LEVEL UP NETWORK (INDIA) PVT. LTD., MUMBAI V. ACIT 6(3), MUMBAI

ITA 525/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4062 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 11-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Keywords: Depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS. 525/MUM/2011 ASSESSMENT YEARS: 2006-07 LEVEL UP NETWORK (INDIA) PVT. LTD., 3, SILVER CASCADE, 110-A, SENAPATI BAPAT MARG, DADAR (WEST), MUMBAI-400 028 PAN:A ABCL2349B VS. ACIT 6(3), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. RITIKA AGARWAL REVENUE BY : MR. P.K. SHUKLA DATE OF HEARING : 11.07.2013 DATE OF PRONOUNCEMENT : 19.07.2013 O R D E R PER SANJAY GARG, JM: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE CIT(A) DATED 15.11.2010 RELEVANT TO A.Y. 2006-0 7. 2. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER:- 1. BECAUSE, LD. CIT(A) ERRED IN LAW AND ON FACTS I N UPHOLDING THE ACTION OF THE LD. AO IN NOT ACCEPTING THE REVISED C OMPUTATION FILED WITHIN THE TIME LIMIT PRESCRIBED U/S 139(5) OF THE INCOME-TAX ACT, 1961 BY APPLYING THE DECISION OF THE HONBLE APEX C OURT IN THE CASE OF GOETZ INDIA LIMITED WHICH IS DISTINGUISHABLE OF FAC TS. 2. BECAUSE, LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE LD. AO THAT THE APPELLANT-COMPANY DID NOT COMMENCE BUSINESS TILL NOVEMBER, 2005 AND THEREBY RESTRICTIN G THE CLAIM OF DEPRECIATION TO SIX MONTHS INSTEAD OF THE ENTIRE YE AR. 3. BECAUSE, LD. CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF LD. AO IN DISALLOWING 5% OF TOTAL EXPENDI TURE AS REVENUE AND TREATING THE SAME AS CAPITAL, IGNORING THAT SOME EX PENSES BY THEIR ITA NO. 525 /MUM/2011 LEVEL UP NETWORK (INDIA) PVT. LTD. V. ACIT 6(3) ASSESSMENT YEAR: 2006-07 2 CHARACTER ARE REVENUE IN NATURE AND HENCE 5% ESTIMA TION WAS MOST REASONABLE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLA NT-COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET GAMING FACILITY. IT OPERATES A WEBSITE ON THE INTERNET FOR PROVIDING ONLINE GAMES AGAINST CHARGES TO ITS C USTOMERS. THE APPELLANT-COMPANY CLAIMED THAT IT SET UP ITS BUSINESS IN THE FINANCIA L YEAR 2003-04 AND COMMENCED THE OPERATIONS IN THE PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR 2005-06. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION (I.E. 2006-07), THE APPELLANT-COMPANY INCURRED HUGE EXPENSES IN BRAND BUILDING, MARKETING, PROMOTI ON AND ADVERTISEMENT AND ALSO IN PAYMENT OF SALARY TO ITS EMPLOYEES AND CLAIMED T HE SAME AS DEDUCTION. HOWEVER, THE APPELLANT-COMPANY DURING THE ASSESSMENT PROCEED INGS, VIDE ITS LETTER DATED 26.03.2008, REVISED ITS COMPUTATION OF INCOME AND V OLUNTARILY CAPITALIZED THE REVENUE EXPENDITURE INCURRED IN BRAND BUILDING TO T HE EXTENT OF 95% AND CLAIMED FULL YEARS DEPRECIATION ON THE SAME @ 25%. BALANCE 5% OF THE EXPENDITURE WERE TREATED BY THE COMPANY AS REVENUE EXPENDITURE. 4. IT IS PERTINENT TO MENTION HERE THAT FOR THE AS SESSMENT YEAR 2005-06, THE BRAND BUILDING EXPENSES CLAIMED BY THE ASSESSEE, WE RE DISALLOWED BY THE AO BEING CAPITAL IN NATURE. IT IS, THUS, IN SUCH CIRCUMSTANC ES, THE ASSESSEE, IN VIEW OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06, F OLLOWING THE LINE OF THE A.O., FILED ITS REVISED COMPUTATION OF INCOME. HOWEVER, T HE AO REJECTED THE REVISED COMPUTATION FILED BY THE ASSESSEE AND ASSESSED THE INCOME OF THE ASSESSEE UNDER SECTION 143(3) OF THE INCOME TAX ACT HOLDING THAT T HE REVISED COMPUTATION OF INCOME FILED BY THE ASSESSEE WAS NOT ACCEPTABLE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA (284 ITR 232), AND FURTHER HELD THAT THE EXPENSES INCURRED BY THE COMPANY CANNOT BE ALLOWED AS REVENUE EXPENSES SINCE THEY PROVIDE ENDURING BENEFITS TO THE COMPANY AND HENCE SHOULD BE CAPITALIZED. AO FURTHER HELD THAT THE COMPANY DID N OT COMMENCE ITS BUSINESS TILL NOVEMBER 2005, THEREFORE, DEPRECIATION ON THE ASSET S (INCLUDING CAPITALIZED EXPENSES) WAS TO BE ALLOWED FOR HALF YEAR I.E. AT T HE RATE OF 12.5% ONLY. IN APPEAL, ITA NO. 525 /MUM/2011 LEVEL UP NETWORK (INDIA) PVT. LTD. V. ACIT 6(3) ASSESSMENT YEAR: 2006-07 3 THE LEARNED CIT(A) CONFIRMED THE FINDING OF THE AO REGARDING THE ABOVE SAID ISSUES. THE ASSESSEE IS, THUS, IN APPEAL BEFORE US. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVE OF THE PARTIES AND OUR FINDINGS IN RESPECT OF THE MATTER ARE AS UNDER:- GROUND NO. 1. THE LEARNED REPRESENTATIVE OF THE ASSESSEE WAS FAIR ENOUGH TO ADMIT THAT IN VIEW OF THE SETTLED POSITION OF LAW LAID DO WN BY THE HONBLE SUPREME COURT IN GOETZE INDIA (284 ITR 232), THAT THE REVISED CLAIM CANNOT BE MADE BY WAY OF FIL ING OF LETTER OR REVISED COMPUTATION TO THE ASSESSING O FFICER. THERE IS NO SUCH STATUTORY PROVISION UNDER THE ACT. THE PROPER WAY FOR MAKING A REVISED CLAIM IS BY WAY OF FILING REVISED RETURN WITHIN THE TIME LIMIT PRESCRI BED IN THE INCOME TAX ACT. IN THE CASE IN HAND, THE ASSESSEE DID NOT FILE THE REVISED RETURN, RATHER FILED ONLY THE REVISED COMPUTATION, WHICH WAS REJECTED BY THE AO. IN VIEW OF THE ABOVE SAID LEGAL POSITION, THIS GROUND OF THE APPELLANT IS DECIDED A GAINST THE ASSESSEE. GROUND NO. 2. SINCE THE ASSESSEE HAD CLAIMED THAT IT STARTED EAR NING REVENUE IN NOVEMBER 2005, HENCE THE AO HAD TAKEN THE DATE OF C OMMENCEMENT OF BUSINESS AS NOVEMBER, 2005. HOWEVER, THE LEARNED AR HAS BROUGHT OUR ATTENTION TO THE ORDER PASSED BY THE LEARNED CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2005-06 (ITA NO. 405 7/M/2009 DECIDED ON 29.07.2011), WHEREIN, IN PARAGRAPH 11 OF THE JUDGME NT, IT HAS BEEN OBSERVED AS UNDER:- KEEPING IN MIND THE JUDICIAL PRONOUNCEMENTS REFERR ED TO ABOVE, WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE ASSESSEE H AD SET UP ITS BUSINESS AS EARLY AS 24/5/2004 WHEN IT ENTERED INTO LICENCE AGREEMENT FOR ACQUIRING GAMES FROM GRAVITY CORPORATION. THE GAMES HAVE TO BE UPLOADED ON A SERVER AND THE ASSESSEE APPOINTED SIF Y LTD. FOR THIS PURPOSE UNDER AN AGREEMENT DATED 11/3/2004. EVEN AS ON THIS DATE IT CAN BE SAID THAT THE BUSINESS OF THE ASSESSEE WAS S ET UP. WE, THEREFORE, TAKING INTO CONSIDERATION VARIOUS OTHER CIRCUMSTANC ES AND FACTS POINTED OUT IN THE EARLIER PART OF THIS ORDER HOLD THAT THE BUSINESS OF THE ASSESSEE WAS SET UP DURING THE PREVIOUS YEAR AND, THEREFORE, ALL REVENUE EXPENSES HAVE TO BE ALLOWED AS DEDUCTION. THE LD. COUNSEL FO R THE ASSESSEE HOWEVER, SUBMITTED THAT THE ASSESSEE IS AGREEABLE F OR TREATING THE MARKETING EXPENSES AS CAPITAL EXPENDITURE AND DEPRE CIATION BE ALLOWED ON THE SAME. TO THIS EXTENT THE ORDER OF THE ASSESS ING OFFICER IS UPHELD. ITA NO. 525 /MUM/2011 LEVEL UP NETWORK (INDIA) PVT. LTD. V. ACIT 6(3) ASSESSMENT YEAR: 2006-07 4 IN VIEW OF THE FINDING OF FACT AS TO THE DATE OF CO MMENCEMENT OF BUSINESS OF THE ASSESSEE AS 24.05.2004 GIVEN BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE AND FURTHER THAT THE SAID FIN DING HAS NOT BEEN DISTURBED BY ANY OF THE HIGHER AUTHORITIES, THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSE. IT IS HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM OF D EPRECIATION FOR THE ENTIRE YEAR. GROUND NO. 3. GROUND NO. 3 IS RELATING TO DISALLOWANCE OF 5% OF THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE TO BE REVENUE IN NATURE. TH E LEARNED AR COULD NOT BRING INTO OUR NOTICE ANY EVIDENCE IN SUPPORT OF THE CLAI M OF THE ASSESSEE. THE AUTHORITIES BELOW HAVE REJECTED THE CLAIM OF THE ASSESSEE ON TH IS GROUND FOR WANT OF NECESSARY EVIDENCE IN THIS RESPECT. 6. WE DO NOT FIND ANY REASON OR FACT ON THE FILE TO DISTURB THE FINDING OF THE AUTHORITIES BELOW ON THIS GROUND. HENCE THE GROUND NO. 3 IS DECIDED AGAINST THE ASSESSEE. 7. IN THE RESULT, THE ABOVE APPEAL FILED BY THE ASS ESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 T H DAY OF JULY, 2013. SD/- SD/- (P.M. JAGTAP) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.07.2013. *KKM COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.