2019 (4) TMI 1659 - AT - Income Tax

Tribunal rules in favor of assessee for AY 2012-13 & 2013-14. Advertisement expenses treated as revenue.

The appeal for Assessment Year (AY) 2012-13 was allowed, and the appeal for AY 2013-14 was allowed for statistical purposes. Specific issues were remanded ... TP Adjustment - Advertisement & Sales Promotion (AMP) expenses - whether advertisement and sales promotion expenses incurred by the assessee being an importer and distributor of wine and spirits in India in the forms of gifts, display at retail outlets, discount schemes, custom duty charged on POSM, etc. are revenue in nature as contended by the assessee? - HELD THAT:- When we examine the facts and circumstances of the case in the light of the ratio of Monto Motors Ltd. [2011 (12) TMI 50 - DELHI HIGH COURT] it is proved on record that the assessee has incurred periodical expenses on account of advertisement and sales promotion which is to increase the sales of products in order to remind the customer from time to time so that they do not forget the products and its qualities. Hon’ble High Court has held that when the advertisement expenses are incurred to increase the sale of the products, the same are treated as revenue expenditure because the memory of purchasers or customers is short-lived. So, in the instant case, the Revenue has not brought on record any material to prove that advertisement and sales promotion expenses have created long lasting benefits to the assessee, because advertisement and sales promotion are generally made in order to increase the sales and their impact is limited and felt for a short duration by the customers. Also see EMPIRE JUTE COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX [1980 (5) TMI 1 - SUPREME COURT] So, in this case, assessee has undisputedly incurred advertisement and sales promotion expenses periodically, and not at once just to refresh the product and quality to be sold in the memory of its customers. So, it cannot be held to be in the nature of enduring benefit for a trader - advertisement and sales promotion expenses have been incurred by the assessee just to enhance its sales and profit and cannot be treated as capital in nature. - Decided in favour of assessee. Addition u/s 40A (ia) - scope of Notification No.56/2012 dated 31.12.2012 issued by the CBDT - disallowance of an amount debited by the assessee in P&L account on account of bank guarantee commission - assessee has made certain payments to scheduled banks qua bank guarantee provided by the banks on which TDS was not deducted - AO as well as CIT (A) have accepted the proposition put forth by the assessee that bank guarantee commission does not cover under the definition of “interest”, hence section 194A is not applicable to such payment - HELD THAT:- It is settled principle of law that in case of bank guarantee commission, section 194H of the Act, where principal agent relationship are not there, is also not applicable. Reliance in this regard is placed on the decision rendered by the coordinate Bench of the Tribunal in Kotak Securities Ltd. vs. DCIT – [2012 (2) TMI 77 - ITAT MUMBAI] Bare perusal of the Notification in the instant case goes to prove that this Notification is clarificatory in nature. Applicability of the aforesaid Notification to a period prior to the period of its issue has been examined by Hon’ble Delhi High Court in case of Pr.CIT vs. Make My Trip India Pvt. Ltd. [2019 (3) TMI 1359 - DELHI HIGH COURT]. Furthermore, as per Second Proviso to section 40A (ia) of the Act, disallowance cannot be made because bank guarantee commission paid by the assessee to scheduled banks has been duly included in the total income of the banks as they are tax resident of India and they have duly paid the tax on such guarantee commission. So, under Second Proviso to section 40A (ia), no disallowance can be made. So, disallowance of ₹ 9,81,336/- made by the AO and restricted by the ld. CIT (A) to ₹ 7,92,680/- is not sustainable in the eyes of law, hence ordered to be deleted. - Decided in favour of the assessee. Issues Involved:1. Legality of the CIT(A) orders under Section 250 of the Act.2. Nature of advertisement and sales promotion expenses (capital vs. revenue).3. Nature of road access charges (capital vs. revenue).4. Tax deduction on bank guarantee charges.5. Principle of consistency in assessment.Detailed Analysis:Issue 1: Legality of the CIT(A) OrdersThe assessee challenged the orders passed by the CIT(A) as 'bad in law and on the facts and circumstances of the case.' However, this ground was deemed general in nature and required no specific findings.Issue 2: Nature of Advertisement and Sales Promotion ExpensesThe assessee debited significant amounts for advertisement and sales promotion expenses in the profit & loss account for AYs 2012-13 and 2013-14, treating them as revenue expenses. The AO and CIT(A) reclassified these expenses as capital in nature, arguing they provided enduring benefits by propagating the brand name.The Tribunal noted that the assessee incurred these expenses periodically to boost sales, which aligns with the nature of revenue expenses. Citing the Delhi High Court's decisions in Monto Motors Ltd. and Jubliant Foodworks (P.) Ltd., the Tribunal emphasized that advertisement expenses aimed at increasing sales are typically short-lived and should be treated as revenue expenses. The Tribunal concluded that the advertisement and sales promotion expenses did not create long-lasting benefits and ordered these expenses to be treated as revenue in nature, thereby deleting the additions made by the AO and CIT(A).Issue 3: Nature of Road Access ChargesFor AY 2013-14, the AO added Rs. 67,01,490 debited by the assessee for road access construction charges, treating them as capital expenses due to lack of evidence. The Tribunal remanded this issue back to the AO for fresh consideration, directing the AO to provide the assessee an opportunity to present evidence.Issue 4: Tax Deduction on Bank Guarantee ChargesThe AO disallowed Rs. 9,81,336 debited for bank guarantee commission under Section 40A(ia) due to non-deduction of TDS. The CIT(A) provided partial relief based on a CBDT Notification effective from January 1, 2013. The Tribunal noted that the bank guarantee commission does not fall under the definition of 'interest' and is not subject to Section 194A. Additionally, it is not covered by Section 194H in the absence of a principal-agent relationship.The Tribunal further referenced a Delhi High Court decision in Pr.CIT vs. Make My Trip India Pvt. Ltd., which clarified that the CBDT Notification is clarificatory and applicable retrospectively. Moreover, under the Second Proviso to Section 40A(ia), disallowance is not warranted if the income has been included in the total income of the banks, which are tax residents of India. Therefore, the Tribunal deleted the disallowance of Rs. 9,81,336.Issue 5: Principle of Consistency in AssessmentThe assessee argued that the CIT(A) failed to follow the principle of consistency despite no change in facts. This ground was considered general and did not require specific findings.Conclusion:- The appeal for AY 2012-13 was allowed.- The appeal for AY 2013-14 was allowed for statistical purposes, with specific issues remanded for fresh consideration.Order Pronouncement:The order was pronounced in open court on April 24, 2019.