TaxTMI 
TaxTMI 
2015 (7) TMI 560
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.... the assessee in ITA No. 4287/Del/2010 are as follows: i. That the order of the Commissioner of Income Tax (Appeals) {CIT(A)} in so far as in prejudicial to the appellant, is bad in law and deserves to be set aside. ii. That the ld. CIT(A) grossly erred in law in not allowing the brand registration expenses of Rs. 1,279,500/- as revenue expenditure for the year under consideration and in limiting the allowance of such expenditure only to 1/5th of such expenditure. iii. That the ld. CIT(A) grossly erred in law in holding such brand registration expenses to be capital in nature and holding that on account of such expenses the assessee would continue to derive benefit over a number of years. iv. That the ld. CIT(A) completely erred in not appreciating that the assessee was mandatorily required to register its brand under in various states every year in order to sell in such states and there was no enduring benefit which arose from such expenditure. v. That the ld. CIT(A) grossly erred in sustaining the addition of Rs. 1,401,233/- on account of provision for transit breakages. vi. That the ld. CIT(A) grossly erred on facts in not appreciating that the breakages were bound to happ....
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.... years, namely, 2007-08 and 2008-09. 5. Facts in brief are that the appellant is a company incorporated under the Companies Act, 1956. It is a subsidiary of Pernod Ricard India Pvt. Ltd. (PRIPL), Barakhamba Road, New Delhi and the main holding company is Pernod Ricard SPA France. The appellant is engaged in the business of manufacturing and sale of grain neutral spirit (GNS). The appellant filed its return of income on 30.11.2006 declaring total income at Rs. 1,18,85,38,845/-. The return was processed under section 143(1) of the Income-tax Act, 1956 (for short "the Act") and thereafter the case was selected for scrutiny. The assessment was completed on 16.12.2009 under Section 143(3) of the Act at a total income of Rs. 1,29,53,57,400/- after making several disallowances to the tune 10,68,18,564/-, addition on account of provision of transit breakage Rs. 14,01,233/-, on account of depreciation Rs. 25,27,254/-, on account of brand registration Rs. 12,79,500/- and on account of brand expenses Rs. 10,16,10,577/-. Being aggrieved, appeal was preferred by the appellant before the CIT(A)-XI, New Delhi, who vide order dated 16th August, 2010 partly allowed the appeal. Hence, the appellant....
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....wed by the Assessing Officer on the ground that they were capital in nature. The CIT(Appeals) however noted that these expenses were for fees required to be paid for as per state excise law for registration of the brand and allowed a sum of Rs. 1,90,000/- by holding the same as revenue in nature. He, however, confirmed a disallowance of Rs. 2 lacs since the receipts for such amount had not been produced. 13. Before us also, the assessee has not produced any evidence. In these circumstances, we uphold the disallowance and the order of the CIT(Appeals). Accordingly, this ground is dismissed." 8.3 Respectfully following the decision of this Tribunal in the appellant's own case for the assessment year 2002-03, we allow this ground of appeal filed by the assessee. 9. Ground no. 3 relates to the disallowance of provision for transit breakages of Rs. 14,01,233/- for AY 2006-07, Rs. 27,74,953/- for AY 2007-08 and Rs. 17,39,806/- for AY 2008-09. During the years under consideration, the appellant claimed aforesaid amounts as provision for transit breakages and shortages. It was explained during the course of assessment proceedings that the transit breakage and shortage represented the ....
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....the chart aforesaid, we however find that the provision is without any basis much less the scientific one. This is evident by the fact that the assessee itself has reversed the provision on the first day of next year. In any case, even the expenditure claimed by the assessee stood at Rs. 2,874/- only as against the provision made by the assessee at Rs. 6,40,338/-. In the assessment year 2002-03, as against the provision of Rs. 10,46,164/- the actual expenditure was Rs. 5,33,376/-, in assessment year 2003- 04 the expenditure was Rs. 19,45,425/- as against the provision of Rs. 25,60,802/- and in assessment year 2004-05, the expenditure was Rs. 40,27,830/- as against the provision of Rs. 42,75,111/-. In each year, the provision is excessive. It may also be noted that the assessee came into existence in these years and has no experience of its own to enable it to estimate the expenditure to make the provision on scientific basis. The contention of the learned counsel of the assessee that the provision was made on the experience of sister concern which was in the same line of business for pretty long time has no legs to stand. The reference of details of transit breakage, as found in an....
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....resents mostly actual breakages and this system of accounting is being followed continuously by the appellant. The Hon'ble Apex Court in the case of Rotrok Controls (India) Pvt. Ltd. (supra) held as follows vide para 18: "At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. [1959] 37 ITR 66 (SC) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialised) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. [1959] 37 ITR 66 (SC) was restricted to an individual retiree. On the other hand, the case of Metal Box Company of India [1969] 73 ITR 53 (SC) pertained to an army of employees who were due to retire in future. In that case the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worke....
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....hat the liability under the "long service award" scheme of the assessee is contingent as the payment under the same scheme is dependent on the discretion of the management is a submission which deserves to be rejected at the threshold. It is well settled that if a liability arises within the accounting period, the deduction should be allowed though it may be quantified and discharged at a future date. Therefore, the provision for a liability is amenable to a deduction if there is an element of certainty that it shall be incurred and it is possible to estimate the liability with reasonable certainty even though the actual quantification may not be possible as such a liability is not of a contingent nature. See Bharat Earth Movers vs. CIT [2000] 245 ITR 428. The principles enunciated above have been applied by the Supreme Court also in the case of Metal Box Company of India Ltd. Vs. Their Workmen [1969] 73 ITR 53 wherein the Supreme Court was considering the question whether estimated liability under gratuity schemes were amenable for deduction from gross receipts shown in the profit and loss account. The observation of the Supreme Court being pertinent are extracted herein below (pa....
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....eir Workmen [1969] 73 ITR 53. In view of the aforesaid decisions and given the fact that the provision was estimated based on actuarial calculations, we are of the opinion that the deduction claimed by the assessee had to be allowed. We find no fault with the reasoning of the Tribunal. No substantial question of law arises for our consideration." 9.3 The principle that emerges from the above decisions is that if the provision is made on scientific basis and can be estimated such provision can be allowed as a deduction. Applying this principle to the facts of the case, even in this case the provision was made based on past experience and the actual damages were taken into account immediately after the goods reached the destination which means that the provision was made only in respect of goods which were under dispatch as at the end of the year. This provision was made based on the past experience. Therefore, the provision had been made on some basis. Therefore, based on the ratio laid down in the above cases, the provision is allowable as a deduction. 10. Ground no. 4 relates to restricting the allowance of brand expenses to the tune of Rs. 10,16,10,577/- to only 1/5th of such ....
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....e expenditure incurred placed at pages no. 76 to 79 of the paper book. From the details, it is clear that the expenditure is incurred only towards sales promotion and on advertisement issued. The issue whether the advertisement expenditure is revenue or capital is adjudicated by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Monto Motors, 206 TAXMAN 43 (Del.) vide para 4, which is reproduced below: "Advertisement expenses when incurred to increase sales of products are usually treated as a revenue expenditure, since the memory of purchasers or customers is short. Advertisements are issued from time to time and the expenditure is incurred periodically, so that the customers remain attracted and do not forget the product and its qualities. The advertisements published/displayed may not be of relevance or significance after lapse of time in a highly competitive market, wherein the products of different companies compete and are available in abundance. Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration. No permanent character or advantage is achieved and is palpable, unless special or specific facto....
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....and expenses i.e. Rs. 2,03,22,115/- for the period under consideration and to disallow balance amount of Rs. 8,12,88,462/- which could be spread over by the appellant for the four successive years subject to other provisions of the Act. vi. The appellant craves to amend modify, alter, add, or forego any ground of appeal at any time before or during the hearing of this appeal. 12. The first ground raised by the Revenue is pertaining to restricting the claim of depreciation on account of reducing WDV on account of not claiming depreciation in the assessment year 2000-01. The assessee claimed depreciation of Rs. 25,27,254/- for AY 2006-07; Rs. 21,68,161/- for AY 2007-08 and Rs. 18,61,471/- for AY 2008-09. The Assessing Officer adopted WDV after notionally allowing the depreciation for the years in which no claim for depreciation was made. On appeal before CIT(A), the claim for depreciation was allowed placing reliance on the decision of Hon'ble Tribunal in the assessee's own case in ITA No. 2532/Del/2006, dated 16th March, 2009. Against this, the Revenue is in appeal before us. 12.1 It was submitted before us that the issue is no longer res integra as the Hon'ble Delhi High Court i....