DCIT -11(1)(2), MUMBAI V. SAMSONITE SOUTH ASIA PVT. LTD., MUMBAI

ITA 3264/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6101 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 16-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 143(2)

Judgement Text

P A G E | 1 ITA NO. 3264/MUM/2018 A.Y. 2014 - 15 DCIT 11(1)(2) VS. M/S SAMSONITE SOUTH ASIA PVT. LTD. . IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR , VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 3264/MUM/2018 (ASSESSMENT YEAR: 2014 - 15 ) DCIT - 11(1)(2), ROOM NO.1, GROUND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S SAMSONITE SOUTH ASIA PVT. LTD , 402, AKRUTI STAR, OPP. AKRUTI CENTRE POINT, MIDC, ANDHERI (EAST), MUMBAI 400 093 PAN AAACS8598L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANOOP HIWASE , D.R RESPONDENT BY : NONE DATE OF HEARING : 19 .0 9 .2019 DATE OF PRONOUNCEMENT : 3 0 .09 .2019 O R D E R PER RAVISH SOOD, JM THE P RESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 18, MUMBAI, DATED 28.02.2018, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 27.12.2016 FOR A.Y. 2014 - 15. THE REVENUE HAS ASSAILED THE IMPUGNED ORDER O N THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) FAILED TO APPRECIATE THAT, THE ASSESSEE IN INTO LONG TERM AGREEMENT WITH ITS PARENT COMPANY SAMSONITE CORPORATION AND ALSO BEING THE S OLE LICENSE HOLDER OF THE SAID COMPANY IN INDIA; ANY EXPENSES INCURRED BY IT IN BUILDING OF BRAND IS NOTHING BUT IN THE FORM OF INTANGIBLE RIGHTS WHICH ARE BOUND TO GIVE IT ENDURING BENEFIT OVER A PERIOD OF TIME . P A G E | 2 ITA NO. 3264/MUM/2018 A.Y. 2014 - 15 DCIT 11(1)(2) VS. M/S SAMSONITE SOUTH ASIA PVT. LTD. . 2. WHETHER ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN THE LAW, THE LD. CIT(A) US RIGHT IN TREATING THE CAPITAL EXPENSES INCURRED BY THE ASSESSEE FOR CREATING INTANGIBLE RIGHTS IN ITS FAVOUR AS DEFERRED REVENUE EXPENSES WITHOUT APPRECIATING THE FACT THAT A NUMBER OF INVOICES OF SUCH E XPENSES MENTIONED THE NATURE AS COST OF BRANDING. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE DECISION OF THE HONBLE ITAT, MUMBAI K BENCH, IN ASSESSES OWN CASE FOR A.Y. 2012 - 13 WAS NOT ACCEPTED BY THE DEPARTMENT AND THE REVENUE HAS PREFERRED FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT (LG. NO. 69/2018 DATED 21.03.2018). 2. BRIEFLY STATED, THE ASSESS E E COMPANY WHICH IS INCORPORATED IN INDIA WITH ITS SHAREHOLDING VESTED WITH TWO MAJOR GROUPS VIZ. (I) SAMSONITE GROUP (60% HOLDING); AND (II) TAINWALA GROUP (40% HOLDING) IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF MOLDED LUGGAGE, SOFT LUGGAGE, FOOTWEAR AND OTHER TRAVEL ACCESSORIES . THE ASSESSE E COMPANY HA D E - FILED ITS RETURN OF INCOME FOR A.Y. 2014 - 15 ON 29.11.2014, DECLARING ITS TOTAL INCOME AT RS. 110,46,01,680/ - . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE ACT. 3. DURING THE COURSE OF THE ASSESSM ENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSE PURSUANT TO A ROYALTY AGREEMENT WITH ITS PARENT COMPANY VIZ. SAMSONITE CORPORATION WAS LICENSED TO MANUFACTURE, MARKET AND DISTRIBUTE S AMSONITE BRAND OF LUGGAGE AND TRAVEL ACCESSORIES IN INDIA AND TO THE OTHER S AMSONITE GROUP COMPANIES WORLDWIDE. IT WAS OBSERVED BY THE A.O , THAT THE ASSESSEE HAD DEBITED ADVERTISEMENT EXPENSES OF RS. 27,14,31,534/ - AND SALES PROMOTION EXPENSES OF RS. 3,94,00,441/ - IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION . AS WAS DISCERNIBLE FROM THE RECORDS, THE AFORESAID EXPENSES HAD WITNESSED A WHOPPING 68% INCREASE AS IN COMPARISON TO THE IMMEDIATELY PRECEDING YEAR . ON A PERUSAL OF THE DETAILS OF EXPENSES WHICH WERE BOOKED BY THE ASSESSEE UNDER THE H EAD ADVERTISEMENT AND SALES PROMOTION EXPENSES, THE A.O WAS OF THE VIEW , THAT THE SAME HAD ALSO CONTRIBUTED TOWARDS BRAND PROMOTION. IN FACT, THE A.O HELD A STRONG CONVICTION THAT THOUGH THE EXPENSES INCURRED BY THE ASSESSE TOWARDS CONDUCTING SURVEYS AND TRAINING, EDUCATING AND MOTIVATING OF THE SALES PERSONNEL AS WELL AS THE DEALERS/DISTRIBUTORS HAD FACILITATED INCREASE IN THE SALES, BUT AT THE SAME TIME , THOSE HAD ALSO CONTRIBUTED TOWARDS BRAND BUILDING. ACCORDINGLY, THE A.O WAS OF THE VIEW , THAT AS THE EXPENSES INCURRED BY THE ASSESSE E HAD ALSO CONTRIBUTED TOWARDS CREATION OF INTANGIBLE RIGHTS IN THE FORM OF BRAND VALUE WHICH WERE ASSIGNABLE OVER A PERIOD OF TIME , THEREFORE, THE EXPENDITURE TO THE SAID EXTENT HAVING BEEN INCURRED IN THE CAPITAL FIELD WAS LIABLE TO BE DISALLOWED. HOWEVER, THE A.O WAS OF THE VIEW THAT THE ASSESSE E WOULD BE ENTITLED P A G E | 3 ITA NO. 3264/MUM/2018 A.Y. 2014 - 15 DCIT 11(1)(2) VS. M/S SAMSONITE SOUTH ASIA PVT. LTD. . FOR DEPRECIATION ON THE CAPITALIZED EXPENDITURE, AS THE SAME QUALIFIED AS AN ELIGIBLE BLOCK OF INTANGIBLE ASSETS . ALSO, NOT BEING OBLIVIOUS OF THE FACT , THAT PAR T OF THE AFORESAID EXPENSES HAD BEEN INCURRED BY THE ASSESSE E FOR PROMOTING ITS SALES FOR THE YEAR UNDER CONSIDERATION, THEREFORE, THE A.O WAS OF THE VIEW THAT THE ENTIRE AMOUNT OF THE EXPENDITURE COULD NOT BE CHARACTERIZED AS A CAPITAL EXPENDITURE. ACCORD INGLY, ON THE BASIS OF HIS AFORESAID DELIBERATIONS, THE A.O ON AN AD HOC BASIS DISALLOWED PART OF THE EXPENSES BY TREATING THE SAME AS BEING IN THE NATURE OF A CAPITAL EXPENDITURE, AS UNDER : - SR.NO. NATURE OF EXPENSES AMOUNT ALLOWED AS REVENUE (IN RS.) REMARKS 1. ADVERTISEMENT EXPENSES 135,715,767/ - ALLOWED 50% OF THE TOTAL ADVT. EXPENSES INCURRED I.E. 50% OF RS. 271,431,534/ - 2. SALES PROMOTION EXPENSES 2,36,40,265/ - ALLOWED 60% OF THE TOTAL SALES PROMOTION EXPENSES INCURRED I.E. 60% OF RS. 39,400,441/ - TOTAL EXPENSES ALLOWED 15,93,56,032/ - AS SUCH, OUT OF THE TOTAL ADVERTISEMENT AND SALES PROMOTION EXPENDITURE OF RS. 31,08,31,975 / - , A SUM OF RS. 15,93,56,032/ - WAS ALLOWED TO BE CLAIMED AS A REVENUE EXPENDITURE , WHILE FOR THE BALANCE AMOUNT OF RS. 15,14,75,943/ - WAS CONSIDERED AS A CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED. HOWEVER, DEPRECIATION OF RS. 3,78,68,986/ - I.E. @ 25% ON THE AFORESAID AMOUNT OF CAPITALIZED EXPENDITURE OF RS. 15,14,75,943/ - WAS ALLOWED BY THE A.O WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IT WAS OBSERVED BY THE CIT(A) , THAT THE TRIBUNAL IN THE ASSESSES OWN CASE FOR A.Y. 2012 - 13, HAD VIDE ITS ORDER PASSED IN ITA NO. 1934/MUM/2017, DATED 01.09.2017, HAD CONCLUDED , THAT THE ADVERTISEMENT AND SALES PROMOTION EXPENSES WERE RIGHTLY CLAIMED BY THE ASSESSEE AS A REVENUE EXPENDITURE . ACCORDINGLY, FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL THE NET ADDITION OF RS. 11,36,06,957/ - MADE BY THE A.O WAS VACATED BY THE CIT(A). 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER PASSED BY THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. AS T HE ASSESSEE DESPITE HAVING BEEN PUT TO NOTICE ABOUT THE HEARING OF THE APPEAL HAS FAILED TO PUT UP AN APPEARANCE BEFORE US, THEREFORE, WE PROCEED WITH AS PER RULE 25 OF THE APPELLATE TRIBUNAL RULES, 1963 AND DISPOSE OFF THE APPEAL AFTER HEARING THE APPELLA NT REVENUE AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES. P A G E | 4 ITA NO. 3264/MUM/2018 A.Y. 2014 - 15 DCIT 11(1)(2) VS. M/S SAMSONITE SOUTH ASIA PVT. LTD. . 6. T HE LEARNED DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDER OF THE A.O. HOWEVER, THE LD. D.R DID NOT CONTROVERT THE OBSERVATION OF THE CIT(A) THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL WAS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSE S OWN CASE FOR A.Y. 2012 - 13. 7. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES A ND THE MATERIAL AVAILABLE ON RECORD. OUR INDULGENCE HAS BEEN SOUGHT BY THE REVENUE, TO ADJUDICATE, AS TO WHETHER THE ASSESSES CLAIM TOWARDS ADVERTISEMENT EXPENSES AND SALES PROMOTION EXPENSES HAD RIGHTLY BEEN ALLOWED BY THE CIT(A) BY TREATING THE SAME AS A REVENUE EXPENDITURE. AS OBSERVED BY US HEREINABOVE, THE A.O HOLDING A CONVICTION THAT PART OF THE AFORESAID EXPENSES INCURRED BY THE ASSESSEE WERE TOWARDS BRAND BUILDING , HAD THUS , ON AN AD HOC BASIS DISALLOWED PART OF THE EXPENSES BY CHARACTERIZING THE SAME AS HAVING BEEN INCURRED BY THE ASSESSE IN THE CAPITAL FIELD. ACCORDINGLY, OUT OF TOTAL ADVERTISEMENT AND SALES PROMOTION EXPENDITURE OF RS. 31,08,31,975/ - , A SUM OF RS. 15,93,56,032/ - W AS ALLOWED BY THE A.O AS A REVENUE EXPENDITURE , WHILE FOR THE BALANCE AMOUNT OF RS. 15,14,75,943/ - WAS CONSIDERED BY HIM AS A CAPITAL EXPENDITURE AND DISALLOWED. AT THE SAME TIME , DEPRECIATION OF RS. 3,78,68,986/ - I.E. @ 25% O F THE AFORESAID AMOUNT OF CAPI TALIZED EXPENDITURE OF RS. 15,14,75,943/ - WAS ALLOWED BY THE A.O WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE . ON APPEAL, AS OBSERVED BY US HEREINABOVE, THE CIT(A) BY FOLLOWING THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSES OWN CASE FOR A.Y 2012 - 13 HAD VACATED THE AFORESAID DISALLOWANCE. 8. WE HAVE DELIBERATED AT LENGTH ON THE ISSUE INVOLVED IN THE PRESENT APPEAL IN THE BACKDROP OF THE FACTS DISCERNIBLE FROM THE RECORD AND THE CONTENTIONS ADVANCED BY THE AUTHORISED REPRESENTATIVES FOR BOTH THE PART IES . IN OUR CONSIDERED VIEW, THE ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSE S OWN CASE FOR A.Y. 2012 - 13 IN ITA NO. 1934/MUM /2017, DATED 01.09.2017. IN THE AFORESAID CASE, IT WAS OBSERVED BY THE TRIBUNAL , THAT THE ADVERTISEMENT AND SALES PROMOTION EXPENSES INCURRED BY THE ASSESSE WERE ALLOWABLE AS A REVENUE EXPENDITURE. THE TRIBUNAL WHILE CONCLUDING AS HEREINABOVE, HAD OBSERVED AS UNDER : - 24. UP ON CAREFUL CONSIDERATION, WE NOTE THAT ASSE SSEE HAS INCURRED EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION. THE ASSESSING OFFICER & DRP HAVE HELD ON AN ADHOC BASIS THAT P A G E | 5 ITA NO. 3264/MUM/2018 A.Y. 2014 - 15 DCIT 11(1)(2) VS. M/S SAMSONITE SOUTH ASIA PVT. LTD. . A CERTAIN PORTION OUT OF THE ABOVE IS AIMED AT BRAND BUILDING AND THE SAME IS TO BE HELD AS CAPITAL EXPENDITURE AND THE ASSESSE E CAN BE GRANTED DEPRECIATION THEIR UPON. WHEN THIS IS CONSIDERED IN LIGHT OF THE FACT THAT THE BRAND DOESN'T BELONG TO THE ASSESSEE AND IT IS NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS INCURRED EXPENDITURE AIMED AT BENEFITING THE ASSOCIATED ENTERPRISE THIS ADDITION IS CLEARLY NOT SUSTAINABLE. WHEN THE BRAND DOESN'T BELONG TO THE ASSESSEE THERE IS NO QUESTION OF INCURRING EXPENDITURE OVER BUILDING OF BRAND AND ASSESSEE CREATING ANY INTANGIBLE RIGHTS ASSIGNABLE OVER A NUMBER OF YEARS. 25. MOREOVER, IT I S IMPLICIT IN THE ORDER OF THE REVENUE THAT THESE ARE DEFERRED REVENUE EXPENDITURE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AS THEY ARE ALLOWING DEPRECIATION THEIR UPON. FURTHER, THERE IS NO QUESTION OF DISALLOWANCE OF THE SAME AS IT IS ALSO SETTLED LAW THAT IN TAXATION LAWS THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE. THE CASE LAWS REFERRED BY THE LEARNED COUNSEL OF THE ASSESSEE DULY INDICATE THAT EXPENDITURE INCURRED BY THE ASSESSEE COMPANY TO MAINTAIN ITS CORPORATE IMAGE WHICH RESULTED IN INCREASED SALES OF THE PRODUCT IS TO BE ALLOWED AS REVENUE EXPENDITURE. WE FIND THAT THESE CASE LAWS ARE DULY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 26. HENCE IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENTS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WHICH ITA NO.1934/MUM/2017. M/S. SAMSONITE SOUTH ASIA PVT. LTD. 29 ALLOCATED AD HOC PERCENTAGE OUT OF ADVERTISEMENT AND SALES PROMOTION AS DEPRECIABLE CAPITAL EXPENDITURE. WE HOLD THAT THE ENTIRE EXPENDITURE IS A REVENUE EXPENDITURE ALLOW ABLE AS SUCH. 27. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME, THEREFORE, WE RESPECTFULLY FOLLOW THE AFORESAID ORDER OF THE TRIBUNAL IN THE ASSESSES OWN CAS E FOR A.Y. 2012 - 13. ACCORDINGLY, FINDING NO INFIRMITY IN THE ORDER OF THE CIT(A), WE UPHOLD THE SAME. RESULTANTLY, FINDING NO MERIT IN THE APPEAL OF THE REVENUE, THE SAME IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 3 0 .09.2019 S D / - S D / - ( PRAMOD KUMAR ) (RAVISH SOOD) VICE PRESIDENT J UDICIAL MEMBER MUMBAI ; 30 .09 .2019 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI