DCIT, C.C.-XXII, Kolkata, Kolkata v. M/s. Appeline Cosmetics & Toiletries Ltd., New Delhi

ITA 2180/KOL/2009 | 2003-2004
Pronouncement Date: 25-02-2011

Appeal Details

RSA Number 218023514 RSA 2009
Bench Kolkata
Appeal Number ITA 2180/KOL/2009
Duration Of Justice 1 year(s) 1 month(s) 25 day(s)
Appellant DCIT, C.C.-XXII, Kolkata, Kolkata
Respondent M/s. Appeline Cosmetics & Toiletries Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 25-02-2011
Date Of Final Hearing 17-02-2011
Next Hearing Date 17-02-2011
Assessment Year 2003-2004
Appeal Filed On 31-12-2009
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [ BEFORE HONBLE SHRI B.R. MITTAL JM AND HONBLE S HRI C. D. RAO AM ] ITA NO. 2180 (KOL) OF 2009 : ASSESSMENT YEAR : 200 3-04 DY. COMISSIONER OF INCOME TAX -VS.- M/S. APPELINE COSMETICS & TOILETRIES LIMITED CC-XXII KOLKATA. KOLKATA [PAN : AADC 0438 N] [APPELLANT] [RESPONDENT] APPELLANT BY : SHRI B. R. PAN IGRAHI RESPONDENT BY : SHRI A. K. TRIBU WAL PER B. R. MITTAL J. M. THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2003-04 AGAINST ORDER OF LD. CIT(A)-V KOLKATA DATED 28.10.2009. 2. THE GROUND NO.1 OF THE APPEAL AS IS UNDER :- WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN LAW AND FACTS BY DELETING THE ADDITION ON ACCOUNT O F AMORTIZATION OF EXPENSES MADE BY THE AO ON PRINCIPLES OF DEFERRED REVENUE EX PENDITURE AMOUNTING TO RS.1 57 46 477/-. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION INCURRED EXPENS ES UNDER THE HEAD MARKETING AND DISTRIBUTION AS UNDER :- SALARY RS.71 56 621/- TRAVELLING EXPENSES RS.56 43 003/- ADVERTISEMENT & PUBLICITY RS.30 88 863/- FREIGHT CHARGES RS.57 94 609/- RS.1 96 83 096/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESS ING OFFICER STATED THAT THE SAID EXPENSES CLAIMED WERE ABNORMALLY HIGH AND THE ASSESSEE WAS A SKED TO EXPLAIN WHY THE SAME MAY NOT BE DEFERRED OVER A PERIOD OF 5 YEARS AS THE BENEFIT OF PROMOTING NEW PRODUCT WILL BE ENJOYED BY THE ASSESSEE OVER A PERIOD OF TIME. HE ALSO STATED THAT THE ASSESSEE-COMPANY OPENED VARIOUS GODOWNS IN MANY STATES IN INDIA AND MADE EXPENSES F OR SALARY TRAVELLING FOR MARKETING EXECUTIVES AND OTHER STAFFS AND ON ADVERTISEMENT. T HE ASSESSING OFFICER DID NOT ACCEPT THE SAID EXPENDITURE AS REVENUE EXPENDITURE WHICH WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE ITA NO. 2180/KOL/20 09 2 OF BUSINESS AND THEREFORE STATED TO BE ALLOWED IN ITS ENTIRETY IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AFTER PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION PVT. LTD. VS. CIT 225 ITR 802 (SC) STATED THAT THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFIT OF A PARTICULAR YEAR AND THEREFORE AMORTIZED THE E XPENDITURE FOR A PERIOD OF 5 YEARS AND ALLOWED 1/5 TH OF THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICE R STATED THAT THE BALANCE 4/5 TH I.E. RS.1 57 46 477/- WILL BE ALLOWED IN SUBSEQUENT FOUR YEARS IN EQUAL INSTALMENTS. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE 1ST APPELLATE AUTHORITY. 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE STATED THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE WAS REVENUE IN NATURE AND IT DID NOT RESULT IN CREATION OF CAPITAL ASSET. THAT THE SALARY AND TRAVELING EXPENS ES WAS PART AND PARCEL OF THE EXPENDITURE REVENUE IN NATURE. THAT ADVERTISEMENT AND PUBLICITY WAS ALSO NATURAL CONCOMITANT AND AFTER CONSIDERING THE DECISION OF SPECIAL BENCH I.T.A.T. AHMEDABAD IN THE CASE OF ASHIMA SYNTEX LTD. [2009] 117 ITD 1 (SB) ALLOWED ENTIRE CLAIM OF THE ASSESSEE. THE LD. CIT(A) HAS STATED THAT IF THE EXPENDITURE IS REVENUE IN NATURE THE DISALL OWANCE IS NOT JUSTIFIED AND ACCORDINGLY ALLOWED ENTIRE CLAIM OF THE ASSESSEE BY ALLOWING GROUND OF APPEAL. HENCE THE DEPARTMENT IS IN APPEAL BEFORE US. 5. ON BEHALF OF THE DEPARTMENT LD. DEPARTMENTAL RE PRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT ASSESSEE INCUR RED SAID EXPENDITURE IN THE ASSESSMENT YEAR UNDER CONSIDERATION TO BUILD UP A BRAND WITH ITS IN VISIBLE ASSET AND THEREFORE THERE IS ENDURING BENEFIT ACCRUED TO THE ASSESSEE OVER A PERIOD OF TI ME. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ENTIRE EXPENDITURE CANNOT BE SAI D TO BE EXPENDITURE TO THE PARTICULAR YEAR AND ASSESSING OFFICER WAS JUSTIFIED TO CONSIDER THE EXP ENDITURE OF 1/5 TH FOR ASSESSMENT YEAR UNDER CONSIDERATION BY SPREADING TOTAL EXPENDITURE OVER A PERIOD OF 5 YEARS. 6. ON THE OTHER HAND LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER OF I.T.A.T. HE SUBMITTED THAT THE DEPARTMENT HAD NOT D ISPUTED THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE NATURE OF EXPENDITURE ITSELF ESTABLISH THAT IT IS REVENUE IN NATURE AND NO CAPITAL HAS BEEN CRE DITED BY THE ASSESSEE BY INCURRING THE ABOVE EXPENDITURE. HE FURTHER SUBMITTED THAT HONBLE APEX COURT HAS HELD IN THE CASE OF KEDARNATH ITA NO. 2180/KOL/20 09 3 JUTE MANUFACTURING CO. LTD. VS. CIT [1971] 82 ITR 3 63 (SC) THAT ALLOWABILITY OF A PARTICULAR DEDUCTION DEPENDS ON THE PROVISIONS OF LAW RELATING THERETO AND NOT ON THE BASIS OF THE ENTRIES MADE IN THE BOOKS OF ACCOUNT WHICH ARE NOT DECISIV E OR CONCLUSIVE IN THIS REGARD. HE SUBMITTED THAT EVEN IF THE BENEFIT ACCURES IN RESPECT OF EXPE NDITURE INCURRED BUT IF IT IS IN REVENUE FIELD THE ENTIRE EXPENDITURE IS TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT ASSESSEE HAS GIVEN A DIFFERENT TREATMENT IN TERMS OF PREPARATION OF THE ANNUAL ACC OUNTS OF A PARTICULAR PERIOD. HE SUBMITTED THAT THERE IS NOTHING TO INDICATE THAT THE EXPENDITURE I NCURRED BY THE ASSESSEE IS CAPITAL IN NATURE AND RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD. 306 ITR 42 (DEL.) AND ALSO THE DECISION OF I.T .A.T. DELHI BENCH IN THE CASE OF ACIT VS. MEDICAMEN BIOTECH LIMITED [2006] 99 TTJ 873 (DEL.) . HE SUBMITTED THAT HONBLE DELHI HIGH COURT IN THE CASE OF JAI PARABOLIC SPRINGS LTD. (SU PRA) ALSO CONSIDERED THE DECISION OF HONBLE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTM ENT CORPORATION PVT. LTD. (SUPRA) AND SUBMITTED THAT THE ABOVE DECISION DOES NOT APPLY TO THE CASE OF THE ASSESSEE AS IN THAT CASE THE COMPANY ISSUED DEBENTURE AT A DISCOUNT AND THE DIFF ERENCE BETWEEN THE ISSUE PRICE AND REDEMPTION PRICE OF THE DEBENTURE WAS TO BE SPREAD OVER THE ENTIRE PERIOD OF DEBENTURE. 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. WE HAVE CON SIDERED THE CASES CITED BY THE LD. REPRESENTATIVES OF THE PARTIES IN SUPPORT OF THEIR SUBMISSIONS. 8. WE OBSERVE THAT ASSESSEE CLAIMED EXPENDITURE AGG REGATING RS.1 96 83 096/- ON ACCOUNT OF SALARY TRAVELLING EXPENSES ADVERTISEMENT & PUB LICITY AND FREIGHT CHARGES. THE DEPARTMENT HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE . WE OBSERVE THAT THE NATURE OF THE ABOVE EXPENDITURE DO NOT CREATE AN ASSET. THE NATURE OF T HE SAID EXPENDITURE PRIMA FACIE IS REVENUE IN NATURE. WE OBSERVE THAT THE ASSESSING OFFICER CONSI DERED THE SAID EXPENDITURE TO BE SPREAD OVER A PERIOD OF 5 YEARS MERELY BECAUSE THE EXPENDI TURE CLAIMED BY THE ASSESSEE WAS AT A HIGHER SIDE. WE AGREE WITH THE LD. AUTHORISED REPRE SENTATIVE FOR THE ASSESSEE THAT MERELY BECAUSE THE EXPENDITURE IS ON HIGHER SIDE THE SAID EXPENDITURE CAN NOT BE SPREAD OVER A PERIOD OF TIME AND A PART OF THE SAID EXPENDITURE IS TO BE ALLOWED IN THE YEAR IN WHICH IT IS INCURRED AND THE REST OF EXPENDITURE WILL BE TREATED AS DEFERRED REVENUE EXPENDITURE AND WILL BE ALLOWED IN SUBSEQUENT YEARS. WE ARE OF THE CONSIDERED VIEW AS PER CASES CITED (SUPRA) HEREINABOVE ITA NO. 2180/KOL/20 09 4 IF AN EXPENDITURE IS INCURRED WHICH IS REVENUE IN N ATURE IT HAS TO BE ALLOWED IN THE YEAR IN WHICH THE EXPENDITURE IS INCURRED EVEN IF THE BENEF IT OUT OF THAT EXPENDITURE ACCRUES TO THE ASSESSEE OVER A PERIOD OF TIME. WE AGREE WITH THE L D. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE DECISION OF HONBLE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION PVT. LTD. (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE AS IN THAT CASE THE DIFFERENCE IN ISSUE PRICE OF DEBENTURE AND REDEMPTI ON PRICE OF DEBENTURE WAS TO BE SPREAD OVER THE PERIOD OF DEBENTURE AND IN THAT CONTEXT IT WAS HELD THAT THE ENTIRE DIFFERENCE COULD NOT BE ALLOWED IN THE YEAR IN WHICH DEBENTURES WERE ISSUED BECAUSE THE MONEY RAISED BY ISSUE OF DEBENTURE WAS TO BE UTILISED BY THE ASSESSEE OVER A PERIOD OF TIME. THE ASSESSEE HAS ACTUALLY INCURRED EXPENDITURE IN ASSESSMENT YEAR UNDER CONSI DERATION ON REVENUE SIDE AND IT HAS RESULTED IN NOT CREATION OF ANY CAPITAL ASSET THEREFORE TH E SAID EXPENDITURE HAS RIGHTLY BEEN ALLOWED BY THE LD. CIT(A) AS REVENUE EXPENDITURE IN ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE WE UPHOLD THE ORDER OF LD. CIT(A) IN ALLOWING THE ENTI RE EXPENDITURE CLAIMED BY THE ASSESSEE AGGREGATING RS.1 96 83 096/- IN ASSESSMENT YEAR UND ER CONSIDERATION AS AGAINST RS.39 36 619/- ALLOWED BY THE ASSESSING OFFICER I.E. 1/5 TH OF RS.1 96 83 096/-. HENCE GROUND NO.1 OF THE APPEAL TAKEN BY THE DEPARTMENT IS REJECTED. 9. GROUND NO.2 OF THE APPEAL IS AS UNDER :- WHETHER ON FACT AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN LAW AND FACTS BY DELETING THE ADDITION ON ACCOUNT OF INTEREST ON SALES TAX AMOUNTING TO RS.5 555/- WHICH IS NOT ALL OWABLE U/S. 37 OF THE INCOME TAX ACT. 10. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND PERUSED THE ORDER OF THE ASSESSING OFFICER. 11. THE ASSESSING OFFICER DISALLOWED A SUM OF RS.5 555/- ON THE GROUND THAT INTEREST PAID BY THE ASSESSEE ON SALES TAX IS NOT ALLOWABLE AS IT IS PENAL IN NATURE. HOWEVER THE LD. CIT(A) HAS DELETED THE SAME BY RELYING ON THE DECISION OF HON BLE APEX COURT IN THE CASE PRAKASH COTTON MILLS (P) LTD. VS. CIT 201 ITR 685 (SC) AND MAHALAX MI SUGAR MILLS CO. LTD. CIT 123 ITR 429 (SC). 12. WE AGREE WITH LD. CIT(A) THAT THE ACTION OF THE ASSESSING OFFICER TO DISALLOW INTEREST ON ITA NO. 2180/KOL/20 09 5 SALES TAX IS NOT JUSTIFIED AS THE PAYMENT OF INTERE ST IS COMPENSATORY IN NATURE AND NOT PENAL AS HELD BY HONBLE APEX COURT IN THE ABOVE CASES (SUPR A). IT IS ALSO RELEVANT TO STATE THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ORIENTAL BEVERAGE LTD. 164 CTR 529 ALSO HELD THAT INTEREST PAYABLE ON OUTSTANDING INTEREST TAX IS COM PENSATORY IN NATURE AND NOT PENAL AND THE SAME IS NOT LIABLE TO BE DISALLOWED. IN VIEW OF ABO VE WE UPHOLD THE ORDER OF LD. CIT(A) AND REJECT GROUND NO.2 OF THE APPEAL TAKEN BY THE DEPAR TMENT. 13. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 25. 02. 2011. SD/- SD/- [ C. D. RAO ] [ B. R. MITTAL ] ACCOUNTANT MEMBER JUDICIA L MEMBER DATED : 25TH FEBRUARY 2011. COPY FORWARDED TO THE - 1. DY. COMMISSIONER OF INCOME TAX CC-XXII 18 RABIND RA SARANI PODDAR COURT KOLKATA-1. 2. M/S. APPLELINE COSMETICS & TOILETRIES LTD. B-83 G ROUND FLOOR SATYA NIKETAN MOTI BAGH-2 NEW DELHI-110021. 3. CIT(A)- (4) CIT- 5. D.R. I.T.A.T. KOLKATA. [TRUE COPY] BY ORDER DEPUTY/ASSISTANT REGISTRAR (KKC) I.T.A.T. KOLKATA.