M/s Ind Swift Ltd., Chandigarh V. Addl. CIT, Chandigarh

ITA 530/CHANDI/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7076 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 23-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Gift; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 530/CHD/2014 ASSESSMENT YEARS : 2005-06 M/S IND SWIFT LTD V ADDL C.I.T. RANGE I PLOT NO. 781, IA CHANDIGARH PHASE II, CHANDIGARH AAACI 6100 L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI T.N. SINGLA RESPONDENT BY: SMT. JYOTI KUM ARI DATE OF HEARING 11.8.2014 DATE OF PRONOUNCEMENT 21.8.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 24. 3.2014 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF LD. CIT(A) IS BAD, AGAINST THE FACTS OF LAW. 2 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ALL OCATION OF INDIRECT EXPENSES AMOUNTING TO RS. 125 LAKHS FROM C ORPORATE UNIT TO PARWANOO UNIT 1 & 2 ON EQUAL BASIS. 3 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE DIS ALLOWANCE OF DEDUCTION U/S 35(2AB) AMOUNTING TO RS. 77,02,604 /-. 4 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE DIS ALLOWANCE OF SEED MARKETING EXPENSES AMOUNTING TO RS. 4,28,26 ,594/-. 3 OUT OF ABOVE, GROUNDS NO. 2 & 3 WERE NOT PRESSED AND THEREFORE SAME ARE DISMISSED AS NOT PRESSED. 4 GROUND NO. 1 IS OF GENERAL NATURE AND THEREFORE N O SEPARATE ADJUDICATION IS REQUIRED. 5 GROUND NO. 4 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED 2 THAT THE ASSESSEE HAS CLAIMED SEED MARKETING EXPENS ES OF RS. 53533244/- AS REVENUE EXPENDITURE. THE EXPENDITURE WAS PRIMARILY INCURRED IN ORDER TO DEVELOP THE MARKET A ND THEREFORE ASSESSEE UNDERTOOK DIFFERENT TYPE OF MARKETING AND PROMOTIONAL ACTIVITIES TO CREATE A SUSTAINED AWARENESS AND BRAN D RECALL FOR THEIR PRODUCT. ACCORDING TO THE ASSESSING OFFICER THE EXPENDITURE RESULTS IN ENDURING BENEFIT TO THE ASSE SSEE AS IT HELPS INCREASING AND ENHANCING THE BRAND VALUE AND CREATE CONSCIOUSNESS ABOUT THE PRODUCT IN THE MINDS OF THE CLIENTS. THEREFORE EXPENDITURE SHOULD HAVE BEEN AMORTISED OV ER A PERIOD OF TIME. IT WAS ALSO NOTICED THAT THE ASSESS EE HAS NOT DEBITED FULL EXPENDITURE IN THE PROFIT AND LOSS ACC OUNT AND HAS RATHER AMORTISED THE SUM OVER A PERIOD OF TIME OF F IVE YEARS. BEFORE THE ASSESSING OFFICER CERTAIN CASE LAWS WERE GIVEN BUT ACCORDING TO HIM SAME WERE DISTINGUISHABLE AND IN T HIS BACKGROUND THE ASSESSING OFFICER ALLOWED ONLY 1/5 TH OF THE SEED MARKETING EXPENSES. THE ASSESSING OFFICER DIS ALLOWED A SUM OF RS. 347,96,607/-. 6 THE ASSESSEE HAS TAKEN GROUND IN THIS RESPECT FOR A SUM OF RS. 428,26,594/-. THE LD. COUNSEL FOR THE ASSESS EE POINTED OUT THAT 1/5 TH OF THE ALLOWANCE OF TOTAL EXPENDITURE WOULD BE RS. 107,06,650/- AND THEREFORE DISALLOWANCE SHOULD HAVE BEEN MADE FOR RS. 428,26,594/- AND AS AN ABUNDANT CAUTIO N THE ASSESSEE HAS CHALLENGED THE CORRECT DISALLOWANCE WH EREAS THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 347, 96,607/-. 7 ON APPEAL THE LD. CIT(A) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2007-08 AND 2008-09 WHICH WAS PASS ED ON 7.2.2011 CONFIRMED THE DISALLOWANCE. 3 8 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THE ASSESSEE FOR THE LAST SO MANY YEARS, WAS FOLLOWING A SYSTEM BY WHICH SEED MARKETING EXPENSES WAS AMORTISED IN THE BOOKS OF ACCOUNT OVER A PERIOD OF FIVE YEARS BUT THE SAME WA S CLAIMED FULLY UNDER THE IT ACT. SUCH EXPENSES WAS ALLOWED ALSO UPTO ASSESSMENT YEAR 2004-05 FULLY AND IN THIS REGARD H E REFERRED TO THE COPY OF ASSESSMENT ORDER FILED IN THE PAPER BOOK AT PAGE 22 TO 34 WHICH CLEARLY SHOW THAT NO SUCH DISALLOWAN CE WAS MADE IN ASSESSMENT YEAR 2004-05. HE CONTENDED THA T THIS EXPENDITURE WAS MAINLY INCURRED ON PROMOTIONAL ACTI VITIES BY CONDUCTING PROMOTIONAL CAMPAIGN AND ALSO OPENING NE W OFFICES TO INCREASE THE REACH OF THE PRODUCTS OF THE ASSESS EE IN NEW AREAS. THE EXPENDITURE MAINLY CONSIST OF FREE SCHEM E, SAMPLE DISTRIBUTION, NEW DIVISION LAUNCH, SALARY AND STAFF EXPENSES OF NEW DIVISIONS ETC. ALL THE EXPENSES ARE BASICALLY OF REVENUE NATURE AND SHOULD BE ALLOWED IN FULL BECAUSE THERE IS NO CONCEPT IN THE INCOME TAX FOR CARRYING FORWARD OF D EFERRED EXPENDITURE. IN THIS REGARD HE STRONGLY RELIED ON THE FOLLOWING DECISION: CIT V. SAKTHI SOYAS LTD. 283 ITR 194 (MADRAS) CIT V. JAI PARABOLIC SPRINGS LTD. 306 ITR 42 (DELH I) DCIT V CORE HEALTHCARE LTD. 308 ITR 263 (GUJARAT) GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. V ACIT, 112 TTJ 94 (CHD) 9 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE ST RONGLY SUPPORTED THE IMPUGNED ORDER. SHE FURTHER SUBMITTED THAT ONCE PART OF THE EXPENDITURE HAS BEEN TREATED BY THE AS SESSEE ITSELF AS CAPITAL EXPENDITURE THEN SAME CANNOT BE ALLOWED. NATURE OF EXPENSES BEING DISTRIBUTION OF SAMPLES, OPENING OF NEW OFFICES ETC. CLEARLY SHOW THAT THE ASSESSEE IS GOING TO DER IVE ENDURING 4 BENEFIT FROM SUCH EXPENSES AND THEREFORE SAME CANNO T BE ALLOWED IN THE YEAR IN WHICH SUCH EXPENSES HAS BEEN INCURRED AND BENEFIT HAS TO BE GIVEN ONLY OVER A PERIOD OF T IME. 10 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT ALLOWABILITY OF EXPENDITURE DEPENDS ON THE PROVISIO N OF THE IT ACT, 1961 AND OTHER PRINCIPLES LAID DOWN UNDER THIS ACT BY VARIOUS JUDICIAL PRONOUNCEMENTS AND IT DOES NOT DEP END ON TREATMENT OF A PARTICULAR ITEM BY A PARTICULAR ASSE SSEE. REFERENCE MAY BE MADE TO SATLUJ COTTON MILLS LTD V CIT, 116 ITR 1 (S.C). 11 WHAT IS REQUIRED FOR ALLOWABILITY OF EXPENDITURE IS TO BE SEEN WHETHER THE NATURE OF EXPENDITURE IS OF REVENU E OR CAPITAL. THIS ISSUE CAME UP BEFORE THE HON'BLE DEL HI HIGH COURT IN CASE OF CIT V JAI PARABOLIC SPRINGS LTD (S UPRA). IN THAT CASE THE ASSESSEE FILED RETURN OF INCOME DECLA RING A NET LOSS AT RS. 440,,36,000/- FOR THE ASSESSMENT YEAR 1990-91. THE LOSS WAS COMPUTED AT RS. 427,63,353/- INTER ALI A BY MAKING SEVERAL ADDITIONS AND DISALLOWANCES. THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 19,48,125/- AS EXPENDITURE ON ACCOUNT OF CUSTOMER INTRODUCTION CHARGES WHICH WERE DEBITED AS DEFERRED REVENUE EXPENSES IN THE BALANCE SHEET. THE EXPEN DITURE WAS WRITTEN OFF OVER A PERIOD OF FIVE YEARS STARTING FR OM THE ASSESSMENT YEAR 1990-91 AND ACCORDINGLY THE ASSESS EE CLAIMED REDUCTION OF RS. 389,625/- IN THE RETURN. THE CLAIM WAS ALLOWED BY THE ASSESSING OFFICER. IN APPEAL BEF ORE THE LD. CIT(A) THE ASSESSEE CLAIMED AN ADDITIONAL GROUND TH AT THE ENTIRE DEFERRED REVENUE EXPENSES WERE DEDUCTIBLE IN THE ASSESSMENT YEAR IN APPEAL. THE APPEAL WAS ALLOWED. THE TRIBUNAL RESTORED THE MATTER TO THE ASSESSING OFFIC ER. THE 5 ASSESSING OFFICER ALLOWED ONLY A DEDUCTION OF RS. 3 89,625/- AND DISALLOWED THE CLAIM OF RS. 15,58,500/- ON THE GROUND THAT THIS WAS NOT CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME IN THE ASSESSMENT YEAR 1990-91. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER ERRED IN DISALLOWING THE EXPENDIT URE ON THE SOLE GROUND THAT NO CLAIM FOR DEDUCTION OF THE AMOU NT WAS MADE IN THE RETURN OF INCOME. THIS ORDER WAS CONFI RMED BY THE TRIBUNAL. 12 ON ABOVE FACTS IT WAS HELD BY THE HONBLE COURT AS UNDER: HELD, DISMISSING THE APPEAL THAT THERE WAS NO PROH IBITION ON THE POWERS OF THE TRIBUNAL TO ENTERTAIN AN ADDITIONAL G ROUND WHICH ACCORDING TO THE TRIBUNAL AROSE IN THE MATTER AND F OR THE JUST DECISION OF THE CASE. THERE WAS NO INFIRMITY IN TH E ORDER OF THE TRIBUNAL. SIMILAR VIEW WAS TAKEN BY HON'BLE MADRAS HIGH COURT IN CASE OF CIT V. SAKTHI SOYAS LTD (SUPRA) AND HON'BLE GUJA RAT HIGH COURT IN CASE OF DCIT V. CORE HEALTHCARE LTD (SUPRA ). 13 IDENTICAL ISSUE HAD ARISEN BEFORE THE CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD V. ACIT (SUPRA) AND HEAD NOTE OF THE DECISION R EADS AS UNDER: BUSINESS EXPENDITURE CAPITAL OR REVENUE EXPENDIT URE PROMOTIONAL AND TRADE MARKETING EXPENSES THESE EX PENSES WERE INCURRED BY THE ASSESSEE ON EXISTING PRODUCTS WHICH INCLUDED COST OF PRESENTATION ITEMS, GIFTS, ETC. GIVEN TO CUSTOME RS, EXPENDITURE ON ADVERTISEMENT, ETC. THIS IS IN ACTUALITY DISCO UNT IN-KIND ALLOWED TO THE CUSTOMERS AND EXPENDITURE ON ADVERTI SEMENT OF EXISTING PRODUCTS EVEN IF IT IS CONCEDED THAT SUC H EXPENDITURE RESULTS IN ENDURING BENEFIT TO THE ASSESSEE THE END URING BENEFIT IS NOT IN THE CAPITAL FIELD BUT IS IN THE REVENUE FIEL D THEREFORE PROMOTION AND TRADE MARKETING EXPENSS ARE ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE IT IS CLEAR THAT ONCE THE NATURE OF EXPEN DITURE IS REVENUE THEN SAME HAS TO BE ALLOWED EVEN IF SAME HA S NOT BEEN CLAIMED FULLY IN THE BOOKS OF ACCOUNT. THEREFO RE WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESS ING OFFICER THAT THESE EXPENSES SHOULD BE ALLOWED ON PRINCIPLE. HOWEVER, 6 SINCE NATURE OF EXPENDITURE HAS NOT BEEN EXAMINED D URING ASSESSMENT PROCEEDINGS AND THE SAME REQUIRES EXAMI NATION FOR WHICH THE LD. LD. COUNSEL HAD NO OBJECTION. AC CORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO ALLOW THESE EXPENSES AFTER VERIFYING THE GENUINENESS AND NATURE OF THE SAME. 14 IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.8.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21.8.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR