DCIT, New Delhi V. Mr. Enrich Agro Food Products Ltd., New Delhi

ITA 4729/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74363 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-03-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 05-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOOD
• Keywords: Depreciation; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI) BEFORE SHRI U. B. S. BEDI, JUDICIAL MEMBER AND SHRI J. S. REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4729 & 4730/DEL/2012 (ASSESSMENT YEARS 2003-04 & 2009-10 RESPECTIVELY) DCIT, CIRCLE 11(1), VS. ENRICH AGRO FOOD PRODUCTS LTD. NEW DELHI FLAT NO.B-163, PKT. I, VASANT KUNJ, NEW DELHI PAN/GIR NO.: AAACE0807C (APPELLANTS) (RESPONDENTS) ASSESSEE BY : NONE DEPARTMENT BY: SHRI GAGAN SOOD, SR. DR ORDER PER U B S BEDI, JUDICIAL MEMBER: THESE TWO APPEAL OF THE REVENUE ARE DIRECTED AGAIN ST SEPARATE ORDERS PASSED BY LD. CIT(A) XIII, NEW DELHI RELATABLE TO P ENALTY U/S 271(1)(C) FOR THE ASSESSMENT YEAR 2003-04 AND OTHER RELATABLE TO SECTION 143(3) DATED 01.06.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSE OF BY SINGLE ORDER FOR THE SAKE OF CONVENIENCE. 3. I.T.A. NO. 4729/DEL/2012 ( ASSESSMENT YEAR 2003 -04): - BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE ASSESSMENT U/S 143(3 ) OF THE I. T. ACT, 1961 WAS FINALIZED ON 28.02.2006 DETERMINING TOTAL LOSS AT ( -) RS.1,81,40,737/- AS AGAINST RETURNED LOSS OF (-) 2,07,34,815/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ADDITIONS WERE MADE ON ACCOUNT OF CONTR IBUTION TO PF AND ESI OF RS.87,002/-, INTEREST OF RS.40,551/- ON DELAYED PAYMENT OF TDS, REPAIRS I.T.A. NOS.4729 & 4730/DEL/2012 2 AND MAINTENANCE EXPENSES OF RS.23,10,457/- TREATED AS CAPITAL EXPENDITURE AND LOSS ON SALE OF ASSETS DEBITED TO PROFIT & LOSS ACCOUNT OF RS.4,23,510/-. THE ADDITIONS SO MADE WERE CONFIRMED BY THE CIT(A), THEREFORE, A.O. LEVIED PENALTY OF RS.9,53,324/- U/S 271(1(C) OF THE I. T. ACT, 1961. 3.1 THE ASSESSEE TOOK UP THE MATER IN APPEAL AND PL EADED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE A.O. IS UNJUSTIFIED ON LAW AND FACTS IN IMPOSING THE PENALTY WHICH ACTION WAS ALSO IN VIOLATION OF P RINCIPLES OF NATURAL JUSTICE AS IT HAS BEEN IMPOSED WITHOUT GRANTING THE ASSESSE E FAIR, PROPER AND MEANINGFUL OPPORTUNITY. VARIOUS ADVERSE INFERENCES WERE DRAWN WHICH ARE UNSUPPORTED BY ANY MATERIAL ON RECORD AND WITHOUT S EEKING ANY EXPLANATION FROM THE ASSESSEE. SO, IT WAS PLEADED FOR DELETION OF PENALTY IMPOSED BY THE A.O. RELIANCE WAS PLACED ON VARIOUS CASE LAWS NOTE D AS UNDER: I) ROSE LOCK FACTORY, 117 TAXMAN 366 (GUJ.) II) AMIR CHAND, 48 TTJ 308 (ITAT DELHI BENCH) (199 4) III) CIT VS RELIANCE PETRO PRODUCT PVT.LTD. 189 TAXMAN 3 22(S.C.) IV) CIT VS KRISHNA MARUTI LTD. 330 ITR 547 V) CIT VS SHAHBAD COOP. SUGAR MILLS LTD. (2010) 322 IT R 0073 VI) CIT VS INTERNATIONAL AUDIO VISUAL CO. 288 ITR 0570 VII) CIT VS SSP LTD. 328 ITR 0643 3.2 LD. CIT(A) WHILE DISCUSSING THE FACTS AND DETAI LS OF THE CASE IN THE LIGHT OF CASE LAW CITED BY HT LD. A.R., HAS CONCLUD ED TO DELETE THE IMPUGNED PENALTY AS UNDER: THE FACTS OF THE APPELLANT CASE ARE IDENTICAL WITH THE ABOVE CITED JUDICIAL PRONOUNCEMENTS; THEREFORE, THE RATIO OF TH E ABOVE CITED JUDICIAL PRONOUNCEMENTS IS SQUARELY APPLICABLE TO T HE APPELLANTS CASE. HENCE, THE PENALTY LEVIED BY THE A.O. U/S 17 1(1)(C) IS CANCELLED. 3.3 AGGRIEVED BY THIS ORDER OF LD. CIT(A), DEPARTME NT HAS COME UP IN APPEAL AND LD. D.R. HAS RELIED UPON THE ORDER OF TH E A.O. AND PLEADED FOR SETTING ASIDE THE ORDER OF LD. CIT(A) RESTORING THA T OF THE A.O. I.T.A. NOS.4729 & 4730/DEL/2012 3 3.4 NOBODY ATTENDED ON BEHALF OF THE ASSESSEE SO; W E PROCEED TO DECIDE THIS APPEAL AFTER CONSIDERING THE MATERIAL ON RECOR D AND ARGUMENTS OF THE LD. D.R. 3.5 ON CAREFUL CONSIDERATION OF THE ARGUMENTS OF LD . D.R. IN THE LIGHT OF THE MATERIAL ON RECORD AND CASE LAW AS RELIED UPON BY THE ASSESSEE BEFORE LD. CIT(A) WHICH ARE DISCUSSED IN THE FIRST APPELLATE O RDER, WE FIND THAT LD. CIT(A) HAS TAKEN A JUST AND APPROPRIATE VIEW TO DEL ETE THE PENALTY WHILE FOLLOWING CASE LAW ON THE POINT IN HIS ORDER. WE D O NOT FIND ANY INFIRMITY OR FLAW IN THE SAID ORDER AND WHILE CONCURRING WITH TH E FINDINGS OF LD. CIT(A), WE UPHOLD HIS ORDER AND DISMISS THE APPEAL OF THE R EVENUE. 3.6 AS A RESULT, THIS APPEAL OF THE REVENUE STANDS DISMISSED. 4. I.T.A. NO. 4730/DEL/2012 (ASSESSMENT YEAR 2009-1 0):- IN THIS APPEAL OF THE DEPARTMENT, THE CHALLENGE IS WITH REGARD TO DELETION OF ADDITION OF RS.1,20,707/- MADE ON ACCOUNT OF CLUB EXPENSES PAID TO M/S. DLF GOLD RESORTS LTD. AND ADDITION OF RS.59,01,979/- MADE ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY EXPENSES BEING TREATED AS CAPITAL IN NATURE. 4.1 AS REGARDS THE FIRST ISSUE, THE FACTS INDICATES THAT ON A PERUSAL OF TAX AUDIT REPORT, IT IS SEEN THAT THE ASSESSEE COMPANY HAD PAID A SUM OF RS.1,20,707/- TO DLF GOLF RESORTS LTD .AS MEMBERSHI P AND SUBSCRIPTION FEES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THAT THESE EXPENSES HAD BEEN I NCURRED FOR THE PURPOSE OF BUSINESS. BESIDES, THE RECREATIONAL ACTIVITY CANNO T BE CONSIDERED TO BE FOR BUSINESS EXIGENCY IN VIEW OF THE ABOVE, THE SUM OF RS.63,671/- PAID TO DLF GOLF RESORTS LTD. WAS DISALLOWED AND ADDED BACK TO TAXABLE INCOME OF THE ASSESSEE. 4.2 THE ASSESSEE TOOK UP THE MATER IN APPEAL AND CH ALLENGED SUCH ACTION OF THE A.O. AND WHILE. RELYING UPON VARIOUS CASE LA W AS MENTIONED IN PARA I.T.A. NOS.4729 & 4730/DEL/2012 4 6.2 OF HIS ORDER, IT WAS PLEADED FOR DELETION OF TH E ADDITIONS MADE BY THE A.O. 4.3 LD. CIT(A) WHILE CONSIDERING THE FACTS OF THE C ASE AND HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS CENTRAL COLOUR LTD . (2010) 326 ITR 425 AND CIT VS NESTLE INDIA LTD. 296 ITR 682 (DEL.), LD . CIT(A) CONCLUDED TO DELETE THE IMPUGNED ADDITION AS PER LASTS LIMB OF P ARA 6.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER: IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENT THE CL UB MEMBERSHIP FEE PAID FOR THE BENEFIT OF THE EMPLOYEES IS AN ALL OWABLE EXPENDITURE. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. OF RS. 1,20,707/- OF MEMBERSHIP AND SUBSCRIPTION FEE PAID TO DLF GOLF RE SORTS LTD. FOR SH. VARINDER PAL SINGH KANDHARI, WHOLE TIME DIRECTO R OF THE COMPANY IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE APP ELLANTS COMPANY. HENCE, THE DISALLOWANCE IS DELETED. 4.4 AGGRIEVED BY THIS ORDER OF LD. CIT(A), DEPARTME NT HAS COME UP IN APPEAL AND WHILE RELYING UPON THE A.O.S ORDER, IT WAS PLEADED FOR SETTING SIDE THE ORDER OF LD. CIT(A) AND RESTORING THAT OF THE A.O. 4.5 NOBODY APPEARED AT THE TIME OF HEARING OF THIS APPEAL, SO WE PROCEED TO DECIDE THIS ISSUE AFTER CONSIDERING THE MATERIAL ON RECORD AND ARGUMENTS AS ADVANCED BY LD. D.R. 4.6 WE HAVE HEARD LD. D.R. AND CONSIDERED THE MATER IAL ON RECORD AND FIND THAT LD. CIT(A) HAS DELETED THE IMPUGNED ADDIT IONS WHILE FOLLOWING JURISDICTIONAL HIGH COURTS DECISIONS WHEN NO CONTR ARY DECISION OR ANY NEW FACT HAS BEEN BROUGHT ON RECORD BY THE LD. D.R. SIN CE, CONCLUSION AS DRAWN BY LD. CIT(A) APPEARS TO BE PROPER AND JUSTIFIED, T HEREFORE WHILE CONCURRING WITH THE FINDINGS OF LD. CIT(A) IN THIS RESPECT, WE UPHOLD HIS ORDER ON THIS ISSUE AND DISMISS THE APPEAL OF THE REVENUE IN THIS REGARD. I.T.A. NOS.4729 & 4730/DEL/2012 5 5. AS REGARDS THE 2 ND ISSUE, THE SAME RELATES TO CHALLENGE OF THE DEPARTMENT IN RELATION TO DELETION OF ADDITION OF R S.59,01,979/- MADE ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY EXPENSES BEI NG TREATED AS CAPITAL IN NATURE. THE ASSESSEE IN THIS CASE, CHALLENGED THE ORDER OF THE A.O. TREATING THE ADVERTISEMENT AND PUBLICITY EXPENSES OF RS.78,6 9,306/- AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION ON THE SAME @ 25% TO MAKE AN ADDITION OF RS.59,01,979/- BY OBSERVING AS UNDER: ON A PERUSAL OF THE SELLING & DISTRIBUTION EXPENS ES UNDER SCHEDULE P FORMING PART OF THE PROFIT & LOSS ACCO UNT FOR THE RELEVANT ASSESSMENT YEAR, IT IS NOTICED THAT THE ASSESSEE CO MPANY HAD INCURRED EXPENSES AMOUNTING TO RS.78,69,306/- TOWARDS ADVER TISEMENT AND PUBLICITY AS COMPARED TO RS.71,41,957/- DURING THE EARLIER ASSESSMENT YEAR. THE ASSESSEE WAS ASKED TO FILE TH E LEDGER ACCOUNT OF THE EXPENSE. PERUSAL OF THE LEDGER ACCOUNT OF ADVE RTISING SHOWS THAT EXPENDITURE HAS BEEN INCURRED ON THE FOLLOWING: ADVERTISEMENT IN NEWSPAPERS INSTALLATION OF SIGNAGE GLOW SIGNS BOARD FRONTLIT/BACKLIT FLAX BOARDS ADVERTISING AT VARIOUS EVENTS. AS THE ASSESSEE COMPANY IS A FRANCHISEE OF COCA-CO LA INDIA TO MANUFACTURE AND SALE OF AERATED WATER, AND BEVER AGES UNDER THE BRAND NAME COCA-COLA FANTA, THUMS UP, LIMCA , MAAZA ETC. THE EXPENDITURE AS REFERRED TO ABOVE WOULD GI VE AN ENDURING BENEFIT TO THE ASSESSEE, WHICH IT WOULD DERIVE ON A CCOUNT OF THE ENHANCED VISIBILITY, & RECALL VALUE TO ITS BRAND OF PRODUCTS. IN VIEW OF THE ABOVE, IT IS HELD THAT THE AFORESAID EXPENDITURE AMOUNTING TO RS.78,69,306/- IS OF CAPITAL NATURE. H OWEVER, DEPRECIATION @ 25% AMOUNTING TO RS.19,67,326.50 (25 % OF RS.78,69,306/- RS.19,67,327/-) IS HEREBY DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 5.1 THE ASSESSEE CHALLENGED SUCH ACTION OF THE A.O. BEFORE THE FIRST APPELLATE AUTHORITY NEW DELHI IT WAS CONTENDED THAT THE BUSINESS OF THE ASSESSEE WAS MANUFACTURING SOFT DRINKS/AERATED WATE R WITH BRAND NAMES I.T.A. NOS.4729 & 4730/DEL/2012 6 COCA-COLA, MAAZA, THUMS UP, FANTA ETC. IT IS NOTED THAT TRADE IN WHICH ASSESSEE IS ENGAGED IS SUBJECT TO VERY STRONG & STI FF COMPETITION FROM WORLD RENOWNED SOFT DRINK PEPSI AND IT LEFT NO STONE UN TURNED TO SEE THE EYE CATCHING SIGNBOARDS, VENDOR COUNTERS, SHUTTERS DULY PAINTED WITH THEIR BRAND LOGO AND THE DISPLAY OF THEIR BRANDS. KEEPING IN VIEW, THE KEEN COMPETITION IN SOFT DRINK INDUSTRY, THE ASSESSEE HA S TO MAINTAIN STRONG FEELING AMONG THE CUSTOMERS ABOUT ITS BRANDS. SOME TIME, THE ADVERTISING IS DONE BY THE ASSESSEE ON MARKET AREA IN THE FORM OF PAINTING OF COUNTER OR POP IN THE MARKET AREA OR PAINTING OF SHUTTERS OF T HE DEALER REPAINTED BY THEIR COMPETITOR. FURTHER, ASSESSEE HAS TO PROVIDE FRONT/BACKLIT SIGN BOARDS, GLOW SIGN PAINTING ETC. IT WAS STRONGLY PLEADED TH AT THE CLAIM OF THE ASSESSEE IS SUCH THAT IT IS OF REVENUE NATURE AND THE A.O. I S NOT JUSTIFIED IN TERMING IT AS CAPITAL EXPENDITURE. SO RELYING UPON THE HON'BL E DELHI HIGH COURT DECISION IN THE CASE OF CIT VS AGRA BEVERAGES CORPO RATION (P) LTD. 11 TAXMAN.COM350, ADIDAS INDIA MARKETING (P) LTD. VS A .O., 10 TAXMAN.COM 18 (DEL.) AND DISCUSSION IN OTHER CASE LAW INCLUDIN G THE CASE OF M/S. S A BUILDERS LTD. VS CIT 288 ITR 01, LD. A.R. PLEADED F OR DELETION OF THE ADDITIONS MADE BY THE A.O. 5.2 LD. CIT(A) WHILE CONSIDERING ALL THE CASE LAW A S RELIED UPON BY THE LD. A.R. OF THE ASSESSEE AND FACTS OF THE CASE IN T HE LIGHT OF THE NATURE OF BUSINESS OF THE ASSESSEE, HAS CONCLUDED TO DELETE T HE IMPUGNED ADDITIONS AS PER LAST LIMB OF PARA 7 OF HIS ORDER TO TREAT THE A DVERTISEMENT AND PUBLICITY EXPENSES AS REVENUE EXPENDITURE AND ALLOWED IT AS B USINESS EXPENDITURE. 5.3 AGGRIEVED BY THIS ORDER OF LD. CIT(A), DEPARTME NT HAS COME UP IN APPEAL BEFORE THE TRIBUNAL AND PLEADED FOR SETTING ASIDE THE ORDER OF LD. CIT(A) AND RESTORING THAT OF THE A.O. I.T.A. NOS.4729 & 4730/DEL/2012 7 5.4 NOBODY APPEARED ON BEHALF OF THE ASSESSEE, SO W E PROCEED TO DECIDE THIS GROUND OF APPEAL CONSIDERING THE FACTS OF THE CASE, MATERIAL ON RECORD AND THE ARGUMENTS OF THE LD. D.R. 5.5 AFTER HAVING HEARD LD. D.R. AND CONSIDERING THE MATERIAL ON RECORD, WE FIND THAT LD. CIT(A) HAS PASSED A WELL REASONED AND DETAILED ORDER CONSIDERING ALL THE FACTS OF THE CASE IN THE LIGHT OF CASE LAW RELIED UPON BY THE ASSESSEE. NEITHER ANY FRESH MATERIAL HAS BEEN SUBMITTED TO SUPPORT THE CONTENTIONS RAISED BY LD. D.R., NOR ANY INFIRMITY O R FLAW HAVE BEEN POINTED OUT BEFORE US BY THE LD. D.R. THEREFORE, WHILE CON CURRING WITH THE FINDINGS OF LD. CIT(A), WE UPHOLD THE ORDER OF LD. CIT(A) A ND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 6. AS A RESULT, APPEAL OF THE REVENUE GETS DISMISSE D. 7. ORDER PRONOUNCED IN THE OPEN COURT SOON AFTER CO NCLUSION OF HEARING ON 20 TH MARCH 2014. SD./- SD./- (J. S. REDDY) (U.B.S.BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 20 TH MARCH, 2014. SP. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXV, NEW DELHI AR, ITAT, 5. CIT(ITAT), NEW DELHI NEW DELHI