2017 (9) TMI 1355 - HC - Income Tax

Allowability of high expenditure as business is sold - ITAT deleted the addition - Held that - This Court is of the opinion that since the findings of the lower appellate authorities, especially the CIT(A) and the ITAT are concurrent on the facts, it cannot be said that any substantial question of law arises. Even otherwise, the AO s order presumed that the levels of expenditure necessarily had to drop, since the internet based business had been sold by the assessee. Such a conclusion could not have been arrived at unless the AO had considered all other factors including the nature of commercial activities that subsisted without such activity. AO made disallowance of ₹ 16.12 crore simply by means of a mathematical exercise carried out by him. If he found the expenditure incurred by the assessee to be on higher side, it was incumbent upon him to specifically point out as to which expenses were not incurred for the purposes of business. - Decided against revenue Treatment given to the website expenditure - revenue or capital expenditure - nature of expenditure - Held that - in view of the judgment of the Hon ble jurisdictional High Court in CIT vs. India Visit.com (P) Ltd. (2008 (9) TMI 8 - DELHI HIGH COURT) in which it has been held that the expenditure on development of website is a revenue expenditure. Similar view has been taken by the Tribunal in the assessee s own case for the immediately preceding year.- Decided against revenue

Summary

Issues:
1. Disallowance of expenditure for Assessment Year 2006-07 and 2008-09.
2. Treatment of website expenditure.

Analysis:

Issue 1: Disallowance of Expenditure
The appeals by the Revenue challenge orders of the Income Tax Appellate Tribunal regarding the disallowance of expenditure for separate years. The AO disallowed significant amounts of expenditure for the Assessment Years 2006-07 and 2008-09 based on the reasoning that since the business had been sold, the reported expenditure levels were unjustified. The Tribunal, in the case of Assessment Year 2008-09, scrutinized the details provided by the assessee regarding the business transactions and income sources. The AO's disallowance was based on a mathematical exercise without specifically identifying which expenses were not incurred for business purposes. The Tribunal observed that the AO's conclusion that expenses were incurred for businesses no longer operated by the assessee was unfounded. The disallowance was deleted by the CIT(A) as it was made on an ad hoc basis without proper justification, leading to the conclusion that no substantial question of law arose.

Issue 2: Treatment of Website Expenditure
In another ground raised by the Revenue in ITA No.716/2017, the treatment of website expenditure was disputed. The AO disallowed the claim as capital expenditure, but both the CIT and the ITAT overturned this decision. The ITAT relied on the precedent set by the jurisdictional High Court and held that expenditure on website development is a revenue expenditure. Citing the judgment in CIT v. India visit.com, the ITAT upheld the order on this issue. The Court concurred with this decision, stating that no question of law arose regarding the nature of the expenditure based on the established precedent.

In conclusion, the Court held that the appeals did not raise any substantial question of law and dismissed ITA No.724/2017, 716/2017, and 753/2017 accordingly.