IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `G', NEW DELHI
BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER
AND
SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No.2977& 2978/DEL/2015
Assessment Years: 2005-06 & 2007-08
M/s. T. V. Today Network Addl. CIT
Limited Vs Range- 16
F-26, Connaught Place, New Delhi
New Delhi
PAN No. AABCT0424B
(APPELLANT) (RESPONDENT)
ITA No.3933 & 3934/DEL/2015
Assessment Years: 2005-06 & 2007-08
DCIT M/s. T. V. Today Network
Circle 25 (2), C. R. Vs Limited
Building, I. P. Estate, F-26, Connaught Place,
New Delhi New Delhi
PAN No. AABCT0424B
(APPELLANT) (RESPONDENT)
Appellant by Sh. Salil Aggarwal, Advocate
Sh. Shailesh Gupta, Advocate
Respondent by Sh. N. K. Bansal, Sr. DR
Date of hearing: 08/08/2019
Date of Pronouncement: 16/08/2019
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ORDER
PER N. K. BILLAIYA, AM:
ITA No.2977/Del/2015 and 3933/Del/2015 are cross
appeals by the assessee and the revenue preferred against the
order of the CIT(A) -17, New Delhi dated 19.03.2015 pertaining to
A. Y.2005-06.
2. ITA No.2978/Del/2015 and 3934/Del/2015 are cross
appeals by the assessee and the revenue preferred against the
order of the CIT(A)-17, New Delhi dated 19.03.2015 pertaining to
A. Y.2007-08. Since common issues are involved in all these
appeals they were heard together and are disposed of by this
common order for the sake of convenience.
3. We will first take up revenue's appeal for the captioned
assessment years. The common grievance relates to the deletion
of the disallowance made by Assessing Officer on account of
accrued incentive to staff though the quantum may differ in the
captioned assessment years.
4. At the very outset the counsel for the assessee stated that
the disputed issue has been settled by the Tribunal in
subsequent assessment years in favour of the assessee and
against the revenue.
5. The DR fairly conceded.
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6. We have carefully considered the orders of the authorities
below. We find force in the contention of the Ld. Counsel. We
find that similar issue was considered by the Tribunal in
assessee's own case in ITA No.2452/Del/2013 and others. The
relevant findings of the coordinate bench read as under :-
"6. The 1st disallowance contested by the assessee is with respect to the
disallowance of Rs. 20569764/- on account of accrued incentive. The assessee
explained that these expenses have been incurred in respect of the payments to be
made to the employees for encouraging them to promote business of the assessee.
Assessee also submitted that the incentive is meant for the employees which is
pertaining to the financial year 2003-04. It is based on the performance of the
employees and it has become due and payable to them based on certain criteria
such a collection of sales, determination of profits after audit of annual account etc.
The learned assessing officer noted that assessee has failed to discharge the onus
cast upon him to prove that these expenses which have been claimed under
section 37 of the Income Tax Act by furnishing relevant specific details as well as
the name of employees. He also noted that assessee has failed to prove that these
expenses were incurred wholly and exclusively relief for the purposes of business.
The learned AO further noted that assessee also could not prove that the alleged
payees have included respective amount into their corresponding income in
addition to the salary. The learned Assessing Officer therefore noted that these
expenses are neither ascertained during the previous year and not incurred during
the financial ear. Therefore, he disallowed the above sum.
The assessee challenged the same before the learned CIT - A who confirmed the
disallowance for the reason that the assessee could not prove before him that the
provision has been made on scientific basis.
Therefore the same has been challenged before us by the learned authorised
representative. He submitted that above sum is incentive meant for employees
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which is pertaining for the financial year 2003 - 04. He further stated that incentives
which are based on the performance of the employees become due and payable to
them based on certain criteria such as collection on sales, determination of profits
after audit of the annual account. He further stated that the tax could have been
deducted at source only at the time of payment as the above amount is chargeable
to tax under the head salaries in the hands of the employees. He therefore
submitted that above amount of expenditure is ascertained and accrued during the
year therefore same should have been allowed.
9. The learned departmental representative vehemently supported the order of
the lower authorities and submitted that when assessee could not furnish details of
the expenditure before the lower authorities and also could not show that how above
expenditure has been incurred by assessee during the year, therefore same has
been correctly disallowed.
10. We have carefully considered the rival contention and find that the
assessee has made a provision for the performance based incentive of the
employees. The assessee has given a complete detail of these expenditure of the
provisions made for the year. The assessee has also stated that no tax is required to
be deducted u/s 192 of the income tax act unless the salaries are paid to those
employees. The assessee has also stated that the performance is with respect to the
sales, collection of sales etc. On perusal of page Nos. 1 to 7 of the details furnished
by assessee before the learned CIT(A) which shows that the assessee has submitted
the complete detail of the employee wise accrued incentive as well as the closing
balance as on 31-3-2004, amount debited during the year and actual payment
made by the assessee in the subsequent year. The above provision has been made
by the assessee on year-to-year basis on the basis of the performance of the
employees. The excess provision is always written back to the profit and loss
account in the subsequent year, if it is found to be short, further provision is made.
This accounting practice is carried on by the assessee consistently. As the
expenditure has been incurred for the incentive of the employees of the company
raised on their performance for the same year for which the actual services have
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been rendered by the employees, above expenditure has been incurred by the
assessee during the year only and exclusively for the purposes of the business. As
the above expenditure has been made on the basis of the performance of the
employees and allocated to each of the employees it is an ascertained provision.
According to us it is a definite and accrued liability of the assessee for the year for
which the services have been rendered by the employees. It is nothing but
additional variable salaries payable to the employees. Same partakes character of
salary.
Accordingly we reverse the finding of the lower authorities and allow the ground
number 2 of the appeal of the assessee directing the learned assessing officer to
delete the disallowance of Rs. 20569764/- on account of accrued incentive of the
staff. Accordingly, ground No. 2 of the appeal of the assessee is allowed."
7. As no distinguishing facts have been brought to our notice,
respectfully following the findings of the coordinate bench. The
appeals by the revenue for both the assessment years are
dismissed.
8. Coming to the appeals of the assessee the common
grievance relates to the addition made u/s.14A of the Act though
the amount of disallowance may differ in the impugned
assessment years.
9. During the course of the scrutiny assessment proceedings
the Assessing Officer noticed that the assessee has earned
dividend income and claimed the same as exempt from tax. The
Assessing Officer was of the opinion that since the assessee has
not made any disallowance of expenditure incurred for earning
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the exempt income, he invoked the provisions of section 14A and
assumed that the 15% of the exempt income as expenditure
towards earning the interest free income. Rs.1649367/- was
disallowed in A. Y. 2005-06.
10. However, in A.Y.2007-08 the Assessing Officer computed the
disallowance by invoking rule 8D and computed the disallowance
u/s. 14A at Rs.23,75,000/-.
11. The assessee carried the matter before the CIT(A) but
without any success.
12. Before us the counsel for the assessee vehemently stated
that in both the assessment years the Assessing Officer has not
recorded any satisfaction and without recording any satisfaction
the Assessing Officer made disallowance u/s. 14A of the Act. The
counsel further stated that in A. Y.2007-08 the Assessing Officer
has erroneously invoked rule 8D which is not applicable for the
relevant assessment year.
13. Per contra the DR strongly supported the findings of the
Assessing Officer. It is the say of the DR that even if rule 8D is
not applicable some reasonable disallowance has to be made for
the expenditure incurred for earning the exempt income.
14. We have carefully considered the orders of the authorities
below. The perusal of the balancesheet of the assessee as at
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31.03.05 shows that investment of Rs.309045238/- was made
during the year itself. It is true that the Assessing Officer has not
recorded any satisfaction as regards to the accounts of the
assessee. It is equally true that the assessee has also not
disallowed any expenditure for earning the exempt income.
Though the entire investment as per schedule of the balance
sheet is towards mutual funds of various companies but in our
considered opinion the assessee must have incurred some
expenditure in making these investments. Some employees must
have been engaged for selecting the mutual funds for making the
investments. In our considered view some element of expenditure
cannot be ruled out. We are of the considered view that a
disallowance of Rs.1,00,000/- should meet the ends of justice.
We accordingly direct the Assessing Officer to restrict the
disallowance to Rs.1,00,000/- in A.Y.2005-06.
15. It is now well settled that rule 8D is applicable from
A.Y.2008-09 and, therefore, the Assessing Officer has grossly
erred in applying rule 8D in A. Y.2007-08. A perusal of the
balancesheet as at 31.03.07 show that the investments have
increased during the year from the immediately preceding
financial year.
16. As discussed here in above some element of expenditure
cannot be ruled out for this year also. We accordingly direct the
Assessing Officer to restrict the disallowance of Rs.1,00,000/- for
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this year also. We direct accordingly. In the result the common
grievance of the assessee is partly allowed.
ITA No.2977/Del/2015
17. The other grievance relates to the disallowance of
Rs.24084750/- on account of expenditure incurred for the
purpose of giving new look to the channel Aaj Tak.
18. Facts on record show that during the course of the
assessment proceedings the Assessing Officer noticed that an
expense of Rs.2.66 crores has been incurred by the assessee for
giving new look to Aaj Tak. The Assessing Officer was of the firm
belief that such expenditure gave enduring benefit to the assessee
and cannot be allowed as revenue expenditure.
19. The Assessing Officer accordingly treated the expenditure as
capital expenditure and after allowing deprecation @15%,
Rs.24084750/- was disallowed.
20. The assessee carried the matter before the CIT(A) but
without any success.
21. Before us the counsel for the assessee stated that the
expenditure is a routine expenditure to uplift the presentation of
Aaj Tak channel and, therefore, the expenditure cannot be treated
as capital expenditure.
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22. Per contra the DR strongly relied upon the findings of the
CIT(A). It is the say of the DR that the CIT(A) while dismissing the
appeal of the assessee has considered various judgments of the
Hon'ble High Court and Hon'ble Supreme Court and came to the
conclusion that the expenses incurred for new look of the TV
channel are not routine expenses and, therefore, cannot be
treated as revenue expenditure.
23. We have given a thoughtful consideration to the orders of
the authorities below. The Aaj Tak channel which started from
1999 with a logo needed fresh look because of the passage of time
and cut throat competition and for improving the viewership the
logo was given a fresh look for which the assessee had incurred
impugned expenditure. In our considered opinion the Aaj Tak
logo was already there and by incurring the impugned
expenditure the assessee has only enhanced its look by giving
fresh and improved technical face.
24. We are of the considered view that such expenditure is a
routine expenditure. No doubt some enduring benefit will accrue
to the assessee but giving a fresh look to the existing logo, no new
asset was created and there was no addition to or expansion of
the profit making apparatus of the assessee. The Hon'ble
Supreme Court in the case of Empire Jute Co. Ltd 124 ITR 1 has
held as under :-
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(ii) There may be cases where expenditure, even if incurred for obtaining an
advantage of enduring benefit, may, none the less, be on revenue he test of
enduring benefit may break down. It is not every advantage nature acquired by
an assessee that brings the case within the principle laid down in this test. What is
material to consider is the nature of the advantage in a commercial sense and it is
only where the advantage is ii field that the expenditure would be disallowable on
an application If the advantage consists merely in facilitating the assessee's
trading operations or enabling the management and conduct of the assessee's
business on more efficiently or more profitably while leaving the fixed cap: ft the
expenditure would be on revenue account, even though the ad endure for an
indefinite future. The test of enduring benefit is, . a certain or conclusive test and it
cannot be applied blindly and without regard to the particular facts and
circumstances of a given case.
(iii) What is an outgoing of capital and what is an outgoing on account of
revenue depends on what the expenditure is calculated to effect from a partical
and business point of view rather than upon the juristic classification of the legal
rights, if any, secured employed or exhausted in the process. The question must
be viewed in the larger context of business necessity or expendiency
25. Considering the facts of the case in the light of the ratio laid
down by Hon'ble Supreme Court (supra) we direct the Assessing
Officer to treat the impugned expenditure as a revenue
expenditure and allow the same after withdrawing the
depreciation. The second grievance in A.Y.2005-06 is allowed.
26. The second grievance in A. Y.2007-08 relates to the
disallowance of Rs.109210/- on account of bad debt and
advances written off.
27. Facts on record show that during the course of assessment
proceedings the Assessing Officer noticed that the assessee has
written off advances of Rs.109210/-. The assessee was asked to
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explain as to why the quantum of these advances written off
should not be disallowed.
28. The assessee filed the relevant details and further relied
upon certain judicial decisions. The Assessing Officer was not
convinced with the reply of the assessee and was of the firm belief
that write off of advances cannot be treated as bad debts and
made addition of Rs.109210/-.
29. The assessee agitated the matter before the CIT(A) but
without any success.
30. Before us the counsel for the assessee stated that the
Assessing Officer has not appreciated the facts in their true
perspective. It is the say of the counsel that both the lower
authorities have considered the write off of the advance as claim
of bad debts though the advances were given in the ordinary
course of business and since the assessee could not recover the
advances or the services for which the advances were given, the
advances were write off and claimed as business loss.
31. Per contra the DR strongly supported the findings of the
Assessing Officer.
32. We have carefully considered the orders of the authorities
below. It is true that the write off of advances do not fulfill the
conditions laid down for claiming the bad debts but it is equally
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true that the said write off should not be considered as bad debts
but has to be considered as business loss. Considering the facts
of the case in their true perspective we are of the considered view
that the write off should be allowed as business loss u/s. 28 of
the Act. We accordingly direct the Assessing Officer to delete the
addition made.
33. The ground No.2 in A. Y.2007-08 is allowed.
34. In the result, the appeals of the assessee are partly allowed
and those of revenue's are dismissed.
Order pronounced in the open court on 16.08.2019.
Sd/- Sd/-
(SUDHANSHU SRIVASTAVA) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*NEHA*
Date:- 16.08.2019
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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Date of dictation 09.08.2019
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dictating Member
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Other member
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Dictating Member for Pronouncement
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