M/s Getit Infomediary Ltd., New Delhi V. DCIT, New Delhi

ITA 5910/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0165 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: T R TALWAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.5910/DEL/2010 ASSESSMENT YEAR : 2003-04 GETIT INFOMEDIARY LTD., 8-B, BAHADUR SHAH ZAFAR MARG, (TEJ BUILDING), NEW DELHI. PAN : AABCG7022L VS. DCIT, CIRCLE 12 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.R. TALWAR, ADVOCATE REVENUE BY : SMT. MONA MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 22 ND NOVEMBER, 2010 FOR ASSESSMENT YEAR 2003-04. GROUNDS OF APPEAL READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED:- I) IN DISALLOWING AN EXPENDITURE OF ` 37,03,787/- INCURRED ON ADVERTISEMENTS FOR POPULARIZING THE USAGE OF YELLOW PAGE DIRECTORIES BY THE PEOPLE OF INDIA, WHICH ARE BEING PRINTED AND PUBLISHED BY THE APPELLANT AND YIELD REVENUE TO IT. II) WITH OUT PREJUDICE TO THE ABOVE, IN NOT ALLOWING THE ENTIRE EXPENDITURE OF ` 1,48,15,150/- INCURRED THER EON INSTEAD OF ` 37,03,783/- CLAIMED AS 1/4 TH OF THE EXPENDITURE AND REST BEING TREATED AS DEFERRED REVENUE EXPENDITURE OR ALTERNATIVELY TREATING THE ENTIRE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWING ITA NO.5910/DEL/2010 2 ENTIRE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWI NG DEPRECIATION @ 25% THEREON BEING INTANGIBLE ASSETS. III) IN NOT ALLOWING THE DECISIONS OF VARIOUS INCOME TAX TRIBUNALS AND GUJARAT HIGH COURT ON THE ISSUE UNDER CONSIDERATION. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUBSTITUTE O R DELETE ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. THE IMPUGNED ASSESSMENT IS FRAMED VIDE ORDER DATED 28 TH NOVEMBER, 2008 U/S 143(3)/263 OF IT ACT, 1961 (THE A CT). THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 2 ND DECEMBER, 2003 DECLARING INCOME AT NIL AGAINST WHICH THE ASSESSMENT WAS MADE U/S 14 3(3) VIDE ORDER DATED 24 TH FEBRUARY, 2006 AT AN INCOME OF `36,44,046/-. ON 3 1 ST MARCH, 2008, AN ORDER WAS PASSED U/S 263 OF THE INCOME TAX ACT VIDE WHICH THE AFOREMENTIONED ASSESSMENT WAS SET ASIDE ON THE I SSUE OF ALLOWABILITY OF EXPENDITURE OF ` 37.04 LAC INCURRED BY THE ASSESSEE ON BRAND BUILDING WHICH WAS CONSIDERED TO BE AN EXPEND ITURE IN THE NATURE OF CAPITAL. IN THE MEAN TIME, THE QUANTUM A PPEAL WAS DECIDED BY THE TRIBUNAL VIDE ORDER DATED 22 ND JUNE, 2007 IN ITA NO.4370/DEL/2006 AND APPEAL EFFECT ORDER WAS PASSED BY THE ASSESSING OFFICER ON 23 RD OCTOBER, 2008 WHEREBY THE INCOME OF THE ASSESSEE WAS RE-COMPUTED AT NIL UNDER THE NORMAL PROVISIO NS AND THE INCOME U/S 115JB WAS ASSESSED AT ` 1,90,84,550/-. THE TR IBUNAL HAS UPHELD THE INVOCATION OF POWERS U/S 263 VIDE ORDER DA TED 27 TH NOVEMBER, 2009 IN ITA NO.323/DEL/2009. IT IS IN THE SE CIRCUMSTANCES THE IMPUGNED ASSESSMENT HAS BEEN FRAMED. THE ASSESSING OFFI CER REQUIRED THE ASSESSEE TO EXPLAIN THE ALLOWABILITY OR OT HERWISE OF EXPENDITURE OF ` 37.04 LAC ON BRAND BUILDING. IT IS THE CASE OF THE ASSESSEE THAT THE SAID AMOUNT WAS INCURRED BY THE ASSESSEE FO R POPULARIZING GETIT WORD IN THE YELLOW PAGES SEGMENT OF TELEPHONE DIRECTORY BUSINESS AND IT WAS SUBMITTED THAT AS PER NOTE TO ACCOUNT ITA NO.5910/DEL/2010 3 NO.5.2, UNDER MISCELLANEOUS EXPENDITURE, THE AUDITO R HAS CLEARLY MENTIONED THAT THEIR TOTAL ADVERTISEMENT AND BRAND B UILDING EXPENSES ARE OF ` 4,47,34,823/- OUT OF WHICH EXPENSES OF ` 1,4 8,15,150/- WAS ATTRIBUTED TOWARDS BRAND BUILDING EXPENSES INCURRED FO R BUILDING BRAND GETIT AND FROM SUCH NOTE IT IS CLEAR THAT IT IS NOT AN EXPENDITURE INCURRED BY THE COMPANY FOR ACQUIRING THE BRAND GE TIT AND SUCH EXPENDITURE WAS INCURRED FOR POPULARIZING THE USAGE O F YELLOW PAGE DIRECTORY BY PEOPLE OF INDIA. THE MANAGEMENT OF TH E COMPANY UNDER PRUDENT ACCOUNTING POLICY HAS PUT SUCH EXPENDITURE UN DER MISCELLANEOUS EXPENDITURE AND HAS CHARGED IT TO PROF IT & LOSS ACCOUNT IN EARLIER YEARS OUT OF WHICH ` 37,03,787/- WAS CHARG ED FOR THE YEAR UNDER CONSIDERATION AND THE REMAINING AMOUNT WAS CHAR GED IN THREE ACCOUNTING YEARS @ 25% OF EXPENSE OF EACH YEAR. LEAR NED ASSESSING OFFICER HAS REJECTED SUCH CONTENTION OF THE ASSESSEE AS, A CCORDING TO THE ASSESSING OFFICER, SUCH EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH HAS PROVIDED THE ASSESSEE ENDURING BEN EFIT. THE ASSESSING OFFICER OBSERVED THAT SUCH EXPENDITURE IS IN THE NATURE OF GOODWILL WHICH IS EARNED BY THE BRANDING BUILDING EX PENSES AND, THEREFORE, SUCH EXPENDITURE CANNOT BE TREATED AS REVE NUE EXPENDITURE. THE ASSESSING OFFICER HAS ALSO REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF B. SRINIVASA SHETTY VS. C IT 128 ITR 294 (SC) AND HELD THAT GOODWILL IS NOT A CAPITAL ASSET. H E ALSO REFERRED TO THE ACCOUNTING STANDARDS ACCORDING TO WHICH GOODWILL IS NOT CONSIDERED AS AN INTANGIBLE ASSET FOR THE PURPOSE OF AMO RTISATION. THE ASSESSING OFFICER MADE REFERENCE TO THE DECISION IN THE CASE OF BHARATBHAI J. VYAS VS. CIT 279 ITR 41 WHEREIN IT HAS B EEN HELD THAT DEPRECIATION IS NOT ALLOWABLE ON GOODWILL AND BY THE SE OBSERVATIONS THE IMPUGNED AMOUNT OF ` 37,03,787/- HAS BEEN ADDED TO T HE INCOME OF THE ASSESSEE. THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICE R WERE REITERATED BEFORE THE CIT (A) WHO HAS AGREED WI TH THE VIEW OF THE ASSESSING OFFICER THAT THE SAID AMOUNT WAS AN EXPENDITURE OF CAPITAL ITA NO.5910/DEL/2010 4 NATURE AND HE HAS ALSO HELD THAT DEPRECIATION IS NOT A LLOWABLE ON SUCH EXPENDITURE. THE ASSESSEE IS AGGRIEVED, HENCE, IN APPEA L. 3. LEARNED AR OF THE ASSESSEE HAS REITERATED THE SUBMISSION S MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND CIT (A). LEARNED AR HAS ALSO RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ITO VS. SPICE COMMUNICATIONS LTD. [2010] 35 SOT 78 (DEL) WHEREIN THE EXPENDITURES ON BRAND BUILDING WERE HELD TO BE REVEN UE IN NATURE. LEARNED AR ALSO RELIED UPON VARIOUS JUDICIAL PRONOUNC EMENTS WHICH WERE RELIED UPON BEFORE LEARNED CIT (A). COPY OF W RITTEN SUBMISSIONS OF LEARNED AR ARE PLACED AT PAGES 29-33 OF THE PAPER BOOK. THUS, IT WAS SUBMITTED BY HIM THAT THE CLAIM OF THE ASSESSEE HAS WR ONGLY BEEN DISALLOWED. HE ALSO SUBMITTED THAT IN SUBSEQUENT YEARS T HE POSITION IS AS UNDER:- I) ASSESSMENT YEAR 2004-05 - ALLOWED U/S 143 (1)OF IT A CT. II) ASSESSMENT YEAR 2005-06 - DISALLOWED U/S 143(3) OF T HE IT ACT. III) ASSESSMENT YEAR 2006-07 - ALLOWED U/S 143 (3) OF IT ACT. 4. THUS, HE SUBMITTED THAT THE CLAIM OF THE ASSESSEE HAS W RONGLY BEEN DISALLOWED. 5. ON THE OTHER HAND, RELYING UPON THE ORDER OF ASSESSI NG OFFICER AND CIT (A), IT WAS PLEADED BY LEARNED DR THAT THE C LAIM OF THE ASSESSEE HAS RIGHTLY BEEN DISALLOWED. SHE SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL AS IT HAS PROVIDED ENDURING BENEFIT TO THE ASSESSEE AND THE ASSE SSEE IS ALSO NOT ENTITLED FOR DEPRECIATION ON THAT EXPENDITURE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE DETAILS OF EXPEND ITURE INCURRED BY THE ASSESSEE ASSESSEE ARE FILED AT PAGES 14-28 OF THE PAPER BOOK. AS ITA NO.5910/DEL/2010 5 PER PARA 5.2 OF SCHEDULE 21, THE FOLLOWING NOTE REL EVANT TO THE IMPUGNED ISSUE WAS FILED BY THE ASSESSEE:- 5.2 DURING THE YEAR COMPANY HAS SPENT RS.44,734,823 ON ADVERTISEMENT & BRAND BUILDING EXPENSES TO BUILD ITS BR AND GETIT IN THE YELLOW PAGES SEGMENT OF THE BUSINESS. OUT OF THE ABOVE A SUM OF RS.14,815,150 IS SPENT ON BRAND BUILD ING EXPENSES, OF WHICH A SUM OF RS.3,703,787 HAS BEEN C HARGED DURING THE YEAR AND THE BALANCE OF RS.11,111,363 HAS BEEN CARRIED AS MISCELLANEOUS EXPENDITURE TO BE CHARGED OV ER A PERIOD OF NEXT THREE YEARS. 7. AS IT CAN BE SEEN FROM THE ABOVE NOTE, THE TOTAL E XPENSES OF THE ASSESSEE ON ADVERTISEMENT AND BRAND BUILDING WERE INCURR ED AT ` 4,47,34,823/- AND OUT OF THE SAID TOTAL AMOUNT, A SUM OF ` 1,48,15,150/- WAS SEGREGATED BY THE ASSESSEE ON ACCOUNT O F EXPENSES INCURRED FOR BRAND BUILDING. THE NATURE OF THESE EX PENDITURE AS WAS SEEN FROM THE DETAILS WAS ALMOST LIKE ADVERTISEMENT EXPE NDITURES. THE OTHER EXPENDITURES HAVE BEEN TREATED BY THE ASSESSIN G OFFICER ON ADVERTISEMENT AS NO DISALLOWANCE HAS BEEN MADE IN THIS R EGARD. IT HAS NOT BEEN BROUGHT ON RECORD AS TO HOW THESE EXPENDITUR ES CAN BE SAID TO BE GIVING ENDURING BENEFIT TO THE ASSESSEE AND HOW T HEY ARE DIFFERENT FROM THE OTHER EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD ADVERTISEMENT WHICH HAVE BEEN TREATED BY THE DEPARTMENT BEING IN THE NATURE OF REVENUE. IT ALSO HAS NOT BEEN BROUGHT ON RECORD THAT BY INCURRING SUCH EXPENDITURE, THE ASSESSEE HAD ACQ UIRED ANY FIXED CAPITAL ASSET. IF IT IS SO, THEN, IT CANNOT BE SA ID THAT SUCH EXPENDITURE WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF C APITAL WHICH HAS GIVEN ANY ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSEE IN ITS PRUDENCE MAY HAVE CLAIMED THOSE EXPENDITURES IN FOUR YEARS, BUT THE NATURE OF THESE EXPENDITURES IS NOT IN THE CAPITAL FIE LD. THE RATIO OF THE DECISION RELIED UPON BY THE LEARNED AR IN THE CASE OF ITO VS. SPICE COMMUNICATIONS LTD. (SUPRA) IS APPLICABLE TO THE PRESEN T CASE. THE ITA NO.5910/DEL/2010 6 RELEVANT OBSERVATIONS FROM THE SAID DECISION OF THE TRI BUNAL ARE REPRODUCED BELOW:- 10. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS IN THE BUSI NESS OF PROVIDING CELLULAR MOBILE SERVICES UNDER ITS OWN SEL F-GENERATED BRAND SPICE SINCE 1997. THE ASSESSEES BUSINESS OF PROVIDING CELLULAR MOBILE SERVICES IS UNDOUBTEDLY A HIGHLY COM PETITIVE BUSINESS, AND ASSESSEE HAS TO PROVIDE SERVICES IN A COMPETENT ENVIRONMENT. THIS IS ALSO NOT IN DISPUTE THAT THE ASSESS EE HAS INCURRED EXPENDITURE TOWARDS ADVERTISEMENT AND SALES PROMOTION IN COURSE OF CARRYING ON ITS BUSINESS ACTIVI TIES. THE ASSESSING OFFICER HAS ALLOWED 90 PER CENT OF THE EXPE NSES AS REVENUE EXPENDITURE AND ALLOCATED 10 PER CENT TOWARDS CAPITAL BY OBSERVING THAT 10 PER CENT OF EXPENSES HAVE BEEN IN CURRED TOWARDS BRAND BUILDING. THE ASSESSING OFFICER HAS N OT BEEN ABLE TO JUSTIFY AS TO HOW THE 10 PER CENT OF THE TOTAL ADVERTISEM ENT AND SALES PROMOTION EXPENSES CAN BE ALLOCATED TOWARDS CAPITAL EXPENDITURE WHEN THE ASSESSEE HAS NOT ACQUIRED ANY BRA ND FROM ANY OUTSIDE PARTY. THE EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION CONSTITUTED EXPENDITURE INCURRED ON PRESS ADVERTISEMENT, HOARDINGS, NEON SIGNS, BROCHURES, ETC. THE PRESS ADVERTISEMENTS COULD NOT BE CONSIDERED AS CAPITAL ASSET ACQUIRED BY THE ASSESSEE. SIMILARLY, PUTTING HOARDING S AND NEON SIGNS COULD NOT ALSO BE CONSIDERED ON CAPITAL FI ELD. THE EXPENDITURES DO NOT LEAD TO CREATE ANY CAPITAL ASSET TO THE ASSESSEE. EVEN THERE IS NO BENEFIT OF ENDURING NATURE SO TO TREAT THE EXPENSES AS CAPITAL EXPENDITURE. SINCE BY INCURRI NG EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTION, THE ASSESSEE HAS NOT ACQUIRED ANY FIXED CAPITAL ASSET, BUT THESE EXPENDITURES WERE INCURRED FOR EARNING BETTER PROFITS, AND FOR FACILITATING ASSESSEES OPERATION OF PROVIDING CELLULA R MOBILE SERVICES, THERE EXIST DIRECT NEXUS BETWEEN THE ADVERTISEM ENT AND SALES PROMOTION EXPENSES AND THE CARRYING OUT OF TH E BUSINESS ACTIVITY OF THE ASSESSEE. WE, THEREFORE, DO N OT FIND ANY JUSTIFICATION IN INTERFERING WITH THE ORDER OF THE CIT (A ) IN DELETING THE DISALLOWANCE OF 10 PER CENT OF EXPENSES TOWARDS ADVERTISEMENTS AND SALES PROMOTION INCURRED BY THE ASSE SSEE FOR SMOOTH FUNCTIONING AND CARRYING ON ASSESSEES BUS INESS EFFECTIVELY, PROFICIENTLY AND PROFITABILITY. THE ORDER OF THE CIT (A) IS, THUS, UPHELD ON THIS ISSUE. 8. IT IS OBSERVED FROM THE ORDER OF THE CIT (A) THAT HE HAS UPHELD THE ADDITION ON THE GROUND THAT THESE EXPENDITURES BE ING IN THE NATURE OF BRAND BUILDING WILL RESULT IN ENDURING BENEFIT TO THE ASSESSEE AND, THEREFORE, HE IS IN AGREEMENT WITH THE VIEWS OF THE A SSESSING OFFICER. IF THE RATIO OF THE AFOREMENTIONED DECISION IS SEEN, I N THAT CASE ALSO ITA NO.5910/DEL/2010 7 BRAND BUILDING EXPENDITURES WERE CONSIDERED TO BE REV ENUE EXPENDITURE. IT WILL DEPEND UPON THE NATURE OF EXP ENDITURE INCURRED BY THE ASSESSEE AND NOT THE NOMENCLATURE GIVEN BY THE ASSESSEE . THE NATURE OF THESE EXPENDITURES ARE NOT CAPITAL AS THEY A RE EXPENDITURES INCURRED BY THE ASSESSEE ON ADVERTISEMENT WHICH IS AN ALL OWABLE EXPENDITURE. 9. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO JUSTIFIC ATION IN THE ADDITION OF THE AFOREMENTIONED AMOUNT TO THE INCOME OF THE ASSESSEE WHICH IS HEREBY DELETED. 10. AS WE HAVE HELD THAT THE EXPENDITURE DID NOT GIV E ENDURING BENEFIT TO THE ASSESSEE, WE NEED NOT DISCUSS THE ALTERNATI VE GROUND OF THE ASSESSEE WHICH IS REGARDING DEPRECIATION ALLOWABLE O N SUCH EXPENDITURE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN THE AFOREMENTIONED MANNER. THE ORDER PRONOUNCED IN THE OPEN COURT ON 15.03.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 15.03.2011. DK ITA NO.5910/DEL/2010 8 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES