DCIT, Circle-3(1), V. Citi Financial Consumeer Finance India Ltd.,

ITA 4305/DEL/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2176 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 11-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MOHSIN ALAM
• Assessee Lawyers: C S AGGARWAL
• Keywords: Capital asset; Depreciation; Valuation report; Revenue expenditure; Capital expenditure; Set aside

Judgement Text

ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE THE HON'BLE PRESIDENT, SHRI VIMAL GANDHI AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4305/DEL/2005 A.Y. 2001-02 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S CIT I FINANCIAL CONSUMER FINANCE CIRCLE-3(1), NEW DELHI INDIA LTD. 3, LOCAL SHO PPING CENTRE, PUSHP VIHAR, NEW DELHI -62 (PAN: AABCA3223B) I.T.A. NO. 4617/DEL/2005 A.Y. 2001-02 M/S CITI FINANCIAL CONSUMER FINANCE VS. ASSTT. COM MISSIONER OF INCOME TAX, INDIA LTD. 3, LOCAL SHOPPING CENTRE, CIRCLE-3(1) , NEW DELHI PUSHP VIHAR, NEW DELHI -62 (PAN: AABCA3223B) I.T.A. NO. 2460/DEL/2006 A.Y. 2002-03 ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S CIT I FINANCIAL CONSUMER FINANCE CIRCLE-3(1), NEW DELHI INDIA LTD. 3, LOCAL SHO PPING CENTRE, PUSHP VIHAR, NEW DELHI -62 (PAN: AABCA3223B) AND I.T.A. NO. 2473/DEL/2006 A.Y. 2002-03 M/S CITI FINANCIAL CONSUMER FINANCE VS. ASSTT. COM MISSIONER OF INCOME TAX, INDIA LTD. 3, LOCAL SHOPPING CENTRE, CIRCLE-3(1) , NEW DELHI PUSHP VIHAR, NEW DELHI -62 (PAN: AABCA3223B) (APPELLANT) (RESPONDENT) ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 2 ASSESSEE BY : SH. C.S. AGGARWAL, ADVOCATE DEPARTMENT BY : MR. M. MOHSIN ALAM, DR ORDER PER SHAMIM YAHYA: AM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E EMANATE OUT OF RESPECTIVE ORDERS OF THE LD. CIT(A) PERTAINING TO ASSESSMENT YEARS 2001-02 AND 2002-03. 2. SINCE THE ISSUE INVOLVED ARE COMMON AND CONNECTED, THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAME OF CONVENIENCE. ASSESSEES APPEALS 3. THE FIRST COMMON ISSUE RAISED IS THAT THE LD. CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF ASSESSES CLAIM UNDER SE CTION 35D OF THE IT ACT IN RESPECT OF FEE PAID TO REGISTRAR OF COMPANI ES FOR INCREASING AUTHORIZED SHARE CAPITAL. 4. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSU E IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HO NBLE APEX COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT COR PORATION LTD. REPORTED IN 225 ITR 792. IN THIS CASE IT WAS HELD THAT AMOUNT PAID BY ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 3 THE COMPANY TO ROC AS FILING FOR ENHANCEMENT OF CAPITA L BASE OF COMPANY CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 5. RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD TH E ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DECIDE THE ISSUE AGAIN ST THE ASSESSEE. 6. THE NEXT COMMON ISSUE RAISED IS THAT THE LD. CIT( A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE ON ACQUISITI ON OF FIRE EXTINGUISHERS UPHOLDING THAT THE EXPENDITURE WAS CA PITAL IN NATURE. 7. ON THIS ISSUE THE ASSESSEE EXPENDITURE ON FIRE EX TINGUISHERS WHICH WAS DEBITED AS REVENUE EXPENSE WAS DISALLOWED BY THE AO, WHO HELD THEM TO BE CAPITAL IN NATURE. 8. UPON ASSESSEES APPEAL THE LD. CIT(A) CONFIRMED TH E SAME. THE LD. CIT(A HELD THAT THE FIRE EXTINGUISHER IS NOT AN ITEM WHICH WAS CONSUMED IN THE DAY TO DAY BUSINESS OF THE WORKING OF TH E COMPANY. IT, THEREFORE, CAN BE SAID TO BE EXPENDITURE MADE, W HICH IS OF LASTING VALUE AND HENCE HE CONFIRMED THE AOS ACTION. 9. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 10. LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THESE A RE REVENUE EXPENDITURE AND IN THIS REGARD HE REFERRED TO THE HO NBLE APEX COURT DECISION IN THE CASES OF M/S EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1. HE CLAIMED THAT BY INCURRING EXPENDITURE ON FIRE EXTING UISHER, ASSESSEE HAS ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 4 NOT OBTAINED ANY ASSET OR ADVANTAGE OF ENDURING NATURE. LD. COUNSEL ALTERNATIVELY CONTENDED THAT IF THESE FIRE EXTINGUIS HERS HAVE TO BE TREATED AS CAPITAL EXPENDITURE ASSESSEES CLAIM OF DEPRECIATION MAY KINDLY BE ALLOWED. LD. DR ON THE OTHER HAND RELIED UP ON THE ORDER OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT EXPENDITURE ON FIRE EXTINGUISHERS DID NOT B RING INTO EXISTENCE ANY ASSET OR AN ADVANTAGE WHICH IS ENDURING BENEFIT OF TRADE SO AS TO BE CLASSIFIED IN CAPITAL FIELD. IT IS MEANT TO BE U TILIZED IN THE EVENT OF ACCIDENT/OCCURRING OF ANY FIRE AS A PREVENTIVE MEASU RE. IN THIS REGARD WE DRAW SUPPORT FROM THE HONBLE APEX COURT EXPOSITION I N THE CASE OF EMPIRE JUTE COMPANY LTD. VS. CIT IN 124 ITR 1 WHERE IN IT WAS OBSERVED THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCUR RED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NON E THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLES LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESS EES TRADING ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 5 OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFECTIVELY OR MORE PR OFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITU RE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY END URE FOR AN INDEFINITE FUTURE. EXAMINING THE PRESENT ISSUE ON THE TOUCHSTONE OF ABOVE EXPOSITION, WE DO NOT SEE ANY REASON WHY THE EXPENDITURE SHOULD NOT BE ALLOWED AS REVENUE EXPENDITURE. HENC E WE SET ASIDE THE ORDERS OF THE LD. CIT(A) AND DECIDE THE ISSUE I N FAVOUR OF THE ASSESSEE. 12. THE NEXT COMMON ISSUE RAISED IS THAT THE LD. CIT (A) ERRED IN UPHOLDING THAT THE EXPENDITURE FOR CLUB SERVICES AS EXPENDITURE NOT FOR THE PURPOSE OF BUSINESS BUT IS OF PERSONAL NATURE. 13. ON THIS ISSUE AO DISALLOWED THE EXPENDITURE OF RS . 70838/- FOR ASSESSMENT YEAR 2001-02 AND RS. 49843/- FOR ASSESSME NT YEAR 2002-03 INCURRED AS EXPENDITURE ON CLUB SERVICES. THE AO HE LD THAT USE OF CLUB SERVICES CANNOT BE TERMED AS EXPENDITURE FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE COMPANY. 14. UPON ASSESSEES APPEAL FOR ASSESSMENT YEAR 2001 -02 LD. CIT(A) AFFIRMED THE ADDITION AND FOR ASSESSMENT YEAR 2002-0 3, HE DELETED THE ADDITION TO THE EXTENT OF 50%. ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 6 15. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 16. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IN ASSESSMENT YEAR 2002-03 LD. CIT(A) HAS STATED THAT THESE EXPENDITURES ARE NOT ALL IN THE NATURE OF SUBSCRIPTION FEES TO CLUB S. FURTHERMORE, THE LD. CIT(A) OBSERVED THAT THESE EXPENDITURES HAV E BEEN MADE FOR PURCHASE AND ENTERTAINMENT, IN WHICH THE ELEMENT OF EXPENDITURE FOR PERSONAL THOUGH CANNOT BE DEMARCATED, BUT NONETHELESS I T DOES EXIST. UPON CAREFUL CONSIDERATION, WE ARE OF THE OPINION THAT USE OF CLUB SERVICES FOR THE PROMOTION OF BUSINESS IN THE MODERN AGE CANNOT BE DENIED. FURTHER THE EXPENDITURE IN COMPARISON WITH THE TURNOVER OF THE ASSESSEE IS A VERY MINISCULE AMOUNT. FOR ASSESS MENT YEAR 2002-03 LD. CIT(A) HIMSELF DELETED THE HALF OF THE DISALLOWA NCE. FURTHERMORE THE PROPOSITION THAT THESE EXPENDITURE INC URRED BY THE ASSESSEE COMPANY ARE PERSONAL IN NATURE IS NOT SUS TAINABLE ON THE ANVIL OF HONBLE GUJRAT HIGH COURT DECISION IN THE CASE OF SAYAJI IRON ENGG AND COMPANY VS. CIT 253 ITR 749. IN THIS CASE IT WAS HELD THAT WHEN THE VEHICLES BELONGING TO ASSESSEE COMPANY ARE USED BY ITS DIRECTORS FOR PERSONAL OR OTHER PURPOSES, IT WOULD BE WRONG TO HOLD T HAT VEHICLES ARE PERSONALLY USED BY COMPANY BECAUSE A LIMITED COMP ANY BY ITS VERY NATURE CANNOT HAVE ANY PERSONAL USE OF CARS BY DIREC TORS. IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENT, WE AR E OF THE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 7 OPINION THAT T HE DISALLOWANCE IS NOT SUSTAINABLE. HENCE, WE SET ASI DE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION ON T HIS ACCOUNT. 17. THE NEXT COMMON ISSUE RAISED IS THAT THE LD. CIT (A) ERRED IN LAW IN UPHOLDING THAT THE ADVERTISEMENT AND PUBLICITY EXPEN SES ARE IN THE NATURE OF EXPENDITURE THAT PROVIDE BENEFIT OF ENDURING NATURE AND NEED TO BE AMORTISED OVER A PERIOD OF 5 YEARS AND IN REJECT ING THE CLAIM OF THE ASSESSEE THAT IT IS A REVENUE EXPENDITURE ALLOW ABLE IN ENTIRETY IN THE CURRENT YEAR ITSELF. 18. ON THIS ISSUE THE AO OBSERVED THAT THE ASSESSEE HAS INCURRED HUGE EXPENSES ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY E XPENSES. THE AO WAS OF THE OPINION THAT THESE EXPENSES CANNOT BE TERME D AS EXPENSES EXCLUSIVELY FOR THE PERIOD OF 12 MONTHS CONSIDERATION. HE OPINED THAT BENEFIT OF EXPENDITURE OCCURRED IN THE SEVERAL YEARS. THE AO CONSIDERED 5 YEARS AS APPROPRIATE FOR THE PURPOSE OF SPR EADING THESE EXPENSES. HENCE, HE ALLOWED 1/5 TH OF THE EXPENDITURE IN THE CURRENT ASSESSMENT YEAR AND DISALLOWED THE REST. 19. UPON ASSESSEES APPEAL THE LD. CIT(A) NOTED THAT, ON PERUSAL OF THE DETAILS OF THESE EXPENSES, IT SHOWED THAT A NUMB ER OF EXPENSES DEBITED UNDER THIS HEAD CAN BE TERMED AS FALLING UNDER SECTION 35D AND NEEDED TO BE AMORTISED. IN THIS REGARD, THE LD . CIT(A) INTER-ALIA REFERRED TO THE DECISION IN THE CASE OF MADRAS FERTIL IZERS LTD. VS. ACIT ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 8 209 ITR 174. THE LD. CIT(A) REFERRED TO THE AMOUNT OF EXPENDITURE INCURRED FOR FEE FOR PARTICIPATION IN EXHIBITION AND L AUNCH OF WEBSITE, RENT PAID FOR PUTTING THE HOARDING, ADVERTISEMENT ON RADIO; DESIGNING OF ADVERTISEMENT, TITLE SEARCH, VALUATION REPORT, CA NVASSORS CHARGES AND OTHER INCENTIVES. LD. CIT(A) FELT THAT THESE E XPENSES CLEARLY FALL WITHIN THE AMBIT OF EXPENSES WHICH CALL FOR AMORTIZATI ON. HENCE HE CONFIRMED THE AOS ACTION IN THIS RESPECT. HE DIRECT ED THE AO TO ALLOW THE BALANCE EXPENDITURE IN FULL. 20. AGAINST THIS ORDER BOTH THE ASSESSEE AND REVENU E ARE IN CROSS APPEALS BEFORE US. 21. LD. COUSNEL OF THE ASSESSEE SUBMITTED THAT THE LD . CIT(A) HAS COMPLETELY ERRED IN HOLDING THAT AMORTIZATION OF EXPENSE S AS PER SECTION 35D OF THE IT ACT IS APPLICABLE. HE SUBMITTE D THAT SECTION 35D DEALS WITH THE AMORTIZATION OF PRELIMINARY EXPENSES W HICH ARE INCURRED BEFORE THE COMMENCEMENT OF BUSINESS OR AFTER THE COM MENCEMENT OF BUSINESS IN CONNECTION WITH EXTENSION OF THE UNDERTAKI NG OR IN CONNECTION WITH SETTING UP OF NEW UNIT. HE CLAIMED T HAT THE ADVERTISEMENT EXPENDITURES INCURRED BY THE ASSESSE E ARE NOT AT ALL PRELIMINARY EXPENSES AS ENVISAGED UNDER SECTION 35D OF THE IT ACT. LD. COUNSEL CONTENDED THAT THESE EXPENDITURES HAVE ACTUAL LY BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HE ARGUED THAT ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 9 THERE IS NO REASON WHY THESE EXPENDITURES SHOULD NOT BE ALLOWED IN FULL. HE ARGUED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN TAX LAWS. IN THIS REGARD, THE LD. COU NSEL REFERRED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SALORA INTERNATIONAL LTD. 308 ITR 199. IN THIS CASE, FACT WERE THAT FOR ASSESSMENT YEAR 2001-02 THE ASSESSEE HAD INCURRED A DVERTISEMENT EXPENDITURE OF RS. 3.08 CRORES FOR LAUNCHING OF ITS P RODUCTS AND THE AO HELD THAT EXPENDITURE WAS OF AN ENDURING NATURE AND TREATED 1/3 RD OF IT AS CAPITAL EXPENDITURE. THE TRIBUNAL, CONFIRMING TH E FINDINGS OF THE CIT(A) THAT THE EXPENDITURE WAS REVENUE EXPENDITURE , HELD THAT THERE WAS DIRECT NEXUS BETWEEN THE ADVERTISING EXPENDITUR E AND THE BUSINESS OF THE ASSESSEE AS SUCH ENTIRE EXPENDITURE WAS ALLOWE D AS REVENUE EXPENDITURE. HONBLE HIGH COURT AFFIRMED THE SAME. THE LD. COUNSEL FURTHER SUBMITTED THAT HONBLE MADRAS HIGH COURT DECI SION IN THE CASE OF MADRAS FERTILIZERS LTD. REFERRED BY THE LD. CIT(A ) IS NOT AT ALL APPLICABLE ON THE FACTS OF THE PRESENT CASE. 22. LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF TH E AUTHORITIES BELOW. 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT THE SAID ADVERTISEMENT EXPEN DITURE HAS ACTUALLY BEEN INCURRED DURING THE YEAR. THE NATURE OF EXPENDITURE DOES ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 10 NOT FALL UNDER THE AMBIT OF PRELIMINARY EXPENSES AS ENVISAGED UNDER SECTION 35D OF THE ACT. WHEN THE EXPENDITURE WAS INC URRED AND THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE ASSESSEES BUSINESS, WE DO NOT SEE ANY REASON WHEY THE ENTIRE EXPENDITURE SHOULD NOT BE ALLOWED IN FULL DURING THE CONCERNED YEAR. THE CASE LAWS FR OM JURISDICTIONAL HIGH COURT IN SALORA INTERNATIONAL CASE CITED ABOVE RE FERRED BY THE LD. COUNSEL OF THE ASSESSEE DULY SUPPORTED THE CASE THAT WHEN EXPENDITURE HAS ACTUALLY BEEN INCURRED AND THERE WAS DIRECT NEX US BETWEEN THE EXPENDITURE AND ASSESSEE BUSINESS, THE EXPENDITURE HAS TO BE ALLOWED IN FULL AND NOT DEFERRED BY SPREADING OVER CERTAIN NU MBER OF YEARS. 24. AS REGARDS THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LTD. 209 ITR 174, WE FIND THAT THE SAME IS NOT APPLICABLE ON THE FACTS OF THE CASE. IN THIS CASE TH E FACTS WERE INTER-ALIA AS UNDER:- THE ASSESSEE STARTED ITS BUSINESS ON NOVEMBER 1, 1 971. IN THE ASSESSMENT YEAR 1972-73, THE ASSESSEE CLAIMED DEDUC TION OF EXPENDITURE OF RS. 35,55,769/- ON PUBLICITY AND PROMOTI ONAL EXPENSES INCURRED DURING THE YEARS 1967-68, 1968-69 AND 1969 -70 AND PRIOR TO MARCH 31, 1970. THIS INCLUDED SEEDING PROGRAMME EX PENSES, ADVERTISEMENT AND SALES PROMOTION, ESTABLISHMENT EXPEN SES, EXPENSES UNDER TECHNICAL ASSISTANCE AGREEMENTS, ETC. THIS WA S DISALLOWED BY THE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 11 INCOME TAX OFFICER AS IT WAS INCURRED PRIOR TO APRIL 1 , 1970. HOWEVER, THE TRIBUNAL ALLOWED THE SAME. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 35D OF T HE EXPENDITURE OF RS. 15,36,631/- INCURRED ON ADVERTISEM ENT AND PUBLICITY, SUBSIDY TO FARMERS WAREHOUSING AND OTHER HANDLING CHA RGES AND DEPRECIATION. THE TRIBUNAL ALLOWED THE EXPENSES CLA IMED TO THE EXTENT OF RS. 11,93,263/- UNDER SECTION 35D DISALLOWING WAREH OUSING AND OTHER HANDLING CHARGES AND DEPRECIATION 24.1 THE HONBLE HIGH COURT INTER-ALIA HELD AS UNDER :- (I) THAT THE EXPENDITURE INCURRED ON PUBLICITY AND PROMOTIONAL EXPENSES AMOUNTING TO RS. 35,55,769 DURING THE YEARS 1967-68, 1968- 69 AND 1969-70 PRIOR TO MARCH 31, 1970 WERE NOT DEDUC TIBLE IN THE ASSESSMENT YEAR 1972-73; (II) THAT THE EXPENDITURE INCURRED ON PUBLICITY AND PROMOTIONAL EXPENSES AMOUNTING TO RS. 33,55,769/- DURING THE YEA RS 1967-68, 1968-69 AND 1969-70 PRIOR TO MARCH 31, 1970, WERE REV ENUE IN NATURE AND NOT CAPITAL IN NATURE AND COULD NOT BE CONSIDERED TO BE PART OF THE ACTUAL COST; (III) THAT THE TRIBUNAL WAS JUSTIFIED IN LAW IN H OLDING THAT A SUM OF RS. 11,93,263 INCURRED BY THE ASSESSEE BY WAY OF ADVERTISEMENT ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 12 EXPENSES, AND BY WAY OF SUBSIDY TO FARMERS FIELD EX TENSION PROGRAMME, FARMER DEALER MEETING, ETC., AND SOIL TEST EXPENSES SHOULD BE ALLOWED AS ADMISSIBLE DEDUCTIONS UNDER SECTION 35D . THE TRIBUNAL RIGHTLY CAME TO THE CONCLUSION THAT ON WAREHOUSE AND OT HER HANDLING CHARGES AND DEPRECIATION NO DEDUCTION UNDER SECTION 35D COULD BE ALLOWED. 24.2 FROM THE ABOVE IT IS CLEAR THAT IT WAS ASSESSE ES CLAIM THAT CERTAIN EXPENDITURE ON ADVERTISEMENT WERE ACTUALLY E XPENDITURE UNDER SECTION 35D AND HONBLE HIGH COURT HAD NOTED THAT THE T RIBUNAL HAD FOUND THE EXPENDITURE INCURRED UNDER THE VARIOUS HEAD S WERE NECESSARY FOR MARKETING THE PRODUCTS AND HONBLE HIGH COURT FOUND THAT TERM SURVEY MENTIONED IN SECTION 35D(2)(A)(III ) AND COMPASS THE SAME. HOWEVER, IN THE PRESENT CASE WE FIND THAT N O CASE HAS BEEN MADE THAT THE NATURE OF ADVERTISEMENT IN THIS CASE C OMES UNDER THE TERM OF SURVEY. MOREOVER, THE JURISDICTIONAL HIGH COUR T ON IDENTICAL SUBJECT IN CIT VS. SALORA INTERNATIONAL LTD. 308 ITR 199 HAS HELD THAT EXPENDITURE OF SUCH NATURE HAS TO BE ALLOWED AS A WHOL E. 24.3 IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 13 25. THE NEXT COMMON ISSUE RAISED IS THAT THE LD. CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE ON ACCOUNT O COMMISSION PAID TO DIRECT SELLING AGENTS AND STAMPING FEE. 26. ON THIS ISSUE THE AO NOTED THAT THE ASSESSEE HA S DULY DEBITED THE EXPENSES TOWARDS DIRECT SELLING EXPENSES AND STAMPI NG FEE AND TOWARDS COMMISSION PAYMENT. THE AO OBSERVED THAT ON ENQUIRY, IT WAS FOUND THAT THE ASSESSEE HAS BEEN FINANCING THE HIRE PURCH ASE OF VEHICLES AND HOMES ETC. AND THE PERIOD OF SUCH FINANCING IS RANGING FROM LESS THAN ONE YEAR TO MORE THAN ONE YEAR UPTO 5 YEARS. AO ALSO OBSERVED THAT STAMPING FEE IS BEING RECOVERED OVER THE PERIOD OF LOAN AND BEING CLUBBED IN INCOME. HENCE THE AO OPINED THAT THESE EXP ENSES CANNOT BE TERMED AS HAVING THE CHARGEABILITY TO THE YEAR IN WHICH THESE ARE INCURRED. HENCE, THE AO OBSERVED THAT IN VIEW OF THE FACT THAT THE FINANCING IS SPREAD OVER A PERIOD OF FIVE YEARS, MEAN OF WHICH COMES TO TWO AND A HALF YEARS, ROUNDED OFF PERIOD IS CONSIDERED T O BE THREE YEARS. HENCE HE SPREAD OVER THE EXPENDITURE TO TH REE YEARS AND ACCORDINGLY ALLOWED ONLY 1/3 RD OF THIS EXPENDITURE AND DISALLOWED 2/3 RD THEREOF. UPON ASSESSEES APPEAL LD. CIT(A) CONFIRMED THE AOS ACTION. 27. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 28. LD. DR SUBMITTED BEFORE US THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 HAS CONSIDERED THE I SSUE AND ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 14 REMITTED THE MATTER TO THE FILES OF THE AO BY HOLDING THAT IF THE BROKERAGE PAYABLE IS LINKED TO HIRE CHARGES WHICH ARE RECEIVABLE OVER PERIOD OF HIRE PURCHASE FINANCE, THE BROKERAGE WILL AL SO BE ALLOWED ACCORDINGLY. HOWEVER, IF IT IS OTHERWISE, THE SAME WILL BE ALLOWED IN THE YEAR OF PAYMENT ITSELF. HENCE THE LD. DR SUB MITTED THAT THE SAME ORDER SHOULD BE FOLLOWED AS THE ISSUE STANDS COVERED. 29. LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND SUB MITTED THAT THIS ORDER IS NOT APPLICABLE ON THE FACTS OF THE CASE FOR THE IMPUGNED YEAR. HE MENTIONED THAT IN THAT YEAR I.E. A.Y. 19 98-99 ON THE BASIS OF THE CASE MADE OUT BY THE AO, TRIBUNAL HAD REMITTED THE MATTER OBSERVING THAT WHETHER THERE WAS SOME NEXUS BETWEEN THE DISBURSEMENT OF LOAN AND THE COMMISSION PAID WAS NOT CLE AR. IN THIS REGARD, LD. COUNSEL REFERRED TO ASSESSMENT ORDER AND C IT(A)S ORDER FOR ASSESSMENT YEAR 1998-99. LD. COUNSEL SUBMITTED THAT IN THE YEAR 1998-99 ASES SSEE HAD INCURRED EXPENDITURE OF RS. 52,70,636/- AND DEBITED ITS PROFIT AND LOSS ACCOUNT BY A SUM OF RS. 4,32,000/- AND REMAINING SUM OF RS. 48,38,636/- FOR THE PURPOSE OF ACCOUNT WAS TREATED AS DEFERRED REVENUE EXPENDITURE. HOWEVER, WHILE FURNISHING T HE RETURN OF INCOME ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 15 ASSESSEE HAD CLAIMED DEDUCTION OF THE ENTIRE AMOUNT. MAKING THE DISALLOWANCE FOR THAT YEAR AO HAS HELD AS UNDER:- IN THE BOOKS OF ACCOUNTS ASSESSEE HAS TREATED COMMISSI ON PAYABLE TO DIRECT SELLING AGENTS OF RS. 48,38,636/- A S DEFERRED REVENUE EXPENDITURE OVER THE PERIOD OF LOAN. THIS EXP ENDITURE WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN THE COMPUTATION OF INCOME, ASSESSEE HAS CLAIMED DEDUCTION OF ENTIRE EXPENDITURE. IN THE CASE OF M/S MADRAS INDUSTRIAL CORP. VS. CIT (225 ITR 802) THE HONBLE SUPREME COURT HAS HELD THA T THE EXPENDITURE RELATING TO BORROWAL OF FUNDS CAN BE DEBI TED OVER THE PERIOD OF LOAN AS REVENUE EXPENDITURE. IN VIEW OF THE SAID JUDGEMENT OF THE HONBLE SUPREME COURT, THE SAID CLAIM OF ASSESSEE FOR ALLOWING ENTIRE EXPENDITURE IN ONE YEAR IS REJECTED. UPON ASSESSEES APPEAL THE LD. CIT(A) HAS CONFIRMED T HE DISALLOWANCE HOLDING AS UNDER:- DURING THE APPELLANT PROCEEDINGS, IT HAS BEEN STAT ED BY THE LEARNED ARS THAT THE COMMISSION IS PAID TO THE DIRECT SELLING AGENTS OF THEIR SERVICES IN FINDING THE BORROWERS. TH E COMMISSION IS PAID OVER THE PERIOD OF THE LOAN. THE APPELLANT H AS FURTHER STATED THAT THE RELIANCE OF THE AO ON THE DECISIONS OF THE SUPREME COURT IN THE CASE OF MADRAS COMMERCIAL INDL. CORPN. V S. CIT IS MISPLACED AS THE FACTS OF TWO CASES ARE SUBSTANTIALLY DIFFERENT. I HAVE CONSIDERED THE ARGUMENTS OF THE LEARNED AR. IN MY VIEW THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDL. CORPN. VS. CIT 225 ITR 802, APPLIES IN THE APP ELLANTS CASE. IN THE CASE OF THE APPELLANT THE COMMISSION IS DETERMINED AND PAID WITH REFERENCE TO THE PERIOD OF LOAN WHEREAS IN THE CA SE OF ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 16 MADRAS INDL. DEVELOPMENT CORPN. DISCOUNTED AMOUNT OF THE BONDS WAS SPREAD OVER THE PERIOD OF BONDS. THERE IS N O DIFFERENCE DURING THE TWO SITUATION TO MY VIEWS. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ADDITION MADE B Y THE AO IS CONFIRMED. REFERRING TO THE ABOVE LD. COUNSEL CONTENDED THAT DI SALLOWANCE IN THAT YEAR WAS MADE ON THE BASIS OF APPLICATION OF PRINC IPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF MADRAS INDUS TRIAL CORPN. VS. CIT AND ON ASSUMPTION THAT THE EXPENDITURE INCURRED IS DIRECTLY OR INDIRECTLY RELATED TO THE PERIOD OR LENGTH OF TIME OF I NCURRING THE EXPENDITURE. HOWEVER, HE CONTENDED THAT IN THE P RESENT CASE THE ADMITTED SITUATION WAS THAT THE EXPENDITURE INCURRED HAD NOTHING TO DO WITH THE PERIOD OR LENGTH OF TIME HAD NO LINKAGE WHATS OEVER TO ANY PERIOD, AS THE EXPENDITURE WAS INCURRED FOR PROCURING THE BUSINESS AND SUM WAS PAID TO THE AGENTS AND REPRESENTED THE LIABI LITY OF ASSESSEE AS SOON AS THE AGENTS PROCURED THE BUSINESS WHICH IS ALSO NON-REFUNDABLE BY THE AGENTS. IN THIS REGARD, LD. COUNSEL FURTHER SUBMITTED THAT IN THE IMMEDIATE PRECEDING YEAR TO THE ASSESSMENT YEAR UNDE R APPEAL I.E. ASSESSMENT YEAR 1999-00 AND 2000-01 THE ASSESSEE HA D CLAIMED THE ENTIRE EXPENDITURE AS INCURRED IN RESPECT OF DIRECT SELLING EXPENDITURE BEING COMMISSION PAID TO THE DIRECT SELLING AGENTS AND THE SAME WAS NOT DISALLOWED BY THE AO. HENCE HE FURTHER SUBMITT ED THAT SO FAR AS ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 17 THE ASSESSMENT YEAR THEREAFTER ARE CONCERNED, IT HAD TO BE DECIDED INDEPENDENTLY, ON MERITS OF THE CASE FOR EACH OF THE A SSESSMENT YEAR. LD. COUNSEL CONTENDED THAT DURING THE CURRENT ASSES SMENT YEAR AO HAD MADE ELABORATE ENQUIRIES AND ASSESSEE HAD PROV IDED AND EXHAUSTIVE DETAILS. IN THIS REGARD, LD. COUNSEL REF ERRED TO ASSESSEES SUBMISSION FILED WITH THE AO WHEREIN THE NATURE OF TH IS EXPENDITURE HAD BEEN DULY EXPLAINED VIDE LETTER DATED 09.3.2004 . IN THE SAID SUBMISSION ASSESSEE HAS EXPLAINED INTER-ALIA THE F OLLOWING :- DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE P AID COMMISSION OF RS. 13.31 CRORES TO DIRECT SELLING AGENT S (DSA) FOR PROCURING LOAN ASSIGNMENTS. AS PER THE ACCOUNTING POLI CY OF THE COMPANY (VIDE NOTE NO. 1(B)(VI) OF SCHEDULE 16 (NOTES T O ACCOUNTS) OF THE AUDITED FINANCIALS] THIS EXPENDITURE IS AMORTIS ED OVER THE INCOME THIS AMOUNT WAS CLAIMED AS A REVENUE EXPENDITURE IN THE YEAR THE COMMISSION WAS PAID TO DSAS. THE LOGIC FOR CLAIMING THE ENTIRE COMMISSION EXPENDITU RE IN THE YEAR OF PAYMENT IS AS UNDER:- COMMISSION IS PAID TO THE DSA FOR THEIR SERVICES IN SO URCING HIRERS IN THE YEAR IN WHICH THE LOAN IS DISBURSED ON PER C ASE BASIS AND VOLUME OF BUSINESS GENERATED. THE RELEVANT CLAUSES OF THE C ONTRACT ENTERED WITH DSA ARE AS FOLLOWS (A SAMPLE COPY OF CONTRACT IS AT TACHED HEREWITH): MODE OF PAYMENT OF CONSIDERATION. 1. THE COMPANY SHALL PAY THE DSA AS PER CLAUSE BROKERAG E AND A FURTHER BROKERAGE ON THE VOLUME OF BUSINESS GENERATED W HICH WILL ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 18 BE COMMUNICATED TO IT FROM TIME TO TIME AGAINST THEIR MAKING AVAILABLE TO THE COMPANY THEIR EXPERTISE. THE DSA WIL L UNDER NO CIRCUMSTANCES PASS ON THE SAID BROKERAGE OR APART OF IT TO ANY PROSPECTIVE APPLICANTS IN ANY FORM WHATSOEVER. TERMINATION 3. IT IS ALSO AGREED THAT THIS AGREEMENT SHALL REMAI N IN FORCE INITIALLY FOR A PERIOD OF TWELVE MONTHS EFFECTIVE FROM THE DATE OF EXECUTION. HOWEVER, AT THE END OF THIS PERIOD A S COVENANTED BY THE PARTIES, THIS AGREEMENT WILL STAND TERMINATED AUTOMATICALLY UNLESS IT IS EXPRESSLY REVI EWED BY THE COMPANY FOR SUCH FURTHER PERIOD OR PERIODS AS THE COMPANY MAY DECIDE. FROM THE READING OF ABOVE CLAUSES, IT CAN BE SEEN THA T THE COMMISSION IS PAID TO DSAS ON THE BASIS OF HIRERS PROCURE D BY THEM AND THE SAME HAS NO DIRECT LINKAGE TO THE PERIOD OF FINANCING. IN THE CASES OF PRE-MATURED REPAYMENT OF LOANS ALSO, THE UNAMORTIZED PORTION OF DSA COMMISSION IS NEVER RECOV ERED BACK FROM THE DSAS AND THE SAME IS CHARGED TO THE PRO FIT AND LOSS ACCOUNT. SINCE THE COMMISSION IS PAYABLE BY THE A SSESSEE IMMEDIATELY AFTER THE DISBURSAL OF FINANCE, THE DEDU CTION IS DULY ALLOWABLE AS REVENUE EXPENDITURE IN THE YEAR IN WHIC H IT IS INCURRED IRRESPECTIVE TO ITS ACCOUNTING TREATMENT AD OPTED BY THE ASSESSEE. IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1998-99, THE LEARNED ASSESSING OFFICER HAS DISALLOWED COMMISSION PA ID TO DSAS ON THE ALLEGED GROUND THAT THE EXPENDITURE ON BORROWAL OF FUNDS CAN BE DEBITED OVER THE PERIOD OF LOAN AS REVENUE EXPE NDITURE AND RELIED ON THE JUDGEMENT OF HONBLE SUPREME COURT I N THE CASE OF MADRAS INDUSTRIAL CORP. VS. CIT REPORTED IN 22 5 ITR 802. THE SAID JUDGEMENT RELATES TO ALLOWABILITY OF DEDUCTION ON ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 19 ACCOUNT DISCOUNT ON ISSUE OF DEBENTURES; I.E.; BORROWINGS . WHEREAS THE FACTS OF THE ASSESSEES CASE ARE THAT CO MMISSION IS PAID TO DSAS FOR SOURCING THE HIRERS. ONCE THE SALES COMMISSION IS PAID, IT IS NOT REFUNDABLE EVEN IF THE FINANCE CON TRACT IS TERMINATED LATTER ON OR REPAID PREMATURELY OR NO RECOVE RIES ARE MADE SUBSEQUENTLY. HENCE, COMMISSION PAID TO AGENTS I S REVENUE EXPENDITURE AND DULY ALLOWABLE FOR INCOME TAX PURPOSES. THUS LD. COUNSEL OF THE ASSESSEE CONTENDED THAT DURING THE CURRENT YEAR A.Y. 2001-02. AO HAS DULY EXAMINED TH E ENTIRE ISSUE AND FOUND THAT THE RECEIPT IN THESE YEARS DOES NOT HAVE ANY LINK WITH THE PERIOD OF DISBURSEMENT OF LOAN IN THAT YEAR. LD. COUNSE L REITERATED THAT THE COMMISSION EXPENSES HAVE ACTUALLY BEEN INCURRED D URING THE IMPUGNED FINANCIAL YEAR AND WERE THEREFORE ALLOWABLE IN THE YEAR. HENCE, THE LD. COUNSEL CLAIMED THAT ASSESSMENT FOR A SSESSMENT YEAR 1998-99 HAS NO APPLICABILITY ON THE FACTS IN THE PR ESENT CASE. HE MENTIONED THAT ONLY CASE MADE OUT BY THE AO DURING TH IS YEAR IS THAT SINCE THE FINANCING OF THE ASSESSEE IS SPREAD OVER CE RTAIN NUMBER OF YEAR, THE COMMISSION PAID SHOULD ALSO BE SPREAD. HE A RGUED THAT THE EXPENSES HAVE ACTUALLY BEEN INCURRED BY THE ASSESS EE. THE COMMISSION BECOMES DUE TO THE AGENTS AS SOON AS THEY PROCURE BUSIN ESS FOR THE ASSESSEE. HE SUBMITTED THAT THERE IS NO WAY THAT THE AMOUNT PAID AS COMMISSION CAN BE TAKEN BACK EVEN IN THE EVENT OF SUBS EQUENT FORFEITURE OF THE ACCOUNT. HENCE HE PLEADED THAT THERE IS NO REASON WHY THE COMMISSION PAID SHOULD BE SPREAD OVER IN ANY MANNE R. HE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 20 FURTHER CONTENDED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN TAX LAW. HE ALSO SUBMITTED THAT TRE ATMENT IN THE BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE ACTUAL NATURE OF TRANSACTION. FURTHER THE LD. COUNSEL ARGUED THAT AMOUNT PAID ON ST AMPING FEE IS AN ALLOWABLE UNDER SECTION 43B. IN THIS REGARD, HE REFE RRED TO A CATENA OF CASE LAWS INCLUDING 303 ITR 256 (DEL) IN THE CASE OF CIT VS. BHARAT ALUMINIUM CO. LTD.; 222 ITR 526 (DEL) IN THE CASE OF CIT VS. GUJARAT GUARDIAN LTD.; 172 ITR 257 (SC) IN THE CASE OF CIT VS. ASSOCIATED CEMENT COMPANIES LTD. AND 308 ITR 199 IN THE CASE OF CIT VS. SALORA INTERNATIONAL LTD.; 37 ITR 1 IN THE CASE OF KOLKATA COMPANY LTD. VS. CIT AND 227 ITR 172 IN THE CASE OF TUTICORIN ALKALI CHEM ICALS VS. CIT. LD. DR IN REJOINDER REPEALED THAT THE ORDER MAY BE REMITTED TO THE FILES OF AO IN ASSESSMENT YEAR 1998-99. 30. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE R ECORDS. WE FIND THAT IN THE PRESENT CASE BEFORE US THE ONLY CA SE MADE OUT BY THE AO IS THAT THE ASSESSEE HAS BEEN FINANCING THE HIRE PURCHASE OF VEHICLES AND HOMES ETC. AND THE PERIOD OF SUCH FINANCING IS FOR A CERTAIN PERIOD GOING BEYOND THE ASSESSMENT YEAR. HENCE, ON THE P REMISE THAT THE PERIOD OF FINANCING IS FOR CERTAIN NUMBER OF YEARS, THE AO IS OF THE OPINION THAT THE AMOUNT SPENT ON THE DIRECT SELLING AGE NTS COMMISSION AND STAMPING FEE SHOULD ALSO BE SPREAD ACCORDINGLY. AS SUCH WE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 21 ACCEPT THE LD. COUNSEL OF THE ASSESSEES CONTENTION TH AT THERE IS NO ISSUE BEFORE US AS TO WHETHER THERE IS A NEXUS BETWEE N AMOUNT PAID AS COMMISSION AND THE DISBURSEMENT OF LOAN IN THE CONCERNED YEAR. HENCE, THE RELIANCE OF THE DR ON THE ABOVE SAID TRIBUN AL DECISION IS NOT APPLICABLE. 30.1 NOW IN THIS CASE, WE FIND THAT THE EXPENDITURE HAS ACTUALLY BEEN INCURRED BY THE ASSESSEE IN THE IMPUGNED FINANCIAL YEARS. THE COMMISSION BECOME DUE AND PAYABLE TO THE AGENTS AS SOON AS THE BUSINESS IS PROCURED BY THEM. UNDER NO CIRCUMSTANCES , THE AMOUNT IS LIABLE TO BE RETURNED TO THE ASSESSEE. IT IS ALSO EV IDENT FROM THE DOCUMENTS REGARDING AOS ENQUIRY AND ASSESSEES RESP ONSE THAT AO HAS DULY EXAMINED THE ASPECT AND FOUND THAT IN THE CURR ENT PERIOD THE AMOUNT PAID AS COMMISSION IS NOT AT ALL LINKED WITH THE LOAN DISBURSEMENT DURING THE YEAR. IT IS ALSO EVIDENT T HAT AMOUNT PAID AS COMMISSION IN A PARTICULAR YEAR CAN IN NOT WAY BE CLAI MED AS REFUND BY THE ASSESSEE UNDER ANY CIRCUMSTANCES, EVEN IF TH E AMOUNT FINANCED IS FORFEITED. WE ALSO FIND FORM THE ORDERS OF THE AUTHORIT IES BELOW AND IN THE WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE T HEM THAT NEITHER OF THE AUTHORITIES BELOW HAVE DISPUTED EITHER TO NATURE OF SERVICES RENDERED BY AGENTS OR HOW THE LIABILITY TO PAY THE C OMMISSION IS COMPUTED. IT HAS ALSO NOT DISPUTED THAT HOW THE BROKER AGE IS PAYABLE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 22 AND IS LINKED TO WHAT. THE ONLY CASE MADE OUT BY THE REVENUE IS THAT EXPENDITURE SHOULD BE SPREAD OVER A CERTAIN PERIOD OF T IME. IN OUR OPINION, THERE IS NO COGENCY IN THE CASE MADE OUT BY TH E REVENUE. IT IS AN ACCEPTED POSITION THAT ASSESSEES TREATMENT IN ITS ACCOUNTS BOOKS IS NOT DETERMINATIVE OF THE ACTUAL NATURE OF THE TRANS ACTION. IT IS ALSO ADMITTED THAT THERE IS NEXUS BETWEEN THE EXPENDITU RE AND THE ASSESSEES BUSINESS. UNDER SUCH CIRCUMSTANCES, T HERE IS NO REASON WHY THE EXPENDITURE INCURRED WOULD NOT BE ALLOWED AS A WHOLE. FOLLOWING CASE LAWS SUPPORT THE VIEW POINT. HONBLE APEX COURT IN THE CASE OF CALCUTTA CO. LTD. VS . CIT 37 ITR 1 HAS HELD THAT THE SUM OF RS. 24,809/- REPRESENTED THE ESTIMATED AMOUNT WHICH WOULD HAVE TO BE EXPENDED BY TH E ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS AND WAS INCIDENTAL TO THE BUSINESS AND, HAVING REGARD TO THE ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES, WAS A DE DUCTION WHICH, IF THERE WAS NO SPECIFIC PROVISION FOR IT UNDER SECTION 10(2) OF THE INCOME TAX ACT, WAS CERTAINLY AN ALLOWABLE DEDU CTION, IN ARRIVING AT THE PROFITS AND GAINS OF THE BUSINESS OF THE APPELLANT, UNDER SECTION 10(I) OF THE ACT, THERE BEING NO PROHIBIT ION AGAINST IT, EXPRESS OR IMPLIED, IN THE ACT. ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 23 THE EXPRESSION PROFIT OR GAINS IN SECTION 10(I) OF THE IT ACT HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDI TURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS I S DEDUCTED THEREFROM - WHETHER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HAS ACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. FURTHER, HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS. SALORA INTERNATIONAL LTD. 308 ITR 199 REFERRED EARLIER HAS HELD THAT WHERE THE EXPENDITURE IS ACTUALLY BEEN INCURRED AND THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE ASSESSEES BU SINESS, THE EXPENDITURE HAS TO BE ALLOWED IN FULL AND NOT DEFERRED BY SPREADING OVER CERTAIN NUMBER OF YEARS. IT IS ALSO A SETTLED LAW THAT ACCOUNTING ENTRIES IN THE ASSESSEE BOOKS ARE NOT DETERMINATIVE OF ACTUAL NATURE OF TRANSACTIONS. THIS PROPOSITION DULY DRAWS SUPPORT FROM HONBLE APEX COURT DECISION IN 227 ITR 172 IN THE CASE OF TUTICORIN ALKALI CHEMICALS VS. CIT . 30.2 IT WILL ALSO BE APT TO REFER TO THE DECISION OF TH E HONBLE APEX COURT IN THE CASE OF CIT VS. ASSOCIATED CEMENT COMPAN IES LTD. IN 172 ITR 257 WHEREIN THE FACTS ARE AS UNDER:- ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 24 THE RESPONDENT COMPANY, A MANUFACTURER OF CEMENT, WA S RUNNING A CEMENT FACTORY AT SHAHABAD. THE THEN GOVER NMENT OF HYDERABAD INCLUDED THE FACTORY PREMISES WITHIN THE LIMITS OF SHAHABAD MUNICIPALITY. A TRIPARTITE AGREEMENT WAS ENTERED INTO BETWEEN THE GOVERNMENT, THE MUNICIPALITY AND THE RE SPONDENT COMPANY, WHEREBY THE COMPANY UNDERTOOK (I) TO SUPPLY WATER TO THE MUNICIPALITY AND PROVIDE WATER PIPELINES, (II) TO SUP PLY ELECTRICITY FOR STREET LIGHTING IN THE MUNICIPALITY AND PUT UP A T RANSMISSION LINE THEREFOR, AND (III) TO CONCRETE THE MAIN ROAD FROM THE FACTORY TO THE RAILWAY STATION. IN RETURN, THE RESPONDENT WAS NOT L IABLE TO PAY MUNICIPAL RATES AND TAXES FOR A PERIOD OF 15 YEARS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1959-60, THE R ESPONDENT SPENT A SUM OF RS. 2,09,459/- TOWARDS INSTALLING WATER PIPELI NES AND ACCESSORIES OUTSIDE THE FACTORY PREMISES WHICH WERE TO BELONG TO AN D BE MAINTAINED BY THE MUNICIPALITY. SINCE IT WAS NOT D ISPUTED THAT THE ENTIRE EXPENDITURE CONCERNED INSTALLATIONS AND ACCES SORIES WHICH CAME TO THE OWNERSHIP OF THE MUNICIPALITY, THE HIGH COURT, ON A REFERENCE HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE AND DEDUCTIBLE IN COMPUTING THE PROFITS OF THE COMPANY. THE HONBLE APEX COURT UPON CONSIDERATION REFERRED TO T HE DECISION OF THE APEX COURT IN THE EMPIRE JUTE CO. LTD . VS. CIT 124 ITR 1 ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 25 AND HELD THAT IF THIS PRINCIPLE IS APPLIED TO THE FACTS OF THE CASE BEFORE US, WHAT WE FIND IS THAT THE ADVANTAGE WHICH WAS SECURED BY THE ASSESSEE BY MAKING THE EXPENDITURE IN QUESTION WAS T HE SECURING OF ABSOLUTION OR IMMUNITY FROM LIABILITY TO PAY MUNICIPAL R ATES AND TAXES UNDER NORMAL CONDITIONS FOR A PERIOD OF FIFTEEN YEARS. IF THESE LIABILITIES HAD TO BE PAID, THE PAYMENTS WOULD HAVE BEEN ON REVENU E ACCOUNT AND HENCE THE ADVANTAGE SECURED WAS IN THE FIELD OF REVE NUE AND NOT CAPITAL. AS A RESULT OF THE EXPENDITURE INCURRED, THERE WAS NO ADDITION TO THE CAPITAL ASSETS OF THE ASSESSEE-COMPANY AND NO C HANGE IN ITS CAPITAL STRUCTURE. THE PIPELINES, ETC., WHICH MIG HT HAVE BEEN REGARDED AS CAPITAL ASSETS AND WHICH CAME INTO EXISTENCE AS A RESULT OF THE EXPENDITURE INCURRED DID NOT BELONG TO THE ASSESSEE-COM PANY BUT TO THE MUNICIPALITY. IN THESE CIRCUMSTANCES, APPLYIN G THE PRINCIPLES LAID DOWN IN EMPIRE JUTE CO.S CASE [1980] 124 ITR 1 (SC), THE EXPENDITURE IS CLEARLY LIABLE TO BE ALLOWED AS DEDUCTIBLE FROM THE PR OFITS UNDER SECTION 10(2)(XV) OF THE INDIAN INCOME TAX ACT. IN THE RESUL T, THE APPEALS FAILS AND IS DISMISSED WITH COSTS. EVEN AT THE COST OF REPETITION WE REFER TO THE FOLLOWIN G FROM THE HONBLE APEX COURT DECISION IN THE CASE OF EMPIRE JUTE COMPANY LTD. VS. CIT IN 124 ITR 1 WHEREIN IT WAS OBSERVED THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING A N ADVANTAGE OF ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 26 ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVENU E ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT E VERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRING S THE CASE WITHIN THE PRINCIPLES LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDIT URE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF T HE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRADING OPERAT IONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFECTIVELY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. NOW IN THE INSTANT CASE BEFORE US, WE FIND THAT EXP ENDITURE WHICH HAVE BEEN MADE IN THE CONCERNED YEARS WERE PAID TO THE SELLING AGENTS FOR SOURCING THE CUSTOMERS FROM WHOM THE ASSESSEE HAD GENERATED THE INCOME BY WAY OF GRANTING OF LOAN FINANCES. THE AMOUNT PAID AS COMMISSION IS NOT REFUNDABLE IN ANY CIRCUMSTANCES. UND ISPUTEDLY INCOME IN THIS REGARD HAS BEEN ACCOUNTED FOR IN THE CURRENT YEARS ALSO. UNDER SUCH CIRCUMSTANCES, EXAMINING THE PRESENT ISS UE ON THE ANVIL OF HONBLE JURISDICTIONAL HIGH COURT DECISION AND HONBLE APEX COURT DECISION CITED ABOVE, WE FIND THAT THE EXPENDITU RES ON ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 27 COMMISSION AND STAMPING FEE HAVE TO BE ALLOWED IN FULL IN THE IMPUGNED ASSESSMENT YEARS AS DEFERRAL OF THE SAME OV ER A NUMBER OF YEAR IS NOT SUSTAINABLE. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE . REVENUES APPEAL 31. ONE COMMON ISSUE IS RAISED IS THAT THE LD. CIT(A ) IN DIRECTING THE AO TO ALLOW CERTAIN PORTION OF ADVERTISEMENT EXPENSES. WE FIND THAT IN ASSESSEES APPEAL IN PARA 17 ABOVE, WE HAVE ALREA DY ADJUDICATED THIS ISSUE AND WE HAVE SET ASIDE THE ORDERS OF BOTH CIT(A) AND AO AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ENTIRE EXPENDITURE ON ADVERTISEMENT IS ALLOWABLE. HENCE, T HE ISSUE RAISED BY THE REVENUE STANDS DISMISSED. 32. ANOTHER ISSUE RAISED IN ITA NO. 2460 IS THAT THE LD. CIT(A) IN DIRECTING THE AO TO TREAT THE LEASEHOLD IMPROVEMENT EX PENSES OF RS. 1,52,24,029/- AS REVENUE EXPENSES. 33. ON THIS ISSUE THE AO NOTED THAT THE ASSESSEE C OMPANY HAS CLAIMED REVENUE EXPENDITURE AMOUNTING TO RS. 1522402 9/- ON ACCOUNT OF LEASE HOLD IMPROVEMENTS. THESE IMPROVEMENTS ARE ON A CCOUNT OF RENOVATION ETC. CARRIED ON IN THE LEASED PREMISES. IT IS SEEN THAT IN THE ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 28 EARLIER YEARS ALSO THE ASSESSEE COMPANY HAS DONE LEASE HOLD IMPROVEMENTS BUT HAS CAPITALIZED THE SAME AND CLAIME D 10% DEPRECATION ON IT. THEREFORE, THE LEASEHOLD IMPROVEMENT S ARE TREATED AS CAPITAL EXPENDITURE IN THIS YEAR ALSO. ACCORDING LY, THE EXPENDITURE OF RS. 15224029/- IS DISALLOWED AND 10% DEPRECIATION IS ALLOWED ON THE SAME. 34. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAS HIMSELF IDENTIFIED CAREFULLY THE EXPENDITURE WHICH ARE TO BE CAPITALIZED AND WHICH ARE CLAIMED TO BE REVENUE IN THIS REGARD. THE EXPENDITURE INCURRED ON FURNITURE ETC. WERE DULY CAPITALIZED AND REST AMOUNT CLAIMED AS IMPROVEMENTS OF LEASEHOLD EXPENSES WHICH WERE INCURRED WITH RESPECT TO LAYING OF CABLES, ELECTRICAL CONNECTI ONS, INSTALLATION OVC CONDUITS, CATS, SANITARY FITTINGS, PARTITIONS AND PIN BOARDS, CIVIL WORKS, BRICK WORK, WATER PROOFING, FLOORING, FALSE CEILING, WAL L FINISHES, TOILET FURNISHINGS, PAINT ON WALLS AND CEILINGS, EARTHLING, SWITCHES AND RECEPTACLES, GLAZING ON VENTILATORS ETC. 35. UPON CONSIDERATION OF THE ASSESSEES SUBMISSION T HE LD. CTI(A) GAVE A FINDING THAT HE HAS PERUSED THE DETAILS FILE D BY THE ASSESSEE AND FOUND THAT ASSESSEE HAS ALREADY BIFURCATED THE EXPEN DITURE INTO CAPITAL AND REVENUE. LD. CIT(A) OBSERVED THAT AO HAS NOT AT ALL GONE INTO THESE DETAILS WHICH WERE POINTED OUT AT THE TIME OF AS SESSMENT ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 29 PROCEEDINGS ITSELF. LD. CIT(A) OBSERVED THAT THE AO HAS NOT POINTED OUT ANY OF THE ITEMS WHICH SHOULD BE CONSIDERED AS CAP ITAL. LD. CIT(A) HELD THAT FROM THE ASSESSMENT ORDER, IT IS CLEAR TH AT AO HAS JUST TREATED THE MATTER IN A VERY CURSORY AND SUMMARY MANNER WIT HOUT GOING INTO THE DETAILS AND GIVING COGENT BASIS FOR THE DISALLOWAN CE. ACCORDINGLY, LD. CIT(A) ALLOWED ASSESSEE APPEAL ON THIS ISSUE. 36. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFOR E US. 37. IT HAS BEEN CONTENDED BY THE REVENUE THAT DETAI LS OF EXPENSES WERE NOT PRODUCED BEFORE THE AO. 38. ON THE OTHER LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE DETAILS WERE DULY PRODUCED AND THE AO HAS CHOSEN TO IGNORE THE SAME. HOWEVER, HE SUBMITTED THAT THE LD. CIT(A) HA S DULY CONSIDERED THE SAME AND GAVE A FINDING THAT THE AMOUNT INVOLVED IS ALLOWABLE AS REVENUE EXPENDITURE, HENCE HE ARGUED THAT THE L D. CIT(A)S ORDER SHOULD BE UPHELD. 39. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS, WE FIND THAT THE LD. CIT(A) HAS GIVEN A CATEGORICALLY FINDING THAT T HE ASSESSEE HAS DULY PRODUCED ALL THE NECESSARY DETAILS AND THAT THE ASSE SSEE HAS DULY IDENTIFIED THE CAPITAL PORTION OF THE EXPENDITURE INCU RRED AND THE AMOUNT ON THE IMPROVEMENTS EXPENSES WHICH WERE OF REV ENUE IN ITA NO. 4305&4617/DEL/05; 2460&2473/DEL/06 A.Y. 2001-02&2002-03 30 NATURE. WE ALSO FIND THAT IT IS A SETTLED LAW THAT POWERS AND DUTIES OF THE CIT(A) ARE CO-TERMINUS WITH THAT OF AO. HENCE, IN OUR CONSIDERED OPINION, THERE IS NO NEED TO INTERFERE WITH THE FINDIN G OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 40. IN THE RESULT, THE APPEALS FILED BY THE ASSES SEE ARE ALLOWED AND APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/12/2009. SD/- SD/- [VIMAL GANDHI] [SHAMIM YAHYA] PRESIDENT ACCOUNTANT MEMBER DATED: 18/12/2009 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES