Income Tax Appellate Tribunal - Delhi
Career Launcher (India) Ltd., New Delhi vs Department Of Income Tax on 31 May, 2013
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B': NEW DELHI
BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER
AND
SMT DIVA SINGH, JUDICIAL MEMBER
ITA No. 3941/Del/2011 (Assessment Year: 2008-09)
ITA No. 3657/Del/2011 (Assessment Year: 2007-08)
ITA No. 5125/Del/2012 (Assessment Year: 2009-10)
DCIT, Career Launcher (India)
Circle-3(1), Vs. Ltd,
New Delhi R-90, GK-I,
New Delhi 110048,
PAN No. AAACC3885C
(Appellant) (Respondent)
Appellants by : Shri Ajay Vohra & Ms. Shikha Sharma, Advocate
Respondent by: Dr. Sudha Kumari, CIT DR
ITA No. 3657/Del/2011
ORDER
PER P. K. BANSAL, AM
Since, all these appeals involved the common issue. For the sake of convenience all these appeals are disposed of by this common order. In this case the revenue has taken the following effective grounds of appeal:-
Page No. 2" 1. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 14,80,66,894/- on a/c of non-deduction of TDS ignoring that the assessee failed to comply with the provisions of section 194C of the I. T. Act.
2. The Ld. CIT(A) has erred on facts and in law in restricting the disallowance u/s 14A read with Rule 8D to Rs. 1,16,604/- as against disallowance of Rs. 2,83,973/-. Ld. CIT(A) has failed to take cognizance of sub-section (3) of section 14A which specifies that even if the assessee makes a claim that no expenditure has been incurred in earning the excepted income, sub-section (2) of section 14A shall apply, meaning threby, disallowance u/s 14A(1) is called for.
3. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 8,m14,280/- made u/s 36(1)(ii) on account of disallowance of bonus paid to directors of the company ignoring that the provisions to section 36(1)(ii) of the I. T. Act, 1961 are clearly applicable in the assessee's case.
4. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 13,14,00,000/- on a/c of non-refundable portion of advance fee ignoring that as per the terms and conditions of the admission and the refund policy, this amount is not refundable potion of the fee and, therefore, the income has accrued during the year. Reliance is placed on the decision of Hon'ble Supreme Court in CIT vs. British Paints 188 ITR 44.
5. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 6,24,477/- on a/c of bad debts ignoring that conditions laid down in section 36(1)(vii) and section 36(2)(i) are not satisfied in this case.
6. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 4,10,700/- on a/c of processing charges ignoring that such charges were paid for term loan for acquiring of property and, hence, were of capital in nature.
7. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,99,799/- on a/c of advance written-off Page No. 3 ignoring that the assessee has not considered and accounted for these written off as income in earlier year.
8. In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 50,428/- on account of disallowance of extra depreciation on computer peripherals/accessories ignoring that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories."
2. Ground No. 1 relates to the disallowance made under section 40(1)(i)(a), as in the opinion of the assessing officer the assessee has to deduct TDS under section 194C on account of franchise fees paid by the assessee to the Licensee.
3. After hearing the rival submissions, we noted that this issue has been decided in favour of the assessee in the precedent assessment years 2005-06 and 2006-07 by Delhi High Court in assessee's own case reported in 250 CTR 240. Since the facts involved in this years are the same as were in the earlier year, therefore, the respectfully following the decision of the Delhi High Court in the case of the assessee , we delete the disallowance and confirm the order of the CIT(A).
4. Thus, the ground No. 1 taken by the revenue stands dismissed.
5. Ground No. 2 relates to the disallowance made under section 14A. The facts relating to this ground are that the assessee has earned dividend income of Rs. 23,32,080/- from investment made in shares. The assessee suo motto disallowed a sum of Rs. 99,889/- on account of expenses. The assessing officer applied Rule 8D read Page No. 4 with section 14A and disallowed a sum of Rs. 3,83,862/-. CIT(A) upheld the action of the assessing officer making the disallowance, but CIT(A) computed the disallowance at Rs. 1,16,604/- being 5% of the dividend income.
6. We heard the rival submissions and carefully considered the same, we noted that under section 14A(i) of the Income Tax Act, no deduction can be allowed to the assessee in respect of the expenditure incurred in relation to the income if income do not form part of the total income. Section 14A sub section 2, further states that whether the assessing officer having regard to the account of the assessee's previous year is not satisfied with the correctness of the claim that the claim of the expenditure made by the assessee or the claim made by the assessee that no expenditure has been incurred in relation to the income not forming part of the total income under the Act for such previous year, he shall determine the amount of the expenditure in relation to such income in accordance with such method as may be prescribed. In this regard Rule 8D has been prescribed but Rule 8D has been prescribed w.e.f. 24.03.2008, Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT:328 ITR 81 has taken the view that Rule 8D is prospective in operation. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd.:203 Taxman 364/247 CTR 162 has also taken the same view that Rule 8D would apply prospective. In view of this fact, we agree with that the submission of the Ld. AR that Rule 8D will not applicable in the case of the assessee and it will apply prospectively. We have also gone through the decision of the Page No. 5 Hon'ble Supreme Court in the case of CIT Vs. Walfort Share & Stock Brokers 326 ITR 1, wherein we noted Hon'ble Supreme Court has held that there must be proximate relationship of expenditure incurred with the exempt income for the purpose of making disallowance under section 14A of the Income Tax Act. We noted CIT(A) in this case sustained the disallowance just by an estimate based at the rate of 5% without looking into whether the expenditure which has been disallowed has a proximate relationship with the income which has been earned by the assessee not forming part of total income. We, therefore, in the interest of justice, fair play to both the parties, set aside the order of the CIT(A) on this issue and restore this issue to the file of the assessing officer with a direction that the assessing officer should re-decide this issue after giving the finding with all the expenditure whether have a proximate relationship with the income earned by the assessee on the shares and than accordingly he should estimate the disallowance only in respect of those expenditure which has a proximate relationship with the dividend income earned by the assessee. Thus, this grounds stands allowed for statistical purposes.
7. Ground No. 3 relates to the disallowances of Rs. 8,14,280/- being a bonus to the directors. The assessing officer made the disallowance under section 36(1)(ii). When the matter went before the CIT(A), CIT(A) deleted the disallowance.
Page No. 68. After hearing the rival submissions, we noted that this issue is duly covered by the decision of this Tribunal in ITA 4924 and 4925 in assessee's own case in the assessment year 2005-06 and 2006-
07. No distinguishing facts were brought to our knowledge during our consideration. The decision of the Tribunal was confirmed by the Delhi High court. We, therefore, dismiss this ground.
9. Ground No. 4 relates to the deletion of the addition of Rs. 13,14,00,000/- . The facts relates to this issue are that the assessee is engaged in the business of imparting coaching for various entrance examination. Some of the courses offered by the assessee are spread over two accounting periods. Thus, part of the fees when received is booked as advance fee in the accounting year in which the student is enrolled. The advance fee presents the fee pertaining to the period falling in the next accounting year when the education/coaching was actually imparted to the students. The assessing officer, however, added the aforesaid amount of fee booked as advance fee as income for the relevant assessment year. CIT(A) deleted the addition following the decision of the assessee's own case of this Tribunal in ITA No. 4924 and 4925/Del/2009 as per para 21 of its order before us. Even though, Ld. DR vehemently argued but we do not find any illegality or infirmity in the order of the CIT(A) and we are of the view that this issue is duly covered by the decision of this Tribunal and assessee's own case for the assessment year 2006-07. We accordingly dismiss this ground.
Page No. 710. The ground No. 5 relates to the claim of the bad debts amounting to Rs. 6,24,477/-. This issue, in our opinion, is no more res-judicata as the debts has been duly written off by the assessee in his books of account. In view of the decision of the Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT: 323 ITR 397. Ld. DR even though relied 323 ITR 166 in the case of Vijaya Bank Vs. CIT(A) that decision relate to the provision made for the bad debts. In view of the decision of TRF Ltd (Supra), we dismiss this ground.
11. Ground No. 6 relates to the deletion of addition of Rs. 4,10,700/- on account of processing charges.
12. After hearing the rival submissions, we noted that this issue is duly covered by the decision of the Hon'ble Supreme Court in the case of India Cement Ltd. Vs. CIT: 60 ITR 52 and the expenses is clearly allowable under section 36(1)(iii) of the Income Tax Act. We accordingly dismiss this ground.
13. Ground No. 7 relates to the deletion addition of Rs. 1,99,799/ on account of advance written off. After hearing the rival submissions and going through the facts of this ground, we noted that the assessee has written off the advance given to the employees, when the employees left the employment as the amount no more could be recovered from the employee. CIT(A) although deleted the disallowance under section 36(1)(vii), but in our opinion section 36(1)(vii) is not applicable, but this will be a loss incidentally to the business of the assessee as the advance was Page No. 8 given during the course of business. We, therefore, confirm the deletion of the disallowance.
14. Ground No. 8 which relates to the depreciation at the rate of 60%. Both the parties agreed that this issue is duly covered in favour of the assessee by the decision of this Tribunal in the case of the assessee for the assessment year 2005-06 and 2006-07. Thus, this ground stands dismissed.
ITA No. 3941/Del/2011 (Assessment Year: 2008-09)15. The ground No. 1 has taken by the revenue is similar to the ground No. 1 in the assessment year 2007-08. This ground is also stands dismissed on the basis of our finding given while disposing off ground No. 1 in the assessment year 2007-08 in the precedent para.
16. Ground No. 2 in this appeal is similar to the ground No. 3 in the assessment year 2007-08. We have already dismissed ground No. 3 in the assessment year 2007-08 in the precedent paragraph. Accordingly, this ground also stands dismissed.
17. Ground No. 3 relates to the deletion of the disallowances of the expenditure incurred on advertisement.
18. The facts relates to this grounds are that the assessing officer disallowed 4/5 of the advertisement expenditure as he was of the view that this expenditure was incurred by the assessee to create long-term enduring benefit in the form of intangible brand value.
19. When the matter went before the CIT(A), CIT(A) deleted the disallowances by holding as under Page No. 9
"7. I have carefully considered the submissions made by the Ld AR and have gone through the assessment order. The AO has su moto amortised the aforesaid advertisement expenses and have allowed 1/5th of it i.e. Rs. 1,05,61,343/- and have disallowed the balance of Rs. 4,22,45,372/- on the basis of decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. It is seen that the expenditure in question has been incurred by the assessee in the relevant assessment year and a claim of deduction thereof has been made u/s 37 of the Act. Further it is seen that there is no dispute about the genuineness of this of this expenditure. It is not also in dispute that the expenditure in question is a business expenditure and was incurred wholly for the purpose of the business of the appellant. The expenditure incurred in the nature of advertisement, publicity and sales promotion was incurred for ever and in no manner any portions thereof reverted back to the appellant. The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT, 124 ITR 01 has repelled the theory of expenditure of enduring nature as held in the case of Madras Industrial Investment Corporation Ltd. In the case of Empire Jute Co. Ltd. (Supra) the Hon'ble Supreme Court noted that by decided case the courts evolves various case for distinguishing between the capital and revenue expenditure but no test is paramount or conclusive every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. The Hon'ble Supreme Court has added a caution in the following words:
"There may be cases where expenditure, even if incurred for obtaining advantage, of enduring benefit, may, none-the-less, be on revenue account and the test enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessees that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital filed that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's Page No. 10 trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case."
Applying the aforesaid principles to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement has to be treated as revenue in nature which is allowable fully in the year in which it has been incurred. The expenditure was incurred to facilitate the appellant's trading operations. No fixed capital was created by this expenditure and there was no advantage which accrued to the appellant in the capital nature. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the tests laid down u/s 37 of the Act and it has to be allowed. Only in exceptional cases of the nature of expenses as mentioned in Madras Industrial Investment Corporation Ltd. (Supra), the expenditure can be allowed to be spread over, that too when the assessee chooses to do so. The same ratio has been laid down by the Hon'ble High Court of Delhi in the case of CIT vs. CITI Financial Consumer Finance Ltd. (2011-TIOL-368-HC-Del-IT). Further, it is also seen that in the earlier assessment year the assessment orders were passed u/s 143(3) and the assessee's claim of expenditure under the head advertisement. Hence, the principle of consistency demands that this expenditure should be allowed as revenue expenditure as held by the Hon'ble Supreme Court in the case of Radha Soami Stasang Vs. CIT. Therefore, the AO is directed to delete the addition of Rs. 4,22,45,372/- under the head advertisement, publicity & sales promotion.
20. We heard the rival submissions and carefully considered the same, Ld. DR even though vehemently relied on the decision of the Hon'ble Supreme Court in the case of Madras Industrial Page No. 11 Investment Corporation Ltd. Vs. CIT (225 ITR 802 and that of Assam Bengal Cement Company Ltd. Vs. CIT 27 ITR 34. But we noted that these decisions are not applicable in the case of the assessee. Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT has clearly held that ordinarily revenue expenditure which is incurred wholly and exclusively for the purpose of the business must be allowed in its entirety in the year in which it has incurred. It cannot spread over a number of years even if the assessee has written off it in its books of account over a period of year. However, facts may justify that the assessee who has incurred the expenditure in a particular year to spread and claim it over a period of ensuring years. This finding of the Hon'ble Supreme Court states stayed that revenue expenditure has to be allowed in the year in which the expenditure has been incurred but the assessee may postponed the claim if the facts justified so by spreading it in different year. This decision does not empower the revenue to disallow part of the revenue expenditure and to spread it over the year. In the case of Assam Bengal Cement Company Limited Vs. CIT we noted that the issue relates to whether the expenditure is a revenue expenditure or capital expenditure. There was no issue of spreading over of a revenue expenditure incurred by the assessee.
21. In our opinion, no interference is called for in the order of the CIT(A) as the CIT(A) has rightly held that the issue is duly covered by the decision of the jurisdictional High Court. Thus, this ground stand dismissed.
Page No. 1222. Ground No. 3 relates to the depreciation of computer peripherals. The issue involves in this ground is similar to the issue involved in ground No. 8 for the assessment year 2007-08. We have already dismissed the ground taken by the revenue in that year. Accordingly, this ground is also stand dismissed.
ITA No. 5125/Del/2012 (Assessment Year: 2009-10)23. The ground No. 1 is similar to the ground No. 1 taken in the assessment year 25007-08. We have already dismissed ground No. 1 in the assessment year 2007-08 in precedent paragraph. Accordingly, we dismiss this ground.
24. Ground No. 2 in this appeal is similar to the ground No. 3 taken in the assessment year 2008-09. We have already dismissed the ground No. 3 in the assessment year 2008-09 in the precedent paragraph. Accordingly, we dismissed ground No. 2 in this appeal.
25. Ground No. 3 is similar to the ground No. 8 in the assessment year 2007-08 which we have already dismissed in the precedent paragraph. Accordingly, we dismiss this ground.
In the result all the appeal filed by the revenue stands dismissed.
Order pronounced in open Court on 31.05.2013.
-Sd/- -Sd/-
(DIVA SINGH) (P. K. BANSAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Page No. 13
Dated 31 /05/2013
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR