ANIBRAIN DIGITAL TECHNOLGOIES P.LTD, MUMBAI V. DCIT CIR 4(1)(2), MUMBAI

ITA 6640/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8030 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 11-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S ABIRAMA KARTHIKEYAN LD
• Assessee Lawyers: J D MISTRY; M A GOHEL LD AR S
• Keywords: Gift
• Section: 143(3); 37(1)

Judgement Text

ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6640/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) ANIBRAIN DIGITAL TECHNOLOGIES PRIVATE LIMITED 401, GAZDAR HOUSE, 62, ROOM NO.405, J SHANKAR SHETH MARG MUMBAI-400 002. / VS. DY. COMMISSIONER OF INCOME TAX-CIRCLE 4(1)(2) AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. AAFCA-6342-K ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ASSESSEE BY : J.D. MISTRY & M.A. GOHEL- LD. AR.S REVENUE BY : S. ABI RAMA KARTHIKEYAN - LD.DR / DATE OF HEARING : 20/11/2018 / DATE OF PRONOUNCEMENT : 02/01/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-9, MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-9/CIR.4/101/2015-16 DATED 02/08/2016 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL : - ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 2 I.ADDITION ON ACCOUNT OF ALLEGED CLOSING WORK-IN-PR OGRESS RS. 1,93,41,623/-: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER FOR A SUM OF RS.1,93,41,6 23/- ON ACCOUNT OF ALLEGED 'CLOSING WORK-IN-PROGRESS'. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION MADE BY THE LEARNED ASSESSING OFFICER FOR ADVANCE R ECEIVED FROM CLIENTS/ CUSTOMERS RS. 37,12,744/-. THE APPELLANT PRAYS THAT THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER MAY KINDLY BE DELETED AND THE TOTAL INCOME OF THE APPEL LANT BE REDUCED ACCORDINGLY. II.DISALLOWANCE OF MARKETING AND SALES PROMOTION EX PENSES RS. 10,47,381/-: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER FOR A SUM OF RS. 10,4 7,381/- BEING 50% OF THE MARKETING AND SALES PROMOTION EXPENSES AS ALLEGEDLY NOT PERTAINING TO THE BUSINESS ACTIVITIES OF THE APPELLANT. THE APPELLANT PRAYS THAT THE DISALLOWANCE MADE BY T HE LEARNED ASSESSING OFFICER MAY KINDLY BE DELETED AND THE TOTAL INCOME OF THE A PPELLANT BE REDUCED ACCORDINGLY. III.DISALLOWANCE OF SALES COMMISSION RS. 24,76,798/ -: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER FOR A SUM OF RS. 2 4,76,798/- BEING SALES COMMISSION PAID BY THE APPELLANT OUTSIDE INDIA FOR PROMOTING BUSINESS OUTSIDE INDIA. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF SALES COMMISSION MADE BY THE LEARNED ASSESSING OFFICER MAY KINDLY BE DELETED AND THE TOT AL INCOME OF THE APPELLANT BE REDUCED ACCORDINGLY. IV.ROYALTY FEE RS. 2,10,000/-: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF EXPENDITURE ON ROYALTY FEE RS. 2,10,000/-. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF ROYALT Y FEE MADE BY THE LEARNED ASSESSING OFFICER MAY BE KINDLY DELETED AND THE TOT AL INCOME OF THE APPELLANT BE REDUCED ACCORDINGLY. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DE PUTY COMMISSIONER OF INCOME TAX-CIRCLE-4(1)(2), MUMBAI [ AO] IN SCRUTINY ASSESSMENT U/S 143(3) ON 12/03/2015 WHEREIN THE INC OME OF THE ASSESSEE WAS DETERMINED AT RS.286.08 LACS AFTER CER TAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.55.3 2 LAKHS E-FILED BY THE ASSESSEE ON 27/09/2012. THE ASSESSEE BEING RESIDENT CORPORATE ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 3 ENTITY STATED TO BE ENGAGED IN THE BUSINESS OF ANIMATIONS, VISUAL EFFECTS & COMPUTER SOFTWARE DEVELOPMENT. 2.1 AS EVIDENT FROM GROUNDS OF APPEAL, THE FOLLOWIN G ADDITIONS / DISALLOWANCES ARE THE SUBJECT MATTER OF PRESENT APP EAL BEFORE US: - NO. NATURE OF ADDITION AMOUNT (RS.) EXTENT OF DISAL LOWANCE 1. WORK IN PROGRESS [WIP] RS.1,93,41,623/- AD HOC 20% 2. MARKETING AND SALES PROMOTION EXPENSES RS.10,47,381/- AD HOC 50% 3. SALES COMMISSION RS.24,76,798/- FULL DISALLOWANC E 4. ROYALTY RS.2,10,000/- FULL DISALLOWANCE THE ADDITION ON ACCOUNT OF WIP HAS BEEN MADE SINCE THE ASSESSEE FAILED TO SUBMIT TIMESHEETS OF ITS EMPLOYEES DURING ASSESSMENT PROCEEDINGS WHICH RESULTED INTO ADHOC ADDITION OF 20% AGAINST TOTAL EXPENSES OF RS.781.44 LACS. THE DISALLOWANCE CAME T O RS.156.28 LACS. ANOTHER ADDITION OF RS.37.12 LACS HAS BEEN MADE UND ER THIS HEAD, BEING ADVANCES RECEIVED FROM THE CUSTOMERS. 2.2 THE ASSESSEE INCURRED EXPENDITURE OF RS.20.94 L AKHS ON ACCOUNT OF MARKETING AND SALES EXPENSES . IN THE ABSENCE OF SATISFACTORY DOCUMENTARY EVIDENCES, AN ADHOC DISALLOWANCE AGAINST THE SAME @50% HAS BEEN MADE AND ACCORDINGLY AN AMOUNT OF RS. 10.47 LACS HAS BEEN DISALLOWED UNDER THIS HEAD. THE THIRD ADDITION OF RS.24.76 LACS REPRESENT SALES COMMISSION PAID TO VARIOUS PARTIES IN THE ABSENCE OF SATISFACTORY EXPLANATION. THE DISALLOWANCE OF ROYAL TY OF RS.2.10 LACS HAS BEEN MADE SINCE THE ASSESSEE FAILED TO SHOW AS TO H OW THE USAGE OF BRAND BENEFITTED THE BUSINESS OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITHOU T ANY SUCCESS BEFORE LD. CIT(A) VID IMPUGNED ORDER DATED 02/08/20 16 WHEREIN STAND OF ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 4 LD. AO GOT CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4.1 WE HAVE CAREFULLY PERUSED THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLA CED IN THE PAPER- BOOK AND JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US. 4.2 UPON DUE CONSIDERATION, WE FIND THAT LOWER AUTH ORITIES FELL IN ERROR BY NOT CONSIDERING THE FACT THAT THE ASSESSEE WAS E NGAGED IN SERVICE INDUSTRY. THE MATERIAL ON RECORD SUGGEST THAT THE A SSESSEE WAS PROVIDING HIGH END VISUAL EFFECTS VFX & ANIMATION SERVICES AND THEREFORE, SALARY EXPENDITURE WAS A PERIOD COST FOR THE ASSESSEE AND THEREFORE, THERE COULD NOT NO OCCASION FOR THE ASSE SSEE TO WORK OUT THE WORK-IN-PROGRESS IN THE FINANCIAL STATEMENTS. THE A SSESSEE WAS CONSISTENTLY FOLLOWING COMPLETED SERVICE CONTRACT METHOD IN TERMS OF ACCOUNTING STANDARD-9 TO RECOGNIZE THE REVENUE IN THE BOOKS OF ACCOUNTS. NOTHING ON RECORD SUGGEST THAT THERE WAS ANY CHANGE IN THE CONSISTENT METHOD OF ACCOUNTING WHILE DRAWING UP TH E FINANCIAL STATEMENTS. THEREFORE, THE ADHOC ADDITION OF 20% AG AINST TOTAL EXPENSES, IN OUR OPINION, COULD NOT BE SUSTAINED AT ALL. REGARDING ADVANCES RECEIVED FROM CUSTOMERS, THERE COULD BE NO OCCASION TO BRING THEM TO TAX IN THE IMPUGNED AY WHEN THE SAME WERE M ERE ADVANCES AND THE SERVICES AGAINST THE SAME REMAINED TO BE RE NDERED BY THE ASSESSEE. THIS IS FURTHER FORTIFIED BY THE FACT THA T THAT THE AMOUNT OF ADVANCES, IN SUBSEQUENT YEARS, HAVE BEEN ADJUSTED I N INVOICES RAISED BY THE ASSESSEE IN THOSE YEARS AND THE REVENUE HAS BEEN RECOGNIZED IN ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 5 THOSE YEARS. THIS BEING THE CASE, THE ADDITION OF R S.193.41 LACS STAND DELETED. 4.3 SO FAR AS THE ADHOC DISALLOWANCE OF MARKETING A ND SALES PROMOTION EXPENSES IS CONCERNED, WE FIND THAT THE WHOLE BASIS OF THE DISALLOWANCE IS THAT FACT THAT SOME PAYMENTS HAVE BEEN MADE BY T HE ASSESSEE THROUGH CREDIT CARDS IN THE HOTELS AND AN AMOUNT OF RS.0.41 LACS HAS BEEN SPENT ON THE GIFTS. HOWEVER, WE FIND THAT MOST OF THE PAYMENTS HAVE BEEN MADE THROUGH CHEQUES AFTER DEDUCTION OF T DS. THE PAYMENTS BY WAY OF CASH VOUCHERS AND CREDIT CARD AM OUNTS TO RS.4,21,577/- ONLY, THE DETAILS OF WHICH HAS ALREAD Y BEEN GIVEN ON PAGE- 11 OF THE IMPUGNED ORDER. THIS BEING THE CASE, THE DI SALLOWANCE OF 50% IS ON A VERY HIGHER SIDE. WE RESTRICT THE SAME TO 2 0% OF RS.4,21,577/- WHICH COMES TO RS.84,315/-. THE BALANCE DISALLOWANC E STANDS DELETED. 4.4 THE SALES COMMISSION EXPENSES OF RS.8,75,956/- & RS.14,11,757/- ARE STATED TO BE PAID TO ALAN DINOBLE , A US CITIZEN & ADLD LLC RESPECTIVELY FOR PROVIDING SALES AND MARKETING SERV ICES TO ASSESSEE OUTSIDE INDIA. IT HAS BEEN SUBMITTED THAT INITIALLY THE PAYMENT WAS MADE TO MR. ALAN DINOBLE WHO SUBSEQUENTLY FLOATED A COMPANY NAMELY ADLD LLC AND BOTH THESE PAYMENTS REPRESENT MINIMUM PAYMENT PURSUANT TO CONSULTANCY AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THEM. IT WAS FURTHER SUBMITTED THAT CONSULTANCY AGREEMENT WAS AI MED AT WIDENING THE SALES BASE OF THE ASSESSEE THOUGH OVERSEAS NEW CLIE NTS AND ORDERS. IN TERMS OF THE AGREEMENT, THE CONSULTANT WAS TO BE PA ID @5% OF WORK GENERATED BY THEM SUBJECT TO A MINIMUM PAYMENT OF U SD 10000 PER MONTH IRRESPECTIVE OF SALES ORDERS PROCURED. THE DO CUMENTS ON RECORD ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 6 DEMONSTRATE THAT IT IS UNDISPUTED FACT THAT THE PAY MENTS HAVE BEEN MADE BY THE ASSESSEE PURSUANT TO CONSULTANCY AGREEMENT E NTERED INTO BY THE ASSESSEE WITH THESE TWO ENTITIES. THE INVOICES ISSU ED BY BOTH THE ENTITIES ARE PLACED ON RECORD WHICH SUGGEST THAT THE PAYMENT HAS BEEN MADE FOR THE PERIOD FROM AUGUST, 2011 TO DECEMBER, 2011. THE REMITTANCES ARE DULY SUPPORTED BY FORM 15CA / CB. THEREFORE, THE EX PENDITURE, IN OUR OPINION, FULFILLED THE CONDITIONS ENVISAGED BY SECT ION 37(1) AND THEREFORE, WAS AN ALLOWABLE EXPENDITURE. THE BALANCE PAYMENT O F RS.1.89 LACS REPRESENT PAYMENT TO 24 PARTIES AS COMMISSION FOR REFERRALS . MOST OF THESE PAYMENTS ARE PETTY PAYMENTS AND MADE THROUGH CHEQUES. THE COMPLETE DETAILS OF THE SAME HAVE BEEN PLACED ON RE CORD. THIS BEING THE CASE, THE ADDITION ON THIS ACCOUNT COULD ALSO NOT B E SUSTAINED. WE ORDER SO. 4.5 THE LAST ADDITION OF RS.2.10 LACS REPRESENT ROY ALTY PAYMENT TO ONE OF ASSESSEES DIRECTOR KRISHNAMURTHY FOR USAGE OF TRADEMARK AND LOGO ANIBRAIN. THE PAYMENT HAS BEEN MADE PURSUANT TO MEMORANDUM OF UNDERSTANDING DATED 22/03/2008 TOWARDS USE OF CERTAIN TRADEMARKS OWNED BY THE DIRECTOR. THE COPIES OF THE TRADEMARKS CERTIFICATES HAVE BEEN PLACED ON RECORD. WE FIND THAT THIS PAYMENT IS RECURRING IN NATURE AND PAID PURSUANT TO CONTRACTUAL UNDERSTANDING. NOT HING MORE WAS REQUIRED FROM ASSESSEE, IN THIS REGARD, TO ASCERTAI N THE ADMISSIBILITY THEREOF U/S 37(1). THEREFORE, THE SAME WAS ALLOWABL E TO THE ASSESSEE. 5. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ITA NO.6640/MUM/2016 ANIBRAIN DIGITAL TECHNOLOGIES P. LTD ASSESSMENT YEAR :2012-13 7 ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND JANUARY, 2019. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 02/01/2019 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ,-#&. , . , / DR, ITAT, MUMBAI 6. -/01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.