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TMI Blog2012 (12) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) the assessee is in appeal before us. 4. Ground No. 1 is against the sustenance of disallowance of internet/web site expenses. 5. Brief facts of the above issue are that the A.O. noted that the assessee has debited Rs. 10,88,657/- on account of internet/website cost. The A.O. observed that when website is developed, expenses were incurred to create the same. It bestowed enduring benefit to the assessee. The assessee was asked as to why the same should not be treated as capital in nature. The assesse replied that the website was set up to advertise albums which the company was then trading in. This required revamping of the website frequently. With every new release of music album, the website had to undergo a change to include pictures/scenes of the movie etc. Therefore, it is not the case of development of new website. The website requires changes every year. In any case, out of the total of Rs. 10,88,657/-, Rs. 3,00,000/- was incurred for redesigning the website while the balance amount of Rs. 7,88,657/- was incurred for maintenance, hosting etc. of the website. Such arguments did not find favour with the A.O. The A.O. observed that the website was a profit earning apparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture and accordingly we while reversing the order passed by the A.O. and the ld. CIT(A) on this account, allow the ground taken by the assessee. 10. Ground No. 2 is against the sustenance of disallowance of provision for stock obsolescence written back Rs. 3,73,80,638/-. 11. Brief facts of the above issue are that the A.O. observed that the assessee debited the said amount as provision for stock obsolescence. The assessee was asked to clarify. The assessee, in reply, contended that these stocks were held by the company for a period more than the potential sale period. Since it was a provision it was not claimed as deduction in the computation of income in the year in which the same was created. Now the same was written back since the amount to be provided at the end of the year was lower than the provision made. That, the stock was in the nature of stock-in-trade i.e. music cassettes, CDs, VCDs manufactured by the company in expectation of sale. The music albums have a very short span of life giving rise to higher obsolescence of physical stock. However, the A.O. observed that according to the A.O. it is only a provision for obsolescence with no scientific basis for calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not been properly appreciated by the A.O. and the ld. CIT(A) in the light of the consistent method of accounting practice followed by the assessee and claim made by the assessee. 15. In Sony Music Entertainment India Private Limited vs. Addl. CIT in ITA No. 6569/Mum/2010 for A.Y. 2005-06 order dtd. 18-7-2012 the issue before the Tribunal was as under:- "On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - 20 ['CIT (A)'] has erred in accepting the learned Additional Commissioner of Income Tax's order and treating the provision for stock obsolescence written back amounting to Rs. 11,391,166/- as income taxable in the hands of the Appellant inspite of all the relevant information and detailed responses filed before the learned CIT(A) in support of its claim that the provision was already disallowed in preceding assessment years and hence cannot be chargeable to tax in hands of the appellant again in the year under the appeal." The Tribunal has held as under:- "6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resource Planning software and used by the company for accounting purposes. No initial payment was made by the company. However, the A.O. did not accept the assessee's submission and held that the same is not allowable in view of the decision of the ITAT in the case of Maruti Udyog Ltd. (2005) 92 ITD 119 (Del). However, the A.O. has allowed depreciation @ 60% thereon. On appeal, it was inter alia contended by the assessee that the A.O. should have allowed depreciation under similar head for assessment years 2001 -02 and 2002-03. The ld. CIT(A) while agreeing with the views of the A.O., directed the A.O. to allow depreciation on verification. 18. At the time of hearing the ld. counsel for the assessee submits that now this issue stands covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in CIT vs. Amway India Enterprises (2012) 65 DTR (Del) 313 wherein Their Lordships after following the decision in CIT vs. Asahi India Safety Glass Ltd. (2011) 64 DTR (Del) 63 held that the expenditure incurred on purchase of software applications is allowable as revenue expenditure. He also placed on record the copy of the said decisions. 19. On the other hand, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of ECB A/c was disallowed by the assessee. However, the A.O. observed that the total foreign exchange loss amounted to Rs. 1,29,77,521/- out of which the assessee took 21% of the total ECB loan for creditors of capital goods and accordingly disallowed Rs. 27,37,890/-. The balance amount of Rs. 1,02,39,631/- was taken as revenue deduction because the assessee's plea was that the loan portion was utilized for sundry creditors for rawmaterials. From the details of utilization of ECB Fund, the A.O. noted that major part was utilized for payment of royalty. Royalty was paid for purchase of music rights. The A.O., therefore, concluded that the foreign exchange loss should be capitalized. Hence, he disallowed the same. On appeal, the ld. CIT(A) while observing that the major part of the fund was utilized for payment of royalty and the payment on account of purchase of music rights is capital in nature and upheld the disallowance made by the A.O. 26. At the time of hearing the ld. counsel for the assessee while reiterating the same submissions as submitted before the A.O. and the ld. CIT(A) further submits that in absence of any detail, the Tribunal in assessee's own case in ITA No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidence confirmed the disallowance made by the A.O. 31. At the time of hearing the ld. counsel for the assessee while reiterating the same submissions as submitted before the A.O. and the ld. CIT(A) further submits that the assessee has produced the books of accounts, therefore, the claim made by the assessee be allowed. 32. On the other hand, the ld. D.R. supports the order of the A.O. and the ld. CIT(A). 33. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the assessee has not produced any documentary evidence in support of the claim. We further find that the Revenue authorities without examining the books of account has rejected the claim of the assessee. In this view of the matter we consider it fair and reasonable the matter should go back to the file of the A.O. and accordingly we set aside the order passed by the Revenue authorities on this account and send back the matter to the file of the A.O. to decide the same afresh in the light of the observation hereinabove and in accordance with law after providing reasonable opportunity of being heard to the assessee. The grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.R., it has been held as under (Headnote) : " Held, that the agreement clearly provided for assignment of the rights of the producer of the music of the movie to the assessee. The copyright so assigned was in the nature of a capital asset. The ascertained sum of Rs. 501 paid by the assessee to the producer at the time of entering into that agreement was clearly a capital expense. However, as regards the royalty payable to the assignor, that was variable and was unknown at the time the agreement was entered into. At that point of time, it was not possible to predict the volume of sale as also the price at which the cassette was to be sold, and as a result the amount that would become due and payable to the assignor in future was not known. The royalties paid by the assessee were therefore, required to be regarded as falling within the field of revenue expenditure". 40. In assessee's own case the Tribunal (supra) after following the order of the Tribunal in assessee's own case for A.Y. 2001-02 has allowed the claim of the assessee for A.Y. 2002-03 vide para 6 of its order holding that it is a revenue expenditure and not a capital expenditure. Respectfully follo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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