M/s Times Internet Ltd, New Delhi V. Addl CIT, New Delhi

ITA 381/DEL/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96977 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Keywords: Gift; Depreciation; Wholly owned subsidiary; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO ITA NO. 381/DEL/2009 ASSESSMENT YEAR: 2005-06 TIMES INTERNET LTD., VS. ADDITIONAL CIT, 7-TIMES HOUSE, RANGE-16, 7-BAHADUR SHAH ZAFAR MARG, NEW DELHI. NEW DELHI. (PAN: AABCT1559M) (APPELLANT) (RESPONDENT) ITA NO. 864/DEL/2009 ASSESSMENT YEAR: 2005-06 DEPUTY CIT, VS. TIMES INTERNET LTD., CIRCLE-16(1), 7-TIMES HOUSE, NEW DELHI. 7-BAHADUR SHAH ZAFAR MARG, NEW DELHI. (PAN: AABCT1559M) (APPELLANT) (RESPONDENT) ITA NO. 97/DEL/2012 ASSESSMENT YEAR: 2004-05 DEPUTY CIT, VS. TIMES INTERNET LTD., CIRCLE-16(1), 7-TIMES HOUSE, NEW DELHI. 7-BAHADUR SHAH ZAFAR MARG, NEW DELHI. (PAN: AABCT1559M) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SALIL AG ARWAL, ADV. & SH. SHAILESH GUPTA, CA RESPONDENT BY: SHRI J.P. CHANDR AKAR, SR. DR DATE OF HEARING : 25.06.2015 DATE OF PRONOUNCEMENT: 17 :08.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER: IN THE ASSESSMENT YEARS 2004-05 AND 2005-06, THE R EVENUE HAS QUESTIONED THE FIRST APPELLATE ORDER ON SOME COMMON GROUNDS. THE ISSUES INVOLVED IN THESE COMMON GROUNDS ARE AS UNDER: 2 I) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIE D IN HOLDING THE EXPENDITURE ON WEBSITE DEVELOPMENT AS R EVENUE EXPENDITURE AS AGAINST THE CAPITAL EXPENDITURE HELD BY THE ASSESSING OFFICER? II) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIE D IN HOLDING THE EXPENDITURE INCURRED ON LEGAL AND PROFESSIONAL/CONSULTANCY AS REVENUE IN NATURE WHICH WERE HELD AS CAPITAL EXPENDITURE BY THE ASSESSING OFFICER? III) AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIE D IN HOLDING THE EXPENDITURE INCURRED ON COMPUTER REPAIR/MAINTENANCE AS REVENUE EXPENDITURE AGAINST T HE CAPITAL EXPENDITURE HELD BY THE ASSESSING OFFICER? 2. THE FACTS IN GENERAL ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF BENNETT COLEMAN & CO. LTD. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY SERVIC ES; INTERNET RELATED SERVICES AND SYSTEMS AND ALSO OWNS, OPERATES AND MA NAGES THE WEB PORTAL WWW.INDIATIMES.COM . THE COMPANY PROVIDES COMPREHENSIVE INFORMATION RELATING TO NEWS, ENTERTAINMENT, SPORTS, HEALTH AND ASTROLOGY, LIFE STYLE ETC. THROUGH ITS VARIOUS CHANNELS ON THE WEBSITE. THE CO MPANY ALSO PROVIDES CHATS, E-MAIL AND MESSAGE BOARDS. WITH INCREASE IN INTERNET PENETRATION, ONLINE ADVERTISING ON THE NET IS ALSO SOURCE OF REV ENUE. E-COMMERCE IN THE FORM OF OPTION OF AIRLINE TICKETS AND SALE OF PRODU CTS ONLINE SUCH AS BOOKS, 3 MUSIC, GIFTS, JEWELLERY ETC. ARE MAJOR REVENUE EARN ERS FOR THE COMPANY. THE ASSESSEE IS ALSO INTO VALUE ADDED SERVICES ON THE M OBILE AND HAS ENTERED INTO REVENUE SHARING ARRANGEMENTS WITH ALL MOBILE TELEPH ONE SERVICE PROVIDERS ACROSS ALL CIRCLES IN INDIA. 3. ISSUE NO.1 : THE ASSESSEE CLAIMED RS.81,43,440 IN ASSESSMENT Y EAR 2004-05 AND RS.1,00,69,946 IN ASSESSMENT YEAR 2005- 06 AS EXPENDITURE IN REVENUE NATURE INCURRED ON WEBSITE DEVELOPMENT. THE ASSESSING OFFICER DID NOT AGREE WITH THE SAME AND TREATED THE CLAIMED EXP ENDITURE AS CAPITAL IN NATURE. THE LEARNED CIT(APPEALS) HAS, HOWEVER, AGRE ED WITH THE ASSESSEE AND HAS DELETED THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER TREATING THE CLAIMED EXPENDITURE AS REVENUE IN NATURE. 4. IN SUPPORT OF THE GROUNDS, THE LEARNED SR. DR HA S TRIED TO JUSTIFY THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND PLACED RELIANCE ON THE FIRST APPELLATE ORDER. HE ALSO CITED FOLLOWING DECI SIONS IN SUPPORT: I) CIT VS. INDIA VISIT.COM (P) LTD. 176 TAXMANN 164 (DELHI); II) CIT VS. VARINDER AGRO CHEMICALS LTD. 309 ITR 272 (DELHI); IV) SOUTHERN ROADWAYS LTD. 304 ITR 84 (MADRAS); V) CIT VS. KRISHAN KUMAR 228 TAXMANN 264 (DELHI); VI) DCIT VS. E-INDIA 151 ITD 722 (DELHI); 4 VII) CIT VS. AMWAY INDIA ENTERPRISES- 346 ITR 341 (DELHI ); VIII) CIT VS. ASASHI INDIA SAFETY GLASS LTD. 203 TAXMAN 277 (DEL.); IX) DCIT VS. INTERZING SOLUTIONS (P) LTD. ITA NO.2646 /DEL/2012 (DEL.); 5. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT T HE ASSESSING OFFICER HAS TREATED THE EXPENDITURE OF RS.81,43,440 IN THE ASSESSMENT YEAR 2004-05 AND RS.1,00,69,946 IN THE ASSESSMENT YEAR 2005-06 I NCURRED ON THE WEBSITE DEVELOPMENT AS CAPITAL IN NATURE. THE LD. CIT(APPEA LS) HAS TREATED IT AS REVENUE IN NATURE, WHICH HAS BEEN QUESTIONED BY THE REVENUE BEFORE US. BEFORE THE AO, THE ASSESSEE FOR THE A.Y. 2004-05 HA S FURNISHED DATE-WISE DETAILS OF THE EXPENDITURE AMOUNTING TO RS.81,43,63 2 INCURRED ON DEVELOPMENT OF SOFTWARE AND WORKED OUT FURTHER CLAI M OF DEPRECIATION FOR THE PERIOD LESS THAN 180 DAYS @ 30% AND FOR MORE TH AN 180 DAYS @ 60% AT RS.27,11,337 + RS.6,62,439 RESPECTIVELY. THE A. O. WAS OF THE VIEW THAT THE BALANCE AMOUNT OF RS.81,43,632 WAS ALSO INCURRE D FOR SOFTWARE AND WEBSITE DEVELOPMENT AND DISALLOWED THE SAME BEING C APITAL IN NATURE. HE, HOWEVER, ALLOWED THE CLAIMED DEPRECIATION AT RS.33, 73,776 (RS.27,11,337 + RS.6,62,439). THE SUBMISSIONS OF THE ASSESSEE REMAI NED THAT IT HAD DEBITED RS.2,47,43,627 AS SOFTWARE DEVELOPMENT EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT IN THE YEAR, HOWEVER, WHILE FILING ITS RETU RN OF INCOME, THE ASSESSEE 5 HAD ADDED BACK RS.1,65,49,995 AS CAPITAL EXPENDITUR E OUT OF RS.2,47,93,627 SINCE THE SAME REPRESENTED EXPENDITURE OF CAPITAL N ATURE. THE BALANCE SUM OF RS.81,43,632 REPRESENTED REVENUE EXPENDITURE UND ER SEC. 37(1) OF THE ACT. IT WAS SUBMITTED THAT EXPENSES ARE INCURRED IN THE COURSE OF BUSINESS AND RELATING TO EARNING INCOME. THE EXPENDITURE INC URRED WAS ONLY TO UP DATE THE WEBSITE. IT WAS NOT INCURRED FOR ACQUIRING AN A SSET. IT WAS CONTENDED THAT THE EXPENDITURE INCURRED WAS NOT OF PERMANENT CHARA CTER. IT WAS SUBMITTED THAT THE EXPENDITURE WAS INCURRED TO KEEP THE SERVI CES GOING ON AS WELL AS TO KEEP PACE WITH TECHNOLOGY DEVELOPMENT IN THIS FIELD . THE BENEFIT OF THE EXPENDITURE INCURRED WAS ONLY FOR A WEEK OR FOR A L IMITED PERIOD. THE LEARNED CIT(APPEALS) HAS DISCUSSED THE BREAK UP OF THE EXPENDITURE INCURRED AT RS.81,43,632 AS UNDER: (RS.) (A) DESIGNING OF MICROSITES 2,78,040 (B) PURCHASE OF OFF THE SHELF OPERATING SOFTWARE 8,49,767 (C) PAYMENT OF USAGE FEE TO LIFETREE CONVERGENCE LIMITED. 27,08,256 (D) WEBSITE UPDATION & MAINTENANCE 43,07,569 TOTAL 81,43,632 6 6. THE LEARNED CIT(APPEALS) HAS DELETED THE DISALLO WANCE ON THE BASIS OF FIRST APPELLATE ORDER ON THE ISSUE DECIDED IN TH E ASSESSMENT YEAR 2005- 06. IN THE ASSESSMENT YEAR 2005-06, SIMILAR DISALLO WANCE OF RS.1,60,09,046 WAS MADE BY THE ASSESSING OFFICER TREATING THE AMOU NT INCURRED ON THE EXPENDITURE IN CAPITAL NATURE. THE LEARNED CIT(APPE ALS) IN THAT YEAR HELD THAT THE ASSESSING OFFICER HAD HELD THE EXPENDITURE INCURRED WAS OF ENDURING NATURE WITHOUT EXAMINING THE ISSUE AS TO WHETHER EX PENDITURE BROUGHT INTO EXISTENCE ANY ASSET/S, OR THE USAGE PERIOD OF THE E XPENDITURE. IN THAT YEAR ALSO, THE DETAILS OF THE EXPENDITURE IN QUESTION WE RE FURNISHED BY THE ASSESSEE, WHICH HAVE BEEN REPRODUCED AT PAGE NO. 10 OF THE FIRST APPELLATE ORDER. IN THESE DETAILS, THE NATURE OF EXPENDITURE, AMOUNT CLAIMED BY THE ASSESSEE AND AMOUNT CAPITALIZED BY THE ASSESSING OF FICER HAVE BEEN GIVEN. THE ASSESSING OFFICER ALLOWED DEPRECIATION OF RS.32 ,99,988 CLAIMED BY THE ASSESSEE BUT HE DID NOT AGREE THAT EXPENDITURE OF R S.1,48,00,790 IS REVENUE IN NATURE. 7. IN THE ABOVE CITED DECISIONS BY THE LEARNED AR, IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON WEBSITE DEVELOPMENT, MAINTE NANCE AND SOFTWARE DEVELOPMENT/MAINTENANCE IS REVENUE EXPENDITURE AND SHOULD BE ALLOWED AS SUCH. UNDISPUTEDLY THE ASSESSING OFFICER WHILE TREA TING THE CLAIMED 7 REVENUE EXPENDITURE AS CAPITAL IN NATURE HAS NOT EX AMINED PROPERLY AS TO WHETHER THE EXPENDITURE BROUGHT INTO EXISTENCE ANY ASSET/S, OR THE USAGE PERIOD OF THE EXPENDITURE IS OF ENDURING NATURE. IN ABSENCE OF SUCH VERIFICATION BY THE ASSESSING OFFICER, WE FULLY CON CUR WITH THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIMED EXPENDITURE INCURRED ON SOFTWAR E/WEBSITE DEVELOPMENT AS REVENUE EXPENDITURE. WE, THUS DO NOT FIND INFIRM ITY IN THE FIRST APPELLATE ORDER IN THIS REGARD. THE ISSUE NO.1 IS THUS DECIDE D AGAINST THE REVENUE. THE GROUND NO.1 OF THE APPEAL FOR THE ASSESSMENT YE AR 2004-05 AND GROUND NO. 2 OF THE APPEAL FOR THE ASSESSMENT YEAR 2005-06 ARE ACCORDINGLY REJECTED. 8. ISSUE NO.2 : THE REVENUE HAS RAISED THIS ISSUE IN GROUND NO.2 OF THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 AND IN GROUN D NO. 3 OF THE APPEAL FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER HAD DISALLOWED THE CLAIMED EXPENDITURE OF RS.1,25,14,127 IN ASSESSMENT YEAR 2004-05 AND RS.44,43,704 IN THE ASSESSMENT YEAR 2005-06 INCURRE D ON LEGAL AND PROFESSIONAL CONSULTANCY CLAIMED AS REVENUE EXPENDI TURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CLAIMED EXPENDITUR E WAS CAPITAL EXPENDITURE. THE CONTENTION OF THE ASSESSEE REMAINE D THAT THE CLAIMED 8 EXPENDITURE WAS INCURRED FOR PAYMENT TO THE PROFESS IONALS FOR DEVELOPMENT/MAINTENANCE AND IMPROVEMENT OF WEBSITE AND SOFTWARE. 9. IN SUPPORT OF THE GROUNDS INVOLVING THE ISSUE, L EARNED DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER. 10. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW, WE FIND THAT THE LEARNED CIT(APPEALS) IN THE ASSESSMENT YEAR 200 5-06 HAS DISCUSSED THE ISSUE IN PARA NOS. 42 TO 46 OF THE FIRST APPELLATE ORDER. WE FIND THAT CONSULTATION FEE TECHNICAL WAS DIVIDED INTO TWO KIN DS OF PAYMENT. FIRSTLY, PAYMENTS TO PROFESSIONALS (OF TWO KINDS) ONE CATEGO RY IS MAJOR CONSULTANT AND THE OTHER IS SMALLER RETAINERS) AND SECONDLY PA YMENTS TO RESOURCE PARTNERS SUCH AS APPLITECH TENDER CT, LEGAL PANDITS , UNITEL INDIA ETC. IN THE ARRANGEMENT WITH RESOURCE PARTNER, THE ASSESSEE COM PANY UTILIZES THE RESOURCES AND THE WEBSITE OF SOME INDEPENDENT ENTRE PRENEURS ON REVENUE SHARING MODELS. THE PAYMENT FROM THE CLIENTS/CUSTOM ERS FOR PARTICULAR SERVICES IS COLLECTED BY THE NECESSARY COMPANY AND SUCH CUSTOMER IS TRANSFERRED TO THE RESPECTIVE SITES OF THE RESOURCE PARTNERS FOR SERVICES. IN THE END THE REVENUE THUS RECEIVED IS APPORTIONED BETWEE N ASSESSEE AND THE 9 RESOURCE PARTNERS. AS PER THE ASSESSEE, PAYMENT OF RS.44,43,704 IN THE ASSESSMENT YEAR 2005-06 INCLUDED IN THE TOTAL PAYME NT WAS PAID TO MAJOR CONSULTANTS. THIS EXPENDITURE WAS HELD TO BE CAPITA L IN NATURE BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAID EXPEN DITURE WAS FOR DEVELOPMENT OF WEBSITE AND THE EXPENDITURE WAS OF E NDURING NATURE. THE SUBMISSION OF THE ASSESSEE ON THE OTHER HAND REMAIN ED THAT THE EXPENDITURE WAS NOT FOR NEW PROJECT NOR OF ENDURING NATURE AND IT WAS INCURRED FOR THE SERVICES RENDERED BY THE MAJOR CONSULTANT ON DAY TO DAY BASIS. IN ABSENCE OF REBUTTAL OF THESE SUBMISSIONS OF THE ASSESSEE BY TH E DEPARTMENT, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY TREATED THE CLAIMED EXPENDITURE AS REVENUE IN NATURE ON THE BASIS THAT THE ASSESSING OFFICER HAS TREATED THE SAME AS CAPITAL IN NATURE WITHOUT EXAMI NING THE MATERIAL ASPECTS OF THE CLAIM AS TO WHETHER THE EXPENDITURE BROUGHT INTO EXISTENCE ANY ASSET/S OR THE USED PERIOD OF THE EXPENDITURE. THE FIRST AP PELLATE ORDER IN THIS REGARD IS THUS UPHELD. IN THE ASSESSMENT YEAR 2004- 05, THE LEARNED CIT(APPEALS) HAS ACCEPTED THE CLAIMED EXPENDITURE O F RS.1,25,14,127 AS REVENUE IN NATURE FOLLOWING THE FIRST APPELLATE ORD ER ON THE ISSUE FOR THE ASSESSMENT YEAR 2005-06. THE SAME IS ALSO UPHELD. T HE GROUNDS ARE ACCORDINGLY REJECTED. 10 11. ISSUE NO. 3 : THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2004 -05 DISALLOWED RS.74,74,316 AND IN THE ASSESSMENT YEAR 2005-06 DISALLOWED RS.23,39,424 HOLDING THE SAME AS CAPITAL EXPENDITUR E. THE ASSESSEE HAD CLAIMED THESE EXPENDITURE AS REVENUE IN NATURE WITH THE SUBMISSION THAT IT WAS INCURRED ON COMPUTER REPAIR/MAINTENANCE. THE LE ARNED CIT(APPEALS) HAS DELETED THESE DISALLOWANCES WITH THIS FINDING T HAT IT WAS REVENUE IN NATURE. 12. IN SUPPORT OF THE GROUNDS, THE LEARNED CIT(DR) HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APPELLATE ORDER ON THE ISSUE AND REITERATED SIMILAR SUBMISSIONS MADE BY HIM IN SUPPORT OF THE ISSUE NO. 1 DECIDED HEREINABOVE. HE PLACED RELIANCE ON THE DECISIONS CITED THEREIN A S WELL IN RELATION TO ISSUE NO.1. 13. FOLLOWING THE RATIO LAID DOWN IN THE CITED DECI SIONS HEREINABOVE WHILE ADDRESSING THE ISSUE NO.1 BY THE LEARNED AR, WE HOL D THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY DELETED THE DISALLOWANCE W ITH THIS FINDING THAT EXPENDITURE INCURRED ON COMPUTER REPAIR/MAINTENANCE ARE REVENUE IN NATURE. THE SAME IS UPHELD. THE ISSUE NO.3 IS DECIDED IN FA VOUR OF THE ASSESSEE. THE RELATED GROUND NO.3 OF THE APPEAL FOR THE ASSESSMEN T YEAR 2004-05 AND 11 GROUND NO.4 OF THE APPEAL FOR THE ASSESSMENT YEAR 2 005-06 ARE ACCORDINGLY REJECTED. 14. BESIDES THE ABOVE THREE COMMON ISSUES, THE REVE NUE HAS ALSO RAISED TWO MORE OTHER ISSUES IN THE APPEAL FOR THE ASSESSM ENT YEAR 2004-05. THESE ISSUES ARE REGARDING (NO.1 DELETION OF DISALLOWAN CE BY LEARNED CIT(APPEALS) ON ACCOUNT OF DEDUCTION CLAIMED UNDER SEC. 36(1)(VII) OF THE ACT ON ACCOUNT OF BAD DEBTS WRITTEN OFF, AND (2) DE LETION OF DISALLOWANCE BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF EXPENDITURE INCURRED ON SUBSCRIPTION FEES PAID TO INTERNET ONLINE ASSOCIATI ON CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE COMPANY AND HELD AS CAP ITAL EXPENDITURE BY THE ASSESSING OFFICER. 15. AT THE OUTSET OF HEARING, THE LEARNED AR POINTE D OUT THAT THE ISSUE REGARDING DEDUCTION OF BAD DEBTS IS COVERED IN FAVO UR OF THE ASSESSEE AS THE BAD DEBTS WRITTEN OFF DURING THE ASSESSMENT YEAR UN DER CONSIDERATION WERE SHOWN IN THE INCOME OF THE PRECEDING ASSESSMENT YEA RS AND THAT IS THE ONLY REQUIREMENT OF SEC. 36(1)(VII) OF THE ACT. IN SUPPO RT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) TRF LTD. VS. CIT 323 ITR 397 (S.C); II) VIJAYA BANK VS. CIT 323 ITR 166 (S.C); 12 16. LEARNED CIT(DR) ON THE OTHER HAND PLACED RELIAN CE ON THE ASSESSMENT ORDER. 17. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW, WE FIND THAT THE ASSESSING OFFICER HAD DISALLOWED THE CLAIMED DE DUCTION UNDER SEC. 36(1)(VII) OF THE ACT ON ACCOUNT OF BAD DEBTS WRITT EN OFF ON THE BASIS THAT REQUIRED DETAILS INCLUDING THE NATURE OF TRANSACTIO N WRITTEN OFF WAS NOT FURNISHED, HENCE IT WAS NOT POSSIBLE TO EXAMINE THE CORRECTNESS OF THE CLAIM. THE SUBMISSION OF THE ASSESSEE REMAINED THAT IT HAD WRITTEN OFF THE IRRECOVERABLE BAD DEBTS OF RS.1,74,91,992 IN THE PR OFIT AND LOSS ACCOUNT. THE BREAK UP OF SUM OF RS.7,47,41,316 GIVING THE NAME A ND ADDRESS OF THE PARTIES, THE AMOUNTS AND THE YEARS IN WHICH THE SAM E HAVE BEEN OFFERED TO TAX AS INCOME WERE MADE AVAILABLE. IT WAS SUBMITTED THAT THESE AMOUNTS WERE NOT PAID BY THE CUSTOMERS ON ACCOUNT OF DELIVE RABLE AND CAMPAIGNS NOT BEING EXECUTED TO THE SATISFACTION OF THE CUSTOMERS , BILLING DIFFERENCES ETC. AND AS SUCH, WERE WRITTEN OFF IN THE PRESENT YEAR. IT WAS SUBMITTED THAT SINCE THE ASSESSEE COMPANY WAS IN THE MIDST OF SHIFTING I TS REGISTERED OFFICE FROM MUMBAI TO NEW DELHI, IT COULD NOT FURNISH THE ADDRE SSES OF THE PARTIES TO THE ASSESSING OFFICER. HOWEVER, THE COMPANY DURING THE ASSESSMENT PROCEEDINGS HAD DULY FURNISHED THE NAMES AND AMOUNT S AS WOULD BE EVIDENT FROM PAGE NOS. 7 TO 9 OF THE ASSESSMENT ORDER. IT W AS SUBMITTED FURTHER THAT ALL THE AMOUNTS REPRESENTED INCOME AS THEY RELATED TO EARLIER ONLINE 13 ADVERTISEMENTS OR OTHER REVENUE RELATING TO THE WEB SITES OWNED AND OPERATED BY THE COMPANY AND HAD BEEN INCLUDED AS IN COME IN THE EARLIER YEARS. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER THAT AFTER THE AMENDMENT TO S EC. 36(1)(VII) OF THE ACT, THE CBDT HAD ISSUED A CIRCULAR NO. 551 DATED 23.1.1 990, WHEREIN THEY HAD CLARIFIED AND CONFIRMED THAT AFTER THE AMENDMENT TH E CLAIM OF BAD DEBTS WILL BE ALLOWED IN THE YEAR IN WHICH DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS. THE LEARNED CIT(APPEALS) HAS ALLOWED THE CLAIMED DEDUCTION WITH THIS FINDING THAT AFTER CALLING FOR THE DETAIL S REQUIRED, IF THE ASSESSING OFFICER WAS SATISFIED THAT THE AMOUNTS IN QUESTION WERE OFFERED FOR TAXATION IN THE EARLIER YEARS AND THE ACCOUNTS OF THE DEBTOR S WERE WRITTEN OFF AS CLAIMED BY THE AR, NO DISALLOWANCE WAS CALLED FOR. UNDER THE FACTS, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE C ITED DECISIONS, HENCE, WE DO NOT FIND INFIRMITY THEREIN IN THE FIRST APPELLAT E ORDER IN THIS REGARD AND THE SAME IS UPHELD. THE RELATED GROUND NO. 4 OF THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 IS THUS REJECTED. GROUND NO.5 : 18. THE ASSESSING OFFICER DISALLOWED RS.10 LACS CLA IMED ON ACCOUNT OF EXPENDITURE INCURRED ON SUBSCRIPTION FEE PAID TO IN TERNET & ONLINE ASSOCIATION AS REVENUE EXPENDITURE BY THE ASSESSEE, TREATING THE SAME AS 14 CAPITAL EXPENDITURE. THE LEARNED CIT(APPEALS) HAS D ELETED THE DISALLOWANCE HOLDING IT AS REVENUE IN NATURE. 19. IN SUPPORT OF THE GROUND, THE LEARNED DR PLACED RELIANCE ON THE ASSESSMENT ORDER WHEREAS THE FIRST APPELLATE ORDER, HAS BEEN JUSTIFIED BY THE LEARNED AR. 20. WE FIND THAT THE ISSUE RAISED IN THIS GROUND NO . 5 OF THE APPEAL IS RELATED TO THE ISSUE RAISED IN GROUND NO.1 OF THE A PPEAL I.E. EXPENDITURE INCURRED ON SOFTWARE/WEBSITE DEVELOPMENT EXPENSES C LAIMED BY THE ASSESSEE AS REVENUE IN NATURE. THE AMOUNT IN QUESTION HAS BE EN PAID TO INTERNET & ONLINE ASSOCIATION PROFESSIONAL FOR SUBSCRIPTION OF WEB PORTAL. CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY TREATED THE NATURE OF THE CLAIMED EXPENDITURE AS REVENUE AND HAS ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE THUS DO NOT FIND INFIR MITY THEREIN, THE SAME IS UPHELD. GROUND NO.5 OF THE APPEAL IS ACCORDINGLY RE JECTED. 21. IN RESULT, THE APPEALS PREFERRED BY THE REVENUE ARE DISMISSED. 22. ITA NO. 381/DEL/2009 : THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 15 1. THAT THE LEARNED CIT(APPEALS) HAS GROSSLY ERRED BO TH IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF EXPENDITU RE OF RS.1,00,48,790 INCURRED BY THE ASSESSEE ON MARKETIN G RIGHTS BY HOLDING THE SAME TO BE PRIOR PERIOD EXPENDITURE AND NOT ALLOWABLE IN THE INSTANT ASSESSMENT YEAR. 1.1 THAT WHILE UPHOLDING THE DISALLOWANCE, THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCE S OF THE CASE OF THE APPELLANT COMPANY AND THE STATUTORY PROVISIONS OF LAW AND THEREFORE, THE DISALLOWANCE SO MADE AND, NO UPHELD IS MISCONCEIVED, MISPLACED AND UNTENABLE. 1.2 THAT THE LEARNED CIT(APPEALS) HAS FAILED TO APPRE CIATE THAT SUM OF RS.1,00,48,790 PERTAINS TO VARIOUS ADVERTISEMENT PUBLISHED BY M/S. BENNETT COLEMAN & COMPANY LTD., THE HOLDING CO MPANY OF THE APPELLANT COMPANY ON BEHALF OF THE APPELLANT CO MPANY FOR ITS CLIENT AND SINCE THE DEBIT NOTE WAS RAISED BY THEM ONLY ON 30.4.2004 THEREFORE, THE EXPENDITURE SO INCURRED RE PRESENTS THE EXPENDITURE INCURRED IN THE INSTANT ASSESSMENT YEAR . 1.3 THAT THE UPHOLDING THE DISALLOWANCE, THE LEARNED CI T(APPEALS) HAS OVERLOOKED THE JUDGMENT OF THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. RAM PISTONS & RINGS LT D. (ITR 133/1991) AND THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL IND. LTD. VS. CIT REPORTED IN 213 ITR 523 WHEREIN IT HAS BEEN HELD THAT MERELY BECAUSE AN EXPENDITURE RELATES TO A TRANSACTION OF AN EARLIER YEARS , IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEARS UN LESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR. IN FACT, THE LEARNED CIT(APPEALS) HAS FAILED TO APPREC IATE THE 16 JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VISHNU INDUSTRIAL GASES PVT. LTD. WHEREIN IT HAS BE EN HELD THAT THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALL OWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE IS DIFFERE NT IN DIFFERENT YEARS AND THEREFORE, THE TAX WAS LEVIED AT A UNIFOR M RATE, IT IS MATERIAL WHETHER THE DEDUCTION IS ALLOWED IN ONE AS SESSMENT YEAR OR ANOTHER. 1.4 THAT THE LEARNED CIT(APPEALS) HAS FURTHER MISAPPLIE D THE DECISION OF DELHI TRIBUNAL IN THE CASE OF DCIT VS. VIJAY GOP AL JINDAL TO CONFIRM THE DISALLOWANCE AND HENCE, THE DISALLOWANC E SO CONFIRMED IS UNTENABLE. 1.5 THAT IN ANY CASE AND WITHOUT PREJUDICE AND ASSUMING FOR THE SAKE OF AN ARGUMENT THAT THE DISALLOWANCE SO MADE WAS NO T ELIGIBLE IN THE INSTANT FINANCIAL YEAR RELEVANT TO ASSESSMENT Y EAR 2005-06, THE SAME MAY KINDLY BE DIRECTED TO BE ALLOWED IN THE PR ECEDING ASSESSMENT YEAR NAMELY 2004-05. 23. THE SOLE ISSUE INVOLVE IN THE ABOVE GROUNDS IS AS TO WHETHER THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS.1,00,48,790 INCURRED BY THE ASSES SEE ON MARKETING RIGHTS BY HOLDING THE SAME TO BE PRIOR PERIOD EXPENDITURE, HENCE, NOT ALLOWABLE IN THE PRESENT YEAR. 24. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBMIT TED THAT THE AMOUNT PERTAINED TO VARIOUS ADVERTISEMENTS PUBLISHED BY BE MMETT COLEMAN & CO. 17 LTD., THE HOLDING COMPANY OF THE ASSESSEE ON BEHALF OF THE ASSESSEE COMPANY FOR ITS CLIENTS AND SINCE THE DEBIT NOTE WAS RAISED BY THEM ONLY ON 30.4.2004, THEREFORE, THE EXPENDITURE SO INCURRED REPRESENTS T HE EXPENDITURE INCURRED IN THE PRESENT ASSESSMENT YEAR. THE LEARNED AR SUBMITT ED FURTHER THAT EVEN IF IT IS ADMITTED FOR THE ARGUMENTS SAKE THAT THE DISA LLOWANCE SO MADE WAS NOT ELIGIBLE IN THE PRESENT YEAR RELEVANT TO THE ASSESS MENT YEAR 2005-06, THE SAME MAY BE DIRECTED TO BE ALLOWED IN THE PRECEDING ASSE SSMENT YEAR I.E. 2004-05. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) BHARAT EARTH MOVERS VS. CIT 245 ITR 428 (S.C) ; II) SOURASTHRA CEMENT LTD. VS. CIT 213 ITR 523 ( GUJ.); III) CIT VS. EXXON MOBILE 328 ITR 17 (DEL.); IV ) CIT VS. EXCEL INDUSTRIES LTD.- 358 ITR 295 (S .C). 25. THE LEARNED CIT(DR) ON THE CONTRARY PLACED RELI ANCE ON THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. 26. WE FIND SUBSTANCE IN THE ABOVE CONTENTIONS OF T HE LEARNED AR THAT NOW IT IS AN ESTABLISHED PROPOSITION OF LAW THAT ME RELY BECAUSE AN EXPENDITURE RELATES TO A TRANSACTION OF AN EARLIER YEARS, IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEARS UNLESS IT C AN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE SAID YEAR. THE AUTHORITIES BELOW HAVE 18 NOT DISPUTED THE GENUINENESS OF THE ABOVE EXPENDITU RE AND THEIR ONLY FINDING IS THAT THE SAID EXPENDITURE PERTAINS TO PREVIOUS A SSESSMENT YEAR I.E. 2004-05. WE ARE OF THE VIEW THAT WHEN TAX RATE FOR THE ASSES SMENT YEARS 2004-05 AND 2005-06 IS THE SAME, THE APPROACH OF THE AUTHORITIE S BELOW ON THE ISSUE IS NOT APPRECIABLE AND IT IS ALSO CONTRARY TO THE ESTABLIS HED POSITION OF THE LAW THAT YEAR OF CRYSTALLIZATION OF THE LIABILITY IS MORE IM PORTANT FOR THE PURPOSE OF ASSESSMENT OF INCOME IN THAT YEAR. WE THUS WHILE SE TTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIMED EXPENDITURE DURING THE YEAR. THE GROUNDS INVOLVING THE ISSUE ARE ACCORDINGLY ALLOWED. 26. IN RESULT, THE APPEAL IS ALLOWED. 27. IN SUMMARY, THE APPEALS PREFERRED BY THE REVENU E ARE DISMISSED AND THE APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.08.2015 SD/- SD/- ( INTURI RAMA RAO ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 /08/2015 MOHAN LAL 19 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 17.08.2015 DRAFT PLACED BEFORE AUTHOR 17.08.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 17.07.2015 KEPT FOR PRONOUNCEMENT ON 17.08.2015 FILE SENT TO THE BENCH CLERK 17.08.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.