Claridge Hotels P.Ltd, New Delhi V. DCIT, Central Circle-3, New Delhi

ITA 2443/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2825 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 19-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: SANKET GUPTA
• Keywords: Capital asset converted into stock in trade; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 145; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member ITA No. 2443/Del/2019 : Asstt. Year : 2015-16 Claridge Hotels Pvt. Ltd., 12, Aurangzeb Road, New Delhi-1100011 Vs DCIT, Central Circle-3, New Delhi-110055 (APPELLANT) (RESPONDENT) PAN No. AAACC0022B Assessee by : Sh. Gaurav Jain, Adv. & Sh. Sanket Gupta, CA Revenue by : Sh. Mahesh Shah, CIT DR Date of Hearing: 25.05.2022 Date of Pronouncement: 27.06.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order of the ld. CIT(A)-23, New Delhi, dated 26.02.2019. 2. In ITA No. 2443/Del/2019, following grounds have been raised by the assessee: “1. That on the facts and circumstances of the case and in law, the order dated 26.02.2019 passed by the Learned Commissioner of Income tax Appeals (“Ld. CIT(A)”) is erroneous and bad in law. 2. The Ld. CIT (A) has erred on facts and in law in confirming the total income at Rs. 3,39,51,476/- as against the returned loss of Rs. 3,84,00,967 by confirming the disallowance-of Rs. 44,49,491 made by the Learned Assessing Officer (“Ld. AO”) despite the fact that the Assessee has provided all documents and evidences to support his claim. ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 2 3. The Ld. CIT(A) has erred on facts and in law by confirming the action of the Ld. AO in making disallowance of Rs. 828,000 on account of lease equalization charges despite that fact that the Assessee has followed Accounting Standard -19 issued by ICAI and has submitted all documents in support of the claim. 3.1 Without prejudice to the above, the Ld. CIT(A) has erred on facts and in law in appreciating that the Assessee can be charged only on real income which can be calculated after applying the prescribed method. 4. The Ld. CIT(A) has erred on facts and in law by confirming the action of the Ld. AO in making disallowance of Rs. 36,21,491 on account of logo development expenses by treating them as capital in nature and disregarding the fact that the expenses are revenue in nature and incurred wholly and exclusively for the purpose of business. 4.1 Without prejudice to the above, the Ld. CIT(A) has erred on facts and in law in confirming the disallowance despite the fact that the contract was terminated mid way and the new logo was not delivered and no intangible asset alleged by the Ld. AO came into existence and the Assessee has submitted all documents in support of the claim. 4.2 The Ld. CIT(A) has erred on facts and in law by confirming the action of the Ld. AO without appreciating the fact that the expenses incurred are in nature of normal advertisement expenses and hence revenue in nature. 4.3 The Ld. CIT(A) has erred on facts and in law by confirming the action of the Ld. AO without appreciating the fact that the Ld. AO failed to issue show cause notice in respect of the addition. 5. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in law in summarily rejecting the additional evidence filed by ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 3 the Assessee under Rule 46A of the Income-tax rules, 1962 and has violated the principle laid down in Rule 46A. 6. The Ld. CIT(A) has erred on facts and in law by confirming the action of the Ld. AO in not granted adequate opportunity of being heard to the appellant and thereby violated the principles of audi alteram partem. 7. The Ld. CIT(A) has erred on facts and in law in relying upon various judicial decisions against the assessee which are unconnected and irrelevant and are distinguishable upon facts and in law. 8. That the grounds of appeal are independent and without prejudice to each other.” Lease Equalization Charges: 3. The entire part of the Assessment Order pertaining to this issue is as under: “2.1 On examination of books of accounts of the assessee and documents submitted during the course of scrutiny assessment proceedings, it was noticed that the assessee has made a ‘Provision for rent of Rs. 8,28,000/-. The Assessee/AR was confronted about the same vide order sheet noting dt. 06.11.2017 and asked why such provision, which is not allowable for deduction under Income Tax Act, 1961 be not added back to the final computation of income. AR couldn’t offer any satisfactory reply and submitted that they have created this provision and treated it in its books of accounts as Rent Equalization Reserve’. The submission of the assessee/AR is being perused and examined and not found in-sync with the provisions of the Income Tax Act. Accordingly, Rs. 8,28,000/- is being added back to the total income of the assessee.” ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 4 4. The ld. CIT(A) confirmed the addition invoking the provisions of Section 30 of the Income Tax Act, 1961 and held that no other deduction except as allowed u/s 30 be claimed. The ld. CIT(A) has also held that the judgment of the Hon’ble Apex Court was in terms of finance lease and not applicable to the facts of the instant case. 5. Aggrieved the assessee filed appeal before us. 6. Heard the arguments of both the parties and perused the material available on record. 7. The assessee entered into an agreement of granting lease hold right and determined the annual rent payable by the assessee to the lessee which is as under: a. For the period commencing from April 1 st 2013 till March 31 st 2016 shall be Rs.7,20,000/- (Rupees Seven Lakhs Twenty Thousand Only) per annum. b. For the period commencing from April 1 st 2016 to March 31 st 2021, shall be Rs.18,00,000/- (Rupees Eighteen Lakhs Only) per annum and c. For the period commencing from April 1 st 2016 to March 31 st 2023, shall be Rs.21,60,000/- (Rupees Twentry One Lakhs Sixty Thousand Only) per annum 8. The cumulative rent per year over the lease period of 10 years is Rs.154,80,000/- i.e. 15,48,000/- per year. For the period from 2013 to 2016, the assessee claims deduction of Rs.15,48,000/- which is more than Rs.7,20,000/- whereas the subsequent period, the assessee would be claiming deduction of ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 5 only Rs.15,48,000/- against the payment of Rs.18,00,000/- and Rs.21,60,000/-. Thus, the question before us is whether the assessee is allowed to claim uniform deduction over the period of 10 years on the entire rent payable cumulatively or only the rent which is paid on annual basis. 9. For this purpose, we have gone through the Accounting Standard 19, Provisions of Section 145, Provisions of Section 129 & Section 133 of Companies Act, 2013, notification issued by Central Government Companies (Accounting Standards) Rules, 2016, extracts of notification issued by Central Government, ruling of Hon’ble High Court of Andhra Pradesh & Telangana, ruling of Hon’ble Supreme Court of India. ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 6 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 7 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 8 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 9 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 10 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 11 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 12 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 13 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 14 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 15 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 16 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 17 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 18 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 19 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 20 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 21 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 22 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 23 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 24 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 25 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 26 ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 27 10. Section 145(2) of the Income Tax Act, 1961 reads that the Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. 11. Provisions of Section 129 of the Companies Act indicates that the financial statement shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 of the Companies Act and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III: Provided that the items contained in such financial statements shall be in accordance with the accounting standards: Section 133 of the Companies Act indicate that the Central government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by the National Financial Reporting Authority. 12. inistry of Corporate Affairs vide notification dated 07.12.2006 notified the Accounting Standards specified in the Rule 3 of Companies Act in consultation with National Advisory Committee on Accounting Standards as prescribed Accounting Standards 1 to 7 and 9 to 29 for the purpose of maintenance of account as per the Companies Act. ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 28 13. The lease equalization charge is bifurcation of lease rentals in order to arrive at real income. The assessee has claimed the deduction of lease equalization charges as per Accounting Standard 19 issued by the ICAI, a recognized body vested with the authority to recommend accounting standards for ultimate prescription by the Central Government in consultation with the National Advisory Committee of Accounting Standards for the presentation of true and fair view of financial statements. Para 23 of the Accounting Standard 19 specifies the treatment of operating lease payments in the statement of profit & loss account which is reproduced as under: "23. Lease payments under an operating lease should be recognized as an expense in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern of the user's benefit." 14. Therefore, the Accounting Standard expressly allows the claim of lease rent on straight line basis over the period of lease term. 15. Further, page no. 1 of lease deed shows the amount of average rent per year which is Rs. 15,48,000/-claimed by the assessee in its profit & loss account. 16. The deduction on the basis of average rent per year will not affect the tax revenue of the department because of the reason that when actual payment of lease rent is more than the average rent in subsequent years, then excess deduction ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 29 claimed in the earlier years would net off the difference and consequently at the end, there would be no difference in actual payment and amount of deduction claimed. 17. Besides, the deduction of lease equalization reserve has been allowed by the Hon'ble Supreme Court in its recent judgment in the case of CIT-VI Versus Virtual Soft Systems Ltd. in civil appeal Nos. 4358 to 4363/2018. Hon'ble Supreme Court allowed the claim of "lease equalization charges" relying on the Guidance Note issued by the ICAI "Accounting for leases". Hon'ble Court has held that the taxpayer can take recourse of Guidance note issued by the ICAI, particularly when there is no express bar in the Act. The ICAI publication i.e. Guidance Note reflects the best practices adopted by the accountants throughout the world. 18. Relevant paras of the Hon’ble Supreme Court judgment reproduced as under: “9. Section 211 of the Companies Act, 1956 as it stood before the amendment dealt with "the Form and contents of balance- sheet and profit and loss account". Sub clause (3C) of Section 211 was added vide 1999 amendment with retrospective effect The relevant portion of Section 211 of the Companies Act is reproduced herein as under: "(3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 30 in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the accounting standards until the accounting standards are prescribed by the Central Government under this sub- section."(Emphasis supplied by us) 10) The purpose behind the amendment in Section 211 of the Companies Act 1956 was to give dear sight that the accounting standards, as prescribed by the ICAI, shall prevail until the accounting standards are prescribed by the Central Government under this sub-section. The purpose behind the accounting standards was to arrive at a computation of real income after adjusting the permissible deprecation. It is not disputed that these accounting standards are made by the body of experts after extensive study and research. .................................. 16) In the present case, the relevant Assessment Year is 1999- 2000. The main contention of the Revenue is that the Respondent cannot be allowed to claim deduction regarding lease equalization charges since as such there is no express provision regarding such deduction in the IT Act. However, it is apt to note here that the Respondent can be charged only on real income which can be calculated only after applying the prescribed method. The IT Act is silent on such deduction. For such calculation, it is obvious that the Respondent has to take ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 31 course of Guidance Note prescribed by the ICAI if it is available. Only after applying such method which is prescribed in the Guidance Note, the Respondent can show fair and real income which is liable to tax under the IT Act Therefore, it is wrong to say that the Respondent claimed deduction by virtue of Guidance Note rather it only applied the method of bifurcation as prescribed by the expert team of ICAI. Further, a conjoint reading of Section 145 of the IT Act read with Section 211 fun-amended) of the Companies Act make it dear that the Respondent is entitled to do such bifurcation and in our view there is no illegality in such bifurcation as it is according to the principles of law. Moreover, the rule of interpretation says that when internal aid is not available then for the proper interpretation of the Statute, the court may take the help of external aid. If a term is not defined in a Statute then its meaning can be taken as is prevalent in ordinary or commercial parlance. Hence, we do not find any force in the contentions of the Revenue that the accounting standards prescribed by the Guidance Note cannot be used to bifurcate the lease rental to reach the real income for the purpose of tax under the IT Act. 17) To sum up, we are of the view that the Respondent is entitled for bifurcation of lease rental as per the accounting standards prescribed by the ICAI. Moreover, there is no express bar in the IT Act regarding the application of such accounting standards. 18) In view of above detailed discussion, we are not inclined to interfere in the impugned decision of the High Court. Accordingly, the appeal is hereby dismissed leaving parties to ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 32 bear their own cost In view of the above, other connected appeals are also disposed off accordingly." 19. Further, Hon'ble Delhi High Court in their recent decision in case of CIT vs. MGF India Ltd. [2018] 91 taxmann.com 405 has also held that Lease equalization charges can be deducted while computing book profit. 20. In view of the above said judgments, provisions of Companies Act, Accounting Standard and Income Tax Act, we hereby direct that the assessee is eligible for the claim of lease equalization charges. In the result, the appeal of the assessee on this ground is allowed. Logo Development Expenses: 21. The assessee had claimed logo development charges of Rs.36,21,491/- under the head advertisement & business promotion in its profit & loss account. During assessment proceedings, the assessee filed copy of invoice, 15CA, 15CB, payment voucher, ledger etc. to prove the genuineness of expenditure incurred. 22. The AO made the disallowance on the ground that payment to the advertising agency was to create a new brand and thus creating an intangible asset for the assessee company which will have enduring benefit whose benefit will be derived over several periods. Therefore, the AO rejected the claim of advertisement expenses claimed as revenue and treated the same as capital in nature. ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 33 23. In this regard, it was submitted that the assessee company is running hotel under name of "The Claridges". The assessee company had entered into contract with the advertisement company based in Denmark CO + Hogh A/S for the development of new logo for the assessee company to strengthen their brand and put more value into it. However, the contract could not be executed due to the failure of the advertisement company to accomplish the work of designing and creation of new logo as per the specifications and requirements of the assessee company. The contract was terminated in mid way since the advertisement company did not deliver the new logo to the assessee company and as a result thereof no further payment was made by the assessee company in this regard. There were several disagreements between the assessee company and the advertisement company over the design of new logo and its payment. Ultimately, the design of new logo could not be approved and the assessee company is still using the same logo which it has been using since inception. 24. The assessee company is presently and still using the same logo which was registered in 2004. Since, the contract with advertising agency could not be completed and terminated in mid way and consequently no new logo was ever made or delivered to the assessee company. 25. Since, no intangible asset in the form of new brand or logo as alleged by the AO came into existence, therefore the expenditure incurred cannot be treated as capital expenditure ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 34 but to be allowed to the assessee company as revenue expenditure u/s 37(1) or business loss u/s 28(i) of the Act. 26. Further, it is a settled law that if expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start a new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case, whether a new business/asset comes into existence or not would become a relevant factor. If there is no creation of a new asset, then the expenditure incurred would be of revenue nature. 27. On this proposition, the Hon'ble Jurisdictional High Court of Delhi held as under: a) In the case of Indo Rama Synthetics (I) Ltd. [2011] 333 ITR 18 (Delhi) has held that Assessee-company had engaged services of an international firm of consultancy for carrying out a detailed study on various aspects relating to its operations and to suggest measures for improving operational efficiency and profitability of its business - However, based on review of cost benefit analysis, said assignment was terminated shortly after mandate had been given - In respect of work already done by consultancy firm until date of termination of mandate, assessee paid certain sum to said firm and claimed deduction of said payment as revenue expenditure - Whether payment in question could be allowed as business expenditure - Held, yes ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 35 Relevant paras are reproduced herein under: "The approach of the Tribunal was not correct in law. Interestingly, the Tribunal had accepted the fact that even when there was no formal written agreement with the consultancy firm, the report was submitted by the said company for the task assigned. The report was produced before the Assessing Officer/Commissioner (Appeals). The Tribunal noted that as per the assessee, the perusal of the report clearly indicated that the engagement was for the purpose of improving the operational efficiencies of the assessee and to enhance the profitability of the existing business. In those circumstances, not much importance could be attached to the fact that there was no written agreement with the said consultants to ascertain the scope of the study when such scope of study could very well be discerned from the report submitted by the consultants. The helplessness shown by the Tribunal, for want of written agreement, was, therefore, clearly inappropriate. Once it was accepted as a fact that the assignment given to the said consultants was for the purpose of improving operational efficiencies and was not to incur any enduring benefit in capita/ field, but to carry on the existing business more efficiently and profitably, the irresistible conclusion was that such expenditure was allowable as business expenditure.” b) In the case of CIT vs. Priya Village Roadshows Ltd. 332 ITR 594 (Delhi) has held that ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 36 "A harmonious reading of Triveni Engg. Works Ltd. vs. CIT [1998] 232 ITR 639/100 Taxman 19 (Delhi) and CIT vs. Modi Industries 200 ITR 341/68 Taxman 114 (Delhi) would demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting a new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event, it would be irrelevant as to whether project really materialized or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start a new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case, whether a new business/asset comes into existence or not would become a relevant factor. If there is no creation of a new asset, then the expenditure incurred would be of revenue nature. However, if the new asset comes into existence which is of enduring benefit then such expenditure would be of capital nature.” In the instant case, expenditure was incurred in respect of same business, which was already carried on by the assessee. Two projects which were undertaken were for the expansion of the same business, namely, one for taking over another cinema for conversion into multiplex and operation and management thereof and other for ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 37 conversion of self- owned cinema into multiplex. Payments were made to the consultants for preparing feasibility reports in respect of both the projects. However, ultimately projects were not found to be financially and technically viable and were shelved. Thus, finding given, that no new asset came into existence, which was the basis adopted by the Assessing Officer for treating the expenditure as capital expenditure was wrong. In the instant case, both the ingredients were satisfied, namely,— (i) the feasibility study conducted by the assessee was for the same and existing business with a common administration and common fund, and (ii) the study was abandoned, without creating any new asset In such circumstances, the Tribunal was correct, in law, in holding that expenses on new project development were allowable as business expenditure under section 37. c) In the case of CIT vs. ACL Wireless Ltd. [2014] 361 ITR 210 has held that expenditure incurred in ordinary course of business on upgradation, improvement, removal of glitches of existing or already developed software to improve its product is to be treated as revenue expenditure. Relevant paras are reproduced herein under: ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 38 "To keep pace with the requirements and ensure product sale ability, software development companies have to constantly incur expenditure to upgrade, improve and remove problem areas of the software. They have to employ professionals whose job is to continuously upgrade the software and provide newer features and updates on a regular basis. The shelf life of the software without constant improvement would be very small. Expenditure which enables the profit making structure to work more efficiently leaving the source of profit making structure untouched, would be revenue in nature. The aforesaid expenditure did not bring into existence a new asset but rectified and improved the product being sold. It was accepted that there had to be recurring expenditure which had to be incurred in the said business to ensure sale of the software. This expenditure was incurred for removal of obstructions, restrictions or disabilities on the sale and to ensure that there was demand of the said product. These were normal day-to-day expenses for running the business in Question and did not create enduring rights or advantage or benefit over a long period time. While determining and deciding a question whether the expenditure is capital or revenue in nature, the determination should be based upon consideration of facts and circumstances and by applying principles of commercial trading and business expediency. Enduring benefit test is not a universal test and can break down. The said principles had been rightly applied by the ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 39 Tribunal in the facts of the present case to hold that expenditure incurred was revenue in nature and not capital.” d) In the case of CIT vs. Euro India Ltd. [2014] 45 taxmann.com 173 (Delhi) has followed the decision of Indo Rama Synthetics (I) Ltd. (supra) and held that where expenditure is incurred on obtaining feasibility report for expansion of existing business where there is unity of control and common funds, then such expenditure would be treated as business expenditure. e) Hon'ble Madras High Court in the case of Tamil Nadu Magnesite Ltd. vs. ACIT [2018] 95 taxmann.com 239 (Madras) has held that where assessee-company entered into an arrangement for implementation of a project which was later on ordered to be closed by Government, since said project was in same line of existing business of assessee and there was no creation of any new asset of enduring nature, entire exp. incurred on said project was to be allowed as revenue expenditure. f) Hon'ble Bombay High Court in the case of CIT vs. Rajesh Khanna [2012] 28 taxmann.com 415 and in the case of CIT vs. Venus Records & Tapes (P.) Ltd. [2016] 66 taxmann.com 89 have held that entire expenditure incurred on production of film which is abandoned before it was completed is allowable revenue expenditure. ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 40 g) Hon'ble High Court of Andhra Pradesh in the case of CIT vs. Praga Tools Ltd. [1986] 157 ITR 282 (AP) has held that “the amounts which were expended by the assessee should be regarded as revenue expenditure. The facts would show that the so-called development expenditure incurred by the assessee was no more than expenditure which had been incurred by the assessee for the purpose of preparing and perfecting designs which were required with reference to the execution work of specific contracts of those years. The expenditure incurred in connection with the execution of those specific contracts could not therefore, be said to be an expenditure incurred for acquiring an asset of enduring nature. They were both in design and in purport the expenditure incurred only towards the execution of those contracts. It was therefore, held that the so-called development expenditure incurred was only revenue expenditure.” Similarly, the amounts paid to the consultancy firms also could not be regarded as expenditure incurred in acquiring any asset of enduring nature. The amount paid to the 'NPC' was for the benefit of increasing the manufacturing efficiency and formulating incentive schemes. In an age of speedy technological progress, no degree of permanency can be attached to these opinions given by the firms like the 'NPC' on how to increase the production. They are all susceptible to modifications and alterations. For that reason, it could not held that the fee paid to 'NPC' should be regarded as an expenditure incurred for acquiring a ITA No. 2443/Del/2019 Claridge Hotels Pvt. Ltd. 41 capital asset. So was the case with the amounts paid to the ASC' and so was the case with the amounts paid to 'EMFC'. Therefore, the expenditure incurred was revenue in nature." 28. In the instant case, the contract for new logo for existing business has been awarded, certain amounts were spent and the project has been shelved midway and abandoned. There was no creation of any asset and there is no existence of new business. The amounts have been spent in connection with the ongoing business operations. Hence, keeping in view the facts of the case and the judgments of the Hon’ble High Courts, we hereby allow the appeal of the assessee on this ground. 29. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 27/06/2022. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 27/06/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR