ACIT CIRCLE-16(1), MUMBAI V. M/S TATA SKY LTD., MUMBAI

ITA 6297/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3659 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 03-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHISHIR DHAMIJA
• Assessee Lawyers: J D MISTRY
• Keywords: Depreciation; Revised return; Reason to believe; Revenue expenditure; Capital expenditure; TDS
• Section: 143(3); 142(1); 40(a)(ia); 201(1); 143(1); 250; 201; 143(2); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 6297/MUM/2019 (A.Y: 2007-08) ACIT, CIRCLE 16(1) R.NO. 439, 4 TH FLOOR, AAYAKAR BHAVAN, MK ROAD, MUMBAI 400020. VS. M/S. TATA SKY LTD., 3 RD FLOOR, C1 WADIA INTERNATIONAL CENTRE, WORLI, MUMBAI 400025. PAN/GIR NO. : AAGCS9294M APPELLANT .. RESPONDENT APPELLANT BY : SHRI SHISHIR DHAMIJA CIT DR RESPONDENT BY : SHRI J.D. MISTRY. AR DATE OF HEARING 03 .0 5 .2021 DATE OF PRONOUNCEMENT 24 .0 5 .2021 / O R D E R PER PAVAN KUMAR GADALE, JM: THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) -4 MUMB AI, PASSED U/S. 143(3) R.W.S 147 AND 250 OF THE INCOME TAX ACT, 1961. THE REVENUE HAS RAISED THE FOLLOWING GR OUNDS OF APPEAL: I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECT ING TO DELETE ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 2 - THE DISALLOWANCE U/S 40(A)(IA) OF RS. 9,59,14,600/- ON ACCOUNT OF EXPENSES CLAIMED AS COMMISSION / TRADE INCENTIVE S / DISCOUNT, WITHOUT APPRECIATING THE FACTS THAT:- A. THE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS DISTRIBUTORS IS HELD TO BE OF PRINCIPAL-AGENCY; AND B. THE DISCOUNT /INCENTIVE GIVEN TO DISTRIBUTORS ON SA LE OF STBS IS IN NATURE OF COMMISSION AND TAX SHOULD B E DEDUCTED U/S 194H OF THE ACT. II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECT ING TO DELETE THE DISALLOWANCE OF RS. 4,74,26,027/- MADE OUT OF E XPENSES INCURRED FOR COMPUTER SOFTWARE, WITHOUT APPRECIATIN G THE FACTS THAT;- A. THE SAID EXPENSES ARE IN THE NATURE OF CAPITAL EXPENDITURE AND NOT A REVENUE EXPENDITURE; B. THE SAID EXPENSES CARRY ENDURING AND LONG TERM BENEFIT TO THE ASSESSEE? III. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT (A) ON THE ABOVE GROUNDS BE SET-ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. IV. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE IS ENGAGED IN THE BUSINESS OF PROVIDING DIRECT TO HOME SERVICE (DTH). THE SERVICE OF DTH BY TELEVISION S IGNALS IS TRANSMITTED DIRECTLY AT THE HOME OF THE SUBSCRIB ERS. THE ASSESSEE COMPANY OFFERS DTH SERVICES TO ITS SUBSCRIBES AND THE MAIN SOURCE OF INCOME BEING SUBSCRIPTION CHARGES COLLECTED FROM THE SUBSCRIBERS AND THE SALE OF SET-TOP-BOXES.THE ASSESSEE HAS FILED TH E RETURN ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 3 - OF INCOME ON 30.10.2007 DECLARING A TOTAL LOSS OF R S. 804,51,45,773/- AND ALSO FILED REVISED RETURN OF I NCOME ON 26.08.2008 WITH TOTAL LOSS OF RS.805,36,36,98,51 4/- AND THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DATED 29.12.2009 WITH A TOTAL LOSS OF RS. 804,00,03 ,607/- THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT (A) AGAINST THE ASSESSMENT ORDER U/S 143(3) OF THE ACT. THE LD. CIT(A) PASSED ORDER BY RESTRICTING THE DISALLO WANCE U/S 14AOF THE ACT OF RS. 11,66,104/-AND SUBSEQUENTL Y ORDER GIVING EFFECT(OGH) WAS PASSED ON 14.05.2012. BUT THE A.O. HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT AND ISSUED NOTICE U/S 148 OF THE ACT. THE ASSESSEE HAS FILED A LETTER DATED 18.04.2012 TO TREAT THE REVISED RETURN OF INCOME FILED ON 26.08.2008 AS DUE COMPLIANCE TO NOTICE U/S 148 OF THE ACT AND ALSO F ILED A LETTER DATED 04.04.2012 REQUESTING TO PROVIDE REASO NS RECORDED FOR REOPENING OF THE ASSESSMENT. SUBSEQUE NTLY, THE NOTICE U/S 142(1) AND 143(2) OF THE ACT WERE IS SUED AND A.O. HAS PROVIDED REASONS REFERRED AT PARA-5 OF THE ASSESSMENT ORDER AND THE ASSESSEE HAS RAISED OBJECT IONS. THE ASSESSEE HAS FILED SUBMISSIONS ON 28.01.2013 WI TH THE DETAILS OF DEALERS COMMISSION/INCENTIVES AND L EDGER ACCOUNT COPIES ALONG WITH DETAILS OF TAX DEDUCTIONS . THE A.O ON PERUSAL OF COMMISSION / INCENTIVE / DISCO UNT OF ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 4 - RS. 9,59,14,600/- ON SALE OF SET-TOP-BOXES TO DISTR IBUTORS FOUND THAT NO TDS WAS MADE ON PAYMENTS TO DISTRIBUT ORS. THE A.O DEALT ON THE EXPLANATIONS, AND OBSERVED TH AT THE PROVISIONS OF SEC. 194H OF THE ACT ARE APPLICABLE W HEN THE PAYMENT IS MADE BY WAY OF COMMISSION OR BROKERA GE. THE A.O FINALLY MADE DISALLOWANCE OF COMMISSION / INCENTIVE / DISCOUNT ON SALES OF SET-TOP-BOXES TO T HE DISTRIBUTORS APPLYING THE PROVISIONS OF SEC. 40(A)( IA) OF THE ACT. WHEREAS, IN RESPECT OF ANNUAL MAINTENANCE CHAR GES OF SOFTWARE AND OPERATION SUPPORT EXPENSES. THE ASS ESSEE HAS CLAIMED DEDUCTION OF SOFTWARE OPERATION EXPENSE S AS REVENUE EXPENDITURE. THE A.O. HAS DEALT ON THE DISP UTED ISSUE AND OBSERVED THAT THE SOFTWARE EXPENSES CLAIM ED ARE IN THE NATURE OF CAPITAL EXPENDITURE AND ALLOW ED DEPRECIATION AND THE EXCESS CLAIM OF RS4,74,26,027 /- IS ADDED TO THE INCOME OF THE OF THE ASSESSEE AND ASSE SSED THE TOTAL LOSS OF RS. 790,90,81,610/-AND PASSED THE ORDER U/S 143(3) R.W.S 147 OF THE ACT ON 08.03.2013. 3. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED A N APPEAL BEFORE THE CIT(A). THE LD. CIT(A) CONSIDERI NG THE GROUNDS OF APPEAL, FINDINGS OF THE A.O AND THE WRIT TEN SUBMISSIONS FILED HAS DEALT ON THE DISPUTED ISSUE IN RESPECT OF DISALLOWANCE OF RS. 9,59,14,600/- PERTAI NING TO COMMISSION / TRADE INCENTIVE / DISCOUNT ON SALE OF SET- TOP-BOXES TO DISTRIBUTORS, WERE THE ASSESSEE HAS NO T ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 5 - DEDUCTED TDS ON PAYMENTS MADE TO THE DISTRIBUTORS A ND THE A.O. HAS MADE DISALLOWANCE APPLYING THE PROVIS IONS OF SEC. 40(A)(IA) OF THE ACT. WHEREAS, IN THE APPEL LATE PROCEEDINGS, IT WAS SUBMITTED THAT THE ASSESSEE COM PANY AGAINST THE CIT(A) DISMISSAL ORDER U/S 201&201(1A) OF THE ACT HAS FILED THE APPEAL WITH THE HONBLE TRIBUNAL. WHEREAS, THE HONBLE ITAT HAS DEALT ON THE PROVISIO NS OF SEC. 201 & 201(1A) OF THE ACT AND OBSERVED THAT THE TDS PROVISIONS ARE NOT APPLICABLE TO THE ASSESSEE COMPA NY AND THEREFORE DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS NOT WARRANTED. IN RESPECT OF SOFTWARE AND OPERATIONAL S UPPORT EXPENSES, THE A.O HAS TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 60% AND EXCE SS CLAIM HAS BEEN DISALLOWED. THE CIT(A) CONSIDERING THE SUBMISSIONS AND THE FACTS DEALT AT PAGE 19 PARA6.2 .1 OF THE ORDER AND OBSERVED THAT THEY ARE NOT IN THE NA TURE OF CAPITAL EXPENDITURE AND HAS ALLOWED THE GROUND OF A PPEAL. SINCE THE CIT(A) HAS ALLOWED THE GROUND OF APPEAL N O. 2 & 3 IN RESPECT OF NON APPLICABILITY OF PROVISIONS OF SEC. 40(A)(IA) OF THE ACT AND ALLOWING THE CLAIM OF ANN UAL SOFTWARE MAINTENANCE EXPENSES. THE GROUND OF APPEALNO.1 IN RESPECT OF VALIDITY OF REASSESSMENT W AS NOT ADJUDICATED AND PARTLY ALLOWED THE ASSESSEE APPEAL. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE HAS FILE D AN APPEAL BEFORE THE HONBLE TRIBUNAL. ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 6 - 4. AT THE TIME OF HEARING THE LD.DR SUBMITTED THAT CIT(A) HAS ERRED IN GRANTING RELIEF TO THE ASSESSEE ON THE TWO DISPUTED ISSUES AND RELIED ON THE A.O. ORDER. CONTR A, THE LD.AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CI T(A) AND RELIED ON THE ORDER OF THE HONBLE TRIBUNAL. 5. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THE REVENUE HAS FILED T HE APPEAL ON THE TWO DISPUTED ISSUES IN THE GROUNDS OF APPEAL. THE LD.AR SUBMITTED THAT THE DISPUTED ISSUE OF DISALLOWANCE U/SEC40(A)(IA) OF THE ACT IS COVERED I N FAVOUR OF THE ASSESSEE COMPANY IN ITS OWN CASE FOR A.Y.200 9-10 & 2010-11 IN ITA.NO.3214/3215&3971/3972/MUM/2014 DT10.9.2020. THE HONBLE TRIBUNAL HAS OBSERVED AT PA RA 8 & 9 OF THE ORDER, WHICH IS READ AS UNDER; 8. WE HAVE HEARD BOTH PARTIES AND PERUSED MATERIAL S ON RECORD. AFTER CONSIDERING THE FACTS IN ENTIRETY AND HEARING BOTH THE SIDES, WE ARE OF THE VIEW THAT THIS ISSUE IS SQ UARELY COVERED BY TRIBUNALS DECISION IN ASSESSEES OWN CA SE, WHEREIN TRIBUNAL HAS CATEGORICALLY OBSERVED THAT TH E ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON THE AMOUNTS OF DI SCOUNT ON SALE OF SET-TOP BOX AND HARDWARE, DISCOUNT ON SALE OF RECHARGE COUPON AND VOUCHERS, BONUS OR CREDIT PROVIDED BY AS SESSEE TO SUBSCRIBERS, SALES PROMOTION EXPENSES AND DISTRIBUT ION CHANNEL SUPPORT EXPENSES. FURTHER, THE TRANSACTION BETWEEN THE COMPANY AND DISTRIBUTOR IS ON PRINCIPAL TO PRIN CIPAL BASIS AND ALL THE RISK, LOSS, DAMAGES ARE TRANSFERRED TO DISTRIBUTOR ON DELIVERY. FURTHER, DISTRIBUTORS ARE FREE TO SALE AT ANY PRICE BELOW MAXIMUM RETAIL PRICE. IN THIS REGARD, THE ASS ESSE HAS FILED THE SAMPLE COPY OF INVOICES FOR SALE OF SET T OP BOX (STB) ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 7 - AND OTHER RECHARGE COUPONS TO PROVE THAT IT IS A SA LE BUT NOT SERVICES TO COME WITHIN THE AMBIT OF THE DEFINITION OF COMMISSION AS DEFINED UNDER SECTION 194H OF THE ACT . THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSEE IS NOT REQUIRED TO DEDUCT TDS ON DISCOUNT ALLOWED ON S ALE OF SET TOP BOX AND HARDWARE, RECHARGE COUPONS VOUCHERS AND DISALLOWANCE OF BONUS OR CREDIT PROVIDED TO SUBSCRI BERS INCLUDING SALES PROMOTION EXPENSES. HENCE, BY FOLLO WING THE DECISION OF ITAT IN ASSESSEES OWN CASE IN THE PROC EEDING UNDER SECTION 201(1) AND 201(1A) IN ITA NO. 6923 TO 6926/MUM/2012 DIRECT THE ASSESSING OFFICER TO DELET E THE ADDITION TOWARDS DISALLOWANCES UNDER SECTION 40(A)( IA) OF THE ACT ON DISCOUNT OF SALE OF STB & HARDWARE, RECHARGE COUPON VOUCHERS & DISALLOWANCE OF BONUS OR CREDIT PROVIDED TO SUBSCRIBERS, SALES PROMOTION EXPENSES AND DISTRIBUT ION CHANNEL SUPPORT EXPENSES FOR FAILURE TO DEDUCT TDS U/S 194H OF THE IT ACT, 1961. THIS ISSUE OF ASSESSEES APPEA L IS ALLOWED. 9. SIMILAR IS THE FACTS IN RESPECT OF THIS GROUND F OR AY 2010-11 IN ITA NO. 3215/MUM/2014 HENCE, IN THAT YEAR ALSO T HE DISALLOWANCE IS DELETED ON THIS ACCOUNT. 6. WE FIND THE FACTS IN THE PRESENT CASE ARE SIMIL AR AND IDENTICAL, HENCE WE FALLOW THE JUDICIAL PRECEDENCE AND UPHOLD THE ORDER OF THE CIT(A) ON THIS GROUND OF AP PEAL. 7. ON THE SECOND DISPUTED ISSUE OF DISALLOWANCE OF EXPENSES FOR COMPUTER SOFTWARE. THE LD.AR SUBMITTED THAT THE EXPENSES ARE IN THE NATURE OF REVENUE EXPENDITURE AND LD.CIT(A) HAS CONSIDERED ANNUAL MAINTENANCE CONTRACT CLAUSES AND RELIED ON THE DECI SIONS OF THE HONBLE SUPREME COURT. WE FIND THE CIT(A) DEA LT ON ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 8 - THIS PARTICULAR ISSUE AT PARA 6.2.1 TO 6.2.4 OF TH E ORDER AND CONSIDERED THE OBSERVATIONS OF THE HONBLE SUPRE ME COURT AND CONCLUDED THAT THE EXPENSES CLAIMED FOR MAINTENANCE OF SOFTWARE CAN NOT BE CATEGORIZED AS C APITAL IN NATURE. THE LD.DR COULD NOT CONTROVERT THE OBSERVATIONS OF THE CIT(A) WITH ANY NEW COGENT EVID ENCE OR INFORMATION. ACCORDINGLY WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND UPHOLD THE FINDINGS OF THE CIT(A) AND DISMISS THE GROUND OF AP PEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 24.05.2021 SD/- SD/- (SHAMIM YAHYA) (PAVAN KUMAR GAD ALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24.05.2021 KRK, PS ITA NO. 6297/MUM/2019 M/S. TATA SKY LTD., MUMBAI - 9 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. !!' , $ % , / DR, ITAT, MUMBAI 6. () * + / GUARD FILE. / BY ORDER, ! //TRUE COPY// 1. ( ASST. REGISTRAR) ITAT, MUMBA I