M/s. Spice Retail Ltd., New Delhi V. JCIT (OSD), New Delhi

CO 42/DEL/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8918 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RENUKA JAIN GUPTA
• Keywords: Capital asset; Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G: NEW DELHI) BEFORE SHRI. G.D.AGRAWAL, VICE PRESIDENT AND SHRI I.C. SUDHIR, JUDICIAL MEMBER ITA NO.5660 /DEL/ 2011 (ASSESSMENT YEAR :2008-09) JCIT (OSD), CIRCLE, 9(1) VS. M/S SPICE RETAIL LTD. ROOM NO. 163 B-1, BLOCK, JANAKPURI COMMUNITY C. R. BUILDING CENTRE, JANAKPURI, NEW DELHI-58 NEW DELHI (APPELLANT) (RESPONDENT) C.O NO. 42/DEL/2012 (ASSESSMENT YEAR :2008-09) M/S SPICE RETAIL LTD. VS. JCIT (OSD), CIRCLE,9 (1) B-1, BLOCK JANAKPURI COMMUNITY ROOM NO. 163 CENRTRE, JANAKPURI, NEW DELHI-58 C.R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. RENUKA JAIN GUPTA, SR. D.R REVENUE BY : SHRI AJAY VOHRA, A DV & SH. ROHIT GARG, ADV ORDER PER I. C. SUDHIR, JUDICIAL MEMBER: THE REVENUE HAS QUESTIONED FIRST APPE LLATE ORDER ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) ERRED IN LAW AND FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,92,76,191/- MADE BY THE A .O ON ACCOUNT OF DISALLOWANCE OF ADVERTISEMENT EXPENSES. ITA NO.5660/DEL/2011 2 2. THE LD. CIT()A ERRED IN LAW AND FACTS OF THE CASE IN DELETING THE ADDITION OF RS.67,00,746/- MADE BY THE A.O ON ACCOUNT OF RECRUITMENT & TRAINING EXPENSES. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED UPON. GROUND NO.1 3. AT THE OUTSET OF HEARING, THE LD. A. R SUBMITTED THAT THE ISSUE RAISED IN THIS GROUND IS FULLY COVERED IN FAVOUR OF THE ASSES SEE BY THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASES OF ITO VS. SPICE COMMUNICATIONS LTD, (2010) 35 SOT 78 (DELHI), ITO VS. SPICE DISTRIBUTIO N LTD, ITA NO. 4898/DEL/2011 (A.Y 2008-09) ORDER DATED 23/03/2012 AND SAPIENT CORPORATION PVT. LTD VS. DCIT, ITA NO. 5263/DEL/2010 (A. Y 2006 -07) ORDER DATED 6/5/2011. HE ALSO TRIED TO JUSTIFY THE FIRST APPEL LATE ORDER ON THE ISSUE. THE LD. D. R, HOWEVER, PLACED RELIANCE ON THE ASSESSMENT OR DER WITH THE SUBMISSION THAT FACTS ARE DIFFERENT IN THE ABOVE CITED DECISIONS, H ENCE THESE ARE NOT HELPFUL TO THE ASSESSEE. HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS:- K.T.M.T.M. ABDUL KAYOOM & ANR VS. CIT 44 ITR 689 (S.C) ARVIND MILLS LTD. VS. CIT 197 ITR 422 (SC) DALMIA JAIN & CO. LTD. VS. CIT 81 ITR 754 (SC). 4. DURING THE RELEVANT YEAR THE ASSESSEE DERIVED IN COME FROM TRADING OF MOBILE HANDSETS, ITS ACCESSORIES AND MOBILE REPAIRI NG. THE ASSESSEE CLAIMED ITA NO.5660/DEL/2011 3 THE AMOUNT OF RS.7,71,04,765/- ON ACCOUNT OF ADVERT ISEMENT EXPENSES. THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS OF SUC H EXPENSES AND ALSO TO EXPLAIN AS TO WHY NOT THE SAME MAY BE DISALLOWED AND ADDED TO TOTAL INCOME BEING INCURRED FOR BUSINESS OF ENDURING NATURE. THE A.O DID NOT AGREE WITH THE EXPLANATION OF THE ASSESSEE THAT THE WORD SPICE H AS BEEN SUBSTITUTED IN PLACE OF THE WORD HOT SPOTS IN THE NAME OF THE ASSESSE E COMPANY W.E.F. 19/3/2009, HENCE NO SUCH EXPENSES CAN BE SAID TO BE RELATED TO BRAND BUILDING EXERCISE OF SPICE BRAND. THE A.O HELD THAT MOST OF THE EXPEN SES ARE MADE FOR MAKING BRAND VALUE WHETHER IN THE FORM OF SCHEMES OF SALES , PROMOTION OR ADVERTISEMENT GIVEN IN PRINT AND ELECTRONIC MEDIA. HE HELD THAT THE EXPENDITURE HAS LED TO THE CREATION OF SUCH ASSETS WHICH WOULD BRING ENDURING BENEFIT TO THE ASSESSEE. HE ACCORDINGLY HELD THAT 25% EXPENSES AR E RELATED TO BRAND BUILDING AND ARE OF CAPITAL NATURE. AS SUCH AN AMOUNT OF RS .1,92,76,191/- BEING 25% OF TOTAL EXPENDITURE OF RS.7,71,04,765/- WAS DISALLOWE D AND ADDED TO THE TOTAL INCOME. THE LD. CIT (A) HAS, HOWEVER, FOUND SUBSTA NCE IN THE EXPLANATION OF THE ASSESSEE AND HAS DELETED THE DISALLOWANCE. AGA INST THIS ACTION OF THE LD. CIT (A), THE REVENUE IS IN APPEAL. 5. HAVING GONE THROUGH THE DECISIONS RE LIED UPON, WE FIND THAT THE ISSUE RAISED IN THE GROUND HAS ALREADY BEEN DECIDED BY DE LHI BENCH OF THE TRIBUNAL UNDER ALMOST SIMILAR SET OF FACTS IN FAVOUR OF THE ASSESSEE IN THE ABOVE CITED ITA NO.5660/DEL/2011 4 CASES OF I.T.O VS. SPICE COMMUNICATIONS LTD. (SUPRA ), I.T.O VS. SPICE DISTRIBUTION LTD (SUPRA) AND SAPIENT CORPORATION PV T. LTD. VS. DCIT (SUPRA). IN THE CASE OF I.T.O VS. SPICE COMMUNICATIONS LTD ( SUPRA), THE ASSESSEE COMPANY WAS IN THE BUSINESS OF PROVIDING MOBILE TEL EPHONE SERVICES UNDER BRAND NAME SPICE. IT INCURRED CERTAIN EXPENDITUR E ON ADVERTISEMENT AND SALES PROMOTION. THE ASSESSING OFFICER REJECTED ASSESSEE S CLAIM IN RESPECT OF AFORESAID EXPENDITURES TO THE EXTENT OF 10% HOLDING THAT THIS HAD BEEN INCURRED TOWARDS BRAND BUILDING AND HENCE WERE CAPITAL IN NA TURE. THE LD. CIT (A) DELETED THE ADDITION. THE TRIBUNAL HELD THAT BY IN CURRING EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION, ASSESSEE HAD NOT ACQUIRED ANY FIXED CAPITAL ASSET BUT THESE EXPENDITURES WERE INCURRED FOR EARN ING BETTER PROFITS FOR FACILITATING ASSESSEES OPERATION OF PROVIDING CELL ULAR MOBILE SERVICES. THE ACTION OF THE LD. CIT (A) HAS BEEN UPHELD WITH THIS FINDING THAT THE LD. CIT(A) HAD RIGHTLY ALLOWED ASSESSEES CLAIM IN RESPECT OF EXPENDITURE SO INCURRED. SIMILAR VIEW HAS BEEN EXPRESSED ON THE ISSUE UNDER ALMOST SIMILAR FACTS IN THE REMAINING DECISIONS IN THE CASE OF ITO VS. SPICE DI STRIBUTION LTD (SUPRA) AND SAPIENT CORPORATION PVT. LTD VS. DCIT (SUPRA). THE LD. CIT (A) WHILE DELETING THE ADDITION IN THE PRESENT CASE HAS FOLLO WED THE DECISION OF THE TRIBUNAL IN THE CASE OF SPICE COMMUNICATIONS LTD (S UPRA) AND HAS ALSO FOUND SUPPORT FROM THE DECISIONS OF HONBLE JURISDICTIONA L DELHI HIGH COURT IN THE ITA NO.5660/DEL/2011 5 CASES OF CIT VS. SALORA INTERNATIONAL LTD, 308 ITR 199 (DELHI) AND CIT VS. CASHIO INDIA LTD 335 ITR 196 (DELHI). WE THUS DO N OT FIND INFIRMITY IN THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD . GROUND NO-1 IS ACCORDINGLY REJECTED. GROUND NO-2. 6. THE LD. A.R POINTED OUT THAT THE ISSUE RAISED IN THIS GROUND IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TR IBUNAL IN THE CASE OF SAPIENT CORPORATION PVT. LTD VS. DCIT (SUPRA). THE LD. D.R HOWEVER, TRIED TO JUSTIFY THE ASSESSMENT ORDER, HE SUBMITTED THAT PERSON SPEC IFIC SERVICES WERE RENDERED HENCE IT WAS A BENEFIT OF ENDURING NATURE. 7. THE A.O DISALLOWED EXPENSES OF RS.67,00,74 6/- INCURRED BY THE ASSESSEE ON A RECRUITMENT AND TRAINING OF THE EMPLOYEES BY O BSERVING THAT THE SAME HAVE GIVEN BENEFIT OF ENDURING NATURE AND HENCE ARE CAPI TAL IN NATURE. DURING THE YEAR THE ASSESSEE HAD INTER ALIA INCURRED AN AGGREGATE E XPENDITURE OF RS.67,00,746/- ON RECRUITMENT AND TRAINING. THE CLAIMED EXPENDITURE CONSISTED OF RS.62,49,929/- TOWARDS CONSULTANTS /PLACING AGENCIES , RS.45,819/- TOWARDS HIRING OF VENUES FOR INTERVIEWS AND RS.4,04,998/- TOWARDS TRAINING OF EM PLOYEES. BEFORE THE ASSESSING OFFICER THE ASSESSEE FURNISHED VARIOUS DE TAILS OF RECRUITMENT AND TRAINING EXPENSES INCURRED BY IT. THE A.O WAS, HOW EVER, NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THAT TRAINING AND RECRU ITMENT EXPENSES INCURRED BY IT ITA NO.5660/DEL/2011 6 DO NOT GIVE BENEFIT OF ENDURING NATURE, HENCE, IT I S NOT CAPITAL IN NATURE. THE A.O ACCORDINGLY DISALLOWED THE CLAIMED EXPENSES OF RS.6 7,00,746/-AS CAPITAL IN NATURE. THE LD. CIT (A) HAS, HOWEVER, DELETED THE DISALLOWANCE ACCEPTING THE SUBMISSION OF THE ASSESSEE THAT IT HAD INCURRED CER TAIN EXPENSES ON TRAINING AND RECRUITMENT FOR ITS EMPLOYEES IN THE NORMAL COURSE OF ITS BUSINESS. IT WAS SUBMITTED THAT AN EMPLOYEE APPOINTED TODAY IS AT LI BERTY TO LEAVE THE COMPANY JUST AFTER SERVING IT FOR FEW DAYS OF HIS APPOINTME NT. THE EXPENSES WERE INCURRED BY THE ASSESSEE COMPANY TO SMOOTHLY CARRY OUT ITS D AY TO DAY BUSINESS ACTIVITIES WITH THE SUPPORT OF ITS EMPLOYEES IN THE NORMAL COU RSE OF ITS BUSINESS. IT DOES NOT GIVE ANY ENDURING BENEFIT FOR A FIXED TERM. IT WAS SUBMITTED THAT THE TRAINING EXPENSES ARE INCURRED ON EMPLOYEES SO THAT THEY ARE ABLE TO PERFORM THEIR DUTIES IN DESIRED MANNER. IT WAS FURTHER SUBMITTED THAT T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS ISSUED ACCOUNTING STANDARD 26 PERTAINING TO INTANGIBLE ASSET WHICH IS MANDATORY TO BE FOLLOWED BY ALL THE COMPANIES IN ACCORDANCE WITH THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT 1956. IN ACCOUNTING STANDARD 26, THE INSTITUTE OF CHARTERED ACCOUNTANTS HAS SPECIFIED WHAT COULD BE CLASSIFIED AS AN INTANGIBLE ASSET AND CAPITALIZED I N THE BOOKS OF ACCOUNTS. IN THE ABOVE ACCOUNTANT STANDARD, .IT HAS BEEN CATEGORICAL LY STATED THAT EXPENDITURE INCURRED ON STAFF TRAINING AND RECRUITMENT CANNOT B E SAID TO BE INTANGIBLE ASSET. REPRODUCING THESE PROVISIONS UNDER ACCOUNTANT STAND ARD 26 AND PLACING RELIANCE ITA NO.5660/DEL/2011 7 ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CA SES OF EMPIRE JUTE INDIA LTD. VS. CIT (1980) 124 ITR (SC) AND MADRAS INDUSTRIAL I NVESTMENT CORPORATION LTD. VS. CIT 225 ITR 802 (SC) & ORS, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE IN QUESTION. 8. WE FIND THAT AN IDENTICAL ISSUE WAS RA ISED BEFORE THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SAPIENT CORPORATION LTD VS. DCIT (SUPRA), WHEREIN AFTER DISCUSSING THE CASE IN DETAIL, THE TRIBUNAL HAS HEL D THAT THE EXPENDITURE INCURRED ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES CAN NOT BE SAID TO BE CAPITAL EXPENDITURE. THE ISSUE IS THUS COVERED IN FAVOUR O F THE ASSESSEE. WE THUS FIND THAT THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE WITH DIRECTION TO DELETE THE ADDITION IN QUESTION. THE SAME IS UPHELD. THE GROUND NO-2 IS ACCORDINGLY REJECTED. 9. CONSEQUENTLY, APPEAL IS DISMISSED. C.O NO- 42/DEL/2012 10. IN C.O NO- 42/DEL/2012, THE ASSESSEE HAS OBJEC TED THE ACTION OF THE LD. CIT(A) IN NOT ADJUDICATING THE ALTERNATIVE GROUNDS RAISED BEFORE HIM WHEREBY THE ASSESSEE HAD QUESTIONED THE ACTION OF THE A.O IN NOT ALLOWIN G DEPRECIATION @ 25% ON CREATION OF INTANGIBLE ASSETS ON BRAND BUILDING BY ADVERTISEMENT AND ENDURING BENEFIT CREATED DUE TO RECRUITMENT AND TRAINING OF EMPLOYEES. THESE OBJECTIONS HAVE ITA NO.5660/DEL/2011 8 BECOME INFRUCTUOUS DUE TO DISMISSAL OF THE APPEAL P REFERRED BY THE REVENUE AGAINST THE DELETION OF MAIN ADDITION BY THE LD. CIT(A). T HE C.O IS ACCORDINGLY REJECTED. 11. IN SUMMARY BOTH THE APPEALS AND C.O ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 /8/2013. SD/- SD/- (G.D.AGRAW AL) (I.C. SUDHIR) (VICE PRESIDENT) (JUDICIAL MEMBER) DATED THE 30 TH DAY OF AUGUST , 2013 R. NAHEED COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DE LHI.