ACIT, New Delhi V. M/s. Oswal Retails (P) Ltd., New Delhi

ITA 3811/DEL/2011

• Counselvise Citation: 381120114 RSA 2011
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 12-10-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 11-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 3811(DEL)/2011 ASSESSMENT YEAR: 2008-09 ASSTT. COMMISSIONER OF INCOME OSWA L RETAILS (P) LTD., TAX, CIRCLE 13(1), NEW DELHI. VS. 305 , ANSAL BHAWAN, 16, KG MARG, NEW DELHI. PAN: AAECA6617J (APPELLANT) (RESPON DENT) APPELLANT BY : SMT. SRUJANI MOHANTY, SR. DR RESPONDENT BY: SH RI SANJAY GUPTA, C.A. DATE OF HEARING : 12.10.2011 DATE OF PRONOUNCEMENT: 14.10.2011. ORDER PER K.G. BANSAL : AM THE REVENUE HAS TAKEN UP TWO GROUNDS IN THIS APP EAL IN RESPECT OF (I) LOSS ON SALE OF YARN PURCHASED FROM VARDHMA N POLYTECH LTD. (VPL FOR SHORT) LEADING TO LOSS OF RS. 2,42,524/-, AND (II) DISALLOWANCE FROM MARKETING AND ADVERTISING EXPENSES. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE FILED ITS RETURN ON 28.09.2008 DECLARING LOSS OF RS. 18,52,59,363/-. THE CASE W AS PICKED UP FOR SCRUTINY ITA NO. 3811(DEL)/2011 2 BY ISSUING NOTICE U/S 143(2) ON 03.08.2009. THE ASSESSEE IS ENGAGED IN BUSINESS OF TRADING IN YARN, FABRIC AND READY-MA DE GARMENTS THROUGH ITS RETAIL STORES IN MALLS AND HIGH STREET. 2.1 COMING TO THE DISPUTED ISSUE, IT WAS FOUND TH AT THE ASSESSEE INTER- ALIA PURCHASED YARN FROM VPL WHICH WAS SOLD IN THE OPEN MARKET. THE ASSESSEE IS A SUBSIDIARY COMPANY OF THE VPL. 13 TRANSACTIONS HAVE BEEN LISTED IN THE ASSESSMENT ORDER, UNDER WHICH YARN WAS PURCHASED FROM VPL AND SOLD IN THE OPEN MARKET. THESE TRANSACTIONS LED TO LOSS OF RS. 2,42,524/-. THE AO HAS MENTIONED THAT THE COMPANY IS COVERED U/S 40A(2)(B). THE PRICE PAID BY THE ASSESSEE TO THE VPL IS EXCESSIVE AND UNREASONABLE AND IS NOT COMPARABLE WITH THE PREV ALENT MARKET PRICE, WHICH CAN BE ASCERTAINED FROM THE SALE PRICE I TSELF. THEREFORE, THE TRANSACTIONS HAVE BEEN UNDERTAKEN FOR PASSING BE NEFIT TO THE HOLDING COMPANY. IN VIEW THEREOF, THE LOSS OF RS. 2,42,5 24/- HAS BEEN DISALLOWED. 2.2 IN REGARD TO MARKETING AND ADVERTISING EXPE NSES, IT IS MENTIONED THAT THE ASSESSEE UNDERTOOK LARGE SCALE INVESTM ENTS FOR OPENING NEW OUTLETS. THE EXPENDITURE HAS INTER-ALIA BEEN IN CURRED IN RESPECT OF WALL- PAINTINGS, NEWSPAPER ADVERTISEMENT, LEAFLET, PAM PHLET ETC. THE EXPENSES ITA NO. 3811(DEL)/2011 3 LEAD TO BENEFIT OF ENDURING NATURE. APART FROM THESE EXPENSES, IT HAS ALSO EXPENDED A SUM OF RS. 4.10 LAKH ON SALE PROMOTION . IT WAS SUBMITTED THAT THE EXPENDITURE IS REVENUE IN NATURE. THE AO REC ORDED THE FINDING THAT ADVERTISEMENT EXPENDITURE, WHICH LEADS TO A BE NEFIT OVER A LONG PERIOD OF TIME AND WHICH INCREASES THE BRAND VALUE OF THE COMPANY IS CAPITAL EXPENDITURE. THEREFORE, 50% OF THE EXPENDITURE HA S BEEN DISALLOWED, LEADING TO DEDUCTION IN LOSS BY AN AMOUNT OF RS. 81,13,500/-. 3. VARIOUS SUBMISSIONS WERE MADE IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(APPEALS). AFTER CON SIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS, THE LD. CIT(APPEALS) ME NTIONED THAT THE ASSESSEE PROVIDED A CHART SHOWING PURCHASES FROM VPL AS WELL AS OTHER PARTIES. THE CHART SHOWS THAT PURCHASES FROM V PL ARE NOT AT HIGHER RATE THAN PURCHASES FROM OTHER PARTIES. IT IS FURTH ER MENTIONED THAT SIMILAR ADDITION MADE IN THE ASSESSMENT OF IMMEDIATELY P RECEDING PREVIOUS YEAR HAS BEEN DELETED BY HER. THEREFORE, THE ADDITION MADE IN THIS YEAR HAS ALSO BEEN DELETED. 3.1 THE ISSUE REGARDING DISALLOWANCE FROM ADVERT ISEMENT EXPENSES HAD ALSO BEEN SUBJECT MATTER OF DISPUTE IN THAT YE AR. SHE ALSO TOOK INTO ITA NO. 3811(DEL)/2011 4 ACCOUNT THE DECISION IN THE CASE OF CIT VS. DEN SO INDIA LTD., 318 ITR 140 (DEL) AND CIT VS. BERGER INDIA PINTS LTD., 254 ITR 502. IT IS MENTIONED THAT MERELY BECAUSE HEAVY EXPENDITURE IS INCURRED, IT DOES NOT IMPLY THAT IT IS CAPITAL IN NATURE. THEREFO RE, THE DISALLOWANCE WAS DELETED IN THAT YEAR AND FOLLOWING THIS DECISIO N, THE ADDITION HAS BEEN DELETED IN THIS YEAR ALSO. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED AT THE OUTSET THAT BOTH THESE ISSUES ARE COVERED IN THE DECIS ION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007- 08 IN ITA NO. 1962(DEL)/2011, DATED 30.06.2011, A COPY OF WHIC H HAS BEEN PLACED BEFORE US. THEREFORE, IT IS ARGUED THAT THE ORDE R OF THE LD. CIT(APPEALS) MAY BE UPHELD. ON THE OTHER HAND, THE LD. DR R ELIED ON THE ASSESSMENT ORDER. 4.1 THE ISSUE IN REGARD TO DISALLOWANCE OF LOSS IN RESPECT OF YARN PURCHASED FROM VPL IS COVERED IN PARAGRAPH NO . 9 OF THE AFORESAID DECISION, IN WHICH THE GROUND OF THE REVENUE HAS BE EN REJECTED. RESPECTFULLY FOLLOWING THIS DECISION, SIMILAR GROUND NO.1 OF THIS YEAR IS ITA NO. 3811(DEL)/2011 5 ALSO DISMISSED. FOR THE SAKE OF READY REFERENCE , THE PARAGRAPH IS REPRODUCED BELOW:- 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE GONE THROUGH THE VA RIOUS DOCUMENTS AND PAPERS PLACED IN THE PAPER BOOK FILED BEFORE US. ON PERUSAL OF ASSESSMENT ORDER, WE FIND THAT THE AO HAS TABULATED ONLY THE TRANSACTION OF PURCHASE AND SALE OF YARN, WHERE ASSESSEE HAD INCURRED LOSSES. THE AO HAS NOT TAKEN INTO ACCOUNT THE TRANSACTIONS OF PURCHASE AND SALE OF YA RN, WHERE ASSESSEE HAD EARNED PROFIT. THE AO HAS WORKED OUT THE LOSS TO THE EXTENT OF RS. 13,97,691/- IN RESPECT OF EIGHT T RANSACTIONS WHICH INCLUDES THE TRANSACTION AT SL. NO. 4 ALSO. WE HAVE GONE THROUGH THE TRANSACTION AT SL. NO. 4 AND FIND THAT ASSESSEE MADE A PURCHASE OF RS. 1,57,39,634/- WHICH WERE SOLD FOR RS. 1,64,64,588/- GIVING A PROFIT OF RS. 7,24,954/-. T HEREFORE, THE ACTUAL LOSS WORKED OUT BY THE AO AT RS. 13,97,691/- IS NOT CORRECT. WE FURTHER FIND THAT ASSESSEE SUBMITTED I TS REPLY BEFORE THE AO VIDE LETTER DATED 10.12.2009 WHICH IS PLACED AT PAGES 1 & 2 OF THE PAPER BOOK. WE HAVE GONE THROUGH THIS L ETTER DATED 10.12.2009 AND FIND THAT THE ASSESSEE SUBMITTED COM PLETE DETAILS OF PURCHASE AND SALE ALONG WITH ORIGINAL BI LLS FOR VERIFICATION. THE ASSESSEE ALSO SUBMITTED DETAILS O F YARN SOLD QUALITY WISE. THE YARNS PURCHASED WERE FOR AT DELH I WAS ALSO MENTIONED. THE ASSESSEE EXPLAINED THAT THE GOODS S OLD WERE LYING AT GODOWN AND THESE WERE TAKEN AWAY BY THE BU YERS. THE ADDRESS OF THE GODOWN WAS ALSO GIVEN. THE ASSESSEE ALSO SUBMITTED THAT THE LOSS ONLY OF RS. 40,000/- AS TRA DING LOSS WERE INCURRED IN THE YARN BUSINESS CARRIED OUT IN THE NO RMAL COURSE OF ASSESSEES BUSINESS. THE ASSESSEE ALSO SUBMITTE D COMPLETE CHART OF PROFIT AND LOSS ACCOUNT IN THE YARN BUSINE SS. COPY OF BALANCE SHEET OF VARDHMAN POLYTEX LTD. ALONG WITH C OPY OF INCOME TAX RETURN WAS ALSO FILED. THE ASSESSEE ALS O FURNISHED COMPLETE CHART OF YARN SOLD TO THE ASSESSEE AND THE OTHER PARTIES BY VARDHMAN POLYTEX LTD. ALONG WITH THE COP IES OF THE BILLS. FROM THESE DETAILS, IT WAS POINTED OUT THAT THE YARNS WERE PURCHASED AT THE PREVAILING MARKET PRICE AND SAME C OULD BE COMPARED WITH THE SALE BILLS ISSUED BY VARDHMAN POL YTEX LTD. TO OTHER PARTIES. WE HAVE GONE THROUGH THE COMPARA TIVE CHART ITA NO. 3811(DEL)/2011 6 OF PRICE OF YARN SOLD BY VARDHMAN POLYTEX LTD. TO O THER INDEPENDENT PARTIES AS WELL AS TO ASSESSEE ALONG WI TH THE COPIES OF BILLS WHICH ARE PLACED AT PAGES 11 TO 77 OF THE PAPER BOOK. ON COMPARISON, WE FIND THAT THE VARDHMAN POLYTEX LT D. HAD SOLD THE YARN TO ASSESSEE AT THE SAME RATE OR EVEN IN SOME CASE AT THE RATE LOWER THAN THE RATE AT WHICH YARNS WERE SOLD TO OTHER INDEPENDENT PARTIES. THEREFORE, HAVING REGARD TO T HE MARKET PRICE OF YARN AT THE RELEVANT TIME, IT CANNOT BE SA ID THAT ASSESSEE HAS PURCHASED THE YARN FROM VARDHMAN POLYT EX LTD. AT A PRICE MORE THAN THE PRICE PREVALENT IN THE MAR KET. THE AO HAS FAILED TO APPRECIATE THE COMPARISON OF RATE AT WHICH THE YARNS WERE SOLD TO OTHER INDEPENDENT BUYERS BY VARD HMAN POLYTEX LTD. VIS-A-VIS THE ASSESSEE. THE AO HAS TH EREFORE, FAILED TO ESTABLISH THAT ALL THE INGREDIENTS FOR IN VOKING SEC. 40A(2) ARE SATISFIED IN THE PRESENT CASE. IN THE L IGHT OF THESE FACTS AND EVIDENCES DISCUSSED ABOVE, WE ARE INCLINE D TO UPHOLD THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS. 13,97,691/- MADE BY THE AO. THUS, GROUND NO.1 RAISED BY THE RE VENUE IS REJECTED. 4.2 THE ASSESSEE HAD INCURRED EXPENDITURE OF R S. 1,11,07,000/- IN THE EARLIER YEAR, 50% OF WHICH HAD BEEN DISALLOWED B Y THE AO. THIS DECISION WAS REVERSED BY THE LD. CIT(APPEALS) AND HER OR DER HAD BEEN UPHELD BY THE TRIBUNAL. RELYING ON THIS DECISION, SIMILAR GROUND NO. 2 IN THE APPEAL OF THIS YEAR IS ALSO DISMISSED. FOR THE SAKE O F READY REFERENCE, PARAGRAPH NO. 19, DEALING WITH THIS ISSUE, IS REPRODUCED BEL OW:- 19. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS BEEN ENGAGED IN THE BUSINESS OF CARRYING OUT RETAIL TRADING THROUGH CHAIN OF STORES UNDER THE BRAND NAME OSWAL RETAIL. THE AS SESSEE COMPANY IS ENGAGED IN RETAIL SALES OF INNER WEAR AN D IS RUNNING OUTLETS IN DIFFERENT PARTS OF THE COUNTRY. THE FAC T THAT ASSESSEE HAS OPENED 31 NEW OUTLETS/SHOPS AT DIFFERENT PLACES OF THE ITA NO. 3811(DEL)/2011 7 COUNTRY DURING THE YEAR UNDER CONSIDERATION IS NOT IN DISPUTE. THE FACT THAT ASSESSEE HAS INCURRED EXPENDITURE ON ADVERTISEMENT IN THE NATURE OF PAINTING ON WALLS, N EWSPAPER ADVERTISEMENTS, LEAFLETS, PAMPHLETS, ETC. IS ALSO N OT IN DISPUTE. THE OPENING OF NEW 31 SHOPS IS IN CONTINUANCE TO TH E BUSINESS ALREADY IN EXISTENCE. THE ASSESSEE HAS NOT STARTED ANY NEW BUSINESS BY OPENING NEW 31 SHOPS AT DIFFERENT PLACE S OF THE COUNTRY. THE FACT THAT ASSESSEE HAS INCURRED EXPEN SES TO THE EXTENT OF RS.1,11,07,000/- ON MARKETING AND ADVERTI SEMENT IS NOT DISPUTE. THE DISPUTE IS ONLY WITH REGARD TO TH E NATURE OF THESE EXPENSES, WHETHER REVENUE OR CAPITAL. IN THE CASE OF CIT VS. BERGER PAINTS INDIA LTD. (NO. 2) 254 ITR 503 (C AL.) THE HONBLE CAL. HIGH COURT HAS HELD THAT ADVERTISEMENT EXPENSES OF THE NATURE IN THAT CASE CANNOT COMPULSORILY BE M ADE TO BE TREATED BY THE ASSESSEE AS A LONG TERM CAPITAL EXPE NDITURE. IT WAS FURTHER HELD THEREIN THAT THE ADVERTISEMENT EXP ENSES ARE NORMALLY TO BE TREATED AS REVENUE EXPENDITURE SINCE THE MEMORY OF THE PURCHASING MARKET IS SHORT AND THE ADVERTISE MENT IS NEEDED FROM YEAR TO YEAR AND CANNOT BE MADE ONCE FO R ALL IN ANY SINGLE PARTICULAR YEAR. WE FURTHER HOLD THAT M ERELY BECAUSE THE BENEFIT OF ADVERTISEMENT EXPENDITURE CA N ALSO BE AVAILABLE LATER, BUT THAT BY ITSELF IS NOT A GOOD E NOUGH REASON TO TREAT THE EXPENDITURE, WHICH IS OTHERWISE OF REVENU E EXPENDITURE, AS A CAPITAL EXPENDITURE. IN THE PRES ENT CASE, THE AO HAS FAILED TO POINT OUT OR ESTABLISH THAT ASSESS EE HAD ACQUIRED ANY ASSET OF CAPITAL IN NATURE BY INCURRIN G EXPENSES ON MARKETING AND ADVERTISEMENT. WE, THEREFORE, UPH OLD THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION BEING 50% OF MARKETING AND ADVERTISEMENT EXPENSES DISALLOWED BY THE AO. THUS, GROUND NO. 2 RAISED BY THE REVENUE IS ALSO RE JECTED. 5. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA- 14/10/2011 COPY OF THE ORDER FORWARDED TO:- ITA NO. 3811(DEL)/2011 8 OSWAL RETAIL (P) LTD., NEW DELHI. ACIT, CIRCLE 13(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.