2015 (9) TMI 138 - AT - Income Tax

Addition on account of advertisement & publicity expenses - CIT(A) deleted the addition - Held that - As decided in assessee s own case for the assessment years 2001-02 and 2002-03 the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee s trading operations. No fixed capital was created by this expenditure. We may also add here that in the Income Tax laws, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the test laid down u/s 37 of the Act, it has to be allowed. - Decided in favour of assessee Addition on account of lease hold improvements expenses - CIT(A) deleted the addition - Held that - We find that the learned Commissioner of Income Tax (Appeals) has given a categorical finding that the assessee has duly produced all the necessary details and that the assessee has duly identified the capital portion of the expenditure incurred and the amount of the improvements expenses which were of revenue in nature. We also find that it is a settled law that powers and duties of the Commissioner of Income Tax (Appeals) are coterminus with that the Assessing Officer. Hence, in our considered opinion, there is no need to interfere with the finding of the learned Commissioner of Income Tax (Appeals) - Decided in favour of assessee Addition on account of direct selling agent commission expenses - CIT(A) deleted the addition - Held that - Identical issue has been decided in favour of the assessee in the preceding year wherein held that the expenditure is incurred once for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring the loan assignments and it is not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. Since the commission is paid to the direct selling agents, for their services in sourcing hire in the year in which the loan is disbursed, it is to be allowed as business expenditure. The Tribunal, to arrive at this finding took into consideration the clauses of the agreement relating to mode of payment of consideration as well as termination clause in the agreement. Thus, as the entire expenditure was incurred which admittedly have nexus with the business of the assessee, it was treated as business expenditure allowable under Section 37 of the Act. - Decided in favour of assessee Addition on loss on sale of repossessed assets - CIT(A) deleted the addition - Held that - Identical issue having similar facts was a subject matter of the assessee s appeal for the assessment year 2006-07 wherein held Repossession of the asset was taken by the assessee in the course of normal business operations and such repossessed assets were sold and loss incurred in this process is a normal business loss allowable to the assessee. The same is allowable u/s 36(1)(vii) of the Act also as write off of bad debts because when there is loss on sale of repossessed assets, such deficiency is realizable from the customer but since the assessee has written off the same in the P&L A/c instead of debiting it to the customer account, it is equal to write off of bad debt and by now, it is a settled legal position that after the amendment in section 36(1)(vii) of the Act w. E. F. 01.04.1989, only write off is sufficient and the assessee is not required to show that the debit has become bad - Decided in favour of assessee Disallowance of depreciation on computer peripherals - CIT(A) deleted the addition - Held that - Identical issue had already been adjudicated by this Bench of the Tribunal in assessee s own case in the preceding year i. E. assessment year 2006-07 wherein held it should not be disputed by the learned counsel for the revenue that this issue is now settled by the judgment of this Court in the case of CIT Vs BSES Yamuna Powers Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT) holding that on computers and peripherals, depreciation at the rate of 60% is allowable.- Decided in favour of assessee Addition on NCD and Commercial paper issue expense - CIT(A) deleted the addition - Held that - Similar issue having identical facts has been decided in favour of the assessee in the assessment year 2006-07 wherein held there is no material before us to infer that the aforesaid expenditure resulted in creation of any capital asset, tangible or intangible, and thus, the question of treating the same as capital expenditure does not arise. Also expenses on issue of debentures, whether convertible or not, is allowable as a deduction in computing the income of the assessee.- Decided in favour of assessee Addition on account of loan acquisition costs - CIT(A) deleted the addition - Held that - As decided in PY The relevant provisions of the act recognize only capital or revenue expenditure. Indisputably, the amount claimed by the assessee in these three assessment years is revenue in nature. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g. expenditure on advertisement, sales promotion etc. There is no material before us to infer that the aforesaid expenditure resulted in creation of any capital asset, tangible or intangible, and thus, the question of treating the same as capital expenditure does not arise. - Decided in favour of assessee Addition on account of adjustment Arm s length price of the international transaction - CIT(A) deleted the addition - grievance of the department only relates to the exclusion of Mega Soft Ltd. and inclusion of Orient Information Technology Ltd. in the set of comparables - Held that - As regards to the inclusion of Orient Information Technology Ltd. is concerned, the TPO had not given any particular reason for its exclusion. The said company also designs, develops and deploys customized software solution and application so its functionality was comparable with the assessee. The said company was not considered by the TPO because it was a loss making company but that cannot be a reason to exclude it from the set of comparable, in view of the decision of the ITAT Delhi Bench in the case of Yum Restaurants India Ltd. 2011 (5) TMI 852 - ITAT DELHI wherein it has been held that merely a company showing loss would not lose its status of comparable if other criteria depicted status of comparable. Same view has been taken by the ITAT Delhi Bench in the case of Sony India Ltd. 2008 (9) TMI 420 - ITAT DELHI-H . As regards to the exclusion of Mega Soft Ltd. is concerned as directed by the ld. CIT(A), it is noticed that the said company had gone restructuring during the financial year under consideration, its total sales was ₹ 104.17 crores as compared to the fees received by the assessee at ₹ 20.97 crores. It has a strong R&D background alongwith product development expertise which the assessee did not have. The said company also acquired US based Boston Communications Group Inc. in August 2007, which also resulted in high profit margin of the said company. Therefore, CIT(A) rightly held that Mega Soft Ltd. to be excluded from the set of comparables. CIT(A) rightly directed the AO to exclude the Mega Soft Ltd. and include the Orient Information Technology Ltd. in the comparables and worked out the Arm s lengh price and if it falls within the range of 5% of the range then no addition is to be made. We do not see any infirmity in the impugned order of the ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of Advertisement and publicity expenses.
2. Deletion of addition on account of Leasehold improvements expenses.
3. Deletion of addition on account of Direct selling agent commission expenses.
4. Deletion of addition on account of Loss on sale of repossessed assets.
5. Deletion of addition on account of Depreciation on computer peripherals.
6. Deletion of addition on account of NCD and Commercial paper issue expense.
7. Deletion of addition on account of Loan acquisition costs.
8. Deletion of addition on account of adjustment of Arm's length price of the international transaction.

Detailed Analysis:

1. Advertisement and Publicity Expenses:
The department's grievance was the deletion of an addition of Rs. 24,40,36,690/- made by the AO. The CIT(A) deleted the addition by following the decision of his predecessor for assessment years 2003-04 to 2005-06, which was upheld by the Hon'ble Jurisdictional High Court. The Tribunal found no merit in the departmental appeal, citing that the CIT(A) had correctly followed the judgment of the Hon'ble Delhi High Court.

2. Leasehold Improvements Expenses:
The department contested the deletion of an addition of Rs. 21,16,50,310/- made by the AO. The CIT(A) followed the ITAT's order for the preceding year, which had been upheld by the Hon'ble Jurisdictional High Court. The Tribunal found no merit in the departmental appeal, emphasizing that the CIT(A) had rightly followed the earlier order of the Tribunal.

3. Direct Selling Agent Commission Expenses:
The department appealed against the deletion of an addition of Rs. 1,00,55,42,364/-. The CIT(A) followed the ITAT's order for the preceding year. The Tribunal found no merit in the departmental appeal, noting that the issue had been consistently decided in favor of the assessee in earlier years.

4. Loss on Sale of Repossessed Assets:
The department's grievance was the deletion of an addition of Rs. 5,28,33,372/-. The CIT(A) followed the ITAT's order for the preceding year, which had been upheld by the Hon'ble Jurisdictional High Court. The Tribunal found no merit in the departmental appeal, reiterating that the CIT(A) had rightly followed the earlier order of the Tribunal.

5. Depreciation on Computer Peripherals:
The department contested the deletion of an addition of Rs. 3,61,02,215/-. The CIT(A) followed the ITAT's order for the preceding year. The Tribunal found no merit in the departmental appeal, emphasizing that the CIT(A) had rightly followed the earlier order of the Tribunal.

6. NCD and Commercial Paper Issue Expense:
The department appealed against the deletion of an addition of Rs. 5,74,05,698/-. The CIT(A) followed the ITAT's order for the preceding year. The Tribunal found no merit in the departmental appeal, noting that the issue had been consistently decided in favor of the assessee in earlier years.

7. Loan Acquisition Costs:
The department's grievance was the deletion of an addition of Rs. 51,34,55,174/-. The CIT(A) followed the ITAT's order for the preceding year, which had been upheld by the Hon'ble Jurisdictional High Court. The Tribunal found no merit in the departmental appeal, reiterating that the CIT(A) had rightly followed the earlier order of the Tribunal.

8. Adjustment of Arm's Length Price of the International Transaction:
The department contested the deletion of an addition of Rs. 1,13,56,639/-. The CIT(A) found that the TPO had used different filters and comparables, leading to the adjustment. The CIT(A) directed the TPO/AO to exclude Mega Soft Ltd. from the set of comparables and include Orient Information Technology Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the TPO had not provided specific reasons for excluding Orient Information Technology Ltd. and that Mega Soft Ltd. was functionally different from the assessee.

Conclusion:
The Tribunal dismissed the appeals of the department, upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized that the CIT(A) had correctly followed the earlier orders of the Tribunal and the Hon'ble Jurisdictional High Court, and found no merit in the departmental appeals.