TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 527
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....nditure of Rs. 58.65 crore; 3) Legal and professional fee of Rs. 7,13,63,513/- ; and finally 4) the addition u/s 68 amounting to Rs. 398.29 crore ( both domestic as well as from non-residents). Before we deal with these issues, we shall take up the relevant facts of the assessee and the issues. 3. Background Facts: General facts include that the assessee is engaged in the 'telecasting of TV channel and providing broad casting services'. Assessee filed the loss return of income Declaring the loss of Rs. (-) Rs. 270.85 cr (rounded off). Said loss was further revised to (-) Rs. 276.39 cr. However, in the assessment, AO determined the assessed income at Rs. 277,00,41,030/-, a positive income. AO made additions amounting to Rs. 553,39,44,622/-. During the first appellate proceedings, the assessee got substantial relief on many accounts. Aggrieved with the same, the revenue is in appeal, we shall now deal with each of the issues raised by the assessee and revenue in their respective appeals. 6345/M/2011 - Assessee's appeal 4. Confirming of addition of Rs. 1,61,798/- AIR information: Facts are that the AO was in possession of AIR information and during the assessment proceedings, the a....
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.... the AO and held that the cost of each item has to be amortised to the extent of 85% in the year of telecast and the balance 15% constitutes a 'residual value'. As per the contents of para 4.26 of FAA's order, the content cost constitutes a 'revenue expenditure' in principle and the claim to the extent of 85% needs to be written off in current year and the balance of 15% can be written off over three years @ 5% each year. Thus, CIT(A) granted relief to assessee to the extent of Rs. 75,70,10,330/- and confirmed the addition of Rs. 13,35,90,058/-. Aggrieved, both the parties are in appeal before us. 8. Before us, Ld. DR opposes the deletion of the addition to the extent of Rs. 75,70,10,330/- and submitted that the CIT(A) has no basis or any reason for his decision of write off to the extent of only 85% of the cost in current year and the balance in 3 instalments of 5% each. Referring to the case of Zee Entertainment Enterprises Ltd x UTV, Ld. DR submitted in writing that whole of the same should at least be amortised in 3 years. Actually in the assessment order, without prejudice, AO also expressed the same in his own language ie the suitable no. of years. DR's submission dated 23.1....
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....rently amortized over a period of time depending upon the agreement and the nature and potential of the TV Programs and Film Rights. The total such amortization under these three heads works out to Rs. 76.41 Crs (rounded off) and the same is accounted on scientific basis without treating them as current assets with the facility of amortization and not by naming them as intangible assets claiming depreciation. 20. During the proceedings before us, Ld Counsel for the assessee supported the accounting method of the assessee in this regard and submitted that the 'News items' do not have long life and they are not fit for repeated broadcasting and therefore, News and the non-fiction items have to be amortized in toto in the year of acquisition and use. Therefore, considering the same this part of the purchases of News items and non-fiction items are rightly debited to the P & L Account under the head 'operational cost'. The decision based on a scientific analysis and therefore, the decisions of the AO and the CIT (A) are required to be reversed on these claims relating to the News / non-fiction items. Ld AR relied on the judgment of the Hon'ble Delhi High Court in the case of Televisi....
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....Programs / Film Rights as bait for attracting the advertisements and Television Rating Point (TRP) rates. In that sense, the said rights do not constitute current assets. Therefore, these items constitute intangible assets, which are eligible for depreciation and therefore, the amortization adopted by the assessee should dismissed as done by the Revenue Authorities during the assessment as well as first appellate proceedings. 23. During rebuttal time, Ld Counsel for the assessee filed a copy of the order of the ITAT, Chennai Bench in the case of ACIT vs. M/s. Sun TV Networks Ltd in ITA Nos.1515 to 1520/Mds/2013 for the AYs 2004-05 to 2009-10, dated 31.10.2013 and submitted that the issue of amortization of TV Programs and Film Rights was approved in the said order vide paras 8 and 9 of the said Tribunal's order. The said paras read as under: "8. Now, we take up the common issue involved in all the appeals. The assessee is in the business of running satellite television channels. These channels telecast films, serials etc through satellite channels. The rights over these films are purchased from the producers of the respective films for broadcasting through satellite television....
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....the detailed findings and the reasoning given by the CIT (A) in his order allowing this ground of appeal of the assessee. For the sake of brevity, we are not reproducing the finding of the CIT (A) in accordance with the judgment of the Hon'ble Supreme Court of India in the case of CIT vs. K.Y. Pillah & Sons reported as 63 ITR 411 subsequently followed by the Hon'ble Delhi High Court in the case of CIT vs. Global Vantedge (P) Ltd reported as 354 ITR 21 (Del). The Ld DR has not been able to controvert the well reasoned order of the CIT (A) on the issue. Accordingly, the findings of the CIT (A) on the issue are affirmed and this ground of appeal of the Revenue in respect of all the AYs is dismissed." 24. Further, on the issue of allowability of the claim on the news items / non-fictional items, Ld Counsel for the assessee also brought our attention to the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Television Eighteen India Ltd (No.1) [2014] 364 ITR 597 (Delhi), wherein the issue relating to news / non-fictional items, was decided in favour of the assessee, and read out the held portion of the said judgment which reads as under: "Held, dismissing the appeal, t....
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....cribing the items as 'intangible assets' for the purpose of invoking the provisions of section 32(ii) of the Act. We rely on the above referred Delhi High Court's Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore, considering all the points mentioned above, we are of the firm opinion that the decision of the AO/CIT(A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non fictional items as an allowable expenditure. Accordingly, we direct the AO to delete the relevant addition. b. On the debits relating to the purchases of the TV Programs/Film rights: Assessee amortised the 'inventories' as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the....
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....o the assessee. With these directions, the issue raised in both appeals are allowed as above. 12. In the result, the appeal of the assesse is allowed protanto. ITA No. 7216/M/2011 - Revenue appeal 13. Revenue raised four substantial issues in its appeal. 1st issue relates to the 'content cost' - its amortization. This issue is similar to the 2nd issue raised in the appeal of the assessee. In our adjudication, slightly deviating from the order of the Tribunal in the case of Zee Media Corporation supra, we held that the content cost constitutes revenue in nature and the entire such cost already telecost in the current year, needs to be allowed in full in this year considering the principle of exploitation of rights and the balance is required to be amortized on the industry's accounting policy. In this regard, AO was directed on this issue to follow the Tribunal's order in case of Zee Media Corporation (supra) with appropriate modification mentioned above. Accordingly, this issue is partly allowed. 14. Second issue relates to sales promotion & advance expenses amounting to Rs. 58,65,13,438/-. Relevant facts are that the assessee claimed expenses of Rs. 70,38,16,126/- under advanc....
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....years to come and these expenses needed to be capitalised. 4. The expenses were required to be amortized and these should have been amortized over suitable number of years as is being done by the industry peers such as UTV Software Communications Limited. 5. These expenses were in the nature of deferred revenue expenses which were required to be amortized over a number of years since this was the first year of operations of the company and part of the expenses related to prior period before the company commenced its commercial operations" 17. The above it is evident that the revenue is on the matching principle ie assessee cannot be allowed to claim huge expenditure against meagre income reported in this year. In the process, revenue lost the much established accounting principle of 'Mercantile System of Accounting' by the assessee in this year under consideration. We also find that the decisions relied on by the AO are distinguishable on both facts and legal issue. They are not on the brand building related issues. On the other hand, the decision in case of Core Healthcare Ltd and others (supra) on this issue only. Nothing is made out by the Ld. DR that cricket sponsoring ex....
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....- IRDETO CA) of 5000 nos. for sum of Rs. 1,53,75,000/-. The delivery date is 06.08.2007. Describing the details on the said purchase order ld. AR fairly submitted that the same was not there before the AO. Further, he could not file original purchase order also before us. It is not clear as to the appropriate date of set up or commencement of this line of business. There is no availability of an expert opinion in this matter too. However, it is the argument of Ld. AR that the business is set up as an 'essential activity' is started and also first purchase as the case may be. Assessee relied on the judicial pronouncement in case of Hughes Escorts Communication, 106 TTJ 1065 (Del) and Victories I. Pvt. Ltd. 169/M/12 for the above legal propositions. To sum up, it is the player of Ld. AR that the AO's conclusion that the set up is not completed till Nov. 2017, is incorrect and it should be reversed to 01.06.2007. 20. Ld. AR filed a letter dated 13.02.2017 on the said issue and submitted in writing that the said 'purchase order' dated 30.05.2007 constitutes as proforma invoice only. They raised the genuineness issue of this order. Further, referring to an agreement for channel placeme....
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....nnel 9X is launched) should be treated as capital expenditure as it pertained to 'prior period'of set up of the business of the assessee is incorrect. In this aspect, the reliance is placed on the decision of the Tribunal, Delhi Bench in the case of Hughes Escorts Communications Ltd vs. JCIT (106 TTJ 1065)....." 21. Ld. AR analysed the facts of the said case of Hughes Escorts and mentioned that the assessee's claim of expenses after set up and till date of commencement of business is held allowable by the High Court vide 311 ITR 253. 22. We have heard the parties and perused the Paper book / written submissions etc. Undisputed facts are that the date of "set up" and "date of commencement of business" are different as per assessee. '01.06.2007' is the date of "set up" and 'Nov 2007' is the date of "commencement of business". Assessee's claim that the expenditure incurring during this period 1.06.2007 and Nov 2017 constitutes "business expenditure" of the year. Per contra, Ld. DR claims that the date of set up of business suffer from lack of evidence and the cited purchase order dated 30.05.2007 does not command the genuineness in the absence of original bills or third party confi....
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....263.28 Crs on accounts of share application money, share capital and preferential share capital with premium. 25. During the assessment proceedings, AO invoked the provisions of section 68 of the Act. The issie of premium of Rs. 862.15 per share, FIPB approved only Rs. 4.6 Crs and balance of Rs. 263 Crs is introduced without any approval. However, the CIT (A) gave relief and we shall now take up the investments garnered from the residents and the non-residents separately. 26. Residents: Regarding the investments received from the case of residents, the case of the AO is that the assessee failed to meet the requirement of the conditions specified in the provisions of section 68 of the Act. It is also case of the AO that the assessee failed to discharge the onus on these conditions. AO also suspects the genuineness of the transactions as the assessee brought in the capital through many layers of companies before these investments found their way to the account of the assessee on account of equity share capital. There is huge / lot of dispute on facts relating to the identity, creditworthiness and genuineness of transactions of the said companies, who invested the funds through all ....
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....sessee is not cooperating with the remand proceedings. According to Ld DR, the AO continued to hold the investment from resident- Indians continues to be suspicious. AO blamed the assessee for not discharging of onus. In para 3.5 of the written submissions, it is mentioned that the AO has not furnished any remand report to the Ld DR and therefore, no remand report as required by the Tribunal could not be furnished. However, Ld DR fairly submitted that the source of the funds goes to the four asssessees of Reliance Group. In the said para 3.5, Ld DR submitted that Reliance Extrusion Private Limited, Reliance Exploration P Ltd, Reliance Commercial Holiday P Ltd and Ornate Traders Ltd are the companies that contributed the investment under consideration. These four companies of Reliance Group invested in Tiara Traders P Ltd, which in turn invested the said funds back-to-back transaction in the asssessee-company thorugh another layer of IIPL (Indrani Incom P Ltd). The total of such investment by this means works out to Rs. 41.22 Crs. Regarding another investment of Rs. 93.79 Crs, assessee explained that the source of funds goes to the IMPL INX Exe. Search P Ltd in the source for the fu....
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....relevant in this regard. When the hearing was scheduled, there is non-cooperation from the Revenue and the Tribunal had to award cost on the AO for his inaction. This appeal is as old as six years and the AO is not responding to the basic needs of the appellate work in this case. Revenue is repeatedly resorting to the needless adjournments. Notwithstanding the constraints, we gave last opportunity to comply with the directions and the case was adjourned to 17.2.2017. During the hearing proceedings, Ld DR filed written submissions dated 12.2.2017 (supra) and on this issue, in paras 3.4 and 3.5, it is mentioned that remand proceedings are going on and the outcome is still awaited at his end. However, it is inferred to us that the said nominal award of cost was paid and however, the remand report is not submitted to the Tribunal by the AO. It is unfortunate and deplorable. The casual nature of the AO (JCIT-16(1), Mumbai) is evident from the following extracts. Para 3.5 of AO's letter dated 13.2.2017 are relevant and the same read as under:- "3.5.......The transactions are highly suspicious in nature and the layering seems to be done in order to defeat any investigation into the sourc....
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.... are fair and reasonable and it does not call for any interference. Accordingly, relevant grounds of the Revenue are dismissed. 35. NON-RESIDENTS: Regarding the addition on account of non-resident foreign institution investments into the share application money and share application and the preferential share capital with premium, we find, a sum of Rs...... is brought in through Maritius route. Basic facts are that the assessee raised share application money, equity shares with premium and preferential shares with premium totalling to Rs. 263. 28 Crs. The companies who invested are Maritius based New Silk Route PE M. LLC, New Version P Eg Ltd and Ducan Investment (M) PTE Ltd. In the assessment u/s 143(3) of the Act, AO made addition of the said amount u/s 68 of the Act. AO claims that the assessee failed to furnish the details relating to identity, creditworthiness and genuineness of transactions. AO is content with the documents furnished by the assessee. The documents are share subscription agreement, Board Resolution allotting shares, Registers, FIPB approvals, correspondence with Bank intimating the receipt of funds, Bank statements of the assessee etc. Assessee relied on vari....
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....ition on this account. Aggrieved, the Revenue is in appeal before the Tribunal. 37. Before the ITAT, Ld AR for the Revenue relied on the order of the AO and filed the written submissions. The Tribunal directed the AO / Revenue to file the remand report on the Foreign Investors' investment into share application money, equity share capital and preferential share capital with premium and wanted a speaking report on this issue. AO did not comply with the said directions till date. Actually, almost an year is passed the Revenue is non-serious and non-committed to the demand of the Bench of the Tribunal. Tribunal has even awarded the cost on the AO for his inaction and nonresponse. The Income Tax Act confers the AO with powers to collect the data and producing the people before him for the said purposes. It is not clear why the Department is dragging the fact backwards from conducting the investigation proactively. On the last date of hearing in February, 2017, AO filed a letter dated 13.2.2017 and relevant parts are already extracted in the preceding paragraphs of this order. The casual nature of the AO is evident from the following lines that reads as under: "3.5...........,.Outcome....
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....nt for 2 months. In this regard, Ld Counsel for the assessee strongly objected the application of adjournment moved by the Revenue. After hearing the Ld AR and on perusal of the Order Sheet, we noted that the direction to submit the report was granted on 27.5.2016. Thereafter, five adjournments have already been sought by the Revenue for compliance. But, we noted that the said directions have not been complied with. Even in the present application, no plausible reasons have been mentioned for seeking adjournment. However, considering the interest of justice, we adjourn the matter to 17.02.2017 and impose Rs. 2000/- as cost upon the Revenue for delaying to submit the said report and not complying with the directions of the Tribunal. It is made expressly clear that no further adjournment would be granted. The said cost be remitted to the Prime Minister's relief fund on or before 17.02.2017 and submit a copy of the challan to the Registry, ITAT for filing on record. Registry is directed to inform both the parties through notice the next date of hearing as per the procedure. Sd/- JM Sd/- AM" 40. In response to the above, the Revenue filed the above stated letter dated 13/15.0....