Case Law Details
Addl. CIT Vs Times Internet Ltd. (ITAT Delhi)
During the year, the assessee claimed an amount of Rs.10.55 crores on account of consultancy fee, out of which an amount of Rs.98.37 lacs has been disallowed by the AO pertaining to the amount paid for legal and professional services. The AO held that since the expenses were incurred for various projects and share acquisition which shall result in enduring benefit to the assessee and hence not allowable as revenue expenditure. The ld. CIT(A) deleted the additions except the amount paid for professional services for project ADONIS. The ld. CIT(A) while upholding the addition opined that the fee has been paid towards review of project ADONIS transaction document, legal & intellectual property right, due diligence, negotiation and such other services taken up in connection with acquisition of strategic investment in a company by the name of “Coupon Duniya” which is hosting a website that is strategically important for the assessee to grow its business and increase traffic and profits. The ld. CIT(A) held that in effect the consultancy charges have been paid towards documentation and advice on acquisition of shares in the said company. Before us, the ld. AR submitted that the assessee has paid professional fee for various composite services including drafting of various documentations, meetings, consultations, discussion, legal and IPR due diligence and closure of deal for acquisition of strategic investment in a company by the name of Coupon Dunia which is hosting a website that is strategically important for assessee to grow its business and increase traffic, copies of engagement letter, invoice and copy of voucher showing deduction of TDS and deposit of service tax on reverse charge basis is enclosed. It is further submitted that assessee company is engaged in the business of hosting of the website and is one of the largest website in India, with a view to continue to grow its revenue as also to protect company from various liabilities, it is business compulsion of the assessee to make strategic investments in other businesses with a view to control their policies which shall be beneficial for the existing business of the assessee. Such expenses have been incurred by assessee to seek the advice from the best professionals, this on account of business considerations’, such expenses should not be viewed as having an enduring benefit and capital in nature. That the amount spent on the consultancy in seeking advice, drafting of documentation, and related search work is revenue in nature as no enduring benefit has been driven out of this nor any new asset has been created out of such expenses Incurring such sums is necessary to continue to do the business in efficient and profitable manner as such, such expenses incurred are revenue in nature.
ITAT find that the expenses are intricately connected with the ongoing business of the assessee and to enhance the profitability. The expenses do not pertain to any creation of new business entity or its operation. Hence, we hold that the expenses on account of consultancy charges are allowable.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeals have been filed by the Revenue as well as the assessee against the orders ld. CIT(A)-9, New Delhi dated 25.01.2019.
2. The assessee company is engaged in the business of publishing its weekly financial newspaper viz. Financial Times, as well as distribution of newspapers and other publications of Bennett, Coleman & Co. Ltd. and has also earned rental income from subletting of premises. The assessee company is also providing manpower services and has also earned capital gains arising from sale of investment.
ITA No. 3347/Del/2019: A.Y. 2015-16 (Assessee’s appeal)
3. The ld. CIT(A) confirmed the disallowance made by the AO in respect of consultancy charges paid by the assessee to the Advocate holding it to be capital in nature. The ld. CIT(A) further confirmed the disallowance made by the AO in respect of consultancy charges to paid to E&Y holding that the services were not in relation to regular business of the assessee. During the year, the assessee claimed an amount of Rs.10.55 crores on account of consultancy fee, out of which an amount of Rs.98.37 lacs has been disallowed by the AO pertaining to the amount paid for legal and professional services. The AO held that since the expenses were incurred for various projects and share acquisition which shall result in enduring benefit to the assessee and hence not allowable as revenue expenditure. The ld. CIT(A) deleted the additions except the amount paid for professional services for project ADONIS. The ld. CIT(A) while upholding the addition opined that the fee has been paid towards review of project ADONIS transaction document, legal & intellectual property right, due diligence, negotiation and such other services taken up in connection with acquisition of strategic investment in a company by the name of “Coupon Duniya” which is hosting a website that is strategically important for the assessee to grow its business and increase traffic and profits. The ld. CIT(A) held that in effect the consultancy charges have been paid towards documentation and advice on acquisition of shares in the said company. Before us, the ld. AR submitted that the assessee has paid professional fee for various composite services including drafting of various documentations, meetings, consultations, discussion, legal and IPR due diligence and closure of deal for acquisition of strategic investment in a company by the name of Coupon Dunia which is hosting a website that is strategically important for assessee to grow its business and increase traffic, copies of engagement letter, invoice and copy of voucher showing deduction of TDS and deposit of service tax on reverse charge basis is enclosed. It is further submitted that assessee company is engaged in the business of hosting of the website and is one of the largest website in India, with a view to continue to grow its revenue as also to protect company from various liabilities, it is business compulsion of the assessee to make strategic investments in other businesses with a view to control their policies which shall be beneficial for the existing business of the assessee. Such expenses have been incurred by assessee to seek the advice from the best professionals, this on account of business considerations’, such expenses should not be viewed as having an enduring benefit and capital in nature. That the amount spent on the consultancy in seeking advice, drafting of documentation, and related search work is revenue in nature as no enduring benefit has been driven out of this nor any new asset has been created out of such expenses Incurring such sums is necessary to continue to do the business in efficient and profitable manner as such, such expenses incurred are revenue in nature.
4. The ld. DR relied on the order of the ld. CIT(A).
5. We find that the expenses are intricately connected with the ongoing business of the assessee and to enhance the profitability. The expenses do not pertain to any creation of new business entity or its operation. Hence, we hold that the expenses on account of consultancy charges are allowable.
6. With regard to the expenses paid to E&Y, we find that the amount has been incurred in course of regular business activity in seeking advice with respect to the website Zigwheel in relation to the project walk. Since, the nature of advice sought is in relation to the conduct of regular business, we hold that the amounts are allowable as revenue expenses.
ITA No. 3226/Del/2019: A.Y. 2015-16 (Revenue’s appeal)
7. The appeal of the revenue relates to sale of contents, consultancy fees, disallowance u/s 14A of the Income Tax Act, 1961.
Disallowance u/s 14A:
8. The assessee company has made certain investments in shares/mutual funds/bonds etc. out of the funds either borrowed by the assessee or from company own sources. Since, these investments have yielded or may yield income in the form of dividend, long term capital gain, tax free interest etc. which does not form part of income of the assessee. The expenditures are required to be disallowed under the provisions of Section 14A of the Income Tax Act, 1961. The AO disallowed an amount of Rs.15,43,253/- against the expenditure disallowed by the assessee of Rs.44,643/-. This issue has been dealt by the Coordinate Bench of ITAT in assessee’s own case in ITA No. 3124/Del/2018 for A.Y. 2014-15 wherein it was held as under:
“4. During the year, the assessee earned dividend from mutual fund of Rs.1,03,60,745/- and suo moto disallowed an amount of Rs.5,57,215/- u/s 14A. The AO by resorting the provisions of Rule 8D(2) (ii) computed disallowance to Rs. 96,28,052/-.
5. The ld. CIT (A) directed the AO to recompute the disallowance
u/s 14A by considering the investments from which dividend has been earned by the appellant company and relying on the order of the Special Bench of ITAT in the case of CIT Vs Vireet Investments Pvt. Ltd. 82 Taxman 415, we hereby direct that only the investments which yielded the exempt income be considered for computation of disallowance u/s 14A r. w. Rule 8D.”
9. In the absence of any material change and legal proposition, we hereby direct that only the investments which yielded the exempt income be considered for disallowance u/s 14A.
Sale of Content:
10. This issue has been adjudicated by the Co-ordinate Bench of Tribunal for A.Y. 2006-07, A.Y. 2007-08, A.Y. 2008-09 and by the ld. CIT(A) for A.Y. 2009-10, A.Y. 2010-11, A.Y. 2011-12, A.Y. 2012-13, A.Y. 2013-14 and A.Y. 2014-15 in favour of the assessee. The appeal of the revenue has been dismissed by the Hon’ble Delhi High Court confirming the order of the ITAT in ITA No. 724, 716 &753/Del/2017 dated 06.09.2017. For the sake of ready reference, the finding of the Tribunal is reproduced as under:
“Ground no.1 of the Revenue’s appeal is against the deletion of disallowance of Rs. 16,12,31,000/-. The facts apropos this ground are that the AO observed that the assessee declared revenue receipts of Rs. 112.97 crore for the current year as against the revenue receipts of Rs124.67 Crores for the immediate preceding year. The assessee was found to have incurred expenditure during the instant year at Rs. 130.02 crore as against the expenditure of Rs. 94.80 crore in the preceding year. On the perusal of details it was observed that the assessee has not shown any income during the year in respect of (i) Medianet: (ii) content selling; and(iii)sale of standalone publication.
On being called upon to explain the reasons for not showing income from these sources, the assessee stated that the Medianet business consisted of a PR brand which was managed by the assessee company on behalf of its holding company, Bennett Coleman and Co. Ltd till 30.09.2004. The holding company withdrew this right from the assessee company from 30.09.2004 and handed over this business to a new group company called Optimal Media solutions Ltd. After the termination of this line of business in the immediately preceding year, the assessee claimed not to have been engaged in rendering any services relating to Medianet Business. The assessee also furnished particulars of income earned by new company, M/s Optimal Media Solutions Ltd., from the business. Similarly, regarding the sale of contents, the assessee submitted that this business hitherto entrusted to the assessee by its holding company was withdrawn w. e. f. 1.10.2004.Necessary communications withdrawing the above business from the assessee were also furnished to the AO. In this backdrop of the facts, the AO noticed that albeit such business were not carried on by the assessee during the year, the overall expenses of the assessee were still on northwards sojourn.
This was held on the strength of the percentage of the expense store venueat62.8% for theAY2004-0 when the assessee was having these business, during the assessment year2005-06 when these businesses remained with the assessee for a part of the year, the percentage of expenses went upto 73.5%; and during the year under consideration when these businesses were not at all carried on by the assessee, the percentage of expenses increased to107.8%. The AO inferred that though “there is no income on the ACCOUNT OF THESE TWO Businesses to the assessee, but, still, it is incurring expenses for these two businesses. “Applying the percentage of expenses at 62.8% as relevant for the AY 2004-05, the AO made disallowance for the remaining expenses of Rs.16,12,31,000/-. This disallowance deleted in the first appeal. The revenue is agreed against such deletion.
15. having heard the rival submissions in the light of the material placed on record, it is observed that the AO made the disallowance by retaining the percentage of expenses to the revenue at 62.8%. This was done in accordance with the percentage of expenses incurred by the assessee for the AY 2004-05 when the assessee was having these businesses from its holding company. Such businesses were withdrawn by the holding company from the assessee w.e.f. 1.10.2014. The opinion of the AO that though there was no income to the assessee from these businesses, still it was incurring expenses for them, each unfounded. On a specific query, the Id. DR failed to draw our attention towards any specific expenditure incurred by the assessee qua these businesses withdrawn by the holding company. The AO made disallowance of Rs. 16.12 crores simply by means of mathematical exercise carried out by him if he found the expenditure Incurred by the assessee to be on higher side, it was incumbent upon him to specifically point out to which expenses were not incurred for the purposes of business. No such exercise worth the name has been carried out. In our considered opinion, the Ld. CIT(A) was fully justified in deleting this addition made by the AO on adhoc basis. This ground is therefore, not allowed:”
11. Since, the matter stands adjudicated, we decline to interfere with the order of the ld. CIT(A).
Consultancy Fee:
12. This issue is in relation to the grounds taken up by the assessee. We have gone through the reasons given by the ld. CIT(A) giving the remission of Rs.48.74 lacs out of the total disallowance of Rs.98.37 lacs made by the AO out of the amount of Rs.10.55 crores claimed by the assessee. Since, all the expenses are found to be incurred in connection with the regular course of business and no enduring benefit has been achieved by the assessee, we decline to interfere with the order of the ld. CIT(A).
13. In the result, the appeal of the assessee is allowed and Revenue is dismissed.
Order Pronounced in the Open Court on 27/06/2022.
