ACIT Circle-7 (1), New Delhi V. S.Chand & Company Ltd, New Delhi

ITA 2250/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2323 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Keywords: Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE SHRI D.R. SINGH, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.2250/DEL./2008 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE 7(1), VS. M/S S. CHAND & COMPANY LT D., NEW DELHI. 7361, RAVINDRA MANSION, NEW DELHLI. (PAN/GIR NO.AAACS1149M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VINOD KUMAR BINDAL, CA REVENUE BY : SHRI KISHORE B., SR.DR ORDER PER K.D. RANJAN: AM THIS APPEAL BY THE REVENUE FOR AY 2005-06 ARISES OU T OF THE ORDER OF CIT(A)-X, NEW DELHI. THE GROUNDS RAISED BY THE REVENUE IN TH IS APPEAL ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) ERED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS,8,6 0,931/- MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS,16, 06,560/-, MADE BY THE AO ON ACCOUNT OF FOREIGN EXPENSES. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE DISALLOWANCE OF RS.8,60,931/- MADE BY THE AO ON ACCOUNT OF ADVERTIS EMENT EXPENSES. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF PUBLICATION OF BOOKS, DEALING IN SHARES, RUNNING HOTELS AND MAKING INVESTMENTS. THE AO NOTED THAT ASSESSEE HAD INCURRED EXPENDITURE OF RS.55,79,389/- ON ADVERTISEMENT, PUBLICITY AND EXHIBITION CHARGES. THE ASSESSEE ON A QUERY RAISED BY THE AO FILED THE DETAILS OF ADVERTISEMENT AND PUBLICITY EXPENSES AND EXPLAINED THAT EXPENDITURE WAS REVENUE IN NATURE. THE AO WAS OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTISEMENT WILL ALSO BENEFIT ASSOCIATE CONCERN O F THE ASSESSEE, NAMELY, S. CHAND PRINT I.T.A.NO.2250/DEL./2008 (A.Y. : 2005-06) 2 MEDIA AND THE BENEFIT OF THE ADVERTISEMENT WILL ALS O GO ON TO MORE THAN ONE YEAR. THE AO WAS ALSO OF THE VIEW THAT EXPENDITURE INCURRED O N PROMOTING ITS BUSINESS WAS OF ENDURING IN NATURE AND, THEREFORE, THE EXPENDITURE WAS CAPITAL IN NATURE. HE PLACED RELIANCE ON SEVERAL DECISIONS AND TREATED 1/5 TH OF THE EXPENDITURE AS CAPITAL IN NATURE WHICH RESULTED IN DISALLOWANCE OF RS.8,60,931/-. 3. ON APPEAL, THE CIT(A) EXAMINED THE ISSUE IN DETA IL. HE OBSERVED THAT EXPENSES WERE PRIMARILY INCURRED ON ADVERTISEMENT IN NEWSPAP ERS FOR THE SALE OF BOOKS PUBLISHED BY THE ASSESSEE, PARTICIPATION IN BOOK FAIRS, SMALL AMOUNTS CONTRIBUTED TO SOME SCHOOLS, CBSE ANNUAL SUBSCRIPTION TO FEDERATION OF PUBLISHER S AND ADVERTISEMENT IN MAGAZINES. THE AO HAD NOT POINTED OUT THAT ANY ITEM DEBITED UN DER ADVERTISEMENT AND PUBLICITY WAS OF CAPITAL EXPENDITURE. HE WAS OF THE VIEW THAT IF THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE EXPENSES WERE NOT PERSONAL OR CAPITAL IN NATURE, THE SAME WAS TO BE ALLOWED AS DEDUCTION. IN THE CASE OF THE ASSESSEE, THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND WERE NOT OF CAPITAL IN NATURE. THEREFORE, THE ENTIRE EXPENDITURE INCURRED ON ADVER TISEMENT WAS ALLOWABLE AS DEDUCTION. HE PLACED RELIANCE ON THE DECISION OF ITAT, DELHI B ENCH G IN THE CASE OF SILICON GRAPHICS (I) PVT. LTD. VS. DCIT, 17 SOT 29 (DEL.) ( URO). HE ACCORDINGLY DELETED THE ADDITION MADE BY THE AO. ON THE OTHER HAND, LD.SR. DR SUPPORTED THE ORDER OF THE AO. 4. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE AO HAS DISALLOWED 1/5 TH OF THE EXPENDITURE INCURRED ON ADVERTISEMENT AND P UBLICITY ON THE GROUND THAT IT MIGHT HAVE BENEFITED ANOTHER GROUP CONCERN OF THE ASSESSEE, NAMELY, S. CHAND PRINT MEDIA. THE AO HAS TREATED 1/5 TH OF THE EXPENDITURE INCURRED ON ADVERTISEMENT AS CAPITAL IN NATURE WITHOUT BRINGING ANY MATERIAL ON RECORD THAT EXPENDITURE IN NATURE OF CAPITAL WAS INCURRED BY TH E ASSESSEE. THE CIT(A) WHILE ALLOWING THE RELIEF HAS EXAMINED THE MATTER IN DETAIL. HE H AS COME TO THE CONCLUSION THAT UNLESS THE EXPENDITURE INCURRED IS IN NATURE OF PERSONAL E XPENDITURE OR CAPITAL IN NATURE, NO DISALLOWANCE U/S 37(1) OF THE ACT CAN BE MADE. THE AO HAS NOT BROUGHT ANY MATERIAL TO SUGGEST THAT THE EXPENDITURE INCURRED WAS CAPITAL I N NATURE. HE HAD MERELY PRESUMED THAT THE EXPENDITURE WAS TO THE BENEFIT OF THE ASSESSEE FOR MORE THAN ONE YEAR. SINCE, THE CIT(A) HAS DELETED THE ADDITION AFTER GOING THROUGH THE ENTIRE MATERIAL ON RECORD BY I.T.A.NO.2250/DEL./2008 (A.Y. : 2005-06) 3 HOLDING THAT THE EXPENDITURE WAS REVENUE IN NATURE, IN OUR CONSIDERED OPINION, THE CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE THAT DISALLOWANCE OF 1/5 TH OF THE EXPENDITURE COULD NOT BE MADE AS CAPITAL EXPENDITUR E. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE A DDITION. 5. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.16,06,516/- MADE BY THE AO ON ACCOUNT OF FOREIGN TRAVELING EXPE NSES. IT WAS SUBMITTED THAT FOREIGN TRAVELING EXPENSES WERE NECESSARY FOR THE PURPOSE O F VISITING BUYERS, SEEKING ORDERS AND TO HAVE A DIRECT REPO FOR ENTERTAINING CLIENTS, MAR KET FEEDBACK ETC. HOWEVER, THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO IN TOTALITY. HE WAS OF THE OPINION THAT THE ASSESSEE COMPANY HAD NEITHER EXPORTED NOR IMPORTED ANYTHING TO/FROM OUTSIDE INDIA AND DID NOT HAVE ANY BUSINESS OR BUSINESS CON NECTION OUTSIDE INDIA. THEREFORE, HE ESTIMATED 50% OF THE FOREIGN TRAVELING EXPENSES NOT RELATABLE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE AO DISALLO WED 50% OF RS.32,07,077/- AMOUNTING TO RS.16,06,516/-. 6. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THE DE TAILS OF FOREIGN TRAVELING CONDUCTED BY INDIVIDUAL PERSONS. THE CIT(A) AFTER G OING THROUGH THE DETAILS OBSERVED THAT THE DEVELOPMENT OF THE MARKETS AND UPGRADATION OF KNOWLEDGE REGARDING LATEST TECHNOLOGY RELATED TO BUSINESS ARE EQUALLY IMPORTAN T FOR THE ASSESSEE TO MEET THE GLOBAL STANDARD AND UNDERTAKING NEW COMPETITION. THE AO H AD NOT BROUGHT ON RECORD ANYTHING TO PROVE THAT THE SAID TRAVELING EXPENSES WERE OF P ERSONAL NATURE OR FOR NON-BUSINESS PURPOSES. HE RELYING ON THE DECISION FOR AYS 2003- 04 AND 2004-05 HELD THAT THE EXPENDITURE ON FOREIGN TRAVEL WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE, THEREFORE, DELETED T HE ADDITION. 7. BEFORE US, LD.AR OF THE ASSESSEE SUBMITTED THA T THIS ISSUE IS COVERED BY THE DECISION OF THE ITAT FOR AY 2003-04 IN ITA NO.940/D EL./2007 DATED 26.9.2008. ON THE OTHER HAND, LD.SR.DR SUPPORTED THE ORDER OF THE AO. 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THIS TRIB UNAL IN ASSESSEES OWN CASE FOR AY 2003-04. THE BENCH AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER: I.T.A.NO.2250/DEL./2008 (A.Y. : 2005-06) 4 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE F OREIGN TRAVEL EXPENSES ON THE GROUND THAT THE ASSESSEE HAS NOT EXPORTED OR IMPORT ED ANY GOODS AND, THEREFORE, FOREIGN TRAVEL EXPENSES WERE NOT INCURRED FOR THE P URPOSES OF THE BUSINESS. HE HAS ALSO OBSERVED THAT THE FOREIGN TRAVEL EXPENSES OF T HE SISTER CONCERN, M/S. S. CHAND INTERNATIONAL HAVE BEEN BOOKED IN THE HANDS OF THE ASSESSEE SO AS TO CLAIM THE MAXIMUM DEDUCTION UNDER SECTION 80-HHC OF THE ACT. THE ASSESSEE HAS BEEN ATTENDING FRANKFURT BOOK FAIR FOR THE LAST 40 YEARS AND THE DEPARTMENT HAS ALLOWED THE EXPENDITURE INCURRED IN EARLIER YEARS. THE ASSESSEE HAS CONDUCTED FOREIGN TRAVEL IN ORDER TO UP-DATE ITS KNOWLEDGE IN THE FIELD OF PRINTING TECHNOLOGY. THERE IS NO DISPUTE THAT THE ASSESSEE IS A LEADING PUBLISHER IN THE WORLD AND THE BOOKS ARE EXPORTED THROUGH SISTER CONCERN AND ALSO THROUGH OTHER DEALERS. IN ORDER TO STUDY THE MARKET TREND AND ACCEPTANCE OF THE PRO DUCTS IN THE FOREIGN MARKET, THE ASSESSEE HAS TO UNDERTAKE THE FOREIGN TRAVEL. SUCH EXPENDITURE HAS TO BE TREATED FOR THE PURPOSES OF THE BUSINESS. THE ASSESSING OF FICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE EXPENDITURE OF ITS SISTER CONCERN WAS DIVERTED TO THE ACCOUNT OF THE ASSESSEE. IN THE AB SENCE OF ANY MATERIAL BROUGHT ON RECORD THE ADDITION MADE BY THE ASSESSING OFFICER I S BASED MERELY ON SURMISES AND CONJECTURES. ACCORDINGLY, WE DO NOT FIND ANY INFIR MITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION OF RS.23,12 ,549/-. 9. SINCE THE IDENTICAL ISSUE IS INVOLVED IN THE YEA R UNDER CONSIDERATION, RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT DISALLOWAN CE OF 50% OF THE EXPENDITURE ON FOREIGN TRAVEL BY THE AO WAS NOT JUSTIFIED. ACCORDINGLY, W E DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A) DELETING THE ADDITION. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 10. ORDER PRONOUNCED IN OPEN COURT ON THE DATE OF H EARING ON 1.12.2009 ITSELF. SD/- SD/- [D.R. SINGH) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: DEC. 01, 2009 *SKB* COPY OF THE TRIBUNAL ORDER FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. THE CIT(A)-XI, NEW DELHI. 5. THE DR, ITAT BY ORDER, AR/ITAT I.T.A.NO.2250/DEL./2008 (A.Y. : 2005-06) 5