LEVEL UP NETWROK (INDIA) P. LTD, MUMBAI v. ACIT 6(3), MUMBAI

ITA 4057/MUM/2009 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 405719914 RSA 2009
Assessee PAN AABCL2349B
Bench Mumbai
Appeal Number ITA 4057/MUM/2009
Duration Of Justice 2 year(s) 28 day(s)
Appellant LEVEL UP NETWROK (INDIA) P. LTD, MUMBAI
Respondent ACIT 6(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 18-05-2010
Next Hearing Date 18-05-2010
Assessment Year 2005-2006
Appeal Filed On 01-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.4057/M/09(A.Y.2005-06) LEVEL UP NETWORK (INDIA) PVT. LTD. 3 SILVER CASCADE 110-A SENAPATI BAPAT MARG DADAR(W) MUMBAI 400 028. PAN: AABCL 2349B (APPELLANT) VS. THE ACIT 6(3) MUMBAI. (RESPONDENT) APPELLANT BY : MRS. RITIKA GARG RESPONDENT BY : MRS. USHA NAIR ORDER PER N.V.VASUDEVAN J.M THIS IS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 2/4/2009 OF CIT(A)-VI MUMBAI RELATING TO ASSESSMENT YEAR 2005- 06. GROUND NO.1 & 2 RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. BECAUSE THE LD. CIT(A) ERRED IN LAW AND ON FACT S IN UPHOLDING THE VIEW OF THE LD. A.O THAT THE APPELLANT COMPANY HA D NOT COMMENCED BUSINESS SO AS TO BE ELIGIBLE FOR CLAIM OF EXPENSES AND/ OR DEPRECIATION ON THE SHORT GROUND THAT APPELLANT COMPANY HAD NOT EARNED ANY REVENUE DURING THE YEAR. 2. BECAUSE LD. CIT(A) ERRED IN LAW AND ON FACTS IN TREATING THE FOREX FLUCTUATION GAIN OF RS. 47 42 795/- AS INCOME FROM OTHER SOURCES INSTEAD OF REDUCING THE SAME FROM THE COST OF CAPIT AL ASSET AS HELD BY VARIOUS COURTS INCLUDING THE JURISDICTIONAL ITAT. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF ONLINE MULTILEVEL GAMING DISTRIBUTION. THE ASSESSEE WAS INCORPORATED ON 14/1/2004. THE NATURE OF BUSINESS OF THE ASSESSEE IS THAT IT MARKETS GAMES ITA NO.4057/MUM/2009(A.Y.2005-06)) 2 ONLINE. THE ASSESSEE UPLOADS GAMES ON THE INTERNET . ANY PERSON WANTS TO PAY THE GAME HAS TO REGISTER WITH THE ASSESSEE. TH E ASSESSEE DURING THE PREVIOUS YEAR WAS MAKING EFFORTS TO LAUNCH COMPUTER GAME UNDER THE NAME RANGAROK. THE ASSESSEE ENTERED INTO A SOFTWARE L ICENCE AGREEMENT WITH GRAVITY CORPORATION BY WHICH IT ACQUIRED THE RIGHTS OF MARKETING INTERNET GAMES OF THE GRAVITY CORPORATION. THE LICENCING AG REEMENT BETWEEN THE ASSESSEE AND GRAVITY CORPORATION DATED 24/4/2004 IS AT PAGE 111 TO 127 OF THE ASSESSEES PAPER BOOK. THE ASSESSEE ALSO ENTER ED INTO AN AGREEMENT DATED 11/3/2004 WITH SIFY LTD. FOR LAUNCHING PROMO TING AND DISTRIBUTING GAMES BY UPLOADING IT ON THE INTERNET. SIFY LTD IS IN THE BUSINESS OF OPERATING INTERNET SERVICE PROVIDER. THE ASSESSEE ALSO TOOK PREMISES ON LEASE IN MUMBAI UNDER THE LEAVE AND LICENCE AGREEMENT DAT ED 3/6/2004 IN THE PREMISES KNOWN AS VALECHHA CHAMBERS NEW LINK ROAD ANDHERI (WEST) MUMBAI 53. SIMILARLY OFFICE PREMISES WAS TAKEN O N LEASE AT LUCKNOW UNDER THE LEAVE AND LICENCE AGREEMENT DATED 11/6/20 04. THE PF COMMISSIONER MUMBAI ISSUED A PERFORMA FOR INTIMATI ON COVERAGE OF ASSESSEE AS AN ESTABLISHMENT FOR PROVIDENT FUND BY ITS COMMUNICATION DATED 25/6/2004. THE ASSESSEE WAS ALSO GRANTED A C ERTIFICATE OF REGISTRATION UNDER THE BOMBAY SHOPS ESTABLISHMENT ACT ON 26/5/20 04. THE ASSESSEE WAS REGISTERED AS DEALER BY THE SALES TAX DEPARTMEN T ON 29/4/2005. THERE ARE AGREEMENT APPOINTING SEVERAL OFFICIALS TO MANAG E THE AFFAIRS OF THE ASSESSEE IN THE MONTH OF JANUARY 2004 AND APRIL 200 4. THE ASSESSEE ALSO INVITED PERSONS TO REGISTER FOR PLAYING ITS ONLINE GAME. THE LIST OF PERSONS WHO GOT REGISTERED WITH THE ASSESSEE FROM 20/5/2004 TO 5//6/2004 IS FILED AT PAGE 128 TO 139 OF THE ASSESSEES PAPER BOOK. T HE ASSESSEE ALSO GOT INTERNET DOMAIN NAME REGISTRATION CERTIFICATE ON 14 /5/2004. THE NAME SO REGISTERED WAS LEVELUPGAMES.CO.IN. 3. FOR ASSESSMENT YEAR 2005-06 THE ASSESSEE FILED R ETURN OF INCOME DECLARING A LOSS OF RS. 6 70 98 551/-. IN THE AUD IT REPORT THE AUDITOR ON ITA NO.4057/MUM/2009(A.Y.2005-06)) 3 SCHEDULE 11 HAD REPORTED THAT ASSESSEE COMPANY HA S BEGAN ITS COMMERCIAL OPERATIONS ON 20/5/2004. THE AO HOWEVER REFERRED T O THE FACT THAT IN THE AUDIT REPORT INCOME FROM OPERATION DURING THE YEAR WAS REPORTED AS RS. NIL. THE AO WAS OF THE VIEW THAT IF THE ASSESSEE HAS REA LLY COMMENCED OPERATIONS ON 20.5.2004 IT COULD NOT SHOW NIL INCOME FROM OPER ATIONS FOR THE PERIOD FROM MAY 2004 TO MARCH 2005. THE AO WAS OF THE VIE W THAT THE ONLY POSSIBILITY WAS THAT THE ASSESSEE HAS NOT STARTED I TS OPERATIONS. THE AO THEREFORE HELD THAT COMMERCIAL OPERATION IN THIS YE AR WERE NOT STARTED. HE THEREFORE HELD THAT THE ENTIRE EXPENSES AND DEPREC IATION CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED AS DEDUCTION AS THEY WER E IN THE NATURE OF PRE- COMMENCEMENT EXPENSES AND ONLY THE EXPENSES WHICH A RE COVERED U/S. 35D OF THE INCOME-TAX ACT 1961 (THE ACT) WILL BE ALLO WED TO ASSESSEE IN THE SUBSEQUENT YEARS. 4. THE ASSESSEE HAD SHOWN INCOME OF RS. 47 42 795/ - FROM INTEREST ON TERM DEPOSIT AND FOREX FLUCTUATION GAIN. SINCE THE ASSE SSEE HAD NOT COMMENCED BUSINESS THE AO WAS OF THE VIEW THAT THE AFORESAID ITEMS OF INCOME CANNOT BE TREATED AS INCOME FROM BUSINESS. HE HELD THAT T HE SAME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND TO BE TAXED ACCORD INGLY. THE AO PLACED RELIANCE ON THE DECISION ON HONBLE SUPREME COURT I N THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS (227 ITR 172). 5. WITHOUT PREJUDICE TO THE ABOVE CONCLUSION AND IN CASE IT IS HELD THAT THE BUSINESS OF THE ASSESSEE HAD COMMENCED AS CLAIM ED BY THE ASSESSEE THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD S HOWN HUGE AMOUNT OF MARKETING EXPENSES OF RS. 1 71 87 920/-. ACCORDING TO THE ASSESSING OFFICER SINCE IT WAS THE FIRST YEAR OF OPERATION AND THE AS SESSEE WAS IN THE BUSINESS OF ONLINE COMPUTER GAMES AND THE ASSESSEE HAD LAUNC HED NEW GAMING SOFTWARE NAME AS RANGAROK. THE ASSESSING OFFICER THEREFORE HELD THAT THE EXPENDITURE WAS ONE INCURRED FOR BRAND BUILDING WHI CH WILL RESULT IN ENDURING BENEFIT TO THE ASSESSEE. HE THEREFORE H ELD THAT THE MARKETING ITA NO.4057/MUM/2009(A.Y.2005-06)) 4 EXPENSES WERE CAPITAL EXPENSES AND CANNOT BE ALLOWE D AS A DEDUCTION. HE FURTHER HELD THAT THE SAID EXPENDITURE HAS TO BE CA PITALIZED AS BRAND BUILDING/GOODWILL CREATION AND TREATED AS AN INTANG IBLE ASSET. HE HOWEVER ALLOWED DEPRECIATION AT 25% ON THE MARKETING EXPENS ES SO CAPITALIZED. 6. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT DURING THE PREVIOUS YEAR THE ASSESSEE HAD SET UP ITS BUSINESS AND THEREFORE ENT IRE EXPENSES DEBITED IN THE P&L ACCOUNT SHOULD BE ALLOWED AS A DEDUCTION. THE CIT(A) DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND HE HELD A S FOLLOWS: 2.3 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A.R OF THE APPELLANT. I DO NOT AGREE WITH THE ASSESSEE THAT A SSESSEE HAS COMMENCED COMMERCIAL OPERATION. HAD THE ASSESSEE C OMMENCED COMMERCIAL OPERATION HE WOULD HAVE CERTAINLY EARNE D SOME INCOME WHERES THE FACT SHOWS THAT NO INCOME HAS BEEN EARNE D BY THE ASSESSEE. HENCE THE AO IS JUSTIFIED IN DISALLOWING EXPENDITURE CLAIMED BY THE ASSESSEE AS COMMERCIAL OPERATION HAS NOT CO MMENCED. HENCE THE ACTION OF THE AC IS CONFIRMED AND APPEAL ON THI S GROUND IS DISMISSED. 7. SIMILARLY IT WAS SUBMITTED BY THE ASSESSEE BEFOR E THE CIT(A) THAT THE INTEREST ON TERMS DEPOSIT AND FOREIGN EXCHANGE FLUC TUATION GAIN SHOULD BE TREATED AS BUSINESS INCOME. THIS WAS ALSO REJECTED BY THE CIT(A) ON THE FOLLOWING REASONS: I HAVE DULY CONSIDERED THE SUBMISSION OF THE A.R OF THE APPELLANT. I DO NOT AGREE WITH THE SUBMISSION OF THE A.R THAT IN TEREST INCOME ON FDR IS DEFINITELY AS INCOME FROM OTHER SOURCES. LI KEWISE WHEN THE BUSINESS IS NOT COMMENCED ANY GAIN ON ACCOUNT OF FO REIGN EXCHANGE FLUCTUATION WOULD BE TREATED AS INCOME FROM OTHER S OURCES ONLY AND NOT BUSINESS INCOME. HENCE THE ACTION OF THE AO I S CONFIRMED AND APPEAL ON THIS GROUND IS DISMISSED. 8. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. ITA NO.4057/MUM/2009(A.Y.2005-06)) 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE QUESTIO N AS TO WHEN AN ASSESSEE CAN BE SAID TO HAVE COMMENCED BUSINESS HAS BEEN LAID DOWN IN VARIOUS DECIDED CASES. THE FIRST THING WHICH ONE WI LL HAVE TO BEAR IN MIND IS THAT THERE IS A DISTINCTION BETWEEN SETTING UP OF A BUSINESS AND THE COMMENCEMENT OF BUSINESS. IN WESTERN INDIA VEGETABL E PRODUCTS LTD. VS. CIT 26 ITR 151(BOM) IT HAS BEEN HELD THAT UNDER T HE INCOME-TAX ACT WHAT IS RELEVANT IS THE SETTING UP OF BUSINESS AND NOT THE COMMENCEMENT OF THE BUSINESS THAT IS TO BE CONSIDERED. THE DEFINITION OF THE PREVIOUS YEAR AS CONTAINED IN SECTION 3 OF THE INCOME TAX ACT 1961 READS AS FOLLOWS: 3 'PREVIOUS YEAR' DEFINED. FOR THE PURPOSES OF THIS ACT 'PREVIOUS YEAR' MEANS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR : PROVIDED THAT IN THE CASE OF A BUSINESS OR PROFESS ION NEWLY SET UP OR A SOURCES OF INCOME NEWLY COMING INTO EXISTE NCE IN THE SAID FINANCIAL YEAR THE PREVIOUS YEAR SHALL BE THE PERIOD BEGINNING WITH THE DATE OF SETTING UP OF THE BUSINE SS OR PROFESSION OR AS THE CASE MAY BE THE DATE ON WHIC H THE SOURCE OF INCOME NEWLY COMES INTO EXISTENCE AND ENDING WIT H THE SAID FINANCIAL YEAR. IT IS ON THE BASIS OF THIS DEFINITION THAT THE HON BLE BOMBAY HIGH COURT HELD THAT FOR THE PURPOSE OF INDIAN INCOME-TAX ACT IT IS THE SETTING UP OF THE BUSINESS AND NOT THE COMMENCEMENT OF THE BUSINESS THAT IS TO BE CONSIDERED. THE HONBLE HIGH COURT FURTHER HELD THA T WHEN THE BUSINESS IS ESTABLISHED AND READY TO COMMENCE THE BUSINESS THE N IT CANNOT BE SAID THAT BUSINESS ITSELF IS SET UP BUT BEFORE IT IS READY TO COMMENCE IT IS NOT SET UP. IT FURTHER HELD THAT THERE MAY BE TIME GAP IN SETTING UP OF THE BUSINESS AND COMMENCEMENT OF THE BUSINESS AND ALL THE EXPENSES I NCURRED DURING THAT INTERVENING PERIOD WOULD BE PERMISSIBLE DEDUCTION. IN CIT VS. SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. 91 ITR 170 IT WAS HELD THAT THE TERM BUSINESS CONNOTES A CONTINUOUS COURSE OF ACTIVITIES . ALL THE ACTIVITIES WHICH GO TO MAKE UP THE BUSINESS NEED NOT BE STARTED SIMU LTANEOUSLY IN ORDER THAT THE BUSINESS MAY COMMENCE. THE BUSINESS WOULD COMME NCE WHEN THE ITA NO.4057/MUM/2009(A.Y.2005-06)) 6 ACTIVITY WHICH IS FIRST IN POINT OF TIME AND WHICH MUST NECESSARILY PRECEDE ALL OTHER ACTIVITIES IS STARTED. IT WAS FURTHER HELD TH AT IN ORDER TO DETERMINE THE QUESTION THE BUSINESS OF THE ASSESSEE HAS COMMENCED OR NOT IT IS NECESSARY TO CONSIDER WHAT CONSTITUTES THE BUSINESS OF THE AS SESSEE. IT IS ALSO LAID DOWN THAT IN DETERMINING THIS QUESTION ARISING UNDE R FISCAL LEGISLATION WE MUST CONSIDER WHAT ARE THE ACTIVITIES WHICH CONSTIT UTED SUCH BUSINESS WITHOUT BEING MISGUIDED BY THE LOOSE EXPRESSIONS OF VAGUE AND INDEFINITE IMPORT. IN PREM CONDUCTORS PVT. LTD. VS. CIT 108 ITR 654(GUJ) IT WAS AGAIN REITERATED THAT WHERE THE BUSINESS OF THE ASS ESSEE CONSISTS OF DIFFERENT ACTIVITIES WHETHER THE ACTIVITY WHICH WAS STARTED E ARLIER THEN ACTUAL COMMENCEMENT OF THE PRODUCTION CAN BE SAID TO HAVE BEEN ESSENTIAL PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE HAS TO BE DEC IDED CONSIDERING THE TIME AT WHICH A BUSINESSMAN WOULD REGARD A BUSINESS AS H AVING COMMENCED AND THE APPROACH MUST BE FROM A COMMON SENSE POINT OF V IEW. CONSIDERING THE PRINCIPLES EMERGING FROM THE VARIOUS DECISIONS REFE RRED TO ABOVE WE SHALL NOW EXAMINE AS TO WHAT CONSTITUTES THE BUSINESS OF THE ASSESSEE. 10. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ESPN SOFTWARE INDIA PVT. LTD. (2009) 184 TAXMAN 452 (DEL) HAS TAK EN A VIEW THAT A BUSINESS CAN BE SAID TO HAVE BEEN SET UP/COMMENCED AS SOON AS AN ESSENTIAL ACTIVITY OF THAT BUSINESS IS STARTED. IN THAT CASE THE ACT OF THE ASSESSEE WHICH WAS IN THE BUSINESS OF PROVIDING DIS TRIBUTION OF ESPN NETWORKING PROGRAMME SERVICES IN INDIA VIA CABLE TE LEVISION SYSTEM WAS HELD TO HAVE COMMENCED WHEN IT ACQUIRED LICENCE FROM TH E PARENT COMPANY FOR SUPPLYING AND DISTRIBUTION PROGRAMMES. IT WAS HELD THAT ACQUIRING SUCH A LICENSE WOULD BE THE POINT OF TIME WHEN THE BUSINES S HAS BEEN SET UP. SIMILARLY IN THE CASE OF WIRLPOOL OF INDIA LTD. 28 DTR 164 (DEL) IT WAS HELD THAT WHEN EMPLOYEES ARE APPOINTED AND PREMISES TAKE N ON RENT BANK ACCOUNT OPEN IT CAN BE SAID THAT THE BUSINESS HAS BEEN SET UP. ITA NO.4057/MUM/2009(A.Y.2005-06)) 7 11. KEEPING IN MIND THE JUDICIAL PRONOUNCEMENTS REF ERRED TO ABOVE WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE ASSESSEE H AD SET UP ITS BUSINESS AS EARLY AS 24/5/2004 WHEN IT ENTERED INTO LICENCE AGR EEMENT FOR ACQUIRING GAMES FROM GRAVITY CORPORATION. THE GAMES HAVE TO BE UPLOADED ON A SERVER AND THE ASSESSEE APPOINTED SIFY LTD. FOR THI S PURPOSE UNDER AN AGREEMENT DATED 11/3/2004. EVEN AS ON THIS DATE IT CAN BE SAID THAT THE BUSINESS OF THE ASSESSEE WAS SET UP. WE THEREFORE TAKING INTO CONSIDERATION VARIOUS OTHER CIRCUMSTANCES AND FACTS POINTED OUT IN THE EARLIER PART OF THIS ORDER HOLD THAT THE BUSINESS O F THE ASSESSEE WAS SET UP DURING THE PREVIOUS YEAR AND THEREFORE ALL REVENU E EXPENSES HAVE TO BE ALLOWED AS DEDUCTION. THE LD. COUNSEL FOR THE ASSE SSEE HOWEVER SUBMITTED THAT THE ASSESSEE IS AGREEABLE FOR TREATING THE MAR KETING EXPENSES AS CAPITAL EXPENDITURE AND DEPRECIATION BE ALLOWED ON THE SAME . TO THIS EXTENT THE ORDER OF THE ASSESSING OFFICER IS UPHELD. 12. AS FAR AS INTEREST INCOME IS CONCERNED WE ARE O F THE VIEW THAT THE SAME WAS RIGHTLY TREATED AS INCOME FROM OTHER SOURCES. AS FAR AS FOREIGN EXCHANGE FLUCTUATION GAIN IS CONCERNED WE ARE OF THE VIEW TH AT IT HAS TO BE CONSIDERED AS INCOME FROM BUSINESS AS THE GAIN AROSE OUT OF TH E FLUCTUATION IN THE FOREIGN EXCHANGE RATE ON LOANS AVAILED BY THE ASSES SEE. THUS GROUND NO.1 & 2 ARE ALLOWED TO THE EXTENT INDICTED ABOVE. 13. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UND ER: BECAUSE LD. CIT(A) ERRED IN LAW AND ON FACTS IN U PHOLDING THE ACTION OF THE LD. A.O IN DISALLOWING THE EXPENDITURE OF RS . 47.38 LACS U/S. 40 (A)(IA) OF THE ACT. 14. THE ASSESSEE PAID A SUM OF RS. 47 38 389/- TO M /S. LEVEL UP INC PHILIPPINES. THE ASSESSEE DID NOT DEDUCT TAX AT SO URCE ON THE PAYMENTS SO MADE. ACCORDING TO AO THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE BEFORE MAKING PAYMENT OF THE AFORESAID SUM AND SINC E THE ASSESSEE HAD NOT ITA NO.4057/MUM/2009(A.Y.2005-06)) 8 DONE SO THE AFORESAID PAYMENT WHICH WAS CLAIMED AS EXPENDITURE IN THE P&L ACCOUNT WILL NOT BE ALLOWED AS DEDUCTION IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE SUBMITTED BEFOR E THE AO THAT THE PAYMENT IN QUESTION WAS REIMBURSEMENT OF EXPENSES A ND THEREFORE THERE WAS NO OBLIGATION OF DEDUCTING TAX AT SOURCE ON THE PART OF THE ASSESSEE. THE AO HOWEVER HELD THAT SINCE THE PAYEE WAS NON-RESID ENT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AND SINCE THE ASSESS EE FAILED TO DO SO THE DEDUCTION CLAIMED CANNOT BE ALLOWED. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. 15. BEFORE US LD. COUNSEL FOR THE ASSESSEE FILED AN APPLICATION U/R. 29 OF THE ITAT RULES SEEKING TO FILE A CERTIFICATE ISSUED UNDER SECTION 195(1) OF THE ACT WHEREBY THE AO HAS AUTHORIZED PAYMENT BY THE A SSESSEE TO LEVEL UP INC. PHILIPPINES WITHOUT DEDUCTION OF TAX AT SOURCE BECAUSE PAYMENT IN QUESTION WAS MERE REIMBURSEMENT OF EXPENSES. IT HA S FURTHER BEEN SUBMITTED THAT THE DISALLOWANCE WHICH IS IMPUGNED I N GROUND NO.3 BEFORE THE TRIBUNAL AND THE PAYMENT REFERRED TO IN THE CER TIFICATE U/S. 195(1) ARE ONE AND THE SAME. WE ARE OF THE VIEW THAT THE ADDI TIONAL EVIDENCE IS MATERIAL AND NECESSARY FOR ADJUDICATION OF THE ISSU E IN DISPUTE AND THE SAME IS THEREFORE ADMITTED AS ADDITIONAL EVIDENCE. SIN CE THE ASSESSEE HAS BEEN AUTHORIZED TO MAKE THE PAYMENT WITHOUT DEDUCTION OF TAX AT SOURCE THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT AS MADE BY THE AO. THE AO IS THEREFORE DIRECTED TO VERIFY THE CL AIM OF THE ASSESSEE THAT THE IMPUGNED DISALLOWANCE IS COVERED BY THE CERTIFICATE FILED BY THE ASSESSEE AS ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL AND IF FOUN D CORRECT DELETE THE IMPUGNED DISALLOWANCE. GROUND NO.3 IS ORDERED ACC ORDINGLY. 16. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FOL LOWS: BECAUSE LD. CIT(A) ERRED IN LAW AND ON FACTS IN U PHOLDING LD. AOS ACTION OF DISALLOWING DEPRECIATION OF RS. 2 06 54 1 46/- ONLY ON THE ITA NO.4057/MUM/2009(A.Y.2005-06)) 9 GROUND THAT THE APPELLANT HAS NOT COMMENCED COMMERC IAL OPERATION IN THE YEAR UNDER APPEAL. 17. WHILE DECIDING GROUND NO.1 WE HAVE ALREADY HELD THAT THE BUSINESS OF THE ASSESSEE WAS SET UP DURING THE PREVIOUS YEAR. CONSEQUENTLY THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION. OUT OF THE DEPRECIATION CLAIMED BY THE ASSESSEE A SUM OF RS. 1 10 04 167/- RELATES TO DEPRECIATION AT 60% ON LICENCE ACQUIRED FROM GRAVITY CORPORATION. THE ASS ESSEE CLAIMED DEPRECIATION ON THIS LICENCE AT 60% TREATING THE LI CENCE AS EQUIVALENT TO COMPUTER SOFTWARE. THE AO HAS HOWEVER TREATED THE SAME AS PLANT AND ALLOWED DEPRECIATION ONLY AT 25%. BEFORE US LD. CO UNSEL FOR THE ASSESSEE IS AGREEABLE FOR THE SAID ACTION OF THE AO. THEREFORE GROUND NO.4 IS ALLOWED IN PART AS CONCEDED BY THE LD. COUNSEL FOR THE ASSESSE E. 18. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 29 TH DAY OF JULY 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 29 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RA BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.4057/MUM/2009(A.Y.2005-06)) 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22/7/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT CO MES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER