2012 (12) TMI 820 - AT - Income Tax

Internet/web site expenses - Capital v/s Revenue - disallowance - Held that - As decided in assessee s own case for A.Y. 2001-02 relying on decision in the case of CIT vs. Indian Visit.Com (P) Ltd. 2008 (9) TMI 8 - DELHI HIGH COURT wherein held that expenditure on development of website is not a capital expenditure and that purpose behind the same is not to create an asset but only to provide a means for disseminating information about the assessee among its clients - also of a view in the present case that such websites developed by the assessee has a very short life and immediately after release of the picture or music album and after laps of a few month these websites are hardly visited by anybody. Thus, it cannot be said that the assessee derives an enduring benefit - thus internet/website expenses incurred by the assessee are revenue in nature - in favour of assessee. Provision for stock obsolescence written back - Disallowance - Held that - The facts are not in dispute that the claim of the assessee was denied by the A.O. without considering the same and without passing any speaking order on the issue. And that before the CIT(A) the assessee has filed detail submission along with supporting statements, however, the CIT(A) while observing that no relevant information is available on record in support of the claim, rejected the claim of the assessee. In the absence of any material to show that the assessee has filed any such supporting material before the A.O. or such material was examined by the A.O. during the course of assessment proceeding or the CIT(A) has called for the remand report from the A.O. on the impugned issue, in the interest of justice the matter should go back to the file of the A.O. to decide the same afresh providing a reasonable opportunity of being heard to the assessee. Computer software expenses - Capital v/s Revenue - Held that - As decided in CIT vs. Asahi India Safety Glass Ltd. 2011 (11) TMI 2 - DELHI HIGH COURT the software expenditure incurred by the assessee are revenue in nature and hence the same are allowable as business expenditure and the CIT(A) was not justified in sustaining the disallowance made by the A.O. Foreign exchange loss - Capital v/s Revenue - alternative plea to allow depreciation - Held that - In the absence of any details, the Tribunal in assesee s own case for the A.Y. 2002-03 has set aside the issue to the file of the A.O. As further find that the issue has not been examined in the light of the amended provisions of section 43-A, in the interest of justice, and keeping in view the consistency the matter should go back to the file of the A.O to decide the same afresh in the light of the observations hereinabove and in accordance with law. Disallowance of advance written off - Held that - No dispute that the assessee has not produced any documentary evidence in support of the claim. The Revenue authorities without examining the books of account has rejected the claim of the assessee thus it is fair and reasonable that the matter should go back to the file of the A.O. to decide the same afresh in the light of the observation hereinabove. Disallowance of royalty expenses - Held that - In assessee s own case the Tribunal after following the order of the Tribunal in assessee s own case for A.Y. 2001-02 has allowed the claim of the assessee for A.Y. 2002-03 holding that it is a revenue expenditure and not a capital expenditure. Respectfully following the consistent view of the Tribunal and keeping in view that the decision cited by the D.R. T v. M. Subramaniam 2003 (12) TMI 9 - MADRAS HIGH COURT is in favour of the assessee - CIT(A) was not justified in sustaining the disallowance. Disallowance of PF and ESIC - Held that - It is not in dispute that the assessee has deposited the entire amount of PF and ESIC much before the due date of filing of return. The issue relating to retrospective operation of omission of second proviso to section 43B was considered in CIT vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT wherein held that it is curative in nature and would apply retrospectively, with effect from 1-4-1988. The Hon ble Delhi High Court in CIT vs. AIMIL Ltd. (2009 (12) TMI 38 - DELHI HIGH COURT) held that if the employee s share of contribution is paid before the due date of filing of the return u/s 139(1), then no disallowance can be made - thus disallowance sustained by CIT(A)is not sustainable.

Summary

Issues Involved:
1. Disallowance of internet/website expenses.
2. Disallowance of provision for stock obsolescence written back.
3. Disallowance of computer software expenses.
4. Disallowance of foreign exchange loss and alternative allowance of depreciation.
5. Disallowance of advance written off.
6. Disallowance of royalty expenses.
7. Disallowance of PF and ESIC payments.

Issue-wise Detailed Analysis:

1. Disallowance of Internet/Website Expenses:
The assessee argued that the expenses for the website, which included frequent updates and maintenance, should be treated as revenue expenditure. The A.O. treated these as capital in nature, allowing only depreciation. The Tribunal found that the issue was covered in favor of the assessee by a previous decision, which held that website development expenses are not capital expenditure as they do not provide enduring benefits. The Tribunal reversed the A.O.'s decision, allowing the expenses as business expenditure.

2. Disallowance of Provision for Stock Obsolescence Written Back:
The A.O. disallowed the provision for stock obsolescence, arguing that it lacked a scientific basis and was contrary to accounting principles. The assessee contended that this provision was consistently made in previous years. The Tribunal found that the issue was not properly appreciated by the A.O. and CIT(A) and remanded the matter back to the A.O. for fresh consideration, emphasizing the need to evaluate the consistent accounting practice followed by the assessee.

3. Disallowance of Computer Software Expenses:
The A.O. treated software expenses as capital expenditure, allowing depreciation. The Tribunal noted that the issue was covered by the Delhi High Court's decision in CIT vs. Amway India Enterprises, which held that software expenses are revenue in nature. Following this precedent, the Tribunal allowed the software expenses as business expenditure.

4. Disallowance of Foreign Exchange Loss and Alternative Allowance of Depreciation:
The A.O. disallowed the foreign exchange loss, treating it as capital expenditure. The assessee argued that the loan was primarily for business operations, with only a nominal part used for capital assets. The Tribunal noted that a similar issue was remanded in the assessee's previous case and that the amended provisions of section 43-A needed consideration. The matter was remanded to the A.O. for fresh examination in light of these observations.

5. Disallowance of Advance Written Off:
The A.O. disallowed the advance written off due to a lack of documentary evidence. The Tribunal found that the Revenue authorities had not examined the books of accounts and remanded the matter back to the A.O. for fresh consideration, directing a thorough examination of the books of accounts.

6. Disallowance of Royalty Expenses:
The A.O. treated the royalty expenses for acquiring music rights as capital expenditure. The Tribunal found that the issue was covered in favor of the assessee by previous decisions, which held that such royalty payments are revenue in nature. The Tribunal allowed the royalty expenses as business expenditure, rejecting the A.O.'s and CIT(A)'s disallowance.

7. Disallowance of PF and ESIC Payments:
The A.O. disallowed PF and ESIC payments made after the due date. The Tribunal noted that the issue was covered by the Supreme Court's decision in CIT vs. Alom Extrusions Ltd., which held that payments made before the due date of filing the return are allowable. Following this precedent, the Tribunal deleted the disallowance.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, remanding certain issues back to the A.O. for fresh consideration and allowing others based on established precedents.