M/S. EAGLE HOME APPLIANCES P.LTD. FORMERLY M/S. TRADE TEAM LTD., V. I.T.O.7(3)(2),

ITA 2831/MUM/2009

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2505 (ITAT-PUNE)
• Duration Of Justice: 9 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-05-2018
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDER KAPOOR
• Keywords: Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 234B; 37(1); 37; 263; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 2831/MUM/2009 / ASSESSMENT YEAR : 20 05 - 06 M/S. EAGLE HOME APPLIANCES P. LTD., FORMERLY M/S. TRADE TEAM LTD., 4 TH FLOOR, PARMAR GALLERY, 77, SHIVARKAR ROAD, WANOWRIE, PUNE 411040 PAN : AAACT3316M ....... / APPELLANT / V/S. THE INCOME TAX OFFICER, WARD 7(3)(2), MUMBAI / RESPONDENT ASSESSEE BY : S HRI M.K. KULKARNI REVENUE BY : SHRI NARENDER KAPOOR / DATE OF HEARING : 2 8 - 05 - 201 8 / DATE OF PRONOUNCEMENT : 23 - 0 8 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - VII, MUMBAI DATED 27 - 02 - 2009 FOR THE ASSESSMENT YEAR 20 05 - 06. 2 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN THERMO FLASKS AND OTHER RELATED ITEMS. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE INCURRED SALES PROMOTION EXPE NSES TO THE TUNE OF RS.50,40,349/ - ON LAUNCHING OF NEW PRODUCT SANJEEV KAPOOR TANDOOR. THE ASSESSEE CLAIMED THE EXPENDITURE ON SALES PROMOTION EVENTS AS REVENUE U/S. 37(1) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE NATURE OF EXPENDITURE AND HELD THE SAME TO BE CAPITAL. THE ASSESSING OFFICER FURTHER DISALLOWED ASSESSEES CLAIM OF FOREIGN TRAVEL EXPENSES RS. 5,66,930/ - CONNECTED WITH THE LAUNCH OF NEW PRODUCT HOLDING IT TO BE C APITAL IN NATURE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 31 - 12 - 2007, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE FINDI NGS OF ASSESSING OFFICER. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS : 1 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A ) VII, MUMBAI WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE A.O. WHO HA D CAPITALIZED THE AMOUNT OF RS. 50,40,349/ - ON AN ASSUMPTION THAT THE SAID AMOUNT DULY DEBITED TO THE SALES PROMOTION ACCOUNT OUGHT TO BE CAPITALIZED AND NOT CLAIMED AS REVENUE EXP ENDITURE. THE ADDITION BE DELETED. 2 ) FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A) VII, MUMBAI WAS NOT JUSTIFIED IN CONFIRMING THE ORDER PASSED BY THE LD. A.O. WITHOUT GIVING ANY VALID REASONS AS TO WHY THE AMOUNT SHOULD BE CAP ITALIZED, WHEN ACTUALLY AND LEGALLY THE SAID AMOUNT WAS EXPENDED TOWARDS THE SALES PROMOTION EXPENDITURE AND WAS A REVENUE EXPENDITURE AND THE SAID EXPENDITURE OUGHT TO HAVE BEEN ALLOWED ACCORDINGLY AS REVENUE EXPENDITURE. 3 ) ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A) VII, MUMBAI WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY A.O. 3 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 WITHOUT REALIZING THAT THE GOODS PURCHASED WERE A TRADING EXPENDITURE AND DID NOT CONSTITUTE ANY ASSET. THE ADDITION BE DELETED. 4 ) O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C.I.T. (A) VII, MUMBAI WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY A.O. ON ACCOUNT OF TRAVELLING EXPENSES OF RS . 5,66,930/ - ON THE MERE ASSUMPTION THAT THE SAID TRAVELLING EXPENSES WERE CAPITAL EXPENDITURE. THE DISALLOWANCE BE DELETED. 5 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ASSESSEE DENIES ITS LIABILITY TO PAY INTEREST U/S. 234 - A, 234 - B AND 234 - C OF THE ACT AND THE SAME BE DELETED. 6 ) THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 3. SHRI M.K. KULKARNI APPEARING ON BEHALF OF THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS. THE RELEVANT EXTRACT OF THE SAME ARE REPR ODUCED HERE - IN - BELOW : 9) THE APPELLANT COMPANY SUBMITS AS UNDER : THE AGGREGATE SALES PROMOTION EXPENSES TO THE EXTENT OF RS.56 LAKHS AND ODD ARE ON THE BASIS OF AGREED TERMS AND CONDITIONS . SO ALSO ANY EXPENDITURE INCURRED IN THIS FIELD IN ADDITION TO SHOW - CAUSED ONE ALSO FALLS AS 'SALES PROMOTION EXPENDITURE' ENTITLED TO BE INCURRED BY THE ASSESSEE - COMPANY IN VIEW OF AGREED STIPULATIONS CAPTIONED ''MARKETING OF THE PRODUCTS' AND ARE NOT THE ITEMS COMING UNDER ''CAPITAL FIELD' SO AS TO SUFFER DISALLOWA NCE UNDER EITHER 'CAPITAL EXPENDITURE' OR ''DEFERRED EXPEND I TURE' . THE TERMS AND CONDITIONS HAVE BEEN ACCEPTED OUT OF THE PRINCIPLE OF ''COMMERCIAL EXPEDIENCY' AND SUPPORTED BY WAY OF I NTERNATIONAL AGREEMENT . THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. V. ERR (2007) 158 TAXMAN 74 (SC) HAS HELD AS UNDER: THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MANY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE, IF IT WAS INCURRED ON THE GROUNDS OF 'COMMERCIAL EXPE DIENCY . IT HAS BEEN REPEATEDLY HELD BY THIS COURT THAT THE EXPRESSION ''FOR THE PURPOSED OF BUSINESS ' IS WIDER IN SCOPE THAN THE EXPRESSION' FOR THE PURPOSE OF EARNING PROFITS' VIDE CIT V. MALAYALAM PLANTATION LTD. (1964) 53 ITR 140, CIT V. BIRLA COTTON SPG S WVG MILLS LTD. (1971) 82 ITR 166 ETC. 4 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 THE HON'BLE SUPREME COURT IN SA BUILDER'S CASE (SUPRA) AGREED WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 377 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN EXPENDITURE AND PURPOSE OF THE BU SINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM - CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONA BLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT THE INCOME - TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITI ES MUST NOT LOOK AT THE MATTER FROM THEIR OWN, VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN ..... AS FAR AS CONCEPT OF DEFERRED REVENUE EXPENDITURE WAS CONCERNED THE HON'BLE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ENTERTAINMENT NET WORK V. ASSTT. CIT (2007) 108 TTJ (DELHI) HELD AS UNDER: THE ASSESSEE CLAIMED THE ENTIRE REVENUE EXPENDITURE ON PRODUCTION, MARKETING ETC. TO TV SERIALS FOR INCOME - TAX PURPOSES, CARRYING 50% THEREOF TO THE BALANCE - SHEET UNDER THE HEAD 'DEFERRED REVENUE EXPENSES' FOR ACCOUNTING PURPOSES. THE ASSESSING OFFICER ALLOWED ONLY 50 PER CENT OF THE EXPENDITURE AND DISALLOWED BALANCE ON THE GROUND OF ITS ALLOCATION AS 'DEFERRED REVENUE EXPENSES'. THE TRIBUNAL HELD THAT AS THE EXPENDITURE WAS INCURRED ON PRODUCTIO N OF FILMS AND NO NEW ASSETS WERE ACQUIRED BY THE ASSESSEE, THE SAME SHOULD BE ALLOWED AS DEDUCTION, NOTWITHSTANDING THE MANNER OF TREATMENT OF SUCH EXPENDITURE IN THE BALANCE SHEET AS THE ASSESSING OFFICER HAD ALREADY ALLOWED 50 PER CENT OF THESE EXPEN SES, WHICH WERE DEBITED TO PROFIT AND LOSS ACCOUNT BY TREATING THE SAME AS REVENUE EXPENSES, THERE IS NO REASON TO DISALLOW THE REMAINING 50 PER CENT OF THE VERY SAME EXPENSES, MERELY ON THE PLEA THAT THE ASSESSEE HAD TREATED THEM AS DEFERRED REVENUE E XPENSES IN ITS BOOKS OF ACCOUNTS. MERE ENTRY IN THE BOOKS OF ACCOUNT CANNOT DISENTITLE THE CLAIM OF DEDUCTION OF THE EXPENSES WHICH THE ASSESSEE IS ENTITLED TO CLAIM AS PER INCOME - TAX ACT 1961, WHILE COMPUTING ITS TAXABLE INCOME FOR INCOME - TAX PURPOSES . THE HO'BLE M. P. HIGH COURT : INDORE BENCH, IN THE CASE OF HEMRAJ NEBHMOL SONS V. CIT (2005) 278 ITR 345 (MP) HELD AS UNDER : THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF BIDI IN INDORE. THE ASSESSEE CLAIMED IN TWO AS SESSMENT YEARS AFOREMENTIONED, SUM BY WAY OF EXPENDITURE INCURRED IN ADVERTISEMENT AND SALES PROMOTION. IN THE OPINION OF AO IT WAS NOT INCURRED FOR THE LEGITIMATE NEED OF BUSINESS OF THE FIRM AND HENCE, THE AO DISALLOWED THE EXPENDITU RE. THIS VIEW WAS RE VERSED BY CI T(A) BUT IT WAS AGAIN RESTORED BY TRIBUNAL RESULTING IN ITS DISALLOWANCE AGAINST ASSESSEE. HAVING HEARD LEARNED COUNSEL FOR THE PARTIES AND HAVING PERUSED RECORD OF THE CASE , WE ARE OF THE OPINION THAT QUESTIONS REFERRED TO 5 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 THIS COURT HAVE TO BE ANSWERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. SEC. 37(1) OF THE ACT PERMITS THE ASSESSEE TO CLAIM ANY EXPENDITURE BY WAY OF DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION': SEC. 37 READS AS UNDER: ''SEC. 37 (1) - ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SS. 30 TO 36 [****] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE A SSESSEE) , LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION . EXPLANATION. - FOR THE REMOVAL OF DOUBTS , IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXP ENDITURE.' AN ANALYSIS OF S. 37(1) SHOWS THAT - I. A NY EXPENDITURE II. NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SS. 30 TO 36 (FOR ASST YRS. 1976 - 77 TO 1985 - 86, AND S. 80W) AND III. NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR IV. PERSONAL EXP ENSES OF THE ASSESSEE V. LAID OUT OR EXPENDED VI. WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD ''PROFITS AND GAINS OF BUSINESS OR PROFESSION . IN OTHER WORDS, TO BE AN ALLOWABLE EXPENDITURE WITHIN THESE PROVISIONS, THE MONEY PAID OUT OR AWAY MUST BE (A) PAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION, AND FURTHER (B) MUST NOT BE (I) CAPITAL EXPENDITURE, (II) PERSO NAL EXPENSE, OR (III) AN ALLOWANCE OF THE CHARACTER DESCRIBED IN SS. 30 TO 36 (FOR ASST. YRS. 1976 - 77 TO 1985 - 86, AND S. 80 VV). WHEN WE APPLY THE AFORESAID REQUIREMENT OF S. 37(1) TO THE CASE OF ASSESSEE IN HAND, WE NOTICE THAT THEY HAVE FULFILLED THE CRITERIA LAID DOWN IN S. 37(1) FOR CLAIMING DEDUCTION. IN OTHER WORDS, THE EXPENDITURE INCURRED BY THE ASSESSEE IS ESSENTIALLY AND/OR EXCLUSIVELY RELATED TO THEIR BUSINESS. ANY EXPENDITURE INCURRED FOR ADVERTISEMENT OF BIDI AND/OR FOR PROMOTING ITS SALE, THEN IN SUCH CASE, IT HAS TO BE SO REGARDED AS AN EXPENDITURE INCURRED FOR BUSINESS CARRIED ON BY THE ASSESSEE. IT BEING AN ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF BIDI AND SECONDLY, THE AMOUNT IN QUESTION HAVING BEEN ACTUALLY SPENT, I.E., INCURRED BY THE ASSESSEE FOR THEIR BIDI BUSINESS, THEY ARE ENTITLED TO 6 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 CLAIM DEDUCTION OF THE AMOUNT SO SPENT/INCURRED IN THE RELEVANT ASSESSMENT YEARS. IN OUR OPINION, O NCE THE AFOREMENTIONED CONDITIONS ARE FOUND SATISFIED, THEN IT IS NOT PROPER ON THE PART OF AC; I.E., TAXING AUTHORITIES TO PROBE ON THE QUESTION AS TO WHETHER THE EXPENDITURE WAS LEGITIMATE OR NECESSARY, ETC. THIS TYPE OF INQUIRY IS NEITHER CONTEMPLAT ED NOR CALLED FOR. IN OTHER WORDS, IN ORDER TO DISALLOW THE EXPENDITURE, THE INQUIRY HAS TO (BE) CONFINED TO CASES FALLING IN EXPLANATION AND SUB - SO (2B) OF 5. 37. IT IS ONLY WHEN THE AC FINDS THAT CLAIM SO MADE IS BOGUS OR FALSE OR NOT INCURRED AS A FA CT, IT CAN BE DISALLOWED, ELSE NOT. IN VIEW OF AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT THE QUESTION NOS. 1 AND 2 ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE. IN OTHER WORDS, WE ANSWER THE QUESTIONS BY HOLDING THAT EXPENSES/EXPENDI TURE INCURRED BY THE ASSESSEE TOWARDS ADVERTISEMENT AND SALES PROMOTION FOR THE PURPOSE OF BUSINESS FOR THE YEARS IN QUESTION, LE; 198990 AND 1990 - 91 ARE ALLOWABLE DEDUCTIONS UNDER S. 37 OF THE ACT AND HENCE, TRIBUNAL WAS NOT RIGHT IN HOLDING THAT THEY ARE NOT ALLOWABLE ONE. NO COSTS. CONSIDERING THE JUDICIAL TREND PREVAILING AND THE ABOVE FACTUAL DISCUSSION AND ESPECIALLY RELYING ON THE BINDING PRECEDENT OF THE HON'BLE SUPREME COURT (SUPRA) NO PART OF EXPENDITURE AS SHOW - CAUSED IS DISALLOWABLE UNDER A NY PROVISIONS OF THE LAW. 10) AS FAR AS DISALLOWANCE OF TRAVELLING EXPENSES OF RS .5,06,950/ - DISALLOWED BY A.D. AND CONFIRMED BY C I T(A) THE APPELLANT - COMPANY SUBMITS AS UNDER: - THE LD. I. T.O. DID NOT CONSIDER THE EXPENDITURE OF RS. 8,69,336/ - AND RS. 2.70 LAKHS AS CAPITAL EXPENDITURE TO BE DISALLOWED U/S. 37 (1) OF THE ACT THE LD. A. O. ON CONSIDERATION OF THE FULL MATERIAL ON RECORD DID NOT FEEL THAT IT CAN BE HELD THAT IT WAS CAPITAL EXPENDITURE. UNDER S. 263 THE LD. CL T. CANNOT SUBSTITUTE HIS OWN V IEWS IN PLACE OF THE DECISION TAKEN BY THE ASSESSING AUTHORITY. THE A. O. CONSIDERED IN ITS PROPER PERSPECTIVE THE JUDGMENT OF THE HON'BLE SUPREME COURT IN S. A. BUILDERS CASE (SUPRA) AND ARRIVED AT HIS CONCLUSION. THE SHOW CAUSE NOTICE SAYS THAT' PRIMA FA CIE MEANING THEREBY IT IS NOT CONCLUSIVE FINDING OF THE LD. C IT THAT IT IS AN CAPITAL EXPENDITURE. ON THIS BASIS THE ASSESSMENT CANNOT BE CALLED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE SO AS TO INVOKE PROVISIONS OF S. 263 OF THE ACT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL THE DETAILS WERE SUBMITTED AND EXAMINED. IT IS NOT CORRECT TO SAY THAT NO SCRUTINY HAS BEEN DONE REGARDING GENUINENESS OF EXPENSES. THE LD. A. O. MENTIONS IN THE ASSESSMENT ORDER THAT' FURNISHED THE REQUISITE DE TAILS CALLED FOR AND EXPLAINED THE CASE OF THE ASSESSEE.' THE VERY FACT THAT AN AMOUNT OF RS .5,66,930/ - WAS DISALLOWED OUT OF FOREIGN TRAVEL EXPENSES BY THE A. O. LEADS TO THE CONCLUSION THAT THE EXPENSES UNDER THIS HEAD WERE FULLY EXAMINED. 7 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 M/S EQUIT ABLE FI NANCE LTD. IS A COMPANY LIMITED BY SHARES AND ASSESSED TO INCOME - TAX. THE FULL DETAILS WERE MENTIONED IN THE FINAL ACCOUNTS AUDITED AND SUBMITTED WHICH HAVE BEEN ACCEPTED BY THE A. O. THE RENT PAID IS SUBJECT TO TDS UNDER S. 194 - J OF THE ACT IT WAS SUBMITTED THAT THE TOTAL TDS ON THIS ACCOUNT WAS RS .2,03,319/ - SHOWN IN ANN. IV OF THE ACCOUNTS. THE GENUINITY OF SUCH EXPENDITURE CANNOT BE DOUBTED AS ALL THE DETAILS OF THE PAYEE WERE SUBM ITTED GIVING COMPLETE DETAILS OF TAX DEDUCTED AT SOURCE. THE GENERATOR WAS PURCHASED ON THE LAST DAY OF THE ACCOUNTING YEAR. THE ANNEXURE SHOWING ADDITION TO FIXED ASSETS WOULD SHOW THAT THE ENTRY WAS TRANSFERRED BY JV ON 31.03.2005 BUT THE DATE OF PURC HASE WAS MENTIONED THERE AS 30.09.2004. THIS HAS BEEN EXAMINED BY THE AUDITORS OF THE COMPANY. 4. ON THE OTHER HAND SHRI NARENDER KAPOOR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) SUBMITTED THAT THE ASSESSEE HAD LAUNCHED A NEW PRODUCT UNDER THE BRAND NAME, SANJEEV KAPOOR TANDOOR. THE ASSESSEE HAD INCURRED ADVERTISEMENT AND SALE S PROMOTION EXPENSES FOR THE LAUNCH OF NEW PRODUCT UNDER A NEW BRAND. SINCE, THE NEW PRODUCT WOULD HAVE PROVIDED ENDURING BENEFIT TO THE ASSESSEE AND NEW SOURCE OF INCOME , THE ASSESSING OFFICER HA S RIGHTLY HELD THE EXPENDITURE TOWARDS THE SALES PROMOTION AS CAPITAL IN NATURE. THE LD. DR POINTED THAT THE ASSESSEE HAD PRODUCED PHOTOCOPY OF THE AGREEMENT BETWEEN M/S. SALTON HONGKONG LTD. FOR ACQUIRING THE TANDOOR WHICH WAS LAUNCHED/MARKETED IN INDIA UNDER THE BRAND NAME SANJEEV KAPOOR TANDOOR. THE ASSESSE E HAS NOT PLACED ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE IS A DISTRIBUTOR OF M/S. SALTON HONGKONG LTD. IN INDIA NOR THE NEW PRODUCT WAS ACQUIRED FROM THE FOREIGN ENTITY BY THE ASSESSEE UNDER THE BRAND NAME SANJEEV KAPOOR TANDOOR. THE BENEFITS D ERIVED FROM THE NEW BRAND NAME WERE ENDURING IN 8 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 NATURE AND THE EXPENDITURE INCURRED FOR LAUNCHING THE PRODUCT WAS CERTAINLY NOT RECURRING OR ROUTINE EXPENDITURE. 5. W E HAVE CONSIDERED THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . THE GROUND NOS. 1 TO 3 IN THE APPEAL RELATE TO SINGLE ISSUE OF CAPITALIZATION OF SALES PROMOTION AND ADVERTISEMENT EXPEN DITURE RS.50,40,349/ - ON LAUNCH OF NEW PRODUCT BY THE ASSESSEE UNDER THE BRAND SANJEEV KAPOOR TANDOOR. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE ON DEMO/SALES PROMOTION EVENTS ETC. THE DETAILS OF THE EXPENDITURE ARE AS UNDER : I . SALTON SALES PROMOTION DEMO RS.29,36,087/ - II . SALTON SALES PROMOTION EVENT RS.12,28,987/ - III . SALTON SALES PROMOTION OTHERS RS.8,75,275/ - _______________ TOTAL RS.50,40,349/ - 6. FROM THE PERUSAL OF THE MATERIAL AVAILABLE ON RECORD IT IS UNAMBIGUOUSLY CLEAR THAT THE EXPENDITURE OF RS.50,40,349/ - HAS BEEN INCURRED BY THE ASSESSEE ON LAUNCHING, SALES PROMOTION AND BRAND DEVELOPMENT OF THE NEW PRODUCT. WHETHER SUCH EXPENDITURE IS CAPITAL IN NATURE OR REVENUE HAS TO BE VIEWED IN THE LIGHT OF LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE S OF ASSAM BEN GAL CEMENT CO. LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 27 ITR 34, EMPIRE JUTE CO. LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 124 ITR 1 AND ALEMBIC CHEMICAL WORKS CO. LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 177 ITR 377. 9 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 7. THE HONBLE APEX COURT IN THE AFORESAID DECISIONS HAVE HELD THAT THE NATURE OF ADVANTAGE HAS TO BE CONSIDERED IN A COMMERCIAL SENSE AND THE TEST OF ENDURING BENEFIT IS NOT THE CONCLUSIVE TEST AND HENCE CANNOT BE APPLIED MECHANICALLY. THE EXPENDITURE INCURRED WHETHE R CAPITAL OR REVENUE WOULD DEPEND ON THE FACTS OF EACH CASE. THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS OBSERVED THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONE, THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABILITY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 8. THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. CITI FINANCIAL CONSUMER FIN. LTD. REPORTED AS 335 IT R 29 AND COMMISSIONER OF INCOME TAX VS. CASIO INDIA LTD. REPORTED AS 335 ITR 196 HAVE HELD THAT THE EXPENDITURE ON PUBLICITY AND ADVERTISEMEN T IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN THE YEAR IN WHICH IT IS INCURRED. IN THE PRESENT CASE WE OBSERVE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE SALES PROMOTION OF THE NEW PRODUCT LAUNCHED BY THE 10 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 ASSESSEE . THE PART OF EXPENDIT URE MAY HAVE BEEN INCURRED TOWARDS THE BRAND DEVELOPMENT , H OWEVER, IT CANNOT BE SAID THAT THE NATURE OF EXPENDITURE IS CAPITAL. AS NO NEW ASSET HAS COME INTO EXISTENCE . T HE REVENUE HAS FAILED TO SHOW THAT THE ASSESSEE HAS DERIVED ENDURING BENEFIT AFTER I NCURRING SUCH EXPENDITURE. EVEN IF THE ASSESSEE HAS DERIVED SOME LONG LASTING BENEFIT THE EXPENDITURE INCURRED TOWARDS THE LAUNCH AND SALES PROMOTION OF NEW PRODUCT CANNOT BE CATEGORIZED AS CAPITAL IN NATURE. THE EXPENDITURE INCURRED BY THE ASSESSEE IS P URELY ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE LAW LAID DOWN BY THE HONBLE APEX COURT AND THE HONBLE DELHI HIGH COURT WE FIND MERIT IN GROUND NOS. 1 TO 3 RAISED IN THE APPEAL BY THE ASSESSEE. ACCORDINGLY, THE SAME ARE ALLOWED. 9. IN GROUND NO. 4 OF THE APPEAL, THE ASSESSEE HAS ASSAILED DISALLOWANCE OF TRAVELLING EXPENSES RS.5,66,930/ - . THE ASSESSEE HAS INCURRED FOREIGN TRAVEL EXPENDITURE IN CONNECTION WITH THE LAUNCHING OF AFOREMENTIONED NEW PRODUCT. THE ASSESSING OFFICER HAS DISALLOWED ASSESSEES CLAIM OF EXPENDITURE MERELY ON THE GROUND THAT IT IS IN CONNECTION WITH THE NEW PRODUCT . S INCE , THE EXPENDITURE ON SALES AND PROMOTION HAS BEEN CAPITALIZED , T HE TRAVEL EXPENSES WERE ALSO HELD TO BE CAPITAL IN NA TURE. COROLLARY TO OUR FINDINGS IN HOLDING SALES AND PROMOTION EXPENDITURE AS REVENUE , T HE FOREIGN TRAVEL EXPENDITURE IS ALSO HELD TO BE ON REVENUE ACCOUNT , HENCE, ALLOWABLE UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. ACCORDINGLY, GROUND NO. 4 RAIS ED IN THE APPEAL BY THE ASSESSEE IS ALLOWED. 10. IN GROUND NO. 5 OF THE APPEAL , THE ASSESSEE HAS ASSAILED CHARGING OF INTEREST U/S. 234A, 234B AND 234C OF THE ACT. CHARGING OF INTEREST U/S. 11 ITA NO . 2831/MUM/2009, A.Y. 2005 - 06 234A, 234B AND 234C IS CONSEQUENTIAL AND MANDATORY, HENCE, GRO UND NO. 5 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. 11. THE GROUND NO. 6 IS GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 12. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER P RONOUNCED ON THURSDAY, THE 23 RD DAY OF AUGUST, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 23 RD AUGUST, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - VII, MUMBAI 4. / THE CIT - 7, MUMBAI 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE