INDIAGAMES LTD, NAVI MUMBAI V. DCIT 10(2), MUMBAI

ITA 6430/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92498 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 29-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMA N
• Keywords: Depreciation; Additional evidence; Revenue expenditure
• Section: 142(1); 37; 28

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI I - BENCH , , BEFORE S/SH. I . P . BANSAL,JUDICIAL MEMBER & RAJENDRA,ACCOUN TANT MEMBER /. ITA NO 6430 /MUM/201 3 , / ASSESSMENT YEAR - 20 10 - 11 INDIAGAMES LIMITED , 1 ST FLOOR, BUILDING NO.14, SOLITAIRE CORPORATE PARK, GURU HARGOVINDJI MARG, CHAKALA, ANDHERI (E) MUMBAI - 400 093 . PAN:AAA CI 6167 R VS D Y. CIT - 10(2) AAY AKAR BHAVAN MUMBAI - 2 0. /. ITA NO 6437 /MUM/201 3 , / ASSESSMENT YEAR - 20 10 - 11 DY.CIT - 10(2) AAYAKAR BHAVAN MUMBAI - 2 0. VS INDIAGAMES LIMITED , 1 ST FLOOR, BUILDING NO.14, SOLITAIRE CORPORATE PARK, GURU HARGOVINDJI MARG, CHAKALA , ANDHERI (E) MUMBAI - 400 093. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY :SHRI FARROKH IRANI / REVENUE BY :SHRI PREMA N AND J. - DR / DATE OF HEA RING : 30 - 04 - 2015 / DATE OF PRONOUNCEMENT : 08 - 0 5 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.27/8/13 OF CIT(A) - 21 MUMBAI THE ASSESSING OFFICER (AO) AND THE ASSESSEE HAVE FILED CROSS APPEALS. GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : - 1.THE COMMISSIONER OF INCOME TAX APPEALS - 21 ['C IT(A)'] HAS ERRED IN ALLOWING ONLY A PART AMOUNT OF RS. 1,93,88.991 OUT OF RS. 3,38,81,933/ - IN RESPECT OF THE EXPENDITURE PERTAINING TO WRITE OFF OF UNREALISABLE PORTION OF LICENSE FEE. THE CIT(A) - 21 HAS ALLOWED EXPENDITURE ON A TIME PERIOD AMORTISATION B ASIS EVEN THOUGH THE APPELLANT HAD FULLY AMORTISED THE EXPENDITURE BASED ON THE FACT THAT NO FURTHER REVENUE WAS ESTIMATED TO BE REALIZED ON ACCOUNT OF SUCH EXPENDITURE. THE APPELLANT PRAYS THAT ENTIRE EXPENDITURE OF RS. 3,38,81,933/ - BE ALLOWED IN AY 2010 - 11 ITSELF. 2.THE CIT(A) - 21 IS SILENT ON THE BALANCE EXPENDITURE OUT OF RS. 3,38,81,933/ - WHICH THEN OUGHT TO BE ALLOWED TO APPELLANT IN SUBSEQUENT YEARS. THE APPELLANT PRAYS THAT WITHOUT PREJUDICE TO GROUND 1, THE ALTERNATE RELIEF BE GIVEN TO ENABLE IT TO CLAIM THE BALANCE EXPENDITURE OUT OF RS. RS. 3,38,81,933/ - IN SUBSEQUENT YEARS. 3.EACH OF THE ABOVE GROUND IS INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHER. 4 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR TO DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL.AT OR PRIOR TO HEARING OF THE APPEAL AS MAY BE REQUIRED TO ENABLE 6430 & 6437/13(10 - 11)INDIA GAMES 2 THE HONORABLE APPELLATE AUTHORITY TO DECIDE THIS APPEAL IN ACCORDANCE WITH LAW. THE AO HAS FILED FOLLOWING GROUNDS OF APPEAL: - 1.1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN GRANTING AMORTIZATION OF PRE - PAID LICENSE FEES EXPENSES EVERY YEAR ON PRO - RATA BASIS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH ANY VERIFIABLE BASIS FOR SAME. 1.2 ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY EVIDENCE TO SHOW THAT ENTIRE PRE - PAID EXPENSES PERTAIN TO THE INSTANT YEAR. 1.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN GRANTING RELIEF TO ASSESSEE ON PRO - RATA BASIS FOR PERIOD OF LICENSE WITHOUT STATING AS TO HOW THE SAME IS SCIENTIFIC BASIS FOR CLAIM OF LICENSE FEE EXPENSES. 1.4 ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL EVIDENCE WITHOUT GRANTING AN OPPORTUNITY TO AO UNDER RULE 46A TO EXAMINE THE SAME. 1.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN GRANTING RELIEF OF RS.1,93,88,991/ - INSTEAD OF RS.1,73,52,579/ - PERTAINING TO INSTANT YEAR, AS SHOWN BY THE ASSESSEE AS PER WORKING IN TABLE ON PAGE OF IMPUGNED CIT(A) ORDER, RESULTING IN EXCESS ALLOWANCE OFRS.20,36,412/ - . 2.THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3.THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED.' ASSESSEE - COMPANY,ENGAGED IN BUSINESS OF DEVELOPING, DISTRIBUTING COMPUTER SOFTWARE GAMES, FILED ITS RETU RN OF INCOME ON 29/9/2010, DECLARING TOTAL LOSS OF RS.6.79 CRORES. THE AO FINALISED THE ASSESSMENT ON 23/1/13 DETERMINING ITS INCOME AT RS. ( - )3.40 CRORES. 2. DU RING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.3,38,81,933/ - TOWARDS PRE - PAID LICENSE FEES UNDER THE HEAD NOT DEBITED TO P&L ACCOUNT BUT ALLOWABLE U/S. 37 OF THE ACT . AS PER THE AO, THE ASSESSEE HAD NOT PROVIDED ANY DETAIL R EGARDING THE ABOVE EXPENDITURE.HE DIRECTED IT, VIDE HIS NOTICE ISSUED U/S. 142(1) OF THE ACT, TO F URNISH DETAILS IN THAT REGARD. THE ASSESSE E,VIDE ITS LETTER DT.30.10.12, STATED THAT IT HAD MADE ADVANCE PAYMENT TO VA RIOUS LICENSE RS FOR OBTAINING LICENSE FOR GAMING CONTENT , THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION IT HAD CHANGED SUCH PRE - PAID LICENSE OF RS.3.38 CRORES TO SECURITIES PREMIUM ACCOUNT, THAT THE ENTRY WAS NOT ROUTED THROUGH THE P&L ACCOUNT, THAT CHANGE WAS MADE AS PER THE APPROVAL OF THE HONBLE JURISDICTIONAL HIGH COURT ORDER DT. 17/2/2010, THAT LICENSE WAS CLAIMED AS DEDUCTION U/S. 37 OF THE ACT. A REFERENCE TO S CHEDULE - M OF THE NOTES TO THE FINANCIAL STATEMENTS WAS ALSO ENCLOSED. AFTER CONSIDE RING THE SUBMISSION OF THE ASSESSEE , THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED AND ADDED BACK TO ITS INCOME ,AS HE WAS OF THE OPINION THAT THE EXPENDITURE WAS OF CAPITAL NATURE. THE ASSESS EE IN ITS SUBMISSION DT. 22/1/12, STATED THAT THE LICENSE FEE PAID BY THE ASSESSEE WAS A REV ENUE EXPENDITURE, THAT SAME WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THAT THE LICENSE FEE WAS NOT DEBITED TO P&L ACCOUNT, THAT IT WAS SEPARATELY REDUCED FROM THE CO MPUTATION OF INCOME. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION SHOWED PRE - PAID LICENSE FEE AT RS. 3.96 CR., THAT THERE WERE NO EXPENSES FOR THE F INANCIAL Y EAR 2008 - 09, THAT UNDER THE ME RCANTILE SYS TEM OF ACCOUNTING EXPENSES WERE CHARGED TO P&L ACCOUNT ONLY IN THE YEAR TO WHICH THEY PERTAINED TO, THAT PRE - PAID EXPENSES WERE PAYMENTS MADE FOR EXPENSES IN ADVANCE FOR SUBSEQUENT YEARS, THAT THE EXPENSES WERE PAID IN 6430 & 6437/13(10 - 11)INDIA GAMES 3 ADVANCE FOR MORE THAN ONE YEAR, THAT THE ASSESSEE HAD NOT PROVIDED ANY DETAILS /ANY DOCUMENTARY EVIDENCES AS TO THE NUMBER OF F INANCIAL Y EAR S FOR WHICH THE PRE - PAID EXPENSES PERTAINED TO, THAT IN ABSENCE OF SUCH DETAILS IT WAS NOT POSSIBLE TO VERIFY THE UNEXPIRED PERIOD OF SAID L ICENSE S. HE FURTHER HELD THAT THE ACCOUNTING TREATMENT HAD TO BE IN CONSONANCE WITH THE FUNDAMENTAL PRINCIPLES OF ACCOUNTING WHICH REQUIRED THE MATCHING OF REV ENUE WITH COST FOR A GIVEN PERIOD, THAT IT WAS NOT A CASE OF THE ASSESSEE THAT CONCEPT OF MATCHI NG OF COST WITH REV ENUE WAS NOT APPLICABLE TO ITS CASE. THE ASSESSEE WAS CLAIMING EXPENDITURE OF RS. 3.38 CRORES FOR THE YEAR U NDER CONSIDERATION, THAT THE BURDEN WAS ON IT TO SHOW THAT EXPENDITURE CLAIMED BY IT ACTUALLY PERTAINED TO THE YEAR UNDER CONSIDER ATION AND THAT NO PORTION THEREOF WAS IN THE NATURE OF PRE - PAID EXPENSES AS ON 31.3. 20 10, THAT THE FAILURE OF THE ASSESSEE TO DISCHARGE ITS BURDEN COUPLED WITH THE ENTRIES MADE IN THE BOOKS OF ACCOUNT TO WRITE - OFF THE EXPENSES AGAINST THE SHARE PREMIUM ACC OUNT PROVED THAT THE TREATMENT GIVEN BY IT WAS NOT IN CONFORMITY WITH THE PROVISIONS OF SEC.4 AND 28 OF THE ACT. F INALLY HE HELD THAT THE ENTIRE EXPENSE OF RS. 3.38 CR ORES P ERTAINING TO SUBSEQUENT Y EA RS C OULD NOT BE FULLY CLAIMED FOR THE A SSESSMENT Y EAR 201 0 - 11. 4 .AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). AFTER CONSIDERING THE ASSESSEE S SUBMISSION AND VERIF YING THE VARIOUS LICENSE S OBTAINED BY THE ASSESSEE FOR DEVELOPING GAMES ,HE HELD THAT T HE ASSESSEE HAD AMORTIZED THE LICENSE FEE FOR THE PURCHASE OF CONTENT OF THE GAMES ON THE BASIS OF REVENUE REALIZED FROM THE GAMES ,THAT D URING TH E YEAR THE ASSESSEE ESTIMATED THAT FURTHER REVENUE C OULD NOT BE REALIZED FROM THE GAME, THAT THE ASSESSEE HA D BUILT TH E GAME FROM THE CONTENTS AND LICENSES PURCHASED FROM VARIOUS CONCERNS ,THT INCOME WA S ALSO ACCOUNTED EVERY YEAR ,THAT L ICENSES WERE AMORTIZED EVERY YEAR BASED ON THE REVENUE REALIZED ,THAT ASSESSEE S INCOME WA S MAINLY BASED ON THE GAMES BUILT UP ON TH E LICENSE, THAT THE LICENSE AMOUNT WILL HAVE TO BE TREATED AS REVENUE EXPENDITUR E. AFTER VERIFYING THE VARIOUS AMORTIZATION METHODS THE FAA HELD THAT IT WA S SCIENTIFIC THAT APPELLANT COULD BE ALLOWED AMORTIZATION OF TH E EXPENDITURE EVERY YEAR ON PROR ATA BASIS. HE DIRECTED THE AO TO ALLOW ASSESSEE 'S CLAIM OF AMORTIZATION TO THE EXTENT OF RS.1,93, 88,991/ - AS EXPENDITURE . 5. A T THE TIME OF HEARING BEFORE US,REPRESENTATIVES OF BOTH THE SIDES ARGUED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF T HE FAA AS HE HAD NOT ADJUDICATED THE ISSUE OF REMAINING AMORTISED AMOUNT AND HAD ADMITTED ADDITIONAL EVIDENCES IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES,1962(RULES). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND TH AT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.3.38 CRORES TOWARDS PRE - PAID LICENCE FEES UNDER THE HEAD NOT DEBITED TO P&L ACCOUNT BUT ALLOWABLE U/S. 37 OF THE ACT, THAT THE AO DISALLOWED THE CLAIM AS HE WAS OF THE OPINION THAT IT PERTAINED TO SUBSEQUE NT AY.S. AND THAT IT WAS NOT A REVENUE EXPENDITURE,THAT THE FAA PARTLY ALLOWED THE APPEAL AND HELD THAT OUT OF EXPENDITURE RS. 1.93 CRORES HAD TO BE ALLOWED FOR THE YEAR UNDER APPEAL , THAT HE HAD NOT GIVEN ANY DECISION ABOUT THE REMAINING AMORTISED SUM,TH AT THE AO HAS AGITATED THE ISSUE OF ADMISSIONS OF ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE RULES.IN OUR OPINION THE AO SHOULD ALWAYS BE GIVEN A FAIR CHANCE TO REBUT THE EVIDENCES PRODUCED FOR THE FIRST TIME BEFORE THE FAA AND SHOULD HAVE DECIDED THE ISSUE OF AMORTISATION COMPLETELY.THOUGH,HE TALKS OF VARIOUS METHODS OF AMORTISATION,YET HAS NOT DISCUSSED THE SAME AND THE REASON FOR FOLLOWING A PARTICULAR METHOD.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASES,WE ARE OF THE OPINION THA T THE IN THE INTEREST OF JUSTICE MATTER 6430 & 6437/13(10 - 11)INDIA GAMES 4 SHOULD BE RESTORED BACK TO THE FILE OF THE FAA TO DECIDE THE ISSUE AFRESH.HE WILL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. AS A RESULT,APPEALS FILED BY THE ASSESSEE AND T HE AO STAND PARTLY ALLOWED . . ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH MAY ,2015. 08 TH , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMB ER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 08 .05. 2015 J V , SR.PS / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.