M/s Ind Swift Ltd Plot No. 781, Phase II, Chandigarh Vs. Addl C.I.T. Range I IA Chandigarh
August, 27th 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 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
"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
Order pronounced in the open court on 21.8.2014
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR