Darcas Market Makers Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

CO 19/CHNY/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7368 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: G VARDINI KARTHIK
• Keywords: Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER .. ITA NO. 67/MDS/2012 ASSESSMENT YEAR : 2007-08 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(4), CHENNAI. V. M/S. DORCAS MARKET MAKERS P. LTD., BLOCK 38, 6 TH AVENUE, ANNA NAGAR EAST, CHENNAI-600 102. (PAN : AABCD0728L) (APPELLANT) (R ESPONDENT) AND C.O. NO. 19/MDS/2012 (IN ITA NO. 67/MDS/2012) ASSESSMENT YEAR 2007-08 M/S. DORCAS MARKET V. THE ASST. COMMISSIONER MAKERS P. LTD., OF IN COME TAX, BLOCK 38, COMP ANY CIRCLE-I(4), 6 TH AVENUE, CHENNAI . ANNA NAGAR EAST, CHENNAI-600 102. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI ANIRUDH RAI, CIT-DR ASSESSEE BY : MS. G. VARDINI KARTHIK DATE OF HEARING : 24. 07.2012 DATE OF PRONOUNCEMENT : 31.07.20 12 ITA NO.67/MDS /2012 & CO 19/MDS/2012 2 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE WERE HEARD ORIGINALLY ON 15-06-2012 AND OR DER WAS PASSED IN ITA NO.67/MDS/2012. SUBSEQUENTLY, IT WAS BROUGHT TO OUR NOTICE BY THE REGISTRY THAT THE SECOND GROUN D IN THIS APPEAL AS ALSO THE CROSS OBJECTIONS IN C.O. NO. 19/ MDS/2012 WERE NOT DISPOSED OF. WE, THEREFORE, DIRECTED THE REGISTRY TO POST THIS APPEAL AS WELL AS THE CROSS OBJECTIONS FO R HEARING. ACCORDINGLY THEY WERE HEARD ON 24-07-2012 TO DISPOS E OF THE SECOND GROUND OF APPEAL AS ALSO THE CROSS OBJECTION . 2. THE FIRST GROUND RAISED BY THE REVENUE IN THE AP PEAL RELATING TO DISALLOWANCE U/S 14A AND INVOKING THE P ROVISIONS OF RULE 8D HAS ALREADY BEEN DECIDED BY THE TRIBUNAL VI DE ORDER DATED 15-06-2012 AND THE SAME WILL STAND. 3. COMING TO THE NEXT GROUND OF APPEAL RELATING TO THE DISALLOWANCE OF EXPENDITURE ON ADVERTISEMENT, THE B RIEF FACTS ARE THAT THE ASSESSEE HAD INCURRED AN AMOUNT OF RS. 8,37,35,020/- DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. DURING THE COURSE OF ASSE SSMENT ITA NO.67/MDS /2012 & CO 19/MDS/2012 3 PROCEEDINGS, THE AO ON EXAMINATION OF THE BALANCE SH EET FOUND THAT ` 8,37,35,020/- WAS SHOWN AS A DEFERRED REVENUE EXPENDITURE IN THE ASSET SIDE OF THE BALANCE SHEET. HOWEVER, COMPUTING THE TAXABLE INCOME THE ASSESSEE HAS CLAIM ED THIS WHOLE SUM AS REVENUE EXPENDITURE. SHE FURTHER EXAM INED ITEM NO.17 OF THE ACCOUNTING POLICIES AND FOUND THA T THE AFORESAID DEFERRED REVENUE EXPENDITURE REPRESENTED ADVERTISEMENT EXPENDITURE INCURRED DURING THE YEAR WHICH WAS DEFERRED FOR WRITE OFF OVER A TWO YEAR PERIOD. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE EXPENDITURE RELATE D TO THE PRODUCT LAUNCH OF MEDIMIX SANDAL AND MEDIMIX DRY SK IN SOAPS. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESS EE BECAUSE THE BENEFIT OF SUCH PRODUCT LAUNCH EXPENDIT URE IS USUALLY SPREAD OVER A PERIOD OF MORE THAN ONE YEAR. THEREFORE, CLAIMING THE ENTIRE EXPENDITURE, THE BEN EFIT OF WHICH IS SPREAD OVER A LONGER PERIOD, AS REVENUE EX PENDITURE IN THE YEAR OF INCURRING SUCH EXPENDITURE ONLY FOR THE PURPOSE OF COMPUTING TAXABLE INCOME WAS HELD NOT TO BE IN O RDER. SINCE THE BENEFIT OF EXPENDITURE WOULD SPREAD OVER A SPAN OF TWO YEARS, THE EXPENDITURE WAS HELD TO BE ALLOWABLE FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10. ACCORDINGLY, THE ITA NO.67/MDS /2012 & CO 19/MDS/2012 4 AMOUNT WAS DISALLOWED AND ADDED BACK TO THE TOTAL I NCOME OF THE ASSESSEE. 4. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE CIT(A). IT WAS SUBMITTED BEFORE THE LEA RNED CIT(A) THAT WHETHER THE BENEFIT ACCRUES IN THE SAME YEAR I TSELF OR IN THE SUBSEQUENT YEARS, AS LONG AS THE EXPENDITURE WA S INCURRED IN THE COURSE OF BUSINESS AND WAS EXPENDED IN THE C URRENT YEAR, THE SAME OUGHT TO BE ALLOWED IN THE CURRENT Y EAR. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED WITH RESPECT OF PRODUCT LAUNCH , SALES PROMOTION AND ADVERTISEMENT IS REVENUE EXPENDITURE IN THE COURSE OF BUSINESS OUGHT TO BE ALLOWED IN THE YEAR IN WHICH IT WAS INCURRED. IT CANNOT BE SPREAD OVER THE NEXT TW O YEARS ON THE GROUND THAT THE AMOUNT SPENT IS A LARGE AMOUNT. HE RELIED ON THE FOLLOWING DECISIONS : I) CIT V. JAI PARABOLIC SPRINGS LTD, 306 ITR 42 (DEL), II) CIT V. MANGAL TIRTH ESTATES LTD, 303 ITR 3 66 (MAD), III) DCIT V. CORE HEALTH CARE LTD, 308 ITR 263 (GUJ.), IV) DCIT V. M/S. GODREJ TEA LTD, 4 ITR (TRIB) 6 49 (MUM) V) GURUJI ENTERTAINMENT NETWORK V. ACIT (ITAT DEL). ITA NO.67/MDS /2012 & CO 19/MDS/2012 5 THE LEARNED CIT(A) AFTER CONSIDERING THE EXPLANATIO N OF THE ASSESSEE AND BY FOLLOWING THE DECISION IN THE CASE OF MANGAL THIRTH ESTATES LTD. (SUPRA) AND ALSO THE DECISION I N THE CASE OF BRILLIANT TUTORIALS (292 ITR 399) AND M/S. SOUTHERN ROADWAYS LTD. (265 ITR 404) HAS OBSERVED THAT ANY EXPENDITUR E NOT BEING A CAPITAL EXPENDITURE OR PERSONAL EXPENSES L AID OUT OR EXPENDED FULLY AND EXCLUSIVELY FOR THE PURPOSE OF B USINESS OR PROFESSION SHOULD BE ALLOWED. THE CIT(A) FINALLY H ELD THAT ALL THE ABOVE CASE LAWS COVERED THE ISSUE INVOLVED IN T HIS APPEAL AND ALLOWED THE CLAIM OF THE ASSESSEE. 5. ON BEING AGGRIEVED, THE REVENUE CARRIED THE MA TTER BEFORE THE TRIBUNAL. THE LEARNED DR SUPPORTED THE ORDER PASSED BY THE AO. ON THE OTHER HAND, THE LEARNED C OUNSEL FOR THE ASSESSEE RE-ITERATED THE SUBMISSIONS WHICH HAD BEEN MADE BEFORE THE LEARNED CIT(A) AND FURTHER RELIED O N THE SPECIAL BENCH DECISION OF THE TRIBUNAL, AHMEDABAD BE NCH IN THE CASE OF ACIT V. ASHIMA SYNTEX LTD. (2009) 117 I TD 1 (AHD)(SB). 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE ITA NO.67/MDS /2012 & CO 19/MDS/2012 6 INVOLVED IN THIS APPEAL IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED IN THE YEAR UNDER CONSIDERATION, I.E. ASSESSMENT YEAR 2007-08 OR 2008 -09 AND 2009-10. ACCORDING TO THE AO THE BENEFIT OF EXPEND ITURE SHOULD BE SPREAD OVER IN A SPAN OF 2 YEARS AND THE EXPENDITURE WAS HELD TO BE ALLOWABLE FOR THE ASSESS MENT YEARS 2008-09 AND 2009-10. ON APPEAL, THE LEARNED CIT(A) BY FOLLOWING VARIOUS DECISIONS OF THE JURISDICTIONAL H IGH COURT, ALLOWED THE CLAIM OF THE ASSESSEE. 7. IN THE CASE OF ASHIMA SYNTEX LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAS CONSIDERED VARIOUS DECISIO NS. THE SPECIAL BENCH CONSIDERED THE VERY SAME ISSUE AND HE LD THAT SO FAR AS CORPORATE ADVERTISEMENT EXPENSES, EXHIBITION EXPENSES, PUBLIC RELATION EXPENSES, CULTURAL PROGRAMME EXPENS ES, QUOTA EXPENSES AND SALES PROMOTION EXPENSES WERE CONCERNE D, SINCE SAID EXPENSES DID NOT RESULT IN CREATION OF ANY TAN GIBLE OR INTANGIBLE ASSET AND, MOREOVER, THERE WAS NO EVIDEN CE REGARDING ACCRUAL OF ANY SPECIFIC REVENUE IN YEARS UNDER CONSIDERATION OR SUBSEQUENTLY OVER A DEFINED PERIOD WITH INCURRING OF SAID EXPENDITURE, THOSE EXPENSES COULD BE ALLOWED ENTIRELY IN YEAR IN WHICH THEY WERE INCURRED. IN THE PRESENT ITA NO.67/MDS /2012 & CO 19/MDS/2012 7 CASE IT IS NOT THE CASE OF THE REVENUE THAT THE ASS ESSEE HAS NOT INCURRED THE EXPENDITURE. IT IS AN ADMITTED FA CT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE IN NATURE. WE THEREFORE, FOLLOWING THE JURISDICTIONAL HIGH COURT DECISIONS AND OTHER DECISIONS, RELIED UPON BY THE LEARNED CIT(A) IN HIS ORDER AS ALSO THE SPECIAL BENCH DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ASHIMA SYNTEX LTD. (SUP RA) DISMISS THIS GROUND OF APPEAL RAISED BY THE REVENUE. 8. INSOFAR AS THE CROSS OBJECTION FILED BY THE ASSE SSEE IS CONCERNED, WE FIND THAT THE SAME MERELY SUPPORTS TH E ORDER PASSED BY THE LEARNED CIT(A). IN VIEW OUR FINDING ABOVE THE CROSS OBJECTION HAS BECOME INFRUCTUOUS AND THEREFOR E IT IS DISMISSED AS INFRUCTUOUS. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES, AS WE HAVE REMITTED THE ISSUE REGARDING SECTION 14A OF THE ACT BACK TO THE FILE OF THE ASSESSING OFFICER VIDE OUR ORDER DATED 15-6-201 2. THE CROSS OBJECTION IS DISMISSED AS INFRUCTUOUS. ITA NO.67/MDS /2012 & CO 19/MDS/2012 8 ORDER PRONOUNCED ON TUESDAY, THE 31 ST OF JULY, 2012, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ( V.DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 31 ST JULY, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE