M/s. Spice Retail Ltd., Noida V. DCIT, New Delhi

CO 172/DEL/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0994 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J S MINHAS ACIT
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G, NEW DELHI) BEFORE SHRI D. MANMOHAN, HONBLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A. NO. 4283/DEL/2013 ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE 9(1), VS. M/S. SPICE RETAIL LTD., NEW DELHI B-1, B BLOCK, JANAKPURI COMMUNITY CENTRE, NEW DELHI-110 058 GIR / PAN:AAACM0294P C.O. NO.172/DEL/2014 (ASSESSMENT YEAR 2010-11) M/S. SPICE RETAIL LTD., VS. DCIT, CIRCLE 9(1), B-1, B BLOCK, JANAKPURI, NEW DELHI COMMUNITY CENTRE, NEW DELHI-110 058 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.S. MINHAS, ACIT RESPONDENT BY : SHRI AJAY VOHRA, SR. ADV. SHRI ROHIT GARG, ADV. SHRI UDIT NARESH, ADV. DATE OF HEARING : 02.07.2015 DATE OF PRONOUNCEMENT : 02.07.2015 ORDER PER D.MANMOHAN, VP: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 29.04.2013, PASSED BY LD. CIT(A) XII, NEW DELHI AND IT PERTAIN TO ASSESSMENT YEAR 2010-11. FOLLOWING GROUNDS WERE RAISED BY THE REVE NUE: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF A DVERTISEMENT EXPENSES BEING CAPITAL IN NATURE RS.13,06,184/-. ITA NO.4283/DEL/2014 C.O.172/DEL/2014 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF R ECRUITMENT AND TRAINING EXPENSE BEING CAPITAL IN NATURE RS.6,60,82 6/-. 2. FACTS NECESSARY FOR THE DISPOSAL OF THESE APPEAL S ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RETAIL T RADING OF MOBILE HANDSETS AND OTHER ELECTRONIC ITEMS AND THEIR ACCESSORIES AN D ALSO CARRYING REPAIR WORKS. FOR THE YEAR UNDER CONSIDERATION, THE ASSES SEE DECLARED LOSS OF RS.38.42 CRORES WHEREAS AO COMPUTED THE LOSS AT RS. 38.22 CRORES WHEREIN HE MADE THE FOLLOWING DISALLOWANCES: (I) 25% OF ADVERTISEMENT AND MARKETING EXPENSES:- RS.13,60,184/- (II) TRAINING AND RECRUITMENT CHARGE TREATED AS CAPITAL EXPENDITURE: - RS.6,60,826/-. 3. THE ASSESSEE CONTENDED BEFORE LD. CIT(A) THAT IT WAS ENGAGED IN THE RETAIL TRADING OF MULTI-BRAND MOBILE HANDSETS. DUR ING THE YEAR UNDER CONSIDERATION, IT INCURRED AN AGGREGATE EXPENDITURE OF RS.52,24,737/- ON ACCOUNT OF ADVERTISEMENT AND MARKETING EXPENDITURE CONSISTING OF EXPENSES ON CUSTOMER INCENTIVE SCHEME OF RS.10,41,617/- AND DISPLAY THROUGH CARRY BAGS OF RS.41,83,120/- AND DETAILS OF EXPENDITURE W ERE SUBMITTED BEFORE THE AO. IT WAS CONTENDED THAT IT PERTAINS TO BRAND BUI LDING AND IT DOES NOT GIVE THE ASSESSEE ANY ENDURING BENEFIT. IT WAS THEREFOR E, CONTENDED THAT THE ENTIRE EXPENDITURE IS ALLOWABLE AS REVENUE IN NATURE. IT WAS ALSO CONTENDED THAT THE AO ERRED IN HOLDING THAT PART OF EXPENDITURE WAS IN CURRED ON BRAND BUILDING OF ITS NAME, WHILE DISALLOWING 25% OF THE TOTAL EXP ENDITURE. IN THE ALTERNATIVE, IT WAS CONTENDED THAT IF 25% OF EXPEND ITURE IS TREATED AS CAPITAL IN NATURE, THE ASSESSEE SHOULD BE ALLOWED THE BENEF IT OF DEPRECIATION BY TREATING THE SAME AS INTANGIBLE ASSET. ITA NO.4283/DEL/2014 C.O.172/DEL/2014 3 4. DURING THE COURSE OF HARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT AN EXPENDITURE CAN BE SAID T O BE CAPITAL IN NATURE ONLY WHEN IT BRINGS INTO EXISTENCE TANGIBLE OR INTA NGIBLE ASSET SUCH AS KNOWHOW, COPYRIGHT ETC. WHEREAS, THE IMPUGNED EXPEN DITURE IS INCURRED IN THE NORMAL COURSE OF BUSINESS AND BY NO STRETCH OF IMAGINATION, IT COULD HAVE RESULTED IN ANY INTANGIBLE ASSET. EVERY EXPENDITUR E INCURRED BY A BUSINESS CONCERN, IF INCURRED FOR THE PURPOSE OF BUSINESS, I S BOUND TO RESULT IN EITHER DIRECT OR INDIRECT BENEFIT IMMEDIATELY OR AFTER SOM E TIME AND MERELY BECAUSE ASSESSEE MAY BE BENEFITED AFTER SOMETIME, IT CANNOT BE TERMED AS CAPITAL EXPENDITURE. THE IMPUGNED EXPENDITURE WAS INCURRE D BY THE ASSESSEE TO MAKE THE CUSTOMERS AWARE OF THE EXISTENCE OF SUCH P RODUCT AND INCENTIVE SCHEMES APPLICABLE ON PURCHASE THEREOF. THE CARRY BAGS, IN ALL PROBABILITY, WILL BE THROWN AWAY AFTER SOMETIME AND HENCE, THERE IS NO QUESTION OF ANY ENDURING BENEFIT COMING THEREFROM TO THE COMPANY. RELIANCE WAS PLACED UPON SEVERAL CASE LAW, INCLUDING THAT OF HON'BLE DE LHI HIGH COURT IN THE CASE OF CIT VS ENCON INTERNATIONAL PVT. LTD. 308 I TR 199 TO SUBMITTED THAT ADVERTISEMENT EXPENDITURE, FOR LAUNCH OF A NEW PROD UCT, IS ALLOWABLE AS DEDUCTION. ATTENTION OF LD. CIT(A) WAS ALSO INVITE D TO SEVERAL DECISIONS OF OTHER HON'BLE HIGH COURTS / ITAT WHEREIN IT WAS HEL D THAT EXPENDITURE INCURRED ON ADVERTISEMENT AND MARKETING CANNOT EVEN BE TREATED AS DEFERRED REVENUE EXPENDITURE EVEN IF THE ASSESSEE HAS TREATE D THE SAME IN THAT FASHION IN ITS BOOKS OF ACCOUNTS. IT WAS MAINLY CONTENDED THAT 75% OF EXPENDITURE HAVING BEEN ALLOWED AS REVENUE EXPENDITURE THERE IS NO DISPUTE ABOUT THE FACT THAT THE ADVERTISEMENT EXPENDITURE WAS REVENUE IN NATURE IN WHICH EVENT DISALLOWANCE OF 25% OUT OF REVENUE EXPENDITURE IS N OT PERMISSIBLE AND IN THIS REGARD, RELIED UPON THE DECISION OF ITAT, DELH I BENCH IN THE CASE OF ITA NO.4283/DEL/2014 C.O.172/DEL/2014 4 ASSOCIATE COMPANY I.E. SPICE DISTRIBUTION LTD. IN I .T.A. NO. 4898/DEL/2011 DATED 23RD MARCH 2012. 5. IN THE ALTERNATIVE, IT WAS CONTENDED THAT IF THE SAME IS TREATED AS CAPITAL EXPENDITURE THEN THE ASSESSEE SHOULD BE ENTITLED TO CLAIM DEPRECIATION THEREON. 6. LD. CIT(A) OBSERVED THAT THE FACTS IN THE INSTAN T CASE ARE IDENTICAL TO THE FACTS IN THE CASE OF ASSESSEE ITSELF FOR THE PR ECEDING YEAR I.E. ASSESSMENT YEAR 2008-09 AND FOR THE REASONS GIVEN THEREIN, HE CONCLUDED THAT EVEN BALANCE 25% OF EXPENDITURE IS ALSO ALLOWABLE AS RE VENUE IN NATURE IN THE YEAR UNDER CONSIDERATION. SINCE THE IMPUGNED EXPEN DITURE WAS TREATED AS REVENUE IN NATURE, THE ALTERNATIVE CONDITION DOES N OT SURVIVE AND ACCORDINGLY, THE CLAIM OF DEPRECIATION THEREON WAS REJECTED. 7. WITH REGARD TO RECRUITMENT AND TRAINING EXPENDIT URE, THE CASE OF THE AO IS THAT THE ASSESSEE GETS BENEFIT OF ENDURING NATURE AS IT ENHANCES THE MANPOWER CAPITAL OF THE ASSESSEE. THE ASSESSEE REL IED UPON SEVERAL CASE LAW, APART FROM THE FACTS ON RECORD, TO SUBMIT THAT UNDER NO STRETCH OF IMAGINATION THE EXPENDITURE INCURRED ON RECRUITMENT AND TRAINING CAN BE SAID TO HAVE GIVEN THE ASSESSEE BENEFIT OF ENDURING NATU RE AND IF AT ALL IT IS TO BE TREATED AS CAPITAL IN NATURE, THERE SHOULD HAVE BEE N ALLOWANCE OF DEPRECIATION @ 25%. 8. HERE ALSO, LD. CIT(A) FOLLOWED HIS OWN DECISION IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. AS SESSMENT YEAR 2008-09 WHILE HOLDING THAT THE EXPENDITURE IS REVENUE IN CH ARACTER AND IS ALLOWABLE AS DEDUCTION AS REVENUE IN NATURE IN ITS ENTIRETY IN T HE 1 ST YEAR. CONSEQUENTLY, THE ASSESSEE IS NOT ENTITLED TO CLAIM BENEFIT OF DE PRECIATION ON SUCH EXPENDITURE. ITA NO.4283/DEL/2014 C.O.172/DEL/2014 5 9. AGGRIEVED BY THE ORDER O LD. CIT(A), REVENUE IS IN APPEAL CONTENDING, INTER ALIA, THAT THE ADVERTISEMENT EXPE NDITURE AND RECRUITMENT AND TRAINING EXPENDITURE GIVES THE ASSESSEE ENDURIN G BENEFIT AND HENCE, THE LD. CIT(A) OUGHT TO HAVE TREATED THE SAME AS CAPITA L IN NATURE. BY WAY OF CROSS OBJECTION, ASSESSEE CONTENDED THAT IN THE EVE NT OF TREATING THIS EXPENDITURE AS CAPITAL IN NATURE, THEN ASSESSEE SHO ULD BE ALLOWED BENEFIT OF DEPRECIATION @ 25%. 10. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE PLACED BEFORE US A COPY OF ORDER OF ITAT G BENCH, NEW DELHI IN THE A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 I.T.A.NO.5660/DEL/2011 AND C.O. NO.42/DEL/2011 DATED 30.0P8.2013), TO SUBMIT THAT I DENTICAL ISSUE WAS CONSIDERED IN FAVOUR OF THE ASSESSEE BY HOLDING THA T DISALLOWANCE OF 25% OF ADVERTISEMENT EXPENDITURE IS NOT IN ACCORDANCE WITH LAW AND EXPENDITURE ON RECRUITMENT AND TRAINING DESERVE TO BE TREATED AS R EVENUE IN NATURE. THE TRIBUNAL HAS OBSERVED THAT THE CROSS OBJECTIONS ARE INFRUCTUOUS IN THE LIGHT OF THE FACT THAT APPEAL FILED BY REVENUE AGAINST THE D ISALLOWANCE OF ADDITION WAS DISMISSED. 11. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REFERRE D TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CITY FINANC IAL LTD. 20 TAXMAN.COM 462, SPICE COMMUNICATIONS LT. 35 SOT 78, PEPSICO IN DIA HOLDINGS (P) LTD. 21 TAXMAN.COM 165. IT IS SUBMITTED THAT UNDER IDEN TICAL FACTS AND CIRCUMSTANCES DELHI BENCH OF TRIBUNAL AS WELL AS HO N'BLE DELHI HIGH COURT HAVE TAKEN A VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTISEMENT HAVING BEEN TREATED PARTLY AS REVENUE IN NATURE BALANCE 25% SHOULD NOT HAVE BEEN TREATED AS DEFERRED REVENUE EX PENDITURE AND IT IS ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED. IN THE LIGHT OF DECISION OF ITA NO.4283/DEL/2014 C.O.172/DEL/2014 6 ITAT IN ASSESSEES OWN CASE AS WELL AS DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE HAVE NO ALTERNATIVE EXCEPT TO HOLD T HAT THE ORDER PASSED BY LD. CIT(A) IS IN ACCORDANCE WITH LAW BEING IN CONSO NANCE WITH THE VIEW TAKEN BY ITAT IN ASSESSEES OWN CASE FOR THE EARLIE R YEAR. WE, THEREFORE, DISMISS THE APPEAL FILED BY REVENUE. CONSEQUENTLY, THE CROSS OBJECTION FILED BY THE ASSESSEE IS TREATED AS INFRUCTUOUS AND ACCOR DINGLY DISMISSED. 12. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND JULY, 2015. SD./- SD./- (N. K. SAINI) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT DATE:02 ND JULY, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 2/7 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 2/7 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 2/7/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 2/7 SR. PS/PS 7 FILE SENT TO BENCH CLERK 3/7 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER