ACIT, New Delhi V. M/s. Swatch Group (India) Pvt. Ltd., New Delhi

ITA 2262/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91200 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY CHHADHA
• Assessee Lawyers: SHAILESH KUMAR
• Keywords: Depreciation; Wholly owned subsidiary; Unabsorbed depreciation
• Section: 142(1); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.2262/DEL./2012 (ASSESSMENT YEAR : 2006-07) ACIT, CIRCLE 7 (1), VS. M/S. SWATCH GROUP (INDIA) PVT. LTD., NEW DELHI. 4 TH FLOOR, DLF RECTANGLE ONE, PLOT NO.D 4, SAKET DISTRICT CENTRE, NEW DELHI. (PAN : AAFCS7516R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHAILESH KUMAR, AR REVENUE BY : SHRI VIJAY CHHADHA, CIT DR DATE OF HEARING : 23.06.2015 DATE OF PRONOUNCEMENT : 24.06.2015 O R D E R PER GEORGE GEORGE K. : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS DIR ECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-X , NEW DELHI DATED 29.02.2012. THE RELEVANT ASSESSMENT YEAR IS 2006-07 . 2. THE SOLITARY GROUND TAKEN BY THE REVENUE READS A S UNDER :- THE LD. CIT (A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.6,85,45,113/- MADE BY A .O. OUT OF THE EXPENSES INCURRED BY THE ASSESSEE FOR ADVERT ISING AND BUSINESS PROMOTION. ITA NOS.2262/DEL./2012 2 3. BRIEF STATED, THE FACTS OF THE CASE ARE AS FOLLO WS : THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF THE SW ATCH GROUP LTD., SWITZERLAND. THE SWATCH GROUP IS THE WORLDS LARGEST MANUFACTURER OF FINISHED WATCHES AND COMPONENTS, AND COMPRISES V ARIOUS RENOWNED BRANDS. THE ASSESSEE IS A DISTRIBUTOR OF WATCHES M ANUFACTURED BY SWATCH GROUP BRANDS. THE COMPANY COMMENCED ITS OPERATION IN JANUARY 2002 AND ALSO PROVIDES MARKETING SUPPORT SERVICES AND CU STOMER SERVICES TO VARIOUS SWATCH GROUPS BRAND COMPANIES IN INDIA. TH E RETURN OF INCOME WAS FILED ON 28.11.2006 DECLARING AN INCOME OF RS.1 ,86,68,663/- AFTER SETTING OF BROUGHT FORWARD BUSINESS LOSSES OF RS.2, 00,89,559/- AND BROUGHT FORWARD UNABSORBED DEPRECIATION OF RS.21,28,974/-. THE CASE WAS PROCESSED U/S 143(1) OF THE ACT ON 01.10.2007. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISS UED ON 05.10.2007. SUBSEQUENTLY, NOTICE U/S 142(1) ALONG WITH THE DETA ILED QUESTIONNAIRE WAS ISSUED ON 14.05.2008. DURING THE YEAR, THE ASSESSE E CLAIMED ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES OF RS.10,28,17,669/ -. THE ASSESSING OFFICER ASKED THE ASSESSEE WHY THE BENEFIT OF ADVER TISEMENT AND BUSINESS PROMOTION SHOULD NOT BE SPREAD OVER MORE THAN ONE Y EAR. IN RESPONSE TO THE QUERY, THE ASSESSEE FILED WRITTEN SUBMISSIONS J USTIFYING THE AFORESAID EXPENDITURE, WHICH WAS REPRODUCED BY THE ASSESSING OFFICER IN PARA 3 OF HIS ORDER. THE ASSESSING OFFICER, AFTER CONSIDERIN G THE SUBMISSIONS, DID NOT ACCEPT THE SAME IN TOTALITY AND CONCLUDED THAT BENEFIT WOULD BE ITA NOS.2262/DEL./2012 3 AVAILABLE TO THE ASSESSEE FOR A LONGER PERIOD, BECA USE SUCH EXPENSES WERE INCURRED BY THE ASSESSEE ON SPONSORSHIP OF THE EVEN TS, NEWSPAPERS/ MAGAZINE/ELECTRONIC MEDIA ADVERTISEMENT, BANNERS, W ALL PAINTING AND HOARDINGS. THE ASSESSING OFFICER OBSERVED THAT THE SE WOULD GIVE BENEFIT OF ENDURING NATURE TO THE ASSESSEE BECAUSE THE EXPE NSES WOULD HELP THE ASSESSEE TO PROMOTE ITS BRAND AND PRODUCTS FOR A LO NGER PERIOD. THEREFORE, THE ASSESSING OFFICER HELD THAT THE BENEFIT OF ADVE RTISEMENT AND PUBLICITY EXPENSES IS BEING AMORTIZED OVER A PERIOD OF THREE YEARS AND HENCE, ONLY 1/3 RD OF THE EXPENDITURE SHALL BE ALLOWED IN THE RELEVAN T YEAR AND DISALLOWED THE 2/3 RD OF THE ADVERTISEMENT AND BUSINESS PROMOTION EXPENDITURE AMOUNTING TO RS.6,85,45,113/- (I.E. 2/3 RD OF THE TOTAL EXPENDITURE OF RS.10,28,17,669/-). 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO T HE FIRST APPELLATE AUTHORITY. BEFORE THE CIT (A), THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNA L IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.1857/DEL/2010 ORDER DATED 30.11.2010 AND THE SAME WAS UPHELD BY THE HONBLE J URISDICTIONAL HIGH COURT IN ITA 871/2011 JUDGMENT DATED 18.07.2011. A CCORDINGLY, THE CIT (A) HELD THAT NO TANGIBLE ASSET IN THE FORM OF BRAN D HAS BEEN CREATED BY THE ASSESSEE BY INCURRING OF THE SAID EXPENDITURE AND T HE WHOLE EXPENDITURE OF RS.10,28,17,669/- CHARGED TO THE PROFIT & LOSS ACCO UNT IS REVENUE IN NATURE AND, THEREFORE, ALLOWABLE U/S 37(1) OF THE A CT. ITA NOS.2262/DEL./2012 4 5. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFOR E US. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.1857/DEL/2010 (SUPRA) HELD THAT THE CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE. THE HONBLE JURISDICTIONAL HIGH COUR T, WHILE UPHOLDING THE AFORESAID ORDER OF THE TRIBUNAL, HELD THAT SUCH EXP ENSES HAVE BEEN HELD TO BE REVENUE IN NATURE. THE RELEVANT PORTION OF THE JUDGMENT, AS REPRODUCED BY THE CIT (A) AT PAGE 11 IN HIS ORDER, READS AS FO LLOWS : WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDI TURE INCURRED ON ADVERTISEMENTS IN THE AFORESAID MANNER HAS TO BE TREATED AS REVENUE IN NATURE AND WAS THEREFORE, FULLY ALLOWABLE. THIS ISSUE HAS BEEN CONSIDERED BY THIS COURT AS WELL IN DETAIL IN THE CIT-V V. M/S. PEPSICO INDIA H OLDINGS PVT. LTD. ITA NO.319/2010 DECIDED ON 30 TH MARCH, 2011. SINCE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TR IBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 WHICH WAS DULY CONFIRMED BY THE HONBLE HIGH COURT, WE CONFIRM THE ORDER OF THE CIT (A) ON THE ISSUE. IT IS ORDERED ACCORDINGLY. THE GROUND IS REJECTED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF JUNE, 2015. SD/- SD/- (N.K. SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF JUNE, 2015 TS ITA NOS.2262/DEL./2012 5 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.