMED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 16.4.2012. SD SD (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 19.4.2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-