ACIT 6(3), MUMBAI V. LOREAL INDIA P. LTD, MUMBAI

ITA 1043/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3431 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRITAM SINGH
• Keywords: Capital asset; Revenue expenditure
• Section: 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - I BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBER & RAJEN DRA,ACCOUNTANT MEMBER /. ITA NO. 1043/M/2011, ' ' ' ' # # # # / ASSESSMENT YEAR 2005-05 M/S.LOREAL INDIA PVT.LTD. AWING RHONE POULENC HOUSE, S K AHIRE MARG, WORLI, MUMBAI-400025 VS. ACIT 6(3) AAYKAR BHAVAN, MUMBAI-400020 PAN: AAACL0738K ( $% / ASSESSEE ) ( &'$% / RESPONDENT) /. ITA NO. 722/M/2011, ' ' ' ' # # # # / ASSESSMENT YEAR 2005-05 ACIT 6(3) AAYKAR BHAVAN, MUMBAI-400020 VS. M/S.LOREAL INDIA PVT.LTD. AWING RHONE POULENC HOUSE, S K AHIRE MARG, WORLI, MUMBAI-400025 PAN: AAACL0738K ( $% / ASSESSEE ) ( &'$% / RESPONDENT) $% $% $% $% ( ( ( ( / ASSESSEE BY : NON &'$% ) ( /RESPONDENT BY : SHRI PRITAMSINGH AND MS.NEERAJA PRADHAN ' ' ' ' ) )) ) *+ *+ *+ *+ / DATE OF HEARING : 12.06.2013 ,-# ) *+ / DATE OF PRONOUNCEMENT : 12.06.2013 ' ' ' ' , 1961 ) )) ) 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DTD.11.10.2010 OF THE CIT(A)- 12,MUMBAI,ASSESSING OFFICER (AO) AND THE ASSESSEE HAVE FILED CROSS-APPEALS RAISING FOLLOWING GROUNDS OF APPEAL: ITA/1043/M/2011 GROUND NO 1. RELIEF ALLOWED ONLY IN THE FORM OF RE DIRECTION IN RESPECT OF RS. 31,91,010/-BEING UNUTILIZED MODVAT CREDIT AS AT 31 MARCH 2005 ADDED TO THE CLOSING STOCK UNDER SECTION 145A OF THE ACT 1.1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN REDIRECTING THE AO TO CARRY OUT THE NECESSARY EXERCISE UNDER SECTION 145A OF THE ACT BY CHANGING THE OPENING STOCK AND PURCHASES ALONG WITH CLOSING STOCK TO VERIFY THE EV IDENT NIL IMPACT OF ADJUSTMENTS UNDER SECTION 145A OF THE ACT. 1.2.THE APPELLANT PRAYS THAT THE AO BE INSTRUCTED T O DIRECTLY DELETE THE ADDITION OF UNUTILIZED MODVAT CREDIT OF RS.31,91,010/-MADE TO THE CLOSING STOCK A S AT 31 MARCH 2005. APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AND AMEND THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE HEARIN G OF THIS APPEAL. ITA/722/M/2011 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE EXPENDITURE OF RS.9,24,86,243/- INCURRED ON ADVERTI SEMENT IGNORING THE FACT THAT THE SAID EXPENDITURE RESULTED IN CREATING A BENEFIT OF ENDURING NATURE A ND THUS IS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION U/S.37(1) OF THE INCOME-TAX ACT, 1961 THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED THE APPELLANT CRAVES LEAVE TO AMEND WHICH MAY BE N ECESSARY OR ALTER ANY GROUND OR ADD A NEW GROUND ITA/1043/M/2011: 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND TRADING IN COSMETICS,FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCO ME OF RS.NIL AFTER SET OFF OF LOSS BROUGHT FORWARD LOSSES AMOUNTING TO RS.45.45 CRORES.AO FINA LISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT,ON 26.12.2008,DETERMINING THE TOTAL INCOME AT R S.NIL. DURING THE ASSESSMENT PROCEEDINGS AO MADE CERTAIN ADDITIONS AND DISALLOWANCES.ONE OF THE DISALLOWANCE PERTAINED TO DISALLOWANCE OF RS.31.9 LAKHS U/S.154A OF THE ACT AND THAT IS TH E FIRST GROUND OF APPEAL. 2.1. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AS FAR AS CENTRAL EXCISE LEVIE S WERE CONCERNED. SHE INVITED ATTENTION OF THE ASSESSES-COMPANY TO THE PROVISIONS OF SECTION 145-A OF THE ACT AND ASKED IT TO SHOW CAUSE AS TO WHY THE BALANCE IN THE CENVAT CREDIT SHOULD NOT BE ADDED BACK TO THE TOTAL INCOME IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT ? HE DIRE CTED THE ASSESSEE TO FILE A WORKING AS PER THE PROVISIONS OF SECTION 145A BY FOLLOWING INCLUSIVE A S WELL AS EXCLUSIVE METHOD.AS PET THE AO IN SPITE OF REPEATED OPPORTUNITIES, ASSESSEE FAILED TO FURNISH A COMPUTATION FOLLOWING THE INCLUSIVE METHOD. AO NOTED THAT AS PER APPENDIX B OF THE TAX AUDIT REPORT THE AUDITOR HAD MENTIONED THAT THE COMPANY FOLLOWED EXCLUSIVE METHOD OF ACCOU NTING. SHE HELD THAT IN THE ABSENCE OF RELEVANT INFORMATION, IT HAD NOT BEEN FEASIBLE TO C OMPILE THE DETAILS OF DEVIATION FROM THE METHOD OF VALUATION PRESCRIBED U/S. 145A OF THE ACT.FINALL Y SHE HELD THAT AFTER THE INSERTION OF SECTION 145A OF THE ACT, ALL ASSESSEES WERE BOUND TO FOLLOW THE INCLUSIVE METHOD OF ACCOUNTING,THAT IF AN ASSESSEE WAS NOT FOLLOWING THE INCLUSIVE METHOD OF ACCOUNTING IT HAVE TO MENTION THE IMPACT OF SECTION 145A ON THE PROFIT IN THE RETURN OF INCOME ,THAT THE ASSESSEE HAD NOT PRODUCED THE RELEVANT RECORDS,THAT IN THE INSTANT CASE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS OF FURNISHING THE IMPACT OF SECTION 145A ON THE PROFITS FOR THE YEAR UNDER CONSIDERATION.SHE FOUND THAT THE BALANCE OUTSTANDING AS PER ANNEXURE 7 TO THE TAX AUDIT REPO RT WORKED OUT TO RS.31,90,010/-.AO ADDED BACK THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASS ESSEE . 2.2. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER SHE HELD THAT THE ISSUE OF UNUTILIZED MODVAT WAS DECIDED BY HIS P REDECESSOR WHILE DECIDING THE APPEALS FOR THE AY.2002-03.FOLLOWING THE ORDER FOR THE AY 2002-03 S HE DIRECTED THE AO IF THERE WAS ANY CHANGE IN THE CLOSING STOCK AT THE END OF A PARTICU LAR YEAR THERE MUST BE NECESSARILY CORRESPOND - ING ADJUSTMENT IN THE OPENING STOCK,THAT NECESSARY ACTION SHOULD BE TAKEN IN THIS REGARD. 2.2. DURING THE COURSE OF HEARING BEFORE US, NO-ONE APPE ARED ON BEHALF OF THE AASSESSEE COMPANY. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE AO.FROM THE RECORDS IT IS FOUND THAT NOTICE OF HEARING SENT BY THE REGISTRY OF ITA T,MUMBAI WAS RECEIVED BY THE ASSESSEE IN TIME. AS THE ASSESSEE HAS CHOSEN NOT TO ARGUE THE MATTER OR ENGAGE A REPRESENTATIVE, SO WE ARE DECIDING THE MATTER ON THE BASIS OF AVAILABLE MATER IAL. FROM THE RECORDS IT IS FOUND THAT ASSESSEE DID NOT FURNISH DETAILS DESIRED BY THE AO.FAA HAS D IRECTED THE AO TO TAKE NECESSARY ACTION ABOUT ADJUSTMENTS TO BE MADE AS PER THE PROVISIONS OF SECTION 145A OF THE ACT.IN OUR OPINION ORDER OF THE FAA DOES NOT SUFFER FROM ANY INFIRMITY . THEREFORE,UPHOLDING THE ORDER OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST TH E ASSESSEE . AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ITA/722/M/2011 3. IN THE APPEAL FILED BY THE AO EFFECTIVE GROUND OF A PPEAL PERTAINS TO DISALLOWANCE OF ADVERTISE - MENT EXPENDITURE.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THERE WERE CERTAIN ITEMS SUCH AS BRAND PROMOTIONS EXPENSES, MARKET RE-SEARCH EXPENSES, PUBLIC RELATION FEES ETC. UNDER THE HEAD ADVERTISEMENT EXPENSES AMOUNTING TO RS. 9. 24 CRORES.SHE DIRECTED THE ASSESSEE TO FURNISH DETAILS OF THE SAID EXPENDITURE AND ALSO AS KED TO SHOW CAUSE AS TO WHY, THESE EXPENSES SHOULD NOT BE CAPITALISED. AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE, AO HELD THAT THE EXPENSES BROUGHT BENEFIT TO THE ASSESSEE FOR YEARS TO COME, THAT ALL THE EXPENSES INCURRED BY THE COMPANY WERE NOT OF ENDURING NATURE, THAT EXPENSES RELATED TO MARKET RESEARCH, BRAND PROMOTION ON VARIOUS OCCASIONS, MODEL FEES INCURRED FOR ADVERTISEMENT OF FILMS WOULD BRING BENEFIT TO THE ASSESSEE BEYOND THE AY UNDER CONSIDE RATION.RELYING UPON THE VARIOUS JUDGMENTS OF THE HONBLE SUPREME COURT AND BOMBAY HIGH COURT, SHE HELD THAT EXPENSES AMOUNTING TO RS. 9.24 CRORES WERE TO BE TREATED AS CAPITAL EXPENDITU RE. SHE DISALLOWED THE SAID AMOUNT AND ADDED BACK IT TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD ADVERTISEMENT EXPENSES WAS DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT IF IT WAS REVENUE IN NATURE,THAT ANY CAPITAL EX PENDITURE INCURRED WAS NOT ALLOWABLE DEDUCTION, THAT WHETHER A PARTICULAR EXPENDITURE WAS CAPITAL/R EVENUE DEPENDED UPON VARIOUS FACTORS RELEVANT TO THE CASE CONCERNED AND THE NATURE OF EXPENDITURE INCURRED, THAT ADVERTISEMENT EXPENDITURE INCURRED BY THE APPELLANT FOR LAUNCHING A NEW PRODU CT WAS ALLOWABLE AS REVENUE EXPENDITURE IN THE CASE UNDER CONSIDERATION AS OBSERVED BY THE DEL HI TRIBUNAL IN THE CASE OF MODI OLIVETTI LTD., THAT HONBLE DELHI HIGH COURT HAD HELD THAT ADVERTI SEMENT EXPENSES WERE REVENUE IN NATURE AS THEY DID NOT BRING ANY CAPITAL ASSET INTO EXISTENCE THAT PERUSAL OF THE AOS ORDER SHOWED THAT NO INSTANCE HAD BEEN DETAILED TO INDICATE THAT THE EXP ENSES HAD RESULTED IN ENDURING BENEFIT TO THE ASSESSEE-COMPANY,THAT IN THE IMMEDIATE SUCCEEDING A Y.(AY 2006-07),ON THE SIMILAR FACTS AND CIRCUMSTANCES,AO DID NOT CAPITALISE THE ADVERTISEME NT EXPENSES.FINALLY FAA HELD THAT EXPENDITU -RE ON ADVERTISEMENT WAS REQUIRED TO BE INCURRED ON YEAR TO YEAR BASIS,THAT THE YEARLY EXPENDITURE BY ITSELF WAS SUFFICIENT TO PROVE THAT SAME DID NOT HAVE LASTING VALUE, THAT THESE EXPENSES DID NOT RESULT IN ACQUISITION OF ANY ASSET BY THE ASSESSEE COMPANY, THAT SAID EXPENDITURE DID NOT BRING ANY ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE.RE LYING UPON THE ORDER OF THE MUMBAI ITAT DELIVERED IN THE CASE OF METRO SHOOS PVT.LTD.(258 I TR 106-AT),FAA HELD THAT EXPENDITURE INCURRED BY THE APPELLANT UNDER THE HEAD ADVERTISEM ENT EXPENSES WAS REVENUE EXPENDITURE,THAT AO HAD QUANTIFY THE CERTAIN AMOUNT OF EXPENDITURE A S CAPITAL IN NATURE WITHOUT GIVING SPECIFIC DETAILS OF EXPENSES WHICH COULD BE TREATED AS CAPIT AL EXPENSES, THAT SUCH ADHOC DISALLOWANCES SHOULD NOT BE SUSTAINED.FINALLY,FAA DELETED THE ADD ITION MADE BY THE AO. 3.2. BEFORE US,DR SUBMITTED STRONGLY RELIED UPON THE ORD ER OF THE AO.AS STATED EARLIER,NOBODY APPEARED BEFORE US,ON BEHALF OF THE ASSESSEE COMPAN Y.WE HAVE PERUSED THE ORDER OF THE AO AND FAA.WE FIND THAT OUT OF TOTAL EXPENDITURE OF 78.22 CRORES. AO HAD DISALLOWED RS. 9.24 CRORES UNDER THE HEAD ADVERTISEMENT EXPENSES.FAA HAS RIGHT LY POINTED OUT THAT BASIS FOR ARRIVING AT THE FIGURE AT RS. 9.24 CRORES IS NOT KNOWN.AO HAS MENTI ONED THAT CERTAIN ITEMS WERE TO BE ALLOWED AS REVENUE EXPENDITURE AND THE ITEMS WHICH GAVE ENDURI NG BENEFIT WERE TO BE DISALLOWED.WE FIND THAT AO HAS NOWHERE MENTIONED SPECIFIC ITEMS WHICH COULD BE TREATED AS EXPENDITURE RESULTING IN ENDURING BENEFIT TO THE ASSESSEE. IN ABSENCE OF ANY DETAILS IN THE ASSESSMENT ORDER, IN OUR OPINION, FAA HAS RIGHTLY DELETED THE ADDITIONS MADE BY THE AO. GENERALLY THE ADVERTISEMENT EXPENDITURE ARE CONSIDERED REVENUE EXPENDITURE BECA USE THEY DO NOT BRING ANY CAPITAL ASSET INTO EXISTENCE. IF AO CAN PROVE THAT CERTAIN ITEMS RESUL TED IN ENDURING BENEFIT SITUATION CAN CHANGE. BUT,IN THE CASE UNDER CONSIDERATION SUCH DISTINGUIS HING FACTS ARE NOT AVAILABLE.THEREFORE, UPHOLDING THE ORDER OF THE FAA WE DECIDE THE GROUND S FILED BY THE AO AGAINST HIM. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSED. AS A RESULT,APPEALS FILED BY THE ASSESSEE AND AO ST ANDS DISMISSED. 0 *1 '0* 2 '0* - + 3 4 ) . 5 '* ) * 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE,2013 . / ) ,-# 5 8' 12 9' ,2013 - ) . : SD/- SD/- ( . . . B.R.MITTAL ) ( ! ! ! ! / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 8' /DATE: 1 2 TH ,JUNE,2013 / / / / ) )) ) &*; &*; &*; &*; < ;#* < ;#* < ;#* < ;#* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT (A) / = > 4. THE CONCERNED CIT / = > 5. DR B BENCH, ITAT, MUMBAI / ;?. &*' , . . . 6. GUARD FILE/ . @ ';* &* //TRUE COPY// /' / BY ORDER, A / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI