Samara India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4731/DEL/2009

• Counselvise Citation: 473120114 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTY
• Assessee Lawyers: GULSHAN RAI
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 4731(DEL)/2009 ASSESSMENT YEAR: 2006-07 SAMARA INDIA PVT. LTD., ASSI STANT COMMISSIONER OF INCOME B-35, LAJPAT NAGAR-II, VS. TAX, C IRCLE 7(1), NEW DELHI. NEW DELHI. PAN: AAHCS3555N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GULSHAN RAI, C.A. RESPONDENT BY : SMT. S. MOHANTY, DR DATE OF HEARIN G: 23.11.2011 DATE OF PRONOU NCEMENT: 09.12.2011. ORDER PER K.G. BANSAL : AM THE ONLY SUBSTANTIVE GROUND TAKEN BY THE ASSESS EE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF 4/5 TH OF INCREMENTAL EXPENDITURE INCURRED ON ADVERTISEMENT RELATING TO USED CAR BUSINESS BY HOLDING IT TO BE CAPITAL IN NATURE. 2. THE FACTS OF THE CASE ARE THAT THE RETURN W AS FILED ON 29.11.2006 DECLARING TOTAL INCOME OF RS. 30,12,049/-. THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS OF A DEALER IN HYUNDAI CARS. MAJOR EXPENDITURE ITA NO. 4731(DEL)/2009 2 OF RS. 23,49,309/- WAS INCURRED ON ADVERTISEMENT A ND PUBLICITY. IT WAS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED TO ADVERTISE THE PRODUCTS, SCHEMES AND ON DISCOUNTS. HOWEVER, THE AO DID NOT ACCEPT THE EXPLANATION. IT IS MENTIONED THAT THE ADVERTISEM ENT BRINGS IN A BENEFIT OF ENDURING NATURE. THEREFORE, 1/5 TH OF THE EXPENDITURE WAS ALLOWED IN THIS YEAR AND THE BALANCE EXPENDITURE WAS HELD TO BE ALLOWABLE IN EQUAL INSTALLMENTS IN NEXT FOUR YEARS. 2.1 BEFORE THE LD. CIT(APPEALS), THE DETAILS OF ADVERTISEMENT ETC. EXPENSES INCURRED IN VARIOUS YEARS FROM FINANCI AL YEARS 2000-01 TO 2005-06 WERE FILED. IT WAS FOUND THAT THERE WAS A SUDDEN SPURT OF THE EXPENDITURE IN THIS YEAR. THE EXPENSES IN THE E ARLIER YEARS VARIED BETWEEN ABOUT RS. 1.08 LAKH TO ABOUT RS. 9.34 LAKH EXCEPT IN FINANCIAL YEAR 2003- 04, IN WHICH IT STOOD AT ABOUT RS. 29.81 LAKH. WHEN THE ASSESSEE WAS QUESTIONED ABOUT THE SUBSTANTIAL INCREASE IN THE EXPENDITURE, IT WAS SUBMITTED THAT IT HAD STARTED DEALING IN USED C ARS ALSO. ON THESE FACTS, IT HAS BEEN HELD THAT THE INCREMENTAL INCREASE IN THE EXPENSES IS ON ACCOUNT OF NEW BUSINESS STARTED IN THIS YEAR IN RESPECT OF TRADING OF USED CAR. THIS EXPENDITURE WAS INCURRED TO BUILD BRAND NAME SO AS TO CONFER BENEFIT OF ITA NO. 4731(DEL)/2009 3 ENDURING NATURE. ACCORDINGLY, THE AO WAS DIRECTE D TO DISALLOW 4/5 TH OF INCREMENTAL EXPENDITURE ONLY. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT DEALING IN OLD CARS IS NOT NEW BUSINESS BUT IT IS PART AND P ARCEL AS DEALING IN HYUNDAI CARS. IN THESE BUSINESSES, MANAGEMENT, FINANCES AND PERSONNEL ARE THE SAME. THEREFORE, IT COULD NOT BE SAID THAT THE ADV ERTISEMENT EXPENSES WERE INCURRED IN A NEW BUSINESS. FURTHER, IT HAS BEE N SUBMITTED THAT THE ADVERTISEMENT EXPENSES ARE REVENUE IN NATURE. 3.1 IN REPLY, THE LD. SENIOR DR RELIED ON THE FI NDINGS OF THE LD. CIT(APPEALS), WHICH HAS ALREADY BEEN SUMMARIZED BY US. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS MADE BEFORE US. IN THE CASE OF JAY ENGINEERING WORKS LTD. VS. CIT, (2008) 166 TAXMAN 115 (DEL), IT HAS BEEN HELD THAT IF THE N EW VENTURE WAS MANAGED FROM THE COMMON FUNDS, THE CONTROL AND MANAGEMEN T WAS IN THE SAME HAND AND THERE WAS INTER-DEPENDENCE AND INTER-LAC ING OF TWO VENTURES, THEN IT IS ONLY A CASE OF EXTENSION OF EXISTING BUSINESS AND NOT STARTING OF A NEW BUSINESS. THE LOWER AUTHORITIES HAVE TR IED TO DISTINGUISH BETWEEN DEALERSHIP IN HYUNDAI CARS AND DEALING IN OLD CAR S, HOLDING THE LATTER TO BE ITA NO. 4731(DEL)/2009 4 A NEW BUSINESS. HOWEVER, THERE IS NO FACT ON RECORD THAT THE MANAGEMENT AND FINANCES OF DEALING IN USED CARS WERE SEPA RATE AND APART FROM THE EXISTING BUSINESS. THEREFORE, WE ARE OF THE VIEW THAT THE TWO BUSINESSES ARE THE SAME. THE RELEVANT PORTION OF THE JUDGMENT OF HONBLE DELHI HIGH COURT, CONTAINED IN PARAGRAPH NO. 16, IS REPRODUCE D BELOW:- 16. APPLYING THESE PRINCIPLES TO THE PRESENT CASE, IT IS QUITE CLEAR TO US THAT THE CONTROL OVER THE TWO UNITS IS IN THE HANDS OF THE SAME MANAGEMENT AND ADMINISTRATION. THERE IS NO DOUBT ON THIS SCORE AND IN FACT, THE ANNUAL REPORT OF THE AS SESSEE, WHICH HAS BEEN SHOWN TO US BY LEARNED COUNSEL, MAKES A RE FERENCE TO THE PROJECT AT HYDERABAD. THERE CAN BE NO DISPUTE F ROM THE FACTS THAT HAVE BEEN PLACED BEFORE US ON RECORD THA T THE NEW VENTURE WAS MANAGED FROM COMMON FUNDS AND THERE IS THE NECESSARY UNITY OF CONTROL LEADING TO AN INTERCONNE CTION, INTERDEPENDENCE AND INTERLACING OF THE TWO VENTURES SUCH THAT IT CAN BE SAID THAT THE FUEL INJECTION EQUIPMENT PROJE CT IS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE AND, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE ON THIS PR OJECT IS A REVENUE EXPENDITURE. 4.1 FURTHER, WE ARE OF THE VIEW THAT ADVERTISEME NT EXPENSES ARE REVENUE IN NATURE. THEREFORE, THE ASSESSEE IS ENTITLED TO DEDUCT THE WHOLE OF THE EXPENDITURE. 5. IN THE RESULT, THE APPEAL IS ALLOWED. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 4731(DEL)/2009 5 COPY OF THE ORDER FORWARDED TO:- SAMARA INDIA PVT. LTD., NEW DELHI. ACIT, CIRCLE-7(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.