COMMISSIONER OF INCOME TAX V. M/S GLEN APPLIANCES PVT. LTD

ITA/858/2010

AI Insights

The case revolves around the appeals by the Commissioner of Income Tax (Central), Ludhiana against M/s Glen Appliances Pvt. Ltd. concerning the deductibility of certain expenses claimed by the assessee for the assessment year 2003-04. The primary legal questions were whether the expenses on trade fairs, exhibitions, advertising, and sales promotion were deferred revenue expenditures and whether they should be allowed in the year they were incurred or over multiple years. The Tribunal and subsequently the High Court found that these expenses were revenue in nature, allowing full deduction in the year incurred based on precedents and the nature of the expenses.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719029 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 02-05-2011
• Assessment Year: misc
• Other Referred Cases: Madras Industrial Investment Corporation Ltd., Brilliant Tutorials (P) Ltd., Amar Raja Batteries Ltd., India Discount Company
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Deferred revenue expenditure; Revenue in nature; Sales Promotion; Trade fair and exhibition; Advertising and publicity
• Section: 143(2); 143(1); 260A

Judgement Text

"ITA No. 858 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 858 of 2010 (O&M) Date of Decision: 2.5.2011 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Glen Appliances Pvt. Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Standing Counsel, for the appellant. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 520, 735 and 858 of 2010 as according to the learned counsel, identical questions of law are involved therein. For brevity, the facts are being taken from ITA No. 858 of 2010. 2. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 17.11.2008 passed by the Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 1564(Del)/2006, for the assessment year 2003-04, claiming the following substantial questions of law:- “(i) Whether on the facts and circumstances of the case ITA No. 858 of 2010 -2- and in law, the ITAT has erred in holding that the differential expenses on account of trade fair and exhibition, advertising and publicity and sales promotion are not in the nature of deferred revenue expenditure? (ii) Whether on the facts and circumstances of the case and in law, the ITAT has erred in holding that the expenses should be allowed for the assessment year under consideration only, although the benefit of the expenses would be availed by the assessee over a number of years?” 3. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee is a marketing company with brand name 'GLEN' and is engaged in the trading of kitchen appliances and other fast moving consumer goods like electric irons, utensils, other cooking accessories etc. It filed return for the assessment year 2003-04 on 28.11.2003 declaring an income of Rs.79,16,580/-. The said return was processed under Section 143(1) of the Act on 1.6.2004. Notice under Section 143(2) of the Act was issued on 30.11.2004. The assessee claimed to have incurred an expenditure of Rs.36,01,153/- by organizing a trade fair and exhibition and also incurred Rs.1,60,75,876/- and Rs.44,13,323/-, respectively on account of advertisement and sales promotion. The Assessing Officer held all these expenses as not wholly related to the relevant previous year and treated the differential expenses over and above the amount spent in the last assessment year as a deferred revenue expenditure. The ITA No. 858 of 2010 -3- Assessing Officer estimated that the benefits of such expenditure would accrue over a period of two years and, therefore, allowed a sum of Rs.50,66,980/- being 50% of the differential expenses of Rs.1,01,33,960/- to the assessee vide order dated 8.11.2005. Feeling aggrieved, the assessee took the matter in appeal and the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] vide order dated 20.3.2006 affirmed the order of the Assessing Officer. Dissatisfied with that order, the assessee approached the Tribunal who vide order dated 17.11.2008 allowed the appeal and deleted the addition made by the Assessing Officer and affirmed by the CIT(A). Hence, the present appeal by the revenue. 4. We have heard learned counsel for the appellant. 5. According to the learned counsel for the revenue, the expenses which were incurred by the assessee on account of trade fair and exhibition, advertising and publicity and sales promotion were deferred revenue expenditure, the benefit of which was to be availed by the assessee over a number of years. 6. We are unable to accept the submission of the learned counsel. The Tribunal while accepting the plea of the assessee had held that the expenses incurred by the assessee on the aforesaid activities were revenue in nature and the entire amount was admissible in the year in which it was incurred. The finding recorded is as under:- “We have considered the facts of the case and rival submissions. The finding of the AO that even if the claim of the assessee that constant advertisement is needed in view of short public memory is accepted, ITA No. 858 of 2010 -4- the benefit accruing to the brand name “GLEN” cannot be ruled out. There is no evidence in support of this finding. Further, the learned CIT(Appeals) upheld the view of the assessee that the benefit will accrue over a period of two years by relying on the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra). Nothing has been brought on record to show that the benefit will accrue over a period of two years. The advertisement expenses are in the nature of revenue expenses. It is not a case where a loan taken on discount will stay with the assessee for a period of 10 years. Therefore, the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra) is not applicable to the facts of this case. As the expenditure is revenue in nature, the decision of Hon'ble Madras High Court in the case of Brilliant Tutorials (P) Ltd. (supra) supports the case of the assessee for deduction of the expenditure in the year of its incurring. In the case of Amar Raja Batteries Ltd., the Tribunal, after considering the case of India Discount Company, 75 ITR 191, pointed out that the issue in this behalf is clear, i.e. it has to be decided on the basis of law. The expenditure is also in revenue field and, therefore, ITA No. 858 of 2010 -5- the whole of the expenditure is to be allowed in the year of its incurring. In view of the aforesaid judgments and the order, we hold that the expenditure is revenue in nature and, therefore, it has to be allowed in full in this year.” 8. Learned counsel for the revenue was unable to point out any irregularity or illegality in the aforesaid finding recorded by the Tribunal which may warrant interference by this Court. Accordingly, no substantial question of law arises in these appeals. The appeals being devoid of merit are dismissed. (AJAY KUMAR MITTAL) JUDGE May 2, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE ITA No. 858 of 2010 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 520 of 2010 Date of Decision: 2.5.2011 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Glen Appliances Pvt. Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Standing Counsel, for the appellant. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 858 of 2010 (Commissioner of Income Tax (Central), Ludhiana v. M/s Glen Appliances Pvt. Ltd). (AJAY KUMAR MITTAL) JUDGE May 2, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE ITA No. 858 of 2010 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 735 of 2010 Date of Decision: 2.5.2011 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Glen Appliances Pvt. Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Standing Counsel, for the appellant. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 858 of 2010 (Commissioner of Income Tax (Central), Ludhiana v. M/s Glen Appliances Pvt. Ltd). (AJAY KUMAR MITTAL) JUDGE May 2, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE "