DCIT, New Delhi V. M/s. ITJ Retails Pvt. Ltd., New Delhi

ITA 4991/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77582 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 29-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: AKASH KHANDELWAL
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI G. D. AGARWAL, HONBLE VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 499 1 /DEL/ 2013 (ASSESSMENT YEAR: 2009 - 10 ) DCIT CIRCLE - 11(1), ROOM NO. 312, C. R. BUILDING, NEW DELHI VS. ITJ RETAILS PVT. LTD., G - 2, SWASTIK BHAWAN, RANJIT NAGAR, COMMERCIAL COMPLEX NEW DELHI 110015 PAN: AAFCA7530F (APPELLANT) (RESPONDENT) APPELLANT BY : SATPAL SINGH, SR. DR RESPONDENT BY: AKASH KHANDELWAL, CA O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - X V , NEW DELHI DATED 26 .06.2013 FOR THE ASSESSMENT YEAR 2009 - 10 . 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS. 1,70,05,587/ - MADE BY HOLDING THE ADVERTISEMENT EXPENSES BEING CAPITAL IN NATURE. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OR APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. APROPOS DELETION OF ADDITION OF RS. 1,70,05,589/ - MADE ON ACCOUNT OF ADVERTISEMENT EXPENSES. 4. BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE TRADING OF COMPUTERS AND ELECTRONIC PRODUCTS. DURING RELEVANT YEAR, THE ASSESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF ADVERTISEMENT AND MARKETING TO THE TUNE OF RS. 2,12,56,984/ - . THE ASSESSING OFFICER CALLED FO R THE DETAILS OF SUCH EXPENSES IN RESPONSE TO WHICH, THE ASSESSEE FURNISHED LEDGER ACCOUNT SUPPORTED BY VOUCHERS. HOWEVER , THE ASSESSING OFFICER WAS OF THE OPINION THAT ADVERTISEMENT EXPENSES WERE FOR BRAND BUILDING IN COMPUTER RETAIL SECTOR AND THEREFORE WILL YIELD ENDURING BENEFITS TO THE ASSESSEE; AND THEN HELD THAT EXPENDITURE TO BE CAPITAL IN NATURE. CONSEQUENTLY, THE ASSESSING OFFICER ALLOWED ONLY 20% OF THE SAID EXPENSES , IN THE RELEVANT ASSESSMENT YEAR WHILE THE BALANCE 80% OF THE EXPENDIT URE WAS ALLOWED TO BE CLAIMED IN SUBSEQUENT YEARS IN 4 EQUAL INSTALLMENTS . PAGE NO. 2 5. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) , WHO WAS PLEASED TO ALLOW THE SAID APPEAL. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE REVENUE IS BEFORE US. 6. THE LD DR CONTENDED THAT THE ADVERTISEMENT EXPENSE S INCURRED WAS FOR BRAND BUILDING OF THE ASSESSEE IN COMPUTER RETAIL SECTOR AND THEREFORE THE ASSESSING OFFICER RIGHTLY HELD THAT THE SAID EXPENSES BE AL LOWED OVER A PERIOD OF FIVE YEARS AND THEREFORE THE ORDER OF THE ASSESSING OFFICER MAY BE RESTORED. ON THE OTHER HAND THE LD AR SUBMITTED THAT THE ASSESSEE WAS IN THE BUSINESS OF RETAIL SALES OF VARIOUS PRODUCTS INCLUDING COMPUTERS OF DIFFERENT BRANDS AND THE ADVERTISEMENT EXPENSES INCURRED WAS FOR PUBLISHING ADVERTISEMENT IN NEWSPAPER AND ELECTRONIC MEDIA FOR PROMOTING ITS OWN BUSINESS, WHICH IS PERFECTLY ALLOWABLE U/S 37(1) OF THE ACT. THE LD AR RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN TH E CASE OF CASIO INDIA LTD. VS. CIT 335 ITR 196. LD AR SUBMITTED THAT ASSESSING OFFICER COULD NOT FIND ANY FAULT IN LEDGER ACCOUNT SUBMITTED TO HIM ALONG WITH ALL RELEVANT BILLS AND VOUCHERS, SO ACCORDING TO HIM THE DISALLOWANCE WAS BAD IN LAW AND IT WAS RI GHTLY CORRECTED BY LD CIT(A) AND THEREFORE WE MAY NOT DISTURB THE SAME. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS AND HAVE GONE THROUGH THE CASE LAWS CITED BY EITHER SIDE . WE FIND THAT T HE ASSESSEE WAS INCORPORATED ON 26.09.2005 , FOR CARRYING ON THE BUSINESS OF RETAIL TRADING BY MEANS OF COMPANY OPERATED STORES FOR SALES OF COMPUTERS, LAPTOPS, PERIPHERALS AND DIGITAL LIFESTYLES PRODUCTS. IT HAD OPENED NUMBER OF STORES FOR RETAIL SALE OF VARIOUS PRODUCTS. THE COMPANY WAS ENGAGED IN THE BUSINESS OF MULTI - BRAND RETAIL SALE OF ELECTRONICS AND COMPUTERS . THE ASSESSEE HAD CLAIMED EXPENDITURE ON ACCOUNT OF ADVERTISEMENT AND MARKETING AMOUNTING TO RS. 2,12,56,984/ - ; THE ASSESSEE FURNISHED LEDGER ACCOUNT SUPPORTED BY VOUCHERS. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAID CLAIM AND HELD IT TO BE A CAPITAL EXPENDITURE AND ALLOWED 20% DISALLOWANCE AND THE REST OF THE DISALLOWANCE IN SUBSEQUENT YEAR IN FOUR EQUAL INSTALLMENTS. AGAINST THE SAID ORDER THE ASSESSEE PREFERRED AN APPEAL WHICH WAS ALLOWED BY THE LD CIT(A). NOW LET US LOOK AT THE CASE LAW DECIDED BY THE JURISDICTIONAL HIGH COURT. 8. A SIMILAR CASE WAS DECIDED BY HONBLE DELHI HIGH COURT IN CIT VS. CITI FINANCIAL CONSUMER FIN. LTD. (DELHI) ( 2011) 335 ITR 29, THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT EXPENDITURE ON PUBLICITY AND ADVERTISEMENT IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN THE YEAR IT WAS INCURRED . THE FACTS OF THE SAID CASE WAS THAT IN THE ASSESSMENT YEAR 2001 - 02, THE ASSESSEE - COMPANY CLAIMED AN EXPENDITURE OF RS. 3.93 CRORES ON ACCOUNT OF ADVERTISEMENT AND PUBLICITY EXPENDITURE AS REVENUE EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE COULD NOT BE PAGE NO. 3 TERMED AS EXPE NDITURE RELEVANT EXCLUSIVELY FOR THE PERIOD OF 12 MONTHS UNDER CONSIDERATION DURING THE ASSESSMENT YEAR 2001 - 02. SUCH ADVERTISEMENT AND PUB LICITY EXPENSES HAD A BEARING OVER A PERIOD OF FIVE YEARS AND, THEREFORE, THE ASSESSEE COULD NOT CLAIM THE BENEFIT I N THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. THUS, OPINING THAT THE BENEFIT WAS OF ENDURING NATURE, HE WAS OF THE VIEW THAT IT WAS TO BE SPREAD OVER A PERIOD OF FIVE YEARS AND THUS ALLOWED ONE - FIFTH OF THE AMOUNT IN THE YEAR. IN THE NEXT YEAR 2002 - 03, THE TOTAL EXPENDITURE INCURRED ON PUBLICITY AND ADVERTISEMENT WAS RS. 6.35 CRORES AND GIVING AN IDENTICAL REASON, THE ASSESSING OFFICER ALLOWED ONE - FIFTH THEREOF IN THAT YEAR TOO . THE COMMISSIONER (APPEALS) CONFIRMED THE VIEW OF THE ASSESSING OFFICER. THE TRIBUNAL HELD THAT SECTION 35D OF THE INCOME - TAX ACT, 1961 WAS WRONGLY INVOKED AS IT HAD NO APPLICABILITY. THE TRIBUNAL FURTHER OPINED THAT THE ADVERTISEMENT EXPENDITURE HAD ACTUALLY BEEN INCURRED DURING THE YEAR AND THERE WAS A NEXUS BETWEEN THE EXPENDIT URE OF THE ASSESSEES BUSINESS AND, THEREFORE, THE EXPENDITURE WAS ALLOWABLE UNDER SECTION 37 OF THE ACT. ON APPEAL BEFORE THE HONBLE HIGH COURT, IT WAS HELD THAT: - . 9. FROM THE FACTS NOTED ABOVE AND ON THE BASIS OF THE SUBMISSIONS OF LEARNED COUNSEL FO R THE PARTIES, THE FOLLOWING ASPECTS CLEARLY EMERGE AS UNDISPUTABLE: (A) THE EXPENDITURE IN QUESTION IS INCURRED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEARS IN WHICH THE ASSESSEE IS CLAIMING DEDUCTION THEREOF U/S 37 OF THE ACT. THUS THERE IS NO DISPUT E THAT THE EXPENDITURE IS IN FACT INCURRED. (B) IT IS ALSO NOT IN DISPUTE THAT THE EXPENDITURE IN QUESTION IS BUSINESS EXPENDITURE INCURRED WHOLLY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. (C) THE EXPENDITURE INCURRED IN THE NATURE OF ADVERTISEME NT AND PUBLICITY IS INCURRED FOREVER AND IN NO MANNER ANY PORTION THEREOF REVERTS BACK TO THE ASSESSEE. 10. THE AFORESAID FACTS WOULD DEMONSTRATE THAT THE INGREDIENTS OF SECTION 37 OF THE ACT STAND SATISFIED. THEREFORE, NORMALLY THE EXPENDITURE IS TO BE A LLOWED AS BUSINESS EXPENDITURE IN THE YEAR IN QUESTION IN WHICH THE SAME IS INCURRED. IN THIS BACKDROP. CASES REFERRED TO: CALCUTTA COMPANY LTD. VS. CIT (1959) 37 ITR 1(SC) (PARA 17) CIT VS. ASSOCIATED CEMENT COMPANIES LTD (1988) 172 ITR 257 (SC) (PARA 17 ) CIT VS. INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (2009) 185 TAXMAN 296 (DELHI) (PARA 8) CIT VS. SALORA INTERNATIONAL LTD. (2009) 308 ITR 199 (DELHI) PARAS 8,13,17 HINDUSTAN ALUMINIUM CORPORATION LTD. VS. CIT (1983) 144 ITR 474 (CAL) PARAS 6,11) PAGE NO. 4 APPLYING THE AFORESAID PRINCIPLE TO THE FACTS OF THIS CASE, IT CLEARLY EMERGES THAT THE EXPENDITURE ON PUBLICITY AND ADVERTISEMENT IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN THE YEAR IN WHICH IT WAS INCURRED. CONCEDEDLY, THERE IS NO ADVANTAGE WHICH HAS ACCRUED TO THE ASSESSEE IN THE CAPITAL FIELD. THE EXPENDITURE WAS INCURRED TO FACILITATE THE ASSESSEES TRADING OPERATIONS. NO FIXED CAPITAL WAS CREATED BY THIS EXPENDITURE. WE MAY ALSO ADD HERE THAT IN THE INCOME - TAX LAW, THERE IS NO CONCEPT O F DEFERRED REVENUE EXPENDITURE. ONCE THE ASSESSEE CLAIMS THE DEDUCTION FOR THE WHOLE AMOUNT OF SUCH EXPENDITURE, EVEN IN THE YEAR IN WHICH IT IS INCURRED, AND THE EXPENDITURE FULFILS THE TEST LAID DOWN U/S 37 OF THE ACT, IT HAS TO BE ALLOWED. ONLY IN EXCEP TIONAL CASES, THE NATURE MENTIONED IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. (1997) 225 ITR 802 (SC), THE EXPENDITURE CAN BE ALLOWED TO BE SPREAD OVER, THAT TOO, WHEN THE ASSESSEE CHOOSES TO DO SO. 9. IN CIT VS. CASIO INDUSTRIAL LTD (DELHI) 335 ITR 196 (DELHI) WHEREIN THE ASSESSEES CLAIM FOR ADVERTISEMENT AND SALE PROMOTION BY DISTRIBUTION OF MUSICAL INSTRUMENTS AND DIGITAL DIARIES FOR BRAND PROMOTION WAS ALLOWED AS REVENUE EXPENDITURE BY THE HONBLE J URISDICTIONAL HIGH COURT. 10. IN THE INSTANT CASE, WE FIND THAT THE COMPANY WAS ONLY ENGAGED IN RETAIL TRADING AND HAD NO PRODUCTS MANUFACTURED OR SOLD UNDER ITS OWN BRAND. THEREFORE WE FIND THAT THE ASSESSING OFFICER ERRED IN OBSERVING THAT THE ADVERTISE MENT WAS FOR BRAND BUILDING IN COMPUTER RETAIL SECTOR AND EVEN IF SO, THEN ALSO AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN CASIO INDIA LTD (SUPRA) HAS UPHELD THE EXPENSES INCURRED BY CASIO FOR PROMOTION OF ITS BRAND. WE FIND THAT THE LD CIT(A) HAS RIG HTLY OBSERVED THAT ASSESSING OFFICER HAS NOT FOUND ANY FAULT IN RESPECT OF ALLOWABILITY OF THE EXPENSES ON THE BASIS OF EXAMINATION OF LEDGER ACCOUNT AND BILLS, VOUCHERS RELATING TO ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER HAS ERRED FINALLY IN CONCLUDING THAT THE ADVERTISEMENT EXPENDITURE AS A DEFERRED EXPENDITURE I N VIEWS OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF D CIT VS. CORE HEALTH LTD. (2009) 308 ITR 263 (GUJ.) ON THIS ASPECT , WE DO AGREE WITH THE OBSERVATION OF THE LD CIT(A) THAT UNDER THE PROVISIONS OF THE INCOME TAX ACT, THAT THERE IS NO CONCEPT CALLED DEFERRED REVENUE EXPENDITURE AND HENCE, AN EXPENDITURE IS EITHER TO BE TREATED AS REVENUE OR AS CAPITAL IN NATURE AND EXCEPTION IS FOR CERTAIN SPECIFIED ITEMS WHICH ARE ALLOWED ON AMORTIZATION BASIS U/S 35D OF THE ACT . THEREFORE THE ASSESSING OFFICER ERRED IN HOLDING THAT THE ADVERTISEMENT EXPENSES AS DEFERRED REVENUE EXPENSES IS NOT VALID IN THE EYES OF LAW AND T HEREFORE THE LD CIT(A) HAS RIGHTLY DELETED THE SAME. THEREFORE, IN THE BACKDROP OF THE CASE LAWS DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE SAID IMPUGNED ORDER AND WE CONFIRM IT . THEREFORE WE DISMISS THE APPEAL PREFERRED BY THE REVENUE. PAGE NO. 5 11 . IN THE RESULT THE APPEAL PREFERRED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 4 . 04 .2014. - S D / - - S D / - ( G. D. AGARWAL) - (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED : 0 4 / 04 /2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI