The DCIT, Circle-4, Ahmedabad V. Mamta Machinery Pvt.Ltd., Ahmedabad

ITA 2100/AHD/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2234 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-01-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 30-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAJA RAM SAH
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MAHAVIR SINGH,JM &AND SHRI A N PAHUJA,A M ITA NO.2100/AHD/2008 (ASSESSMENT YEAR:-2002-02) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4, AHMEDABAD V/S MAMTA MACHINERY PVT. LTD., 5/5/1-A, PHASE-I, GIDC, VATVA, AHMEDABAD PAN: AABCM 8241 P [APPELLANT] [RESPONDENT] REVENUE BY :- DR. RAJA RAM SAH, SR. DR ASSESSEE BY:- SHRI J P SHAH, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 12- 03-2008 OF THE LD. CIT(APPEALS)-VIII, AHMEDABAD FOR THE ASSESSMENT YEAR (AY) 2002-03, RAISES THE FOLLOWING GROUNDS:- 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.44,71,456/- MADE ON ACCOUNT OF EXHIBITION EXPENSES. 2 THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND ON TH E FACTS OF THE CASE IN HOLDING THAT THE EXPENDITURE IS REVENUE IN NATURE. THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACTS THAT TH E SAID EXPENDITURE WAS GRANTING ENDURING BENEFIT TO THE ASSESSEE AND THE A SSESSEE ITSELF HAS CONSIDERED THE EXHIBITION CHARGES AS OF CAPITAL NAT URE AND HAS CLAIMED ONLY 1/3 RD IN THE BOOKS OF ACCOUNTS. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EFFECT. 2. ADVERTING TO GROUND NOS.1 & 2 IN THE APPEAL, FAC TS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOM E OF RS.29,38,020/- FILED ON 29-10-2002 BY THE ASSESSEE, MANUFACTURING PLASTIC MACHINES, AFTER BEING PROCESSED ON 13.1.200 3 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT], WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/ S 143(2) OF THE ACT WAS ON 22-10-2002. SUBSEQUENTLY, THE ASSESSMENT WAS COMPLETED ITA NO.2100/AHD/2008 2 ON 28-02-2005 DETERMINING INCOME OF RS.43,34,082/-. ON APPEAL, TOTAL INCOME WAS DETERMINED AT RS.35,42,171/- IN PU RSUANCE TO AN ORDER DATED 30-01-2006 OF THE TRIBUNAL. THEREAFTER, THE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT ON THE GROUND EXHIB ITION EXPENSES CLAIMED BY THE ASSESSEE WERE CAPITAL IN NATURE AND ACCORDINGLY, A NOTICE U/S 148 OF THE ACT WAS SERVED UPON THE ASSES SEE ON 22-02- 2007. IN RESPONSE, THE ASSESSEE INFORMED THAT THE R ETURN ALREADY FILED ON 29-10-2002 MAY BE TREATED AS RETURN IN RE SPONSE TO NOTICE U/S 148 OF THE ACT. DURING THE COURSE OF REASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD BEEN ALLOWED DEDUCTION OF RS.81,41,228/- ON ACCOUN T OF EXHIBITION EXPENSES DURING THE YEAR UNDER CONSIDERATION AS AGA INST ADMISSIBLE EXPENDITURE OF RS.36,69,772/-. TO A QUERY BY THE AO AS TO WHY THE DIFFERENCE SHOULD NOT BE ADDED BACK TO THE TOTAL IN COME, THE ASSESSEE SUBMITTED THAT THE ACTUAL EXPENSES INCURRE D FOR THE YEAR UNDER CONSIDERATION WERE RS.81,42,228/-. AN ADVANCE OF RS.5,05,242/- WAS GIVEN IN THE PRECEDING FINANCIAL YEAR AND REMAINING AMOUNT HAS BEEN INCURRED IN THE YEAR UNDE R CONSIDERATION. THOUGH THE AMOUNT OF RS.36,69,772/- WAS DEBITED TO P&L ACCOUNT, IN THE COMPUTATION OF INCOME, THE ENTI RE AMOUNT OF RS.81,42,228/- WAS CLAIMED AS REVENUE EXPENDITURE. SINCE THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM, THE AO D ISALLOWED THE DIFFERENCE OF RS.44,71,456/-. 3. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM IN THE FOLLOWING TERMS:- 6. CONSIDERING THE SUBMISSIONS OF THE A.R, AS THE ACTUAL EXPENDITURE WAS INCURRED TO THE TUNE OF RS.81,41,228/-, IRRESPE CTIVE OF THE ACCOUNTING TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS BY THE APP ELLANT, AS THE APPELLANT HAS BEEN CLAIMING IN THE PAST THE ACTUAL EXPENDITUR E INCURRED ON EXHIBITION EXPENSES, THE ACTUAL EXPENDITURE SHOULD BE ALLOWED AS DEDUCTION IN THIS YEAR. THE FOLLOWING CASES SUPPORT THIS CLAIM OF THE APPELLANT. 6.1 IN THE CASE OF AMAR RAJA BATTERIES LTD VS. ACIT 91 ITD 280 (HYD), THE ASSESSEE WAS WRITING OFF 1/5TH OF ADVERTISEMENT EXPENDITURE IN ITS ITA NO.2100/AHD/2008 3 BOOKS BUT WAS CLAIMING DEDUCTION OF ENTIRE EXPENDIT URE IN RETURN. THE HON'BLE ITAT, HYDRABAD BENCH HELD THAT ENTIRE EXPEN DITURE IS ALLOWABLE IN THE RELEVANT ASSESSMENT YEAR. THE EXPENDITURE WAS R EVENUE IN NATURE AND THE DURATION OF ITS BENEFIT TO THE ASSESSEE WAS NOT ASCERTAINABLE. IT WAS ALSO HELD THAT THE ENTRIES IN THE BOOKS OF ACCOUNT DO NOT CLINCH THE ISSUE EITHER WAY AND THEY DO NOT DETERMINE THE ALLOWABILI TY OR OTHERWISE OF THE EXPENDITURE. 6.2 IT WAS ALSO HELD IN THE CASE OF CIT VS. SAKTHI SOYAS LTD. 283 ITR 194 (MAD) THAT SUCH EXPENDITURE IS ALLOWABLE ON THE BASIS OF ACTUAL EXPENDITURE. 6.3 AS IT IS AN EXPENDITURE IN THE NATURE OF REVENU E , AND THE ENTIRE EXPENDITURE IS LAID OUT AND EXPENDED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF THE-BUSINESS OF THE APPELLANT, THE ENTIR E EXPENDITURE IS ALLOWABLE U/S.37 OF THE ACT RELYING ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NAVSARI COTTON AND SIL K MILLS LTD.,135 ITR 546 (GUJ). 6.4 IN VIEW OF THE ABOVE DECISIONS, THE ENTIRE EXPE NDITURE IS HELD TO BE ALLOWABLE UNDER S.37, AS IT IS IN THE NATURE OF REV ENUE EXPENDITURE AND NOT IN THE NATURE OF CAPITAL EXPENDITURE, AND IT HAS BE EN LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME HAS BEEN ALLOWED IN THE EARLIER YEARS ON ACTUAL EXPENDITURE BASIS, THE DISALLOWANCE MADE BY THE AO IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DELETED. 4. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE A FORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO WHILE THE LEARNED AR ON BEHALF O F THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHOR INDUSTRIES LTD.. [2003] 264 IT R 180 (BOM)] AND ACIT VS. ASHIMA SYNTEX LTD.,310 ITRSP 1(SB,AHMEDBAD ) WHILE RELYING UPON THE FINDINGS OF THE LD. CIT(A) . 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS RELIED ON BY THE LEARNED AR ON BEHALF OF THE ASSESSEE. AS IS APPARENT FROM THE AFORECITED FACTS, THE ASSESSEE DISTRIBUTED THE EXHIBITION EXPENSES OVER A PERIOD OF THREE YEARS VIZ. FYS 2001-02 TO 2003-04 AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THERE IS NOTHING TO SUGGEST TH AT THE EXPENDITURE IS OF CAPITAL NATURE. AS POINTED OUT BY US IN OUR DECISION IN ASHIMA SYNTEX LTD.(SUPRA), THE CONCEPT OF DEFERR ED REVENUE EXPENDITURE IS ITA NO.2100/AHD/2008 4 ESSENTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPENDITU RE. DEFERRED REVENUE EXPENDITURE DENOTES EXPENDITURE FOR WHICH A PAYMENT HAS BEEN MADE OR A LIABILITY INCURRED, WHICH IS ESSENTIALLY REVENUE IN NATURE BUT WHICH FOR VARIOUS REASONS LIKE QUANTUM AND PERIOD OF EXPECTED FUTURE BENEFIT ETC., IS WRITTEN OFF OVER A PERIOD OF TIME E.G., EXPENDITURE ON ADVERTISEMENT , SALES PROMOTION ETC. THOUGH THE NATURE OF SUCH EXPENDITURE IS REVENUE, KEEPING IN VIEW THE FACT THAT THE BENEFITS ARISING THEREFROM ARE EXPECTED TO BE DERIV ED OVER A PERIOD OF TIME, STRETCHING SOMETIMES OVER SEVERAL ACCOUNTING YEARS, THE ASSESSEES HAVE BEEN AMORTISING THE SAME OVER THE EXPECTED TIME PERIOD O VER WHICH THE BENEFITS ARE LIKELY TO ACCRUE THEREFROM. ACCORDINGLY, ONLY A PRO PORTION OF SUCH EXPENDITURE IS AMORTISED IN THE PROFIT AND LOSS ACCOUNT BUT AN APP ROPRIATE ADJUSTMENT IS MADE IN THE COMPUTATION OF INCOME, CLAIMING THE ENTIRE A S ALLOWABLE REVENUE EXPENDITURE IN TERMS OF PROVISIONS OF SECTION 37 (1 ) OF THE ACT. THE EXPENDITURE WHICH IS TREATED AS DEFERRED REVENUE IN THE BOOKS A LMOST IN ALL CASES COMPRISES OF ITEMS, THE BENEFITS DERIVED WHEREFROM ARE EPHEME RAL AND TRANSITORY IN NATURE IN AS MUCH AS THESE ARE INCURRED AS A PART OF A CONTIN UOUS PROCESS AND NEED TO BE EXPENDED IN ORDER TO GENERATE AND INCREASE THE BRAN D RECALL AND SUSTAIN IT IN THE MINDS OF CUSTOMERS. MOREOVER, THE DEFERRED REVENUE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AND THE DECISION TO TREAT THE SAM E AS DEFERRED REVENUE ONLY REPRESENTS A MANAGEMENT DECISION TAKEN IN VIEW OF T HE MAGNITUDE OF THE EXPENDITURE INVOLVED. FOR THE PURPOSE OF ALLOWABILI TY OF ANY EXPENDITURE UNDER THE ACT, WHAT IS MATERIAL IS THE CLASSIFICATION BETWEEN THE CAPITAL AND REVENUE AND THE SAME DOES NOT RECOGNISE OF ANY CONCEPT OF DEFERRED REVENUE EXPENDITURE. THAT IS WHY ASSESSING OFFICER HIMSELF ALLOWED THE AMOUNT DE BITED IN THE PROFIT AND LOSS ACCOUNT. EVEN IN THE PRECEDING YEARS, SIMILAR CLAIM OF EXHIBITION EXPENSES IS STATED TO HAVE BEEN ALLOWED. IN A NUMBER OF JUDGMEN TS VIZ. AMAR RAJA BATTERIES LTD. V. ASSTT. CIT [2004] 91 ITD 280 (HYD.), JT. CI T V. MODI OLIVETTI LTD. [2005] 4 SOT 859 (DELHI), ASSTT. CIT V. MEDICAMEN BIOTECH LT D. [2005] 1 SOT 347 (DELHI), HERO HONDA MOTORS LTD. V. JT. CIT [2005] 3 SOT 572 (DELHI) AND CHARAK PHARMACEUTICALS V. JT. CIT [2005] 4 SOT 393 (MUM.), IT HAS BEEN AFFIRMED THAT WHERE ANY EXPENDITURE IS TREATED AS A DEFERRED REVE NUE EXPENDITURE, IT PRESUPPOSES THAT THE CONCERNED EXPENDITURE, CREATIN G BENEFIT IS IN THE REVENUE ITA NO.2100/AHD/2008 5 FIELD AND IS A REVENUE EXPENDITURE, BUT CONSIDERING ITS ENDURING BENEFITS AS WELL AS THE FACT THAT IT DOES NOT RESULT IN THE CREATION OF ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE IN THE CAPITAL FIELD, THE SAME IS R EQUIRED TO BE TREATED DISTINCTLY FROM CAPITAL EXPENDITURE. HOWEVER, WHERE ANY IDENTI FIABLE CAPITAL ASSET, TANGIBLE OR INTANGIBLE COMES INTO EXISTENCE AS A RESULT OF T HE AMOUNT EXPENDED, THE SAME WILL HAVE TO BE TREATED AS A CAPITAL EXPENDITURE AN D DEPRECIATION ALLOWABLE THEREON AS PER THE PRESCRIBED RULES AND PROCEDURES UNDER THE INCOME-TAX ACT. IN THE INSTANT CASE, INDISPUTABLY, EXHIBITION EXPENSES ARE REVENUE IN NATURE. IN THE LIGHT OF VIEW TAKEN BY US IN THE OUR AFORESAID DECI SION IN ASHIMA SYNTEX LTD.(SUPRA) AND BY THE HONBLE BOMBAY HIGH COURT IN THEIR AFORECITED DECISION IN BHOR INDUSTRIES LTD.(SUPRA) IN THE CONTEXT OF VRS E XPENSES , WE DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE. THEREFO RE, GROUND NOS. 1 & 2 IN THE APPEAL OF THE REVENUE ARE DISMISSED. 6. GROUND NOS. 3 & 4 BEING MERE PRAYER, DO NOT REQU IRE ANY SEPARATE ADJUDICATION AND ARE THEREFORE, DISMISSED 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 27-01-2011 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 27-01-2011 COPY OF THE ORDER FORWARDED TO: 1. MAMTA MACHINERY PVT. LTD., 5/5/1-A, PHASE-I, GID C, VATVA, AHMEDABAD 2. DCIT, CIRCLE-4, AHMEDABAD, NAVJIVAN BUILDING, OF F. ASHRAM ROAD, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUT Y REGISTRAR/ASSISTANT REGISTRAR ITAT, AHMEDABAD