Income Tax Appellate Tribunal - Hyderabad
Ushodaya Enterprises Ltd.,, Hyderabad vs Assessee on 7 January, 2015
ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'B' Bench, Hyderabad
Before Shri P.M. Jagtap, Accountant Member
and Smt.Asha Vijayaraghavan, Judicial Member
ITA Nos.676/Hyd/2009 & 411/Hyd/2010
(Assessment years: 2005-06 & 2006-07)
Ushodaya Enterprises Ltd Vs. Dy. Commissioner of
Hyderabad Income Tax, Circle-16(2)
PAN: AAACU 2690 P Hyderabad
(Appellant) (Respondent)
Assessee by: Shri V. Siva Kumar, Advocate
Department by: Shri D. Sudhakar Rao, CIT (DR)
Date of Hearing: 05/01/2015
Date of Pronouncement: 07/01/2015
ORDER
Per Asha Vijayaraghavan, J.M.
These are the appeals filed by the assessee directed against the orders of the CIT (A)-IV Hyderabad dated 15.01.2010 and 13.03.2009 respectively relating to A.Ys 2005-06 & 2006-07 respectively.
ITA No.676/Hyd/2009 A.Y 2005-06.2. Brief facts of the case are that the assessee is a company, engaged in the business of publishing of news papers, satellite television broadcasting, manufacturing and trading of food products as well as hiring of shooting sets. For A.Y 2005-06, the assessee filed its return of income on 1.11.2005 declaring a loss of Rs.10,17,16,327/- from business. The DCIT, Hyderabad while Page 1 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad completing the assessment on 26.12.2007 u/s 143(3) of the Act determined the income at Rs.37,88,64,362/- under the normal provisions of the Act. While doing so, the AO made disallowance of depreciation, disallowance of expenditure u/s 40(a)(ia) of the act and disallowance of expenditure on the ground that the same does not pertains to the year under the accounting among other disallowances. Aggrieved, the assessee preferred appeal before the CIT (A) and with respect to disallowance of Rs.89,98,773/- which is on account of restrictions of depreciation on computers, software and peripherals to 25% as against 60% claimed by the assessee (vide item III(5) of Old Appendix-I under Rule 5 of I.T. Rules, 1962). The assessee submitted details of the computer equipments, peripherals and software which is the subject matter of disallowance. Assessee also submitted that out of the additions of Rs.3,08,80,838/-, an amount of Rs.2,25,43,236/- was incurred towards the cost of operationg software which is eligible for depreciation at 60%. Also, an amount of Rs.83,37,602/- out of the additions of Rs.3,08,80,838/- was incurred towards cost of printers, scanners, modems, switches/hubs, cables/cards, routers, facsimile systems V-Sat terminals, software etc and it was submitted that they are integral part of computer systems and without computers, the said assets cannot function in the business of satellite television broadcasting. Therefore, the assessee claimed that depreciation is allowable at 60%. The assessee submitted that this issue has been considered in detail by the ITAT "B" Bench, Hyderabad in its order for A.Y 2002-03 and 2003-04 vide consolidated order in ITA No.1241/Hyd/2008 and ITA No.591/Hyd/2010 dated 31.10.2013 in assessee's own case. It was further submitted that Page 2 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad the ITAT also decided this issue in assessee's own case for A.Y 2004-05 vide its order in ITA No.1429/Hyd/2014 dated 22.10.2014.
3. The ld CIT (A) after going through the details, at Para No.14 of his order held as follows:
"14. I have considered the submissions of the appellant and the facts of the case. I have gone through the relevant provisions of the Income Tax Rules relating to rate at which depreciation is allowable on computer and computer software. I agree with the observations made by the AO that only computer and computer software are entitled for depreciation @60%. Though various accessories like printers, scanners, modems, routers etc., referred to by the appellant may be linked to the computers, the same cannot be considered as forming integral part of the computer system. Those accessories being distinct and separate items, come under the purview of 'plant and machinery' for allowance of depreciation at the normal rate of 25%. In this view of the matter, the stand of the AO in allowing depreciation on such computer accessories @ 25%, as against the claim made by the appellant @60% is justified. Thus, the disallownace of Rs.89,98,773/- made by the AO towards excess claim of depreciation on computer accessories is confirmed".
4. Aggrieved, the assessee is in appeal before us. We find that ITAT in ITA No.1429/Hyd/2014 for A.Y 2004-05 in assessee's own case it has been held in Para Nos.14 to 17 as follows:
"14. The next issue as raised in Ground No. 4 with its sub- grounds is in respect of disallowance of depreciation of an amount of Rs. 1,43,99,145 claimed @ 60% on printers, scanners, modems, etc. and restricting the same to 25% by treating them as plant and machinery.Page 3 of 18
ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
15. Briefly the facts are, during the course of assessment proceeding, AO noticed that assessee has claimed depreciation of Rs. 11,43,63,771 @ 60% on the block of computers. On further verification of the details submitted by assessee, AO noticed that the block of computers also include printers, scanners, modems, switches, photo/edit V-sat equipment, UPS, network cables, software, etc. AO after verifying these facts was of the view that computers connected to photo transmission equipment, editing equipment, v-sat and data processing equipment are to be treated as computers. However, scanners, printers, modems, switches, networking cable, transmission equipment and software do not form part of computers. AO opined that every peripheral device connected to the computer does not form part of the computer. He observed that computer runs without peripherals like printer, scanner etc. , but not the other way round. The AO was of the opinion that computers used for photo transmission equipment, decoding equipment v-sat, data processing equipment are eligible for depreciation @ 60% whereas the other peripherals like printers, scanners, modems, switches, photo/edit/equipment UPS, network cables and software form part of plant and machinery, on which, depreciation is allowable @25% only. Accordingly, he proposed to restrict depreciation @ 25% on them. Though, assessee objected to such action, the AO, however, rejecting the submissions of assessee, restricted depreciation @ 25% on routers facsimile systems, modem, v-sat, etc and in the process disallowed an amount of Rs. 1,43,99,145. Being aggrieved of such disallowance, assessee preferred appeal before CIT(A). The CIT(A) following his own order for the AY 2002-03 in case of same assessee, sustained the disallowance made by AO.
16. The learned AR at the outset submitted before us that the issue is squarely covered by the decision of ITAT in assessee's own case for AY 2002-03 ad 2003-04 as well as for AY 2005- 06 and 2006-07. The learned DR though agreed that the issue is covered by the decisions of the coordinate bench, but, he nevertheless supported the order of CIT(A).
17. We have considered the submissions of the parties and perused the materials on record as well as the orders of revenue authorities. As can be seen, AO has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as plant and machinery. The CIT(A) has sustained the order of AO by following his own order passed in case of assessee for the AY 2002-03. However, it is seen from record that the order passed by CIT(A) for AY 2002-03 and 2003-04 on identical issue was Page 4 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad challenged by assessee before the Tribunal. The tribunal while considering the dispute in appeal preferred by assessee in ITA Nos. 1241/H/08 and 591/Hyd/10 for AY 2002-03 and 2003-04 respectively allowed assessee's claim of depreciation @ 60% on these items. While doing, so the Tribunal followed its earlier order in assessee's own case for AY 2005-06 and 2006-07. The finding of the Tribunal is extracted hereunder for ready reference:
"11. We have heard the submissions of the parties and perused the material on record. As per the list submitted by the assessee in Annexure-B and the detailed note submitted explaining their fiction, the items on which there is a dispute regarding claim of depreciation are editing equipments, edit control unit, charter generator V. Sat equipments etc., and several types of software and various parts and components. It is the contention of the assessee that all these equipments form integral part of the computer system and they cannot function independently except in conjunction with a computer system. As can be seen from the assessment order, the primary basis on which the Assessing Officer concluded that depreciation claimed by the assessee is not allowable at 60% as according to him computer means a CPU which is also called as mother board along with its memory. Monitor key board, mouse are essential to run computer as an independent entity. The aforesaid finding of the Assessing Officer was upheld by the CIT (A) who also held that every peripheral device connected to the computer does not form part of the computer. Let us now examine how far the findings of the revenue authorities are acceptable in the context of the ratio laid down by the Income-tax Appellate Tribunal, Mumbai (Special Bench) in case of DCIT vs. Datacraft India Limited (40 SOT 295), the Hon'ble Special Bench being conscious of the fact the term 'computer' has not been defined under the IT Act nor in the general clauses Act, 1987, the meaning of the term computer has to be understood by applying the principles of statutory interpretation i.e., one has to give the meaning to the expression 'computer' not merely by going to the dictionary meaning but by applying common parlance or commercial parlance tests as well as by analyzing the intendment of legislature in providing higher rate of depreciation. The Hon'ble Special Bench after interpreting the expression 'computer' in common parlance as well as commercial parlance in the context of availability of depreciation at higher rate of 60% in the case of router and switches whether to be treated as 'computer' held as under:-Page 5 of 18
ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
25. Thus in order to determine whether a particular machine can be classified as a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyze further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals, are received through the relevant net works such as Dish TV, Tata Sky etc. But TV does not become computer for the reason that its principal function cannot be done only with the aid of 'computer functions' notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a standalone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/ object/f unction of such machine should be achievable only through 'computer functions'.
26. Having analyzed the meaning of 'computer' in common parlance, let us proceed to ascertain the concept, meaning and functions of 'router' Again we find that the term 'router' has not been defined in the Income- tax Act, 1961. Accordingly it also needs to be assigned the meaning as it is understood in common parlance. The learned Departmental Representative has placed some literature from the internet explaining the meaning of 'Router' as a device in computer networking that forwards data packets to their destinations, based on their addresses. As per this literature the working of router has been explained by which data packets are transmitted over a network (say the internet), they move from many routers (because they pass through many networks) in their journey from the source machine to be destination machine. Routers work with IP packets, meaning that they work at the level of the IP protocol. Every router keeps information about its neighbours (other routers in the same or other networks). When a packet of data arrives at a router, its header information is scrutinized by the router. Based on the destination and source IP addresses of the packet, the router decides which neighbour it will forward it to.Page 6 of 18
ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
27. The assessee vide its letter dated 21-2-2005, addressed to the Assessing Officer, submitted a note on use of routers! switches by explaining that the routers are crucial device that let the messages flow from one computer to another. It was further explained that the router has two separate but related jobs, viz.,
(a) to ensure that the information does not go where it is not needed and (b) it makes sure that the information does make it to the intended destination.
28. A router is a networking device whose software and hardware are customized to the tasks of routing and forwarding information. A router has two or more network interfaces, which may be to different physical types of network (such as copper cables, fibre or wireless) or different network standards. Each network interface is a small computer specialized to convert electric signals from one form to another. Routers connect two or more logical subnets, which do not share a common network address. The subnets in the router do not necessarily map one- to-one to the physical interfaces of the router. The term "layer 3 switching" is used often interchangeably with the term "routing". The term switching is generally used to refer to data forwarding between two network devices that share a common network address.
29. In simple words, a router means a device that routes data from one computer to another or from one network to another. Routers provide connectivity inside enterprises, between enterprises and the internet, and inside Internet providers. From the above discussion it transpires that the function of a router is to receive the data from one computer and make it available to another computer for viewing or further processing. Apart: from facilitating the flow of data between two computers, the routers also. help in the transfer of data from network to computer. Thus the essential function of the router in a commercial organization is to facilitate the flow of data from one computer to another for its processing or storage. Switches are shorter version of routers, which perform similar functions as that of routers but within a limited sphere.
30. On functioning of a 'Router' we find that there is no dispute on the fact that a "Router" does not perform any logical, arithmetic and intermediary functions on data nor it manipulates or processes data, the way a computer would do.
A "Router" does not have a "CPU". It only enables Page 7 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad transmission of data and data packages, in a sophisticated manner, to intended places. A data cable also carries data from one place to another, but it does not selectively interchange packets of data between places. The difference between a "Cable" and a Router" is that in a "Router" data is "Routed" as per the specification. Thus a "Router" may not by itself be called a computer.
31. Now we have to consider whether a 'router' can be considered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'peripherals'. Together, they all fall under the category of computer hardware. 'Software', on the other hand, consist of the programs and applications that run on computers. Because software runs on computer hardware, software programs often have 'system requirements' that list the minimum hardware required for the software to run.
31.1 In short, "Router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another net work connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this "machine" can be used independent of Computer. If yes, then it cannot be called "Computer Hardware" in all circumstances.
31.2 When "Computer Hardware", is used as a component of the computer, it becomes part and parcel of the computer, as in the case of operating software in the computer. In such a situation, hardware in question can be considered as a part of a computer and hence a 'computer'. Per contra, when the machine is not used as a necessary assessor or in combination with a computer, it cannot be called a 'Computer component'.
31.3 Coming to the Routers, it is seen that these can also be used with a Television and in such use, E0 computer is required. These are also called T.V. routers. Similarly, "Internet Service Providers", give connectivity, by installing a router in the premises of the persons !institutions availing the internet connection. In these cases the router is not used Page 8 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad along with a computer. In such a situation, it would be a "Stand alone" equipment. In such cases this cannot be considered a component of a computer or computer Hardware. Giving another example, a computer software can be used in many devices including washing machine, televisions, telephone equipment etc. When such software is used in those devices, it integrates with that particular devices. The predominant function of the device determines its classification. Only if the Computer software, re- sides in a computer, then it become a part and parcel of a computer and, as long as it is as integral part of a computer, it is classified as a 'Computer'.
31.4. In view of the above discussion, we are of the considered view that router and switches can be classified as a computer Hardware when they are used along with a computer and when their functions are integrated with a 'computer'. In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer."
12. While coming to such conclusion, the Hon'ble Special Bench approved the view taken by the Income-tax Appellate Tribunal, Kolkata Bench in case of ITO vs. Samiran Majumdar (98 ITD 119) but did not agree with the view taken by the Income-tax Appellate Tribunal, Mumbai Bench in the case of Routermania Technologies (P) Ltd. Vs. ITO (16 SOT 384) by holding that the meaning of expression 'computer' cannot be restricted only to the CPU of the computer by pulling out the import and output devices from the ambit of 'computer'. The Hon'ble Special Bench further went on to hold that though functions of the computer as one composite unit is for performing logical, arithmetical or memory functions etc., but it is not the only equipment which performs such functions that can be called as 'computer'. All the input and output devices which in fact support in the receipt of input and outflow of the output are also part of the 'computer'. Therefore, the ratio which can be culled out from the aforesaid decision of Hon'ble Special Bench (specifically paragraph 31.4 of the order), it is to be seen that the Hon'ble Special Bench has clearly held that when a particular hardware or software is used along with a computer and when their functions are integrated with a computer or in other words when the device is used as part of the computer in its functions, even though it may be having user on standalone basis, but still then such hardware or software would be termed as a 'computer'. In applying the aforesaid ratio to the facts of the present case, it can be seen that the Page 9 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as 'computer' are being used as input or output device of the computers. However, the departmental authorities have negatived the claim of the assessee solely on the reasoning that every peripheral device connected to the computer cannot form part of the computer. However, such view of the revenue authorities cannot be the correct proposition of law in view of the ratio laid down by the Hon'ble Special Bench in case of DCIT vs. Datacraft India Limited (supra) by holding that any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression 'computer'. We may further observe that in the assessee's own case for the assessment year 2006-07, Income-tax Appellate Tribunal, Hyderabad Bench while deciding the departmental appeal in ITA Nos.701/Hyd/2009 and 426/Hyd/10 dated 9-7-2012 also upheld the order passed by the CIT (A) in allowing depreciation at the rate of 60% by treating the screen, key board, mouse, UPS, net working, router as part of the computer system and thereby eligible for depreciation at the rate of 60% as available to computer. In the aforesaid view of the matter, we are inclined to accept the assessee's contention that it is entitled to avail depreciation at the rate of 60% on those items as is applicable to 'computer'. Accordingly, we set aside the order passed by the CIT (A) by allowing the grounds raised by the assessee."
As the dispute in the present appeal is materially the same and the learned DR has not brought any contrary decision to our notice, we respectfully follow the decision of the coordinate bench in assessee's own case as referred to above and direct the AO to allow depreciation @ 60% as claimed by assessee. Accordingly, the ground raised by assessee is allowed.
5. Respectfully following the decision of the Coordinate Bench, we allow the assessee's ground on this issue.
6. The next disallowance agitated before us was with respect to disallowance of an expenditure of Rs.45,16,04,175/- u/s 40(a)(ia). The facts are that the AO disallowed Rs.45,16,04,175/- stating that the assessee did not deduct tax at source u/s 194C.
Page 10 of 18ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad The assessee entered into agreements with sister concerns and other parties for production of TV serials/programs to be telecast by the assessee company. The assessee made payments to these concerns on revenue sharing basis from income generated from advertisements by way of telecasting the serials and programmes produced. The AO held that it is immaterial whether the payments are made on outright basis or revenue sharing basis. He held that tax is liable to be directed u/s 194C and disallowed a sum of Rs.45,16,04,175/- on account of non deduction of tax under the said section. In appeal the CIT (A) upheld the action of the AO.
7. Aggrieved by the order of the CIT (A), the assessee came up in appeal before us and submitted that an identical issue came up before the ITAT A Bench, Hyderabad in assessee's own case wherein the ITAT upheld the disallowance. In this regard the assessee submitted that the sister concerns and other parties are the absolute owners of the programs, feature films, serials etc., produced by them and the assessee is not the owner of the rights over these programmes except telecasting these programmes on its TV channels. The assessee further submitted that the agreement that the assessee entered was only for telecasting the programmes produced by its sister concerns and other parties through the assessee's TV channels and the understanding was that the revenue generated on advertisements in time slots during the telecasting of the programmes would be shared between the assessee and the sister concerns. The assessee prayed that the disallowance may be ordered to be deleted.
Page 11 of 18ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad 7.1 Without prejudice to the submissions made in the preceding paragraph, the assessee submitted that the CIT (A) ought to have seen that since a part of the amount disallowed is not "payable" at the end of the year because the assessee has already made payments to the concerned parties, the provisions of section 40(a)(ia) are not applicable to the amounts paid and hence there is no justification for disallowing Rs.45,16,04,175/- while computing the income of the assessee. Suitable directions may kindly be given not to disallow the amounts already paid.
7.2 The assessee also submitted that the Allahabad High Court in its judgment in the case of CIT vs. Vector Shipping Services (P) Ltd (38 Taxmann.com 77 (357 ITR 641) upheld the finding of the ITAT that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. A copy of the decision of the Hon'ble High Court was also submitted by the assessee and the ITAT followed the ratio of the Special Bench decision in the case of M/s. Merilyn Shipping & Transport Ltd (136 ITD 23(SB).
7.3 The assessee further submitted that the Hon'ble Andhra Pradesh High Court in its judgment dated 24.06.2014 in the case of CIT vs. M/s. Janapriya Engineers Syndicate (ITA No.352 of 2014) held until and unless the decision of the Special Bench in the case of M/s Merilyn Shipping & Transport is upset by the Hon'ble jurisdictional Court, it binds smaller and coordinate Page 12 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad bench of the Tribunal. The assessee pray that in the light of the decision of the jurisdictional High Court, ITAT may direct the disallowance u/s 40(a)(ia) may not be made in so far as the assessee has already made payments before the end of the relevant accounting year, out of the amounts disallowed which have been upheld by the CIT (A).
8. We have heard both the parties. We direct that the AO may follow the decision of the Special Bench in the case of Merilyn Shipping & Transports v. ACIT in ITA No.477/Viz/2008 dated 29.03.2012 and the disallowance u/s 40(a)(ia) may not be made by the AO for the amounts/payments which have already been paid before the end of the relevant accounting year, out of the amounts disallowed which have been upheld by the CIT (A). This ground is partly allowed for statistical purposes.
9. With respect to the last ground being disallowance of expenditure of Rs.1,00,71,880/- on the ground that the same does not pertain to the year under account. AO disallowed a sum of Rs.1,00,71,880/- on the ground that the same does not pertain to the earlier years. In appeal, the CIT (A) has upheld the disallowance. Before us it was submitted that the CIT (A) failed to appreciate the fact of the case. During the A.Ys 2002-03 and 2004-05 the assessee raised bills towards advertisement charges on certain parties at prime time rates. Some of the advertisements were telecast on more number of times than agreed and upon the clients pointing out such Page 13 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad mistakes, credit notes were given for excess amount bills on them by debiting to prior period expenses. The concerned amount worked out to Rs.1,00,20,532/-. The assessee also paid a sum of Rs.47,711/- towards bonus relating to A.Y 2004-05 and debited the same to prior period expenses. The CIT (A) ought to have deleted the disallowance. In this connection it is submitted that identical issue came up for consideration before the B Bench of the ITAT Hyderabad for A.Y 2007-08 and the disallowance has been directed to be deleted vide ITAT in ITA No.1535/Hyd/2010 and 1552/Hyd/2010 dated 10.05.2013. The issue has been discussed at Para Nos.9 to 13 of the order of the ITAT. Assessee prayed that following the said order, the disallowance may be directed to be deleted.
10. We have heard both the parties. The Coordinate Bench of the Tribunal in ITA No.1535/Hyd/2010 and ITA No.1552/Hyd/2010 dated 10.05.2013, has held as follows:
"9. The next issue, which is involved in ground No.3 of the assessee is with regard to disallowance of prior period expenses of Rs.2,38,85,000.
10. Facts of the case in relation to this issue are that the Assessing Officer has added an amount of Rs.2,38,85,000 on the ground that the expenditure does not pertain to the year under appeal. On appeal before the CIT(A), assessee submitted that the said amount pertains to excess amounts billed to various parties in the earlier years, which were rectified, on being pointed out by the said parties, and accordingly debited to the Profit & Loss Account. The learned Authorised Representative of the assessee submitted an details before the CIT(A), clarifying the nature of the amounts and allowability of deduction in respect thereof. The CIT(A), not finding merit in the contentions of the assessee, upheld the action of the Page 14 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad Assessing Officer in disallowing the amount of Rs.2,38,85,000 on the ground that the expenditure in question does not pertain to the year under appeal, and the assessee has not incurred any exp, but has written off income of earlier years.
11. Before us, on appeal, the learned counsel for the assessee, Shri Siva Kumar, submitted that the CIT(A) has not appreciated that in the earlier assessment years, bills were raised to the extent of Rs.2,38,85,000, towards advertisements for prime time slots on certain parties, but as the said programmes were not telecast, during the prime time or telecast for lesser number of times than agreed upon, and when the parties pointed out such mistakes/discrepancies, they were given credit for excess amounts billed against them, by debiting to prior period expenses. Hence, the CIT(A), according to him, erred in confirming the disallowance on the ground that the expenditure is not relating to this year, and the income is written off. Alternatively, the learned counsel argued that since the excess billing of Rs.2,11,34,759 out of Rs.2,38,85,000 was offered to tax in the earlier years, and it is written off to Profit & Loss Account in the year under appeal as prior period adjustment, the same should be allowed as deduction as bad debt, since such amounts were considered as income in earlier years.
12. The learned Departmental Representative on the other hand, opposing the above contentions of the assessee on this issue, supported the order of the CIT(A).
13. We have considered the rival submissions and perused the orders of the lower authorities. Though in principle, we are agreement with the disallowance made by the Revenue authorities, we find merit in the alternative contention of the assessee. Inasmuch as if an amount of Rs.2,11,34,759 out of total amount of Rs.2,38,85,000 was already offered to tax in the earlier years, the prior period adjustment made in that behalf by the assessee, on account of the concerned parties declining to make the payments due to discrepancies in the billing, the same should be allowed as deduction as bad debts. We therefore, set aside the impugned order of the CIT(A) and direct the Assessing Officer accordingly to restrict the disallowance made. Assessee's grounds on this issue are partly allowed.
11. Respectfully following the decision of the Coordinate Bench in ITA and 1552/Hyd/2010 (Supra), we delete the disallowance made by the CIT (A).
Page 15 of 18ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
12. In the result, appeal filed by the assessee in ITA No.676/Hyd/2009 is partly allowed for statistical purpose.
ITA No.411/Hyd/2010 A.Y 2006-07:13. In this appeal, two grounds are raised by the assessee viz., disallowance of expenditure u/s 40(a)(ia) and disallowance of expenditure, on the ground that the same does not pertain to the year under account. The CIT (A) confirmed the disallowance made by the AO u/s 40(a)(ia) of the I.T. Act on the ground that the assessee failed to deduct the tax at source u/s 194C of the Act on software expenses paid to M/s Ushakiron Television and M/s Ushakiron Movies and M/s Arjoe Entertainment India (P) Ltd. Before the CIT (A) it was submitted that since the assessee has already paid a part of the amount, out of Rs.43,16,33,123/- to various parties, such amounts are not payable at the end of the year and therefore, there is no justification in disallowing Rs.43,16,33,123/- u/s 40(a)(ia), while computing the income of the assessee. The CIT (A) following the decision of his predecessors in assessee's own case for 2005-06 held at Para 6.4 as follows:
"6.4 Since the facts of the case are identical in the current year also, I am in full agreement with the order of my predecessor that the above payments are covered u/s 194C of the Act, falling within the purview of clause
(b) below explanation (iii) of the aforementioned section.
Since the appellant did not deduct TDS, the disallowance of Rs.43,16,33,123/- made by the AO is held to be justified and no interference is called for. This ground of appeal is accordingly decided in favour of the Revenue and against the appellant".
Page 16 of 18ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad
14. Aggrieved, the assessee preferred appeal before us. For the A.Y 2005-06, we have already decided similar issue for A.Y 2005- 06 following the decision in ITA No.676/Hyd/2009 wherein we have concluded at para 8 as follows:
" 8. We have heard both the parties. We direct that the AO may follow the decision of the Special Bench in the case of Merilyn Shipping & Transports v. ACIT in ITA No.477/Viz/2008 dated 29.03.2012 and the disallowance u/s 40(a)(ia) may not be made by the AO for the amounts/payments which have already been paid before the end of the relevant accounting year, out of the amounts disallowed which have been upheld by the CIT (A). This ground is partly allowed for statistical purposes".
15. With respect to the last ground raised by the assessee in this appeal before us that the ld CIT (A) erred in confirming the disallowance of Rs.19,09,064/- made by the AO on the ground that the said expenditure does not pertain to the year of account and that the assessee did not incur any expenditure but wrote off income of earlier years. It was submitted by the ld Counsel that the CIT (A) ought to have seen that the assessee raised bills to the said extent of Rs.1,00,71,880/- in the earlier years towards advertisements of certain parties and on being pointed out that those advertisements were not telecast as contracted, credit notes were given to them by debiting prior period expenses. Hence the disallowance ought not to have been sustained. The Coordinate Bench of the ITAT has decided in ITA Nos. 1535 and 1552/Hyd/2010 dated 10.05.2013 on this issue. Following the said order, the disallowance was directed to be Page 17 of 18 ITA Nos.676 of 09 and 411 of 2010 Ushodaya Enterprises Ltd Hyderabad deleted in A.Y 2005-06 after extracting the order at Para No.10 for the A.Y 2005-06 at pages 14 and 15. Respectfully following the same, we delete the disallowance made by the CIT (A).
16. In the result appeal filed by the assessee in ITA No.411/Hyd/2010 is treated as partly allowed for statistical purposes.
Order pronounced in the Open Court on 7th January, 2015.
Sd/- Sd/-
(P.M. Jagtap) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Hyderabad, dated 7th January, 2015.
Vnodan/sps
Copy to:
1. M/s. Ushodaya Enterprises Ltd., 6-3-570 Somajiguda, Hyderabad
2. The Dy. Commissioner of Income Tax, Circle 16(2) Hyderabad
3. The CIT(A) - V Hyderabad
4. The CIT -IV Hyderabad
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 18 of 18