DCIT, New Delhi V. M/s. Intex Technology Pvt. Ltd., New Delhi

ITA 5354/DEL/2011

• Counselvise Citation: 535420114 RSA 2011
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-02-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: ANS HUM JAIN
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 5354(DEL)2011 ASSESSMENT YEAR: 2008-09 DY.COMMISSIONER OF INCOME TAX, M/S. INTEX TEC HNOLOGIES PVT.LTD., CIRCLE 11(1), NEW DELHI. V. D-1 8/2, OKHLA INDL.AREA, PHASE II, NEW DELHI-20. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SALIL MISHRA, SR. DR RESPONDENT BY: SHRI ANS HUM JAIN, ADVOCATE ORDER PER A.D. JAIN, J.M . THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2008-09 AGAINST THE ORDER DATED 30.9.2011 PASSED BY THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS)-XV, NEW DELHI, CHALLENGING THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF ` 1,20,24,210/- MADE ON ACCOUNT OF TREATMENT OF 20% OF THE ADVERTISEMENT EXPENSES AS CAPITAL EXPENDITUR E. ITA NO.5354(DEL)2011 2 2. THE FACTS ARE THAT AS PER THE AO, IT WAS SEEN TH AT THE ASSESSEE HAD INCURRED EXPENSES OF ` 6,01,21,052/- ON ADVERTISEMENT AND PUBLICITY EXPENS ES, AS FOLLOWS:- PARTICULARS AMOUNT IN RS. ADVERTISEMENT ON TV 249.10 CRORE ADVERTISEMENT ON PRINT MEDIA 102.32 CRORE ADVERTISEMENT CONSULTANCY 31.73 LACS ADVERTISEMENT AND PUBLICITY (EXPENSES ON ROAD SHOW, CANOPY STAND, BANNERS ETC.) 71.07 LACS 3. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WH Y 20% OF THE ADVERTISEMENT AND PUBLICITY EXPENSES AMOUNTING TO ` 1,20,24,210/- BE NOT TREATED AS CAPITAL EXPENDITURE, SINCE SUCH EXPENDIT URE HAD BEEN INCURRED FOR BRAND BUILDING. 4. THE ASSESSEE, IN RESPONSE, SUBMITTED, INTER ALIA , THAT THE ADVERTISEMENT EXPENSES OF ` 601.27 LAKHS WAS OF REVENUE NATURE; THAT THE ADVER TISEMENT EXPENSES WERE DIVIDED INTO SIX BRAND HEADS, I.E., P UBLICITY MATERIAL CONSUMED, ADVERTISEMENT AND PUBLICITY, ADVERTISEMENT ON T.V., ADVERTISEMENT IN PRINT MEDIA AND ADVERTISEMENT CONSULTANCY; THAT THE PUBLI CITY MATERIAL CONSUMED INCLUDED EXPENSES ON FLEX BOARD, CLOTH BANNER, POST ER AND LEAFLETS AND NOVELTIES USED FOR DEALERS/DISTRIBUTORS ALL OVER THE COUNTRY; THAT AN AMOUNT OF ` 146.67 ITA NO.5354(DEL)2011 3 LAKHS WAS SPENT AND DETAILS THEREOF WERE CONTAINED IN THE LEDGER ACCOUNT FILED; THAT ADVERTISEMENT AND PUBLICITY EXPENSES CONSISTED OF EXPENSES CONCERNING ROAD SHOW, CANOPY STANDS, BANNER DISPLAY, WALL PRI NTING, TABLE TAP ETC., AMOUNTING TO ` 71.07 LAKHS; THAT UNDER ADVERTISEMENT ON T.V., AN A MOUNT OF ` 249.10 LAKHS HAD BEEN SPENT DURING THE YEAR FOR SEL LING THE PRODUCT OF INTEX TECHNOLOGIES (INDIA)LTD., FOR WHICH ALSO, THE LEDGE R ACCOUNT WAS BEING FILED; THAT AN AMOUNT OF ` 102.32 LAKHS WAS SPENT ON ADVERTISEMENT IN PRINT ME DIA DURING THE YEAR TO SUPPORT WHICH, THE LEDGER ACCOUN T WAS BEING FILED; THAT THIS ADVERTISEMENT WAS MAINLY ADVERTISEMENT IN NEWS PAPE RS AND MAGAZINES AND TRADE JOURNAL FOR SELLING THE PRODUCT OF INTEX TECH NOLOGIES (INDIA)LTD.; THAT ADVERTISEMENT CONSULTANCY EXPENSES HAD BEEN PAID TO SOME AGENCIES FOR COORDINATING THE WORK IN DIFFERENT NEWS PAPERS, IDE AS FOR ADVERTISEMENT AND ALSO PREPARE DESIGN OF ADVERTISEMENT; THAT AN AMOU NT OF ` 31.73 LAKHS WAS THE EXPENDITURE UNDER THIS SUB-HEAD, DETAILS WHEREOF WE RE BEING FILED; THAT ALL SUCH EXPENDITURE UNDER THE HEAD OF ADVERTISEMENT AND PU BLICITY EXPENSES, AMOUNTING TO ` 601.21 LAKHS WAS OF REVENUE NATURE HAVING DIRECT N EXUS WITH THE PURPOSE OF RUNNING OF THE ASSESSEES BUSINESS AND I T DID NOT HAVE ANY LONG EFFECT ON THE OPERATION OF BUSINESS, AS IT WAS A RECURRING EXPENDITURE; THAT EVEN IN THE EARLIER YEARS, SIMILAR ADVERTISEMENT EXPENDITURE H AD BEEN INCURRED AND HAD BEEN ALLOWED AS REVENUE EXPENDITURE; AND THAT WHERE AS IN THE IMMEDIATELY TWO ITA NO.5354(DEL)2011 4 PRECEDING ASSESSMENT YEARS, THE PERCENTAGE OF EXPEN SES WAS 2.34% AND 2.56% RESPECTIVELY, FOR THE YEAR UNDER CONSIDERATION, SUC H PERCENTAGE HAD COME DOWN TO 1.84% OF THE TURN OVER OF THE ASSESSEE. IN SUPP ORT OF THE PROPOSITION THAT THE ADVERTISEMENT EXPENSES BEING REVENUE EXPENSES, NO P ART THEREOF COULD BE CAPITALIZED, EVEN IF IT GAVE SOME BENEFIT IN THE FU TURE, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAWS:- 1. HEMRAJ NEBHONAL V. UNION OF INDIA, [2007] TAXMAN 326 (MP); 2. CIT V. BRILLIAN TUTORIAL PVT.LTD., [2007] 292 ITR 399(DELHI); 3. CIT V. SALORA INTERNATIONAL LTD.,[2009] 308 ITR 1 99(DELHI); 4. DY. CIT V. CORE HEALTH CARE LTD., [2009] 308 ITR 263/221 CTR 9 (GUJ) 580; 5. CIT V. SALORA INTERNATIONAL LTD., [2009] 177 TAXM AN 456(DELHI); AND 6. CIT V. GEOFFREY MANNERS & CO. LTD., [2009] 180 TA XMAN 87/315 ITR 134. 5. THE AFORESAID STAND TAKEN BY THE ASSESSEE, HOWE VER, DID NOT FIND FAVOUR WITH THE AO. WHILE MAKING THE ADDITION, THE AO OB SERVED, INTER ALIA, AS FOLLOWS:- .THE REPLY OF THE ASSESSEE HAS BEEN DULY CONSIDE RED AND FOUND TO BE UNACCEPTABLE. THE ASSESSEE CANNOT DENY THAT THE ABOVE TYPE OF ADVERTISEMENT EXPENDITURE BRING TO TH E ASSESSEE COMPANY AN ADVANTAGE OF AN ENDURING NATURE. IN FACT AS PER THE WEBSITE OF THE ASSESSEE COMPANY BRAND INTEX COVERS 7 BUSINESS SEGMENTS COMPUTER PERIPHERALS, PC, MOBIL E PHONES, CONSUMER ELECTRONICS, RETAIL, ENTERPRISES A ND INTERNATIONAL BUSINESS. IT HAS BUILT FOR ITSELF A H IGH CREDITABILITY AMONGST ITS VAST NETWORK OF CHANNEL P ARTNERS AND SEVERAL MILLION SATISFIED END USERS BY OFFERING VAL UE FOR MONEY ITA NO.5354(DEL)2011 5 QUALITY PRODUCTS SUPPORTED BY EFFECTIVE SERVICE AND A CONSISTENT POLICY OF TRANSPARENT, FAIR AND ETHNICAL DEALING AND THAT THE BRAND HAS NOT BEEN GROWING BEYOND COM PUTER PERIPHERALS. OVER THE LAST 3-4 YEARS, INTEX HAS EXP ANDED ITS PRODUCT OFFERINGS BY ADDING MORE PRODUCTS WITH A CO NSUMER INTERFACE SUCH AS MOBILE PHONES, DESKTOP PCS, TFT-L CD MONITORS AND DVD PLAYERS SHOWING THAT BRAND OF T HE COMPANY IN ITS MOST IMPORTANT ASSET AND THE BRAND N AME HAS FACILITATED ITS MOVEMENT IN AREAS OF MOBILE PHONES, CONSUMER ELECTRONICS ETC. THE ADVERTISEMENT EXPENDITURE INCURRED AT THE TIME OF PRODUCT LAUNCHES, IN NEWSPAPERS, ON TELEVISION IS BOUND TO BRING LONG TERM BENEFIT OVER THE LIFE OF THE PRODUCT SO LAUNC HED. SIMILARLY, THE DEALER SIGN BOARDS, ARE ALSO IN THE NATURE OF ASSETS WHICH WOULD BRING ENDURING BENEFITS TO THE A SSESSEE BY GIVING WIDE PUBLICLY TO THE ASSESSEES BRAND NAME A ND ADVERTISEMENTS ON TELEVISION CHANNELS AND IN PRINT MEDIA WOULD AID IN INCREASING THE VISIBILITY OF THE ASSES SEES PRODUCTS AND CREATING BRAND AWARENESS AND RECALL. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO. IT IS THIS WHICH BRINGS THE DEPA RTMENT IN APPEAL BEFORE US. 7. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON A CCOUNT OF THE TREATMENT OF 20% OF ADVERTISEMENT EXPENSES AS BEING CAPITAL IN N ATURE; THAT UNDENIABLY, AS CORRECTLY OBSERVED BY THE AO, THE EXPENDITURE BROUG HT AN ENDURING ADVANTAGE TO THE ASSESSEE; THAT IT IS PATENT THAT THE ASSESSEES WEBSITE STATES THAT THE BRAND INTEX COVERS 7 BUSINESS SEGMENTS, I.E., COMPUTER PERIPHERALS, PC, MOBILE PHONES, CONSUMER ELECTRONICS, RETAIL ENTERPRISES AN D INTERNATIONAL BUSINESS; THAT THE WEBSITE OF THE ASSESSEE COMPANY ALSO STATES NO UNCERTAIN TERMS WITH THE ITA NO.5354(DEL)2011 6 ASSESSEE COMPANY AS, BY OFFERING VALUE FOR MONEY QU ALITY PRODUCTS SUPPORTED BY EFFECTIVE SERVICE AND A CONSISTENT POLICY OF TRANSP ARENT, FAIR AND ETHNICAL DEALING BUILT BY ITSELF A HIGH CREDITABILITY AMONGST ITS VA ST NET WORK OF CHANNEL PARTNERS AND SEVERAL MILLION SATISFIED END USERS; THAT THIS WAS A SELF PROCLAIMED CASE OF THE ASSESSEE COMPANY ITSELF; THAT IT WAS ALSO PROCLAIME D THAT THE BRAND HAS NOT BEEN GROWING BEYOND COMPUTER PERIPHERALS. OVER THE LAST 3-4 YEARS, INTEX HAS EXPANDED ITS PRODUCT OFFERINGS BY ADDING MORE PRODU CTS WITH A CONSUMER INTERFACE SUCH AS MOBILE PHONES, DESKTOP PCS, TFT-L CD MONITORS AND DVD PLAYERS; THAT IT WAS THUS EVIDENT THAT THE BRAND O F THE COMPANY HAS FACILITATED ITS MOVEMENT IN AREAS OF MOBILE PHONES, CONSUMER ELECTR ONICS ETC., THAT IT ALSO REMAINED UNDISPUTED THAT THE ADVERTISEMENT EXPENDIT URE IN QUESTION IS AN EXPENDITURE WHICH HAS BROUGHT LONG TERM BENEFIT OVE R THE LIFE OF THE PRODUCT LAUNCHED; THAT FURTHER, AS RIGHTLY OBSERVED BY THE AO AND NOT CONSIDERED BY THE LD. CIT(A), THE DEALER SIGH BOARDS ARE HAVING THE N ATURE OF ASSETS BRINGING ENDURING BENEFITS TO THE ASSESSEE; THAT LIKEWISE, T .V. ADVERTISEMENTS AND ADVERTISEMENT IN THE PRINT MEDIA HELP THE BRAND AWA RENESS OF THE ASSESSEE NO END; THAT THEREFORE, THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THAT OF THE AO BE REVIVED BY ALLOWING THE DEPARTMENTS APPEAL. ITA NO.5354(DEL)2011 7 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON T HE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN SUBMIT TED THAT THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION WRONGLY MADE; THAT THE EXPENSES IN QUESTION WERE BUSINESS EXPENSES, WHICH DOES NOT STAND DOUBTED; TH AT THE ADVERTISEMENTS WERE GIVEN AS A NECESSITY IN COMPETITIVE BUSINESS WORLD ; AND THAT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, SIMILAR EXPENDITURE INCU RRED WAS ALLOWED IN TOTO. 9. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL BROUGHT ON RECORD. FIRST OFF, IT REMAINS UNDISPUTED THAT SIM ILAR ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE FOR ASSESSMENT YEARS 2006- 07 AND 2007-08 STANDS ALLOWED BY THE DEPARTMENT ITSELF. THE EXPENDITURE , WITHOUT DOUBT, HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND IS NOT CAPITAL IN NATURE. IT IS, THUS, AS RIGHTLY OB SERVED BY THE LD. CIT(A), REVENUE EXPENDITURE, DEDUCTIBLE U/S 37(1) OF THE I.T. ACT. THE LD. CIT(A) HAS ALSO KEPT IN CONSIDERATION THE FACT THAT THE TURN OVER OF THE ASSESSEE HAS INCREASED OVER THE YEARS, PROVING THE ASSESSEES POINT REGARDING NECES SITY OF INCURRENCE OF THE ADVERTISEMENT EXPENDITURE. THEN, THOUGH THE AO HA S TAKEN IT ADVERSELY, BRAND BUILDING DOES NOT DEBAR THE ALLOWANCE OF THE EXPEN DITURE, IF IT IS ALLOWABLE AS PER THE PROVISIONS OF SECTION 37 OF THE ACT. RATHER, AS CORRECTLY NOTED BY THE LD. ITA NO.5354(DEL)2011 8 CIT(A), IN CIT V. ADIDAS INDIA MARKETING PVT. LTD. , 195 TAXMANN 256(DEL), IT HAS BEEN HELD THAT EVEN IF IT POPULARIZES A BRAND, ADVERTISEMENT EXPENDITURE INCURRED TO AUGMENT SALES IS A REVENUE EXPENDITURE. THAT THE ASSESSEES CASE SQUARELY FALLS WITHIN THIS RATIO REMAINS UNCHALLENG ED. FURTHER, AS PER MODI REVION PVT. LTD. V. DCIT, 2 ITR (TRIB)632 (DELHI), ADVERTISEMENT EXPENDITURE INCURRED TO PROMOTE A BRAND NAME DOES NOT NECESSARI LY BECOME A CAPITAL EXPENDITURE, BUT IS PERMISSIBLE AS DEDUCTION U/S 37 OF THE ACT; AND WHERE SUCH EXPENDITURE HAD CONSISTENTLY BEEN ALLOWED IN THE EA RLIER YEARS, IT CANNOT BE DISALLOWED IN THE ABSENCE OF CHANGE IN THE FACTS. NO DECISION TO THE CONTRARY HAS BEEN SHOWN TO US. THE AO DID NOT BRING ANYTHING O N RECORD TO SHOW THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IT HAS ALSO NOT BEEN ESTABLIS HED THAT THE ADVERTISEMENT EXPENDITURE IS NOT NECESSARY FOR RUNNING THE ASSESSEES BUSINESS AND TO REMAIN AFLOAT IN THE WORLD OF CUT THROAT BUSINESS COMPETIT ION. MOREOVER, AS CORRECTLY TAKEN NOTE OF BY THE LD. CIT(A), THE EXPENDITURE IN CURRED HAS A DIRECT NEXUS WITH THE ASSESSEES BUSINESS OPERATIONS AND NO CAPITAL A SSETS HAVE BEEN ACQUIRED. 10. IN VIEW OF THE ABOVE, FINDING NO ERROR WH ATSOEVER IN THE WELL VERSED ORDER OF THE LD. CIT(A), THE FINDING OF FACT ARRIVED AT T HEREIN REMAINING UNHINGED, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS FOUND TO BE SANS MERIT. THE GROUND OF APPEAL RAISED IS, ACCORDINGLY, REJECTED. ITA NO.5354(DEL)2011 9 11. IN THE RESULT, THE APPEAL FILED BY THE D EPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.02.2012. SD/- SD/- (G.D. AGRAWAL) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 22.02.2012 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR