Income Tax Appellate Tribunal - Delhi
Integra Capital Management Ltd., New ... vs Assessee on 28 February, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "C" NEW DELHI
BEFORE SHRI UBS BEDI, JM AND
SHRI J.SUDHAKAR REDDY, AM
ITA no. 2095/Del/2011
Assessment Year : 2003-04
M/s Integra Capital Management Ltd. vs. DCIT, Circle 11(1)
32 Regal building New Delhi
Sansad Marg
New Delhi 110 001
PAN: AAAC10828F
(Appellant) (Respondent)
Appellant by:-Sh.O.P.Sapra, Adv.
Respondent by:-Sh.Satpal Singh, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, AM
This is an appeal filed by the Assessee directed against the order of the CIT(A)-VIII, dated 28.2.2011 pertaining to the Assessment Year 2003-04.
2. Brief facts:- The assessee is a company. It filed its return of income on 2.12.2003 declaring a loss of Rs.1,41,74,626/-. The return was processed under Section 143(1) of the Income Tax Act, 1961 on 9.3.2004. Thereafter the assessment order under Section 143(3) was passed on 28th February,2006 accepting the loss returned.
3. On 29.2.2008 notice under Section 263 of the Income Tax Act, 1961 was issued by the Commissioner of Income Tax (Appeals)_IV, New Delhi. Thereafter an order under Section 263 of the Income Tax Act, 1961 was passed on 28.3.2008 setting aside the order under Section 2 143(3) of the Income Tax Act, 1961 dt. 28.2.2006 and the Assessing Officer was directed to verify the nature of expenditure incurred in relation to an Insurance portal and decide the issue afresh as per law. Insurance portal in question was a web site named "Assure India.Com". The assessee carried the matter in appeal and the 'C' bench of the Tribunal in ITA no. 1614/Del/2008 order dt. 25.9.2009 upheld the order under Section 263 of the Income Tax Act, 1961.
4. The Assessing Officer initiated fresh assessment proceedings. On 7.11.2008 he passed a fresh assessment order under Section 143(3) of the Income Tax Act, 1961 read with S.263 of the Income Tax Act, 1961 at para 1.2 wherein it was held as follows:-
"1.2. The assessee's representative attended and repeated the arguments put forth before CIT, Delhi IV, New Delhi during the course of assessment proceedings under Section 263 of the Income Tax Act, 1961. The assessee has merely submitted that the above mentioned and detailed revenue expenses/expenditure incurred in various AYs viz. 2000-01 to 2003-04 were only carried forward and written off as business loss arising to the assessee company when the insurance portal business project did not succeed and did not get the expected response, and the management of the assessee company had no option but, in the interest of shareholders, to close down/abandoned the project and write off the business losses.
1.3. The assessee's arguments are considered but the same are not acceptable because the expenses incurred are of capital in nature. Hence, the same is disallowed and added to the total income. Disallowance on this account comes to Rs.94,49,039/-."
5. Aggrieved the assessee carried the matter in appeal.
6. The First Appellate Authority at para 4.1 of its order held as follows.
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"4.1. On a careful consideration of the impugned assessment order, I find that the ldAO has followed the directions issued by the ld.CIT-IV to treat the entire expenditure of Rs.94,49,039/- as capital expenditure and disallow the same. Therefore, I have no hesitation in holding that the ldAO has framed the assessment order in question strictly as per the directions issued by the ld.CIT- IV, New Delhi which have subsequently been upheld by the Hon'ble ITAT, vide order dt. 25.9.2009. In view of the aforesaid, the action of the Assessing Officer is being sustained."
7. On the additional ground raised, the Commissioner of Income Tax (Appeals) at para 5 of his order held as under.
"5. As regards additional ground raised by the appellant company to allow the necessary claim in the respective AYs, I find that the claim of the appellant is not in order. Firstly, the expenses of Rs.94,49,039/- have been held to be capital in nature and, therefore, there is no question of allowing them as revenue expenses either in the year under consideration or in the years in which the same was incurred. Secondly, the assessments for the AYs 2000-01 to 2003-04 have already been finalized on the basis of returns of income furnished by the appellant company and therefore no directions can be given to the Assessing Officer at this stage."
8. Aggrieved the assessee is in appeal before us on the following grounds.
"1. That there is no justification on the part of the authorities below to disallow expenditure of Rs.94,49,039/- as claimed by the appellant company by debiting the same to its P&L account on various factual and legal grounds.
Various observations made by the authorities below in their respective orders are either incorrect or are not tenable. The Ld.CIT(A) had ignored various submissions made by the appellant company.
2. That the Ld.CIT(A) has not interpreted the order of the Hon'ble ITAT against s.263 order passed by the Ld.CIT. By setting aside the order of the Ld.CIT as passed under Section 263, the Hon'ble Tribunal had not approved the observations of the concerned authorities by treating the expenditure of Rs.94,49,039/- as capital expenditure.
3. That the Ld.CIT(A) is incorrect in holding that the Assessing Officer had followed the directions issued by the Ld.CIT-IV to treat 4 the entire expenditure of Rs.94,49,039/- as capital expenditure and disallow the same and that the Assessing Officer had framed the impugned assessment order strictly as per the directions issued by Ld.CIT-IV, New Delhi subsequently allowed to have been upheld by the Hon'ble ITAT vide order dt. 25.9.2009.
4. That without prejudice to the above grounds, directions deserve to be issued to Assessing Officer to allow the deduction on account of the above expenditure in the relevant AYs viz. 2000-01, 2001-02 and 2002-03.
5. That without prejudice to the above grounds, in case the views of the authorities below by treating the above amount as capital expenditure was upheld, then depreciation @ 60% thereon ought to have been allowed."
9. The Ld.Counsel for the assessee submitted that the assessee had set up a web site, the expenses of which are listed out at pages 21 of the paper book. He argued that the assessee was following project completion method and the web site in question got completed only in this year. He contended that the CIT in his section 263 order has not adjudicated the issue, and that this was the view of the Tribunal in its order under Section 263 and the Commissioner of Income Tax (Appeals) was wrong in not adjudicating the issue afresh. On merits he submitted that the assessee has consistently followed project completion method and accordingly web site expenditure was loaded year after year and in the year of completion it was claimed as a revenue expenditure. He referred to page 4, para 6.1 of the order of the Tribunal, wherein the order under Section 263 was up held and submitted that the Tribunal observed that the Assessing Officer failed to apply the law relating to allowability of the claim of the assessee whether the expenditure incurred on discontinued project was revenue expenditure or capital expenditure. 5
10. He relied on the Jurisdictional High Court decision in the case of CIT vs. Indian Visit.Com Pvt.Ltd. 219 CTR (Delhi) (603) for the proposition that expenditure incurred on development of web site is to be allowed as revenue expenditure. Alternatively he submitted that without prejudice it is held to be capital expenditure depreciation has to be allowed. He relied on the following case laws.
CIT vs. Mahalakhsmi Textile Mills, 66 ITR 701 (S.C.) Calcutta Steel Containers Ltd. vs CIT, 112 ITR 995 CIT vs. Jindal Equipment Leasing Consultancy Services Ltd. 325 ITR 87
11. Alternatively he submitted that if project completion method adopted by the assessee company is not accepted, then the expenditure should be allowed in the respective years.
12. The Ld.D.R. on the other hand controverted the arguments of the assessee and submitted that the expenditure is in the capital field. He relied on the order of the CIT passed under Section 263 of the Income Tax Act, 1961 as well as the order of the Assessing Officer and that of the Commissioner of Income Tax (Appeals). He argued that the expenditure was capitalized in the earlier years and hence the assessee can not turn around and claim that expenditure is in the Revenue filed. Ld.DR further submitted that directions cannot be given by the Tribunal for the earlier AYs. In reply the Ld.Counsel submitted that at least expenditure of the current year should be allowed.
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13. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the case laws cited, we hold as follows.
14. The undisputed fact is that the assessee was developing a web site under the name and style of "Assure India.Com". The expenditure incurred for the development of this web site is at page 21 of the assessee's paper book which is extracted for ready reference.
Integra Capital Management Ltd.
Summary of expenses incurred on account of the portal "Assurance India.Com"
during the AYs 2000-01 to 2003-04 Sl.No. Head of Account AY 2000- AY 2001- AY2002- AY 2003- 01 02 03 04
1. Salaries & Allowances to staff 821,737 707,173 59,100 -
2. Contribution to PF 51,504 75,878 - -
3. Staff welfare 63,480 31,159 - -
4. Rent 520,000 620,000 - -
5. Travelling&Conveyance 1,114,410 779,564 247,950 -
6. Electricity and water 98,565 121,520 - -
7. Correspondence&Communication 125,258 122,696 - -
8. Printing & Stationery 34,581 - - -
9. Vehicles running & Maintenance 126,582 77,684 - -
10. Repairs&Maintenace - 96,888 49,000 -
11. Legal & Professional charges 686,909 1,124,463 9,000 -
12. Advt.&Publicity 41,555 58,103 - -
13. Misc.exp. 1,128,841 67,494 498,761 4,184 T o t a l : Rs. 4,813,422 3,882,622 863,811 4,184
15. A perusal of the nature of expenses demonstrates that these are in the revenue field. The Hon'ble Delhi High Court in the case of India Visit.Com(P) Ltd. (supra) held as follows.
"Held : Just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of expenditure on a web site, there is no change in the fixed capital of the assessee. Although the web site may provide an enduring 7 benefit to an assessee, the intent and purpose behind development of a web site is not to create an asset but only to provide a means for disseminating the information about the assessee. The same could very well have been achieved and, indeed, in the past, it was achieved by printing travel brochures and other published materials and pamphlets. The advance of technology and the wide spread use of the internet has provided a very powerful medium to companies to publicise their activities to a larger spectrum of people at a much lower cost. Web sites enable companies to do what the printed brochures did but, in a much more efficient manner as well as in a much shorter period of time and veering a much larger set of people worldwide. The Tribunal has correctly appreciated the facts as well as the law on the subject and has come to the conclusion that the expenditure on the web site was of a revenue nature and not of a capital nature. No substantial question of law arises for consideration.-Empire Jute Co.Ltd. vs CIT(1980) 17 CTR (SC)113:
(1980) 124 ITR 1(SC) and Alembic Chemical Works Co.Ltd. vs CIT (1989) 77 CTR(SC)1 1989) 177 ITR 377(SC) relied on.
Conclusion: Expenditure on development of web site with a view to disseminate information about assessee's business activities amongst its clients is revenue expenditure even though resulting in enduring benefit."
16. Applying the proposition laid down by the Jurisdictional High Court to the facts of this case, and in view of the nature of expenses listed above, we have no hesitation to come to a conclusion that the expenditure in question is in the revenue field.
17. Coming to the argument of the Ld.D.R. that the assessee was capitalizing the expenditure in the earlier years, as it followed project completion method, we find that the Ld.D.R. has not correctly appreciated the issue of method of accounting. Applying project completion method does not mean that the expenditure which is not claimed in the current year, becomes a capital expenditure. In fact project completion method comes into play only when the expenditure is in the revenue field. Otherwise, it would have been called "capital work- 8 in-progress." The difference between project completion method and percentage completion method is the year of allowability of expenditure and the year of booking of income. Thus when the assessee has followed project completion method in AYs 2000-01, 2001-02 and 2002-03, it is clear that this expenditure, in the assessee's view, was in the revenue field.
18. The Commissioner of Income Tax (Appeals) was wrong to record that the CIT-IV in his order under Section 263 of the Income Tax Act, 1961 directed the Assessing Officer to treat the entire expenditure of Rs.9,49,039/- as capital in nature and disallow the same. The Tribunal in its order dt. 25.9.2009 in an appeal against the very same order under Section 263 of the Income Tax Act, 1961 held at para 4 as follows:-
"However the Ld.CIT directed the Assessing Officer to verify the nature of expenditure and decide the issue afresh as per law after affording the assessee a reasonable opportunity of being heard".
19. Coming to the issue as to whether the expenditure incurred on a discontinued project was revenue expenditure or capital expenditure, we are of the considered opinion that, when the expenditure is held to be in the revenue field, it does not cease to be so only because the project was discontinued. The project completion method accounting has not been disputed by the revenue authorities. The only ground on which the disallowance was made was that the expenditure is in the capital field. Thus for all these reasons we allow the appeal of the assessee. 9
20. In the result the appeal of the assessee is allowed. Order pronounced in the Open Court on 4th January, 2013.
Sd Sd/-
(U.B.S. BEDI) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 4th January, 2013
*manga
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar