ACIT, CHENNAI V. TTK Healthcare Limited, CHENNAI

ITA 683/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8784 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVASJCIT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , # BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.683/MDS/2016 ( / ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(1), NEW BLOCK, 4 TH FLOOR, CHENNAI - 34. VS M/S. TTK HEALTHCARE LTD., 6, CATHEDRAL ROAD, CHENNAI-86. PAN:AABCT3312J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SHIVA SRINIVAS,JCIT /RESPONDENT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 1 ST JUNE, 2016 /DATE OF PRONOUNCEMENT : 5 TH AUGUST, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 11, CHENNAI DATED 29.12.2015 IN ITA NO.103/2014-15- CIT(A)-11 PASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND 2 ITA NO.683/MDS/2016 BY TREATING THE EXPENDITURE INCURRED ON LOGO CHARGES AS CAPITAL EXPENDITURE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF `98,40,394/- MADE BY THE LEARNED ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT AND RESTRICTING THE PAYMENT TO 2% ON TURNOVER PAID TO M/S. TTK & COMPANY TOWARDS DEPOT SERVICE CHARGES AS AGAINST 3% OF THE TURNOVER PAID BY THE ASSESSEE . 3. BRIEF FACTS OF THE CASE ARE THAT THAT THE ASSESS EE IS A COMPANY ENGAGED IN MANUFACTURING OF PHARMACEUTICAL S FORMULATIONS, BULK DRUGS, READY TO EAT PRODUCTS, PR INTING & PUBLISHING, HOSPITAL CARE PRODUCTS, ARTIFICIAL HE ART VALVES AND TRADING IN CONSUMER PRODUCTS, FILED ITS RETURN OF I NCOME FOR THE ASSESSMENT YEAR 2011-12 ON 29.09.2011 DECLARING INC OME OF ` 22,08,01,635/-. THEREAFTER, THE ASSESSMENT WAS RE OPENED UNDER SECTION 143(3) OF THE ACT AND FINALLY ASSESS MENT ORDER WAS PASSED ON 20.3.2014 WHEREIN THE LEARNED ASSESSI NG OFFICER MADE ADDITION INVOKING THE PROVISIONS OF SE CTION 40A(2)(B) & 40A(2) OF THE ACT. GROUND NO.1: PAYMENT OF LOGO CHARGES : 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD MADE PAYMENT TO M/S. TTK & COMPANY TOWARDS LOGO 3 ITA NO.683/MDS/2016 CHARGES @ 0.5% OF THE TURNOVER. THE LEARNED ASSESS ING OFFICER OPINED THAT SUCH PAYMENT IS MADE BY THE ASS ESSEE TO BRING INTO EXISTENCE AN ADVANTAGE OF ENDURING BENEF IT AND THEREFORE IT WILL FALL IN THE CAPITAL FIELD. THEREF ORE, THE LEARNED ASSESSING OFFICER DISALLOWED THE PAYMENT MADE TOWAR DS LOGO CHARGES OF `1,55,67,890/- AS ALLOWABLE EXPENDITURE INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, HOW EVER ALLOWED THE BENEFIT OF DEPRECIATION @ 25% ON THE SA ME. 4.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 8.3 I HAVE CAREFULLY CONSIDERED THE AO'S OBSERVATION MENTIONED UNDER PARA 8.1 AND THE APPELLANT'S SUBMISSIONS UNDER PARA 8.2. I HAVE ALSO PERUSED THE AO'S REMAND REPORT AND THE APPELLANT'S REPLY MENTIONED UNDER PARA 8.2.1, THE AO HAS TREATED THE LOGO CHARGES AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION @ 25% ON THE GROUND THAT THE APPELLANT WAS ENJOYING ENDURING BENEFIT. THE HON'BLE ITAT, CHENNAI IN THE APPELLANT'S OWN CASE [OR THE A.Y. 2008-09 AND 2009-10 HAS HELD THAT THE LOGO CHARGES INCURRED BY THE APPELLANT ARE REVENUE IN NATURE. THE AO, IN HIS REMAND REPORT, HAS SUBMITTED THAT THE REVENUE'S APPEAL ON THIS ISSUE, BEFORE THE MADRAS HIGH COURT, HAS NOT REACHED FINALITY. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I RESPECTFULLY FOLLOW THE DECISION OF THE HON'BLE ITAT, CHENNAI. ACCORDINGLY, THE AO'S DISALLOWANCE OF LOGO CHARGES, BY TREATING IT AS CAPITAL EXPENDITURE, IS DELETED AND THE 4 ITA NO.683/MDS/2016 APPELLANT'S GROUNDS OF APPEAL ON THIS ISSUE ARE ALLOWED . 4.3 AT THE OUTSET, WE DO NOT FIND IT NECESSARY TO I NTERFERE WITH THE ORDERS OF THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) BECAUSE HE HAS ONLY FOLLOWED THE ORDERS O F THE TRIBUNAL FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 . FURTHER FROM THE FACTS, IT IS APPARENT THAT THE ASS ESSEE HAS PAID LOGO CHARGES @ 0.5% ON THE TURNOVER WHICH IS D IRECTLY LINKED TO THE TURNOVER OF THE ASSESSEE AND THEREFOR E THIS EXPENSE WILL NECESSARY FALL IN THE REVENUE FIELD. F OR THE ABOVE STATED REASONS, WE HEREBY SUSTAIN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. GROUND NO.2: PAYMENT OF DEPOT SERVICE CHARGES: 5.1 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT THE ASSESSEE HAD PAID AN AMOUNT OF `2,95,21,182/- T O M/S. TTK & COMPANY AS DEPOT SERVICE CHARGES @ 3% ON ITS RELEVANT TURNOVER. SINCE THE ASSESSEE HAD PAID TO O THER INDEPENDENT PARTIES DEPOT SERVICE CHARGES @ 2%, THE LEARNED ASSESSING OFFICER OPINED THAT THE ASSESSEE HAD PAID EXCESS DEPOT SERVICE CHARGES TO M/S. TTK & COMPANY AND 5 ITA NO.683/MDS/2016 ACCORDINGLY RESTRICTED THE PAYMENT TO BE ALLOWED AS DEDUCTION @ 2% ON IT RELEVANT SALES TURNOVER INVOKI NG THE PROVISIONS OF SECTION 40A(2) OF THE ACT. 5.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) DELETED THE ADDITION BY FOLLOWING THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. SINCE THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HAS ONLY FOLLOWED THE ORDER OF THE TRIBUN AL FOR THE EARLIER ASSESSMENT YEAR, WE DO NOT FIND IT NECESSAR Y TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) ON T HIS COUNT ALSO. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH AUGUST, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ! # /JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, % /DATED 5 TH AUGUST, 2016 SOMU '( )( /COPY TO: 1. APPELLANT 2. RESPONDENT 3. * ( ) /CIT(A) 4. * /CIT 5. ( - /DR 6. /GF .