2020 (4) TMI 742 - AT - Income Tax

Appeals Allowed for Advertising Expenses & Employees' PF Contributions

M/s. Indus Mobile Distribution P. Ltd. Versus The Asst. Commissioner of Income Tax, Central Circle-1 (1), Chennai.

The Tribunal allowed the appeals for AYs 2007-08 and 2008-09 concerning advertising and professional expenses, employees' PF contributions, and ... Disallowance on advertising expenses and professional expenses including Branding expenses - allowable revenue - HELD THAT:- As decided in own case [2019 (10) TMI 828 - ITAT CHENNAI] AO is not expected to question the necessity of the expenditure. The brand expenditure is nothing but business promotion expenditure which is Revenue in nature and which is clearly allowed as deduction - Decided in favour of assessee. Delayed employees contribution towards PF - whether contribution remitted before the due date of filing of the return u/s.139(1) - HELD THAT:- This issue is covered by the order of the Hon’ble Madras High Court in the case of Industrial Security & Intelligence India Pvt. Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] in favour of assessee. Disallowance of depreciation on trade mark - HELD THAT:-This issue is covered in favour of the assessee in the assessee’s own case [2019 (10) TMI 828 - ITAT CHENNAI] wherein held that law is settled to the extent that it is outside the domain of the ld. AO to question the necessity of incurring an expenditure. Thus the reasons assigned by the Assessing Officer that the transaction for purchase of trademark are not genuine cannot stand test of the law. Furthermore, it is an settled principle of law that intangible assets such as trademark, goodwill are also qualifies for depreciation at prescribed rates. We do not concur with the views of the lower authorities in disallowing the claim for depreciation on trademark. ‘Cessation of liability’ u/s 41(1) - HELD THAT:- It is clear from the above that the very same AO allowed the write off of M/s.Rocky Marketing (Chennai) Pvt. Ltd., in its hands. Therefore, M/s.Rocky Marketing (Chennai) Pvt. Ltd., has waived off the liability from the assessee’s hand. As per the explanation extracted, supra, the remission or cessation of any liability by a unilateral Act, is covered u/s.41(1) and hence, we do not find any reason to interfere with the order of the Ld.CIT(A). Therefore, corresponding grounds of the assessee fail. Issues Involved:1. Disallowance on advertising expenses and professional expenses including branding expenses for AYs 2007-08 & 2008-09.2. Disallowance of employees' contribution towards PF for AY 2015-16.3. Disallowance of depreciation on trademark for AYs 2007-08 to 2009-10.4. Addition of cessation of liability u/s.41(1) for AY 2015-16.Detailed Analysis:1. Disallowance on Advertising and Professional Expenses:The assessee contested the disallowance of advertising and professional expenses, including branding expenses, for AYs 2007-08 and 2008-09. The Tribunal noted that the issue had already been decided in favor of the assessee for AY 2009-10 in ITA No.675/Chny/2018. The assessee had claimed a deduction for advertisement expenditure, which included branding expenses. The necessity of incurring these expenses was explained as crucial due to the competitive market dynamics. The Tribunal reiterated that the Assessing Officer (AO) is not expected to question the necessity of the expenditure, as it qualifies as business promotion expenditure and is revenue in nature. Consequently, the Tribunal allowed the grounds of appeal for the AYs 2007-08 and 2008-09.2. Disallowance of Employees' Contribution towards PF:For AY 2015-16, the AO disallowed the employees' contribution towards the Provident Fund (PF), despite it being remitted before the due date of filing the return u/s.139(1). The CIT(A) confirmed this disallowance. However, the Tribunal referenced the Hon’ble Madras High Court's decision in the case of Industrial Security & Intelligence India Pvt. Ltd., which favored the assessee. Following this jurisdictional precedent, the Tribunal held that the disallowance was not warranted and allowed the assessee's appeal on this issue.3. Disallowance of Depreciation on Trademark:The AO disallowed the depreciation on the trademark, questioning the genuineness of the transaction involving the purchase of the trademark from M/s. Univercell Telecommunications India Pvt. Ltd. The CIT(A) upheld this disallowance. The Tribunal, however, referenced its earlier decision in the assessee's own case for AYs 2007-08 to 2009-10, where it was established that the transaction was genuine. The Tribunal emphasized that the AO cannot question the necessity of the expenditure and that intangible assets such as trademarks qualify for depreciation. Thus, the Tribunal allowed the grounds of appeal for the relevant assessment years.4. Addition of Cessation of Liability u/s.41(1):The AO added Rs. 6,30,40,743/- as cessation of liability u/s.41(1), which was written off as bad debts by M/s. Rocky Marketing (Chennai) Pvt. Ltd. The CIT(A) upheld this addition, stating that the write-off by the creditor indicated a cessation of liability. The Tribunal referenced Explanation-1 to Sec.41(1), which includes the remission or cessation of any liability by a unilateral act, such as writing off the liability in the accounts. Since the same AO had allowed the write-off in the creditor's hands, the Tribunal found no reason to interfere with the CIT(A)’s order and dismissed the corresponding grounds of the assessee.Conclusion:- The appeals for AYs 2007-08 and 2008-09 regarding advertising and professional expenses were allowed.- The appeal for AY 2015-16 regarding the disallowance of employees' contribution towards PF was allowed.- The appeal regarding the disallowance of depreciation on the trademark was allowed.- The appeal regarding the addition of cessation of liability u/s.41(1) for AY 2015-16 was dismissed.Final Order:The appeals in ITA Nos.967 & 968/Chny/2019 for AYs 2007-08 & 2008-09 were allowed, and ITA No.969/Chny/2019 for AY 2015-16 was partly allowed.