ACIT, 16(1), NEW DELHI V. MICROSOFT CORPORATION (INDIA) PVT. LTD, NEW DELHI

ITA 3616/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1014 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 14-04-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 12-12-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PURU
• Keywords: Depreciation; Transfer pricing; Revised return; Revenue expenditure; Capital expenditure; TDS
• Section: 32; 43B; 143(3); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D : NEW DELHIi BEFORE SHRI G.S. PANNU, HON’BLE VICE PRESIDENT AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.3616/Del/2023 Assessment Year: 2015-16 ACIT, 16(1), New Delhi. Vs Microsoft Corporation (India) Pvt. Ltd., 807, New Delhi House, New Delhi – 110 001. PAN: AAACM5586C ITA No.3671/Del/2023 Assessment Year: 2015-16 Microsoft Corporation (India) Pvt. Ltd., 807, New Delhi House, New Delhi – 110 001. PAN: AAACM5586C Vs. JCIT, Special Range-6, Delhi. (Appellant) (Respondent) Assessee by : Shri Nageshwar Rao & Shri Puru, Advocates Revenue by : Shri Vizay B. Vasanta, CIT-DR Date of Hearing : 15.04.2024 Date of Pronouncement : 09.06.2024 ORDER PER ANUBHAV SHARMA, JM: These cross appeals are preferred by the Revenue and the Assessee against the order dated 19.10.2023 of the Commissioner of Income Tax ITA No.3616 & 3671/Del/2023 2 (Appeals), NFAC, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeal No.CIT(A), Delhi-6/104477/2018-19 arising out of the appeal before it against the order passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), by the JCIT, Special Range-6, New Delhi (hereinafter referred to as the Ld. AO). 2. On hearing both the sides it comes up that the assessee company, refered to as MCIPL, in short, incorporated in 1988 and is a subsidiary of Microsoft Corporation, USA. During the year under consideration, MCIPL, has claimed to be engaged in the business of manufacturing, replicating, marketing and selling of Microsoft Software Retail products and services in India. Further, MCIPL claims to also be engaged in providing marketing support services to its Associated Enterprises in return for a service fee and to provide online search Advertising services. Return was filed declaring the total income at INR 26,466,58,280. Thereafter, notice under section 143(2) of the Act was issued to assessee AO initiating scrutiny assessment proceedings for the year under consideration. Later, the assessee revised its return of income on declaring a total income of INR 26,466,58,280 and claimed TDS credit of INR 2,415,195,492, resulting in a refund of INR 1,515,596,340. The case was also referred to the Transfer Pricing Officer who vide its order dated 13 th October 2018 made no Transfer Pricing adjustment in respect of the international transactions entered by the Assessee with its associated enterprises during the year under consideration. 2.1 During the course of the assessment proceedings, the AO required the assessee to show cause why advertisement, publicity and sales promotion expenditure should not be considered as capital in nature as it is of enduring benefit going towards brand building of the Microsoft brand worldwide and thus, should not be disallowed in view of the disallowance made in previous ITA No.3616 & 3671/Del/2023 3 years (i.e. FY 2012-13 & FY 2013-14). In this respect, the assessee vide its submission filed on 12 th December 2018 before the AO submitted that an amount of INR 330,36,36,738 is incurred towards advertisement, publicity and sales promotion expenses and details of such expense along with sample copies of invoices were also submitted. The pleas of assessee to justify the expenditure as a whole as revenue expenditure was not accepted and the AO held that the advertisement, publicity and sales promotion expense also include expense incurred for efforts to make Microsoft USA's trademarks, service marks and trade names well known in India and thus, disallowed 50% of the expenditure (i.e. 50% of INR 330,36,30,000 = INR 165,18,15,000) incurred on advertisement, publicity and sales promotion expense being capital in nature and has not allowed depreciation @ 25% under section 32 of Income tax Act, 1961. 2.2 As a matter of fact, similar disallowance was made by the AO in the previous FY i.e. 25% of sales promotion and advertisement expenditure was disallowed in FY 2012-13 (AY 2013- 14) and 50% of sales promotion and advertisement expenditure was disallowed in FY 2013-14 (AY 2014-15), alleging the same to be capital in nature. 2.3 The assessee, submitted before the CIT(A) that the AO has erred in not allowing the benefit of depreciation @ 25% on net opening block of intangible asset (being sales promotion and advertisement expenses alleged as capital expenditure in the previous years) as on 1 April 2014. 3. Then AO made a disallowance on account of delay in deposit of Employee's Contribution to Provident Fund u/s 2(24)(x) read with section 36(1)(va) of the Act. The necessary facts on that account being that during the course of proceedings, the AO perused Form 3CD filed for the subject AY and ITA No.3616 & 3671/Del/2023 4 asked the Appellant to show cause as to why late deposit of employee's contribution to Provident Fund ('PF') should not be disallowed under section 36(1)(va) of the Act. In response to the above, the Assessee vide submission dated 12 December 2018 submitted that in respect of certain months of the subject AY (excluding the delays where the Assessee has deposited the employee's PF contribution within the permissible grace period), employee's contribution to PF amounting in total to INR 4,444 was deposited after the due dates prescribed under the relevant statues but before the due date of filing of return of income. Further, the assessee claimed the entire deduction of employee's contribution made towards PF in the return of income filed for the subject year on the premise that provisions of section 36(1)(va) of the Act are to be read in conjunction with the provisions of section 43B of the Act. Accordingly, since the employee's contributions to PF were deposited before the due date of filing of return of income, the same were claimed by the Appellant as deductible expenditure. However, the AO did not accept the submission made by the assessee and made disallowance on account of the delayed beposit of employee's contribution to PF amounting to INR 66,561,775. This included the delays where Assessee had deposited the amount within the permissible grace period. 4. A disallowance was also made for short grant of tax deducted at source amounting to INR 5,74.864,733/-. The assessee filed revised return of income on 29 March 2017 claiming TDS credit of INR 2,415,195,492. In the assessment order passed by AO, credit of TDS has been allowed only to the extent of INR 1,840,330,759 as against INR 2,415,195,492 claimed by the Appellant. Thus, there is short grant of TDS credit to the tune of INR 5,74,864,733 (i.e. INR 2,415,195,492 less INR 1,840,330,759). ITA No.3616 & 3671/Del/2023 5 5. The CIT(A) partly allowed the appeal of the assessee and being aggrieved, the assessee has preferred the appeal raising following grounds: “1. That on facts and circumstances of the case and in law, impugned Order is erroneous having been passed without appreciation of correct facts and hence, bad in law and is liable to be quashed. 2. That on facts and circumstances of the case and in law, impugned Order has erred in upholding the addition of Rs.6,65,61,775/- alleging late deposit of employee's contribution to provident fund without considering the fact that out of the total addition of Rs. 6,65,61,775/-, an amount of Rs. 6,65,57,331/- has been deposited within the time period stipulated under the relevant statutes (including 5 days grace period). 3. That impugned Order has erred in law in not considering decision of courts involving similar facts, in proper perspective. 4. That the assessing officer erred on facts and in law in initiating penalty proceedings under section 271 (1)(c) of the Act on the ground of concealing particulars of income or furnishing inaccurate particulars of income. 5. That the assessing officer erred on facts and in law in levying interest under section 234D of the Act.” 5.1 The Revenue has also filed the appeal raising the following grounds:- (1) Whether on the facts and in the circumstances in the case, the Ld. CIT(A) was right in deleting the addition of Rs. 165,18,15,000/- made on account of treating 50% of advertisement, publicity and sales promotion expenses as Capital Expenditure ignoring the fact that a huge outlay on the advertisement and marketing ultimately results into creating/improving the value of brand name of the company which is an intangible assests? (2) Whether on the facts and in the circumstances in the case, the Ld. CIT(A) was right in deleting the addition of Rs. 165,18,15,000/- made on account of treating 50% of advertisement, publicity and sales promotion expenses as Capital Expenditure ignoring the fact that such expenses were incurred though in an accounting year, but yields benefits for ITA No.3616 & 3671/Del/2023 6 several years and therefore, the entire AMP expenditure incurred by the assessee during the relevant AY cannot be considered as expended wholly and exclusively for the purpose of the business of the assessee transacted during the relevant accounting year?” 6. Heard and perused the record. The ld. AR submitted that the issue involved in the appeal of the Revenue is covered in favour of the assessee in assessee’s own case for AY 2016-17 in ITA No.802/Del/2021 vide order dated 01.08.2022. The relevant observation of the Tribunal at para 6 of the said order read as under:- “6. We find that the determination of ALP or the capitalization of 50% of advertising expenses on ad-hoc basis has no legal validity. The ld . DRP distinguished the case laws relied upon by the assessee but could not substantiate by the way of any adjudication how the 50% of the expenses on account of advertisement, publicity and sales incurred by the assessee culminated in brand building and promotion of the Microsoft brand globally. In the absence of any tangible explanation or reasoning given in treating the advertisement expenses as capital as no corporeal asset has been created, we hold that no the expenses incurred cannot be treated as cap ital in nature.” 6.1 As there are no distinguishing facts or proposition of law pointed by ld. DR, to vary with the conclusions of co-ordinate bench, we find no substance in the grounds of appeal. The appeal of the Revenue dismissed. 7. As with regard to the appeal of the assessee, the ld. AR has submitted that certain deposits were made within the time period stipulated under the relevant statute+s including five days grace period. After taking into consideration the relevant facts cited in this regard and as the same are required to be verified, the issue arising out of the appeal of the assessee is restored to the files of the AO to take into consideration the submissions of deposits of certain part of the ITA No.3616 & 3671/Del/2023 7 additions as per the due date under the relevant statutes. To that extent grounds of appeal of assessee stand allowed for statistical purposes. 8. In the result, the appeal filed by the Revenue is dismissed and the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 09.07.2024. Sd/- Sd/- (G.S. PANNU) (ANUBHAV SHARMA) VICE PRESIDENT JUDICIAL MEMBER Dated: 09 th July, 2024. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi