Income Tax Appellate Tribunal - Delhi
Maruti Countrywide Auto Financial ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND
SHRI K.D. RANJAN, ACCOUNTANT MEMBER
I.T.A.No.2671/Del/2011
Assessment Year : 2007-08
Dy. Commissioner of Income-tax, M/s. Maruti Countrywide Auto
Circle-6(1), New Delhi. Vs. Financial Services Pvt. Ltd.,
401-402, 4th Floor, Aggarwal
Millennium Tower,
E-123, Netaji Subhash Place,
New Delhi.
PAN: AAACM6101B.
(Appellant) (Respondent)
Appellant by : Shri Raj Tandon, CIT-DR.
Respondent by : Shri Tushar Jaswal &
Ms. Vrinda Tulshan, Advocates.
O R D E R
PER K.D. RANJAN, ACCOUNTANT MEMBER
This appeal by the Revenue for Assessment Year 2007-08 arises out of the order of Commissioner of Income-tax (Appeals)-IX, New Delhi. The grounds raised by the Revenue are reproduced as under:-
"1. The order of Learned CIT(Appeals) is erroneous & contrary to facts & law.
2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs.3,92,88,066/- made on account of loss on sale of reprocessed assets.
2.1 The Ld. CIT(A) ignored the finding recorded by the A.O. and the facts that the loss is capital in nature and is not allowable as revenue expenditure.
3. On the facts and circumstances of the case and in law, the learned CIT(appeals) has erred in deleting the addition of rs.44,01,848/- made on account of advertisement and business promotion expenses.
3.1 The Ld. CIT(A) ignored the finding recorded by the A.O. and the fact that the expenses in question is not meant exclusively for the business purposes of the assessee company and has incurred for brand name of Maruti."
2. The first issue for consideration relates to deleting the addition of Rs.3,92,88,066/- made on account of loss on sale of repossessed assets. During the course of assessment proceedings, the Assessing Officer found that the assessee had claimed a loss on sale of repossessed assets as revenue loss. On a query it was submitted by the assessee that the assessee was a NBFC engaged in the business of providing financial assistance to customers in acquiring wide range of consumer and auto products. During the course of its regular business, the assessee from time to time had given certain auto/consumer loans and assets on hire purchase/lease. In the case of hire purchase transactions, the assessee did not claim any depreciation and reflected the hire purchase receivables from the hirers in the balance-sheet as hire purchase receivables. In case of secured auto or consumer loan, the loan was hypothecated against the auto/two wheeler or the consumer durable as a security which, in the event of default by a customer, was repossessed. Similarly in the case of hire purchase, in the event the hirer defaulted in payment of installments, assessee repossessed the assets under consideration. As and when a hypothecated asset was repossessed under loan/hire purchase transaction, the same was included in the "repossessed stock" of the company under the "Current Assets". Thereafter the repossessed assets were sold to interested buyers. After such sales the excess/shortfall of the sale proceeds vis-à-vis the amount recoverable from the hirer was booked as business profit/loss in the profit and loss account under the head Profit & Loss on sale of Repossessed Assets. The unsold repossessed stock lying in the possession of the company in the year end continues to form part of current assets. It was also contended that there was direct and proximate relationship between loan granted against hypothecation, hypothecation of the underlying asset and subsequent sale thereof for recovery of outstanding instalments. Once this was established any loss arising out of sale of repossessed asset was required to be allowed as a trading loss since it was part and parcel of transaction of the financing business in which the company was engaged. The assessee also contended that the amount of loss was also allowable as deduction u/s 36(1)(vii) read with sec. 36(2) of the Act. The learned AR of the assessee placed reliance on several decisions. The AO however, held that the vehicles could not be construed to be the assessee's stock-in-trade and hence question of any loss on revaluation of the said vehicles did not arise. He placed reliance on the decision of Hon'ble Andhra Pradesh High Court in the case of S.P.B.P. Srirangacharyulu vs. CIT, 58 ITR 95 wherein it was held that if vehicle at the relevant time was registered in the name of the hire-purchasers, the same could not be construed to be a part of the stock-in-trade of the financier and the financier assessee could not take any advantage of the depreciated value of the vehicle. The AO therefore, disallowed loss of Rs.3,92,88,066/- suffered by the assessee on repossessed vehicles.
3. On appeal, the learned CIT(A) considering the submissions made by the learned AR of the assessee and following the decision of ITAT in the assessee's own case for Assessment Years 2001-02 to 2006-07 allowed the claim of the assessee.
4. Before us the learned CIT-DR submitted that ITAT in order dated 29th April, 2011 for the Assessment Years 2001-02 to 2006-07 had considered the following decisions:-
Motor & General Sales (P) Ltd. vs. CIT226 ITR 137 (All.); & A.W. Figgis & Co. (P) Ltd. vs. CIT, 254 ITR 63 (Cal.).
He submitted that the facts of the assessee's case were closure to the facts of the case of Motor & General Sales (P) Ltd. (supra) as compared to the case of A.W. Figgis & Co. (P) Ltd. (supra). In view of the decision in the case of Motor & General Sales (P) Ltd. (supra) the loss on sale of repossessed assets was not allowable. He further submitted that loss claimed by the assessee is not allowable u/s 36(1)(vii) read with sec. 36(2) on the ground that the conditions laid down u/s 36(2) were not satisfied. The assessee was not in the business of banking or money lending in terms of sec. 36(2)(i). NBFCs do not have a banking or money lending licence and are subject to separate regulations. Therefore, the loss claimed was not allowable in terms of sec. 36(1)(vii) read with sec. 36(2) of the Act. On the other hand, the learned AR of the assessee relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Citicorp Maruti Finance Ltd. in ITA 1712/2010 and 1714/2010 dated 29th November, 2010.
5. We have heard both the parties and have perused the material available on record. We find that the issue is squarely covered by the decision of ITAT dated 29th April, 2011 in ITA Nos.2181 to 2183/Del/2010 in assessee's own case for the Assessment Year 2002-03, 2005-06 & 2006-07, wherein while allowing the relief to the assessee it has been held under:-
"3. Though it has been the case of Ld. DR that the aforementioned decision is distinguishable on the ground that it is not coming out of the order of the Assessing Officer and CIT(A) that whether or not who was the owner of the repossessed vehicle and, therefore, the ratio of the decision in the case of M/s. Citi Corp. Maruti Finance Ltd. could not be followed without ascertaining that fact. However, as against that it is the case of Ld. AR that all the facts have been considered and discussed in the order of the Assessing Officer and CIT(A). It has clearly been brought out in the order of the Assessing Officer and CIT(A) that the assessee did not become the owner and no depreciation whatsoever was claimed by the assessee. After hearing both the parties, we find that no distinguishable feature has been brought on record by the ld. DR to deviate us from the decision taken by the Tribunal in assessee's own case for assessment year 2003-04. Therefore, the facts being identical, we are of the opinion that learned CIT(A) has rightly deleted the addition and his order on this issue is upheld. The common ground taken in all the appeals regarding loss on sale of repossessed assets is dismissed."
6. We also find that the Hon'ble Delhi High Court in their order dated 13th October, 2011 in ITA Nos.1145/2011 to 1147/2011 has dismissed the appeal filed by the Revenue against the order of ITAT dated 29th April, 2011 on this issue. Therefore, respectfully following the decision of Hon'ble Delhi High Court, we do not find any infirmity in the order of the CIT(A) deleting the addition following the decision of ITAT in assessee's own case.
7. Next issue for consideration relates to deleting the addition of Rs.44,01,848/- on account of advertisement and business promotion expenses. During the course of assessment proceedings the AO found that the assessee had claimed Rs.88,03,696/-as advertising and sales promotion expenses in the profit and loss account. The assessee had incurred the expenses on advertisement for promoting and sustaining the brand Maruti which does not belong to the assessee. Such expenses enhanced the image of the brand `Maruti' in the eyes of general public. The AO disallowed 50% of the expenses on advertisement and business promotion expenses.
8. On appeal, the learned CIT(A) deleted the addition by observing that the AO nowhere in the assessment order doubted the genuineness or accuracy of the advertisement and business promotion expenditure as revenue expenditure under sec. 37(1) of the Act. Disallowance was made merely by holding that such expenditure enhanced the image of brand `Maruti' which was not owned by the assessee, in the eyes of the general public. The learned CIT(A) following the decision of ITAT in the case of Nestle India Ltd. vs. DCIT, 111 TTJ 498, deleted the addition.
9. Before us, the learned CIT-DR submitted that the advertisement expenses claimed by the assessee were not incurred wholly and exclusively for the purpose of assessee's business. They were partly for the purpose of enhancing the brand name of `Maruti'. M/s. Maruti Udyog Ltd. holds 26% equity in the assessee company. The argument that this was only an incidental benefit to Maruti Udyog Ltd., was not correct. The AO's decision to disallow 50% expenses on advertisement and business promotion therefore, deserves to be upheld. He referred to the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. vs. Addl. CIT, 328 ITR 210, wherein it has been observed that if the expenses incurred by a domestic entity which is the associate enterprise of foreign entity, using a foreign brand trademark and/or logo while advertising, marketing and promoting its products, are more than what a similarly situated and comparable independent domestic entity would have incurred, the foreign entity needs to suitably compensate the domestic entity in respect of the advantage obtained by it in the form of brand building and increased awareness of its brand in the domestic market. He further submitted that this principle is of wider significance and requires consideration even in non TP matters. It was apparent that expenditure incurred by the assessee was partly with the obvious purpose of enhancing the brand value of the Maruti brand which belongs to a major shareholder in the assessee company. The claim that this was a mere incidental benefit is obviously incorrect in view of the surrounding circumstances. He also submitted that the learned CIT(A) has not considered the decision in the case of Maruti Suzuki India Ltd. (supra). He had all powers of the AO to conduct inquiry, and should have examined the entire facts, in view of the following decisions, before deleting the additions made:-
SiddhoMal & Sons vs. CIT (1980) 122 ITR 839 (Delhi);
Nira Kulkarni vs. ACIT (2012) 204 Taxman 622 (Delhi);
Acqua Minerals P. Ltd. vs. DCIT (2005) 96 ITD 417 (Ahd.); & CIT vs. Modi Stone Ltd. (2011) 203 Taxman 123 (Delhi).
The learned CIT-DR therefore submitted that the matter should be considered afresh in the light of aforesaid decisions. On the other hand, the learned AR of the assessee relied on the decision of ITAT which stands confirmed by the Hon'ble Delhi High Court.
10. We have heard both the parties and gone through the material available on record. ITAT, Delhi Bench `E', New Delhi in the assessee's case for the Assessment Years 2002-03, 2005-06 & 2006-07 in order dated 29th April, 2011 upheld the decision of the CIT(A) by observing as under:-
"14. We have carefully considered the rival submissions in the light of the material placed before us. The genuineness and the actual incurrence of these expenditures have not been doubted by the Assessing Officer. The reason assigned by the Assessing Officer to make the disallowance is that the assessee by incurring these expenditures has promoted the brand belonging to Maruti Udyog Ltd. In our opinion, the Assessing Officer is not right in holding so. The assessee has been authorized to deal, finance the automobile produced by the Maruti. The promotion of the brand name `Maruti' will directly promote the business of the assessee. It cannot be said that the assessee for the purpose of benefiting Maruti Udyog Ltd. had incurred those expenditures. According to the case law relied upon by the assessee before the CIT(A), it has been clearly laid down that if the expenditures are incurred for the purpose of business of the assessee and if incidentally those expenditure benefit the other party, then also no part of those expenditures could be disallowed on the ground that the assessee did not incur such expenditure wholly and exclusively for the purpose of its business. Therefore, we find no infirmity in the order of the CIT(A) vide which the impugned disallowance has been deleted. We, therefore, uphold his order on this issue for both the years i.e., 2005-06 and 2006-07. The ground No.3 in respect of both these years are dismissed."
11. We also find that the Hon'ble Delhi High Court in the case of the assessee has upheld the order of ITAT and dismissed the appeal filed by the Revenue by observing as under:-
"In so far as the second issue is concerned that has also been decided against the Revenue in ITA No. 966/2009 in the case entitled as CIT vs. Agro Beverages vide order dated 19th November, 2011."
12. The second issue in the appeal filed by the Revenue related to disallowance of 50% of expenses incurred on advertisement and business promotion. Since the decision of ITAT has been upheld by the Hon'ble Delhi High Court in their order dated 13th October, 2011, we do not find any infirmity in the order of the CIT(A) deleting the addition.
13. In the result, the appeal filed by the Revenue is dismissed.
14. This decision is pronounced in the Open Court on 9-8-2012.
Sd/- Sd/-
(R.P. TOLANI) (K.D. RANJAN)
JUDICIAL MEMBER ACOUNTANT MEMBER
Dated: 9/08/2012.
Copy of the order forwarded to:-
Appellant
Respondent
CIT
CIT(A)
DR By Order
*mg Deputy Registrar, ITAT.
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