Income Tax Appellate Tribunal - Delhi
Times Internet Ltd., Gurgaon vs Addl. Cit, Special Range- 9, New Delhi on 6 August, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B', NEW DELHI
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 3124/Del/2018 : Asstt. Year : 2014-15
Addl. CIT, Vs M/s Times Internet Ltd.,
Special Range-9, 10, Daryaganj,
New Delhi New Delhi-110002
(APPELLANT) (RESPONDENT)
PAN No. AABCT1559M
ITA No. 2210/Del/2018 : Asstt. Year : 2014-15
M/s Times Internet Ltd., Vs Addl. CIT,
5th Floor,Ecstasy IT Park, Plot Special Range-9,
No. 391, Udyog Vihar, Phase- New Delhi
III, Gurgaon-122016
(APPELLANT) (RESPONDENT)
PAN No. AABCT1559M
Assessee by : Sh. Mukesh Gupta, CA &
Ms. Neha Gupta, CA
Revenue by : Sh. Ajay Kumar, Sr. DR
Date of Hearing: 02.08.2021 Date of Pronouncement: 06.08.2021
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the revenue and the assessee against the orders of ld. CIT(A)-16, New Delhi dated 29.01.2018.
2. In ITA No. 3124/Del/2018, following grounds have been raised by the revenue:
2 ITA No.2210 & 3124/Del/2018Times Internet Ltd.
"1. The Ld. CIT (A) has e rre d on the facts and circumstances o f the case in not appreciating the fact that AO made the disallo wance in acco rdance with sec. 14A r.w.r 8D of the I .T Act only.
2. The Ld. CIT (A) has erred on the facts and circumstances o f the case by deleting the addition made by the AO o n acco unt of disallowance o f e xpe nses on account o f sale of content.
3. The Ld. CIT (A) has erred o n the facts and circumstances o f the case by deleting the addition made by the AO o n acco unt o f so ftware e xpe nses.
4. The Ld. CIT (A) has erred on the facts and circumstances o f the case by deleting the addition made by the AO on account o f depreciation claim of software .
5. The Ld. CIT (A) has erre d on the facts and circumstances o f the case by partly allowing the addition made by the A O on account o f consultancy expenses o f legal and professional e xpenses."
3. In ITA No. 2210/Del/2018, following grounds have been raised by the assessee:
"1. That the learne d Commissioner o f Income Tax (Appeals)-16 has erred both in law and on facts in upho lding disallo wance o f e ntire sum of Rs. 600000/- towards consultancy charges fo r valuation of shares upon merger of ano ther gro up company, claimed by the appe llant company as re venue expenses.
1.1 That the learne d Commissioner of Income Tax (Appeals) has failed to appreciate that the e xpenses on merger are allo wed @20% in five consecutive ye ars u/s 35DD. Accordingly, Rs 120000/- sho uld have been allowed in this AY and balance in next 4 years.
2. That the le arne d Commissio ner o f I ncome Tax (Appeals)-16 has erred both in law and on facts in upho lding disallo wance of sum of Rs.5,50,000/- to wards consultancy charges for consultancy related to the o ngoing website magicbricks.com of the appellant in re gular course of business.3 ITA No.2210 & 3124/Del/2018
Times Internet Ltd.
2.1 That the learne d Commissioner of Income Tax (Appeals) has failed to appreciate that the to tal expe nses paid to consultant Rs 61,60,754 are pursuant to the agreement specifying various busine ss related se rvice s, on account of which a sum of Rs5610754/- was allowed by A O as reve nue in nature, thus the re is no justification of a differe nt# inference fo r the remaining Rs 5,50,000/- ."ITA No. 3124/Del/2018 A.Y. 2014-15: (Revenue)
Disallowance u/s 14A:
4. During the year, the assessee earned dividend from mutual fund of Rs.1,03,60,745/- and suo moto disallowed an amount of Rs.5,57,215/- u/s 14A. The AO by resorting the provisions of Rule 8D(2)(ii) computed disallowance to Rs.96,28,052/-.
5. The ld. CIT (A) directed the AO to recompute the disallowance u/s 14A by considering the investments from which dividend has been earned by the appellant company and relying on the order of the Special Bench of ITAT in the case of CIT Vs Vireet Investments Pvt. Ltd. 82 Taxman 415, we hereby direct that only the investments which yielded the exempt income be considered for computation of disallowance u/s 14A r.w. Rule 8D.
Disallowance of Expenses on account of sale of content:
6. This issue pertaining to disallowance of expenses on a presumption basis with regard to the income received on syndication services has been a repetitive issue from the years 2006-07 to 2014-15. This issue has been decided by the Hon'ble Delhi High Court in assessee's own case in assessment years 2004-05 and 2005-06 in ITA Nos. 178 & 188/2016 dated 14.03.2016 further in assessment year 2006-07, 2007-08 and 4 ITA No.2210 & 3124/Del/2018 Times Internet Ltd.
2008-09 in ITA No. 716, 724 & 753/2017 dated 06.09.2017, the issue has been adjudicated in favour of the assessee. Since, the issue has been repetitively held in favour of the assessee and since the ld. CIT (A) has followed the earlier orders of the Tribunal, we decline to interfere with the order of the ld. CIT(A).
Software Expenses and Depreciation claim of software:
7. The assessee incurred an expenditure of Rs.35.59 Crores on account of software, content and web hosting. The AO disallowed an amount of Rs.75.55 lacs out of the expenditure holding that the software utilized is capital in nature. The depreciation on software claimed @ 60% by the assessee has been scaled down to 25% by the Assessing Officer.
8. The ld. CIT (A) deleted the addition based on the decision of the Hon'ble Delhi High Court in assessee's own case in assessment years 2004-05 and 2005-06 also in subsequent years 2006-07, 2007-08, 2008-09. Since, the matter of software utilized in content production, the software embedded with hardware is an integral part of the computer equipment, the issue has been repetitively held in favour of the assessee and since the ld. CIT (A) has followed the earlier orders of the Tribunal, we decline to interfere with the order of the ld.
CIT(A).
Legal & Professional expenses:
9. The assessee claim an expenses of consultancy charges of Rs.12,94,46,194/- and 10,67,61,340/- under the head legal and 5 ITA No.2210 & 3124/Del/2018 Times Internet Ltd.
professional expenses. The details of the expenses are as under:
Consultancy charges Date Name Narration Amount Remarks 31/03/2014 RAJU & PRASAD FINANCE PROVISION 2012- 120,752 Prior period CHARTERED 13_TDS expenses ACCOUNTANTS RETURN,CERTIFICATES 31/03/2014 ERNST & YOUNG FINAL MILESTONE_FINAL 522,362 Merger LLP HEARING_HIGH Expenses, COURTJVIERGER capital expenses 31/03/2014 S.B.G. & CO VALUATION AND SHARE 600,000 Merger SWAP RATIO_MERGER Expenses, WITH TBSL PR capital expenses 31/03/2014 ERNST & YOUNG FINANCE PROVISION 2012- 621,825 Prior period LLP 13_VARIOUS SERVICES expenses 31/03/2014 DIPTI TANDON CONSULTATION FEE FOR 550,000 capital SPECIFIC PROJECT expenses Total 2,414,940 Legal and professional expenses Date Name Narration Amount 19/12/2013 ASP LEGAL CHRGS_MERGER OF TWL AND TML 150,000 ADVOCATES WITH TIL LEGAL S 19/12/2013 ASP LEGAL CHRGSJV1ERGER OF TWL AND TML 150,000 ADVOCATES WITH TIL LEGAL S 31/01/2014 ASP FILLING THE 2ND MOTION PETITION WITH 150,000 ADVOCATES HCJV1ERGER LEG 31/01/2014 ASP ISSUANCE OF NOTICE TO RD,ROC,OL BY DLH 100,000 ADVOCATES HC_MERGER L 31/03/2014 ASP PROV 13-14_LEGAL CHRGS TWRDS 106,750 ADVOCATES MERGER_REPLY TO RD/OL TOTAL 656,750
10. The AO held that some of the expenses relating to shares subscription, making to due diligence report are not allowable as revenue expenses and they have to be capitalized or amortized. The AO disallowed an amount of Rs.24,14,940/- out of consultancy charges and Rs.6,56,750/- out of professional expenses. The ld. CIT (A) has gone through each and every item of expenditure and also the computation of income wherein 6 ITA No.2210 & 3124/Del/2018 Times Internet Ltd.
an amount of Rs.21,39,865/- spent on account of merger expenses have been suo moto disallowed by the assessee.
11. On going through the entire facts, the ld. CIT (A) held that an amount of Rs.6,00,000/- spent towards valuation of shares for the purpose of merger of the company and Rs.5,50,000/- paid to independent consultant are in the nature of capital expenditure.
12. Since, the ld. CIT (A) has gone through the details of expenditure and since the assessee has already disallowed an amount of Rs.21,39,865/-, we hereby hold that the grounds of appeal of the revenue on this issue cannot be sustained.
ITA No. 2210/Del/2018 A.Y. 2014-15: (Assessee)13. With regard to the amount of Rs.6,00,000/- confirmed by the ld. CIT (A), the ld. AR relied on the judgment in the case of CIT Vs Monnet Industries 332 ITR 627(Del.) and CIT Vs Prithvi Insurance Company Ltd. 63 ITR 632.
14. Section 35DD of the Income Tax Act states as under:
"Amortization of expenditure in case of amalgamation or demerger.
35DD (1) Where an assessee, being an Indian company, incurs any expenditure, on or after the 1 s t day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place.7 ITA No.2210 & 3124/Del/2018
Times Internet Ltd.
(2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act."
15. We find that the Section 35DD clearly specifies amortization of expenditure in case of amalgamation and demerger. Since, the expenditure is in connection with the valuation of shares relating to merger, the same needs to be treated in accordance with the provisions of Section 35DD.
16. With regard to the consultancy charges paid of Rs.5,50,000/-, the revenue swayed away by the mention of "specific project" expenses and treated them as capital expenditure in nature whereas the fact remains that the consultant has been paid for providing services in development of new products and enhancement of existing features on the website which cannot be treated as a new arena of the business operations. Hence, the amount paid should be treated as revenue expenditure.
17. In the result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes. Order Pronounced in the Open Court on 06/08/2021.
Sd/- Sd/-
(Amit Shukla) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 06/08/2021
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR