ACIT, CHENNAI V. TVS Motor Company Limited, CHENNAI

ITA 36/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7733 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 09-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2016
• Court: TRIBUNAL
• Department Lawyers: S SANKARALINGAM
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income; Assessment record; Condonation of delay; Revenue expenditure
• Section: 143(3); 14A; 37(1); 37

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, J UDICIAL MEMBER I.T.A.NO S . 36, 37 AND 38/MDS/2016 ASSESSMENT YEAR S : 20 08 - 09 AND 2009 - 10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CO RPORATE CIRCLE 3 ( 1 ), NEW BLOCK, 4 TH FLOOR, 121, M AHATMA GANDHI ROAD, N UNGAMBAKKAM, CHENNAI 600 034. VS. M/S. TVS MOTOR COMPANY LTD., JAYALAKSHMI ESTATES NO.29, HADDOWS ROAD, CHENNAI 600 006. [PAN: AAACS7032B] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S. SANKARALINGAM, CIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 0 9 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 16 . 0 2 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THE APPEALS IN I.T.A. NO S . 36 & 37/MDS/2016 FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 11 , C HENNAI DATED 23 . 1 0.201 5 & 28.10.2015 RELEVANT TO THE ASSESSMENT YEAR S 20 08 - 09 AND 2009 - 10 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] . THE OTHER APPEAL IN I.T.A. NO. 38/MDS/2016 FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER UNDER SECTION 143(3) R.W.S. 92CA(4) OF THE ACT FOR THE ASSESSMENT YEAR 2009 - 10. I.T.A. NO S . 36 - 38 /M/ 16 2 2. THE APPEALS IN I.T.A. NO S . 36 , 37 & 38 /MDS/2016 OF THE REVENUE ARE FOUND TO HAVE BEEN FILED LATE BY THREE DAYS BEFORE THE TRIBUNAL . THE ASSESSING OFFICER HAS FILED AN AFFIDAVIT FOR CONDONATION OF DELAY BY STATING THAT THE RECORDS OF THE CASES INADVERTENTLY GOT MIXED UP WITH O THE R FILES AND THEREFORE COULD NOT FILE THE APPEAL S WITHIN TIME. T HE LD. DR , CITING THE REASONS AS STATED BY THE ASSESSING OFFICER, REQUES TED FOR CONDONING THE DELAY AND TO ADMIT THE APPEAL S FOR HEARING. THE LD. COUNSEL FOR THE ASSESSEE DID NOT OBJECT TO THE SUBMISSIONS OF THE LD. DR AND THUS , WE CONDONE THE DELAY OF THREE DAYS IN FILING THE APPEAL S AND ADMIT THE APPEAL S FOR HEARING. 3. TH E FIRST COMMON GROUND RAISED IN THE APPEALS OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE ASSESSEE S CLAIM OF EXPENSES ON PROVISION FOR PRODUCT LAUNCH EXPENDITURE IN ENTIRETY IN THIS YEAR AS THE PRODUCT LA UNCH EXPENSES HAS TO BE SPREAD OVER IN TUNE WITH THE MATCHING PRINCIPLE OF ENDURING BENEFIT. AGAINST THE ABOVE VIEW OF THE DEPARTMENT TAKEN IN THE ORIGINAL ASSESSMENT ORDER, THE LD. DR HAS SUBMITTED THAT THE APPEAL FILED BY THE DEPARTMENT IS PENDING BEFORE THE TRIBUNAL AND PLEADED THAT THE DECISION, IF ANY, TAKEN BY THE TRIBUNAL SHALL BE FOLLOWED. 3.1 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE PRESENT APPEAL FOR THE ASSESSM ENT YEAR 2008 - 09 WAS FILED AGAINST THE ORDER OF THE LD. CIT(A) I.T.A. NO S . 36 - 38 /M/ 16 3 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT DATED 24.03.2014. AS CONTENDED BY THE LD. DR, AGAINST THE ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATED 28.12.2011, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE LD. CIT(A) AND AGAINST THAT ORDER OF THE LD. CIT(A) DATED 29.06.2012, THE REVENUE AS WELL AS ASSESSEE PREFERRED APPEAL S BEFORE THE TRIBUNAL, IN WHICH, THE REVENUE HAS RAISED THE SIMILAR ISSUE OF PRODUCT LAUNCH EXPENSES. THE CRO SS APPEALS FOR THE ASSESSMENT YEAR 2008 - 09 HAVE BEEN ADJUDICATED AND COMMON ORDER HAS BEEN PASSED IN I.T.A. NO. 1707/MDS/2012 [ASSESSEE S APPEAL] & I.T.A. NO. 1782/MDS/2012 [REVENUE S APPEAL] VIDE ORDER DATED 27.04.2016, WHEREIN, WITH REGARD TO THE ISSUE O F PRODUCT LAUNCH EXPENSES, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2 1. THE NEXT GROUND RELATES TO DISALLOWANCE OF PRODUCT LAUNCH EXPENDITURE OF .41,28,15,721/ - . THE ASSESSEE HAS LAUNCHED FOUR NEW VEHICLES I.E., STAR SPORT, APACHE RTR, FLAME AND STAR 110 AND HAS INCURRED AN EXPENDITURE OF .51,07,67,162/ - AS PRODUCT LAUNCHING EXPENSES. THE ABOVE EXPENSES ARE CHARGED TO REVENUE IN THE ACCOUNTS OVER A PERIOD OF 36 MONTHS. IF THE LAUNCH IS CARRIED OUT IN THE MONTH OF APRIL, THE EXPENDITURE WILL BE CHARGE D TO REVENUE FOR THE ENTIRE 12 MONTHS OF THE YEAR AND FURTHER FOR SUBSEQUENT TWO YEARS. IF THE PRODUCT IS LAUNCHED IN SOME OTHER MONTH, THE EXPENDITURE IS CHARGED TO REVENUE EQUIVALENT TO THE REMAINING MONTHS AND BALANCE WILL BE CHARGED IN THE SUBSEQUENT T HREE FINANCIAL YEARS. BUT FOR THE PURPOSE OF INCOME - TAX THE ENTIRE EXPENDITURE IS CLAIMED IN THE YEAR IN WHICH IT IS INCURRED. THE ASSESSING OFFICER HAS STATED THAT THE ABOVE EXPENSES ARE MAINLY INCURRED FOR ADVERTISEMENT AND BRAND BUILDING OF NEW PRODUCTS AND TO PROMOTE SALES IN THE INDIAN MARKET. THE ASSESSING OFFICER HAS OBSERVED THAT THE DIFFERENTIAL TREATMENT GIVEN BY THE ASSESSEE FOR BOOK PURPOSES AND FOR INCOME - TAX PURPOSES IS NOT ACCEPTABLE. THE PRODUCT LAUNCH EXPENSES ARE INCURRED MAINLY TOWARDS BR AND BUILDING AND PROMOTING THE SALE. THESE EXPENSES ARE MAINLY TOWARDS ADVERTISEMENT EXPENSES IN VARIOUS FORMS AND LAUNCHING RELATED EXPENSES. IN THE INITIAL YEAR, THE PRODUCT LAUNCH EXPENSE MAY BE HUGE BUT THERE MAY NOT BE I.T.A. NO S . 36 - 38 /M/ 16 4 CORRESPONDING REVENUE. HENCE, TH E TREATMENT IS NOT IN LINE WITH THE PRINCIPLE OF MATCHING CONCEPT (REVENUE VS. CORRESPONDING EXPENSES). THEREFORE, THESE BRAND BUILDING EXPENSES ARE TO BE AMORTISED OVER THE ESTIMATED LIFE OF THE PRODUCT FURTHER, THESE EXPENSES ARE MAINLY IN THE FORM OF PR ELIMINARY EXPENSES INCURRED TO PROMOTE SALE OF THE PRODUCT. HENCE, THEY FALL IN THE CATEGORY OF EXPENSES CONTEMPLATED U NDER SECTION 35D OF THE ACT . SINCE THE ASSESSEE HAS CHOSEN TO AMORTISE THE EXPENDITURE OVER A PERIOD OF THREE YEARS FOR THE BOOK PURPOSES , IT SHOULD HAVE CLAIMED THE EXPENSES ON THE SAME BASIS FOR INCOME - TAX PURPOSES ALSO. THEREFORE THE ASSESSING OFFICER HAS ADOPTED THE BASIS AS CONSIDERED BY THE ASSESSEE FOR THE BOOK PURPOSES AND ALLOWED . 9,79,41,441/ - ONLY AND DISALLOWED THE REMAINING E XPENDITURE OF .41,28,15,721/ - AND ADDED IT TO THE TOTAL INCOME. 22 . THE ASSESSEE CARRIED THE MATTER IN APPEAL. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FACTS OF THE CASE, THE LD. CIT(A), BY PASSING A DETAILED ORDER, DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 23 . THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 2 4 . WITH REGARD TO CLAIM OF PRODUCT LAUNCH EXPENDITURE, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO CONSIDERING VARIOUS DECISIONS, THE LD. CIT(A) HAS OBS ERVED THAT THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF .51,07,57,162/ - . HOWEVER, THE ASSESSING OFFICER RESTRICTED THE CLAIM TO .9,79,41,411/ - ONLY AS THAT AMOUNT WAS CHARGED TO THE PROFIT AND LOSS ACCOUNT AND DISALLOWED THE REMAINING EXPENSES OF .41,28,15,721/ - BY HOLDING THAT THE DIFFERENTIAL TREATMENT FOR BOOKS AND INCOME TAX PURPOSE IS NOT ACCEPTABLE. BY RELYING VARIOUS DECISIONS, THE LD. CIT(A) HAS HELD THAT THE EXPENDITURE ON PRODUCT LAUNCH, ADVERTISEMENT AND SALES PROMOTION IS ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND MOREOVER , AMORTIZATION OF THE IMPUGNED EXPENDITURE UNDER SECTION 35D IS ALSO NOT WARRANTED. THE ONLY CONTENTION RAISED BY THE LD. DR BEFORE THE TRIBUNAL IS THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. BRILLIANT TUTORIALS LTD. 292 ITR 399 RELIED ON BY THE LD. CIT(A) AND AGAINST THIS DECISION, THE DEPARTMENT HAS PREFERRED SLP BEFORE THE HON BLE SUPREME COURT. HOWEVER, THE LD. DR COULD NOT FILE ANY DECISION AGAINST THE DECISION OF THE HON BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT V. BRILLIANT TUTORIALS LTD. (SUPRA). UNTIL AND UNLESS THE DECISION IS REVERSED, THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IS HAVING BINDING NATURE , THEREFORE, I.T.A. NO S . 36 - 38 /M/ 16 5 WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 3.2 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL, FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 ALSO, THE COMMON GROUND RAISED BY THE REVENUE IS DISMISSED. 4. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IN ASSESSMENT YEAR 2008 - 09 READS AS UNDER: 2.2 THE LD. CIT(A) ERRED IN ALLOWING ASSESSEE S APPEAL HOLDING THAT THE AMENDMENT U/S 40(A)(IA), WHICH IS APPLICABLE FROM 1.4 .2010, IS CURATIVE IN NATURE AND HENCE APPLICABLE FOR AY 2008 - 09 ALSO AS THE ASSESSEE COMPANY HAS NOT DEDUCTED THE TDS BEFORE THE END OF THE PREVIOUS YEAR AND PAID THE AMOUNT WITHIN THE DUE DATE OF FILING OF RETURN U/S 143(1) AS CLAIMED BY THE ASSESSEE. 4.1 AGAINST THE ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE LD. CIT(A), IN WHICH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, WHICH ARE STATED IN THE ORDER OF THE LD. CIT(A) DATED 23.10.2015 IN PARA 5 AND THE S AME IS REPRODUCED AS UNDER: 5. AGGRIEVED BY THE ABOVE ORDER OF THE AO, THE APPELLANT PREFERRED THE PRESENT APPEAL. THE APPELLANT HAS TAKEN 4 GROUNDS. GROUND NO.1 IS ON THE ISSUE OF (1) DISALLOWANCE OF PRODUCT LAUNCH EXPENSES OF .3,16,16,426/ - , GROUND NO . 2 DEALS WITH DISALLOWANCE OF HIGHER EDUCATION EXPENSES OF .50,04,955/ - ; GROUND NO.3 DEALS WITH NON - GRANT OF CREDIT FOR .2,91,26,160/ - CLAIMED U/S 90 AND GROUND NO. 4 DEALS WITH NON - ISSUE OF TAX COMPUTATION STATEMENT ALONG WITH THE ASSESSMENT ORDER. 4.2 FROM THE ABOVE GROUNDS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A), IT IS APPARENT THAT NEITHER THE ASSESSING OFFICER HAS MADE ANY DISALLOWANCE UNDER SECTION 40(A)(IA) IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) I.T.A. NO S . 36 - 38 /M/ 16 6 R.W.S. 147 OF THE ACT DATED 24. 03.2014 NOR THE LD. CIT(A) HAS ADJUDICATED THE ISSUE. THEREFORE, THE GROUND RAISED BY THE REVENUE IN 2.2 AS REPRODUCED ABOVE DID NOT EMANATE FROM THE ORDERS OF THE AUTHORITIES BELOW AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED . IN FACT, F OR THE ASSESSMENT YEAR 2008 - 09, AGAINST THE ORDER OF THE LD. CIT(A) PASSED UNDER SECTION 143(3) OF THE ACT, THE REVENUE HAS RAISED A GROUND WITH REGARD TO DELETION OF DISALLOWANCE UNDER SECTION 40(A)(I) AND THE SAME WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DATED 27.04.2016 IN PARAS 25 & 26 OF THE ORDER. 5. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2009 - 10 AGAINST THE ORDER OF THE LD. CIT(A) PASSED UNDER SECTION 143(3) R.W.S. 92CA(4) OF THE ACT IS THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO .16,500/ - . 5.1 IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 92CA(4) OF THE ACT, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS EARN ED DIVIDEND INCOME OF .10,87,455/ - AND THE ASSESSEE HAS NOT EXCLUDED ANY EXPENDITURE RELATABLE TO THE EXEMPT INCOME. THEREFORE, THE ASSESSING OFFICER HAS PROCEEDED TO DETERMINE THE EXPENDITURE AS PER SECTION 14A R.W. RULE 8D AND WORKED OUT THE DISALLOWANC E OF .17,07,41,526/ - . AGAINST THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. I.T.A. NO S . 36 - 38 /M/ 16 7 CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO . 16,500/ - IN PLACE OF .17,07,41,526/ - . 5.2 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. BY REFERRING TO THE GROUNDS OF APPEAL, THE LD. DR PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED T HE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. AGAINST THE DIVIDEND INCOME OF .10,87,455/ - , THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE COMPONENT TO THE EXTENT OF .17,07,41 ,526/ - . AFTER EXAMINING THE CONTENTIONS OF THE ASSESSEE AND THE AO S APPLICATION OF RULE 8D, THE LD. CIT(A) HAS OBSERVED AS UNDER: A) THE AO HAS MECHAN ICALLY APPLIED RULE 8D WITHOUT CONSIDERING THE APPLICABILITY OF DIFFERENT LIMBS OF CALCULATION. B) THE AO HAS OMITTED TO CONSIDER THAT THE APPELLANT HAD SUFFICIENT OWN FUND WHICH WAS UTILIZED FOR INVESTMENT. THEREFORE, THERE WAS NO NECESSITY TO INVEST OUT OF BORROWED FUND. C) THE CIT(A) HAS HELD IN THE PREVIOUS AY 2008 - 09 IN APPELLANT S OWN CASE THAT THE INVESTMENT OUT OF APPELLANT S OWN FUND SHOULD BE CONSIDERED WHILE CALCULATING THE DISALLOWANCE UNDER RULE 8D. D) IN VIEW OF THE DECISIONS OF THE ITAT, C HENNAI AND THE HIGH COURT, RELIED ON BY THE APPELLANT, THE INVESTMENT IN SUBSIDIARY COMPANIES OUGHT NOT TO HAVE BEEN CONSIDERED FOR THE DISALLOWANCE UNDER RULE 8D. E) SIMILARLY THE INVESTMENT OUT OF WHICH NO DIVIDEND WAS DECLARED SHOULD BE EXCLUDED FROM T HE CALCULATION UNDER RULE 8D. F) THE APPELLANT HAS JUSTIFIED ITS STAND BY SUBMITTING THE RELEVANT FIGURES AND THE REVISED CALCULATION ATTACHED AS ANNEXURE 1. AS PER THIS CALCULATION, THE DISALLOWANCE U/S 14A R.W. RULE 8D WORKS OUT TO .16,500/ - IN PLACE OF .17,07,41,526/ - . I.T.A. NO S . 36 - 38 /M/ 16 8 ACCORDINGLY, THE LD. CIT(A) HAS HELD AS UNDER: IN VIEW OF MY REMARKS IN PARA 6.3 AFTER CONSIDERING THE APPELLANT S SUBMISSION AND THE DECISIONS RELIED ON AS MENTIONED UNDER PARA 6.2, I AM OF THE CONSIDERED OPIN ION THAT THE APPELLANT S SUBMISSION AND ITS CALCULATION UNDER RULE 8D ATTACHED AS ANNEXURE 1 TO THIS ORDER, ARE PRIMA FACIE ACCEPTABLE. THE AO IS DIRECTED TO VERIFY THE FIGURES IN THE CALCULATION GIVEN IN ANNEXURE 1 WITH REFERENCE TO THE ASSESSMENT RECORD. IF IT IS FOUND TO BE CORRECT, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S 14A R.W. RULE 8D TO .16,500/ - IN PLACE OF .17,07,41,526/ - AS ADOPTED IN THE ASSESSMENT ORDER. THIS GROUND IS PARTLY ALLOWED. 6.1 THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE FIGURES IN THE CALCULATION GIVEN IN ANNEXURE 1 WITH REFERENCE TO THE ASSESSMEN T RECORD. AT THE TIME OF HEARING, THE LD. DR COULD NOT SUBMIT ANY DETAILS AFTER VERIFICATION OF THE FIGURES GIVEN IN THE CALCULATION AS FOUND TO BE INCORRECT AS DIRECTED BY THE LD. CIT(A) SO AS TO ENABLE THE BENCH TO REVERSE THE FINDINGS OF THE LD. CIT(A). UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. I N THE RESULT, ALL THE APPEAL S FILED BY THE REVENUE ARE DISMISSED . ORDER PRONOUNCED ON THE 16 TH FEBRUARY, 2017 AT CHENNAI. SD/ - SD/ - ( M. BALAGANESH ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 0 2 .201 7 VM/ - I.T.A. NO S . 36 - 38 /M/ 16 9 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.