NETWORK TELE LINK P. LTD, THANE v. ITO 2(2)(3), MUMBAI

ITA 5335/MUM/2009 | 2003-2004
Pronouncement Date: 23-09-2011 | Result: Allowed

Appeal Details

RSA Number 533519914 RSA 2009
Assessee PAN AAACN6544P
Bench Mumbai
Appeal Number ITA 5335/MUM/2009
Duration Of Justice 2 year(s) 6 day(s)
Appellant NETWORK TELE LINK P. LTD, THANE
Respondent ITO 2(2)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 23-09-2011
Date Of Final Hearing 06-09-2011
Next Hearing Date 06-09-2011
Assessment Year 2003-2004
Appeal Filed On 17-09-2009
Judgment Text
1 ITA NO. 5335/MUM/2009 (ASST YEAR 2003-04) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI R S SYAL AM & SHRI VIJAY PAL RAO JM ITA NO. 5335/MUM/2009 (ASST YEAR 2003-04) NETWORK TELE LINK P LTD R NO.204 2 ND FLOOR GANESH TOWER DADA PATIEL WADI THANE (W) THANE 400 62 VS THE INCOME TAX OFFICER WARD 2(2)(3) MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACN6544P ASSESSEE BY SHRI PARAS S SAVLA REVENUE BY SMT PARMINDER DT.OF HEARING 6 TH SEPT 2011 DT OF PRONOUNCEMENT 2 3 SEPT 2011 PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28.8.2009 OF THE CIT(A) FOR THE AY 2003-04. 2 THE ASSESSEE HAS RAISED THE ONLY EFFECTIVE GROUND IN THIS APPEAL AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS. 12 61 321/- TREATING THE SAME AS CAPITAL EXPENDITURE. 3 THE ASSESSEE IS A TRADER IN COMPUTER HARDWARE AND SOFTWARE. DURING THE FINANCIAL YEAR 2000-01 THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S GLOBAL ELECTRONICS COMMERCE SERVICES LTD. (WHICH LATER ON MERGED WITH GTL LTD )FOR SECURING THE RIGHT TO DATA CENTRE FACILITIES. THE ASSESSEE WAS TO PAY A SUM OF RS. 1.65 CRORES FOR USING THE LICENSE AND SPACE OF GTL LTD. FOR RUNNING THE DATA CENTRE FACILITIES AS PER THE SAID AGREEMENT. THE ASSESSEE ACCOUNTED THE LICENSE FEE AS 2 ITA NO. 5335/MUM/2009 (ASST YEAR 2003-04) DEFERRED REVENUE EXPENDITURE. SUBSEQUENTLY THE ASS ESSEE DROPPED THE PLAN OF SETTING UP THE DATA CENTRE FACILITIES AND THE AGREE MENT WAS MUTUALLY CANCELLED BY BOTH THE PARTIES. THE ASSESSEE PAID AN AMOUNT OF RS . 12 61 321/- TO M/S GTL LTD IN PURSUANT TO THE CANCELLATION OF THE AGREEMENT AND CLAIMED THE SAME AS REVENUE EXPENDITURE BY WRITING OFF THIS AMOUNT DURING THE Y EAR UNDER CONSIDERATION. THE ASSESSING OFFICER TREATED THE SAID PAYMENT AS CAPIT AL EXPENDITURE MAINLY ON THE GROUND THAT THE ASSESSEE VENTURED INTO A NEW BUSINE SS OF DATA CENTRE FACILITY AND FINALIZED AMOUNT PAYABLE WAS SHOWN AS DEFERRED REVE NUE EXPENDITURE. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE C LAIM OF RS. 12 61 321/ U/S 37(1) OF THE I T ACT. 4 ON APPEAL THE CIT(A) HAS CONCURRED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER . 5 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT INITIALLY THE ASSESSEE DEBITED THE LICENSE FEE TO MISCELLANEOUS ACCOUNT AN D DID NOT DEBIT THE SAME TO P&L ACCOUNT. DURING THE AY 2002-03 THIS LICENSE F EE WAS REDUCED TO 50% I.E. RS. 84 08 804/- AND THE AGREEMENT WAS KEPT ALIVE. S TILL NOTHING WAS DEBITED TO P&L ACCOUNT. DUE TO STIFF COMPETITION IN THE MARKET AND THE COMPETITORS ARE OFFERING THE FACILITY AT A VERY MARGINAL RATE THE ASSESSEE DECI DED TO CANCEL THE AGREEMENT OF DATA CENTRE FACILITIES AND ACCORDINGLY THE PARTIES AGREED FOR THE CANCELLATION OF THE AGREEMENT SUBJECT TO THE PAYMENT OF 15% OF THE BALANCE OUTSTANDING EXPENDITURE. THE ASSESSEE MADE THE PAYMENT OF RS. 12 61 321/- BY CHEQUE AND DEBITED THE SAID AMOUNT IN THE P&L ACCOUNT FOR THE AY 2002-03. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT SINCE THIS AMOUNT HAS B EEN PAID DURING THE YEAR UNDER CONSIDERATION IN PURSUANCE TO THE CANCELLATION OF T HE AGREEMENT; THEREFORE THIS IS A BUSINESS LOSS/EXPENDITURE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HE HAS 3 ITA NO. 5335/MUM/2009 (ASST YEAR 2003-04) FURTHER CONTENDED THAT THE ASSESSEE IS A TRADER IN VARIOUS APPLICATIONS I.E. COMPUTER HARDWARE AND SOFTWARE TELECOMMUNICATION PRODUCTS ELECTRIC GOODS AND THEREFORE THE BUSINESS OF THE ASSESSEE WAS RELATED TO THE INF ORMATION TECHNOLOGIES AND THE SETTING UP OF THE PROJCT IN THE DATA CENTRE IS NOT A NEW LINE OF BUSINESS BUT IT IS AN EXPANSION OF THE EXISTING TRADING BUSINESS OF THE A SSESSEE. HE HAS RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF LORD'S DAIRY FARM LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 27 ITR 700 AS WELL AS IN THE CASE OF COMMISSIONER OF INCOME-TAX V. WACKHARDT INTERNATION AL LTD. REPORTED IN 314 ITR 11. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF. COMMISSIONER OF INCOME-TAX V. JYOTI ELECTRIC MOTORS LTD. REPORTED IN 255 ITR 345 AND SUBMITTED THAT THE EXPENDITURE FOR SETTING UP O F DATA CENTRE FACILITY IS EXPANSION OF THE EXISTING BUSINESS AND PART OF THE SAME BUSINESS AND HENCE ARE ALLOWABLE. MOREOVER THE EXPENDITURE ON THE DATA C ENTRE PROJECT IS AN ABANDONED PROJECT AND HENCE IT IS ALLOWABLE REVENUE EXPENDITU RE. 4.1 ON THE OTHER HAND THE LD DR HAS HEAVILY RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHEN THE ASSESSEE IT SELF HAS ACCOUNTED AS DEFERRED REVENUE EXPENDITURE WHICH SHOWS CAPITAL IN NATURE AND FOR ESTABLISHING THE NEW LINE OF BUSINESS. THUS THE LD DR CONTENDED THAT THE CLA IM OF THE ASSESSEE IS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. WHEN THE ASSESSEE IS IN THE BUSINESS OF COMPUTER HARDWARE AND SOFTWARE AND OTHER I T RELATED ACTIVITIES THEN THE DATA CE NTRE FACILITIES IS UNDOUBTEDLY A CONNECTED ACTIVITY OF THE EXISTING BUSINESS OF THE ASSESSEE AND CANNOT BE HELD AS A NEW LINE OF BUSINESS. THE PAYMENT OF RS. 12 61 321 /- HAS BEEN MADE BY THE ASSESSEE IN PURSUANCE TO THE CANCELLATION OF THE AGREEMENT BECAUSE THE PROJECT COULD NOT 4 ITA NO. 5335/MUM/2009 (ASST YEAR 2003-04) BE MATERIALIZED AS THE ASSESSEE FOUND IT AS NOT VIA BLE IN VIEW OF THE DEVELOPMENTS IN THE FIELD OF THE BUSINESS. WHEN THE AMOUNT WAS PAID BEING COMPENSATION/REIMBURSEMENT OF EXPENDITURE AGAINST C ANCELLATION OF THE AGREEMENT THE SAME IS DEFINITELY BUSINESS LOSS OF THE ASSESSEE IN VIEW OF THE FACTS THAT THE PROJECT OF DATA CENTRE FACILITIES IS ONLY AN EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE. ACCORDINGLY IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE LD AR OF THE ASSESSEE WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM IS ALLOWABLE AS BUSINESS EXPENDITURES. ACCORDINGLY WE SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE. 6 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 23 RD DAY OF SEPT 2011. SD/- SD/- ( R S SYAL ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 23 RD SEPT 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI