DCIT, New Delhi V. M/s. Super Cassettes Industries Ltd., New Delhi

ITA 5927/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2733 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Capital asset; Depreciation; Earning of tax free income; Question of law; Royalty expenses; Tax effect; Revenue expenditure; Capital expenditure
• Section: 142(1); 14A

Judgement Text

1 ITA NO. 5927/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5927/DEL/201 4 ( A.Y 2011-12) DCIT CIRCLE-9(1) NEW DELHI (APPELLANT) VS SUPER CASSETTES INDUSTRIES LTD. E - 2/16, WHITE HOUSE, ANSARI ROAD, DARYAGANJ, NEW DELHI AABCS4712P (RESPONDENT) APPELLANT BY SH. S. S. RANA, CIT DR RESPONDENT BY SH. HIREN MEHTA, CA ORDER PER SUCHITRA KAMBLE THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 29/08/2014 PASSED BY CIT(A)-XII, NEW DELHI FOR AS SESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE OF RS.102,13,55,663/- MADE BY THE AO O N ACCOUNT OF ROYALTY PAYMENT BEING CAPITAL IN NATURE.' 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.8,97,546/- AND RS.2,46,79,571/- MADE BY THE AO ON ACCOUNT OF VIDEO SHOOTING AND RECORDING EXPENSES BE ING CAPITAL IN NATURE.' 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,60,705/- MADE BY THE AO ON ACCOUNT OF UNDER VALUATION DATE OF HEARING 16.01.2018 DATE OF PRONOUNCEMENT 28.03.2018 2 ITA NO. 5927/DEL/2014 OF CLOSING WORK IN PROGRESS.' 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DEPRECIATION ON DIES AND MOULDS @ 30% AS AGAINST 15 % ALLOWED BY THE AO AND THEREBY DELETING THE ADDITION OF RS.3,07,468 /-. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.1,90,948/- MADE BY THE AO U/S 14AREAD WITH RULE 8D OF THE IT ACT. 3. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE WAS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURING OF BLANK AND RECORDED AUDIO CASSETTES, VIDEO CASSETTES, AUDIO/VIDEO CDS, & CDRS TELEVISIONS, AUD IO DECKS, VCD PLAYERS, TWO-IN-ONE ETC. THE COMPONENTS REQUIRED FOR MANUFAC TURING THE AUDIO AND VIDEO CASSETTES SUCH AS HUB, STOPPER, ROLLER, SHELL , PRESSURE PAD, INTERNATIONAL COVER ETC. WERE ALSO MANUFACTURED BY THE ASSESSEE C OMPANY. THESE COMPONENTS WERE USED IN IN-HOUSE CONSUMPTION AND AL SO SOLD TO OUTSIDE PARTIES. THE ASSESSEE WAS ALSO ENGAGED IN OPERATING A PRINTING UNIT FOR MANUFACTURING INLAY CARD, POSTERS, AUDIO/VIDEO CASS ETTE COVERS FOR ITS IN HOUSE CONSUMPTION. ANOTHER LINE OF ACTIVITY PURSUED BY TH E ASSESSEE WAS PRODUCTION OF VIDEO FILMS AND FEATURE FILMS AND PRODUCTION OF IN-HOUSE AUDIO MUSIC TITLES TO BE USED FOR MANUFACTURING OF RECORDED AUDIO/VIDE O CASSETTES & CD. IT WAS ALSO DERIVING INCOME FROM DIGITAL SEGMENT WHICH MAI NLY COMPRISED OF LICENSE FEES FROM SALE OF RINGTONES, LICENSE FEES FOR BROAD CAST ON FM STATION, LICENSE FEES FOR TELECAST ON SATELLITE T.V. CHANNELS ETC. F ROM USAGE OF SOUND -RECORDINGS OWNED BY THE ASSESSEE COMPANY. THE ASSESSEE CARRIED ON ITS BUSINESS THROUGH VARIOUS UNITS LOCATED AT DIFFERENT PLACES. 4. RETURN DECLARING A TOTAL INCOME OF RS.80,55,29,1 20/- WAS FILED ELECTRONICALLY ON 30/11/2011. THE CASE WAS TAKEN U P FOR SCRUTINY AND NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 W AS ISSUED ON 9/8/2012 3 ITA NO. 5927/DEL/2014 AND WAS SERVED. FURTHER, NOTICES U/S 143(2) AND 14 2(1) OF THE ACT WERE ISSUED ALONG WITH QUESTIONNAIRE ON 11/6/2013. IN RESPONSE TO VARIOUS NOTICES THE AUTHORIZED REPRESENTATIVES OF THE ASSESSEE ATTENDED THE ASSESSMENT PROCEEDINGS AND FILED THE DETAILS, PRODUCED THE BOO KS OF ACCOUNTS. THE ASSESSING OFFICER CONSIDERED THE DETAILS FILED BY T HE ASSESSEE AND MADE AN ADDITION OF RS.102,13,55,663/- AS ROYALTY PAYMENT A ND TREATED IT AS CAPITAL EXPENSES IN NATURE. THE ASSESSING OFFICER FURTHER MADE AN ADDITION OF RS.8,97,546/- TOWARDS VIDEO-SHOOTING EXPENSES AND T REATED THE SAME AS CAPITAL EXPENDITURE. FURTHER, RELATING TO RECORDIN G EXPENSE, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.2,46,79,571/-. TH E ASSESSING OFFICER FURTHER MADE DISALLOWANCE OF RS.2,18,703/- IN RESPECT OF FO REIGN EXCHANGE FLUCTUATION LOSS MADE ADDITION OF RS.3,60,705/- ON ESTIMATED B ASIS REGARDING VALUATION OF CLOSING WORKING PROGRESS. ADDITION OF RS.3,07,467/ - WAS MADE REGARDING DEPRECIATION ON DIES AND MOULDS. FURTHER, THE ASSE SSING OFFICER MADE DISALLOWANCE U/S 14A OF RS.1,90,948/- AS WELL AS AL LOWED DEPRECIATION OF RS.68,582/- ON COMPUTER SOFTWARE. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL O F THE ASSESSEE BY FOLLOWING THE ITAT DECISION IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2009-10 & 2010- 11 (ITA NOS. 4453/DEL/2012 , 4442/DEL/2013 ACIT/DCI T VS. SUPER CASSETTE INDUSTRIES LTD. ORDER DATED 30/06/2016.) 6. THE LD. AR SUBMITTED THAT THE ITAT IN EARLIER YE ARS HAS DISMISSED THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009-10 A ND 2010-11. 7. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER BUT COULD NOT REFUTE THE ORDER OF THE ITAT. 4 ITA NO. 5927/DEL/2014 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y . 2009-10 AND 2010-11 DISMISSED THE APPEALS OF THE REVENUE ON THE SIMILAR ISSUES WHICH ARE AGITATED IN THE PRESENT APPEAL. THE SUMMARY OF TRIBUNAL ORDE RS FROM A.Y. 1989-90 & 1991-92 TO 1993-94 AS WELL AS A.Y. 2004-05 & 2005-0 6 TO 2008-09 AND LATEST THAT OF 2009-10 & 2010-11 ARE HEREUNDER: (I) DISALLOWANCE OF ROYALTY EXPENSES (102,13,55,66 3/-) A) ITAT DELHI 'G' BENCH ORDERS IN THE MATTER OF ASSESS EE'S OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/2008 DATED 24/07/20 09 AND FOR THE A. YS. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 5774 T O 5776, AND 1952/DEL/2010 DATED 24/06/2011. LATEST ORDER OF ITA NO.4453/DEL/2012AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009- 10 AND AY 2010-11 AT PAGE NO. 3 TO 6 PARA 6. THE SA ME IS REPRODUCED HEREUNDER: 6. GROUND NO.1 I HAVE CONSIDERED THE MATTER. THE ASSESSEE BUYS M USIC RIGHTS, AND ALSO DEVELOPS IN HOUSE MUSIC AND VIDEOS. BOTH ACTIVITIE S LEAD TO THE ACQUISITION OF CERTAIN INTANGIBLE ASSETS OF THE NAT URE OF COPYRIGHTS. IN CASE THESE INTANGIBLE ASSETS ARE HELD TO BE CAPITAL ASSE TS, THE EXPENDITURE INCURRED FOR THEIR ACQUISITION WILL HAVE TO BE WRIT TEN OFF IN ACCORDANCE WITH SEC. 35A OF THE ACT. HOWEVER, THE PRE-REQUISITE FO R THE APPLICATION OF SECTION 35A IS THAT EXPENDITURE IN QUESTION MUST BE INCURRED AS A CAPITAL EXPENDITURE. THE ISSUE WHETHER EXPENDITURE INCURRE D BY WAY OF ROYALTY FOR THE PURCHASE OF MUSIC RIGHTS IS OF THE NATURE O F CAPITAL OR REVENUE, HAS BEEN DEALT WITH IN THE CASE OF THE ASSESSEE BY THE HONBLE ITAT IN THE ASSESSMENT YEAR 1985-86 AND BY THE LD.CIT(A) IN THE ASSESSEE ASSESSMENT YEAR 1986-87 VIDE THEIR ORDERS CITED ABO VE. BOTH THE AUTHORITIES HAVE HELD THE SAID EXPENDITURE TO BE A REVENUE EXPENDITURE ON THE FACTS OF THE CASE. THERE ARE NO FRESH FACTS OR REASONS TO DIFFER FROM THAT FINDING. THE FACTORS, WHICH SUPPORT THIS FINDING, A RE THAT: THE ASSESSEE CONTINUOUSLY PURCHASES AS WELL AS PR ODUCES A LARGE NUMBER OF RIGHTS OR TITLES THROUGHOUT THE YEAR IN O RDER TO MAINTAIN 5 ITA NO. 5927/DEL/2014 ITS SALES; THAT DURING THE RELEVANT PREVIOUS YEAR IT ACQUIRED OR PRODUCED OVER 780 TITLES; THAT THE COST OF A LARGE MAJORITY OF RIGHTS IS VER Y SMALL, AND OFTEN JUST A FEW THOUSAND RUPEES; THAT THE LIFE OF AN AUDIO OR VIDEO SOFTWARE TITLE IS VERY SHORT; AND THAT MOST OF THE EARNING POTENTIAL OF A TITLE IS E XPLOITED ON ITS FIRST RELEASE AND DURING A SHORT PERIOD THEREAFTER. NOW IF EXPENDITURE INCURRED BY WAY OF ROYALTY FOR T HE ACQUISITION OF MUSIC RIGHTS IS A CAPITAL EXPENDITURE, THEN FORTIORI THE EXPENDITURE ON RECORDING AND SHOOTING INCURRED FOR THE IN HOUSE DEVELOPMENT OF MUSIC AND VIDEOS MUST ALSO BE HELD AS REVENUE EXPENDITURE. FURTHER, THE EXPENDITURE INCURRED IN THE PREPARATION OF MASTER COPIES ON SPO OLS USED FOR STORING AND REPRODUCING THE IN HOUSE OR OUTSOURCED SOFTWARE IS REVENUE EXPENDITURE. THUS, IT MUST BE HELD THAT NO PART OF EXPENDITURE UNDER CONSIDERATION IS A CAPITAL EXPENDITURE. IN VIEW OF THE ABOVE DISCUSSION, IT IS FINALLY SUBM ITTED THAT THE ISSUE REGARDING THE ALLOWABILITY OF ROYALTY EXPENSES AS R EVENUE IS COVERED BY THE DECISION OF THE FIRST APPELLATE AUTHORITY AS WE LL AS THE ITAT IN FAVOUR OF THE APPELLANT. THERE BEING NO CHANGE IN THE POSITIO N OR NEW ADDITIONAL FACTS BEING BROUGHT ON RECORD, THE SAME IS REQUIRED TO BE FOLLOWED. THUS THE DISALLOWANCE OF ROYALTY EXPENSES AGGREGATING RS .59,26,5 7,709 IS DELETED. THE TRIBUNAL IN THEIR ORDER ITA NO. 5084 TO 5086/DE L/2010 A.Y. 2006-07 TO 2008-09, ITA NO. 5774 TO 5776/DEL/2010 A.Y. 2006 -07 TO 2008-09, AND ITA NO. 1952/DEL/2010 A.Y. 2005-06 GAS STATED T HAT: ....THE ASSESSING OFFICER TREATED THE ROYALTY EXPE NSES AS CAPITAL IN NATURE. THIS FINDING OF THE ASSESSING OFFICER IS IN THE LINE OF HIS STAND TAKEN IN ASSESSMENT YEAR 1995-96.. THE LEARNED CIT( APPEALS) DELETED THE ADDITION ON THE GROUND THAT THIS ISSUE TRAVELED UP TO THE ITAT IN ASSESSMENT YEAR 1985-86 REPORTED IN 41 ITD 530. LE ARNED DR WAS UNABLE TO CONTROVERT THE CONTENTION OF THE ASSESSEE . WE FIND THAT THE ITA HAS CONSIDERED THE ISSUE THAT EXPENDITURE INCURRED FOR PROCURING MASTER PLATE FROM THE FILM PRODUCER AND DISTRIBUTOR FOR PR ODUCTION OF AUDIO SOUND AND MUSIC FROM THOSE MASTER PLATES WOULD BE ALLOWAB LE AS REVENUE EXPENDITURE. RESPECTFULLY FOLLOWING THE ORDER OF TH E TRIBUNAL, WE HAVE UPHELD THE DELETION OF THE DISALLOWANCE IN ASSESSME NT YEAR 1995-96 IN ITA NO. 07/DEL/2000 6 ITA NO. 5927/DEL/2014 HENCE THE DISALLOWANCE OF ROYALTY EXPENSES AMOUNTIN G TO RS.59,26,57,709 IS DELETED. B) DELHI HIGH COURT ORDERS IN THE MATTER OF ASSESSE 'S OWN CASE & IN THE CASE OF KRISHAN KUMAR (GROUP ASSESSEE ) FOR THE A.Y 1989 -90 & 1991-92 TO 1993-94 IN ITA NO. 50/2000,69/2004, 457/2004, 460/2 004, 524/2004 & 576/2008 PAGE NO. 15 TO 25 PARA 35 TO 37. THE SAME IS REPRODUCED HEREUNDER: 35. IN SO FAR AS THE CASE IN HAND IS CONCE RNED, WE NOTE, THE ISSUE PERTAINS TO TWO TYPES OF PAYMENT. THE FIRST ONE IS A FIXED AMOUNT OR A LUMP SUM PAYMENT FOR THE MASTER PLATE AND COPYRIGHT IN T HE MUSIC AND THE SECOND, BEING ROYALTY WHICH IS RECURRING IN NATURE, DEPENDING UPON THE QUANTUM OF SALE I.E. VOLUME OF SALES GENERATED BY A PARTICULAR RECORD CASSETTES OF AN ALBUM/SONG. FIRST, DEALING WITH THE FIXED AMOUNT EXPENDITURE, THE QUESTION WOULD ARISE WHETHER THE S AME HAS AN ENDURING BENEFIT. IF THE ENDURING BENEFIT TEST IS FULFILLED, THE CONCLUSION POSSIBLE COULD BE THAT THE PAYMENT WAS FOR ACQUIRING A CAPIT AL ASSET AND EXPENDITURE RELATED TO IT IS CAPITAL EXPENDITURE. B UT THE ENDURING TEST COULD BREAK DOWN FOR GOOD VALID REASONS. FOR GOOD REASONS , THIS TEST NEED NOT BE APPLIED AS A TEST TO DETERMINE THE NATURE OF EXPEND ITURE. THE ADMITTED POSITION IS THAT THE ASSESSEES ARE IN THE BUSINESS RELATED TO MANUFACTURE AND SALE OF MUSIC CASSETTES. LOOKING FROM A COMMERC IAL ANGLE, IT IS SEEN AND A COMMON KNOWLEDGE THAT MUSIC/FILM SONGS DO NOT HAVE A LONG LIFE. EACH YEAR, EXPENDITURE WAS INCURRED TO ACQUIRE AND PROCURE SIMILAR RIGHTS IN NEW MUSIC. IT WAS A RECURRING EXPENDITURE QUITE SIMILAR AND LIKE ACQUIRING AND PURCHASING RAW MATERIAL, USED IN EARN ING PROFITS. INCREASE IN RAW MATERIAL WOULD INCREASE PRODUCTION, TURNOVER AND CORRESPONDING PROFITS. IN CASE, SUCH RIGHTS, WERE NOT ACQUIRED AN D PURCHASED FROM TIME TO TIME, THE ASSESSEE WOULD GO OUT OF THE BUSINESS . FURTHER AND IMPORTANTLY, SALE OF NEW MUSIC INITIALLY, WE ALL K NOW IS BRISK BUT FADES AND CEASES TO BE CATCHY AFTER SOMETIME. WHEN POPULA RITY FADES THE SALES FALTER AND RETURNS/INCOMES DOES NOT FLOW AND STOPS. THERE ARE A FEW SONGS WHICH ARE EVERGREEN AND ARE HEARD BY THE PUBL IC AT LARGE AND REMAIN POPULAR EVEN AFTER FEW/MANY YEARS OF THEIR R ELEASE. SOME SONGS OF THE 1960S AND 1970S/80S ARE CONSIDERED IMMORTAL AND TIMELESS. THE PERCENTAGE OF SUCH MUSIC AND SONGS IS ABYSMALLY SMA LL AND PROBABLY IN THE RANGE OF 5% TO 10% OF THE MUSIC/SONGS LAUNCHED EVERY' YEAR. THE SAID PERCENTAGE WOULD NECESSARILY DEPEND UPON SEVERAL FA CTORS WHICH AGAIN 7 ITA NO. 5927/DEL/2014 WOULD BE FACT SPECIFIC LIKE THE MUSIC DIRECTOR, TYP E OF MUSIC, THE SINGER ETC. THESE FACTS AND FACTORS HAVE NOT BEEN ADVERTED TO A ND ELUCIDATED IN THE ASSESSMENT ORDERS, AS THE ASSESSING OFFICER WITH FO REORDAINED COMMITMENT DISALLOWED THE ENTIRE EXPENDITURE, UNMIN DFUL THAT POSSIBLY, IT WOULD DIFFICULT TO SUSTAIN THE ENTIRE ADDITION. ORD ER OF REMIT, AFTER A LONG TIME GAP WOULD HAVE DIFFICULTIES. PROCEEDING ON THE PREMISE THAT 5% OF THE EXPENDITURE ON THE PLATE ETC. HAD ENDURING BENEFIT, TO THAT EXTENT, THE EXPENDITURE COULD BE CONSIDERED AS A CAPITAL EXPEND ITURE, WE ARE NOT INCLINED TO INTERFERE AND PARTIALLY REVERSE THE FIN AL OUTCOME. THE CAPITAL AMOUNT OR ASSET SO CREATED WOULD BE OF A MINUSCULE VALUE AND THERE WOULD BE A MINIMAL TAX EFFECT. QUESTION OF DEPRECIA TION WOULD ARISE. THE POSITION STOOD SETTLED OVER THESE YEARS. ANY ORDER AT VARIANCE WOULD UNSETTLE THE SETTLED POSITION. IN THE FACTS OF THE CASE, THIS COURT IS OF THE VIEW THAT ACCOUNTS SHOULD NOT BE REWRITTEN BECAUSE OF THE SMALLNESS AND MINIMUM TAX EFFECT. 36. COMING TO THE ROYALTY PAID TO THE P RODUCERS ON THE SALES EFFECTED, IT MUST BE HELD THAT THE SAME IS A REVENU E EXPENDITURE, MORESO, WHEN IT IS CLEAR THAT THE MAIN BUSINESS OF THE ASSE SSEES WAS MANUFACTURE OF BLANK CASSETTES AND PRE-RECORDED CASSETTES. THE PURCHASE OF MUSIC RIGHTS AND REPRODUCING IS THE PURPOSE OF ITS BUSINE SS. THE ROYALTY PAYMENT FOR THE CASSETTES SOLD IS AN EXPENDITURE IN RELATIO N TO THE BUSINESS ACTIVITY OF THE ASSESSEE AND ON THIS GROUND AND REASON, SHOU LD BE REGARDED AS REVENUE EXPENDITURE. IT WAS AN EXPENDITURE INCURRED IN THE NORMAL COURSE OF BUSINESS AND WAS RELATED TO THE REVENUE GENERATE D AND PAYABLE ACCORDINGLY.IT DID NOT SECURE AND ADD TO VALUE OR C REATE ANY NEW' CAPITAL ASSET. 37. THE SUBSTANTIAL QUESTION OF LAW AT SERIAL NO. I IS THUS DECIDED IN FAVOUR OF THE RESPONDENT- ASSESSEES AND AGAINST THE APPELLANT-REVENUE. (II) DISALLOWANCE OF VIDEO SHOOTING EXPENSES (RS.2, 46,79,571/-) ITAT DELHI G BENCH ORDERS IN THE MATTER OF ASSES SEES OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/20O8 DATED 24/07/20 09 AND FOR THE A. YS. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 57 74 TO 5776, AND 1952/DEL/201O DATED 24/06/2011. LATEST ORDER OF ITA 8 ITA NO. 5927/DEL/2014 NO.4453/DEL/2012AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009-10 AND AY 2010-11 AT PAGE NO. 6 TO 7 PARA 7. T HE SAME IS REPRODUCED HEREUNDER: 7. GROUND NO.2: I HAVE PERUSED THE FACTS STATED IN THE ASSESSMENT ORDER AS WELL AS FACTS STATED BY THE ASSESSEE IN HIS SUBMISSIONS. TH E PRESENT DISALLOWANCE OF VIDEO SHOOTING AND RECORDING EXPENSES IS DISCUSS ED ON PAGE 4 TO 8 OF THE ASSESSMENT ORDER. ON PERUSAL OF THE SAME, IT CA N BE SEEN THAT THE ARGUMENTS MADE IN THE PRESENT ORDER ARE MERELY A RE PETITION OF THE STAND TAKEN BY THE ASSESSING OFFICER WHILE DISALLOWING RO YALTY EXPENSES AS CAPITAL. IN THIS REGARD, ATTENTION IS INVITED TO PA RA 6.6 (PAGE 7) OF THE ASSESSMENT ORDER WHERE IT IS ADMITTED THAT RECORDI NG EXPENSES ARE IDENTICAL IN NATURE TO THE ROYALTY EXPENSES AND ARE THUS IN THE NATURE OF AN ENDURING BENEFIT. IN VIEW OF THE SAME THE SUBMISSI ONS MADE IN SUPPORT OF THE ALLOWABILITY OF ROYALTY EXPENSES AS REVENUE IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. THUS, IN VIEW OF THE SUBMISSIO NS MADE IN EARLIER PARA AND ALSO KEEPING IN VIEW THE FACT THAT THE LEGAL IS SUE REGARDING THE DETERMINATION OF THE NATURE OF THESE EXPENSES AND I TS ALLOWABILITY IS COVERED BY THE DECISION OF CIT(A) AS WELL AS ITAT F OR EARLIER YEARS THE DISALLOWANCE OF RS.2,00,54,492 (VIDEO SHOOTING EXPE NSES) AND RS.5,57,56,454 (RECORDING EXPENSES) IS DELETED. THE TRIBUNAL IN THEIR ORDER ITA NO. 5084 TO 5086/DE L/2010 A.Y. 2006-07 TO 2008-09, ITA NO. 5774 TO 5776/DEL/2 010 A.Y. 2006-07 TO 2008-09, ITA NO. 1952/DEL/2010 -A.Y. 200 5-06 HAS BEEN STATED THAT:- ...WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY, WE HAVE EXTRACTED TH E ORDER OF THE ASSESSMENT YEAR 2004-05 WHILE ADJUDICATING THE ISSU E REGARDING ROYALTY EXPENSES. IN THAT YEAR, THE ITAT HAS CONSID ERED ALL THESE ASPECTS TOGETHER AND HELD THAT EXPENSES INCURRED ON VIDEO SHOOTING AND RECORDING ETC. ARE TO BE TREATED AS RE VENUE EXPENDITURE. LEARNED CIT(APPEALS) HAS RELIED UPON T HIS PART OF THE ITATS ORDER AND WE DO NOT SEE ANY REASON TO INTERF ERE N THE ORDER OF THE LEARNED CIT(APPEALS)... 9 ITA NO. 5927/DEL/2014 (III) DISALLOWANCE OF RECORDING EXPENSES ( RS.2,46, 79,571/-) ITAT DELHI 'G' BENCH ORDERS IN THE MATTER OF ASSESS EE'S OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/20O8 DATED 24/07/20 09 AND FOR THE A. Y. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 5774 T O 5776, AND 1952/DEL/2010 DATED 24/06/2011. LATEST ORDER OF ITA NO.4453/DEL/2012AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009-10 AND AY 2010-11 AT PAGE NO. 6 TO 7 PARA 7. T HE SAME IS REPRODUCED HEREUNDER: 7. GROUND NO.2: I HAVE PERUSED THE FACTS STATED IN THE ASSESSMENT ORDER AS WELL AS FACTS STATED BY THE ASSESSEE IN HIS SUBMISSIONS. THE PRES ENT DISALLOWANCE OF VIDEO SHOOTING AND RECORDING EXPENSES IS DISCUSSED ON PAGE 4 TO 8 OF THE ASSESSMENT ORDER. ON PERUSAL OF THE SAME, IT CAN BE SEEN THAT THE ARGUMENTS MADE IN THE PRESENT ORDER ARE MERELY A RE PETITION OF THE STAND TAKEN BY THE ASSESSING OFFICER WHILE DISALLOWING RO YALTY EXPENSES AS CAPITAL. IN THIS REGARD, ATTENTION IS INVITED TO PA RA 6.6 (PAGE 7) OF THE ASSESSMENT ORDER WHERE IT IS ADMITTED THAT RECORDI NG EXPENSES ARE IDENTICAL IN NATURE TO THE ROYALTY EXPENSES AND ARE THUS IN THE NATURE OF AN ENDURING BENEFIT. IN VIEW OF THE SAME THE SUBMISSI ONS MADE IN SUPPORT OF THE ALLOWABILITY OF ROYALTY EXPENSES AS REVENUE IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. THUS, IN VIEW OF THE SUBMISSIO NS MADE IN EARLIER PARA AND ALSO KEEPING IN VIEW THE FACT THAT THE LEGAL IS SUE REGARDING THE DETERMINATION OF THE NATURE OF THESE EXPENSES AND I TS ALLOWABILITY IS COVERED BY THE DECISION OF CIT(A) AS WELL AS ITAT F OR EARLIER YEARS THE DISALLOWANCE OF RS.2,00,54,492 (VIDEO SHOOTING EXPE NSES) AND RS.5,57,56,454 (RECORDING EXPENSES) IS DELETED. THE TRIBUNAL IN THEIR ORDER ITA NO. 5084 TO 5086/DE L/2010 A.Y. 2006-07 TO 2008-09, ITA NO. 5774 TO 5776/DEL/2 010 A.Y. 2006-07 TO 2008-09, ITA NO. 1952/DEL/2010 -A.Y. 200 5-06 HAS BEEN STATED THAT:- ...WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY, WE HAVE EXTRACTED THE ORDER OF T HE ASSESSMENT YEAR 10 ITA NO. 5927/DEL/2014 2004-05 WHILE ADJUDICATING THE ISSUE REGARDING ROYA LTY EXPENSES. IN THAT YEAR, THE ITAT HAS CONSIDERED ALL THESE ASPECT S TOGETHER AND HELD THAT EXPENSES INCURRED ON VIDEO SHOOTING AND RECORD ING ETC. ARE TO BE TREATED AS REVENUE EXPENDITURE. LEARNED CIT(APPEALS ) HAS RELIED UPON THIS PART OF THE ITATS ORDER AND WE DO NOT SEE ANY REASON TO INTERFERE N THE ORDER OF THE LEARNED CIT(APPEALS)... (IV) ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOS ING WIP (RS.3,60,705/_) ITAT DELHI 'G' BENCH ORDERS IN THE MATTER OF ASSESS EE'S OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/2008 DATED 24/07/20 09 AND FOR THE A. Y. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 5774 T O 5776, AND 1952/DEL/2010 DATED 24/06/2011. LATEST ORDER OF ITA NO.4453/DEL/2012AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009-10 AND AY 2010-11 AT PAGE NO.7 TO 8 PARA 8. TH E SAME IS REPRODUCED HEREUNDER: 8 . GROUND NO. 3: I HAVE PERUSED THE FACTS STATED IN THE ASSESSMENT ORDER AS WELL AS THE FACTS STATED BY THE ASSESSEE IN HIS SUBMISSIONS. IN MY ORDER FOR THE ASSESSMENT YEAR 2006-07 DATED 30.05.2012 THE SIMILA R ISSUE WAS DISCUSSED BY ME WHICH IS REPRODUCED BELOW: .THE IDENTICAL ISSUE CONCERNING ALLEGED UNDER VAL UATION OF CLOSING STOCK OF WIP FOR WHICH CONCEALMENT PENALTY WAS LEVI ED DURING A.Y. 1998-99 WAS ADJUDICATED . BY ME AND A.Y. 1997-98 AN D 1998-99 HAS BEEN ADJUDICATED BY ITAT, NEW DELHI IN ITA NO. 4893 & 4899/DEL/2011. THE FINDING OF THE ITAT ON THIS ISSUE ARE THAT THE ADDITION ENHANCING THE VALUE OF CLOSING WIP HAS BEEN MADE ON ESTIMATE BASI S. NEITHER ANY QUANTITY WAS FOUND IN EXCESS NOR WAS ANY RATE DIFFE RENCE ON THE BASS OF WHICH ADDITION HAS BEEN MADE TO WORK IN PROGRESS . THE WIP INDICATES THE VALUE ADDED IN THE RAW MATERIAL BY WA Y OF ANY PROCESS UNDERTAKEN BY THE ASSESSEE. IT IS JUST ESTIMATION O F FURTHER EXPENDITURE PUT BY THE ASSESSEE AFTER PROCUREMENT OF RAW MATERI AL BEFORE CONVERTING THE SAME INTO FINISHED PRODUCT. ANY ADDITION MADE B Y HAVING A DIFFERENT ESTIMATION BEING UPHELD IN QUANTUM PROCEE DINGS WOULD NOT 11 ITA NO. 5927/DEL/2014 ATTRACT LEVY OF PENALTY. CONSEQUENT UPON THE SAME, THE ISSUE PENALTY STANDS DECIDED AGAINST THE RESPECTFULLY FOLLOWING THE ORDER OF ITAT REFERRED H EREIN ABOVE, ON THIS ISSUE, IT IS HELD THAT LEVY OF PENALTY WITH RESPECT TO UNDER VALUATION OF CLOSING WIP IS COVERED BY THE DECISION OF ITAT AND HENCE PENALTY IS REQUIRED TO BE DELETED. THIS GROUND OF APPEAL IS TH EREFORE ALLOWED.... HENCE IN VIEW OF THE ABOVE THIS ADDITION OF RS. 17, 36,554 IS DELETED. (V) DISALLOWANCE OF DEPRECIATION ON DIES AND MOULDS . (RS. 3,07,468/-) ITAT DELHI 'G' BENCH ORDERS IN THE MATTER OF ASSESS EE'S OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/2008 DATED 24/07/20 09 AND FOR THE A.Y. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 5774 T O 5776, AND 1952/DEL/2010 DATED 24/06/2011. LATEST ORDER OF ITA NO.4453/DEL/2012 AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009- 10 AND AY 2010- 11 AT PAGE NO.8 TO 9 PARA 9. THE SAME IS REPRODUCED HEREUNDER: 9. GROUND NO.4: I HAVE PERUSED THE FACTS STATED IN THE ASSESSMENT ORDER AS WELL AS THE FACTS STATED BY THE ASSESSEE IN HIS SUBMISSIONS. IN THE RECENT PAST THE ITAT HAS DULY CONSIDERED ALL THE ASPECTS AND REJECT ED THE DEPARTMENTAL APPEAL AND ALLOWED THE DEPRECIATION ON DIES & MOULD S @ 40% ALLOWED TO THE ASSESSEE IN ALL THE APPEALS FOR THE ASSESSMENT YEAR I.E. A.Y. 1995-96 TO A.Y. 2008-09. THE ITAT ORDER FOR THE A.Y. 2008-0 9 DEALING WITH THIS ISSUE ARE ENCLOSED AT PAGE 89 OF THE REFERENCE PAPE RS. THE TRIBUNAL IN THEIR ORDER ITA NO. 5084 TO 5086/DEL/2010 A.Y. 2006-07 TO 2008-09, ITA NO. 5774 TO 5776/DEL/2010 A .Y.2006-07TO 2008- 09, AND ITA NO. 1952/DEL/2010 A.Y. 2005-06 HAS OBSE RVED THAT:- 14. IN THIS GROUND OF APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN UPHOLDING THE DIS ALLOWANCE OF DEPRECIATION @ 40% ON THE MOULDS USED BY THE ASSESS EE INSTEAD OF 25% ALLOWED BY THE ASSESSING OFFICER. WE FIND THAT IN A SSESSMENT YEAR 1994-95, THE LEARNED CIT(APPEALS) HAS UPHELD THE GR ANT OF DEPRECIATION 40% ON THE MOULDS BY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA 12 ITA NO. 5927/DEL/2014 HIGH COURT IN THE CASE OF AMCO BATTERIES LTD. 230 I TR 164. THIS ORDER OF THE LEARNED CIT(APPEALS) WAS NOT AGITATED BY THE RE VENUE IN FURTHER APPEAL. WE HAVE FOLLOWED THIS ORDER IN ASSESSMENT Y EAR 1995-96 WHILE DISPOSING OF ITA NO. 127/DEL/04 WHICH EMANATES FROM SECOND ROUND OF LITIGATION. WE HAVE UPHELD THE GRANT OF DEPRECIATIO N @ 40% BECAUSE THE MOULDS WERE USED FOR MANUFACTURING OF PLASTIC PARTS AND A SPECIFIC RATE OF DEPRECIATION IS PROVIDED IN APPENDIX-A AT SR. NO . 8... IN VIEW OF THE IDENTICAL SET OF FACTS, THE SAME DEC ISION NEEDS TO BE FOLLOWED IN THE PRESENT ASSESSMENT YEAR UNDER APPEA L AND ON THIS BASIS, DISALLOWANCE OF RS.4,71,837 IS REQUIRED TO B E DELETED. (VI) DISALLOWANCE U/S 14A UNDER RULE 8D (RS. 1,90, 948/-) ITAT DELHI 'G' BENCH ORDERS IN THE MATTER OF ASSESS EE'S OWN CASE FOR THE A.Y. 2004-05 IN ITA NO. 814/DEL/2008 DATED 24/07/20 09 AND FOR THE A. Y. 2005-06 TO 2008-09 IN ITA NO'S 5084 TO 5086, 5774 T O 5776, AND 1952/DEL/2010 DATED 24/06/2011. LATEST ORDER OF ITA NO.4453/DEL/2012AND 4442/DEL/2013 DATED 30/06/2016 FOR THE AY 2009-10 AND AY 2010-11 AT PAGE NO.11 TO 12 PARA 11. THE SAME IS REPRODUCED HEREUNDER: 11. GROUND NO. 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE AR AND THE OBSERVATIONS MADE BY THE A.O. IN THE ORDER FRAMING ASSESSMENT. RECENTLY, HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF MAXOPP INVESTMENT LTD. VS. CIT - ITA NO. 687 OF 2009 VIDE ORDER DATED 18 TH NOVEMBER 2011 HAS LAID THE LEGAL DICTUM FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A. IN THE DECISION FOLLOWING PROPOSITION HAS BEEN LAID BY THE HONBLE COURT; (I) THE EXPRESSION EXPENDITURE INCURRED IN S. 14 A REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE. I F NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME, NO DISAL LOWANCE CAN BE MADE U/S. 14A. (II) RULE 8D COMES INTO PLAY ONLY WHEN THE A.O. RE CORDS A FINDING THAT THE IS NOT SATISFIED WITH THE ASSESSEES METHOD. 13 ITA NO. 5927/DEL/2014 (III) THE A.O. CANNOT PROCEED TO DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WITHOUT RECOR DING A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THIS IS A CONDITION PRECEDENT. WHILE REJECTING THE CLAIM OF T HE ASSESSEE WITH REGARD TO DIE EXPENDITURE OR NO EXPENDITURE IN RELATION TO EXEMPT INCOME, THE A.O. WILL HAVE TO INDICATE COGENT REASONS FOR THE SAME. THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFAC TION FOR REJECTING ASSESSEES SUBMISSION WHICH IS THE PRE-CONDITION NECESSARY FOR INVOKING R ULE 8D. ONLY REAL EXPENSES IS TO BE CONSIDERED NOT SURMISES AND CONJE CTURES. HENCE IN VIEW OF THE ABOVE THE DISALLOWANCE OF RS. 1,10,536 IS HE REBY DELETED. THUS, THE REVENUES APPEAL IS SQUARELY COVERED BY T HE TRIBUNALS DECISION IN THE EARLIER ASSESSMENT YEARS. THEREFORE , THE CIT(A) RIGHTLY ALLOWED THESE ISSUES IN FAVOUR OF ASSESSEE. THERE IS NO NEE D TO INTERFERE WITH THE ORDER OF THE CIT(A). THE APPEAL OF THE REVENUE IS DISMISS ED. 9. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH MARCH, 2018 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 28/03/2018 R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR 14 ITA NO. 5927/DEL/2014 ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 18/01/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 18/01/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 28.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 8 .03.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.