Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Integrated Subscribers ... on 19 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER
AND
SMT. BEENA A. PILLAI, JUDICIAL MEMBER
I.T.A. No. 2863/Del/2013
(Assessment year 2008-09)
I.T.A. No. 3497/Del/2014
(Assessment Year 2007-08)
DCIT Integrated Subscribers
Circle 11(1), New Delhi. Management Services
Ltd.,
Vs B-10, Essel House,
Lawrence Road, Indl.
Area, New Delhi
GIR/PAN : AABCI1535J
(Appellant) (Respondent)
I.T.A. No. 2858/Del/2014
(Assessment Year 2009-10)
DCIT M/s Essel Business
Circle 11(1), New Delhi. Processors, Ltd.,
B-10, Essel House,
Vs Lawrence Road, Indl.
Area, New Delhi
GIR/PAN : AABCI1535J
(Appellant) (Respondent)
Appellant by : Sh. Anil Kumar Sharma, Sr. DR.
Respondent by : Sh. Sanjeev Sapra, FCA
Date of hearing : 10.01.2017
Date of Pronouncement : 19.01.2017
ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/13
ORDER
PER BEENA A. PILLAI, JM:
1. The present appeals have been preferred by the revenue against order dated 14.03.2014 for assessment year 2007-08 and order dated 26.03.2013 for assessment year 2008-09 and 2009-10 passed by Ld. CIT (A)-5 and Ld. CIT (A)-15, New Delhi respectively on the following grounds of appeal.
(Assessment year 2007-08)
1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 47,41,035/- made out of smart card support fees;
2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.
(Assessment year 2008-09)
1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 69,53,120/- made out of smart card support fees;
2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.
(Assessment year 2009-10)
1. On the facts and circumstances of the case in law, the CIT(A) has erred in deleting the addition of Rs. 56,84,920/- made out of smart card support fees;
Page 2 of 8 ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/132. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.
2. The brief facts of the case are as under:
Assessee had filed its return of income for the years under consideration as under:
S. Asst. Yr. Date of filing Declared income in No. of return Rs.
1. 2007-08 31/10/2007 Nil
2. 2008-09 27/11/2008 Nil
3. 2009-10 29/09/2009 (-)17,60,66,161/-
The case was selected for scrutiny and notices under section 143 (2) alongwith the questionnaires were issued and served upon the assessee within the prescribed period. The representatives of the assessee appeared before the Assessing Officer in respect of these assessment years. During assessment proceedings Ld. AO observed that assessee was providing control access system (CAS) services to dish TV. Dish TV is engaged in providing DTH services to its customers and offers various packages/up options. It was observed that each package has some restrictions being the number of channels, period etc., and a smartcard being a hardware embedded with Page 3 of 8 ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/13 security module to control the conditional access of set-top boxes. Ld. AO after going through the submissions made by assessee observed that it had claimed expenditure on account of smartcard support fee and license fee paid by assessee, that was considered by assessee as revenue expenditure. Ld. AO disallowed the smartcard support fee by holding that the expenditure should be increased in proportion of the revenue. Aggrieved by the order of Ld. AO, assessee preferred an appeal before Ld. CIT (A) on these additions.
3. Before Ld. CIT (A) the assessee disputed the disallowance made of expenditure of the smart card support fees. It was submitted that the smartcard support fees has increased by 95% whereas the receipts have gone up only by 68% because of which Ld. AO disallowed the proportionate difference between the increase in expenses and receipts. It was submitted before the Ld. CIT (A) that Assessing Officer had not pointed out any other specific reason for disallowance except increase in the expenses as compared to the receipts. Ld. CIT (A) on going through the detailed submissions advanced by assessee allowed the claim of the assessee in respect of the smartcard support fees.
4. Aggrieved by the relief granted by Ld. CIT (A) the revenue is in appeal before us now.
5. Ld. DR relied upon the order passed by the Assessing Officer.
Page 4 of 8 ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/136. Ld. AR has filed the written submissions referring to various pages of the paper book filed and has relied upon various judgments therein. He supported the findings of Ld. CIT (A).
7. We have perused the contentions advanced by both the sides in the light of the records and the submissions placed before us.
8. All these assessment years under consideration involve a common issue regarding relief granted by Ld. CIT (A) in respect of smartcard support fees paid by assessee. We are, therefore, inclined to dispose of this ground for all these years by way of a common order.
9. It has submitted by Ld. AR in written submission that assessee has made the payment towards smartcard support charges as per the agreement dated 20.01.2004 entered into between assessee and M/s Conax Access Systems Pvt. Ltd., which has been placed at pages 41 to 58 of the paper book. It has also been submitted in that smartcard support charges paid to M/s Conax Access Systems Pvt. Ltd., is a deductible expenditure for the previous assessment years 2004-05 to 2006-07 which has been allowed by the authorities below. The assessment order for assessment year 2006-07 was completed under section 143(3) vide order dated 28.11.2008 wherein this expenditure has been considered by Assessing Officer and allowed. It is observed that Ld. AO has neither doubted the genuineness of such expenses nor has pointed out even a single Page 5 of 8 ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/13 instance where expenses were not supported by any evidences. Ld. AO has proceeded to make an ad hoc disallowance without any basis. Ld. CIT (A) has observed as under for assessment year 2007-08 while deciding the issue:
"As regards, the disallowance of Rs.47,41,035/- on account of support fee expenses the argument of the appellant is that the AO has failed to appreciate that income and expenditure cannot increase or decrease in same proportionate ratio particularly in service industry. Referring to the copy of the agreement under which the appellant has incurred the expense of smart card support fee of Rs. 1,31,56,4397- as payable to Conax Access System (P) Ltd. and in particular Para 2.1 & 2.2 as well as clause 1 of Schedule 2 of the agreement the appellant has argued that such service fee payment is calculated per user smart card and that Conax shall invoice Essel monthly for the CA service operation and consulting services , rendered under this agreement , in the preceding month. It has been argued that based on such terms and conditions such fee payable is a revenue expense. Reliance has also been placed on the various decisions of the Hon'ble Courts wherein it is held that the revenue cannot put himself in the arm chair of the businessman and assume the role to decide how much of the expense is reasonable expense having regard to the circumstances of the case.
In my considered view, in view of the nature of expenses as narrated in the agreement between the assessee and Conax it is held that the support fee expense is a revenue expense allowable u/s 37(1) of the I.T. Act. In this connection it is seen that even the AO has not made any disallowance on this account on the ground that the same is a capital expense. This fact Is apparent from the fact that out of the total support fee expense claimed of Rs.l,31»56,439/-, the Page 6 of 8 ITA No. 2863/Del/2013, ITA No. 3497/Del/14 and ITA no.2858/Del/13 expense of Rs.84,15,404/- has been allowed by the AO himself. I am also in agreement with the argument of the AO that there cannot be any one to one direct co-relation between earning of income and incurring of expenditure in a business, particularly in service sector. In view thereof and also in agreement with the finding of the CIT(A)-XV in appellant's own case for AY 2008-09 who has vide order dated 26.3.2013 deleted the addition made with respect to smart card support fee itself , the appeal is allowed and the addition made for Rs.47,41,035/- is directed to be deleted."
10. We do not find any infirmity in the above findings which is backed by a consistent approach by the Department in the previous assessment years. We are, therefore, inclined to uphold the same and dismiss the appeals filed by the revenue for all the assessment years under consideration.
Accordingly the revenue's appeal filed for assessment year 2007-08, 2008-09 and 2009-10 stands dismissed.
Order pronounced in the open court on 19th January, 2017.
Sd/- Sd/- (J. S.REDDY) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 19.01.2017 @m!t Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy. By Order
(ITAT, New Delhi)
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