DCIT CIR 7(1), MUMBAI V. PAN INDIA NETWORK INFRAVEST P. LTD, MUMBAI

ITA 2339/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7354 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C ,MUMBAI BEFPRE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A. L. GEHLOT, ACCOUNTANT MEMBER I.T.A.NO.2339, 2340 & 2341/MUM/2009 (A.YS. 2003-04, 2004-05 & 2005-06) DY.COMMR. OF INCOME-TAX, CIR. 7(1), MUMBAI. VS. M/S.PAN INDIA NETWORKI INFRAVEST PVT. LTD., CONTINENTAL BLDG., 135, DR.ANNIE BESANT ROAD, WORLI, MUMBAI-400 018. PAN:AACCP2459H APPELLANT RESPONDENT APPELLANT BY SHR I VIVEK BATRA. RESPONDENT BY SHRI V IJAY MEHTA. O R D E R PER D. MANMOHAN, VICE PRESIDENT: THESE THREE APPEALS, FILED AT THE INSTANCE OF THE R EVENUE, PERTAIN TO THE ASSESSMENT YEARS 2003-04 TO 2005-06 AND THEY INVOLV E A COMMON ISSUE. THEREFORE, WE PROCEED TO DISPOSE OF THESE APPEALS B Y A COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE CASE OF THE REVENUE IS THAT THE LD. CIT(A) E RRED IN TREATING THE EXPENDITURE OF RS.26,48,000/-/RS.25 LAKHS/RS.45,11, 704/- (RESPECTIVELY) INCURRED TOWARDS PRODUCTION OF ADVERTISEMENT FILMS AS REVENUE EXPENDITURE. THE CASE OF THE A.O. IS THAT THE EXPENDITURE INCURRED G IVES THE ASSESSEE AN ENDURING ADVANTAGE AND HENCE IT HAS TO BE TREATED AS A CAPIT AL EXPENDITURE. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AS WELL AS THE LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD AND CAREFUL LY PERUSED THE RECORD. FACTS ITA 2339-2341/09 PAN INDIA NETWORK 2 NECESSARY FOR THE DISPOSAL OF THE APPEALS ARE SET O UT IN BRIEF. THE ASSESSEE IS A COMPANY REGISTERED UNDER THE COMPANIES ACT AND IT W AS ENGAGED IN THE BUSINESS OF PROVIDING COMPUTER TERMINAL SYSTEM REQUIRED FOR CONDUCTING SALE OF LOTTERIES. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN ALL THESE YEARS, WE DEEM IT SUFFICIENT TO MENTION THE FACTS RELEVANT FOR THE AS SESSMENT YEAR 2003-04 ONLY. IN THIS YEAR, THE ASSESSEE INCURRED TOTAL ADVERTISEMEN T EXPENDITURE OF RS.12.5 CRORES. THESE ARE INCURRED FOR PRESS ADVERTISEMENT, HOARDINGS, SIGNBOARDS ON THE OUTLETS AND TV ADVERTISEMENTS. OUT OF THE TOTAL EXP ENDITURE, A SUM OF RS.26.48 LAKHS WAS INCURRED ON MAKING AD FILMS WHICH ARE NEC ESSARY FOR MAKING ADVERTISEMENTS THROUGH TV CHANNELS. THESE AD FILMS ARE MADE TO PROMOTE LOTTERY GAMES AND ATTRACT THE PUBLIC TO PLAY THESE GAMES. T HE CASE OF THE ASSESSEE IS THAT ADVERTISEMENTS ARE NECESSARY TO INCREASE THE V OLUME OF BUSINESS WHICH, IN TURN, WOULD HELP THE ASSESSEE TO EARN COMMISSION ON VOLUMES AND NETWORKING CHARGES WHICH ARE DIRECTLY CONNECTED TO VOLUME OF B USINESS. THE CONTENTION OF THE ASSESSEE WAS THAT THESE AD FILMS HAVE NO LIF E OR ENDURING BENEFIT AND THESE ARE CHANGED FAST TO AVOID FATIGUE. REPEATING ADS F OR LONGER PERIOD WILL NOT HAVE ANY IMPACT ON THE VIEWING PUBLIC AND IT ALSO RESUL TS IN WASTING COSTLY AIR TIME AND HENCE THESE ARE FREQUENTLY CHANGED. IT WAS THUS SUBMITTED THAT THIS EXPENDITURE IS ALLOWABLE AS DEDUCTION U/S.37 OF THE ACT BY CONSIDERING IT AS A REVENUE EXPENDITURE. 4. THE AO OBSERVED THAT THE ADS ARE MADE TO PROMOTE THE ASSESSEE COMPANYS PRODUCTS IN THE MINDS OF THE TARGET AUDIE NCE SO AS TO CREATE A BRAND AWARENESS WHICH ENDURES IN THE MINDS OF THE CONSUME RS FOR A LONG TIME AND HENCE SUCH EXPENDITURE BELONGS TO THE DOMAIN OF CAP ITAL EXPENDITURE. THOUGH THE REST OF THE EXPENDITURE (LARGE CHUNK OF THE EXPENDI TURE) INCURRED ON SUCH ADVERTISEMENTS, HOARDINGS, SIGNBOARDS, ETC., WAS AL LOWED AS DEDUCTION U/S. 37 OF ITA 2339-2341/09 PAN INDIA NETWORK 3 THE ACT, IN SO FAR AS THE EXPENDITURE INCURRED ON A D FILMS IS CONCERNED, THE AO WAS OF THE OPINION THAT THIS EXPENDITURE FALLS IN T HE CAPITAL FIELD, IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. PATEL INTERNATIONAL FILMS LTD. (102 ITR 219). 5. AGGRIEVED, THE ASSESSEE CONTENDED BEFORE THE CI T(A) THAT THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA) IS DI STINGUISHABLE ON FACTS AND FURTHER CONTENDED THAT THAT THERE IS DIFFERENCE BET WEEN THE AD FILMS AND TV SERIALS; AD FILMS HAVE NO LIFE, WHEREAS TV COMMERCI ALS AND SERIALS HAVE GOT A LONG LIFE. IT WAS ALSO SUBMITTED THAT THE IMPUGNED EXPE NDITURE INCURRED ON THE AD FILMS IS REVENUE IN NATURE SINCE THE LIFE OF THESE ADS IS NOT MORE THAN 2 TO 3 MONTHS. THE LD. COUNSEL RELIED UPON A LATEST JUDGEM ENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT (173 TAXMAN 439) WHEREIN THEIR L ORDSHIPS REFERRED TO THE CASE OF PATEL INTERNATIONAL FILM LTD. (SUPRA) BUT D ISTINGUISHED ON THE GROUND THAT THE EXPENDITURE ON PRODUCTION OF A TV FILM, IN THE PECULIAR FACTS, IS ALLOWABLE AS DEDUCTION AS ADVERTISEMENT EXPENDITURE. 6. HAVING REGARD TO THE SUBMISSIONS OF THE ASSESSEE , THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE AS SESSING OFFICER TO TREAT THE IMPUGNED EXPENDITURE AS REVENUE IN NATURE. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. T HE CASE OF THE LD. DEPARTMENTAL REPRESENTATIVE IS THAT AD FILMS CREATE D A BRAND AWARENESS WHICH ENDURES IN THE MINDS OF THE CONSUMERS FOR A LONG PE RIOD AND HENCE THE EXPENDITURE INCURRED ON SUCH AD FILMS HAS TO BE CO NSIDERED AS A CAPITAL EXPENDITURE. ON THE OTHER HAND, THE LD. COUNSEL AP PEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS RECURRING IN NATURE AND EACH YEAR SIMILAR ADS WERE MADE WHICH HAD OUTLIVED ITS UTILITY WITHIN A SHORT SPAN OF TIME AND IN SUPPORT OF THE S AID SUBMISSION HE HAS FILED A ITA 2339-2341/09 PAN INDIA NETWORK 4 CHART STATING THAT THE AD FILM MADE DURING THE PREV IOUS YEAR RELEVANT ASSESSMENT YEAR 2003-04 WAS DISCARDED AFTER THE JACKPOT WAS HI T ON 27-2-2003. SIMILARLY, FOR THE OTHER TWO YEARS, AD FILMS WERE DISCARDED BE FORE THE END OF THE RELEVANT ACCOUNTING YEARS. HE HAS ALSO TAKEN US THROUGH THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PATEL INTERNATIONA L FILM LTD. TO SUBMIT THAT THE JUDGEMENT RENDERED BY THE HONBLE COURT WAS IN THE BACKDROP OF THE FACTS OF THE CASE; A COLOUR FILM WAS PURCHASED IN 1953 AND IN AU GUST 1955 THE ASSESSEE PURCHASED PROCESSING AND PRINTING LABORATORY AND T HEREAFTER PURCHASED THE FILM POMPOSH. THESE FACTS CLEARLY SHOW THAT THE COST INCURRED BY THE ASSESSEE WAS WITH A VIEW TO TAKE THE BENEFIT FOR A PERIOD OF MOR E THAN ONE YEAR, WHEREAS IN THE INSTANT CASE, THE AD FILM WAS DISCARDED WITHIN A SH ORT SPAN OF TIME. HE ALSO SUBMITTED THAT MAJOR CHUNK OF THE EXPENDITURE WAS INCURRED BY THE ASSESSEE ON PRESS ADVERTISEMENT, HOARDING AND SIGNBOARD WHICH A RE ALSO INTENDED TO TARGET THE AUDIENCE AND CREATE A BRAND AWARENESS IN THE MI NDS OF THE CONSUMERS BUT SUCH EXPENDITURE HAVING BEEN ALLOWED BY THE ASSESSI NG OFFICER AS REVENUE IN NATURE, DISALLOWANCE OF EXPENDITURE INCURRED ON AD FILM IS MERELY BASED ON SURMISES AND SUSPICIONS, WITHOUT APPRECIATING THE F ACTS IN THE CORRRECT PERSPECTIVE. 8. IN OUR CONSIDERED OPINION, THE IMPUGNED EXPENDIT URE IS REVENUE IN NATURE. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AD F ILMS WERE UTILIZED IN THE SUBSEQUENT YEAR. THE LD. COUNSEL FILED A CHART SHOW ING THAT THE AD FILMS WERE, IN FACT, DISCARDED WITHIN THE PREVIOUS YEARS. SUCH BEI NG THE CASE, WE ARE OF THE VIEW THAT THE EXPENDITURE HAS TO BE TREATED AS REVE NUE IN NATURE. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS PASSED BY THE LD. CIT(A) AND THEREFORE THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ITA 2339-2341/09 PAN INDIA NETWORK 5 ORDER PRONOUNCED ON THE 26TH DAY OF MARCH, 20 10. SD/- SD/- (A. L. GEHLOT) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI: 26TH MARCH , 2010 COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-VII,MUMBAI. 4 CIT-7,MUMBAI. 5.DR,C BENCH,MUMBAI. 6.GUARD FILE. (TRUE COPY) BY ORDER, NG: ASST.REGISTRAR, ITAT, MUMBAI. ITA 2339-2341/09 PAN INDIA NETWORK 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 25-3-10 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 25-3-10 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER