EROS INTERNATIONAL MEDIA LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-8(4), MUMBAI

ITA 4716/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2901 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2003-2004
• Appeal Filed On: 03-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Depreciation; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 143(3); 27; 2

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL E BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO. 4716/MUM/2017 (ASSESSMENT YEAR 2003-04 ) M/S EROS INTERNATIONAL MEDIA LTD. 201, KAILASH PLAZA, OPP. LAXMI INDUSTRIAL ESTATE, LINK ROAD, ANDHERI (E), MUMBAI- 400053. PAN: AAACR2148H VS. DCIT- CC-8(4)[ERSTWHILE ACIT CC-47], 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : SHRI MANI JAIN (AR) RESPONDENT BY : SHRI V. JUSTIN (SR. DR) DATE OF HEARING : 15.04.2019 DATE OF PRONOUNCEMEN T : 15.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 50, MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DAT ED 30.03.2017 FOR ASSESSMENT YEAR 2003-04. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE AND IN LAW, THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 2 71(1)(C) BY THE LD. ASSESSING OFFICER WITHOUT RECORDING ANY SATISFACTIO N IS BAD IN LAW AND THE CONSEQUENTIAL PENALTY ORDER PASSED UNDER SECTION 27 1(1)( C) OF THE ACT IS BAD IN LAW AND NOT SUSTAINABLE IN THE EYES OF LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE AND IN LAW THE LD COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 2 LD. ASSESSING OFFICER'S IN IMPOSING PENALTY ON THE CLAIM OF WEBSITE DEVELOPMENT EXPENSES AMOUNTING TO RS.5,45,968/-. THE APPELLANT PRAYS THIS HON'BLE TRIBUNAL TO DELETE THE ADDITION/DISALLOWANCES MADE BY THE LD. ASSESSING OF FICER, WHICH IS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF EXPORT OF INDIAN MOTION PICTURES AND TV SOFTWARE, PROVIDING POST PRODUCTION STUDIO SERVICES AND SELLING IN RECO RDED DVD, VCD DISCS AND VHS CASSETTES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.11.2003 DECLARING TOTAL INCOME OF RS. 1,07,30,115/-. THE RE TURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 17.03.2006. THE ASSESSEE CLAIM ED EXPENSES OF RS. 13,64,920/- ON ACCOUNT OF WEBSITE SOFTWARE DEVELOPM ENT EXPENSES. IN THE BOOKS OF ACCOUNT, THE ASSESSEE TREATED THESE EXPENS ES AS CAPITAL EXPENSES AND DEFERRED THE EXPENSES OVER A PERIOD OF TWO YEAR S. IN COMPUTATION OF INCOME; THE ASSESSEE TREATED THESE EXPENSES AS REVE NUE EXPENDITURE. THE ASSESSING OFFICER TREATED THE WEBSITE DEVELOPMENT E XPENSES AS A SOFTWARE DEVELOPMENT EXPENSES AND BY TREATING IT CA PITAL EXPENDITURE ALLOWED DEPRECIATION @ 60% THEREBY ALLOWED RS. 8,18 ,952/- AND CONSEQUENTLY DISALLOWED RS. 5,45,968/-. NO FURTHER APPEAL WAS FILED BY ASSESSEE AGAINST SUCH TREATMENT AND DISALLOWANCE. T HE ASSESSING OFFICER INITIATED THE PENALTY UNDER SECTION 271(1)(C) OF TH E ACT. THE NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT WAS ISSUED ON 11.02.2013. THE ASSESSEE FILED ITS REPLY VIDE REPLY DATED 12.03.2013. IN ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 3 THE REPLY, THE ASSESSEE CONTENDED THAT THE DISALLOW ANCE DOES NOT LEAD TO ESTABLISH THE CHARGE OF FURNISHING OF ANY INACCURAT E PARTICULAR. THERE IS NO MATERIAL ON RECORD TO SUBSTANTIATE THAT CLAIM WA S FABRICATED, INFLATED OR EXCESSIVE. THEREFORE, NO CASE EXISTS FOR FURNISH ING OF ANY INACCURATE PARTICULAR AT THEIR END. IT WAS ALSO CONTENDED THAT MERE ADDITION IN ASSESSMENT DOES NOT ATTRACT THE CHARGE OF FURNISHIN G INACCURATE PARTICULARS OF INCOME AND IT IS NOT THE CASE THAT T HERE IS ANY MATERIAL AVAILABLE ON RECORD TO DRAW ANY ADVERSE INFERENCE O R SOMETHING HAS NOT BEEN BROUGHT TO DISPROVE THE CLAIM OF ASSESSEE. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSIN G OFFICER CONCLUDED THAT ASSESSEE FURNISHED INACCURATE PARTICULARS WITH IN THE MEANING OF CLAUSE (A) OF EXPLANATION -1 OF SECTION 271(1)(C). THE ASSESSING OFFICER LEVIED THE PENALTY @ 100% OF THE TAX SOUGHT TO BE E VADED VIDE ORDER DATED 25.03.2013. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF ASSESSING OFFICER WAS CONFIRMED. THUS, FURTHER AGGR IEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPE AL BEFORE US. 3. WE HAVE HEARD THE SUBMISSION OF BOTH THE PARTIES AN D GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERATE D ON VARIOUS CASE RELIED BY LOWER AUTHORITIES AND BY LD. AR FOR THE A SSESSEE WHILE MAKING HIS SUBMISSIONS. GROUND NO. 1 RELATES TO VALIDITY O F NOTICE UNDER SECTION 274 RWS 271(1)(C). THE LD. AR FOR THE ASSESSEE NOT ARGUED ANYTHING, THEREFORE, THIS GROUND IS TREATED AS NOT PRESSED AN D HENCE DISMISSED. ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 4 4. GROUND NO.2 RELATES TO LEVY OF PENALTY ON ADDITION OF RS. 5,45,968/- ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENSES. THE LD. A R SUBMITS THAT ASSESSEE CLAIMED EXPENDITURE ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENSES. HOWEVER, THE ASSESSING OFFICER TREATED TH E SAME AS CAPITAL IN NATURE. THE ASSESSING OFFICER ALLOWED THE DEPRECIAT ION @ 60% OF EXPENSES OF RS. 13,64,920/-. THE ASSESSING OFFICER FURTHER HELD THAT EXPENDITURE WAS MADE BY ASSESSEE ON SOFTWARE DEVELO PMENT. THE LD. AR FOR THE ASSESSEE SUBMITS THAT IN FACT THE ASSESSEE INCURRED EXPENSES ON WEBSITE DEVELOPMENT AND REQUIRED UPGRADATION IN EVE RY YEAR. WEBSITE IS NOT SOFTWARE. THE ASSESSEE DISCLOSED ALL THE PARTIC ULARS WHILE FILING RETURN OF INCOME. NO PARTICULARS OF INCOME WERE FOUND TO B E INACCURATE NOR DID THE ASSESSEE CONCEAL ANY PARTICULAR OF INCOME. THE DISALLOWANCE WAS MADE ON THE BASIS OF CHANGE OF OPINION AS THE ASSES SING OFFICER NOT AGREED WITH THE CONTENTION OF ASSESSEE. THE LD. AR FOR THE ASSESSEE SUBMITS THAT ON SIMILAR FACTS AND ON IDENTICAL DISA LLOWANCES THE CHANDIGARH TRIBUNAL IN ACIT VS. TORQUE PHARMACEUTIC ALS (P.) LTD. [2017] 82 TAXMANN.COM 47 (CHANDIGARH-TRIB) DELETED THE SIMILAR PENALTY. THE LD. AR FOR THE ASSESSEE SUBMITS THAT T HE ASSESSEE IS NOT LIABLE FOR PENALTY MERELY THE CLAIM OF DEDUCTION WA S DENIED. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIE D UPON THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN SESA RESOURCES LTD. VS . ACIT [2013] 38 TAXMANN.COM 224 (BOMBAY). ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 5 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE FURTH ER SUBMITS THAT THE ASSESSEE DEVELOPED THE WEBSITE. THE SOFTWARE OPERAT ES THE WEBSITE. THE ASSESSEE KNOW IT VERY WELL SINCE BEGINNING THAT THE EXPENDITURE INCURRED ON WEBSITE DEVELOPMENT IS A CAPITAL EXPENDITURE. IT IS NOT MERE A CHANGE OF OPINION. THE ASSESSEE INCURRED EXPENSES ON SOFTW ARE DEVELOPMENT AND THE ASSESSING OFFICER RIGHTLY TREATED AS CAPITAL EX PENDITURE AND ALLOWED DEPRECIATION ACCORDINGLY. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER DURING THE ASSESSMENT TREATED THE WEBSITE DEVELOPMENT EXPENSES AS A SOFTWARE DEVELOPMENT EXPENSES AS CAPITAL EXPENSES AND ALLOWE D DEPRECIATION @ 60%. THE ASSESSEE CLAIMED EXPENSES OF RS. 13,64,920 /- ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENSES. THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 60% BEING RS. 8,18,952/-, THEREBY D ISALLOWED RS. 5,45,968/-. NO FURTHER APPEAL WAS FILED BY THE ASSE SSEE AGAINST SUCH ADDITIONS/ DISALLOWANCE. THE ASSESSING OFFICER LEVI ED PENALTY @ 100% OF TAX SOUGHT TO BE EVADED ON SUCH ADDITION/ DISALLOWA NCE. THE ASSESSING OFFICER WHILE LEVYING PENALTY CONCLUDED THAT CLAUSE (A) OF EXPLANATION - 1 OF 271(1)(C) IS ATTRACTED. CLAUSE (A) OF EXPLANAT ION 1 OF SECTION 271(1)(C) IS ATTRACTED WHEN THE ASSESSEE FAILED TO OFFER EXPLANATION TO ASSESSING OFFICER OR THE EXPLANATION FURNISHED BY T HE ASSESSEE TO BE FALSE. ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 6 WE HAVE NOTED THAT THE ASSESSEE FILED ITS REPLY DAT ED 12.03.2013, IN RESPONSE TO THE SHOW CAUSE NOTICE UNDER SECTION 271 (1)(C), WHICH IS DULY RECORDED BY ASSESSING OFFICER IN PARA 6 OF HIS ORDE R. THUS, IT IS NOT THE CASE THAT THE ASSESSEE OFFERED NO EXPLANATION. WE HAVE FURTHER NOTED THAT THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFAC TION AS TO HOW THE REPLY /EXPLANATION FURNISHED BY THE ASSESSEE IS FALSE. 7. THE ASSESSING OFFICER WHILE MAKING ADDITION HAS MAD E DISALLOWANCES ON THE BASIS OF THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOT THE CASE OF ASSESSING OFFICER THAT THE DISALLOWANCES ARE BASED ON THE INVESTIGATION OR ENQUIRIES MADE BY HIM DURING THE ASSESSMENT OR THE CLAIMS MADE BY THE ASSESSEE WERE FOUND TO BE FALSE. AL THE FACTS LEADI NG TO THE DISALLOWANCES WERE AVAILABLE ON THE INFORMATION AND THE DOCUMENTS FURNISHED BY THE ASSESSEE. THE ASSESSEE CLAIMED THE EXPENSES INCURRE D ON WEBSITE DEVELOPMENT AS REVENUE EXPENDITURE, HOWEVER, THE AS SESSING OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED 60% DEPRECIATION. IN OUR VIEW IT IS MERELY A CHANGE OF OPINION. THE HON BLE BOMBAY HIGH COURT IN SESA RESOURCES LTD. VS. ACIT (SUPRA) HELD THAT THE ASSESSEE IS NOT LIABLE FOR PENALTY MERELY BECAUSE THE CLAIM FOR DEDUCTION WAS DENIED. FURTHER, THE COORDINATE BENCH OF CHANDIGARH TRIBUNA L IN ACIT VS TORQUE PHARMACEUTICALS (P) LTD (SUPRA) ON ALMOST SI MILAR FACTS HELD THAT WHERE THE ASSESSEE CLAIMED THE EXPENDITURE ON ACCOU NT OF WEB SOFTWARE DEVELOPMENT EXPENSES TO BE REVENUE IN NATURE, HOWEV ER, THE ASSESSING ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 7 OFFICER TOOK IT VIEW TO BE CAPITAL IN NATURE, IT WA S MARE CHANGE OF OPINION AND AS SUCH WOULD NOT WARRANT LEVY OF PENALTY. THER EFORE, CONSIDERING THE DECISION OF COORDINATED BENCH OF CHANDIGARH TRI BUNAL, IN OUR VIEW NO PENALTY UNDER SECTION 271(1)(C) WAS LEVIABLE ON SUCH DISALLOWANCE MADE BY ASSESSING OFFICER. HENCE, WE DIRECT THE ASS ESSING OFFICER TO DELETE THE ENTIRE PENALTY LEVIED UNDER SECTION 271( 1)(C) OF THE ACT. 8. THE SUBMISSIONS OF LD. DR FOR THE REVENUE THAT IT W AS NOT THE CHANGE OF OPINION IS NOT ACCEPTABLE TO US. AS WE HAVE ALREADY OBSERVED THAT ON ALMOST SIMILAR FACTS THE CHANDIGARH TRIBUNAL IN TOR QUE PHARMACEUTICALS (P) LTD (SUPRA) HELD THAT WHERE THE ASSESSEES CLA IM ON THE EXPENDITURE ON ACCOUNT OF WEB SOFTWARE DEVELOPMENT EXPENSES IS REVENUE IN NATURE. NO CONTRARY FACTS OR LAW WAS BROUGHT TO OUR NOTICE. IN THE RESULT THE GROUND NO.2 OF THE APPEAL IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/04/2019. SD/- SD /- RAMIT KOCHAR PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 15.04.2019 SK ITA NO. 4716 MUM 2017- M/S EROS INTERNATIONAL MEDIA LTD. 8 COPY OF THE ORDER FORWARDED TO : 1 . ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI