2010 (2) TMI 798 - AT - Income Tax

Tribunal allows assessee's plea on marketing expenditure, orders fresh hearing

The Tribunal found merit in the assessee's submissions regarding the treatment of marketing know-how expenditure as capital expenditure. Acknowledging a ... Erroneous decision of ITAT - held that:- the decision in the case of Jonas Woodhead and Sons (India) Ltd. (1997 -TMI - 5553 - SUPREME Court) which was relied on by the CIT(A) and followed by the Tribunal has not been considered in its entirety. We find the Hon'ble Supreme Court in the said decision has held that a part of the expenditure (25%) as capital expenditure and the balance part (75%) as revenue expenditure whereas in the instant case the entire expenditure has been treated as capital in nature.- Either a decision has to be accepted in full or rejected in full but cannot be accepted partly and therefore, to this extent a mistake has crept in the order of the Tribunal which requires rectification. - in view of the decision of Hon'ble Supreme Court in the case of Honda Siel Power Products (2007 -TMI - 40390 - SUPREME Court) a mistake has crept in the order of the Tribunal which requires rectification u/s. 254(2) of the Act. - Matter recalled for rectification. Issues Involved:1. Whether the Tribunal erred in treating the marketing know-how expenditure as capital expenditure.2. Whether the Tribunal failed to consider the assessee's arguments and relevant case laws while making its decision.3. Whether there was a mistake apparent from the record that warranted rectification of the Tribunal's order.Detailed Analysis:1. Treatment of Marketing Know-How Expenditure:The primary issue concerns the classification of marketing know-how expenditure amounting to Rs. 2.70 crores. The Assessing Officer disallowed this expenditure, treating it as capital expenditure related to the acquisition of a new line of business, contrary to the assessee's treatment as revenue expenditure. The CIT(A) upheld this disallowance, referencing the decisions in *Jonas Woodhead and Sons (India) Ltd. vs. CIT* (224 ITR 342) and *CIT vs. W.S. Insulators of India Ltd.* (243 ITR 348), concluding that the expenditure was capital in nature. The Tribunal affirmed this decision in its order dated 11th June 2009.2. Consideration of Assessee's Arguments and Relevant Case Laws:The assessee argued that the Tribunal did not consider the correct facts and various decisions cited, including those from the jurisdictional High Court and the Hon'ble Supreme Court. The assessee pointed out that the bifurcation of the consideration into three parts was done in the MOU dated 9.11.1996, not as an afterthought in the subsequent agreements. The Tribunal's reliance on the decision in *Jonas Woodhead and Sons (India) Ltd.* was contested by the assessee, who argued that the facts of their case were different and that the Tribunal ignored the written submissions distinguishing these facts. Additionally, the Tribunal failed to consider the decision in *Madras Auto Service Pvt. Ltd.* (223 ITR 468) and *CIT vs. Hede Consultancy Pvt. Ltd.* (258 ITR 383), which were directly relevant to the issue at hand.3. Mistake Apparent from Record:The Tribunal acknowledged that it did not consider the various decisions cited by the assessee, which constituted a mistake apparent from the record. The Tribunal agreed with the assessee's contention that the decision in *Jonas Woodhead and Sons (India) Ltd.* was not followed in its entirety, as the Hon'ble Supreme Court had allowed 75% of the expenditure as revenue expenditure, whereas the Tribunal treated the entire amount as capital expenditure. This partial application of the decision was deemed incorrect.The Tribunal referenced the Hon'ble Supreme Court's ruling in *Honda Siel Power Products Ltd. vs. CIT* (295 ITR 466), which emphasized that non-consideration of materials on record amounts to a mistake apparent from the record. The Tribunal also cited other relevant decisions, such as *ACIT vs. Saurashtra and Kutch Stock Exchange* (305 ITR 227), which underscored the principle that justice should prevail and that errors by the Tribunal should be rectified to prevent prejudice to any party.Conclusion:The Tribunal found merit in the assessee's submissions and determined that a mistake had indeed crept into its order. Consequently, the Tribunal decided to recall grounds of appeal No.2 in the assessee's appeal for fresh adjudication. The Registry was directed to reschedule the hearing for the limited purpose of deciding this ground. The Miscellaneous Application (MA) filed by the assessee was allowed, and the order was pronounced on 17.2.2010.