ITO, New Delhi V. M/s. Kedia Infotech Ltd., New Delhi

ITA 6527/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97083 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRASANT KHANDELWAL
• Keywords: Rule of consistency; Revenue expenditure

Judgement Text

ITA NO. 6527/DEL/2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SHRI C.M. GARG, JUDICIAL MEMBER I.T.A .NO.-6527/DE L/2013 (ASSESSMENT YEAR-2004- 05) ITO, CO. WARD 5(2), NEW DELHI. VS KEDIA INFOTECH LTD., 312, G.K. HOUSE, 187-A, SANT NAGAR, EAST OF KAILASH, NEW DELHI. AABCG2072L APPELLANT BY SH. ATIQ AHMAD, SR. DR RESPONDENT BY SH. PRASANT KHANDELWAL, CA ORDER PER C.M. GARG, J.M. THIS APPEAL BY THE REVENUE HAS BEEN PREFERRED AGAIN ST THE ORDER OF THE CIT(A)-VIII, NEW DELHI DATED 24.05.201 3 IN APPEAL NO. 539/2011-12 FOR A.Y. 2004-05. 2. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS. 28,06,409/- MADE BY THE AO ON DATE OF HEARING 20.08.2015 DATE OF PRONOUNCEMENT 2 8 . 8 . 2 0 1 5 ITA NO. 6527/DEL/2013 2 ACCOUNT OF DISALLOWANCE OF LICENSING/REGISTRATION F EE & ISO REGISTRATION FEES BEING OF CAPITAL IN NATURE? 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND I S NOT TENABLE ON FACTS AND IN LAW. 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD, INT ER-ALIA, ASSESSMENT ORDER, ORDER OF THE CIT(A) AND RATIO OF THE JUDGMENTS/ORDERS RELIED BY BOTH THE SIDES. THE LD. DR SUBMITTED THAT THE AO WAS CORRECT IN HOLDING THAT THE EXPENDI TURE INCURRED ON ACCOUNT OF LICENSING/REGISTRATION FEE AND ISO REGIS TRATION FEES IS IN THE NATURE OF AN EXPENDITURE WHICH IS OF ENDURING B ENEFIT TO THE ASSESSEE. THE LD. DR VEHEMENTLY SUBMITTED THAT CIT (A) GRANTED RELIEF WITHOUT ANY BASIS. HENCE, IMPUGNED ORDER MA Y KINDLY BE SET ASIDE BY RESTORING THAT OF THE AO. 4. THE LD. ASSESSEES REPRESENTATIVE (AR) REPLIED T HAT THE AO WRONGLY HELD THAT THE EXPENSES BROUGHT BENEFIT ENDU RING IN NATURE AND WAS NOT JUSTIFIED IN TREATING THE SAME AS CAPIT AL IN NATURE. THE AR FURTHER SUBMITTED THAT THE CIT(A) RIGHTLY HELD T HAT THESE EXPENSES WERE RECURRING IN NATURE WHICH WERE CONTIN UOUSLY ITA NO. 6527/DEL/2013 3 INCURRED DURING PRECEDING AND SUBSEQUENT YEARS, HEN CE, THE SAME ARE ALLOWABLE AS PER RULE OF CONSISTENCY. 5. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS OF BOTH THE SIDES, WE NOTE THAT THE ASSESSEE SUBMITTED WRIT TEN CONTENTIONS BEFORE CIT(A) CHALLENGING THE CONCLUSION OF THE AO WHICH READS AS FOLLOWS: WRITTEN SUBMISSION 1. THAT TAX AUDIT REPORT OF THE COMPANY IS ENCLOSED HEREWITH. IN CONTINUANCE TO OUR EARLIER REPLY WE SUBMIT AS UN DER: 2. THAT DEVELOPMENT CENTRES ARE BACKBONE OF KEDIA INFOTECH LIMITED FOR SERVICING AND PROMOTING E-TRAN DIGICASH HOLDERS MEMBERS. THESE CENTRE PROVIDE INDEPENDENT TRAINING AND BACKUP AND DELIVERING SPEC IFIC SERVICES TO MEMBERS ALL OVER THE COUNTRY FOR WHICH THEY GET DEVELOPMENT LICENSE FEES. HIS ROLE IS TO COLLE CT 2300/-PER APPLICATION FORM CUSTOMER FOR WHICH HE GE T 3% FROM AMOUNT COLLECTED IN HIS TERRITORY AS DEVELOPME NT LICENSE FEE. THE DETAILS CALCULATION IS ENCLOSED A S PER ANNEXURE. 3. THAT TABULAR FORMAT OF EXPENSES INCURRED YEAR WISE IS AS UNDER: NAME 31.03.2003 31.03.2004 31.03.2005 31.03.2006 ISO 9001 REGISTRATION 10000 85000 21980 9367 LICENSE & REGISTRATION FEE 561347 2721409 760179 65100 THAT THE LICENSE AND REGISTRATION IS INCURRED EVERY YEAR AND OUR CASE WAS ALSO SCRUTINIZED DURING ASSESSMENT YEAR 2006-07 ALSO AND NO ADDITION WAS MADE DURING T HE YEAR. COPY OF ASSESSMENT ORDER AND BALANCE SHEET I S ENCLOSED FOR YOUR VERIFICATION. ITA NO. 6527/DEL/2013 4 THAT IN OUR CASE WE HAVE INCURRED EXPENDITURE NOT F OR ACQUIRING ANY RIGHT TO OPERATE SERVICES ETC. BUT AR E THE EXPENSES PAID TO DEVELOPMENT CENTERS PROVIDING LOCALIZED GLOBAL E-COMMERCE SERVICES TO CARD HOLDER AND NO NEW ASSETS HAVE BEEN CREATED OF AN ENDURING NATURE BUT EXPENSES HAVE BEEN INCURRED FOR MAINTAIN ING THE BUSINESS OF THE COMPANY. THE NAME WHICH THE PARTIES MAY GIVE TO THE TRANSACTION AND THE CHARACTERIZATION OF THE EXPENSE BY THEM ARE OF LITT LE CONSEQUENCE. THE ASSESSEE HAS NOT ACQUIRED ANY OWNERSHIP RIGHT ALSO. UNDER THE CIRCUMSTANCES EXPENDITURE INCURRED BY THE ASSESSEE COULD NOT BE S AID TO BE OF CAPITAL IN NATURE. WHEREAS WITH REGARD TO ISO 9001 REGISTRATION FEE THESE ARE NOT ONE TIME BUT AR E TO BE PAID ON REGULARLY BASIS WHICH CAN BE VERIFIED FROM THE PROCEEDING AS WELL AS SUCCEEDING YEARS ALSO AS UNDE R: 31.03.2003 31.03.2004 31.03.2005 31.03.2006 10000/- 85000/- 21980/- 9367/- 6. FROM OPERATING AND CONCLUDING PART OF THE IMPUGN ED ORDER OF THE FIRST APPELLATE AUTHORITY WE NOTE THAT THE RELI EF WAS GRANTED WITH FOLLOWING CONCLUSION: MY FINDINGS: I HAVE PERUSED THE WRITTEN SUBMISSION, GROUNDS OF A PPEAL AND FACTS OF THE CASE, I DISCUSSED THE MATTER WITH THE AR VERY CAREFULLY. THE AO CANNOT UNDERSTAND THE BUSIN ESS ACTIVITY OF THE APPELLANT PROPERLY. THE APPELLANT WAS MAKING CARDS , LIKE CREDIT CARDS FOR ITS CUSTOMERS AT DIFFERENT PLACES IN MAJOR CITIES OF INDIA BY PUTTING PLANT AN D MACHINERY AND GETTING DATA FROM THE CUSTOMERS INTO THIS CARD, SO THAT CUSTOMERS WILL COME FOR PURCHASE AGAI N AND AGAIN, THEY WILL BE GIVEN CERTAIN DISCOUNTS ON SALE S TO HAVE A BETTER BUSINESS RELATIONSHIP. THE EXAMPLE OF SUC H CARDS GIVEN BY GUARDIAN PHARMACY ETC. SO THIS APPELLANT COMPANY WAS DOING THIS BUSINESS OF GIVING CARD TO CUSTOMERS OF DIFFERENT BUSINESS ENTITIES. THEREFOR E, ITS ITA NO. 6527/DEL/2013 5 EXPENDITURE OF RS. 28,06,409/- IS NOTHING BUT EXPEN DITURE OF PLANT REGISTRATION AND LICENSING AND REGISTRATION F EE FOR DIFFERENT PLACES ALL OVER INDIA. THESE EXPENDITURE S ARE ALLOWED TO THE APPELLANT COMPANY IN OTHER YEARS EXC EPT THIS YEAR. HENCE, CONSIDERING THE RULE OF CONSISTENCY A ND TREATING THIS AS REVENUE EXPENDITURE FOR IMPROVING BUSINESS OF THE COMPANIES THEMSELVES, IT IS NOTHING BUT REVE NUE EXPENDITURE. THE AO SHOULD ENQUIRE THESE FACTS AT THE ASSESSMENT STAGE AND TRY TO UNDERSTAND WHAT THE BUS INESS IS GOING TODAY WITH SUCH PLANT AND MACHINERY, SUCH MANPOWER DEPLOYMENT AND RESOURCES SO THAT UNNECESSA RY INFRUCTUOUS ADDITION CAN BE AVOIDED. HE SHOULD DIS CUSS THE MATTER WITH HIS COLLEAGUES AND SUPERVISOR OFFICERS IN CASE HE HAS ANY DOUBT. HENCE THE ADDITION OF RS. 28,06, 409/- IS DELETED . 7. IN THE LIGHT OF ABOVE, WE CLEARLY NOTE THAT THE CIT(A) GRANTED RELIEF BY HOLDING THAT THE AO COULD NOT UNDERSTAND THE BUSINESS ACTIVITY OF THE ASSESSEE PROPERLY. HE FURTHER OBSE RVED THAT THE ASSESSEE COMPANY WAS DOING BUSINESS OF GIVING CARD TO CUSTOMERS OF DIFFERENT BUSINESS ENTITIES AND IMPUGNED EXPENDI TURE INCURRED TOWARDS PLANT REGISTRATION AND LICENSING AND REGIST RATION FEE FOR DIFFERENT PLACES ALL OVER INDIA. HE ALSO OBSERVED THAT THESE EXPENSES WERE ALLOWED TO THE ASSESSEE IN OTHER PRECEDING AND SUCCEEDING ASSESSMENT YEARS EXCEPT A.Y. 2004-05 WHICH IS THE P ERIOD UNDER CONSIDERATION. IT IS NOT THE CASE OF THE AO THAT T HESE EXPENSES INCURRED BY THE ASSESSEE BROUGHT ANY ASSET OR BENEF IT OF ENDURING NATURE FOR THE ASSESSEE AND THESE ARE ONE TIME EXPE NDITURE, CAPITAL ITA NO. 6527/DEL/2013 6 IN NATURE, HENCE, THE VIEW TAKEN BY THE CIT(A) IS C ORRECT AND SUSTAINABLE AND WE APPROVE THE SAME. ACCORDINGLY, WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE IMPUG NED ORDER AND THUS, BOTH GROUNDS OF THE REVENUE BEING DEVOID OF M ERITS ARE DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.8.2 015. SD/- SD/- (N.K. SAINI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH AUGUST, 2015 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI