M/s. Genesis Colors Pvt. Ltd., Gurgaon V. CIT- IV, New Delhi

ITA 5798/DEL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69386 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Gift; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Assessment record; Tax effect; Revenue expenditure; Capital expenditure
• Section: 37(1); 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.5798/DEL/2011 ASSESSMENT YEAR : 2007-08 GENESIS COLORS PVT. LTD., 51-52, UDYOG VIHAR, PHASE-IV, GURGAON. PAN : AABCG4825H VS. CIT-IV, ROOM NO.397, CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY WADHWA, ADVOCATE REVENUE BY : SHRI SATPAL SINGH, SR.DR ORDER PER A.D. JAIN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, TAKING THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN LAW, THE LD. CIT IS JUS TIFIED IN SETTING ASIDE THE ASSESSMENT ORDER DATED 29.12.2009 PASS ED U/S 143 (3) FOR MAKING IT AFRESH HOLDING IT TO BE ERRONEO US AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANI NG OF SECTION 263 OF THE INCOME-TAX ACT, 1961 ON THE GROUND TH AT:- (A) SOME PART OF THE EXPENDITURE AMOUNTING TO RS.2,76,79,914 /- CLAIMED UNDER THE HEAD ADVERTISEMENT ARE CAPITAL IN NATU RE WHICH HAVE BEEN WRONGLY ALLOWED WITHOUT MAKING ANY EN QUIRY TO ASCERTAIN THE NATURE OF SUCH EXPENSES BEING EITHER REVE NUE OR CAPITAL. (B) THE INCOME IN THE ASSESSMENT MADE ON 29.12.2009 HAS BEEN OVER-ASSESSED AS ROYALTY DISALLOWED AS CAPITAL EXPEND ITURE BEING IN THE NATURE OF INTANGIBLE ASSET WAS ELIGIBLE FOR DEPR ECIATION AT THE RATE OF 25%. ITA NO.5798/DEL/2011 2 2. THE FOLLOWING ADDITIONAL GROUND HAS ALSO BEEN TAK EN:- THAT THE LD. CIT HAS ERRED IN PASSING ORDER U/S 263 OF THE ACT DESPITE THE FACT THAT THE SHOW CAUSE NOTICE ISSUED BY HIM CONTAINED A SOLITARY GROUND/BASIS RELATING TO DEFERRED REVENUE EXPENSES, WHEREAS THE FINAL REVISION ORDER COMPLETE LY IGNORED THE SAID ISSUE RELATING TO DEFERRED REVENUE EXPENDITURE AND INSTEAD DIRECTED THE LD. A.O. TO INQUIRE WHETHER THE ADVERTISEMENT EXPENSES CONTAINED ANY CAPITAL EXPENDITURE OR NOT. 3. THE AFORESAID ADDITIONAL GROUND HAS BEEN SAID TO BE A LEGAL GROUND, WHICH INADVERTENTLY REMAINED TO BE OMITTED IN THE ORIGINAL GROUNDS TAKEN. A REQUEST HAS BEEN MADE FOR ADMISSION OF THE SAID ADDITIONAL GROUND. 4. HAVING READ THE ADDITIONAL GROUND, WE FIND THAT INDEED, THIS GROUND RAISES A LEGAL ISSUE AS TO WHETHER THE LD. CIT WA S CORRECT IN PASSING THE ORDER U/S 263 OF THE ACT ON A GROUND ENTIR ELY DIFFERENT FROM THAT RAISED IN SHOW CAUSE NOTICE ISSUED. THE FACTS WITH REGARD TO THIS GROUND ARE UNDISPUTEDLY ALREADY ON RECORD AND NO FRE SH FACT IS REQUIRED TO BE GONE INTO TO DECIDE THIS GROUND. ON THE OTHER HAND, THIS GROUND, AS CONTENDED, WILL ENABLE SUBSTANTIVE JUSTICE T O BE DISPENSED WITH. 5. THUS, FOLLOWING NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (SC), THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE I S ADMITTED. 6. AS PER THE IMPUGNED ORDER, THE CIT, ON EXAMINATIO N OF THE ASSESSEES INCOME-TAX RECORD FOR ASSESSMENT YEAR 2007-08, I. E., THE YEAR UNDER CONSIDERATION, NOTED THAT DURING THE YEAR , THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 2,76,79,914/- TO ITS PROFIT & LOSS ACCOUNT UNDER THE HEAD OF ADVERTISEMENT. THE CIT OBSERVED THAT SINC E THIS EXPENSE HAD BEEN INCURRED FOR THE ENDURING BENEFIT OF THE B USINESS, THIS EXPENSES SHOULD HAVE BEEN CAPITALIZED; THAT DURING THE EARLIER YEARS, ITA NO.5798/DEL/2011 3 THIS EXPENDITURE HAD BEEN TREATED AS A DEFERRED REVEN UE EXPENSE SINCE THE MANAGEMENT OF THE ASSESSEE COMPANY WAS OF THE O PINION THAT THE BENEFIT TO IT REALIZED OVER A PERIOD OF AT LEAST FIVE YEARS; THAT DURING THE YEAR UNDER CONSIDERATION, THIS EXPENDITURE SHOULD HAVE BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND ONL Y 1/5 OF THE EXPENDITURE, AMOUNTING TO ` 55,35,982/- SHOULD HAVE BEEN ALLOWED; THAT SUCH MISTAKE RESULTED IN UNDER ASSESSMENT OF INCOME OF ` 2,21,43,932/-, INVOLVING A TAX EFFECT OF ` 74,53,647/-. THE CIT ALSO NOTED THAT DURING THE YEAR UNDER CONSIDERATION, IT W AS HELD BY THE A.O. THAT THE ROYALTY CLAIMED OF ` 1,65,48,377/- WAS CAPITAL EXPENDITURE AND WAS ADDED BACK TO THE INCOME OF THE ASSESSEE; THAT HOWE VER, AS IT WAS PAID TO OBTAIN A NON-EXCLUSIVE LICENCE FOR USE OF A L ICENSED TRADE MARK, IT WAS IN THE NATURE OF INTANGIBLE ASSET AND DEPRECIAT ION OF ` 41,37,094/-, I.E., 25% OF ` 1,65,48,377/-, SHOULD HAVE BEEN ALLOWED; AND THAT THE OMISSION TO DO SO RESULTED IN OVER-ASSESSMENT OF INCOME OF ` 41,37,094/-, INVOLVING A TAX EFFECT OF ` 13,92,545/-. 7. THUS, THE CIT CONSIDERED THE ASSESSMENT ORDER DATED 29.12.2009, PASSED U/S 143 (3) OF THE IT ACT, TO BE ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDI NGLY, A SHOW CAUSE NOTICE DATED 04.02.2011 WAS ISSUED TO THE ASSESSEE. 8. IN REPLY VIDE LETTER DATED 04.06.2011 (APB 193-1 96), THE ASSESSEE SUBMITTED DETAILS OF ADVERTISEMENT EXPENDITURE I NCURRED BY THE ASSESSEE IN EXCESS OF ` 1 LAC EACH, ALONG WITH COPIES OF INVOICES IN RESPECT THEREOF. THE ASSESSEE SUBMITTED THAT IN RESPECT O F ONE EXPENDITURE OF ` 2,18,255/-, THE ASSESSEE HAD PURCHASED GLOW SIGNS WHICH HAD BEEN TREATED AS A REVENUE EXPENDITURE IN V IEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES LTD.; AND THAT THE ENTIRE EXPENDITURE O N ACCOUNT OF ADVERTISEMENT WAS REVENUE IN NATURE, DESERVING TO BE A LLOWED. THE ITA NO.5798/DEL/2011 4 ASSESSEE ALSO SUBMITTED THAT IT HAD ADDED BACK AS INCOME, A SUM OF ` 1,46,32,527/-, BEING DEDUCTION CLAIMED IN EARLIER Y EAR ON ACCOUNT OF ADVERTISEMENT AND RENOVATION; THAT HENCE, THE ASSESSEE H AD SUO MOTU ADDED BACK AS INCOME THE DEFERRED REVENUE EXPENDITUR E CLAIMED IN THE AUDITED PROFIT & LOSS ACCOUNT IN RESPECT OF EARLIE R ASSESSMENT YEARS AND HAD CLAIMED THE ENTIRE EXPENSES RELATING TO THE CURRENT YEAR AS A REVENUE EXPENDITURE; AND THAT THUS, THERE WAS NO ERROR IN THE METHOD OF ACCOUNTING FOR ADVERTISEMENT AND ALL THE A DVERTISEMENT EXPENSES INCURRED DURING THE YEAR HAD BEEN CLAIMED AS BUSINESS EXPENDITURE U/S 37(1) OF THE IT ACT. 9. THE LD. CIT, HOWEVER, PASSED THE IMPUGNED ORDER, O BSERVING AS FOLLOWS:- 3. I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF THE AR OF THE ASSESSEE COMPANY. IT IS OBSERVED THAT THE ASSESSEE COM PANY HAS DEBITED A SUM OF RS.2,76,79,914/- UNDER THE HEAD ADVERTISEMENT EXPENSES. ON EXAMINATION OF THE DETAILS F ILED IN THIS REGARD, IT IS NOTICED THAT AN AMOUNT OF RS.14710314 /- HAS BEEN INCURRED TOWARDS EXPENSES ON ADVERTISEMENT AND PU BLICITY. THE BALANCE OF THE EXPENSES HAVE BEEN FOUND TO BE AS UNDER:- SHOW EXPENSES 72,89,993/- SALES/BUSINESS PROMOTION EXPENSES 15,13,074/- EVENT EXP-BMW 13,75,000/- PHOTO SCHOOL EXPENSES 12,54,220/- PROFESSIONAL FEE MODEL 8,48,770/- OTHER ADVERTISEMENT 4,43,606/- SALES PROMOTION 1,71,352/- ENTERTAINMENT AND PR EXPENSES 60,750/- GIFT AND PRESENTATION 11,345/- PACKAGING EXPENSES 1,490/- ---------------- TOTAL 1,29,69,600/- ---------------- 4. ON EXAMINATION OF THE NATURE OF THE LARGE PART OF THE AFORESAID EXPENSES, IT EMERGES THAT INCURRING OF SUCH EXPENSES HAS RENDERED ENDURING BENEFIT TO THE ASSESSEE AND SO TH ERE IS ENOUGH REASON TO DISALLOW SOME PART OF THESE EXPENSES AS CAPITAL WHICH HAS NOT BEEN DONE IN THE REGULAR ASSESSM ENT ORDER PASSED BY THE A.O. U/S 143 (3) OF IT ACT. EVEN AS PE R THE MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT THE A.O. HAS NOT CAUSED ANY ENQUIRY TO ASCERTAIN THE NATURE OF SUCH EXPE NSES ITA NO.5798/DEL/2011 5 BEING EITHER REVENUE OR CAPITAL. AS A RESULT SUCH ASS ESSMENT ORDER PASSED BY THE A.O. IS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE. THEREFORE, BY INVOKING THE PROVI SION OF SECTION 263 OF THE IT ACT, SUCH ASSESSMENT ORDER IS S ET ASIDE ON THIS LIMITED ISSUE WITH A DIRECTION TO THE A.O. TO CAUS E SUFFICIENT INQUIRIES TO FIND OUT THE ACTUAL NATURE OF THE AFORESAID EXPENSES AND RE-FRAME THE ASSESSMENT BY DISALLOWING SUCH EXPEN SES WHICH ARE CAPITAL IN NATURE AFTER PROVIDING DUE OPPORTU NITY TO THE ASSESSEE OF BEING HEARD TO MEET THE ENDS OF JUSTICE. 10. CHALLENGING THE IMPUGNED ORDER, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS AND HAS MADE ORAL ARGUMENTS AS WELL. 11. APROPOS THE ADDITIONAL GROUND, IT HAS BEEN SUBMIT TED THAT THE CIT HAD SOUGHT TO REVISE THE ASSESSMENT ORDER ON THE GROU ND THAT THE ASSESSEE OUGHT TO WRITE OFF AND CLAIM ONLY 1/5 OF THE A DVERTISEMENT EXPENDITURE, SINCE THE ASSESSEE HAD BEEN FOLLOWING THE C ONCEPT OF DEFERRED REVENUE EXPENDITURE; THAT IT HAD BEEN EXPL AINED BY THE ASSESSEE BEFORE THE LD. CIT THAT THE ASSESSEE HAD NEVER FOL LOWED THE REVENUE EXPENDITURE CONCEPT FOR INCOME-TAX PURPOSES A ND HAD CLAIMED THE ENTIRE ADVERTISEMENT EXPENSES IN THE YEAR IT HAD BEEN INCURRED; THAT THE LD. CIT, THEREAFTER, DROPPED THIS ISSUE AND I NSTEAD, IN THE IMPUGNED ORDER, DIRECTED THE ASSESSING OFFICER TO INQUI RE WHETHER THE ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSEE CONTAINED ANY CAPITAL EXPENDITURE OR NOT; THAT SUCH A CHANGE IN TH E REVISION ORDER IS IMPERMISSIBLE IN LAW; THAT AN ORDER PASSED U/S 263 OF T HE ACT CANNOT BE ON ANY OTHER BASIS BUT THAT MENTIONED IN THE SHOW CAU SE NOTICE ISSUED U/S 263; AND THAT ANY SUCH CHANGE IN THE REVISIONAL OR DER WOULD AMOUNT TO MAKING AN ASSESSMENT IN THE GARB OF SECTION 2 63 OF THE ACT, WHICH IS NOT PERMITTED BY THE ACT. FOR THIS PROPOSITI ON, THE LD. COUNSEL FOR THE ASSESSEE HAS SOUGHT TO PLACE RELIANCE ON THE FOLL OWING CASE LAWS:- I) COMMISSIONER OF INCOME-TAX-XIII VS. ASHISH RAJPAL, 320 ITR 674 (DEL); ITA NO.5798/DEL/2011 6 II) CIT VS. CONTIMETERS ELECTRICALS (P) LTD., 317 ITR 2 49 (DEL); III) INFOSYS TECHNOLOGIES LTD. VS. JCIT, 105 TTJ 802 (BANG .); IV) VESUVIUS INDIA LTD. VS. CIT, 54 SOT 172 (KOL); V) STAR INDIA LTD. VS. ACIT, RANGE 11 (1), 14 ITR (TR IB) 106 (MUM); VI) ASIA RESORT LTD. VS. ACIT, 143 TAXMAN 8 (CHD) (MAG) 12. THE LD. DR, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER IN THIS REGARD. QUA THIS ISSUE, WE FIND THAT THE NOTICE DATED 04.02.2011 (COPY AT APB 182-183) READS AS FOLLO WS:- F.NO.CIT-IV/263/2010-11/4009 DATED: 04.02.2011 THE PRINCIPAL OFFICER, M/S GENESIS COLORS PVT. LTD., 1A-2, RAO TULA RAM MARG, NEW DELHI 110022. SUB: PROCEEDINGS U/S 263 OF THE IT ACT, 1961 M/S GE NESIS COLOURS PVT. LTD. A.Y. 2007-08 REG. AN EXAMINATION OF THE INCOME-TAX ASSESSMENT RECORDS OF M/S GENESIS COLORS PVT. LTD. FOR A.Y. 2007-08 IT TRANSP IRES THAT I) DURING THE FINANCIAL YEAR 2007-08 THE ASSESSEE HAD DE BITED RS.27679914 TO THE P/L ACCOUNT UNDER THE HEAD OF ADVERTISEMENT. AS THIS EXPENSE HAD BEEN INCURRED FOR THE ENDURING BENEFIT OF THE BUSINESS, THIS EXPENSE SHOULD HAVE BEEN CAPITALIZED. DURING EARLIER YEARS THIS EXPENSE HAD B EEN TREATED AS DEFERRED REVENUE EXPENSE SINCE, THE MANAGEMENT OF THE COMPANY WAS OF THE OPINION THAT THE BENEFIT WOULD BE REA LIZED OVER A PERIOD OF AT LEAST FIVE YEARS. DURING A.Y. 200 7-08 ALSO THIS EXPENDITURE SHOULD HAVE BEEN TREATED AS DEFERRED REVEN UE EXPENDITURE AND ONLY ONE-FIFTH OF THE EXPENDITURE RS.55 35982 (1/5 OF 27679914), THE MISTAKE RESULTED IN UNDERASSES SMENT OF INCOME OF RS.22143932 (27679914-5535982) INVOLVING TAX EFFECT OF RS.7453647. II) DURING THE FINANCIAL YEAR 2006-07 IT WAS HELD THAT ROYA LTY CLAIMED OF RS.16548377 WAS CAPITAL EXPENDITURE AND WA S ADDED BACK TO THE INCOME OF THE ASSESSEE. HOWEVER, AS IT WAS PAID TO OBTAIN A NON EXCLUSIVE LICENCE FOR USE OF LICENSED TR ADE MARKS IT WAS IN THE NATURE OF INTANGIBLE ASSET AND DEPRECIATION OF RS.4137094 (25% OF RS.16548377) SHOULD HAVE BEEN AL ALOWED. ITA NO.5798/DEL/2011 7 THE OMISSION TO DO SO RESULTED IN OVER ASSESSMENT OF INCOME OF RS.4137094 INVOLVING TAX EFFECT OF RS.1392545. IT IS SEEN FROM THE EXAMINATION OF RECORD THAT THESE ASPECT WERE NEVER CONSIDERED WHILE THE A.O FRAMED THE ASSESSMENT ORDER. AS ALSO, NO INQUIRY/INVESTIGATION SE EMS TO HAVE BEEN CARRIED OUT WITH REGARDS TO THIS ASPECT. IT IS SETTLED POSITION OF LAW THAT THE AFORESAID LACK OF INQUIRY/INVE STIGATION APART FROM THE UNDER ASSESSMENT OF INCOME POINTED OUT IN EARLIER PARAGRAPH HAS MADE THE ORDER OF THE A.O. BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THE ABOVE FACTS, THE ASSESSMENT ORDER U/S 143 (3) OF THE IT ACT, 1961 FOR THE A.Y. 2006-07 APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THEREFORE, I PROPOSE TO INVOKE THE PROVISIONS OF SECTION 263 OF TH E IT ACT, 1961 AND MODIFY THE ASSESSMENT ACCORDINGLY. IN CASE YOU HAVE ANY OBJECTIONS TO THE PROPOSED REMEDIAL ACTION, YOU MA Y FILE SUCH OBJECTIONS BEFORE ME AT 11.30 A.M. ON 17.02.2011 . IF NO OBJECTIONS ARE RECEIVED BY THE AFORESAID DATE, IT SHAL L BE PRESUMED THAT YOU HAVE NOTHING TO SAY IN THIS MATTER AND SUITABLE REMEDIAL ORDERS U/S 263 WILL BE PASSED ON M ERITS ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. SD/- (S.K. RAY) COMMISSIONER OF INCOME TAX DELHI-IV, NEW DELHI. 13. THUS, AS PER THE NOTICE U/S 263 OF THE ACT, ONE OF THE ISSUES ON WHICH THE LD. CIT HAS SOUGHT TO REVISE THE ASSESSMENT ORDE R WAS THAT THE ASSESSEE OUGHT TO HAVE WRITTEN OFF AND CLAIMED ONLY 1/5 OF ITS ADVERTISEMENT EXPENDITURE, SINCE THE ASSESSEE HAD BEEN FO LLOWING THE CONCEPT OF DEFERRED REVENUE EXPENDITURE. HOWEVER, A PERUSAL OF THE IMPUGNED ORDER (REPRODUCED HEREINABOVE) SHOWS THAT WH ILE PASSING THE SAID ORDER, THE LD. CIT DROPPED THIS ISSUE. INSTEAD , HE DIRECTED THE ASSESSING OFFICER TO INQUIRE AS TO WHETHER THE ADVERTISEM ENT EXPENDITURE OF THE ASSESSEE CONTAINED ANY CAPITAL EXPEN DITURE OR NOT. THEREFORE, EVIDENTLY, THERE IS A CHANGE IN THE IMPUG NED ORDER VIS-A-VIS THE SHOW CAUSE NOTICE QUA THE ISSUE OF ADVERTISEMENT EXP ENDITURE. SUCH A COURSE OF ACTION IS NOT PERMISSIBLE IN LAW, AS H AS BEEN HELD IN VARIOUS JUDICIAL DECISIONS. IN COMMISSIONER OF INCOME- TAX-XIII VS. ASHISH RAJPAL (SUPRA), IT WAS HELD THAT WHERE THE NOTI CE ISSUED BY THE ITA NO.5798/DEL/2011 8 COMMISSIONER BEFORE COMMENCING PROCEEDINGS U/S 263 OF T HE ACT REFERRED TO FOUR ISSUES AND THE FINAL ORDER PASSED REFE RRED TO NINE ISSUES, THE REVISIONAL PROCEEDINGS WERE VITIATED AS A RESU LT OF BREACH OF PRINCIPLES OF NATURAL JUSTICE. 14. IN COMMISSIONER OF INCOME-TAX VS. CONTIMETERS ELEC TRICALS (P) LTD. (SUPRA), IT WAS HELD THAT WHERE AN ISSUE DID NOT FORM PART OF THE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT AND THE ASSESSE E WAS NOT EVEN CONFRONTED WITH IT BEFORE THE COMMISSIONER, SUCH ISSUE COULD NOT FORM THE BASIS FOR REVISION OF ASSESSMENT ORDER U/S 263 OF THE ACT. 15. IN INFOSYS TECHNOLOGIES LTD. VS. JCIT (SUPRA), IT HAS BEEN HELD THAT AN ORDER OF REVISION BY THE COMMISSIONER CANNOT B E UPHELD ON A DIFFERENT GROUND THAN THE GROUND ON WHICH IT HAS BEE N REVISED. 16. IN VESUVIUS INDIA LTD. VS. CIT (SUPRA), THE COMMI SSIONER HAD INVOKED HIS JURISDICTION U/S 263 OF THE ACT BY ISSUING A SHOW CAUSE NOTICE ON THE GROUND THAT INCOME ON ACCOUNT OF REPA IRS OF MACHINERY AND CONTRACT RECEIPTS WAS REQUIRED TO BE ADDED TO THE INCOME ASSESSED IN THE HANDS OF THE ASSESSEE. SUBSEQUENTLY, THE COMMISSIO NER PASSED A REVISIONAL ORDER ON THE GROUND THAT THE ASSESSING OFFI CER DID NOT MAKE NECESSARY VERIFICATION ABOUT THE SAID TRANSACTION S. IT WAS HELD THAT WHEN A REVISIONAL ORDER IS PASSED ON A GROUND OTHE R THAN THE GROUNDS FOR WHICH THE REVISION PROCEEDINGS ARE INITIAT ED, THE SAME IS NOT SUSTAINABLE IN LAW AND THAT SINCE THERE WAS A CHANG E IN REASONING, THE REVISIONAL ORDER WAS NOT SUSTAINABLE. 17. IN STAR INDIA LTD. VS. ACIT, RANGE 11 (1) (SUP RA), IT WAS HELD THAT WHEN A GROUND OF REVISION IS NOT MENTIONED IN THE SHOW CAUSE NOTICE, IT CANNOT BE MADE THE BASIS OF THE REVISIONAL ORDER FOR T HE REASON THAT THE ASSESSEE WOULD HAVE HAD NO OPPORTUNITY TO MEET THE SAID POINT. ITA NO.5798/DEL/2011 9 18. IN ASIA RESORT LTD. VS. ACIT (SUPRA), IT HAS BEEN HELD THAT AN ORDER U/S 263 OF THE ACT MUST BE ON THE BASIS OF THE SAME GROUNDS AS HAD BEEN STATED IN THE NOTICE ISSUED U/S 263 OF THE ACT AND IF THE BASIS OR GROUNDS FOR THE DECISION GIVEN IN THE ORDER ARE WR ONG OR DIFFERENT, THE ORDER PASSED U/S 263 OF THE ACT DESERVES TO BE SET A SIDE. 19. THUS, THERE IS UNANIMOUS JUDICIAL DECISION ON THE I SSUE THAT WHERE THE SHOW CAUSE NOTICE ISSUED IS ON ONE GROUND AND THE REVISIONAL ORDER IS PASSED ON AN ENTIRELY DIFFERENT GRO UND, THE ORDER CANNOT BE SUSTAINED IN LAW. NO DECISION TO THE CONTRA RY HAS BEEN BROUGHT TO OUR NOTICE. 20. ACCORDINGLY, THE ADDITIONAL GROUND FILED BY THE ASSESSEE IS ACCEPTED. 21. CONCERNING THE OBJECTION IN THE SHOW CAUSE NOTICE THAT SINCE THE ASSESSEE WAS FOLLOWING THE CONCEPT OF DEFERRED REVENUE E XPENDITURE, IT OUGHT TO HAVE WRITTEN OFF AND CLAIMED ONLY 1/5 OF T HE ADVERTISEMENT EXPENDITURE, AS DISCUSSED ABOVE, THOUGH THIS ISSUE HAS BEE N MENTIONED AS THE FIRST ISSUE IN THE SHOW CAUSE NOTICE, IT IS ENTIRELY ABSENT IN THE REVISIONAL ORDER. THE ASSESSEE HAS CONTEND ED THAT IT HAD BEEN EXPLAINED BEFORE THE CIT THAT THE ASSESSEE HAD NEV ER FOLLOWED THE DEFERRED REVENUE EXPENDITURE CONCEPT FOR INCOME -TAX PURPOSES AND HAD CLAIMED THE ENTIRE ADVERTISEMENT EXPENSES IN T HE YEAR OF INCURRENCE; AND THAT THEREUPON, THE LD. CIT DROPPED THIS ISSUE WHILE PASSING THE IMPUGNED ORDER. 22. BE THAT AS IT MAY, SINCE THE IMPUGNED ORDER DOES NOT SEEK TO REVISE THE ASSESSMENT ORDER ON THE ALLEGED ISSUE OF DEFERR ED REVENUE EXPENDITURE, THIS QUESTION DOES NOT REQUIRE TO BE GON E INTO, THOUGH ITA NO.5798/DEL/2011 10 DETAILED ARGUMENTS HAVE BEEN ADDRESSED WITH REGARD TH ERETO AND RELIANCE HAS BEEN SOUGHT TO BE PLACED ON NUMEROUS CASE LAWS. 23. NOW, WE TAKE UP THE ISSUE AS TO WHETHER THE LD. CI T WAS JUSTIFIED IN HOLDING THAT SOME PART OF THE EXPENDITURE AMOUNT ING TO ` 2,76,79,914/- CLAIMED BY THE ASSESSEE UNDER THE HEAD A DVERTISEMENT WAS OF CAPITAL NATURE AND HAD BEEN WRONGLY ALLOWED B Y THE ASSESSING OFFICER WITHOUT MAKING ANY INQUIRY TO ASCERTAIN THE NATURE OF SUCH EXPENDITURE. 24. IN THIS REGARD, THE LD. CIT OBSERVED THAT THE ASSESSE E COMPANY DEBITED AN AMOUNT OF ` 2,76,79,914/- AS ADVERTISEMENT EXPENSES; THAT AS PER THE DETAILS FURNISHED, AN AMOUNT OF ` 1,47,10,3 14/- HAD BEEN INCURRED TOWARDS ADVERTISEMENT AND PUBLICITY EXPENSES, WHEREAS THE OTHER EXPENSES AMOUNTED TO ` 1,29,69,600/-; THAT AN E XAMINATION OF THE NATURE OF A LARGE PART OF THE EXPENSES SHOWED THAT INCURRENCE OF SUCH EXPENDITURE HAD RENDERED ENDURING BENEFIT TO TH E ASSESSEE; THAT SO, THERE WAS ENOUGH REASON TO DISALLOW SOME PART OF THE SE EXPENSES AS CAPITAL EXPENSES; AND THAT IT APPEARED THAT THE ASSESSI NG OFFICER HAD NOT UNDERTAKEN ANY INQUIRY TO ASCERTAIN THE NATU RE OF SUCH EXPENSES, THEREBY RENDERING THE ASSESSMENT ORDER ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CIT SET ASIDE THIS ISSUE TO THE ASSESSING OFFICER, DIRECTING THE ASSESSING OFFICER T O CONDUCT SUFFICIENT INQUIRIES TO FIND OUT THE ACTUAL NATURE OF THE EXPENSES AND TO DISALLOW THE ONES FOUND TO BE OF CAPITAL NATURE. 25. NOW THIS ASPECT, AS GONE INTO HEREINABOVE, WAS NO WHERE PART OF THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE U/S 263 OF THE ACT. THE ASSESSEE WAS NEVER PUT TO SHOW CAUSE, BY WAY OF THE NOTI CE, AS TO WHETHER THE ASSESSING OFFICER HAD NOT UNDERTAKEN ANY IN QUIRY TO ASCERTAIN THE NATURE OF THE ASSESSEES EXPENSES AND HAD, AS SUCH, ITA NO.5798/DEL/2011 11 FAILED TO DISALLOW THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. IN ASHISH RAJPAL (SUPRA) (CITED BY THE ASSESSEE), IT HAS A LSO BEEN HELD THAT IT IS A REQUIREMENT OF SECTION 263 OF THE ACT T HAT THE ASSESSEE MUST HAVE AN OPPORTUNITY OF BEING HEARD IN RESPECT OF THOSE ERRORS WHICH THE COMMISSIONER PROPOSES TO REVISE. IN THE PRESENT CASE, THE ISSUE OF THE ALLEGED FAILURE OF THE ASSESSING OFFICER TO INQUIRE INTO THE NATURE OF THE ASSESSEES EXPENDITURE NEVER FORMED PART O F THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE, BEFORE THE REVISION O F THE ASSESSMENT ORDER BY THE CIT ON THIS SCORE. IN KEEPING WI TH ASHISH RAJPAL (SUPRA), TO ACCORD SUCH AN OPPORTUNITY TO TH E ASSESSEE AFTER SETTING ASIDE THE ASSESSMENT ORDER WOULD NOT MEET THE MAN DATE OF SECTION 263 OF THE ACT. THEREFORE, THE CITS ORDER NEEDS TO BE HELD TO BE NOT LEGALLY SUSTAINABLE FOR THIS REASON ALSO. HOWEVE R, IT HAS BEEN CONTENDED ON BEHALF OF THE ASSESSEE THAT COMPLETE DETAI LS OF THE EXPENDITURE OF ` 2,76,79,914/- HAD BEEN FURNISHED BE FORE THE LD. CIT. ATTENTION IN THIS REGARD HAS BEEN DRAWN TO APB 184-19 2, WHICH IS A COPY OF THE ASSESSEES LETTER DATED 03.06.2011. IN THIS LETTER, QUA THE ISSUE AT HAND, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT T HAT THE EXPENDITURE ON ADVERTISEMENT WAS PURELY REVENUE EXPEN DITURE, HAVING BEEN INCURRED DURING THE YEAR FOR THE ADVANCEMENT O F THE ASSESSEES BUSINESS. ALSO, IN THE ASSESSEES REPLY DATED 06.09.2011 (A PB 193- 196) TO THE COMMISSIONER, THE ASSESSEE FURNISHED DETAILS OF ADVERTISEMENT EXPENSES INCURRED BY THE ASSESSEE IN EXCESS O F ` 1 LAC EACH, AS DESIRED BY THE COMMISSIONER. IT WAS EXPLAINED THAT THE ENTIRE ADVERTISEMENT EXPENDITURE WAS REVENUE IN NATURE. 26. HENCE, THE ASSESSEE DID GET THE OPPORTUNITY OF BEING HEARD IN RESPECT OF THE ERROR IN THIS REGARD, WHICH THE COMMISSI ONER PROPOSED TO REVISE. PROVISION OF SUCH OPPORTUNITY TO THE ASSESSEE TAKES THE PROPOSED ACTION OF THE LD. CIT OUTSIDE THE KEN OF ASH ISH RAJPAL. IT IS ITA NO.5798/DEL/2011 12 THEREFORE, THAT THE ACTION OF THE LD. CIT IS NOT BEI NG REJECTED OUTRIGHT AND ITS MERITS ARE BEING GONE INTO INFRA. 27. THE ISSUE IS AS TO WHETHER INDEED, AS ALLEGED BY THE LD. CIT, THE ASSESSING OFFICER DID NOT MAKE ANY INQUIRY TO ASCERTAIN THE NATURE OF THE EXPENSES INCURRED BY THE ASSESSEE. 28. ON THIS, THE ASSESSEE HAS MAINTAINED THAT A SPECIFIC QUERY IN THIS REGARD HAD BEEN PUT TO THE ASSESSEE BY THE ASSESSING OFFICE R IN THE ASSESSMENT PROCEEDINGS AND IN RESPONSE THERETO, THE ASSESSEE HAD FILED COMPLETE DETAILS OF THE EXPENDITURE INCURRED B Y IT. ATTENTION IN THIS REGARD HAS BEEN INVITED TO QUESTION NO.11 AT APB 197 RAISED BY THE ASSESSING OFFICER AND TO APB 200-216, WHICH IS A COP Y OF THE ASSESSEES LEDGER OF ADVERTISEMENT EXPENSES, WHICH WAS FILED BEFORE THE ASSESSING OFFICER AS AN ANNEXURE TO THE ASSESSEES REPLY DATED 17.12.2009 (APB 199A-199B). IT HAS BEEN CONTENDED T HAT COMPLETE DETAILS OF THE ADVERTISEMENT EXPENDITURE WERE THUS FUR NISHED AT THE INSTANCE OF THE ASSESSING OFFICER; THAT ALL THESE DETAIL S WERE DULY CONSIDERED BY THE ASSESSING OFFICER BEFORE ALLOWING THEM ; THAT THE VERY FACT THAT THE ASSESSING OFFICER HAD HIMSELF CALLED FOR THE DETAILS SHOWED THAT HE HAD APPLIED HIS MIND TO THE ISSUE; AND T HAT IF, AS IN THE PRESENT CASE, INFORMATION WAS SOUGHT BY THE ASSESSING OFFIC ER AND REPLY WAS DULY GIVEN, THE FACTUM OF NO FINDING HAVIN G BEEN RECORDED IN THE ASSESSMENT ORDER CANNOT AND DOES NOT LEAD TO THE IN FERENCE THAT NO INQUIRY WAS CARRIED OUT BY THE ASSESSING OFFICER. 29. IT HAS NEXT BEEN CONTENDED ON BEHALF OF THE ASSESSEE THAT THE LD. CIT ERRED IN OBSERVING THAT SINCE THE EXPENDITURE INC URRED BY THE ASSESSEE HAD BROUGHT ENDURING BENEFIT TO THE ASSESSEE, THER E WAS ENOUGH REASON TO DISALLOW SOME PART OF THE EXPENSES AS CA PITAL EXPENSES; THAT ENDURING BENEFIT IS NOT THE SOLE TEST FO R DECIDING ITA NO.5798/DEL/2011 13 WHETHER EXPENDITURE IS CAPITAL OR REVENUE; THAT EVER Y EXPENDITURE CAN RENDER ENDURING BENEFIT; THAT THE MERE FACT THAT TH E EXPENDITURE LATER ON COULD BRING ENDURING BENEFIT TO THE ASSESSEE IS NOT A N ERROR OF LAW ENTITLING THE PROVISIONS OF SECTION 263 OF THE ACT TO BE INVOKED; THAT THE ORDER UNDER APPEAL IS BEREFT OF ANY FINDING BY T HE LD. CIT AS TO WHY HE THOUGHT THE EXPENDITURE TO BE CAPITAL EXPENDITUR E; THAT THE LD. CIT HAD HIMSELF ASKED FOR DETAILS OF EXPENSES EXCEEDING ` 1 LAC EACH, WHICH DETAILS WERE DULY FURNISHED AND WERE PERUSED BY THE CIT; THAT STILL, THE LD. CIT DID NOT GIVE ANY BASIS TO ARRIVE AT THE FINDING THAT SINCE THE EXPENDITURE HAD BROUGHT ENDURING BENEFIT TO THE ASSESSEE, THERE WAS REASON ENOUGH TO DISALLOW SOME OF THE EXPENSES AS CAPI TAL IN NATURE; AND THAT THE LD. CIT ERRED IN MERELY ISSUING A VAGUE DIRECTION BASED ON AN ILLEGAL PROPOSITION OF LAW. FOR THE PROP OSITION THAT ENDURING BENEFIT TEST IS NOT THE SOLE TEST FOR DECIDING THE NATURE OF AN EXPENDITURE , THE FOLLOWING JUDGEMENTS HAVE BEEN REL IED ON:- I) EMPIRE JUTE COMPANY LTD. VS. CIT, 124 ITR 1 (SC); II) ACIT VS. MEDICAMEN BIOTECH LTD., 99 TTJ 873 (DEL); AND III) BHARAT GEARS LTD. VS. CIT, 337 ITR 368 (DEL). 30. THE LD. COUNSEL FOR THE ASSESSEE HAS THEN CONTENDED T HAT THE EXPRESSION IT APPEARS USED BY THE LD. CIT BEFORE THE WORDS THAT THE AO HAS NOT CAUSED ANY INQUIRY TO ASCERTAIN THE NATURE OF SUCH EXPENSES BEING EITHER REVENUE OR CAPITAL SHOWS THAT TH E LD. CIT WAS HIMSELF NOT SURE THAT NO INQUIRY HAD BEEN UNDERTAKEN ; AND THAT IF THERE IS AN INFERENCE OF ADEQUATE INQUIRY FROM THE ASSESSMENT ORDER, THE PROVISIONS OF SECTION 263 OF THE ACT CANNOT BE INVOKE D. THE FOLLOWING CASE LAWS HAVE BEEN SOUGHT TO BE RELIED ON:- I) CIT VS. VIKAS POLYMERS, 341 ITR 537 (DEL); II) CIT VS. LEISURE WEAR EXPORTS LTD., 341 ITR 166 (DEL) ; III) CIT VS. SUNBEAM AUTO LTD., 332 ITR 167 (DEL); ITA NO.5798/DEL/2011 14 IV) CIT VS. PRIMA INDIA PRODUCTS, 11 DTR 62 (DEL); & V) CIT VS. HINDUSTAN MARKETING AND ADVERTISING COMPANY L TD., 241 ITR 180 (DEL) 31. IT HAS FURTHER BEEN CONTENDED THAT UNDISPUTABLY, THE QUESTION OF CAPITAL/REVENUE EXPENDITURE IS ALWAYS A DEBATABLE ISSUE AND THEREFORE, THE CIT MUST SHOW AN EXPENDITURE TO BE CAPITAL U/S 263 OF THE AC T, WHICH HAS NOT BEEN DONE IN THE ASSESSEES CASE. 32. IT HAS ALSO BEEN CONTENDED THAT AS HELD IN CIT VS. R.K. METAL WORKS, 112 ITR 445 (P&H) AND CIT VS. VIKAS POLYMERS (SUPRA), A VAGUE DIRECTION CANNOT BE THE BASIS OF REVISION U/S 263 OF THE ACT. 33. ON THIS ISSUE, IT HAS LASTLY BEEN CONTENDED ON BEHA LF OF THE ASSESSEE, THAT THUS, THE CIT HAS FAILED TO SPECIFICALLY P OINT OUT ANY ERROR IN THE ASSESSMENT ORDER; THAT AS SUBMITTED, THE ASSE SSMENT ORDER IS NOT ERRONEOUS; THAT IN ORDER TO ENABLE THE PROVISIONS OF SECTION 263 TO BE INVOKED, AN ASSESSMENT ORDER HAS TO BE BOTH ERRONE OUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE; THAT H ERE SINCE THE ASSESSMENT ORDER IS NOT ERRONEOUS, THERE IS NO QUESTION OF IT BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE; AND THAT THEREFORE, THE ORDER PASSED U/S 263 OF THE ACT IS INVALID. 34. HERE AGAIN, THE LD. DR HAS SOUGHT TO PLACE STRONG RELIANCE ON THE ORDER UNDER APPEAL. IT HAS NOT BEEN DENIED THAT THE EXPENDITURE INCURRED RENDERED ENDURING BENEFIT TO THE ASSESSEE; THA T THEREFORE, THE LD. CIT WAS WELL JUSTIFIED IN OBSERVING THAT SOME PART OF THE EXPENDITURE OUGHT TO HAVE BEEN DISALLOWED BY THE AO; THAT THE FA CT THAT NO SUCH DISALLOWANCE HAD BEEN MADE IN THE ASSESSMENT ORDER WAS AM PLY INDICATIVE OF THE FACT THAT NO INQUIRY WHATSOEVER HA D BEEN CARRIED OUT BY THE AO TO ASCERTAIN THE NATURE OF THE EXPENDITURE INCURRED; THAT IN THE ABSENCE OF ASCERTAINMENT OF NATURE OF SUCH EXPENSE S, PART OF ITA NO.5798/DEL/2011 15 WHICH WERE UNDENIABLY CAPITAL EXPENSES, LED THE AO N OT TO MAKE ANY DISALLOWANCE; THAT IT WAS THIS ACTION OF THE AO IN OMI TTING TO MAKE DISALLOWANCE, WHICH RENDERED THE ASSESSMENT ORDER ERRON EOUS, CAUSING PREJUDICE TO THE INTERESTS OF THE REVENUE; THAT AS SUC H, ERROR AS WELL AS PREJUDICE ARE WRIT LARGE IN THE ASSESSMENT ORDER; THAT SO, THERE WAS DUE GROUND TO REVISE THE ASSESSMENT ORDER BY INVOKING T HE PROVISIONS OF SECTION 263 OF THE ACT; AND THAT THE LD. CIT CAN NOT AT ALL BE SAID TO HAVE ISSUED VAGUE DIRECTIONS TO THE AO IN THIS REGARD. 35. ON CONSIDERING THE RIVAL CONTENTIONS ON THIS ISSUE W ITH REFERENCE TO THE MATERIAL ON RECORD, IT IS SEEN THAT IN THIS C ASE, ADMITTEDLY, THE AO HAD PUT A SPECIFIC QUERY TO THE ASSESSEE REGARDING THE EXPENSES INCURRED. QUESTION NO.11 AT APB 197 STATES AS FOLLOWS:- 11. DETAIL OF FOLLOWING EXPENSES:- GRATUITY, PF, LEAVE ENCASHMENT, STAFF WELFARE, ADVERTISEMENT & ROYALTY, PARTY WISE COMMISSION & TDS THEREON. 36. THE ASSESSEE, IN ITS REPLY DATED 09.11.2009 (APB 198 -199), STATED AS FOLLOWS (RELEVANT PORTION):- KINDLY REFER TO YOUR NOTICE U/S 142 (2) OF INCOME-TAX ACT, 1961 REQUIRING CERTAIN INFORMATION/DOCUMENTS. THE REQUIRE D INFORMATION AS PER THE QUESTIONNAIRE IS AS DETAILED HE REUNDER:- .. ADVERTISEMENT AS ON 31.03.2006 15,00,000 [REFER TO NOTE 20(I) AND (II) OF SCHEDULE 14 OF NOTES ON ACCOUNTS TO THE BALANCE SHEET] 37. NOTE 20(II) (APB 172) (IN SCHEDULE 14 TO THE ASSE SSEES NOTES TO THE ACCOUNTS) READS AS FOLLOWS:- (II) ADVERTISING EXPENSES OF RS.2,500,000 (BALANC E RS.1,500,000 AS AT 31 MARCH, 2006, NET OF RS.1,000,00 0 ALREADY CHARGED OFF IN THE PREVIOUS YEARS) AND LEASEHOLD EXP ENSES OF ITA NO.5798/DEL/2011 16 RS.14,632,527 (BALANCE RS.10,179,515) AS AT 31 MARCH , 2006, NET OF RS.4,453,012 ALREADY CHARGED OFF IN THE PREVIO US YEARS) INCURRED DURING THE PREVIOUS YEARS WERE ERRONEOUSLY CONSIDERED AS A PART OF MISCELLANEOUS EXPENSES AND, THEREFORE, H AVE BEEN RECTIFIED DURING THE YEAR. ACCORDINGLY, ADVERTISEMENT EXPENSE FOR THE YEAR INCLUDES RS.1,500,000 AS PRIOR PERIOD E XPENSE. FURTHER, ADDITIONS TO GROSS BLOCK OF LEASEHOLD IMPROVE MENTS AMOUNTING TO RS.14,632,527 AND DEPRECIATION RELATABLE TO THE SAME IN RESPECT OF THE PRIOR YEARS AMOUNTING TO RS.4,4 53,012 HAS BEEN SHOWN AS ADJUSTMENT IN THE FIXED ASSETS SCHEDU LE. 38. THEN, ALONG WITH ITS REPLY DATED 27.12.2009 (APB 199A-199B), THE ASSESSEE FURNISHED BEFORE THE AO ITS LEDGER OF ADVERT ISEMENT EXPENSES (APB 200-216). THE DETAILS OF THE EXPENDITURE OF ` 2,76,79,914/- ARE AT APB 200, AS FOLLOWS:- EXPENSE HEAD SUB-HEAD EXPENSES ADV. & PUBLICITY SHOW EXPENSES 7,289,993 ADV. & PUBLICITY ADVERTISEMENT 443,606 ADV. & PUBLICITY ADVERTISEMENT & PUBLICITY EXPS 14,710,314 ADV. & PUBLICITY PROFESSIONAL FEE MODEL 848,770 ADV. & PUBLICITY EVENT EXPENSES BMW 1,375,000 ADV. & PUBLICITY ENTERTAIANEMNT AND PR EXPENSES 60,750 ADV. & PUBLICITY GIFT & PRESENTATION 11,345 ADV. & PUBLICITY SALES/BUSINESS PROMOTION 1,513,074 ADV. & PUBLICITY PHOTOSHOOT EXPS 1,254,220 ADV. & PUBLICITY SALES PROMOTION 171,352 ADV. & PUBLICITY PACKING EXPENSE 1,490 ADV. & PUBLICITY 27,679,914 39. THEREUPON, ON THE ASSESSEE HAVING FURNISHED THESE DET AILS BEFORE THE AO ON THE ASKING OF THE AO IN THE ASSESSMENT ORDER DATED 29.12.2009, NO ADDITION WAS MADE. 40. NOW, IN VIKAS POLYMERS (SUPRA), THE HONBLE JURI SDICTIONAL HIGH COURT HAS HELD THAT IF A QUERY WAS RAISED DURING THE COURSE OF SCRUTINY BY THE AO, WHICH WAS ANSWERED TO THE SATISFACTION OF TH E AO, BUT NEITHER THE QUERY NOR THE ANSWER WAS REFLECTED (AS IN THE PRESENT CASE) IN THE ASSESSMENT ORDER, THAT WOULD NOT, BY ITSELF, LEAD TO THE CONCLUSION THAT THE ORDER OF THE AO CALLED FOR INTER FERENCE AND REVISION. ITA NO.5798/DEL/2011 17 THIS, PARTICULARLY SO, WHEN IN THE PRESENT CASE, AS HAS BEEN CONSIDERED IN THE PRECEDING DISCUSSION, DETAILS WERE ASKED FOR OF T HE ASSESSEE BY THE AO BY PUTTING A SPECIFIC QUERY, ALL POSSIBLE DETAI LS WERE DULY FURNISHED BY THE ASSESSEE IN RESPONSE, AND NO FURTHER QUE STION WAS ASKED BY THE AO. THIS CONDUCT SHOWS THAT THE AO HAD D ULY CONSIDERED THE DETAILS CALLED FOR BY HIM AND SUPPLIED BY THE ASSESSE E AND THAT THE AO STOOD SATISFIED FROM SUCH DETAILS. THEREFORE, THE L D. CIT, EVIDENTLY, IS NOT JUSTIFIED IN OBSERVING THAT NO INQUIRY WAS CARRI ED OUT BY THE AO. IN THIS REGARD, THE ASSESSEE IS CORRECT IN CONTENDING THA T THE LD. CIT WAS HIMSELF NOT SURE THAT THE AO HAD NOT CARRIED OUT A NY INQUIRY. IT IS AS SUCH, THAT THE CIT OBSERVED IN THE IMPUGNED ORDER T HAT IT APPEARED THAT THE AO HAD NOT CAUSED ANY INQUIRY TO ASCERTAIN T HE NATURE OF THE EXPENSES. THE CIT, AS AVAILABLE FROM THE ORDER, HAD N O BASIS FOR SUCH FINDING OF NO INQUIRY INTO THE NATURE OF THE EXPENSE S BY THE AO. RATHER, INSTEAD OF RELYING ON ANYTHING IN THE ASSESSMENT ORDER TO PERCEIVE SUCH LACK OF INQUIRY BY THE AO, THE CIT WAS SWAYED BY HIS OWN MISCONCEIVED OPINION THAT SINCE THE INCURRENCE OF THE EXPENDITURE HAD BROUGHT ENDURING BENEFIT TO THE ASSESSEE, THIS WAS REASON ENOUGH TO DISALLOW SOME PART OF THE EXPENSES AS BEING CAPITAL IN NATURE. NOW THIS, IN OUR CONSIDERED OPINION, CANNOT BE THE BASIS FO R INVOKING REVISIONAL JURISDICTION BY THE CIT. AS CORRECTLY CONT ENDED, THE MERE FACTUM OF ENDURING BENEFIT HAVING ACCRUED TO THE ASSE SSEE IS NOT, BY ITSELF, A DECISIVE FACTOR TO HOLD THE NATURE OF THE E XPENSES INCURRED TO BE CAPITAL. ANY EXPENDITURE CAN BRING ENDURING BEN EFIT, AS HELD IN:- I) EMPIRE JUTE COMPANY LTD. VS. CIT, 124 ITR 1 (SC); II) ACIT VS. MEDICAMEN BIOTECH, 99 TTJ 873 (DEL); AND III) BHARAT GEARS LTD. VS. CIT, 337 ITR 368 (DEL) 41. AS FOR THE CIT, HE HIMSELF WAS UNABLE TO POINT OUT EVEN A SINGLE ITEM OF EXPENDITURE INCURRED BY THE ASSESSEE TO BE CAPI TAL EXPENDITURE. WHILE INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT, ITA NO.5798/DEL/2011 18 THE CIT WAS REQUIRED TO POINT OUT SUCH ITEMS OF EXPEND ITURE AS HE FOUND TO BE CAPITAL IN NATURE AND THE SPECIFIC REASON FOR SUCH FINDING WAS ALSO TO BE STATED. HOWEVER, THESE REQUIREMENTS HAVE NOT BEEN MADE MANIFEST IN THE ORDER UNDER APPEAL, EVEN THOUGH THE CIT HAD HIMSELF EXAMINED THE DETAILS OF ADVERTISEMENT. THE OR DER UNDER APPEAL, QUA THIS ISSUE, THEREFORE, IS A RESULT OF COMPL ETE MISREADING AND NON-READING OF MATERIAL DOCUMENTARY EVIDENCE BR OUGHT ON RECORD BY THE ASSESSEE. IT IS ALSO AN OUTCOME OF MERE CONJECTURE S AND SURMISES UNSUPPORTED BY ANYTHING CONTRARY TO THE EVID ENCE FURNISHED BY THE ASSESSEE. 42. BESIDES, IT IS ALSO SEEN THAT THE ISSUE OF DETERMINATI ON OF THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE WAS N OWHERE DELINEATED IN THE SHOW CAUSE NOTICE ISSUED U/S 263 OF T HE ACT TO THE ASSESSEE. FOR THIS SOLE REASON, THE ASSESSMENT ORDER COULD NO T HAVE BEEN REVISED ON THIS BASIS. ACCORDINGLY, WE HOLD THAT THE ASSESSMENT ORDER DOES NOT SUFFER EITHER FROM THE VICE OF BEING E RRONEOUS, OR BEING PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE LD CIT WAS, AS SUCH, NOT JUSTIFIED IN DIRECTING THE AO TO CARRY OUT INQUIRY T O ASCERTAIN THE NATURE OF THE EXPENSES AND TO REFRAME THE ASSESSMENT BY DISALLOW ING THE EXPENSES TO BE FOUND TO BE CAPITAL IN NATURE. 43. FURTHER, THE ISSUE AS TO THE NATURE OF EXPENDITURE BEING CAPITAL OR REVENUE HAS ALWAYS BEEN AND REMAINS A VEXED AND DEBATA BLE ISSUE. FOR THIS REASON ALSO, IT WAS INCUMBENT ON THE LD. CIT TO SPECIFICALLY SHOW AN ITEM OF EXPENDITURE TO BE CAPITAL, WHICH HAS NOT BEEN DONE HERE. 44. SO FAR AS REGARDS THE DIRECTION ISSUED BY THE LD. C IT, WE HAVE CONSIDERED HEREINABOVE THAT THE DIRECTION ISSUED BY TH E LD. CIT IS BUT A VAGUE DIRECTION, INASMUCH AS THE CIT DID NOT POINT OU T ANY ITEM TO HOLD THAT THE EXPENSE WAS CAPITAL EXPENDITURE. HE MERELY STATED THAT A ITA NO.5798/DEL/2011 19 LARGE PART OF THE EXPENSES HAD RENDERED ENDURING BENE FIT TO THE ASSESSEE. THE OBSERVATION OF THE CIT (A) WAS, THEREFORE, A RESULT OF MERE GUESS WORK, CONJECTURES AND SURMISES, WITHOUT ANY SP ECIFIC FINDING OF ERROR OF CLAIM. IT GOES WITHOUT SAYING TH AT MERELY OBSERVING THAT THERE IS REASON TO DISALLOW SOME OF THE EXPENSES AS CAPITAL, WITHOUT POINTING OUT SPECIFICALLY AS TO WHICH OF THE EXPENSES WERE FOUND BY THE LD. CIT TO BE OF CAPITAL NATURE, CANNO T AND DOES NOT COMPRISE A FINDING U/S 263 OF THE ACT. THE DIRECTION ISSUED BY THE LD. CIT IS, THEREFORE, A VAGUE DIRECTION UNSUSTAINABLE IN LAW. 45. THE OTHER ISSUE TAKEN UP BY THE LD. CIT WAS THAT A CCORDING TO HIM, DURING F.Y. 2006-07, RELEVANT TO THE YEAR UNDE R CONSIDERATION, IT HAD BEEN HELD THAT ROYALTY CLAIMED OF ` 1,65,48,377 /- WAS CAPITAL EXPENDITURE AND HAD BEEN ADDED BACK TO THE INCOME O F THE ASESSEE; THAT SINCE IT HAD BEEN PAID TO OBTAIN A NON-EXCLUSIVE LICENCE FOR USE OF A LICENSED TRADE MARK, IT WAS IN THE NATURE OF INTANG IBLE ASSET AND DEPRECIATION OF ` 41,37,094/- (25% OF ` 165,48,377/ -) SHOULD HAVE BEEN ALLOWED; AND THAT OMISSION TO DO SO HAD RESULTED IN OVE R ASSESSMENT OF ` 41,37,094/-, INVOLVING A TAX EFFECT OF ` 13,92,54 5/-. 46. IN THIS REGARD, THE LD. CIT HELD THE ASSESSMENT ORDE R TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVE NUE, OBSERVING AS FOLLOWS:- 5. THE SECOND ISSUE RELATES TO THE CLAIM OF ROYALTY TO THE TUNE OF RS.1,65,48,377/- WHICH HAS BEEN TREATED AS CAP ITAL EXPENDITURE AND ADDED BACK TO THE INCOME OF THE ASSESSE E COMPANY. HOWEVER, SINCE THE AMOUNT PAID ON ACCOUNT OF ROYALTY WAS TO OBTAIN A NON EXCLUSIVE LICENSE FOR USE OF LICENSED TRADE MARK, IT WAS IN THE NATURE OF INTANGIBLE ASSET AND DEPRECIATION @ 25% ON THE SAID CAPITAL EXPENDITURE SHO ULD HAVE BEEN ALLOWED AND FAILURE TO DO SO HAS APPARENTLY RESU LTED IN OVER ASSESSMENT OF INCOME OF RS.4137094/-. THIS FACT HAS ALSO BEEN CONFIRMED BY THE AR OF THE ASSESSEE COMPANY. AS A RE SULT, ON THIS ISSUE ALSO, THE ASSESSMENT ORDER HAS TO BE REVISED BY ALLOWING DEPRECIATION @ 25% ON ROYALTY PAYMENT BEING TR EATED AS CAPITAL EXPENDITURE AND THE A.O. IS HEREBY DIRECTED TO ALLOW SUCH DEPRECIATION WHILE RE-FRAMING THE ASSESSMENT ORDE R. ITA NO.5798/DEL/2011 20 47. ON THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE HAS CONT ENDED THAT BY VIRTUE OF THE CITS ORDER ON THIS ASPECT, THE LD. CIT IS SEEKING TO REDUCE THE ASSESSMENT BY A SUM OF ` 41,37,093/-; THAT TH IS CANNOT BE DONE U/S 263 OF THE ACT; AND THAT IF AT ALL, THIS CA N ONLY BE BROUGHT ABOUT BY INVOKING THE PROVISIONS OF SECTION 264 OF TH E ACT. 48. THE LD. DR HAS, ON THIS ASPECT ALSO, SOUGHT TO PLAC E RELIANCE ON THE IMPUGNED ORDER. 49. QUA THIS ISSUE, WE FIND THAT INDEED, BY THE PASSING OF THE IMPUGNED ORDER, THE EFFECT IS THAT OF REDUCING THE ASSESSMENT BY `41,37,093/-. NOW, EVIDENTLY, REDUCTION OF THE ASSESSM ENT IS NOWHERE THE PURPORT OF INVOCATION OF THE PROVISIONS OF SECTI ON 263 OF THE ACT. THEREFORE, THE ORDER UNDER APPEAL ON THIS SCORE TOO, IS FOUND TO BE UNSUSTAINABLE IN LAW AND TO THIS EXTENT ALSO IT STANDS C ANCELLED. 50. IN VIEW OF THE ABOVE, THE GRIEVANCE SOUGHT TO BE RAISED BY THE ASSESSEE BY WAY OF GROUNDS OF APPEAL TAKEN, IS FOUND TO B E JUSTIFIED AND IS ACCEPTED AS SUCH. 51. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.10.20 13. SD/- SD/- [S.V. MEHROTRA] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 11.10.2013. DK ITA NO.5798/DEL/2011 21 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES