DCIT, New Delhi V. M/s. Thomas Broadband (India) Pvt. Ltd., New Delhi

ITA 4529/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74297 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 04-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMEER SHARMA
• Section: 142(1); 28

Judgement Text

ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.4529/DEL/2011 ASSESSMENT YEAR : 2006-07 DCIT, VS THOMAS BROADBAND (INDIA) PVT. LTD., CIRCLE-16(1), NOW KNOWN AS THOM SON HOLDING (INDIA) PVT.LTD., NEW DELHI. 302(3B), WORLD TR ADE TOWER, BARAKHAMBA LANE, NEW DELHI-110001 (PAN: AACCT0862G) (APPELLANT) (RESPONDENT) APPELLANT BY: NONE RESPONDENT BY : SHRI SAMEER SHARMA, SR.DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF COMMISSIONER OF INCOME TAX(A)-XIX, NEW DELHI DATED 29.07.2011 IN APPEAL NO. 77/2008-09 FOR AY 2006-07. 2. GROUND NO. 2 OF THE REVENUE IS GENERAL IN NATU RE WHICH NEEDS NO ADJUDICATION. REMAINING SOLE GROUND OF THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(A)HAS E RRED IN DELETING THE DISALLOWANCE OF RS.1,26,67,497/- MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF PRESETTING UP EXPENSES. ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 2 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING MAR KET SUPPORT AND WARRANTY SUPPORT SERVICES AND IN RESEARCH AND DEVEL OPMENT ACTIVITIES FOR BROADBAND AND BROADCAST RELATED EQUIPMENTS AND PROD UCTION SYSTEMS. THE ASSESSEE ALSO INTENDED TO MANUFACTURE OR ALTERNATIV ELY SUB-CONTRACT THE MANUFACTURE OF SET TOP BOXES IN INDIA AND TO CARRY ON WHOLESALE TRADING OF SET TOP BOXES. SUCH SERVICES WERE PROVIDED BY THE ASSESSEE TO ITS GROUP COMPANIES. THE ASSESSEE FILED A RETURN SHOWING NEG ATIVE INCOME (LOSS OF RS.1,06,24,721). THE CASE WAS SELECTED FOR SCRUTIN Y AND STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 ALONG WITH DETAILED QUESTIONNAIRE WERE SERVED ON THE ASSESSEE. THE ASS ESSING OFFICER MADE AN ADDITION OF RS.1,26,67,497 BEING PRE-SETTING UP EXP ENSES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE RELEVANT O BSERVATIONS AND FINDINGS OF THE ASSESSING OFFICER READS AS UNDER:- 3.5 FROM THE ABOVE SUBMISSION, IT IS CLEAR THAT T HE EXPENSE OF RS. 1,26,67,497/- WAS INCURRED BY THE AS SESSEE FOR THE PURPOSE OF PROMOTION AND DEVELOPMENT OF SET -TOP BOX BUSINESS AND IT PERTAINS TO PRE-SETUP PERIOD OF THE SAID BUSINESS. IN THE CASE OF NEW BUSINESS, THE FIRST PR EVIOUS YEAR COMMENCED ON THE DATE WHEN THE BUSINESS OR PROFESSION IS SETUP. IN THE CASE OF THE ASSESSEE, T HE FIRST SALE WAS MADE ON 22-JULY 2006 AND IT CANNOT BE LOGI CALLY ACCEPTED THAT ITS BUSINESS WAS SETUP IN PRECEDING P REVIOUS YEAR BEFORE THE PREVIOUS YEAR IN WHICH FIRST SALE W AS MADE BECAUSE A BUSINESS OF TRADING CANNOT SUCH A LONG TI ME FOR SETTING UP A BUSINESS. THE AR OF THE ASSESSEE COULD NOT FILE ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 3 ANYTHING SUBSTANTIAL TO REFUTE THIS VIEW. THE REPLI ES FILED BY THE AR OF THE ASSESSEE ON THIS ISSUE WERE CONSIDERE D AND NOT FOUND TENABLE. VARIOUS JUDICIAL PRONOUNCEMENT R ELIED UPON BY THE ASSESSEE ARE NOT COVERING THE CASE OF T HE ASSESSEE. IN THE CASE OF THE ASSESSEE, THE BUSINESS OF SALE OF SET TOP BOXES WILL BE TREATED AS SET UP WHEN THE FI RST SET TOP BOX COMES UNDER ITS POSSESSION FOR SALE. SECTION 28 APPLIES ONLY RESPECT OF BUSINESS CARRIED ON DURING THE PREV IOUS YEAR. AS A CONSEQUENCE, THE EXPENDITURE INCURRED BE FORE THE SETTING UP A BUSINESS WOULD NOT BE DEDUCTIBLE W HILE COMPUTING INCOME OF THE PREVIOUS YEAR. THIS VIEW HA S BEEN UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF L.M. CHHABDA & SONS VS CIT REPORTED IN 65 ITR 638. FURTH ER, IF THE ASSESSEE CARRIES ON TWO BUSINESSES: A & B, EXPENDITURE OF BUSINESS A IS NOT DEDUCTIBLE FROM PR OFIT AND BUSINESS B, IF BUSINESS A WAS NOT CARRIED ON DURING THE PREVIOUS YEAR. THIS VIEW HAS BEEN GIVEN IN THE BOOK TAXMANN'S DIRECT TAXES LAW & PRACTICE PROFESSIONAL EDITION AY 2008-09 & 2009-10. 3.6 THEREFORE, EXPENSES TO THE TUNE OF RS. 1,26,6 7,497/- CANNOT BE ALLOWED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER SCRUTINY BEING PRE-SETUP EXPE NSES AND ADDED TO THE INCOME OF THE ASSESSEE. NET ADDITI ON RS. 1,26,67,497/-. 4. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFOR E THE COMMISSIONER OF INCOME TAX(A) WHICH WAS ALLOWED BY HOLDING THAT SIMILAR KIND OF EXPENDITURE WAS INCURRED IN THE EARLIER ASSESSMENT YEAR WHICH WAS ALLOWED. THE RELEVANT OPERATIVE PARA OF THE IMPUGNED ORDER R EADS AS UNDER:- 8.3 THE MAIN OBJECTS, AS STATED, IN THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT INCLUDE THE MANUFACTUR E AND/OR TRADING OF SET TOP BOX. CLAUSE 4(C) OF THE M OA CLEARLY STATES THAT THE APPELLANT INTENDED TO UNDER TAKE COMMERCIAL ACTIVITIES IN RELATION TO: ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 4 4. TO MANUFACTURE, SUB CONTRACT MANUFACTURE, BUY, SELL, IMPORT, EXPORT, DISTRIBUTE , REPAIR, MAI NTAIN, EXCHANGE, ALTER OR HIRE, EXHIBIT, BUY, HIRE OR SELL OR TO CONSTRUCT, DEVELOP, ENTER INTO ARRANGEMENT FOR SETT ING UP THE SAME, EITHER IN WHOLE OR PART OR IN ANY OTHER W AY, TO DEAL IN ALL OR IN ANY OF THE FOLLOWING: A) BROADCAST EQUIPMENTS SUCH AS CAMERAS, TELECINEMA PRODUCTS, PRODUCTION SWITCHER AND VIDEO EFFECT SYSTEMS, DIGITAL NEWS PRODUCTION, SERVER AND MEDIA STORAGE, DIGITAL RECORDERS, ROUTERS AND CONTROL SYS TEMS, MASTER CONTROL SYSTEMS, MODULAR EQUIPMENTS, PRODUCT ION CONTROL PRODUCTS, BROADCAST PRODUCTION SYSTEMS AND AUDIO/ VIDEO; B) PRODUCTION SYSTEMS, ENCODERS, DECODERS, CODECS, MPEG PROCESSING, NETWORK ADAPTORS, MANAGEMENT SYSTEMS AND MODULATORS. C) BROADBAND RELATED EQUIPMENT SUCH AS SET TOP BOXES AND COMMUNICATION RELATED EQUIPMENTS AND ALL OTHER ELECTRICAL AND ELECTRONIC APPLIANCES AND APPA RATUS OF EVERY DESCRIPTION AND STORES OF ALL KINDS' THE APPELLANT HAD HIRED PERSONNEL IN THE YEAR FY 2004-05 TO NEGOTIATE ON BEHALF OF THE COMPANY, CARR Y OUT MARKETING ACTIVITIES AND SECURE BUSINESS FOR THE COMPANY. THE APPELLANT HAD TAKEN PREMISES 66 LEASE AND PAI D RENT FOR UTILIZATION OF OFFICE SPACE TO CARRY OUT I TS ACTIVITIES IN THE FY 2004-05. THE APPELLANT INCURRED EXPENSES ON TRAVEL OF ITS EXECUTIVES FOR ATTENDING VARIOUS MEETINGS FOR BUSIN ESS PROMOTION, TRAINING, SEMINARS ETC RIGHT FROM THE FY 2004-05. ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 5 THE APPELLANT HAD INCURRED EXPENSES ON MARKETING ACTIVITIES AND HOLDING MEETINGS WITH VARIOUS ORGANIZATIONS SINCE FY 2004-05. 8.4 THE MAIN CONTENTIONS OF THE AR ARE THAT AS PE R THE MEMORANDUM OF ASSOCIATION THE ASSESSEE HAD STARTED THE BUSINESS OF SET-TOP BOXES AND INCURRED EXPENDITURE. THE OTHER CONTENTION OF THE AR IS THAT SET-TOP BOX BUSI NESS IS PART OF THE EXISTING BUSINESS OF PROVIDING SERVICES SUCH AS MARKET SUPPORT, RESEARCH AND DEVELOPMENT AND WARRAN TY SUPPORT SERVICES FOR ITS GROUP ENTERPRISES IN INDIA . IN SUPPORT OF THIS PROPOSITION THE AR CONTENDED THAT COMMON MANAGEMENT, COMMON BUSINESS ORGANIZATION AND INTERLACING OF FUNDS. SIMILAR KIND OF EXPENDITU RE WAS INCURRED IN THE EARLIER ASSESSMENT YEAR WHICH WAS ALLOWED. AFTER CAREFUL CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES OF THE CASE, THE CONTENTIONS OF THE A R ARE TENABLE. THE ADDITION IS HEREBY DELETED. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 5. WHEN THE CASE WAS CALLED FOR HEARING, NEITHER TH E ASSESSEE NOR HIS REPRESENTATIVE APPEARED BEFORE US. WE ALSO NOTICED THAT THERE WAS NO APPLICATION FOR ADJOURNMENT ON BEHALF OF THE ASSESS EE IN THIS CASE. ON CAREFUL PERUSAL OF RECORD, WE FIND IT APPROPRIATE T O DECIDE THE APPEAL AFTER HEARING THE LD. DR AND WE PROCEED TO DECIDE THE APP EAL ON MERITS. WE HAVE HEARD ARGUMENTS OF LD. DR AND CAREFULLY PERUSED THE RECORD. FROM THE OPERATIVE PART OF ASSESSMENT ORDER AS REPRODUCED HE REINABOVE, WE OBSERVE THAT THE ASSESSING OFFICER HELD THAT THE EXPENDITUR E INCURRED BEFORE SETTING UP OF BUSINESS WOULD NOT BE DEDUCTIBLE WHILE COMPUT ING THE INCOME OF THE ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 6 ASSESSEE FOR THE PREVIOUS YEAR. THE ASSESSING OFFI CER FURTHER HELD THAT IF THE ASSESSEE CARRIES ON TWO BUSINESSES I.E. A) AND B), THE EXPENDITURE OF BUSINESS A IS NOT DEDUCTIBLE FROM PROFIT OF BUSINESS B IF BUSINESS A WAS NOT CARRIED ON DURING THE PREVIOUS YEAR. WHEN THE MATT ER WAS HEARD BEFORE THE FIRST APPELLATE AUTHORITY I.E. BEFORE THE COMMISSIO NER OF INCOME TAX(A), IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE SE T TOP BOX BUSINESS IS A PART OF EXISTING BUSINESS OF THE ASSESSEE PROVIDING SERVICES, SUCH AS MARKET SUPPORT, RESEARCH & DEVELOPMENT AND WARRANTY SUPPOR T SERVICES FOR ITS GROUP ENTERPRISES IN INDIA. IT WAS ALSO CONTENDED ON BEHALF OF THE ASSESSEE THAT THE COMMON MANAGEMENT, COMMON BUSINESS ORGANIZ ATION AND INTERLACING OF FUNDS ARE MAIN FACTORS AND, THUS, SI MILAR KIND OF EXPENDITURE WAS INCURRED IN THE EARLIER ASSESSMENT YEAR WHICH W AS ALLOWED BY THE DEPARTMENT. IN VIEW OF ABOVE SET OF FACTS AND CIRC UMSTANCES, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER WENT WRONG IN MA KING ADDITION AND IN HOLDING THAT THE CLAIM OF THE ASSESSEE CANNOT BE AL LOWED BEING PRE SET UP EXPENSES. ON THE OTHER HAND, THE CIT(A) RIGHTLY OB SERVED THAT WHEN SIMILAR KIND OF EXPENDITURE WAS INCURRED IN THE EARLIER ASS ESSMENT YEAR WHICH WAS ALLOWED, THEN THE STAND CANNOT CHANGE WITHOUT ANY B ASIS AND THE ADDITION WAS DELETED. ACCORDINGLY, WE HOLD THAT THE ADDITIO N MADE BY THE ASSESSING OFFICER ON WRONG ASSUMPTION WAS RIGHTLY DELETED BY THE COMMISSIONER OF ITA NO. 4529/DEL/2011 ASSTT.YEAR: 2006-07 7 INCOME TAX(A) AND WE ARE UNABLE TO SEE ANY AMBIGUIT Y OR PERVERSITY IN THE IMPUGNED ORDER AND WE CONFIRM THE SAME. HENCE, SOL E GROUND OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.03.2014. SD/- SD/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 7TH MARCH 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR