DCIT CIR 7(1), V. SANOFI PASTEUR (P) LTD,

ITA 4903/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88253 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 01-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BEER LA
• Assessee Lawyers: J D MISTRY
• Keywords: Depreciation

Judgement Text

__ IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH ___, MUMBAI , ,, , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 2356/DEL/2010 (ASSESSMENT YEAR: 2005-06) ITA NO. : 4903/DEL/2010 (ASSESSMENT YEAR: 2006-07) DCIT, CIR-7(1), ROM NO. 312, 3 RD FLOOR, C R BUILDING, I P ESTATE, NEW DELHI VS M/S SANOFI PASTEUR (P) LTD., D-2, IV FLOOR, SOUTHERN PARK, DDA COMMERCIAL CENTRE, SAKET, NEW DELHI -110 007 .: PAN: AACCA 8477 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN KUMAR BEERLA RESPONDENT BY : SHRI J D MISTRY & SHRI NITESH JOSHI !' # $% /DATE OF HEARING : 20-11-2014 &'( # $% / DATE OF PRONOUNCEMENT : 13-02-2015 ORDER , , , , PER VIVEK VARMA, JM: THE APPEALS ARE FIELD BY THE DEPARTMENT AGAINST THE ORD ERS OF CIT(A)-X, DELHI, DATED 18.02.2010 & 30.08.2010 RESPECTIVELY. THE FOLLOWING GROUNDS HAVE BEEN TAKEN IN THE TWO YEARS: ITA NO. 2356/MUM/2010 : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON FACTS BY THE AO ON ACCOUNT OF ADVERTISEMENT, SALES PROMOTION AND PUBLICITY. 2. LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 1,45,980/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON COMPUTER PERIPHERALS AND ACCESSORIES. M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 2 3. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. ITA NO. 4903/MUM/2010 : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN LAW AS WELL AS ON MERITS I N DELETING THE ADDITION OF RS. 1,45,40,201/- MADE BY AO ON ACCOUNT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES BEING CAPITAL IN NATURE. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD O R FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE CAPTIONED APPEALS WERE FILED WITH ITAT, DELHI BENCHES, DELHI. 3. SINCE THE RECORDS OF THE ASSESSEE WERE TRANSFERRED FROM DELHI TO MUMBAI, IT WAS REQUESTED BY THE ASSESSEE VIDE LET TER DATED 10.08.2011 TO TRANSFER THE CAPTIONED APPEALS, AS FILED AT DELHI TO MUMBAI. THE CASES WERE TRANSFERRED ACCORDINGLY, A FTER RECEIVING NO OBJECTIONS FROM THE OFFICERS CONCERNED AT VA RIOUS LEVELS. 4. HENCE THE APPEALS BEFORE THE ITAT MUMBAI BENCHES, WHICH FINALLY CAME UP FOR HEARING ON 20.11.2014. 5. SINCE THE ISSUES IN BOTH THE CAPTIONED APPEALS ARE COMMON, WE ARE DISPOSING OFF THE APPEALS THROUGH THIS COMM ON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ASST. YEAR 2005-06 : 6. WE PROCEED WITH APPEAL FOR ASSESSMENT YEAR 2005-06, BEING THE LEAD YEAR. 7. THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS OF S ALES AND DISTRIBUTION OF VACCINES IMPORTED FROM OTHER COUNTRIES, PRIMARILY FROM FRANCE. M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 3 8. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO TR EATED EXPENSES INCURRED ON ADVERTISEMENT AT RS. 7,96,873/- AS CAPITAL IN NATURE BEING 30% OF RS. 26,56,245/- AS IT WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE. 9. THE ASSESSEE TOOK THE ISSUE BEFORE THE CIT(A), WHO AFT ER GOING THROUGH THE DETAILS HELD, THE CONTENTION OF THE APPELLANT COMPANY IS JUSTIFI ABLE IN VIEW OF THE FACT THAT THE EXPENDITURE INCURRED O N ADVERTISEMENT, SALES PROMOTION AND PUBLICITY IS AN EXPENDITURE WHICH IS INCURRED IN THE NORMAL COURSE OF BUSINESS OF THE APPELLANT COMPANY. THE FACT THAT SU CH EXPENDITURE IS REVENUE IN NATURE IS SUPPORTED BY NUMEROUS JUDGMENTS AS RELIED UPON BY THE APPELLANT COMPANY. 2.6 THE CASES REFERRED BY THE LD. AC ARE IN REFEREN CE TO THE TREATMENT OF AN EXPENDITURE WHICH PROVIDES ENDU RING BENEFIT TO ASSESSEE. THE APPELLANT HAS POINTED OUT THAT IT HAS BEEN TIME AND AGAIN HELD BY VARIOUS HON'BLE TRIBUNALS INCLUDING THE JURISDICTIONAL HON'BLE DELH I TRIBUNAL THAT EXPENDITURE INCURRED ON ADVERTISEMENT AND SALES PROMOTION DOES NOT ENSURE ANY ENDURING BENEFI T TO A COMPANY. 2.7 THE APPELLANT HAS RELIED ON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE CASES OF EMPIRE JUTE COMPANY LTD (SUPRA) AND ALEMBIC CHEMICAL WORKS COMPANY LTD (SUPRA). THE SUPREME COURT OBSERVED THA T IN SUCH CASES THE TEST OF ENDURING BENEFIT IS, THER EFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE A PPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PART ICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 2.8 THE APPELLANT HAS POINTED OUT THAT IN ALEMBIC CHEMICAL WORKS COMPANY LTD (SUPRA), THE HON'BLE SUPREME COURT OBSERVED THAT THE IDEA OF ONCE FOR AL L PAYMENT AND ENDURING BENEFIT ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS: NOR ARE THE NOTIONS OF CAPITAL OR REVENUE A JUDICIAL FETISH. TH E SUPREME COURT ALSO OBSERVED THAT THE ONCE FOR ALL PAYMENT TEST IS ALSO INCONCLUSIVE. WHAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND ITS INTENDED OBJECT AND E FFECT, CONSIDERED IN A COMMONSENSE WAY HAVING REGARD TO TH E BUSINESS REALITIES. THE SUPREME COURT ALSO NOTED TH AT IN A GIVEN CASE, THE TEST OF ENDURING BENEFIT MIGHT BR EAK DOWN. 2.9 THE ALLEGATION OF THE LD. AO THAT SUCH EXPENDIT URE RESULTS INTO BRAND BUILDING OF THE APPELLANT COMPAN Y AND ITS PARENT COMPANY IS ALSO OF NO CONSEQUENCE AS IT IS MERELY A THEORETICAL ARGUMENT AS HELD BY VARIOUS RE CENT JUDICIAL PRONOUNCEMENTS. 2.10 MOREOVER, THE LD. AO HAS FAILED TO POINT OUT A S TO WHY THE FIGURE OF 30 PERCENT OF EXPENDITURE HAS BEE N TREATED AS CAPITA NATURE AND NOT ANY OTHER AMOUNT. THIS IS CLEARLY A CASE OF ADHOC DISALLOWANCE WHICH CANNO T BE M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 4 UPHELD, AS OBSERVED BY VARIOUS JUDICIAL DECISIONS. 2.11 IN VIEW OF THE ABOVE, THE ADHOC DISALLOWANCE O F 30% OF THE EXPENDITURE INCURRED ON ADVERTISEMENT MADE B Y THE LD. AO IS DELETED. 10. THE CIT(A) REVERSED THE ORDER OF THE AO AND ACCORD INGLY GAVE RELIEF TO THE ASSESSEE BY DELETING THE DISALLOWANCE OF RS. 7,96,873/-. 11. AGAINST THIS ORDER OF THE CIT(A), THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 12. BEFORE US, THE DR RELIED ON THE ORDER OF THE AO, WHE REAS, THE AR RELIED ON THE ORDER OF THE CIT(A). 13. AFTER HEARING BOTH THE PARTIES AND ON GOING THROUGH THE DETAILS AND VARIOUS CASE LAWS REFERRED BEFORE US IN THE AP B, WE ARE OF THE OPINION THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE CIT(A), WHO RELIED ON THE RATIOS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASES OF EMPIRE JUTE CO. LTD. VS CI T REPORTED IN 124 ITR 01 AND ALEMBIC CHEMICALS WORKS COMP ANY LTD. VS CIT, REPORTED IN 177 ITR 377. 14. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECTED THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT. 15. GROUND NO. 1 IS THEREFORE REJECTED. 16. GROUND NO. 2 PERTAINS TO PERCENTAGE OF DEPRECIATION ALLOWABLE ON COMPUTER PERIPHERALS. 17. IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED DEPREC IATION AT 60% ON ADDITIONS TO COMPUTERS ACCESSORIES/PERIPHERALS , WHICH WERE LAPTOPS, COMPUTER, SERVER, UPS, PRINTER ETC., WH ICH ARE AS UNDER: M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 5 SR. NO. PARTICULARS AMOUNT (RS) 1 LAPTOP BATTERY 17,290 2 LAPTOP BATTERY 22,754 3 USB PORT 8,100 4 USB PORT 12,150 5 BACKUP TAPE DRIVE 99,600 6 NETWORK SWITCH 109,200 7 1150 HP LASER JET PRINTER 17,000 8 1150 HP LASER JET PRINTER 17,000 9 THINK CENTRE A - 50 P - 4 LAPTOP 39,200 10 SQL SERVER CALL 2000 58,000 11 CONNECTOR D LINK 15,300 12 PRINTER 13,400 13 UPS SERVER 56,000 TOTAL 525,038 18. THE AO DENIED THE DEPRECIATION AT 60% BUT ALLOWED 25%. 19. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), WHO AFT ER CONSIDERING THE ARGUMENTS OF THE ASSESSEE, HELD, THE ABOVE SUBMISSIONS OF THE APPELLANT COMPANY HA VE BEEN PERUSED VERY CAREFULLY ALONG WITH THE ASSESSME NT ORDER. 4.5 IT HAS BEEN SUBMITTED THAT THE TERM COMPUTER HA S NOT BEEN DEFINED IN THE ACT. HOWEVER, EXPLANATION (A) T O CLAUSE (XI) OF SECTION 36(1) OF THE ACT DEFINES COM PUTER SYSTEM WHICH READS AS UNDER: 'COMPUTER SYSTEM' MEANS A DEVICE OR COLLECTION OF D EVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCL UDING CALCULATORS WHICH ARE NOT PROGRAMMABLE AND CAPABLE OF BEING USED IN CONJUNCTION WITH EXTERNAL FILES, OR M ORE OF WHICH CONTAIN COMPUTER PROGRAMMES, ELECTRONIC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA, THAT PERF ORMS FUNCTIONS INCLUDING, BUT NOT LIMITED TO, LOGIC, ARI THMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATION AND CONTR OL' 4.6 IT IS CLEAR FROM THE ABOVE DEFINITION THAT A CO MPUTER SYSTEM INCLUDES ITS INPUT AND OUTPUT DEVICES. MOREO VER, THE LEGISLATURE COULD NOT HAVE INTENDED TO PROVIDE A HIGHER RATE OF DEPRECIATION ONLY FOR A MONITOR AND A CENTRAL PROCESSING UNIT (CPU) WITHOUT ALLOWING THE HIGHER RATE OF DEPRECIATION ON THE PERIPHERAL EQUIPMENTS W HICH FORMS PART OF A WHOLESOME COMPUTER SYSTEM. WITHOUT THESE PERIPHERAL EQUIPMENTS, A COMPUTER SYSTEM WOUL D BECOME A DUMB DEVICE AND WOULD NOT BE OF ANY USE FO R A PRUDENT PERSON. 4.7 IT HAS ALSO BEEN STATED THAT THE ISSUE HAS BEEN SETTLED BY THE HON'BLE DELHI TRIBUNAL IN THE CASE O F EXPEDITORS INTERNATIONAL INDIA (P) LTD. VS ADDL. CI T 118 TTJ 652, WHEREIN IT HAS BEEN HELD THAT THE PERIPHER ALS SUCH AS PRINTERS, SCANNERS, NT SERVER, ETC. FORM IN TEGRAL PART OF THE COMPUTER AND THE SAME, THEREFORE, ARE E LIGIBLE FOR DEPRECIATION AT A HIGHER RATE AS APPLICABLE TO A COMPUTER. THE SAME VIEW HAS BEEN FOLLOWED BY HON'BL E M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 6 DELHI TRIBUNAL IN THE CASE OF ACIT V. CONTINENTAL C ARDERS PVT: LTD, ITA NO 2137/DEL/2008 DATED 9 JANUARY 2009 . THE HON'BLE CALCUTTA TRIBUNAL IN ITO V. SAMIRAN MAJUMDAR 98 ITD 119 [2005] HAS ALSO HELD THE COMPUT ER PERIPHERALS TO BE ELIGIBLE FOR HIGHER RATE OF DEPRE CIATION. 4.8 AFTER CONSIDERING THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISIONS IN THE ABOVE CASES INCLUDIN G THE JUDGMENTS PRONOUNCED BY THE JURISDICTIONAL DELHI TRIBUNAL, IT IS HELD THAT THE COMPUTER PERIPHERALS ARE ELIGIBLE FOR HIGHER RATE OF DEPRECIATION I.E. AT TH E RATE OF 60%. 4.9 THEREFORE, THE ADDITION IN RESPECT OF LOW RATE OF DEPRECIATION ALLOWED ON COMPUTER PERIPHERALS IS HER EBY DELETED. IT IS HEREBY DIRECTED THAT DEPRECIATION BE ALLOWED AT THE RATE OF 60 PERCENT ON COMPUTER PERIPHERALS. 20. THE CIT(A), THEN DELETED THE ADDITION AS MADE BY THE AO. 21. AGAINST THIS ORDER OF THE CIT(A) ON THE ISSUE, THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 22. BEFORE US THE DR RELIED ON THE ORDER OF THE AO, WHERE AS THE AR RELIED ON THE ORDER OF THE CIT(A). 23. WE HAVE HEARD THE ARGUMENTS AND HAVE GONE THROUG H THE ORDER OF THE REVENUE AUTHORITIES AND WE FIND THAT THE O RDER OF THE CIT(A) IS REASONABLE AND AS PER THE INFERENCE DRAWN FROM T HE PROVISION OF THE ACT AND DECIDED CASE LAWS. 24. WE, THEREFORE DO NOT FIND AND ANY REASON TO DEVIATE FR OM THE WELL REASONED ORDER OF THE CIT(A), WHICH WE SUSTAIN. AS A RESULT, THE GROUND OF APPEAL, AS FILED BY THE DEPARTMENT IS REJECTED. 25. GROUND NO. 3 IS GENERAL IN NATURE. 26. AS A RESULT, THE APPEAL AS FILED BY THE DEPARTMENT IS DISMISSED. ASST. YEAR 2006-07 : 27. THE ISSUE IS IDENTICAL TO GROUND NO. 1 IN ITA NO. 2356/DEL/2010. M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 7 28. IN THE YEAR UNDER CONSIDERATION, THE AO ALLOWED RS. 48,46,934/- I.E. 25% OF RS. 1,93,86,935/- (I.E. RS. 1,96,21,862 RS. 2,34,927), WHEREBY HE ARRIVED AT THE FIGURE OF RS. 1,45,40,201/-. 29. IN THE PRECEDING YEAR, WE HAVE HELD THAT ADVERTISEME NT EXPENSES ARE REVENUE IN NATURE BY FOLLOWING THE DECISIONS OF HONBLE SUPREME COURT IN THE CASES OF EMPIRE JUTE CO. LT D. ( SUPRA ) AND ALEMBIC CHEMICAL WORK CO. LTD. ( SUPRA ). 30. SINCE THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF T HE ASSESSEE, WE DO NOT FIND ANY REASON TO DEVIATE FROM OUR OWN FINDINGS ON THE SAME AND IDENTICAL FACTS. 31. WE, THEREFORE, REJECT THE GROUND TAKEN BY THE DEPARTMENT. 32. GROUND NO. 1 IS THEREFORE, REJECTED. 33. GROUND NO. 2 IS GENERAL. 34. AS A RESULT, THE APPEAL AS FILED BY THE DEPARTMENT IS DISMISSED. 35. IN THE RESULT, THE APPEAL AS FILED BY THE DEPARTMENT IS DISMISSED. 36. IN THE RESULT, THE APPEALS FILED BY THE DEPARTMENT IN ITA NO. 2356/DEL/2010 IS DISMISSED ITA NO. 4903/DEL/2010 IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH FEBRUARY, 2015. SD/- SD/- ( ) ( ) (R C SHARMA) ( VIVEK VARMA ) ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 13 TH FEBRUARY, 2015 M/S SANOFI PASTEUR (P) LTD. ITA 2356/DEL/2010 ITA 4903/DEL/2010 8 $/ COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT(A) -X, DELHI. 4) THE CIT-III, NEW DELHI. 5) ,'-. $! ____ , , /01 / ! /01 THE D.R. ____/CONCERNED_____ BENCH, DELHI/NEW DELHI. 6) .23 4 COPY TO GUARD FILE. 05! / BY ORDER / / TRUE COPY / / 6 / 7 8 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN, SR.PS