ELCA COSMETIC PRIVATE LIMITED,NEW DELHI V. DCIT CIRCLE-8(1), NEW DELHI

ITA 246/DEL/2021

AI Insights

ELCA Cosmetics Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals) which arose from the assessment order passed by the Deputy Commissioner of Income Tax. The main issues in the appeal included the disallowance of expenses related to Employee Stock Option Plans, IT support services, and promotional expenses, as well as the addition made on account of provision for sales returns. The Tribunal examined the submissions, relevant legal provisions, and precedents to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474619 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Other Referred Cases: Caterpillar India Pvt. Ltd. vs. DCIT, Accenture Services Pvt. Ltd. vs. DCIT, Goldman Sachs (I) Securities (P.) Ltd. vs. DCIT, Biocon Ltd. vs. Dy. CIT, PVP Ventures Ltd. vs. CIT, CIT vs. Lemon Tree Hotels Ltd., S.A. Builders Ltd. vs. CIT, CIT vs. Dalmia Cement (Bharat) Ltd., ITO vs. ELCA Cosmetic Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APPELLANT ASSESSEE; SUMAN MALIK
• Assessee Lawyers: MUKESH BUHUTANI
• Keywords: Revenue expenditure; Business expenditure; Commercial expediency; Capital expenditure; TDS; Rectification of order; Non-deduction of tax
• Section: 143(3); 142(1); 143(2); 201; 154; 37(1); 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’ NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 246/Del/2021 (Assessment Year : 2015-16) ELCA Cosmetics Pvt. Ltd. 202-206, Tolstoy House, 15, Tolstoy Marg, New Delhi – 110 001 PAN : AABCE 1111 C Vs. DCIT Circle – 8(1) New Delhi (Appellant) (Respondent) Assessee by Shri Mukesh Buhutani, C.A., Ms. Drishti Goyal, Adv. and Ms. Shruti Agarwal, C.A Respondent by Ms. Suman Malik, CIT-D.R. Date of Hearing 06.02.2025 Date of Pronouncement 14.02.2025 O R D E R PER VIMAL KUMAR, JM: 1. The appeal filed by assessee is against the order dated 04.03.2020 of Learned Commissioner of Income Tax (Appeals)-3, New Delhi [hereinafter referred to as ‘Ld. CIT(A)’] arising out of assessment order dated 30.07.2019 passed by the DCIT, Circle – 8(1), New Delhi (hereinafter referred as ‘Ld. AO’) under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] and under section 154/143(3) of the Act passed by the Income Tax Department vide order dated 08.02.2019 making addition of Rs.4,60,08,794/- for the Assessment Year 2015-16. -2- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 2. Brief facts of the case are that appellant/assessee electronically filed Income-tax Return declaring loss of Rs.3,60,48,027/- on 31.03.2017. The case was selected for scrutiny through CASS as complete scrutiny and statutory notice under section 143(2) of the Act was issued on 19.04.2016. Notice under section 142(1) of the Act along with questionnaire was also issued. Shri Daksha Kumar, C.A. & AR of assessee attended assessment proceedings from time to time and submitted details/documents. The ACIT, Circle 8(1), New Delhi vide order dated 08.02.2019 under section 154/143(3) of the Act made addition of Rs.6,99,72,798/- on disallowance of sales return of Rs.6,00,12,038/-. On conclusion of assessment proceedings, additions of Rs.24,67,722/- on account of disallowance of Employee Stock Option Plans expenses, Rs.35,41,072/- on account of disallowance of IT Support services expenses paid to AE and Rs.4,00,00,000/- on account of disallowance of Tester and Promotional expenses made by learned AO vide order dated 30.07.2019. 3. Appellant/assessee against orders dated 30.07.2019 and 08.02.2019 preferred appeal before learned CIT(A), which was partly allowed vide order dated 04.03.2020. 4. Being aggrieved, appellant/assessee preferred present appeal with the following grounds : -3- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 “General 1. Erred in determining the Appellant's total income at Rs.6,99,72,798/- as against the returned loss of Rs.3,60,48,027/- disclosed in the return of income, by upholding additions of Rs.10,60,20,832/-. Disallowance of Employee Stock Option Plans expenses 2. Erred in upholding disallowance of expenditure of Rs.24,67,722/- paid by the Appellant to its overseas group company towards Restricted Stock Units ('RSU') provided to certain employees, under section 37(1) of the Act. Disallowance of information technology ('IT') support charges 3. Erred in upholding disallowance of expenditure of Rs.35,41,072/-, being amount paid to Estee Lauder International Inc. ('ELII') for availing IT support services, under section 37(1) of the Act. Disallowance of testers and promotional expenditure 4. Erred in upholding disallowance of testers and promotional expenditure of Rs.4,00,00,000/-. Addition made on account of provision for sales return 5. Erred in upholding the addition made on account of provision for sales returns of Rs.6,00,12,038/- created during A.Y. 2015-16, on the basis of historical trends. 6. Erred in not appreciating that the claim of provision for sales return is a debatable issue and not a mistake apparent from the record and thus, the learned AO had erred in treating the said provision as a subject matter of rectification under section 154 of the Act.” 5. Ground No.1 Learned Authorized Representative for appellant/assessee submitted that Ground No.1 being dependant on other grounds is consequential. Therefore, Ground No.1 is left open. -4- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 6. Ground No.2 Learned Authorized Representative for appellant/assessee submitted that learned CIT(A) erred in upholding disallowance of expenditure of Rs.24,67,722/- paid by appellant/assessee to its overseas group company towards Restricted Stock Units (‘RSU’) provided to certain employees under section 37(1) of the Act. 6.1 Learned CIT(A) failed to appreciate employee-wise details of RSUs, invoice raised by ELII and screenshot of NYSE on date of allotment. 6.2 Hon’ble ITAT, Chennai Benches in the case of Caterpillar India Pvt. Ltd. vs. DCIT [2017] 80 taxmann.com 325 has observed as under: “3.6 We have heard the rival submissions and perused the materials available on record including the paper books filed by the assessee. The brief facts of the case is that three employees who had been deputed to assessee company were allotted the shares of Caterpillar Inc, U.S.A. at a price less than the prevailing market price and the differential amount of USD 1694120 (INR equivalent Rs.7,41,51,630/-) was raised as a debit note by Caterpillar Inc, U.S.A. on the assessee company which was paid by the assessee. Since the concerned employees were deputed/working in the assessee company at the time of issuance of ESOP, the price differentials in the form of ESOP expenditure was debited in the books of the assessee company as part of staff welfare measures. Admittedly, the scheme provides for allotment of shares of Caterpillar Inc even to deputed employees. The said payment of Rs. 7,41,51,630/- was actually made by the assessee and hence it is not a notional loss. Moreover, the shares of the parent company were issued to those employees. Hence the finding given by Delhi Tribunal that issue of shares under ESOP at less than market price only results in short receipt of share premium does not arise at all. Accordingly, the case law relied upon by the lower authorities on the decision of the co-ordinate bench of Delhi Tribunal in the case of Ranbaxy Laboratories Ltd. (supra) is not applicable in the instant case. We find that the expenses in connection with the issue of shares of Caterpillar Inc. -5- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 U.S.A. under ESOP scheme by the assessee to the employees is an ascertained liability and more in the nature of welfare measures for the employees. Accordingly the compensation paid in the form of price differentials is squarely allowable as deduction as an expenditure incurred wholly and exclusively for the purpose of business. We find that the Id CITA had erroneously applied the provisions of section 40(a)(ia) of the Act by holding that the ESOP expenditure is only in the nature of salary or extra remuneration and hence the same would any way deserves to be disallowed for non-deduction of tax at source. We find from the provisions of section 40(a)(ia) of the Act as prevailing at the relevant point of time and as applicable to the year under appeal, that salary expenditure was not included in the list of items warranting disallowance. However the same was introduced in the statute at a much later point of time. Hence the argument of the revenue fails on that count. With regard to the version of the Id CITA that the ESOP scheme should be in accordance with the guidelines prescribed by the Central Government as mandated in section 17 of the Act, we agree with the ld AR that the same is to be applied only for the purpose of valuation of perquisites. We find that even the proviso to section 17(2)(iii) of the Act nowhere contemplated the eligibility of allowability of deduction of ESOP expenditure for an assessee. In any case, if the proviso is applied and perquisites valuation is made accordingly, then the same would have to be construed as salary to the employees which is an allowable deduction for the employer. If there is any violation thereon in the form of non-deduction of tax at source, then the same would fasten some TDS liability on the employer u/s 201 and 201(1A) of the Act and that would not in any case hamper the allowability of deduction towards salaries in the hands of the employer. We find that CBDT had issued a Circular in the context of Fringe Benefit Tax vide Circular No. 9/2007 dated 20.12.2007, wherein, in response to Question No. 16, they had specifically replied that ESOP expenditure is an allowable deduction in computing the taxable income of the employer company. For the sake of convenience, the same is reproduced hereunder :- \"16. Whether the fringe benefit arising on account of shares allotted or transferred under ESOP is allowed as deduction in calculating the taxable income of the employer company? Answer. In case where the employer purchases the shares and then subsequently transfers such shares to its employees, the expenditure so incurred is allowable as deduction in computing the taxable income of the employer company. However, if the shares are allotted to the employees from the share capital of the company, no deduction is allowable in computing the taxable income of the company since no expenditure has been incurred by it.\" -6- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 In the instant case, the shares of Caterpillar Inc. U.S.A. has been allotted to the employees and the price differential is debited to the assessee company by way of a debit note and as stated supra, since the employees were under the control of the assessee company on deputation and more so the ESOP scheme also provided for allotment of shares under ESOP to deputed employees also, the assessee had debited the price differentials as ESOP expenditure in its profit and loss account. This in our considered opinion, is an allowable expenditure and is in tune with the reply given in the Frequently Asked Questions (FAQ) in the CBDT Circular No. 9/2007 dated 20.12.2007. The Circular issued by the CBDT is binding on the tax authorities and the same could be used by the assessee if proved beneficial to the assessee. We also find that the issue under dispute is squarely covered by the decision of the Hon'ble Jurisdictional High Court in the case of PVP Ventures Ltd. (supra) wherein it had been held categorically held that ESOP expenditure is in the nature of staff welfare expenses and is squarely allowable as deduction in computing the taxable income of an assessee. The relevant operative portion of the said judgment is reproduced hereunder: \"As far as the Employees Stock Option Plan is concerned, a rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal.\" We also find that the decision of Hon'ble Madras High Court was subsequently followed by the Hon’ble Delhi High Court in the case of CIT vs. Lemon Tree Hotels Ltd. [IT Appeal No.107 [Delhi of 2015 dated 18-8- 2015]. In view of our aforesaid findings in the facts and circumstances of the case, respectfully following the CBDT Circular and the judicial precedents relied upon hereinabove, we hold that the compensation paid in the form of ESOP expenditure is an allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business. Hence we have no hesitation in directing the Id AO to delete the disallowance made in this regard. Accordingly, the Grounds (1a) to (1e) raised by the assessee are allowed.” -7- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 6.3 Hon’ble ITAT, Mumbai Benches in the case of DCIT vs. Accenture Services Pvt. Ltd. [2010] (ITA Nos. 4540/M/2008, 5029/M/2008, 4541/M/2008, 5008/M/2008, 5009/M/2008) has observed as under: “18. The assessee company incurred certain expenses on account of payments made by it for the shares allotted to its employees in connection with the ESPP. The AO had disallowed Rs. 9,06,788/- incurred by the assessee on the ground that this expenditure is not the expenditure of assessee company but that expenditure is of parent company and the benefit of such expenditure accrues to the parent company and not assessee. The disallowance made by the AO has been deleted by the CIT(A) by observing as under:- “I have gone through the submissions of the appellant and perused the material on record and noted that the common shares of Accenture Ltd. the parent company, have been allotted to the employees of ASPL and not to the employees of the parent company. Though the shares of the parent company have been allotted, the same have been given to the employees of the appellant at the behest of the appellant. It is an expense incurred by the appellant to retain, motive and award its employees for their hard work and is akin to the salary costs of the appellant. As has been pointed out by the appellant, this is a common practice to retain and motivate hard-working employees which is being followed by all major companies such as Infosys. Further, the amount that has been claimed by the appellant is the difference in the market price of the shares of Accenture Ltd and the exercise price of such shares by the employees of AIPL and not the entire share price of the shares allotted. Further, such shares have not been issued out of the share capital of the appellant and hence cannot be said to be a capital expenditure. I have analysed the decision of SSI Ltd. relied on by the appellant and am of the view that the same is applicable to the appellant’s case. As argued by the appellant, such expense is a qualified business expenditure and should be allowable in computing the taxable income of the appellant. This aspect has been upheld in various judicial precedents. Based on the above, I am of the opinion that such expenses qualify as business expenses of the appellant and the appellant should accordingly be given a deduction on this account. Accordingly I hereby delete the addition made by the AO on ground No. 9.” -8- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 19. We have heard the learned representatives of the parties and perused the record. The CIT(A) has given a categorical finding after examining the relevant material and submission of the assessee that shares were allotted to its employees and not to the employees of the parent company. The expenses incurred by the assessee to motivate and award its employees for their hard work, which amounts salary cost of the assessee company. The expenditure incurred by the assessee for the purpose of business on employees is allowable expenses. The CIT(A) has examined the entire scheme and found that such expenses are business expenses and should be allowable as deduction. Since there is no contrary material to the findings of the CIT(A), in the light of that we confirm the order of CIT(A) on this issue.” 6.4 Hon’ble ITAT, Mumbai Benches in the case of Goldman Sachs (I) Securities (P.) Ltd. vs. DCIT [2016] (69 taxmann.com 386) has observed as under: “12.3 Before us, the Ld. Senior Counsel drew our attention to the decision of the Special Bench of the Bangalore Tribunal in the case of Biocon Ltd. vs. Dy. CIT [2014] 144 ITR 21/35 taxmann.com 335 wherein on similar facts the discount on issue of ESOP was allowed as deduction. 12.4 The Ld. DR could not bring any distinguishing decision in favour of the Revenue. Respectfully following the decision of the Special Bench (supra), we hold that discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business of profession. Ground No. 5 & 6 are accordingly allowed.” 7. Learned Departmental Representative for Department of Revenue submitted that learned CIT(A) upheld the assessment order stating there are contradictory rulings in this regard and hence, there is still no finality on the issue. The issue relates to the rules of ICAI and SEBI, which have not been followed by ELCA. Learned CIT(A) held ESOP expenditure to be capital in nature as the assessee will get benefit that is enduring in nature. -9- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 8. From examination of record in light of aforesaid submissions, it is crystal clear that stocks of ELII were granted to the employees of the assessee via a relevant agreement and the cost of such shares issued to the employees are recovered by ELII from ELCA India. RSU agreement at page 1-5 of Appendix is annexed. RSO cost is an actual cash outflow and hence, not notional or contingent in nature. The shares of ELII are not regulated in India and hence, regulatory authorities’ guidelines were inapplicable. The assessee had provided list of employees to the AO. Page 12 of Appendix is annexed. 8.1 As per ratio of judgment in the case of Caterpillar India Pvt. Ltd. (supra) and in view of above material facts and respectfully following the judicial precedents, the compensation paid in form of expenditure incurred on Employee’s Stock Option Plan (ESOP) is held allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business. Accordingly, the Ground No. 2 of appeal raised by assessee is allowed. 9. Ground No.3 Learned Authorized Representative for appellant/assessee submitted that learned CIT(A) erred in upholding disallowance of expenditure of Rs.35,41,072/- being amount paid to Estee Lauder International Inc. ('ELII') for availing IT support services, under section 37(1) of the Act. -10- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 9.1 Learned CIT(A) failed to appreciate Global IT Shared Services Agreement, Invoices raised by ELII and Screenshot of websites. 9.2 Hon’ble Supreme Court of India in the case of S.A. Builders Ltd. vs. CIT [2007] (288 ITR 1) has observed as under: “25. The expression \"commercial expediency\" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency. 34. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 35. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some this business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans.” -11- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 10. Learned Departmental Representative for the Department of Revenue submitted that assessee failed to show how the allocation of service cost was done and basis of claiming the expense. 11. From examination of record in light of aforesaid rival submissions, it is crystal clear that learned CIT(A) upheld the disallowance of IT Support Services of Rs.35,41,072/-. Appellant/assessee had paid charges for developing country specific websites and the periodic maintenance of the websites, provision of centrally sourced IT services, which helps the assessee in execution of its IT requirement across all functional areas. The Global IT Shares Services Agreement had been submitted on record with the AO. Details of TDS deducted were also submitted at page 446 of paper book. Basis of allocation for GIS Cost at pages 39-45, acknowledgment of income of ELII at pages 46-55, GIS guide and catalogue at page 56 and Email correspondence showing receipt of services at pages 149-165 of appendix is annexed. 11.1 As per ratio of judgment in the case of S.A. Builders Ltd. vs. CIT (supra) and in view of above material facts, the appellant/assessee deserves the disallowance of expenditure of Rs.35,41,072/- of IT Support Services. Accordingly, Ground No.3 of appeal is allowed. 12. Ground No.4 Learned Authorized Representative for appellant/assessee submitted that learned CIT(A) erred in -12- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 upholding disallowance of testers and promotional expenditure of Rs.4,00,00,000/-. 12.1 Learned Authorized Representative for appellant/assessee relied on assessee’s own case ITO vs. ELCA Cosmetic Pvt. Ltd. in ITA No.4704/Del/2010, Delhi Benches of ITAT, has observed as under: “7. From the above para of Ld CIT(A)’s order, we find that a clear finding has been given by Ld CIT(A) that the nature of expenditure incurred in assessee’s line of business is absolutely essential for day today conduct of the business of the assessee company and the same is allowable as revenue expenditure. This findings of Ld CIT(A) could not be controverted by the Ld DR of the revenue and hence, in the light of these facts, we hold that there is no infirmity in the order of Ld CIT(A). Ld CIT(A) has referred in the same para that the ratio of the decision of Hon’ble Delhi High Court rendered in the case of CIT v. Salora International Ltd. (supra) is also applicable in the present case but that is not the only basis for deletion of this disallowance. The main basis of deletion is that the expenses incurred by the assessee are absolutely essential for day today conduct of the business of the assessee company. Hence, this objection of Ld DR is not proper that Ld CIT(A) has not considered this objection of the Assessing Officer that these are for earning goodwill. When it is held by Ld CIT(A) that these are essential business expenses, this objection of the Assessing Officer stands rejected that these expenses are for earning goodwill. Moreover, when we examine the facts in the case of CIT v. Salora International Ltd. (supra), we find that the facts of that case are also similar although not identical. In that case, the expenditure in dispute was for launching of its products by the assessee. In that case also, the Assessing Officer was of the view that such expenditure was of an enduring nature and he treated 1/3rd of the expenses as capital expenditure and allowed remaining 2/3rd of the expenditure. Under these facts, it was held by the Tribunal that there was direct nexus between the advertising expenditure and the business of the assessee and held that entire expenditure on advertisement is of revenue nature and allowed the same. Hon’ble High Court of Delhi has confirmed this Tribunal order in that case. In the present case also, we have noted that clear finding has been given by ld CIT(A) that the expenses incurred by the assessee company has a direct nexus with the business carried on by the assessee and hence, the ratio of this judgment is applicable in the present case also. We, therefore, decline to interfere in the order of Ld CIT(A). This ground of the revenue is rejected.” -13- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 12.2 Learned Authorized Representative for appellant/assessee has also relied on assessee’s own case ITO vs. ELCA Cosmetic Pvt. Ltd. in ITA No.5710/Del/2010, Delhi Benches of ITAT, has observed as under: “9. We have heard the rival submissions of both the parties and have gone through the material available on record. We find that during assessment year 2006-07 a similar addition was made by the Assessing Officer which was finally adjudicated vide Hon'ble Tribunal order dated 13.4.2011 in I.T.A. No.4704 wherein ground No.2 was similar to the facts and circumstances of ground No.2 of the present appeal. The relevant paragraph of Hon'ble Tribunal's order is reproduced below:- “From the above para of Ld CIT(A)'s order, we find that a clear finding has been given by Ld CIT(A) that the nature of expenditure incurred in assessee's line of business is absolutely essential for day today conduct of the business of the assessee company and the same is allowable as revenue expenditure. This findings of Ld CIT(A) could not be controverted by the Ld DR of the revenue and hence, in the light of these facts, we hold that there is no infirmity in the order of Ld CIT(A). Ld CIT(A) has referred in the same para that the ratio of the decision of Hon'ble Delhi High Court rendered in the case of CIT v. Salora International Ltd. (supra) is also applicable in the present case but that is not the only basis for deletion of this disallowance. The main basis of deletion is that the expenses incurred by the assessee are absolutely essential for day today conduct of the business of the assessee company. Hence, this objection of Ld DR is not proper that Ld CIT(A) has not considered this objection of the Assessing Officer that these are for earning goodwill. When it is held by Ld CIT(A) that these are essential business expenses, this objection of the Assessing Officer stands rejected that these expenses are for earning goodwill. Moreover, when we examine the facts in the case of CIT v. Salora International Ltd. (supra), we find that the facts of that case are also similar although not identical. In that case, the expenditure in dispute was for launching of its products by the assessee. In that case also, the Assessing Officer was of the view that such expenditure was of an enduring nature and he treated 1/3rd of the expenses as capital expenditure and allowed remaining 2/3rd of the expenditure. Under these facts, it -14- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 was held by the Tribunal that there was direct nexus between the advertising expenditure and the business of the assessee and held that entire expenditure on advertisement is of revenue nature and allowed the same. Hon'ble High Court of Delhi has confirmed this Tribunal order in that case. In the present case also, we have noted that clear finding has been given by Id CIT(A) that the expenses incurred by the assessee company has a direct nexus with the business carried on by the assessee and hence, the ratio of this judgment is applicable in the present case also. We, therefore, decline to interfere in the order of Ld CIT(A). This ground of the revenue is rejected.\" 10. The facts, circumstances and nature of expenditure raised in ground No.2 of appeal are same as in the preceding year. Therefore, following the Hon'ble Tribunal order, we also dismiss the ground No.2 of appeal. As regards ground No.3 of appeal, there is no dispute about the fact that the nature of expenses is clearly of revenue nature and hence were rightly deleted by the Ld CIT(A).” 12.3 Learned Authorized Representative for the assessee/appellant submitted following debit notes for GIS costs and its allocation for A.Ys. 2014-15 and 2016-17 : Particulars A.Y. 2014-15 A.Y. 2015-16 A.Y. 2016-17 GIS Cost 29,90,757.84/- 32,02,405.25/- 44,27,951.83/- 12.4 Learned Departmental Representative for the department of Revenue submitted that learned CIT(A) by relying on remand report of AO observed that it was not clear how the sample distribution to the employees shall increase the business of assessee. Assessee submitted only the comparison of sales & profits without expenses related to tester and promotional expenses. -15- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 13. From examination of record in light of aforesaid rival submission, it is crystal clear that the assessee had submitted year- on-year expenses on testers and promotion vis-à-vis sales submitted to justify expenses are not abnormally high and in fact have decreased over the years. Industry practice to spend on testers and promotion. Such expense is required to maintain ELCA’s market share. The market for such products is also highly volatile, further showing the need for such expenditure. Tribunal in A.Ys. 2006-07 & 2007-08 held in favour of ELCA India. This matter also relates to the business expediency of the assessee and should be left to the businessman concerned or the board of directors. Bill of entry along with relevant invoices submitted to CIT(A) showing that testers and samples were shipped by foreign AE to Shoppers Stop and corresponding no-charge invoice of ELCA. 13.1 In assessee’s own case the issue raised in Ground No.4 is covered by decisions for A.Ys. 2006-07 & 2007-08. Accordingly, the disallowance of Testers and Promotional Expenses to the tune of Rs.4,00,00,000/- cannot be sustained and is deserves to be deleted. Therefore, Ground No.4 is allowed. 14. Ground No.5 Learned Authorized Representative for the appellant/assessee submitted that learned CIT(A) erred in upholding the addition made on account of provision for sales returns of Rs.6,00,12,038/- on basis of historical trends. -16- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 15. Learned Departmental Representative for the Department of Revenue submitted that no doubt learned CIT(A) has passed consolidated order adjudicating the issues raised by the assessee under section 143(3) and 154 of the Act. But assessee has raised ground of appeal challenging only issue invoking under section 143(3) of the Act. The order under section 154 of the Act is separate, legally appealable. Therefore, the learned DR insisted that the grounds of appeal are not maintainable. 16. From examination of record in light of aforesaid rival contentions, it is crystal clear that via rectification order under section 154 of the Act dated 08.02.2019, the AO stated that the assessee had made provision of sales return amounting to Rs.6,00,12,038/- out of which Rs.2,62,83,434/- was for exceptional items and Rs.3,38,28,605/- was netted off from sales. The entire amount was disallowed and added back to the assessee’s income. Therefore, appellant/assessee deserves liberty to challenge the order under section 154 of the Act dated 08.02.2019 by following separate appeal. Accordingly, Ground Nos.5 and 6 are left open. 17. Hence, appeal is partly allowed. Appellant/ assessee will be at liberty to file separate proceedings for challenging the order dated 08.02.2019 under section 154 of the Act in accordance with law by claiming the benefit of exclusion of period of pendency of present appeal. -17- ITA No.246/Del/2021 ELCA Cosmetics Pvt. Ltd. vs. DCIT A.Y. 2015-16 18. In the result, appeal filed by assessee is partly allowed. Order pronounced on this day 14th February, 2025 Sd/- Sd/- (S. RIFAUR RAHMAN) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 14.02.2025 Pr i ti Y adav, S r. PS * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "