Income Tax Appellate Tribunal - Chandigarh
Ind Swift Ltd., Chandigarh vs Assessee on 21 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ' A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
Ms. SUSHMA CHOWLA, JUDICI AL MEMBER
ITA No. 530/Chd/2014
Assessment Years : 2005-06
M/s Ind Swift Ltd V Addl C.I.T. Range I
Plot No. 781, IA Chandigarh
Phase II, Chandigarh
AAACI 6100 L
(Appellant) (Respondent)
Appellant by: Shri T.N. Singla
Respondent by: Smt. Jyoti Kumari
Date of hearing 11.8.2014
Date of Pronouncement 21.8.2014
O R D E R
PER T.R. SOOD, A.M
This appeal is directed against the order dated 24.3.2014 of the Ld CIT(A), Chandigarh.
2. In this appeal the assessee has raised the following grounds:
"1 That the order of Ld. CIT(A) is bad, against the facts of law. 2 That the Ld. CIT(A) has wrongly confirmed the allocation of indirect expenses amounting to Rs. 125 lakhs from corporate unit to Parwanoo unit 1 & 2 on equal basis.
3 That the Ld. CIT(A) has wrongly confirmed the disallowance of deduction u/s 35(2AB) amounting to Rs. 77,02,604/-. 4 That the Ld. CIT(A) has wrongly confirmed the disallowance of seed marketing expenses amounting to Rs. 4,28,26,594/-."
3 Out of above, grounds No. 2 & 3 were not pressed and therefore same are dismissed as not pressed. 4 Ground No. 1 is of general nature and therefore no separate adjudication is required.
5 Ground No. 4 - After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed 2 that the assessee has claimed seed marketing expenses of RS. 53533244/- as revenue expenditure. The expenditure was primarily incurred in order to develop the market and therefore assessee undertook different type of marketing and promotional activities to create a sustained awareness and brand recall for their product. According to the Assessing Officer the expenditure results in enduring benefit to the assessee as it helps increasing and enhancing the brand value and create consciousness about the product in the minds of the clients. Therefore expenditure should have been amortised over a period of time. It was also noticed that the assessee has not debited full expenditure in the profit and loss account and has rather amortised the sum over a period of time of five years. Before the Assessing Officer certain case laws were given but according to him same were distinguishable and in this background the Assessing Officer allowed only 1/5th of the seed marketing expenses. The Assessing Officer disallowed a sum of Rs. 347,96,607/-.
6 The assessee has taken ground in this respect for a sum of Rs. 428,26,594/-. The Ld. Counsel for the assessee pointed out that 1/5th of the allowance of total expenditure would be Rs. 107,06,650/- and therefore disallowance should have been made for Rs. 428,26,594/- and as an abundant caution the assessee has challenged the correct disallowance whereas the Assessing Officer has made disallowance of Rs. 347,96,607/-. 7 On appeal the Ld. CIT(A) following his order for assessment year 2007-08 and 2008-09 which was passed on 7.2.2011 confirmed the disallowance.
38 Before us, the Ld. Counsel for the assessee submitted the assessee for the last so many years, was following a system by which seed marketing expenses was amortised in the books of account over a period of five years but the same was claimed fully under the IT Act. Such expenses was allowed also upto assessment year 2004-05 fully and in this regard he referred to the copy of assessment order filed in the paper book at page 22 to 34 which clearly show that no such disallowance was made in assessment year 2004-05. He contended that this expenditure was mainly incurred on promotional activities by conducting promotional campaign and also opening new offices to increase the reach of the products of the assessee in new areas. The expenditure mainly consist of free scheme, sample distribution, new division launch, salary and staff expenses of new divisions etc. All the expenses are basically of revenue nature and should be allowed in full because there is no concept in the income tax for carrying forward of deferred expenditure. In this regard he strongly relied on the following decision:
CIT V. Sakthi Soyas Ltd. 283 ITR 194 (Madras) CIT V. Jai Parabolic Springs Ltd. 306 ITR 42 (Delhi) DCIT V Core Healthcare Ltd. 308 ITR 263 (Gujarat) Glaxo Smith Kline Consumer Healthcare Ltd. V ACIT, 112 TTJ 94 (Chd) 9 On the other hand, the Ld. D.R for the revenue strongly supported the impugned order. She further submitted that once part of the expenditure has been treated by the assessee itself as capital expenditure then same cannot be allowed. Nature of expenses being distribution of samples, opening of new offices etc. clearly show that the assessee is going to derive enduring 4 benefit from such expenses and therefore same cannot be allowed in the year in which such expenses has been incurred and benefit has to be given only over a period of time. 10 After considering the rival submissions we find that allowability of expenditure depends on the provision of the IT Act, 1961 and other principles laid down under this Act by various judicial pronouncements and it does not depend on treatment of a particular item by a particular assessee.
Reference may be made to Satluj Cotton Mills Ltd V CIT, 116 ITR 1 (S.C).
11 What is required for allowability of expenditure is to be seen whether the nature of expenditure is of revenue or capital. This issue came up before the Hon'ble Delhi High Court in case of CIT V Jai Parabolic Springs Ltd (supra). In that case the assessee filed return of income declaring a net loss at Rs. 440,,36,000/- for the assessment year 1990-91. The loss was computed at Rs. 427,63,353/- inter alia by making several additions and disallowances. The assessee incurred an expenditure of Rs. 19,48,125/- as expenditure on account of customer introduction charges which were debited as "deferred revenue expenses" in the balance sheet. The expenditure was written off over a period of five years starting from the assessment year 1990-91 and accordingly the assessee claimed reduction of RS. 389,625/- in the return. The claim was allowed by the Assessing Officer. In appeal before the Ld. CIT(A) the assessee claimed an additional ground that the entire deferred revenue expenses were deductible in the assessment year in appeal. The appeal was allowed. The Tribunal restored the matter to the Assessing Officer. The 5 Assessing Officer allowed only a deduction of Rs. 389,625/- and disallowed the claim of Rs. 15,58,500/- on the ground that this was not claimed by the assessee in its return of income in the assessment year 1990-91. The Ld. CIT(A) held that the Assessing Officer erred in disallowing the expenditure on the sole ground that no claim for deduction of the amount was made in the return of income. This order was confirmed by the Tribunal.
12 On above facts it was held by the Hon'ble Court as under:
"Held, dismissing the appeal that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal."
Similar view was taken by Hon'ble Madras High Court in case of CIT V. Sakthi Soyas Ltd (supra) and Hon'ble Gujarat High Court in case of DCIT V. Core Healthcare Ltd (supra). 13 Identical issue had arisen before the Chandigarh Bench of the Tribunal in case of Glaxo Smith Kline Consumer Healthcare Ltd V. ACIT (supra) and head note of the decision reads as under:
"Business expenditure - Capital or revenue expenditure - Promotional and trade marketing expenses - These expenses were incurred by the assessee on existing products which included cost of presentation items, gifts, etc. given to customers, expenditure on advertisement, etc. - This is in actuality discount in-kind allowed to the customers and expenditure on advertisement of existing products - Even if it is conceded that such expenditure results in enduring benefit to the assessee the enduring benefit is not in the capital field but is in the revenue field - Therefore promotion and trade marketing expenss are allowable as revenue expenditure."
Therefore it is clear that once the nature of expenditure is revenue then same has to be allowed even if same has not been claimed fully in the books of account. Therefore we set aside the order of the CIT(A) and direct the Assessing Officer that these expenses should be allowed on principle. However, 6 since nature of expenditure has not been examined during assessment proceedings and the same requires examination for which the ld. Ld. Counsel had no objection. Accordingly we set aside the order of the CIT(A) and direct the Assessing Officer to allow these expenses after verifying the genuineness and nature of the same.
14 In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 21.8.2014 Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated: 21.8.2014
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR