MEHRA EYETECH P.LTD, MUMBAI V. ACIT RG 6(3), MUMBAI

ITA 7634/MUM/2012

• Counselvise Citation: 763419914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N R AGRAWAL
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 7634/M/2012 ASSESSMENT YEAR: 2007 - 08 M/S. MEHRA EYETECH PVT. LTD., 54, KALIANDAS UDYOG BHAVAN, NEAR CE NTURY BAZAR, PRABHADEVI, MUMBAI 400 025 PAN: AAACU2684H VS. CIT CITY SIX OR ACIT 6(3), AAYAKAR BHAVAN, CHURCHGATE, MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N.R. AGRAWAL REVENUE BY : SHRI RAVI PRAKASH, D.R. DATE OF HEARING : 12.03 .201 4 DATE OF PRONOUNCEMENT : 21.03.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(H EREINAFTER REFERRED TO AS CIT(A)] DATED 11.10.12 . THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL: GROUND NO.1 THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE LEARNED AO FOR THE CLAIM OF DEDUCTION TOWARDS MARKET RESEARCH EXPE NSES U/S 37(1) OF RS.14,03,000/ - BY TREATING REVENUE EXPENDITURE AS CAPITAL EXPENDITURE. GROUND NO.2 WITHOUT PREJUDICE TO GROUND NO.1 THE LEARNED CIT(APPEALS) ERRED IN NOT GIVING DEDUCTION OF 20% FOR NET 5 YEARS OR DEPRECIATI ON ON THE CAPITAL EXPENDITUR E. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY OR DELETE THE ABOVE GROUND OF APPEAL. ITA NO. 7634/M/2012 M/S. MEHRA EYETECH PVT. LTD. 2 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.14,03,000/ - FOR MARKET RESEARCH EXPENSES. WHEN CALLED FOR BY THE AO FOR EXPLANATION IN THIS RESPECT , THE ASSESSEE SUBMITTED BEFORE HIM THAT THE ASSESSEE WAS THE ALL INDIA AGENT AND TRADER OF OPHTHALMIC INSTRUMENT S MANUFACTURED BY TOPCON SOUTH ASIA LTD., SINGAPORE & JAPAN. ASSESSEE HA D BEEN SUPPLYING ALL TYPES OF SUCH EQUIPMENTS TO EYE SPECIALISTS, OPTICIANS & HOSPITALS ALL OVER THE C OUNTRY AND WAS EARNING COMMISSION ON THE SALE OF SUCH EQUIPMENTS. IT WAS FURTHER SUBMITTED THAT THE EXPENSES IN QUESTION WERE INCURRED ON A STUDY AND ANALYSIS OF THE PRODUCT PERFORMANCE, QUALITY, SATISFACTION OF CUSTOMERS, MARKET POTENTIAL, MARKET ING ETC. FOR THEIR CURRENT PRODUCTS AND TO INCREASE THE SHARES IN THE MARKET. OBSERV ING THAT THE APPELLANT HAS NOT ADVANCED ANY R EASON TO SHOW THAT EXPENDITURE WA S INCURRED UNDER THE REVENUE HEAD , THE AO HELD THAT THE BASIC NATURE OF EXPENSES SHOW ED THAT IT WOULD BRING BENEFIT TO THE A SSESSEE FOR YEARS TO COME . THE EXPENSES WE RE RELATED TO MARKET RESEARCH AND COMPARISON WITH THE COMPETITIVE PRODUCTS AND THE SAME W ERE CAPITAL IN NATURE AS IT WOULD GIVE THE ASSESSEE A N ADVANTAGE OF ENDURING NATURE. THE AO THEREFOR E MADE DISALLOWANCE OF THE SAME BY TREATING IT AS CAPITAL EXPENSE S . IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD INDULGED IN MARKET RESEARCH THROUGH A CONSULTANT FOR BETTERING ITS BUSINESS WHICH WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE. THE MARKET RESEARCH HAD COME AS A LONG TERM BENEFIT TO THE ASSESSEE BY WAY OF STRATEGIZING ITS BUSINESS SO AS TO GET GREATER TURNOVERS IN FUTURE YEARS. HE THEREFORE HELD THAT THE MARKET RESEARCH UNDERTAKEN BY THE ASSESSEE HAD ENDURING BENEFIT EVEN THOUGH THE ISSUES IN IT WERE CONNECTED WITH THE DAY TO DAY BUSINESS OF THE ASSESSEE. HE THEREFORE ITA NO. 7634/M/2012 M/S. MEHRA EYETECH PVT. LTD. 3 CONFIRMED THE ADDITION SO MADE BY THE AO. HENCE, AGGRIEVED BY THE ORDER, ASSESSEE IS IN APPEAL BEFORE US. O UR FINDINGS IN RESPECT OF THE MATTER ARE AS UNDER: GROUND NO.1 3. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS RELATING TO THE CONFIRMATION OF THE ADDITION MADE BY THE AO FOR THE ASSESSEES CLAIM OF RS.14,03,000/ - . 4 . THE LD. A.R. OF THE ASSESSEE BEFORE US HAS RELIED UPON VARIOUS AUTHORITIES OF THE HONB LE HIGH COURTS AS WELL AS OF THE ITAT AS FOLLOW: 1. CIT VS. GLENMARK PHARMACEAUTICAL LTD. (2013) 84 CCH 166 (MUM - HC), 2. CIT VS. ANANDA BAZAR PATRIKA (P) LTD. (1990) 184 ITR 542 (CAL - HC), 3. ITO VS. DODSAL MANUFACTURING PRIVATE LTD. (1984) 20 TTJ (AHD) 43 (ITAT - AHD), 4. HINDUSTAN VACUUM GLASS LTD. VS. ACIT (1995) 52 TTJ (DEL) 384 (ITAT - DEL). HE SUBMITS THAT T HE HONBLE HIGH COURTS OF BOMBAY AND CALCUTTA AS WELL AS CO - ORDINATE BENCHES OF THIS TRIBUNAL ARE UNANIMOUS TO HOLD THAT THE EXPENSE S INCURRED FOR MARKET SURVEY OR RESEARCH ARE ALLOWABLE AS REVENUE EXPENDITURE. T HE LD. D.R. ON THE OTHER HAND , FROM THE MARKET RESEARCH REPORT IN QUESTION , HAS TRIED TO EXPLAIN THAT WHATEVER THE RESEARCH ACTIVITY WAS CARRIED OUT BY THE ASSESSEE , THAT IN F ACT WAS RELATING TO THE WORK OF THE MANUFACTURER. THE ASSESSEE BEING THE TRADER WAS NOT SUPPOSED TO CONDUCT SUCH MARKET SURVEY. ON THE OTHER HAND, THE LD. A.R. OF THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE IS THE ALL INDIA AGENT AND TRADER OF THE PRODU CTS IN QUESTION AND BY CONDUCTING ITA NO. 7634/M/2012 M/S. MEHRA EYETECH PVT. LTD. 4 MARKET RESEARCH HAS BEEN ABLE TO INCREASE ITS TURNOVER WHICH HAS ALSO RESULTED INTO A HIGHER PAYMENT OF TAX TO THE REVENUE ALSO. 5 . WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. ADMITTEDLY, THE ASSESSEE IS NOT A MANUFACTURER BUT A TRADER ONLY. THE ACTIVIT Y OF THE ASSESSEE, BEING THE PURCHASE AND FURTHER SALE OF THE EQUIPMENTS AND EARNING COMMISSION UPON SUCH SALES CANNOT BE SAID IN ANY WAY TO BE MANUFACTURING ACTIVI TY BUT A TRADING ACTIVITY ONLY. THE MARKET RESEARCH WAS DONE BY THE ASSESSEE FOR THE BETTERMENT AND EXPANSION OF ITS TRADING BUSINESS. THE EXPENDITURE INCURRED ON THE MARKET RESEARCH BY A TRADER CANNOT BE SAID TO HAVE BROUGHT INTO EXISTENCE ANYTHING OF E NDURING BENEFIT IN THE SENSE OF A CAPITAL ASSET. IN VIEW OF THE SETTLED POSITION OF LAW ON THIS ISSUE AS LAID DOWN BY THE HONBLE HIGH COURTS OF BOMBAY & CALCUTTA IN THE CASE S OF CIT VS. GLENMARK PHARMACEAUTICAL LTD. (SUPRA) AND CIT VS. ANANDA BAZAR PA TRIKA (P) LTD. (SUPRA) THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED. GROUND NO.2 6 . THIS GROUND HAS BEEN TAKEN BY THE ASSESSEE AS AN ALTERNATIVE TO ITS GROUND NO.1 OF THE APPEAL . SINCE GROUND NO.1 HAS BEEN ALLOWED, HENCE GROUND NO.2 BECOMES IN FRUCTUOUS. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/03/ 201 4 . SD/ - SD/ - ( P.M. JAGTAP ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 21 ST MARCH 201 4 . * KISHORE ITA NO. 7634/M/2012 M/S. MEHRA EYETECH PVT. LTD. 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.