Rosebys Interiors India Ltd., Ahmedabad V. The Asstt. Commissioner of Income Tax, Circel-5, Ahmedabad

ITA 204/AHD/2017

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8995 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-10-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 24-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Revised return; Revenue expenditure; Capital expenditure; Set aside
• Section: 37; 271(1)(c); 37(1); 153

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Shri P.M. Jagtap, Vice President And Shri Siddhartha Nautiyal, Judicial Member Th e DCIT, Circle-3 (1 )(1), Ah medabad (Appellant) Vs M/s. Roseb ys Interiors India Ltd. , GHCL Ho use, Op p. Punjabi Hall, Nr. Navrangpura, Ah med abad PAN: AAD CR881 6M (Resp ondent) M/s. Rosebys Interiors In dia Ltd. , GHCL Ho use, Opp . Punjab i Hall, Nr. Navrangp ura, Ahmed abad PAN: AADCR8816M (Appellant) Vs The ACIT, Circle-5, Ah med abad (Resp ondent) Asses see b y : Shri M ukund Bak shi, A.R. Revenue by : Shri S udhendu Das, CIT-D. R. Date of hearing : 31-10 -2 022 Date of pronouncement : 04-11 -2 022 आदेश /ORDER ITA No. 153 /Ahd/2017 Assessment Year 2010-11 ITA No. 204/Ahd/2017 Assessment Year 2010-11 I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 2 PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are cross appeals filed by the Department and the Assessee against the order of the ld. Commissioner of Income Tax (Appeals)-9, Ahmedabad in Appeal no. CIT(A)-9/107/ACIT.Cir-5/14-15 vide order dated 10/11/2016 passed for the assessment year 2010-11. 2. The Assessee has raised the following grounds of appeal:- “1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO of disallowing foreign exchange loss amounting to Rs.8,09,35,919/-. 2. Ld. CIT(A) ought to have appreciated and taken into consideration the nature and utilization of underlying loan in foreign currency while deciding the allowability of foreign exchange loss amounting to Rs.8,09,35,919/- rather than relying upon observations of TPO which were purely academic and therefore not challenged by the appellant. 3. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 3 lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 4. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s.271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. The Department has raised the following grounds of appeal:- “1. The CIT(A) has erred in law and on facts in deleting the addition of Rs.19,47,70,669/- on account of disallowance of Advertisement expenses u/s. 37 of the Act and not considering the findings of the AO. 2. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of t Assessing Officer. I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 4 3. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.” We shall first take up assessee’s appeal. Disallowance of foreign exchange losses 4. The brief facts in relation to the assessee’s appeal are that that the assessee had claimed foreign-exchange losses to the tune of 8,02,47,837/ - in its profit loss account. From the bifurcation provided by the assessee during the course of assessment proceedings, the AO observed that an amount of 8,09,35,919/ -pertained to foreign exchange loss in relation to exchange rate fluctuation with respect to “loan to Indian Wales”. Indian Wales is a subsidiary/associated Enterprise of the assessee and the loss incurred by the assessee pertain to notional loss in relation to the depreciation of the Indian rupee vis-à-vis foreign currency. The assessee contended that the loan extended by the assessee to its subsidiary was a loan given for working capital requirement of the subsidiary company. The assessee also submitted that it had given similar treatment to foreign exchange loss/gain pertaining to the said loan in earlier years. However, the AO rejected the assessee’s contention and held that the transfer pricing Officer (TPO) has examined the nature of transaction in detail and has held in its order that the nature of grant of loans by the assessee to the associated Enterprise is in the nature of “equity contribution” and is therefore capital in nature. It was on this basis that the TPO did not make any adjustment on I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 5 account of interest benchmarking in respect of the international transaction entered into by the assessee with its AE. The AO further observed that the TPO had categorically remarked that if the said “loan” was to be actually treated as “loan” instead of “equity contribution”, then interest as calculated in the stipulated manner, must be considered by receivable to the assessee and accordingly, the income of the assessee has to be revised upwards. Therefore, primarily in view of this special treatment given to the said “loan”, the TPO did not make any adjustment in relation to interest income of the assessee. Therefore, the AO disallowed the assessee’s claim of foreign exchange loss with the following observations: “4.6 The Ld. Transfer Pricing Officer has categorically and unequivocally held the loan given by the assessee to M/s Indian Wales as capital contribution by way of equity. Since, this is completely a transaction of capital nature, the associated forex loss cannot be allowed as a revenue loss to the assessee in its Profit and Loss Account. 4.7 Notwithstanding the above, the Loan given by the assessee to its associate concern M/s Indian Wales is certainly not part of the business of the assessee. The said loan is clearly a Balance Sheet item and is of the nature of assets of the assessee. Hence, even otherwise, the claim of forex loss in relation to the Loan is not allowable as a revenue expense to the assessee. I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 6 4.8 Case laws relied upon by the assessee have also been perused but are not found to be squarely applicable to the case of the assessee. This is because first, in the instant case, the Transfer Pricing Officer has already treated the said "loan" as an equity. Thus, there is no room for deviation for the undersigned from the view taken by the Transfer Pricing Officer. It is notable that the order of the Transfer Pricing Officer Is very much a part of the final assessment order and there has to be a consistency in the view taken on any financial transaction. None of the cited case laws have this very special nature where a TPO has treated the said "loan" as equity. The cited case laws deal exclusively with "loans". Secondly the cited case laws pertain to situations where the assessees were incurring forex loss in relation to loans taken from overseas parties and interest was payable on such foreign currency denominated loans in the foreign currency. In the instant case, the Foreign Exchange Loss debited to the Profit and Loss Account pertains to the "loan" (or equity) granted by the assessee to its subsidiary and the value of that said "loan" has changed/declined due to changes in the value of Indian currency vis- a-vis foreign currency. Thus, in the instant case, the value of the asset of the assessee has diminished due to forex fluctuation. This cannot be allowed as a revenue expense in the hands of the assessee.” 5. In appeal, Ld. CIT(Appeals) dismissed the assessee’s appeal on the ground that in the instant facts, the loan given by the assessee to its Associated Enterprise is in the nature of equity transaction and thus foreign exchange fluctuation loss is on capital account, and hence not allowable. The I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 7 Ld. CIT(Appeals) made the following observations while dismissing the assessee’s appeal: “5.2 I have carefully considered rival contention, case law relied upon as well as observations made by the A,O. in the assessment order. During the appellate proceedings A,R, of the appellant has raised additional ground of appeal which directly relates to ground No.4 raised by the appellant Additional ground of appeal reads as under :- "The ld. A.O. erred in law and on facts in disallowing foreign exchange loss mounting to Rs.8,09,35,919/- while computing the income for the year under consideration." It is observed from the order of assessment that A.O. has disallowed foreign exchange loss to the extent of Rs.8,09,35,919/-. During the assessment proceedings A.O. had asked the appellant to give details of foreign exchange loss debited to Profit & Loss a/c. Appellant had submitted during the assessment proceedings that the said loss pertains to foreign exchange fluctuation loss in relation to loan given to-Indian Wales. Indian Wales is subsidiary or associated concern of the appellant. 5.3 It would be pertinent to mention here that as the appellant was engaged in international transactions with its Associated Enterprise (AE) the A.O, had called for report u/s.92E of the Act in Form 3CEB . I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 8 The matter was referred by the A.O. to TPO U/S.92CA of the Act. TPO after detailed analysis of the transactions in question passed on order u/s. 92CA(3) dtd,30/12/2013 without making any upward adjustment to the ALP. TPO has ruled that the transaction between the appellant and its AE, although categorized as loan to the subsidiary company was in the nature of an equity transaction. However, no upward adjustment was made on this issue by the TPO. 5.4 In the appeal filed, the appellant had raised ground of appeal No.5 & 6 with relation to the decision of the TPO. However, during the appellate proceedings appellant submitted that it is not pressing ground No,5 as well as around No.6 that related to the decision of the TPO vide its letter dtd.27/07/2016. Appellant during the assessment proceedings has submitted that the said forex loss is allowable as revenue loss. According to the appellant the loan extended by it to its AE was a loan for working capital of the subsidiary company. At para 4.3 of the assessment order, A.O, has quoted the finding of the TPO in his order dtd. 30/12/2013. It is these finding of the TPO that have been relied upon by the A.O. In these findings, TPO has clearly held that the nature of grant of loans by the appellant to its AE is more towards in the nature of equity contribution and is, therefore, capital in nature. Based on this finding TPO has made no upward adjustment in the ALP of the said international transaction. Based on this finding of TPO, A.O. has proceeded to deal with foreign exchange loss incurred by the I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 9 appellant. According to A.O. as this loss is a balance sheet item, this loss cannot be claimed in the Profit £ Loss ale. Accordingly, A.O. has proceeded to disallow foreign exchange loss amounting to Rs.8,09,35,919/-. During the course of appellate proceedings, appellant has relied upon the contentions made before the A.O. Further it has relied upon various case law such as ONGC Ltd. v/s. CIT 322 ITR 180 (SC), CIT v/s. Woodward Governor India P. Ltd. 312 ITR 254 (SC) etc. It has also relied upon the applicability of AS- 11 as issued by Institute of Chartered Accountants of India {ICAI}. Keeping in mind the stand taken by TPO, withdrawal of ground Nos.5 & 6 by the appellant itself as well as stand taken by the A.O,, it is apparent that the said loan given to M/s. Indian Wales, an AE of the appellant is considered to be in the nature of equity contribution and therefore, capital in nature. The resultant loss thus, is also capital in nature. The decision that has been relied upon by the appellant relates to the nature of expenses, which cannot be treated as revenue items. In case of ONGC Ltd. the facts show that foreign exchange loss was taken on revenue account. The basic test to decide whether expenditure is allowable as revenue item or not is to see whether fluctuation is that capital asset or in a asset that is of revenue nature. In the present case, it is the equity transaction and thus foreign exchange fluctuation loss is on account of loss arising on a capital asset. Appellant's reliance on AS-11 of ICAI is also misplaced, as it relates to treatment of revenue items. It does not say that all differences arising out of foreign currency transactions have to be recognized as income or expense irrespective of the nature of foreign I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 10 exchange transactions. In view of the above, I am of the considered opinion that A.O has rightly disallowed foreign exchange fluctuation loss of Rs.8,09,35,919/- and the said addition is hereby confirmed. This ground of appeal is dismissed.” 6. Before us, the counsel for the assessee submitted that the loan which has been given to the subsidiary is on account of working capital requirement of its AE, and therefore the observations made by the assessing officer, as also confirmed by the Ld. CIT(Appeals) in its appellate order are erroneous, since the foreign exchange fluctuation is not on capital account. Further, the counsel for the assessee also submitted that in the immediately preceding assessment year, the assessee had offered to tax foreign exchange gains in respect of the same transactions, which was duly accepted by the Department, but in the captioned year, in respect of the same transaction, foreign exchange loss cannot be disallowed. For this, he drew our attention to observations made in the assessment order for assessment year 2009-10. In response, the Ld. DR relied upon the observations made by Ld. CIT(Appeals) in the appellate order. 7. We have heard the rival contentions and perused the material on record. On going through the contents of the assessment order for the immediately previous assessment year 2009-10, we observe that the assessee had initially debited net foreign exchange loss to the extent of 2,51,88,698/- in its profit loss account. When AO enquired into the nature of foreign exchange loss, the assessee suo moto, withdrew the claim of loss on foreign exchange fluctuation of 11,68,95, 000/- on the ground that this I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 11 was on account of investments made in shares of Indian Wales N.V. Netherlands, which is an Associated Enterprise of the assessee. The assessee submitted that it had, at the time of filing its return of income, inadvertently claimed the said foreign-exchange loss as allowable, but since the said loss is on account of foreign exchange fluctuation on investment/purchase of majority stake in the overseas company namely Indian Wales N.V. hence the same is on capital account, and therefore not allowable. Accordingly, the AO initiated penalty proceedings u/s 271(1)(c) of the Act against the assessee on the ground that the assessee had intentionally claimed incorrect set-off of foreign-exchange loss on capital account while filing the return of income. However, we observe that there is no discussion in the assessment order regarding the nature of foreign exchange gain, against which the assessee had set-off the aforesaid foreign exchange loss (subsequently offered to tax during the course of assessment proceedings) in the return of income. Accordingly, from the contents of the assessment/appellate records of the previous assessment year (2009-10), there is no discussion or clarity on the nature of foreign exchange gain made by the assessee in the previous assessment year. There is no material on record which enables us to draw any inference that the nature of transaction in respect of which foreign exchange gains was offered to tax in the previous assessment year 2009-10, is the same transaction, in respect of which foreign exchange loss was incurred by the assessee in assessment year 2010-11. Notably, even in assessment year before us, the AO disallowed the loss on the ground that the same is primarily in the nature of equity contribution by the assessee to its Associated Enterprise, and accordingly the same is on capital account, and I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 12 hence foreign-exchange loss on such “loan” cannot be allowed to the assessee. 7.1 In light of the above observations, we are of the considered view that from the assessment records for both assessment years 2009-10 and 2010- 11, there is no discussion on the nature of foreign-exchange gain made by the assessee. Further, for both assessment years mentioned above, the assessee’s claim for foreign-exchange loss has been disallowed on the ground that it is in capital account-loss arising on purchase of shares of overseas Associated Enterprise. While in assessment year 2009-10, the assessee suo moto admitted that it had incorrectly claimed foreign-exchange loss on capital account as revenue expenditure, however in the assessment year before us, the assessee has stated that the said loan to its AE is on account of working capital requirement of the overseas AE. However, there is nothing on record/no material has been placed before us to demonstrate that the said loan was on account of working capital requirement of the overseas AE of the assessee (though the TPO has specifically alleged that this loan was for capital contribution the overseas AE). Further, even from the contents of the assessment order for the previous assessment year, it is not clear that the foreign-exchange gains offered for taxation were for working capital requirement of the assessee is overseas AE. Therefore, in our view, no support can be drawn from the observations made in the assessment order for the previous assessment year (assessment year 2009- 10) to come to a conclusion that in the assessment year before us, the said loan was given on account of “working capital” requirement of the AE of the assessee. I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 13 7.2 However, looking into the totality of the facts in the instant case, in the interest of justice, we are restoring the matter to Ld. CIT(Appeals) for inquiring into the nature of the advance made by the assessee to its Associated Enterprise i.e. whether the same is on account of equity contribution as stated by the AO/TPO or whether the same is on account of “working capital requirement” of the AE of the assessee and hence on revenue account. In the result, this ground is restored to the file of Ld. CIT(Appeals) with the above directions. 8. In the result, this ground of appeal of the assessee is allowed for statistical purposes. Now we shall take up the Department’s ground of appeal. Disallowance of Advertisement Expenses ( 19,47,70,669/-): 9. The brief facts of the case are that the assessee claimed advertising expenses to the tune of 19,47,70,669/-, by way of filing revised return of income. During the course of assessment, the Ld. Assessing Officer observed that the said advertisement expenses were not debited to the profit and loss account by the assessee. Instead, as per the balance sheet of the assessee, the said advertising expenses have been accounted as “capital work in progress (brand building expenditure)”. In response to show cause notice issued by the assessing officer, the assessee submitted that the advertisement and published expenses styles as “brand building expenses” of 19.48 crores are revenue in nature and allowable as revenue expenditure under I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 14 section 37(1) of the Act. However, AO did not accept the assessee’s contention and disallowed the above advertisement expenses claimed by the assessee by way of filing revised return of income on the ground that the assessee itself has classified the above expenditure as capital work in progress (CWIP) and accordingly, the same are capital in nature and cannot be allowed as revenue expenditure Accordingly, the AO disallowed the advertisement expenditure, with the following observations: “5. In light of the above facts and circumstances of the case and after duly considering all the submissions of the assessee, the undersigned finds no reason to allow the assessee the expenditure of Rs. 19,47,70,669/- as sought by the assessee in its revised computation of income. This entire amount of Rs. 19,47,70,669/- is disallowed as revenue expenditure u/s 37 as it has itself been claimed by the assessee as CWIP. During the course of assessment proceedings, the assessee has made the alternate plea that even if it is treated as a capital expenditure, then it should be allowed to seek depreciation at the rate of 25% on the same. However, since the assessee had itself classified it as Capital Work in Progress, it is most certainly an asset that was never put to use during the year under consideration. There is no indication in any of the submissions made by the assessee whether the said asset was put to use for more than 180 days or less than that. Thus, evidently, this asset had never been put to use in AY 2010-11. Thus, no depreciation on the said CWIP can be allowed to the assessee. Penalty proceedings u/s I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 15 271(1)(c) are initiated for concealment of income and furnishing inaccurate particulars jot income. (Disallowance: Rs. 19,47,70,669/-)” 10. In appeal, Ld. CIT(Appeals) allowed the assessee’s appeal with the following observations: “4.2 I have carefully considered the rival contentions and the case law relied upon by the appellant. Similar issue came up for adjudication in the case of appellant for earlier A.Y. 2009-10 before the then CIT(A)-XI, Ahmedabad who vide appeal No.CIT(A)- XI/161/ACIT Cir.5/13-14 dtd.04/02/2015 has allowed the claim of appellant by giving following findings :- "2.2 I have carefully considered the contentions as well as the case laws relied upon by the appellant. I have also gone through case records. In my considered opinion the appellant has rightly claimed advertisement expenses as revenue expenditure. The appellant has claimed it as revenue expenditure in its revised return, which is also filed timely. The approach of Ld. A.O is not proper in holding it as capital expenditure against claim of appellant as revenue expenditure. The supreme Court in case of Empire Jute 124 ITR 1 (SC) has categorically observed that there may be cases where the expenditure even if incurred for obtaining as advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 16 break down. It is not every advantage of enduring nature acquired by an assesses that brings the case within the principle paid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital filed that the expenditure would be disallowable on an application of this test. Similarly the Hon'ble Delhi High Court in CIT vs Casio India Ltd. 335 ITR 196 referred to a bunch of appeals with the lead case being ITA 1820/2010 entitled CIT vs. City Finance Consumers Finance Ltd. 335 ITR 29 Delhi had held that expenditure on advertising and sales promotion is to be treated as business expenditure u/s.37 of the Act. The High Court therein considering the appeal of the Revenue in regard to the claim of the assessee before the A.O. pertaining to an expenditure of Rs.4.18 lakhs for advertising and sales promotion wherein the A.O. had relied upon the judgement of Apex Court in Madras Industrial Investment Corporation vs. CIT 225 ITR 802 (SC) upheld the order of the Tribunal which had confirmed the order of the CIT(A) who had held that there is no concept for deferred revenue expenditure in the Income Tax Act, 1961. Also relied upon the judgment of the Supreme Court in the cases of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC), Empire Jute Co. Ltd. v. CIT[1980] 124 ITR 1 (SC) and the I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 17 judgment of this court in CIT v. Salora International Ltd. [2009] 308 ITR 199 (Delhi). In the case of DC/7 vs. Core Healthcare Ltd. 308 ITR 263 (Gui.) guirat high court has discussed the issue in detail as under "The assessee carried the matter further in appeal before the Tribunal and succeeded. The Tribunal held that making of accounting entries in the books of account was not determinative of the character and/or nature of the claim. That the expenditure in question did not bring into existence any tangible asset and merely because the expenditure may bring some benefit of an enduring nature to the assessee, that factor alone was not sufficient to treat the expenditure as capital expenditure. The Tribunal has relied on the two apex court decisions in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR land Alembic Chemical Works Co. Ltd. v. CIT[1989] 177ITR 377. 14. In relation to the first item, namely, advertisement expenses, it is not in dispute that the expenditure of Rs. 70 lakhs and odd was incurred on a special advertisement campaign. However, that by itself would not be sufficient to determine as to whether the expenditure in question is on revenue account or capital account....... making of an entry or absence of an entry does not determine the allowability or otherwise of the item of I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 18 expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be termed capital or revenue only on the basis of the period for which the benefit is\-fferived by the business. Any benefit resulting to a business need not ! £?~ confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure. 15. The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR i (SC) and Alembic Chemical Works Co. Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The expression "asset or I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 19 advantage of an enduring nature" has been evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions. 16. Applying the aforesaid settled legal posnit^ 1 to the facts of the case, it is not possible to agree with the appellant-Revenue that the advertisement expenses incurred by the respondent- assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit, so as to be treated as capital in nature. 17. Question No. i is, therefore, answered in the affirmative, namely, advertisement expenses incurred by the assessee to create brand image is allow able as revenue expenditure." 2.2 On careful perusal of above order and in the light of facts and circumstances of the present case, I am of the view that the main ground of the appellant in the present appeal is squarely covered in favour of the assessee and against the revenue by several decisions (supra) of jurisdictional High Court and IT AT. Relying upon the judgment of Hon'ble Gujarat High Court and various other courts, I am in agreement with the contention of appellant. Accordingly, I find no justification in the addition I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 20 of the aforementioned amount to the income of the assessee which is hereby deleted". As the facts are exactly identical for assessment year under consideration i.e. A.Y 2010-11, respectfully agreeing with the findings of CIT(A)-XI, Ahmedabad I hereby direct the A.O. to delete the disallowance of Rs. 19,47,70,669/- on account of advertisement expenditure. Thus, ground Nos. 1 to 3 raised by the appellant are hereby allowed.” 11. The Department is in appeal against the aforesaid order passed by Ld. CIT(Appeals). The primary contention of the Department is that CIT erred in facts and in law in allowing assessee’s appeal, since the expenditure is in nature of “brand building” and hence cannot be allowed as revenue expenditure. The Ld. DR primarily relied upon the observations made by the AO in the assessment order. He further submitted that the order passed by Ld. CIT(Appeals) is a very cryptic order, without controverting the findings made by the assessing officer during the course of assessment proceedings. Accordingly, the same is liable to be set aside. 12. In response, counsel for the assessee submitted that the order passed by Ld. CIT(Appeals) is not cryptic and has dealt with the issue in detail. He submitted that the AO has not doubted the genuineness/veracity of the expenses, but has only disallowed the same on the basis that in the original return of income, the assessee had treated the same as capital work in progress (CWIP), and accordingly, the assessee is not permitted to change I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 21 the tax treatment to “revenue” in nature, once when the assessee has initially, looking into the nature of expenses, has treated the same as CWIP. He further placed reliance on various judicial precedents in support of his contention that advertisement/brand building expenses have been held by various Courts/Tribunals to be revenue expenditure, and accordingly the assessee is eligible to claim the same as revenue expenses.. 13. We have heard the rival contentions and perused the material on record. In our view, from the facts placed before us, it is evident that the AO has not challenged the genuineness of expenses incurred by the assessee. The primary reason for disallowance of advertisement expense by the A.O. is that the assessee cannot be permitted to change its stand, wherein the original return, the assessee had claimed the aforesaid expenses as capital work in progress. The Assessing Officer held that the fact that the expenses are capital in nature is also supported by the initial position taken by the assessee on this account. 13.1 In our view, various Courts and tribunals have consistently taken the position that advertisement/brand building expenditures are revenue nature and further there is no concept of deferment of revenue expenditure in the Income Tax Act. In the case of Salora International Limited [2009] 308ITR199 (Delhi), the assessee claimed deduction of advertising expenditure of approximately Rs. 3.08 crores. According to the Assessing Officer, the expenditure was incurred for launching of its products. The Assessing Officer was of the view that such expenditure was of an enduring nature and, therefore, treated one-third as 'capital expenditure' and only I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 22 allowed the two-thirds of the said amount as 'expenditure to the assessee'. The Tribunal held that there was a direct nexus between the advertising expenditure and the business of the assessee and that the assessee had to incur such expenditure to meet the competition in the Indian market for selling its products in India. It, therefore, allowed the assessee's claim. The High Court upheld the order of ITAT and held that advertisement expenditure for launching products is revenue expenditure. 13.2 In the case of Dy. CIT v. Core Healthcare Ltd. [2009] 308ITR 263 (Guj.), the claim of the assessee for deduction of advertisement expenses had been rejected by treating the expenditure in question as capital expenditure on the ground that it was a special advertisement campaign launched by the assessee-company for creating a corporate image of the company and was not incurred for running the existing business of the assessee-company. It was held that the assessee-company had undertaken diversification plan and as a public issue was forthcoming to make the people aware about various new products of the company, the advertisement campaign was launched which, thus, amounted to obtaining a benefit of enduring nature resulting in the expenditure being of capital nature. The Gujarat High Court held that that it was not in dispute that the expenditure of Rs. 70 lakhs and odd was incurred on a special advertisement campaign. However, that by itself would not be sufficient to determine as to whether the expenditure in question was on revenue account or capital account. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 23 termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting in a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. Thus, it could not be held that the advertisement expenses incurred by the respondent-assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit, so as to be treated as capital in nature. Thus, the advertisement expenses incurred by the assessee to create brand image were allowable as revenue expenditure. 13.3 Further, in various decisions viz. ITC v. Dy. CIT [2003] 86 ITD 135 (Kol.); Asstt. CIT v. Ashima Syntex Ltd. [2009] 117 ITD 1 (Ahd.) (SB); CIT v. Citi Financial Consumers Fin. Ltd. [2012] 20 taxmann.com 452/[2011] 335 ITR 29 (Delhi); and CIT v. Casio India Ltd. [2012] 20 taxmann.com 449/[2011] 335 ITR 196 (Delhi), theCourts/tribunals have held that advertisement expenditure/brand image expenditure are allowable as revenue expenditure in the year, in which these are incurred. 13.4 In view of the factual and legal position as discussed above, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal and holding that the advertisement expenditure claimed by the assessee as revenue expenditure in the revised return of income is allowable in the instant set of facts. 14 In the result, this Ground of appeal of the Department is dismissed. I.T.A. Nos. 153 & 204/Ahd/2017 A.Y. 2010-11 Page No. DCIT vs. M/s. Rosebys Interiors India Ltd. & Rosebys Interiors India Ltd. vs. ACIT 24 15. In the combined result, the appeal of the assessee is allowed for statistical purposes and the appeal of the Department is dismissed. Order pronounced in the open court on 04-11-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 04/11/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद