TECHNOCRAFT EXPORTS, MUMBAI V. DCIT RG 8(3), MUMBAI

ITA 5620/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48452 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 24-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 15-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANKAJ TOPRANI
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI R.V.EASWAR (PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.5620/MUM/2009 A.Y 2006-07 TECHNOCRAFT EXPORTS PVT. LTD., A 25, MIDC, MAROL INDUSTRIAL AREA, ROAD NO.3, OPP. ESIS HOSPITAL, ANDHERI (E), MUMBAI 400 093. AACCT 0586 H VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ TOPRANI. RESPONDENT BY : SHRI SANJAY KUMAR. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, THE REGISTRY HAD ISSUED A DEFECTIV E MEMO THAT TRIBUNAL FEES PAID BY THE ASSESSEE WAS SHORT OF RS. 9500/-. IN RESPONSE TO THIS MEMO, ASSESSEE RESPONDED VIDE LETTER DATED 21-10-2009 WHEREIN IT WAS CONTENDED THAT SINCE THE INCOME DETE RMINED WAS NEGATIVE [LOSS] THEREFORE PAYMENT OF RS.500/- WAS T HE CORRECT FEE. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GIBBS COMPUTERS LTD. VS. ITAT [317 ITR 159]. BEFORE US LD.COUNSEL OF THE ASSESSEE PLACED RELIANC E ON THE LETTER DATED 21-10-2009. THE REGISTRY HAD POSTED THE MATTE R OF SHORT FEE ALSO BEFORE THE BENCH. AFTER CONSIDERING THIS ISSUE , WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GIBBS COM PUTERS LTD. VS. ITAT [SUPRA], HAS HELD THAT IF THE ASSESSED INCOME IS A NEGATIVE FIGURE, THEN FEE OF RS.500/- ALONE IS PAYABLE. THEREFORE, F OLLOWING THIS 2 DECISION, WE ARE OF THE VIEW THAT ASSESSEE HAS MADE THE CORRECT PAYMENT OF TRIBUNAL FEES. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] [HEREINAFTER TO AS THE LEARNED CIT[A]] ERRED IN C ONFIRMING THE DISALLOWANCE OF ` `` ` .910773/- U/S.14A WHEREAS THE EXEMPT DIVIDEND RECEIVED WAS ONLY ` `` ` .39090/-. 2. THE LEARNED CIT[A] FURTHER ERRED IN DISALLOWING BRA ND ADVERTISEMENT EXPENSES OF ` `` ` .17422245/- CONSIDERING THE SAME AS CAPITAL EXPENDITURE. 3. WITHOUT PREJUDICE TO GROUND NO.2 WE SUBMIT THAT THE LEARNED CIT[A] FURTHER ERRED IN NOT CONSIDERING THE SAID BR AND ADVERTISEMENT EXPENSES AS INTANGIBLE ASSET AND NOT ALLOWING DEPRECIATION ON THE SAME U/S.32(1)(II) OF THE ACT. 3. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD RECEIVED A DIVIDEND INCOME OF RS.39,090/- WHICH WAS ASSESSED U /S.10[33]. THEREFORE, SHOW CAUSE NOTICE WAS ISSUED AS TO WHY E XPENDITURE RELATING TO THIS ASSESSED INCOME SHOULD NOT BE DISA LLOWED. IN RESPONSE, ASSESSEE SUBMITTED THAT DIVIDEND INCOME WAS RECEIVE D ON ACCOUNT OF INVESTMENT IN HDFC MUTUAL FUND OUT OF ASSESSEES OW N FUNDS AND NO BORROWINGS WERE MADE. FURTHER, DIVIDEND WAS RECEIVE D AS ONE TIME PAYMENT AND NOT EXPENDITURE WAS INCURRED. 4. HOWEVER, AO DID NOT AGREE WITH THE ABOVE SUBMISS IONS AND FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. & ORS. (2008) 119 TTJ (MUM) (S.B) 289 IN ITA NO.8057/M/03 & ORS. DATED 20 TH OCTOBER, 2008, INVOKED RULE L8D AND DISALLOWED A SUM OF RS.9,10,77 3/- BEING INTEREST UNDER RULE 8D AMOUNTING TO RS.8,01,311/- AND OTHER EXPENDITURE @ 3 % OF THE VALUE OF INVESTMENT AMOUNTING TO RS.1,09, 262/-. ON APPEAL, ACTION OF THE AO WAS CONFIRMED BY THE LD. C IT(A). 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND FORCE IN THE SUBMISSION OF THE LD.COUNSEL OF THE ASSESSEE THAT H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. VS. DCIT [43 DTR 171] HAS ALREADY HELD THAT RULE 8D WILL NOT HAV E RETROSPECTIVE APPLICATION WHICH MEANS RULE 8D IS APPLICABLE FROM A.Y 2008-09 AND COULD NOT HAVE BEEN APPLIED FOR A.Y 2006-07 WHICH I S UNDER CONSIDERATION BEFORE US. THEREFORE, THERE IS NO MER IT IN THE DISALLOWANCE MADE OUT OF INTEREST. AS FAR AS OTHER EXPENDITURE IS CONCERNED, SINCE ASSESSEE HAD RECEIVED ONLY ONE DIV IDEND CHEQUE WHICH SHOWS THAT NOT MUCH ACTIVITY WAS REQUIRED FOR COLLECTING THIS DIVIDEND AND, ACCORDINGLY, WE ESTIMATE A REASONABLE EXPENDITURE U/S.14A AT RS.5,000/-. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECTED THE AO TO MAKE ADDITION OF RS.5 ,000/- U/S.14A. 6. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE YEAR ASSESSEE HAD MADE A CLAIM OF RS.1,74,22,22 4/- UNDER THE HEAD BRANDED ADVERTISEMENT. IT WAS SUBMITTED BEFORE THE AO THAT ASSESSEE HAD PLANNED TO SELL GARMENTS UNDER THE BRA NDED NAME HAUTE CHILLI. THE ASSESSING OFFICER WAS OF THE VI EW THAT ASSESSEE HAS OBTAINED ENDURING BENEFIT. HE, THEREFORE, AFTER DIS CUSSING VARIOUS CASE LAWS DISALLOWED THE EXPENDITURE. ON APPEAL, LD. CIT (A) CONFIRMED THE ACTION OF THE AO. 4 7. BEFORE US, LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THIS YEAR ASSESSEE COMPANY STARTED BUSINESS OF SELLING GARMEN TS UNDER THE BRAND NAME HAUTE CHILLI. FOR PROMOTION OF THE BRA ND ADVERTISEMENT A CAMPAIGN WAS CARRIED OUT FOR WHICH EXPENDITURE WAS INCURRED ON ADVERTISEMENT, VARIOUS PRODUCTION MATERIALS AS WELL AS PARTICIPATION IN EXHIBITIONS, DETAILS OF WHICH ARE PLACED AT PAGE 13 OF THE PAPER BOOK. HE THEN BROUGHT TO OUR ATTENTION A COPY OF THE PROF IT & LOSS ACCOUNT AND POINTED OUT THAT DURING THE YEAR SALES AMOUNTIN G TO RS.3.09 CRORES WERE MADE. IN LATER YEARS SALES OF 12.75 CRORES, RS .7.14 CRORES AND RS.9.76 CRORES WERE GENERATED IN A.YRS. 2007-08, 20 08-09 AND 2009- 10. THEN HE RELIED ON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. GEOFFREY MANNERS & CO. LTD. [31 5 ITR 134] WHEREIN EXPENDITURE INCURRED ON FILM PRODUCTION BY WAY OF A DVERTISEMENT WAS HELD TO BE REVENUE EXPENDITURE. HE ALSO RELIED ON T HE FOLLOWING DECISIONS: A) CIT VS. SALORA INTERNATIONAL LTD. 308 [308 ITR 199] (DEL) B) CIT VS. CORE HEALTHCARE LTD. [308 ITR 263 (GUJ) C) CIT VS. LIBERTY GROUP MARKETING DIVISION 173 TAXMAN 439 (P&H) 8. ON THE OTHER HAND, LD.DR SUBMITTED THAT HONBLE BOMBAY HIGH COURT HAS ALREADY GIVEN A TEST IN THE CASE OF CIT V S. GEOFFREY MANNERS & CO. LTD. [SUPRA] THAT EXPENDITURE INCURRED ON THE ONGOING BUSINESS ONLY COULD BE TREATED AS REVENUE EXPENDITURE AND IF THE EXPENDITURE IS INCURRED BEFORE COMMENCEMENT OF THE BUSINESS, THEN SAME COULD NOT BE TREATED AS REVENUE EXPENDITURE. AT THIS STAGE, W E ASKED THE 5 LD.COUNSEL OF THE ASSESSEE WHETHER HE CAN GIVE US D ETAILS WHEN THE FIRST SALE TOOK PLACE OR WHEN THE BUSINESS ACTUALLY COMMENCED, HE FAIRLY SUBMITTED THAT HE DOES NOT HAVE THOSE DETAIL S. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . GEOFFREY MANNERS & CO. LTD. [SUPRA] HAS OBSERVED AT PAGE 315 OF THE REPORT AS UNDER: IN OTHER WORDS, THE ASSET THAT WAS ACQUIRED BY THE ASSESSEE- COMPANY WAS A CAPITAL ASSET TO BE USED FOR THE PURP OSE OF ADVERTISEMENT OF THE BUSINESS THAT THE ASSESSEE-COM PANY WAS GOING TO CARRY ON IN FUTURE AND, THEREFORE, THE EXPENDITU RE WILL HAVE TO BE REGARDED AS A CAPITAL EXPENDITURE AND NOT REVENUE E XPENDITURE. SINCE THE DETAILS AS TO WHEN THE BUSINESS WAS COMME NCED ARE NOT BEFORE US, THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE AO WI TH A DIRECTION TO ASCERTAIN THE DATE OF COMMENCEMENT OF THE BUSINESS. HE SHOULD ALLOW THE EXPENDITURE INCURRED ON ACCOUNT OF PROMOTION OF BRAND AFTER COMMENCEMENT OF THE BUSINESS. 10. GROUND NO.3 : THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT IF THE EXPENDITURE IS NOT ALLOWED AS REVENUE EXPENDITU RE, THEN SAME SHOULD BE CONSTRUED AS INTANGIBLE ASSET AND AO MAY BE DIRECTED TO ALLOW DEPRECIATION U/S.32[1][II]. 11. ON THE OTHER HAND, LD.DR SUBMITTED THAT THIS IS SUE WAS NOT RAISED BEFORE THE AO OR THE CIT(A). IN ANY CASE, TH E PROMOTIONAL EXPENDITURE CANNOT BE TREATED FOR ACQUISITION OF TH E BRAND. 6 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND AGREE WITH THE CONTENTIONS OF THE LD.DR. FOR CREATING A B RAND, LONG ADVERTISEMENT CAMPAIGN SPANNING INTO MANY YEARS, AR E REQUIRED. THE EXPENDITURE IN THE VERY FIRST YEAR CANNOT CREATE A BRAND CONSTITUTING THE SAME AS INTANGIBLE ASSET. IN ANY CASE, WE HAVE ALREADY REMANDED THE ISSUE RAISED IN GROUND NO.2 REGARDING ALLOWABIL ITY OF THE EXPENDITURE TO THE FILE OF THE AO, HENCE THIS GROUN D HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED. 13. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 8/4/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 8/4/2011. P/-*