ACIT, CIRCLE-16(1), MUMBAI v. M/S TALENTUBE ENTERTAINMENT PVT. LTD., MUMBAI

ITA 5216/MUM/2019 | 2013-2014
Pronouncement Date: 09-03-2021 | Result: Dismissed

Appeal Details

RSA Number 521619914 RSA 2019
Assessee PAN AACCP5602Q
Bench Mumbai
Appeal Number ITA 5216/MUM/2019
Duration Of Justice 1 year(s) 7 month(s)
Appellant ACIT, CIRCLE-16(1), MUMBAI
Respondent M/S TALENTUBE ENTERTAINMENT PVT. LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 09-03-2021
Last Hearing Date 19-01-2021
First Hearing Date 19-01-2021
Assessment Year 2013-2014
Appeal Filed On 08-08-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE SHRI SHAMIM YAHYA ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE JUDICIAL MEMBER ITA NO. 5216/MUM/2019 (A.Y: 2013-14) THE ASST. COMMISSIONER OF INCOME TAX CIRCLE 16(1) ROOM NO. 439 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020 / VS. M/S TALENTUBE ENTERTAINMENT PVT. LTD. 10-BC HIGHPEAK APPT. 20-A S V ROAD BANDRA (WEST) MUMBAI - 400050 ./ ./ PAN/GIR NO. : AACCP5602Q ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY KUMAR MENON DR / RESPONDENT BY : SHRI NADEEM LASANI AR / DATE OF HEARING 11/02/2021 / DATE OF PRONOUNCEMENT 09/03/2021 / O R D E R PER PAVAN KUMAR GADALE: ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 2 - THE REVENUE HAS FILED THE APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) - 4 MUMBAI PASSED U/S. 143 (3) AND 250 OF THE INCOME TAX ACT 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- I) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF T HE CASE AND AS PER LAW THE LD.CIT(A) HAS ERRED IN DIRECTIN G TO DELETE THE DISALLOWANCE OF RS.2 83 61 631/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY HAS CLAIMED HUGE EXPENSES AS COMPARED TO THE INCOME OFF ERED FOR TAXATION? II) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF T HE CASE AND AS PER LAW THE LD.CIT(A) HAS ERRED IN DIRECTIN G TO DELETE THE DISALLOWANCE OF RS.2 83 61 631/- WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENSES CAN BE CLASSIFIED AS 'PRE OPERATIVE EXPENSES' WHICH ARE I N THE NATURE OF CAPITAL EXPENDITURE AND NOT A REVENUE EXPENDITURE? III) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW THE LD.CIT(A) HAS ERRED IN DIRECTIN G TO DELETE THE DISALLOWANCE OF RS.2 83 6 1 631/- WITHOU T APPRECIATING THE FACT THAT THE SAID EXPENSES CARRY ENDURING AND LONG TERM BENEFIT TO THE ASSESSEE AND THEREFORE ARE NOT CURRENT EXPENSES TO BE ALLOWED AS REVENUE EXPENDITURE? ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 3 - IV) WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF T HE CASE AND AS PER LAW THE LD.CIT(A) HAS ERRED IN DIRECTIN G TO DELETE THE DISALLOWANCE OF RS.2 83 61 631/- WITHOUT APPRECIATING THE FACT THAT THERE IS NO SIGNIFICANT BUSINESS ACTIVITY IN THE ASSESSEE COMPANY DURING THE YEAR. V) THE APPELLANT PRAYS THAT THE ORDER OF LD.CIT(A) ON THE ABOVE GROUNDS BE SET-ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. VI) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION AN D MARKETING OF FEATURE FILM AND TALENT HUNT AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 28.09.2013 WITH TOTAL INCOME OF RS. NIL AFTER CLAI MING OF CURRENT YEAR LOSS OF RS.3 10 74 306/-. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2 ) OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER (AO). IN COMPLIANCE THE LD.AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND SUBMITTED THE DET AILS AND EXPLANATIONS ON THE FINANCIAL STATEMENTS. ON PE RUSAL OF THE FINANCIAL STATEMENTS THE A.O. FOUND THAT TH E ASSESSEE HAS INCURRED EXPENDITURE TO THE EXTENT OF RS. ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 4 - 3 93 91 032/- AND THE ASSESSEE HAS OFFERED MEAGER I NCOME FROM ONLINE APPLICATION FEES OF RS. 2 56 011/-.THE AO ASKED THE ASSESSEE TO JUSTIFY THE CLAIM AND IN RESP ONSE THE ASSESSEE HAS FILED EXPLANATIONS VIDE LETTER DAT ED 12.02.2016 REFERRED AT PARA 4.1 OF THE ORDER. WHERE AS THE A.O HAS BIFURCATED THE OFFICE & ADMINISTRATIVE EX PENSES PRE-OPERATIVE EXPENSES AND DISALLOWED EXPENSES OF R S 2 83 16 631/- AND OBSERVED THAT THE ASSESSEE HAS N OT MADE ANY BUSINESS ACTIVITY IN THE SAID FINANCIAL YE AR AND ASSESSED THE TOTAL INCOME OF RS.(-) 27 57 673/- AND PASSED THE ORDER U/S 143 (3) DATED 09.03.2016. 4. AGGRIEVED BY THE ORDER THE ASSESSEE HAS FILED T HE APPEAL WITH THE LD. CIT (A). THE LD. CIT (A) CONSIDERED TH E GROUNDS OF APPEAL SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF THE AO AND THE FACTS THAT IT WAS STARTU P COMPANY. THE LD.CIT (A) DEALT ON THE NATURE OF ACTI VITY OF THE ASSESSEE BUSINESS AND JUDICIAL DECISIONS OF THE HONBLE MUMBAI TRIBUNAL AND ALLOWED THE CLAIM AND PARTLY ALLOWED THE ASSESSEE APPEAL. 5. AGGRIEVED BY THE CIT(A) ORDER THE REVENUE HAS F ILED THE APPEAL BEFORE THE HONBLE TRIBUNAL. AT THE TIME OF HEARING THE LD.DR SUBMITTED THAT THE ASSESSEE HAS NOT CARRI ED ON ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 5 - ANY BUSINESS ACTIVITY AND ALL THE EXPENSES ARE IN T HE NATURE OF PREOPERATIVE EXPENSES AND FURTHER THE LD. CIT (A) HAS ERRED IN GRANTING THE RELIEF. CONTRA THE LD.AR SUPPORTED THE ORDER OF THE LD.CIT(A) AND RELIED ON THE JUDICIAL DECISIONS WRITTEN SUBMISSIONS AND PRAYED FOR DISMISSAL OF THE REVENUE APPEAL. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE LD.DR SUBMITTED THAT THE NATURE OF EXPENDITURE DOES NOT QUALIFY FOR CLAIM IN THE PR OFIT AND LOSS ACCOUNT BECAUSE OF LOW INCOME EARNINGS BY THE COMPANY. THE LD.AR EMPHASIZED THAT THE ASSESSEE COMPANY IS A STARTUP COMPANY AND WAS INCORPORATED I N DECEMBER 2011.THE A.O.HAS ERRED IN DISALLOWING THE EXPENDITURE AS PREOPERATIVE AND EXPENSES NOT RELATI NG TO THE BUSINESS. WE FIND THE LD.CIT (A) HAS CONSIDERED THE JUDICIAL DECISIONS OF THE CO-ORDINATE BENCH OF THE HONBLE TRIBUNAL AND OBSERVED AT PAGE 4 PARA 6.2.1 TO 6.2 .3 OF THE ORDER AND GRANTED RELIEF WHICH IS READ AS UND ER :- 6.2.1 THE APPELLANT ALSO PLACED RELIANCE ON THE JU DGMENT OF HONBLE ITAT MUMBAI BENCH K IN THE CASE OF RADHA SHIR JEWELLERY CO. (P) LTD. V. ACIT CIRCLE-8(3). THE RELEVANT PA RT OF JUDGMENT IS REPRODUCED AS UNDER: IT IS A FACT THE TPO HAD COMPARED RESULTS OF SELECT ED 12 COMPARABLES WITHOUT BRINGING THEM ON SAME PLATFORM THAT HE ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 6 - IGNORED THE FACT THAT THE ASSESSEE WAS A NEW UNIT THAT EFFECTIVE SALES HAPPENED ONLY IN 3 MONTHS OF THE CALENDAR YE AR 2008 I.E. SEPTEMBER OCTOBER AND NOVEMBER OF THE YEAR UNDER CONSIDERATION. FOR MAKING TP ADJUSTMENTS AS PE.R T HE PROVISIONS OF SECTION 92 COMPARISON HAS TO BE MADE BETWEEN TH E TWO EQUALS. AN ASSESSEE WHO STARTS BUSINESS IN A PARTICULAR YEA R CANNOT BE COMPARED WITH THE ASSESSEES WHO ARE DOING BUSINESS FOR MANY A YEARS EVEN IF COMPARISON OF SUCH AN ASSESSEE HAS TO BE MADE THEN IT HAS TO BE SEEN THAT BOTH ARE AT SAME LEVEL NO ASSESSEE CAN ACHIEVE FULL CAPACITY OF PRODUCTION FOR AN ASSESSME NT YEAR. IF IT STARTS BUSINESS IN THE LATER PART OF THAT YEAR IN T HE CASE UNDER APPEAL MAJOR SALES ARE NOT THROUGHOUT THE WHOLE YEA R WHEREAS THE EXPENSES INCURRED BY IT ARE SAME OR ALMOST THE SAME AS COMPARED TO THE EXPENSES OF THE NEXT YEAR. IT IS A FACT THAT THE ASSESSEE HAD ACHIEVED SALES OF RS. 62 CRORES IN NEX T ASSESSMENT YEAR. IT IS NOT A MORE COINCIDENCE. THE ABOVE RESUL TS FOR THE NEXT YEAR WERE ACHIEVED BECAUSE PROCESSES GOT STABILISED BY THAT TIME THOUGH THE ASSESSEE WAS WORKING ON ALMOST THE SAME ASSET BASE IN BOTH THE YEARS. IT IS A FACT THAT ASSESSEE HAD U SED ONLY 21 PER CENT OF ITS TOTAL PRODUCTION CAPACITY. THE ANNUAL A CCOUNTS OF THE ASSESSEE-COMPANY PROVES THE ABOVE FACTS AND IT IS A LSO TRUE THAT THE FACT HAS NOT BEEN DISPUTED BY THE DEPARTMENTAL AUTHORITIES. [PARA 5.1] .. AN ANALYSIS OF THE ANNUAL ACCOUNTS INDICATES THAT T HE PROFIT ON MATERIALS CONSUMED WAS 9.80 PER CENT FOR ASSESSMENT YEAR 2008- 09 AND 10.70 PER CENT FOR THE ASSESSMENT YEAR 2009- 2010. IT IS A VITAL FACTOR TO DECIDE THE ISSUE. THE ASSESSEE HAD SUFFERED LOSS DURING THE YEAR BECAUSE EXPENSES INCURRED BY IT COM MENSURATED WITH SALES OF THE NEXT YEAR (PS. 60 CRORES WHEREAS IT COULD ACHIEVE SALES OF PS. 16 CRORES ONLY IN THE YEAR UND ER APPEAL. IT IS ALSO A FACT THAT AVAILABILITY OF WORKING CAPITAL AN D SIZE OF INVENTORIES AFFECT THE PROFIT OF THE COMPANIES. BUS INESS IS NOT A SIMPLE ARITHMETICAL FORMULA-SO MANY FACTORS AFFECT THE FINAL OUTCOME I.E. THE PROFIT. THEREFORE FOR ARRIVING AT FAIR AND JUST CONCLUSION SUCH FACTS CANNOT AND SHOULD NOT BE IGNO RED-OTHERWISE ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 7 - AN ABSURD AND DISTORTED RESULT WILL FOLLOW. THE BAS IC PURPOSE OF TAXATION PROCEEDINGS. INCLUDING THE TP PROCEEDINGS IS TO DETERMINE THE DUE TAXES FOR THE SOVEREIGN. WITHOUT CONSIDERING ALL THE RELEVANT AND MATERIAL FACTS DUE TAXES CANNOT BE ASSESSED IN THE CASE: THE BASIC FACT OF CAPACITY-UNDER UTILISAT ION HAS BEEN IGNORED. BESIDES DEPRECIATION WOULD ALSO HAVE BEAR ING ON TAXABLE INCOME. EVEN IN CASES OF DOMESTIC COMPANIES IT PLAY S A VITAL ROLE. IN THE INITIAL YEARS MOST OF THE MANUFACTURING COMP ANIES SUFFER LOSSES BECAUSE OF HIGH DEPRECIATION. IN SHORT FOR DETERMINING FAIR TP ADJUSTMENTS THE TPO/FAA SHOULD HAVE CONSIDERED THESE VITAL FACTORS AND GIVEN FINDING. ALONG WITH THE DEPRECIAT ION CERTAIN FIXED OPERATING COSTS LIKE FACTORY RENT TESTING RESEARC H & DEVELOPMENT COST ETC. WOULD HAVE TO BE INCURRED IRR ESPECTIVE OF THE LEVEL OF PRODUCTION RESPECTFULLY FOLLOWING THE CASES RELIED UPON BY THE AR THAT APPROPRIATE ADJUSTMENT I.E. CAPACI TY UNDERUTILIZATION AND DEPRECIATION HAS TO BE ALLOWED WHILE COMPUTING THE NET MARGINS IN THE CASE OF TESTED PAR TY TO FACILITATE COMPARABILITY ANALYSIS (PARA 5.2]. FROM THE ABOVE DECIDED CASE THE FOLLOWING EMERGE. 1) TO JUDGE WHETHER THERE WAS START OF BUSINESS ACT IVITY THE ACTIVITIES OF THE BUSINESS HAVE TO BE COMPARED WITH ACTIVITIES OF SIMILAR BUSINESSES. 2) THE COMPARISON HAS TO BE AT SIMILAR LEVELS. 6.2.2 FURTHER RELIANCE WAS PLACED ON THE JUDGEMENT OF HON'BLE ITAT MUMBAI BENCH 'I IN THE CASE OF AGRANI TELECOM LTD. V. ACIT. CIRCLE- 8(1) [2013] 39 TAXMANN.COM 155. THE RELEVANT PART OF JUDGEMENT IS REPRODUCED AS UNDER: FROM THE RECORDS IT IS SEEN THAT THE ASSESSEE WAS ALREADY IN THE BUSINESS OF TRADING AND TRANSPORTATION SERVICE FOR WHICH IT HAS SHOWN RECEIPTS AND OFFERED INCOME THEREFROM. IN THIS YEAR . THE ASSESSEE HAD VENTURED INTO SERVICE INDUSTRIES IN FLEET MANAGEMEN T SERVICE AND PROVIDING SECURITY PRODUCTS AND NETWORKING SOLUTION S. FOR THE PURPOSE OF THIS SERVICE INDUSTRY THE ASSESSEE HAS ENTERED INTO A CONSULTANCY ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 8 - AGREEMENT. IT IS NOT A CASE OF THE DEPARTMENT THAT THERE IS NO CONTINUITY OF BUSINESS WITH COMMON MANAGEMENT AND F UND. IF THERE IS CONTINUITY OF BUSINESS WITH COMMON MANAGEMENT AND F UND. THEN EVEN IF THE ASSESSEE HAS STARTED A NEW LINE OF BUSINESS IN THIS YEAR THE PAYMENT MADE FOR CARRYING OUT SUCH RUNNING OF NEW B USINESS IS NOTHING BUT A BUSINESS EXPENDITURE WHICH HAS TO BE ALLOWED IN THE YEAR IN WHICH IT HAS BEEN INCURRED. THE EXPENDITURE INCURRED IN THE FORM OF CONSULTANCY CHARGES THOUGH MAY BE FOR ENDURING BENEFIT OF SERVICE INDUSTRY STA RTED BY THE ASSESSEE HOWEVER FALLS IN REVENUE FIELD AND CANNO T BE HELD TO BE CAPITAL IN NATURE. FOR DECIDING THE ISSUE WHETHER THE EXPENDITURE IS C APITAL OR REVENUE IN NATURE THE CONCEPT OF ENDURING BENEFIT IS QUITE A PARAMOUNT FACTOR BUT SUCH TEST OF ENDURING BENEFIT AT TIMES GETS FAILED AS NOT EACH AND EVERY ADVANTAGE OF ENDURING NATURE CAN BE OF CAPITA L FIELD. THERE MAY BE A CASE WHERE EXPENDITURE HAVE BEEN INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT BUT NONETHELESS -THEY MAY BE ON REVENUE ACCOUNT. WHAT HAS TO BE SEEN IS THE NATURE OF ADVANTAGE IN A COMMERCIAL SENSE WHETHER IT IS IN THE CAPITAL FIELD OR FOR THE RUNNING OF THE BUSINESS. IF THE ADVANTAGE IS NECESSITATING THE BUSINESS OPERATIONS FOR ENABLING THE ASSESSEE TO DO BUSINESS FOR EARNING SOME PROFIT WITHOUT HAVING IMPACT ON FIXED CAPITAL THEN SUCH EXPENDITURE HAS TO BE RECKONED ON REVENUE ACCOUNT EVEN THOUGH THE ADVANTAGE MAY ENDURE IN FUTURE. THUS THE TEST OF ENDURING BE NEFIT CANNOT HE HELD TO BE CONCLUSIVE. IN THE INSTANT CASE THERE IS NO AUGMENTATION OF AS SET TO THE ASSESSEE BUT THE EXPENDITURE HAS HELPED THE ASSESSEE TO DEVE LOP A PROPER GUIDANCE FOR RUNNING THE NEW LINE OF SERVICE INDUST RIES. THUS THE PAYMENT FOR CONSULTANCY CHARGES IS ON ACCOUNT OF RE VENUE FIELD ONLY AND HAS TO BE ALLOWED AS REVENUE EXPENDITURE UNDER SECTION 37(1) AS IT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS INESS. [PARA 7] FROM THE ABOVE DECIDED CASE THE FOLLOWING EMERGE. ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 9 - IN CASE OF CONTINUITY OF BUSINESS THEN PAYMENT MAD E FOR CARRYING OUT SUCH RUNNING OF NEW BUSINESS HAS TO BE ALLOWED AS B USINESS EXPENDITURE 6.2.3 BUSINESS OF THE ASSESSEE WAS STARTED IN IMMED IATELY PRECEEDING YEAR THAT IS A.Y. 2012-13. THE LD. AO AL LOWED ALL SUCH EXPENSES IN EARLIER YEAR. DURING THE YEAR UNDER CON SIDERATION THERE WERE RECEIPTS ALTHOUGH IN SMALL AMOUNTS. THE FACTS OF THE APPELLANT ARE SIMILAR TO THE FACTS DECIDED BY HONBLE ITATS IN CASE OF PINEBRIDGE INDIA (P.) LTD. V. ACIT(SUPRA) AGRANI TELECOM LTD. V. ACIT(SUPRA) AND RADHASHIR JEWELLERY CO. (P.) LTD. V. ACIT(SUPRA). T HEREFORE RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE ITA T AS DISCUSSED IN THE FOREGOING PARAS APPEAL OF THE ASSESSEE IS ALLOW ED AND ADHOC DISALLOWANCES MADE BY THE AO ARE DELETED. THE LD. DR COULD NOT CONTROVERT THE OBSERVATIONS OF THE LD. CIT (A) WITH NEW COGENT MATERIAL INFORMATION AN D HAS RELIED ON THE OBSERVATIONS AND THE FINDINGS OF THE AO. WHEREAS THE LD.CIT(A) CONSIDERED THE FACTS ON STA RTUP COMPANY AND RELIED ON THE JUDICIAL DECISIONS AND P ASSED A REASONED ORDER. ACCORDINGLY WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE LD.CIT(A) AND UPHOLD THE SAME A ND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. ITA NO . 5216/MUM/2019 M/S TALENTUBE ENTERTAINMENT PVT. LTD. - 10 - 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.03.2021. SD/- SD/- (SHAMIM YAHYA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 09.03.2021 AK PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. !'!#$ % / THE CIT(A) 4. % ( ) / CONCERNED CIT 5. ()* ++#$ #$ / DR ITAT MUMBAI 6. *-. / / GUARD FILE. / BY ORDER ( + //TRUE COPY// 1. / ( ASST. REGISTRAR) / ITAT MUMBAI