M/s. Dharampal Satyapal Sons (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 5919/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3657 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SH.G.D.AGRAWAL, HONBLE PRESIDENT AND SH.K.N.CHARY, JUDICIAL MEMBER ITA NO. 5919/DEL/2014 (ASSESSMENT YEAR: 2011 -12) APPELLANT BY SH. KAPIL GO E L, ADV. RESPONDENT BY MS. RACHNA SINGH, CIT DR DATE OF HEARING 2 6 . 1 0.2017 DATE OF PRONOUNCEMENT 09 . 11 .2017 ORDER PER K.N.CHARY, JUDICIAL MEMBER THE ASSESSEE PREFERRED THIS APPEAL CHALLENGING THE ORDER DATED 02.07.2014 IN APPEAL NO.29/13-14/1180 PASSING BY THE COMMISSIO NER OF INCOME TAX (APPEAL) [IN SHORT CIT(A)]-XXXIII, NEW DELHI FOR 2011-12 A SSESSMENT YEAR ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LEARNED CIT-A ERRED IN NOT DELETING THE WRONGFUL ADDITION M ADE BY LD.AO (FOR ASSESSING OFFICER) AMOUNTING TO RS.8,48,358/-, ERRO NEOUSLY TREATING THE FULLY ALLOWABLE ADVERTISEMENT EXPENSES AS CAPITAL I N NATURE UNDER SECTION 37 OF THE ACT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LEARNED CIT-A ERRED IN NOT DELETING THE WRONGFUL ADDITION M ADE BY LD.AO AMOUNTING TO RS.95,90,000/-, ERRONEOUSLY TREATING THE FULLY A LLOWABLE EXPENSE AS NOT ACCRUED AND CRYSTALLIZED DURING EXTANT PERIOD. DHARAMPAL SATYAPAL SONS (P) LTD., C/O-KAPIL GOEL, ADV., F-26/124, SECTOR-7, ROHINI, NEW DELHI-110085. PAN-AABCD9090K VS DCIT, CENTRAL CIRCLE-4, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 5919/DEL/2014 2 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A COMPANY DERIVING INCOME FROM THE MANUFACTURING OF SCENTED, CHEWING TOBACCO, KIMA M AND PERFUMERY COMPOUNDS. DURING THE FINANCIAL YEAR 2010-11, THE ASSESSEE COMPANY IS ALSO STARTED BUSINESS OPERATIONS FOR SELLING LUXURY BRAN D MERCHANDISE UNDER THE FRANCHISE AGREEMENT WITH TOM FORD INTERNATIONAL LLC AND PAID ADVERTISEMENT CHARGES AMOUNTING TO RS.8,48,358/- TO THEM. HOWEVE R, HOLDING THAT THE ASSESSEE COMPANY DOES NOT SATISFY THE TEST OF INCURRING OF T HE EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, LAID DOWN IN SECTION 37(1) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT), THE AO DISALLOWED T HE SAME. SO ALSO CHALLENGING THE DEMAND OF RS.16,91,79,394/- ON ACCOUNT OF EXCISE DU TY FOR THE PERIOD FROM 01.04.1994 TO 03.10.1996 ON BLENDED PERFUMERY COMPO UNDS, THE ASSESSEE PREFERRED THE APPEAL BEFORE CESTAT AND BY ORDER DAT ED 27.04.2011, CESTAT CONFIRMED THE SAME. PROVISION FOR THIS LIABILITY T O AN EXTENT OF RS.1,04,10,000/- WAS CREDITED IN THE BOOKS OF ACCOUNTS FOR AY 2004-0 5, ANOTHER SUM OF RS.7,50,00,000/- WAS DEPOSITED DURING THE FY 2005-0 6 AND DURING THE YEAR, PROVISION FOR RS.8,37,69,394/- WAS CREATED. OUT OF THIS PROVISION, THE ASSESSEE PAID A SUM OF RS.95,90,000/- BEFORE THE FILING OF I NCOME TAX RETURN AND CLAIMED DEDUCTION U/S 43B OF THE ACT. HOWEVER, THE AO HELD THAT THE LIABILITY WAS CRYSTALLIZED AFTER THE CLOSER OF THE FY 2010-11 I.E . 31.03.2011 AS SUCH THE DEDUCTION CANNOT BE ALLOWED FOR THE AY 2011-12. IN APPEAL, LD.CIT(A) CONFIRMED BOTH THESE ADDITIONS. HENCE, THE ASSESSEE IS BEFOR E US IN THIS APPEAL. 3. IT IS THE ARGUMENT OF THE LD.AR IN RESPECT OF GR OUND NO.1 THAT NO OPPORTUNITY WHATSOEVER WAS GIVEN BY THE AO WHILE MA KING ADDITION OF RS.8,48,358/- AND EVEN THE LD. CIT(A) ALSO CONCLUDE D THE MATTER ON READING THE ITA NO. 5919/DEL/2014 3 AGREEMENT, BUT WITHOUT ALLOWING THE OPPORTUNITY TO THE ASSESSEE TO PUT FORTH THEIR CONTENTIONS. ORDER OF THE LD.CIT(A) ALSO READS THA T IT IS THE CONTENTION OF THE ASSESSEE THAT WITHOUT AFFORDING AN OPPORTUNITY TO T HE ASSESSEE TO EXPLAIN THE STAND IN RESPECT OF THE BRAND ADVERTISEMENT EXPENSE IN TH E LIGHT OF FRANCHISE AGREEMENT DATED 02.04.2010, THE AO DECIDED THE ISSUE MAKING T HE ADDITION. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT IT IS A FIT CASE TO REMAND THE MATTER TO THE FILE OF THE AO TO VERIFY THE STAND OF THE ASSESSEE IN RESPECT OF THE BRAND ADVERTISEMENT EXPE NSES IN THE LIGHT OF THE FRANCHISE AGREEMENT DATED 02.04.2010 TO REACH THE C ONCLUSION AS TO THE NATURE AND GENUINENESS OF THE EXPENSES. WITH THIS VIEW OF THE MATTER, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO. 4. NOW COMING TO THE SECOND GROUND, IT IS THE CONTE NTION OF THE ASSESSEE THAT UNLIKE THE CASES RELIED UPON BY THE AO IN THIS MATT ER, THE LIABILITY WAS DEFINITE AND THE PROVISION WAS CREATED DURING THE RELEVANT FY TO THE TUNE OF RS.8,37,69,394/- OUT OF WHICH ONLY A SUM OF RS.95,90,000/- WAS PAID BEFORE THE DUE DATE FOR FILING THE RETURN. ACCORDING TO THE ASSESSEE, IN VIEW OF THE FACT THAT THE PROVISION WAS VERY MUCH AVAILABLE DURING THE FY, THE LIABILITY WA S CRYSTALLIZED BEFORE THE DUE DATE FOR FILING THE INCOME TAX RETURNS, THE PAYMENT OF R S.95,90,000/- TOWARDS THE EXCISE DUTY IS AN ALLOWABLE EXPENDITURE FOR THE AY 2011-12 . FACTUALLY, THERE IS NO DISPUTE THAT THERE WAS A DEMAND UNDER CHALLENGE IN RESPECT OF RS.16,91,79,394/- TOWARDS EXCISE DEMAND, CREATION OF PROVISION TO A TUNE OF R S.8,37,69,394/- DURING THE FY 2010-11 AND PAYMENT OF EXCISE DUTY TO THE TUNE OF R S.95,90,000/- PURSUANT TO THE ORDER DATED 27.04.2011. FURTHER, THERE IS NO DISPU TE THAT THE TAX RATES ARE SIMILAR FOR THE AYS 2011-12 & 2012-13. RELIANCE IS PLACED O N THE DECISION OF THE HONBLE ITA NO. 5919/DEL/2014 4 APEX COURT IN THE CASE OF CIT VS TRIVENI ENGINEERING & INDUSTRIES LTD. IN ITA NO.346 OF 2009 VIDE PARA 11 FOR THE PRINCIPLE THAT,- 11. HOWEVER, IN THE PROJECTED SCENARIO OF THIS CASE AFTER TAKING STOCK OF THE ENTIRE SITUATION, WE ARE OF THE OPINIO N THAT IT IS NOT NECESSARY TO CONCLUSIVELY ANSWER THE AFORESAID QUESTIONS FORMULA TED. IT IS BECAUSE OF THE REASON THAT WE FIND THAT THE ENTIRE EXERCISE IS REV ENUE NEUTRAL. IT MAY BE POINTED THAT IT IS A MATTER OF RECORD THAT AGAINST THE PROVISION OF RS.139 LACS, I.E, MORE THAN THE PROVISION MADE. IT IS UNDISPUTE D THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE PROJECT IS ADMISSIB LE DEDUCTION. THE ONLY DISPUTE THAT THE REVENUE SEEKS TO RAISE IS REGARDIN G THE YEAR OF ALLOWABILITY OF EXPENDITURE. CONSIDERING THAT THE ASSESSEE IS A CO MPANY ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXERCISE OF SEEKING TO DIST URB THE YEAR OF ALLOWABILITY OF EXPENDITURE IS, IN ANY CASE, REVENUE NEUTRAL. 5. IN THE CASE ON HAND ALSO AS AGAINST THE PROVISIO N, THE ASSESSEE MADE PAYMENT OF RS.95,90,000/- AND THE TAX RATES ARE UNI FORM FOR THE RELEVANT AND SUBSEQUENT ASSESSMENT YEARS, AS SUCH IN A TAX NEU TRAL SCENARIO, IT IS FAIR TO ALLOW THE EXPENDITURE FOR THIS ASSESSMENT YEAR. WE, THER EFORE, ALLOW THIS GROUND OF APPEAL AND DIRECT THE AO TO DELETE THE ADDITION ON THIS COUNT. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 TH NOVEMBER, 2017. SD/- SD/- (G.D.AGRAWAL) (K.N.CHARY) PRESIDENT JUDICIAL MEMBER *AMIT KUMAR* DATE:- 09.11.2017 ITA NO. 5919/DEL/2014 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI