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M/s Ind Swift Ltd Plot No. 781, Phase II, Chandigarh Vs. Addl C.I.T. Range I IA Chandigarh
August, 27th 2014


                        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


     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


     "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

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.

8    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


     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

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

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

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


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

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


     "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

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,

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


Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR
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