The DCIT, Circle-2(1)(1), Ahmedabad V. M/s. Fuse + Media Pvt. Ltd., Ahmedabad

ITA 696/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6173 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO. 696/AHD/2016 (ASSESSM ENT YEAR: 2012-13) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 2(1)(2), 1 ST FLOOR, NAVJIVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD APPELLANT VS. M/S. FUSE + MEDIA PVT. LTD., SHIL MAYUR COLONY, NR. TEXTILE BANK, MITHAKHALI, AHMEDABAD 380009 RESPON DENT PAN: AAACF3161A /BY REVENUE : SHRI MUDIT NAGPAL, SR. D.R. /BY ASSESSEE : SHRI DHINAL SHAH, A.R. /DATE OF HEARING : 01.02.2018 /DATE OF PRONOUNCEMENT : 08.02.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2012-13 A RISES AGAINST THE CIT(A) - 7, AHMEDABADS ORDER DATED 21.12.2015, IN CASE NO. CIT(A)-7/292/15-16, REVERSING ASSESSING OFFICERS ACTION DISALLOWING AM OUNTS OF RS.1,05,12,068/- MADE ON ACCOUNT OF OTHER EXPENSES DEBITED TO P&L ACCOUNT AND RS.8,24,650/- REGARDING INTEREST EXPENSES U/S.14A, IN PROCEEDINGS U/S. 143( 3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. ITA NO. 696/AHD/16 [DCIT VS. M/S. FUSE + MEDIA PVT . LTD.] A.Y. 2012-13 - 2 - 2. WE ADVERT TO THE FORMER ISSUE OF DISALLOWANCE OF OTHER EXPENSES AMOUNTING TO RS.1,05,12,068/-. THE ASSESSING OFFICER MADE TH E IMPUGNED DISALLOWANCE BY CONSIDERING ONLY 13% OF ASSESSEES GROSS EXPENSES T O BE REVENUE EXPENDITURE THEREBY TREATING THE REST AS STOCK AND INTANGIBLE A SSET. THE CIT(A) FOLLOWS HIS ORDER QUA THE VERY ISSUE DECIDED IN ASSESSEES FAVOUR IN PRECEDING ASSESSMENT YEAR LEAVING THE REVENUE AGGRIEVED. WE NOTICE AT THE OU TSET THAT THE REVENUE HAD FILED ITA NO. 3156/AHD/2014 IN THE SAID PRECEDING ASSESSM ENT YEAR RAISING THE VERY ISSUE. THE CO-ORDINATE BENCH IN ORDER DATED 19.06. 2017 HAS DECLINED ITS SAID GRIEVANCE AS FOLLOWS: 2. GRIEVANCES OF THE APPELLANT IS THAT THE LEARNE D CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF EXPENSES TO T HE TUNE OF RS.95,35,613/- MADE BY THE ASSESSING OFFICER. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS A SUBSIDIARY OF FUSE + MEDIA CAYMAN LIMITED, AND IS ENGAGED IN THE BUSINESS OF MOVIE PRODUCTION, DISTRIBUTION AND ENTERTAINMENT SECTOR. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED , INTER ALIA, THAT THE EXPENSES INCURRED BY THE ASSESSEE HAVE BEEN ALLOCATED TO COMMON ADMIN ISTRATION EXPENSES, IPTV PROJECT RELATED EXPENSES, FM WEB PROJECT RELATED EXPENSES A ND DISALLOWABLE EXPENSES AS FOLLOWS :- SN PARTICULARS AMOUNT 1 COMMON ADMINISTRATION EXPENSES 2,68,14,357/- 2 EXPENSES- PROJECT IPTV 58,55,944/- 3 EXPENSES FM WEB PROJECT 85,24,412/- 4 DISALLOWANCE OF EXPENSES 1,27,53,617/- TOTAL 5,39,91,330/- 4. IT WAS THUS SEEN THAT THE ASSESSEE HIMSELF HAS O FFERED DISALLOWANCE OF EXPENSES TO THE TUNE OF RS.1,27,53,617/-. THE ASSESSING OFFICE R FURTHER NOTED THAT THE ALLOCATION OF EXPENSES UNDER THESE TOUR HEADS (I.E. COMMON ADMINI STRATIVE EXPENSES, IPTV PROJECT EXPENSES, FM WEB PROJECT EXPENSES & DISALLOWABLE EX PENSES) WAS DONE ON THE FOLLOWING BASIS :- SN NATURE OF EXPENSES DEBITED TO P&L ACCOUNT IPTV PROJECT FM WEB PROJECT DISALLOWANCE 1 OTHER ADMINISTRATION EXPENSES 13% 16% 30% 41% 2 H.R. EXPENSES 50% 24% 11% 15% 3 COMMUNICATION EXPENSES 100% 0% 0% 0% 4 FINANCE EXPENSES 100% 0% 0% 0% 5 RENT EXPENSES 100% 0% 0% 0% ITA NO. 696/AHD/16 [DCIT VS. M/S. FUSE + MEDIA PVT . LTD.] A.Y. 2012-13 - 3 - 6 ELECTRICITY 100% 0% 0% 0% 7 DEPRECIATION 0% 0% 40% 60% 8 PRELIMINARY EXPENSES 100% 0% 0% 0% 5. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT ABOVE ALLOCATION WAS NOT PROPER INASMUCH AS FINANCE EXPENSES, RENT EXPENSES, ELECTRICITY EXPENSES AND PRELIMINARY EXPANSES SHOULD ALSO BE DIVIDED IN THE SAME RATIO I N WHICH COMMON ADMINISTRATIVE EXPENSES ARE ALLOCATED. ON THIS BASIS, HE COMPUTED RS.95,35,613/- AS ADDITIONAL DISALLOWABLE EXPENSES. AGGRIEVED BY THE STAND SO T AKEN, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) WHO DELETED THE DI SALLOWANCE BY OBSERVING AS FOLLOWS :- ON CAREFUL CONSIDERATION OF ENTIRE FACTS OF THE CA SE, IT IS NOTED THAT THE ASSESSING OFFICER HAS TAKEN FOLLOWING HEADS OF EXPENSES FOR M AKING THE DISALLOWANCE :- SN PARTICULARS AMOUNT 1 COMMON ADMINISTRATION EXPENSES 2,68,14,357/- 2 EXPENSES- PROJECT IPTV 58,55,944/- 3 EXPENSES FM WEB PROJECT 85,24,412/- 4 DISALLOWANCE OF EXPENSES 1,27,53,617/- TOTAL 5,39,91,330/- THE APPELLANT HAS EXPLAINED THAT COMMON ADMINISTRAT ION EXPENSES OF RS.26814357/- ALSO INCLUDES A WEB DEVELOPMENT EXPENSES OF RS.22611956/ - WHICH HAVE NOT BEEN CLAIMED AS DEDUCTIBLE EXPENSES BY APPELLANT IN THE COMPUTATION OF INCOME. AFTER EXCLUDING THESE EXPENSES THE ADMINISTRATIVE EXPENSES WOULD REMAIN A T RS.4202392/-. IF THE DEVELOPMENT EXPENSES ARE EXCLUDED F4OM THE ADMINISTRATION EXPEN SES THE CORRECT ALLOCATION WOULD BE AS UNDER :- SN NATURE OF EXPENSES DR. TO P/L A/C IPTV FM WEB PROJECT(ANI MATION EPISODES) DISALLOWED IN THE COMPUTATION OF INCOME 1 ADMINISTRATION EXPENSES 100% 0% 0% 0% 2 COMMUNICATION EXPENSES 100% 0% 0% 0% 3 FINANCE EXPENSES 100% 0% 0% 0% 4 RENT EXPENSES 100% 0% 0% 0% 5 ELECTRICITY 100% 0% 0% 0% 6 DEPRECIATION 0% 0% 40% 60% 7 PRELIMINARY EXPENSES 100% 0% 0% 0% 8 WEB DEVELOPMENT EXPENSES 0% 20% 32% 48% 9 HR EXPENSES 50% 24% 11% 15% IT IS SEEN FROM THE ABOVE TABLE THAT THE APPELLANT HAS ONLY CLAIMED 50% OF THE HR EXPENSES DURING THE CURRENT YEAR AND THE BALANCE EX PENSES HAVE BEEN CAPITALISED TO RESPECTIVE PROJECTS AND 15% OF THEM HAVE BEEN DISAL LOWED. IN RESPECT OF THE HR EXPENSES THE APPELLANT HAS IDE NTIFIED EMPLOYEES WERE WORKING FOR IPTV AND WEB DEVELOPMENT. THE SALARY EXPENSES O F SUCH EMPLOYEES HAVE BEEN ITA NO. 696/AHD/16 [DCIT VS. M/S. FUSE + MEDIA PVT . LTD.] A.Y. 2012-13 - 4 - CONSIDERED AS PART OF THE CLOSING STOCK. FURTHER TH E SALARY EXPENDITURE OF THE DIRECTOR HAS BEEN CONSIDERED AS PART OF THE ROUTINE ADMINISTRATI VE EXPENSES AND HENCE HAS BEEN CONSIDERED AS ALLOWABLE ADMINISTRATIVE EXPENSE. FOR REMAINING EMPLOYEES LIKE OFFICE BOY, ACCOUNTANT ETC., WERE WORKING FOR COMMON FUNCTIONS OF THE COMPANY, THE APPELLANT HAS ALLOCATED THE EXPENSES BETWEEN ADMINISTRATION EXPEN SES IN IPTV AND WEB DEVELOPMENT ON THE BASIS OF REASONABLE ESTIMATES OF TIME SPENT BY THESE EMPLOYEES. FURTHER THE APPELLANT HAS ALSO IDENTIFIED REASONABLE EXPENSES WHICH ARE N OT DIRECTLY RELATED TO THE BUSINESS AND HAS SUO-MOTU DISALLOWED THE SAME IN COMPUTATION OF INCOME. REGARDING WEB DEVELOPMENT EXPENDITURE OF RS.1269119 65/- THE APPELLANT HAS IDENTIFIED CERTAIN PORTION OF THE WORK WHICH RELATE S TO IPTV AND DEVELOPMENT OF STOCK OF THE COMPANY ON THE BASIS OF A REASONABLE ESTIMATE A ND ACCORDINGLY THE SAME HAS BEEN CONSIDERED AS THE PART OF THE CLOSING STOCK OF THE COMPANY. THE REMAINING AMOUNT HAS BEEN SUO-MOTU DISALLOWED BY THE APPELLANT IN THE COMPUTA TION OF INCOME. IT IS ALSO NOTED THAT SIMILAR METHODOLOGY HAS BEEN ADOPTED BY THE APPELLA NT IN SUBSEQUENT YEARS IN A CONSISTENT MANNER. AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES A ND THE WORKING GIVEN BY THE APPELLANT THE CLAIM OF THE APPELLANT APPEARS TO BE CORRECT. IT HAS ITSELF MADE A DISALLOWANCE OF RS.12753617/-. THE BOOKS OF ACCOUN TS OF THE APPELLANT COMPANY ARE DULY AUDITED AND IT IS FOLLOWING CONSISTENT POLICY IN RE SPECT OF THE EXPENSES. THE AUDITORS ALSO HAVE NOT GIVEN ANY REMARK REGARDING IN APPROPRIATE OR INCORRECT ALLOCATION OF EXPENSES. IN VIEW OF NO SPECIFIC DEFECT, SUCH REWORKING OF AL LOCATION CANNOT BE DONE BY THE ASSESSING OFFICER. FURTHER, AS NOTED ABOVE THE WORKING GIVE N BY THE-APPELLANT APPEARS TO BE CORRECT AND IT HAS ALREADY DISALLOWED WHAT WAS REQUIRED TO BE DISALLOWED ON ITS OWN. THE DISALLOWANCE MADE BY THE A.O. IS ACCORDINGLY DI RECTED TO BE DELETED. 6. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE LEARNED CIT(A) AND IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 8. WE FIND THAT SO FAR AS THE EXPENSES DISALLOWED B Y THE ASSESSEE ON ITS OWN ARE CONCERNED, THESE DISALLOWANCES HAVE BEEN MADE ON TH E BASIS OF ASSESSEES STAND THAT SUCH EXPENSES WERE NOT INCURRED FOR THE PURPOSES OF BUSI NESS OF THE ASSESSEE COMPANY. THERE WAS NOTHING BEFORE THE ASSESSING OFFICER TO SHOW TH AT SUCH COMPUTATION OF DISALLOWABLE EXPENSES WAS INCORRECT OR THAT MORE DISALLOWANCE WA S WARRANTED. THERE IS NO REASON TO APPLY THE SAME PERCENTAGE, TO OTHER EXPENSES, FOR C OMPUTING DISALLOWABLE EXPENSES. THE APPROACH ADOPTED BY THE ASSESSING OFFICER WAS WHOLL Y FALLACIOUS. AS REGARDS ALLOCATION OF EXPENSES TO IPTV PROJECT AND FM WEB PROJECT, THE DI RECT EXPENSES ON THESE PROJECTS HAVE BEEN ALLOCATED TO THESE PROJECTS AND CAPITALIZED AC CORDINGLY. THE ALLOCATION OF OTHER EXPENSES, WHICH ARE NOT DIRECTLY RELATABLE TO THESE PROJECTS, WAS NEITHER WARRANTED NOR NECESSARY. IT IS ONLY ELEMENTARY THAT WHAT CAN BE CAPITALISED AND THUS TAKEN TO CLOSING STOCK IS ONLY RELATED PORTION OF DIRECT EXPENSES ON THE PROJECTS. THERE WAS INDEED NO REASON TO DISTURB THE ALLOCATION OF EXPENSES MADE B Y THE ASSESSEE. IN VIEW OF THESE DISCUSSIONS, AND FOR THE DETAILED REASONS SET OUT B Y THE LEARNED CIT(A) WITH WHICH WE ARE IN CONSIDERED AGREEMENT, THE IMPUGNED RELIEF GR ANTED BY THE LEARNED CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. WE APPROVE THE CONCLUSI ONS ARRIVED AT BY, AND REASONING ADOPTED BY, THE LEARNED CIT(A) AND DECLINE TO INTER FERE IN THE MATTER. ITA NO. 696/AHD/16 [DCIT VS. M/S. FUSE + MEDIA PVT . LTD.] A.Y. 2012-13 - 5 - LEARNED DEPARTMENTAL REPRESENTATIVE IS FAIR ENOUGH IN NOT DRAWING ANY DISTINCTION ON FACTS AND LAW INVOLVED IN THE TWO AS SESSMENT YEARS BEFORE US. WE THEREFORE ADOPT JUDICIAL CONSISTENCY TO AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE DELETING THE IMPUGNED DISALLOWANCE. THE REVENUES FORMER SUBSTANTIVE GROUND IS ACCORDINGLY DECIDED IN ASSESSEES FAVOUR. 3. WE ADVERT TO THE LATTER ISSUE OF SECTION 14A DIS ALLOWANCE OF RS.8,24,650/-. SUFFICE TO SAY, THE ASSESSEE HAS NOT DERIVED ANY EX EMPT INCOME IN THE IMPUGNED ASSESSMENT YEAR. THAT BEING THE CASE, WE NOTICE TH AT HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN CIT VS. CORRTECH ENERGY (P.) LT D. (2014) 372 ITR 97 (GUJ.) HAS HELD THAT THE IMPUGNED DISALLOWANCE PROVISION DOES NOT APPLY IN ABSENCE OF ANY EXEMPT INCOME. THE REVENUES LATTER SUBSTANTIVE GR OUND IS ALSO FAILS ACCORDINGLY. 4. THIS REVENUES APPEAL IS THEREFORE DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 08 TH DAY OF FEBRUARY, 2018.] SD/- SD/- ( AMARJIT SINGH ) ( S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 08/02/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . / .