ITO, New Delhi V. M/s. Beehive Systems (P) Ltd., New Delhi

ITA 4336/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6958 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4336/DEL./2014 (ASSESSMENT YEAR : 2010-11) ITO, WARD 2 (4), VS. M/S. BEEHIVE SYSTEMS PVT. LT D. NEW DELHI. 7 202, SAKET, NEW DELHI 110 017. (PAN : AACCB0344F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY SOOD, CA REVENUE BY : SHRI S.K. JAIN, SENIOR DR DATE OF HEARING : 17.01.2017 DATE OF ORDER : 24.01.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, INCOME TAX OFFICER, WARD 2 (4), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILIN G THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.06.2014, PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- V, NEW DELHI UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1 961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE G ROUND THAT :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN HOLDING THAT THE EXPENSES INCU RRED ON MARKET RESEARCH WERE REVENUE EXPENSES AND NOT TO ITA NO.4336/DEL./2014 2 BE AMORTIZED U/S 35D(2)(A)(III) AS HELD BY AO, THOU GH THE SAME WERE INCURRED IN CONNECTION WITH EXTENSION OF ITS UNDERTAKING AS PER THE DETAILS SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDING. 2. BRIEFLY STATED FACTS OF THIS CASE ARE : DURING T HE SCRUTINY PROCEEDINGS, ASSESSING OFFICER NOTICED THAT THE ASS ESSEE COMPANY HAS CLAIMED A SUM OF RS.52,05,586/- IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD MARKET RESEARCH. ASSESSEE CALLED UPON TO EXPLAIN AS TO WHY THESE EXPENSES SHALL NOT BE CAPITALIZED A S THE ASSESSEE WAS DERIVING LONG TERM BENEFIT. ASSESSEE CLAIMED T HAT SINCE NO NEW ASSETS HAVE BEEN CREATED NOR THERE IS AN EXPEND ITURE OF ENDURING NATURE, THE SAME CANNOT BE CAPITALIZED. H OWEVER, AO BEING DIS-SATISFIED PROCEEDED TO CONCLUDE THAT IT B EING EXPENSE OF ENDURING NATURE IS BEING AMORTIZED BY INVOKING THE PROVISIONS CONTAINED UNDER SECTION 35D(2)(A)(III) OF ACT BUT A LLOWED THE CLAIM OF THE ASSESSEE TO TUNE OF 1/5 TH OF THE EXPENSES FOR THE FIVE YEARS AND ASSESSED THE TOTAL INCOME AT RS.53,72,391/-. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING THE APPEAL WHO HAS ALLOWED THE APPEAL. FEEL ING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.4336/DEL./2014 3 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE SOLE QUESTION ARISES FOR DETERMINATION IN TH IS CASE IS :- AS TO WHETHER EXPENSES TO THE TUNE OF RS.52,05,586 /- INCURRED BY THE ASSESSEE ON MARKET RESEARCH ARE REVENUE EXPENSES AND TO BE AMORTIZED U/S 35D(2)(A)( III) OF THE ACT AS CONTENDED BY THE REVENUE? 6. TO PROCEED FURTHER, WE WOULD LIKE TO REPRODUCE T HE PROVISIONS CONTAINED U/S 35D(2)(A)(III) OF THE ACT FOR READY PERUSAL:- 35D. (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPAN Y OR A PERSON (OTHER THAN A COMPANY) WHO IS RESIDENT IN INDIA, INCURS, AFTER THE 31ST DAY OF MARCH, 1970, A NY EXPENDITURE SPECIFIED IN SUB-SECTION (2), (I) BEFORE THE COMMENCEMENT OF HIS BUSINESS, OR (II) AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNECTION WITH THE EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW UNIT, THE ASSESSEE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO ONE-TENTH OF SUCH EXPENDITURE FOR E ACH OF THE TEN SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE BUSINESS COMMENCES OR, A S THE CASE MAY BE, THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE UNDERTAKING IS COMPLETED OR THE NE W UNIT COMMENCES PRODUCTION OR OPERATION : PROVIDED THAT WHERE AN ASSESSEE INCURS AFTER THE 31 ST DAY OF MARCH, 1998, ANY EXPENDITURE SPECIFIED IN SU B- SECTION (2), THE PROVISIONS OF THIS SUB-SECTION SHA LL HAVE EFFECT AS IF FOR THE WORDS 'AN AMOUNT EQUAL TO ONE- TENTH ITA NO.4336/DEL./2014 4 OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS', THE WORDS 'AN AMOUNT EQUAL TO ONE- FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCC ESSIVE PREVIOUS YEARS' HAD BEEN SUBSTITUTED. (2) THE EXPENDITURE REFERRED TO IN SUB-SECTION (1) SHALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUSES, NAMELY : (A) EXPENDITURE IN CONNECTION WITH (I) PREPARATION OF FEASIBILITY REPORT; (II) PREPARATION OF PROJECT REPORT; (III) CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECESSARY FOR THE BUSINESS OF THE ASSESSEE; (IV) ENGINEERING SERVICES RELATING TO THE BUSINESS OF THE ASSESSEE : PROVIDED THAT THE WORK IN CONNECTION WITH THE PREPARATION OF THE FEASIBILITY REPORT OR THE PROJEC T REPORT OR THE CONDUCTING OF MARKET SURVEY OR OF ANY OTHER SURVEY OR THE ENGINEERING SERVICES REFERRED TO IN T HIS CLAUSE IS CARRIED OUT BY THE ASSESSEE HIMSELF OR BY A CONCERN WHICH IS FOR THE TIME BEING APPROVED IN THI S BEHALF BY THE BOARD 7. BARE PERUSAL OF THE PROVISIONS CONTAINED U/S 35D INVOKED BY THE AO TO AMORTIZE EXPENSES INCURRED ON MARKET RESE ARCH GOES TO PROVE THAT THE EXPENSES MUST BE INCURRED BEFORE COM MENCEMENT OF THE BUSINESS OR AFTER COMMENCEMENT OF THE BUSINESS BUT WHERE THERE IS AN EXTENSION OF UNDERTAKING OR SETTING UP OF A NEW UNIT. IN THE INSTANT CASE, AO HAS NOT MADE OUT ANY CASE IF T HE ASSESSEE HAS INCURRED THE EXPENSES AFTER THE COMMENCEMENT OF BUS INESS IN ITA NO.4336/DEL./2014 5 CONNECTION WITH THE EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH ITS SETTING UP A NEW UNIT. MOREOVER, MARKETIN G SURVEY ARE CONDUCTED BY THE COMPANY ON AD HOC BASIS / ON DAY- TO-DAY BASIS TO ACHIEVE THE TARGET/TO ENHANCE SALE AND NO ENDURING BENEFIT IN ANY MANNER USED TO BE THERE. 8. LD. CIT (A) HAS CATEGORICALLY THRASHED THE ISSUE AT PAGE 24 OF THE IMPUGNED ORDER, THAT NATURE OF THE SERVICES TO BE PROVIDED BY THE CONSULTANTS ENGAGED BY THE ASSESSEE COMPANY HAVE BEEN BROUGHT ON RECORD BY WAY OF A SAMPLE AGREEMENT WITH ONE OF SUCH CONSULTANTS AT UNITED KINGDOM BUT THE ASSESSEE HAD ALSO DEMONSTRATED THE INCREASE IN THE REVENUE DURING THE YEAR UNDER ASSESSMENT WHICH CAN BE ATTRIBUTED TO THE ENHANCED MARKETING EFFORTS OF SUCH CONSULTANTS. 9. MOREOVER, TO INVOKE THE PROVISIONS CONTAINED U/S 35D, SUCH EXPENSES ARE REQUIRED TO BE INCURRED BEFORE THE COM MENCEMENT OF THE BUSINESS OR AFTER THE COMMENCEMENT OF THE BUSIN ESS IN CONNECTION WITH EXTENSION OF UNDERTAKING OR IN CONN ECTION WITH ITS SETTING UP OF A NEW UNIT, BOTH THESE CONDITIONS ARE NOT FULFILLED. SO, WE ARE OF THE CONSIDERED VIEW THAT THE EXPENSES TO THE TUNE OF RS.52,05,586/- CANNOT BE AMORTIZED BY INVOKING THE PROVISIONS CONTAINED U/S 35D AND LD. CIT (A) HAS RIGHTLY DELET ED THE ADDITION ITA NO.4336/DEL./2014 6 AND THE QUESTION FRAMED FOR DETERMINATION IS ANSWER ED AGAINST THE REVENUE. 9. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FINDIN G NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED B Y LD. CIT (A), THE REVENUES APPEAL IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF JANUARY, 2017. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBE R DATED THE 24 TH DAY OF JANUARY, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-V, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.