AI Drafter 
TaxTMI 
TaxTMI 
2012 (4) TMI 762
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....ss to the detabase and infrastructure of Kinetic Finance Ltd., on the basis that the expenditure provides an enduring benefit to the appellant and hence is capital in nature. 2) That the ld. CIT(A) has erred both on facts and in law in sustaining disallowance of expenditure amounting to Rs.29,76,461/- in respect of realignment expenses. 2.1) That the ld. CIT(A) has erred both on facts and in law in sustaining the disallowance on the premise that the expenditure is not recurring in nature and provides enduring advantage to the appellant. 2.2) That the ld. CIT(A) has erred in not appreciating the fact that realignment expenses represent routine advertisement expenditure and are not in the nature of re-branding exercise carried out by the appellant. 3) That the orders passed by the Assessing Officer and the CIT(A) in reference to above grounds of appeal is bad in law. The appellant prays for leave to add, alter, rescind from or withdraw any of the above grounds of appeal at or before the hearing of the appeal". I.T.A. No.2688/D/2010[Assessee-AY 2004-05] 1) "That the ld. CIT(A) has erred both on facts and in law in sustaining dis....
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....ch expenditure. 3) The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,62,83,282/- made on account of nonconvertible debentures and commercial paper issue expenses ignoring the fact that such expenditure was relevant for a period of 5 years. 4) The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 8,68,76,973/- made on account of capitalization of loan acquisition fee without considering the fact that these expenses should be amortized over the tenure of loans given by the assessee in the same way as is done in the books, by the assessee. 5) The learned CIT(A) erred in law and on facts in deleting the addition of Rs. 20,37,34,458/- made on account of capitalization of direct selling agent commission expenses without considering the fact that these expenses do not have a chargeability to the year in which these are incurred and have a direct bearing over the tenure of the loan period. 6) The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.7,29,73,000/- made on account of loss on sale of repossessed assets ignoring the fact that the repossessed assets do not constitute assess....
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.... facts in deleting the addition of Rs. 54,51,474/- made on account of disallowance of extra depreciation claimed by the assessee on computer accessories, ignoring the fact that as per Income Tax Rules only computers accessories, ignoring the fact that as per Income-Tax Rules only computers and computer software are eligible for depreciation of 60%, the same cannot be extended to computer accessories and peripherals. 7) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." I.T.A. No.5514/D/2010[ Revenue-AY 2005-06] 1) "On facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.25,30,57,276/- on account of capitalization of advertisement, publicity and sales promotion expenses ignoring the fact that benefit of enduring nature was drawn by the assessee. 2) On the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.6,56,68,462/- made on account of capitalization of leasehold improvement expenses ignoring the fact that benefit of enduring nature was drawn by the as....
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....(2) of the Act, issued on 15.10.2004. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee debited an amount of Rs. 12,46,86,000/- on account of advertisement, publicity and sales promotion expenses. Since in the AYs 2001-02 and 2002-03, the AO spread over the advertisement expenses over a period of 5 years, to a query by the AO as to why advertisement and publicity expenses be not spread over a period of 5 years in the year under consideration, the assessee replied that the said expenditure is revenue in nature incurred for the purpose of their business purpose. However, the AO did not accept the submissions of the assessee and relying on his own findings in the AYs 2001-02 and 2002-03 as also decision of Hon'ble Supreme Court in Madras Industrial Development Corporation Vs. CIT 225 ITR 802(SC) allowed only 1/5th of these expenses in the AY 2003-04 and disallowed the remaining amount of Rs. 9,97,48,800/-. 2.1 Similarly in the AY2004-05, following his findings for the preceding assessment years, the AO allowed only 1/5th expenses of Rs. 17,35,40,000/- and disallowed the remaining amount of Rs. 13,88,32,000/- while in the AY....
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....ement and publicity have to be allowed in full as revenue expenditure during the year under consideration. Therefore, the disallowance made by the Assessing Officer in assessment order, amounting to Rs. 9,97,48,800/- for assessment year 2003-04 and Rs. 13,88,32,000/- for assessment year 2004-05, in this regard are deleted." 5. It is further seen that in a combine order in assessee's own case for the assessment year 2001-02 and 2002-03, the Hon'ble Tribunal at pages 9 to 12 has held as under: "23 We have carefully considered the submissions and perused the records. We find that the said advertisement expenditure has actually been incurred during the year. The nature of expenditure does not fall under the ambit of preliminary expenses as envisaged u/s 35D of the Act. When the expenditure was incurred and there is nexus between the expenditure and the assessee's business, we do not see any reason why the entire expenditure should not be allowed in full during the concerned year. The case laws from Jurisdictional High Court in Salora International case cited above referred by the learned counsel of the assessee duly supported the case that when expenditure and assesse....
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....ain expenditure on advertisement were actually expenditure u/s 35D and Hon'ble High Court had noted that the Tribunal had found the expenditure incurred under the various heads were necessary for marketing the products and Hon'ble High Court found that terms 'survey' mentioned in section 35D(2)(a)(iii) and compass the same. However, in the present case we find that no case has been made that the nature of advertisement in this case comes under the term of survey. Moreover, the jurisdictional High Court on identical subject in CIT Vs. Salora International Ltd. 308 ITR 199 has held that expenditure of such nature has to be allowed as a whole. 24.3 In the background of the aforesaid discussion and precedent, we set aside the orders of authorities below and decide the issue in favour of the assessee. 6. It is crystal clear that the Hon'ble Tribunal has given a decision in favour of the assessee. The decision of the Tribunal is binding on me and, therefore, the assessee deserves to succeed in ground of appeal No.2 and its part." 4. The Revenue is now in appeal before us against the findings of learned CIT(A).The ld. DR supported the orders of the AO. On the other ha....
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....referred to this 'matching concept'. It was held that ordinarily revenue expenditure incurred wholly or exclusively for the purpose of business, can be applied in the year in which it is incurred. However, the facts may justify spreading the expenditure and claiming it over a period of ensuing years, where allowing the entire expenditure in one year could give a very distorted picture of the profits of a particular year. One such instance was issuing debentures at discount. The Supreme Court was of the opinion that though in such cases the assessee had incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure the benefit over a number of years. There was a continuing benefit to the assessee of the company over the entire period and, therefore, the liability was to be spread over the period of debentures. 10. We are unable to persuade ourselves by the aforesaid submission of the learned counsel for the Revenue. Identical argument was taken by the Revenue in IFCI (supra). Explaining the ratio of Supreme Court in Madras Industrial Investment Corpn. Ltd. (supra), the argument of the Revenue was rejected in the following man....
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....it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. Commissioner of Income-Tax, Calcutta-I (1983) 144 ITR 474 = (2003-TIOL- 137-HC-KOL-IT), the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." Thus, the first thing which is to be noticed is that though the entire expenditure was incur....
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.... to revenue". However, cautioned the Court, it would be misleading to suppose that in all cases securing a benefit for business expenditure would be capital expenditure. The Court added the caution in the following words:- "There may be cases where expenditure, even if incurred for obtaining advantage, of enduring benefit, may, none-the-less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assesses that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore not a certain or conc....
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.... as capital in nature. To a query by the AO, the assessee explained that the said expenditure was incurred on laying of cables, electrical connections, installation PVC conduits, CATs, sanitary fittings, partitions & pin boards, civil works, brick work, water proofing, flooring, false ceiling, wall finishes, toilet furnishings, painting, earthling, switches &,glazing on ventilators, and all these items are in the nature of revenue expenses. Since there was no expenditure on addition or extension of building in the leased premises, expenditure could not be capitalized, the assessee pleaded. However, the AO did not accept the submissions of the assessee in the light of explanation 1 to sec. 32(1) of the Act and while relying upon decisions in CIT vs. Indian Metal & Metallurgical Corporation,141 ITR 40(Mad.),CIT vs.Lake Palace Hotels & motels (P) Ltd.,131 ITR 836(Raj.),M.Subbiah Nadar vs. CIT,23 ITR 58(Mad.),CIT vs. Chandra Agro Pvt. Ltd.,117 ITR 251(All.),Addl. CIT vs. Lawly Enterprises (private) Ltd.,100 ITR 369(Pat.)& Mysore Minerals Ltd. vs. CIT,239 ITR 775(SC),disallowed the claim of expenditure of Rs. 1,90,35,562/- and allowed depreciation @10% thereon. . 6.1 Similarly, the A....
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....has been contended by the revenue that details of expenses were not produced before the Assessing Officer. 38. On the other learned counsel of the assessee contended that the details were duly produced and the Assessing Officer has chosen to ignore the same. However, he submitted that the learned CIT(A) has duly considered the same and gave a finding that the amount involved is allowable as revenue expenditure, hence he argued that the learned CIT(A)'s order should be upheld. 39. We have carefully considered the submissions, we find that the learned CIT(A) has given a categorically finding that the assessee has duly produced all the necessary details and that the assessee has duly identified the capital portion of the expenditure incurred and the amount on the improvements expenses which were of revenue in nature. We also find that it is a settled law that powers and duties of the CIT(A) are co-terminus with that of Assessing Officer. Hence, in our considered opinion, there is no need to interfere with the finding of the learned CIT(A). Accordingly, we uphold the same." 11. Once the Hon'ble Delhi Tribunal has decided in favour of the assessee. I have no o....
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....ideration are similar to the facts and circumstances in the AYs 2001-02 & 2002-03.We find that Hon'ble jurisdictional High Court in their aforesaid decision dated 30th March, 2011 while adjudicating a similar issue in the AYs 2001-02 and 2002-03 concluded as under:- "20. The argument of Mrs. Bansal was that the nomenclature of items of expenditure namely sanitary, fittings, civil works, brickworks, flooring etc. would clearly show that this expenditure could be capital in nature. Her grievance was that the CIT (A) or the Tribunal did not go into this question at all and simply accepted the bifurcation given by the assessee in capitalizing the portion of the expenditure and treating the part of the expenditure as revenue. Her plea, therefore, was that the matter be remitted back to the AO. She conceded, at the same time, that even the AO had not done this exercise. It is clear that the Assessing Officer had not gone into the question as to whether the expenditure incurred on leasehold improvements was capital or revenue in nature. A large number of premises are taken on lease by the assessee throughout the country and expenditure on improvements of these lease premises was ....
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....oreclosure. The assessee followed international accounting standard FAS 91 on 'accounting for non-refundable fees and cost associated with originating or acquiring loans and initial direct costs of leases' and in the tax return, the amount debited in the profit and loss account has been added back and actually incurred by the assessee was claimed as revenue expenditure. DSA commission being one time cost payable in the year in which the loan was given to the borrower and being non-refundable, was allowable in the year under consideration, the assessee argued. However, the AO did not accept the submissions of the assessee and following his decision for the AY 2001-02 & decision of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. CIT,225 ITR 802, concluded that the nature of the expense was such that the benefit being for a number of years, the expenditure has to be spread to number of years. Accordingly, while allowing only 1/3rd of the total DSA commission ,disallowed the remaining amount of Rs. 20,37,34,458/- 10.1 Similarly, in the AYs 2004-05 and 2005-06, the AO allowed only 1/3rd of the expenses out of DSA Commission and disallowed an amount of R....
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....cordingly. As such we accept the Id. counsel of the assessee's contention that there is no issue before us as to whether there is a nexus between amount paid as commission and the disbursement of loan in the concerned year. Hence, the reliance of the DR on the above said Tribunal decision is not applicable. 30.1 Now in this case, we find that the expenditure has actually been incurred by the assessee in the impugned financial years. The commission become due and payable to the agents as soon as the business is procured by them. Under no circumstances, the amount is liable to be returned to the assessee. It is also evident from the documents regarding AO's enquiry and assessee's response that A0 has duly examined the aspect and found that in the current period the amount paid as commission is not at all linked with the loan disbursement during the year. It is also evident that amount paid as commission in a particular year can in not way be claimed as refund by the assessee under any circumstances, even if the amount financed is forfeited. We also find form the orders of the authorities below and in the written submission filed by the assessee before them that n....
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....ure of transaction. This proposition duly draws support from Hon'ble Apex Court decision in 227 ITR 172 in the case of Tuticorin Alkali Chemicals Vs. CIT. 30.2 It will also be apt to refer to the decision of the Hon'ble Apex Court in the case of CIT vs. Associated Cement Companies Ltd. in 172 ITR 257 wherein the facts are as under:- "The respondent company, a manufacturer of cement, was running a cement factory at Shahabad. The then Government of Hyderabad included the factory premises within the limits of Shahabad Municipality. A tripartite agreement was entered into between the government, the municipality and the respondent company, whereby the company undertook (i) to supply water to the municipality and provide water pipelines, (ii) to supply electricity for street lighting in the municipality and put up a transmission line therefore, and (iii) to concrete the main road from the factory to the railway station. In return, the respondent was not liable to pay municipal rates and taxes for a period of 15 years. During the previous year relevant to the assessment year 1959-60, the respondent spent a sum of Rs. 2, 09, 459/- towards installing water pipelin....
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.... on an application of this test. It is advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." Now in the instant case before us, we find that expenditure which have been made in the concerned years were paid to the selling agents for sourcing the customers from whom the assessee had generated the income by way of granting of loan finances. The amount paid as commission is not refundable in any circumstances. Undisputedly income in this regard has been accounted for in the current years also. Under such circumstances, examining the present issue on the anvil of Hon'ble Jurisdictional High Court decision and Hon'ble Apex Court decision cited above, we find that the expenditures on commission and stamping fee have to be allowed in full in the impugned assessment years as deferral of the same over a number of year is not sustainable. Under such circumstances, we set aside t....
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....see enters in the loan agreements of hire purchase which agreements are required to be stamped in accordance with the provisions of Indian Stamps Act. The stamp duty paid by the assessee is debited to agreement stamping fee under the major head of "rates and taxes_ and is claimed as revenue expenditure. This entire process of getting stamped the agreements had been outsourced by the assessee to the Contract Processing Associates (CPA) and who are paid remuneration as well. Therefore, the expense towards stamping as well as commission paid to the agents is debited in whole in the year in which it is incurred and could not be treated as advertisement expense. 16. The CIT (A) was unimpressed with this argument and found that the assessee was spreading over the income during the number of years that the financing is spread over and, therefore, expenditure on the aforesaid counts was required to be spread over. The ITAT, however, denounced this reasoning of the CIT (A) and accepted the plea that the expenditure incurred had nothing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it ....
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....essee explained that the amount was revenue expenditure as the assets repossessed were not their business assets and represented the security held for realization of dues from the borrower. The vehicles/other assets financed by the assessee originated from the business activities of the company and were never capitalized in their books nor depreciation was claimed. Thus, loss incurred was not a capital loss, the assessee submitted. However, the AO did not accept the submissions of the assessee and while relying upon the decision of the Hon'ble Allahabad High Court in the case of Motor and General Sales (P) Ltd. Vs. CIT,226 ITR 137(All.) disallowed the claim for loss on sale of repossessed assets. 14.1 Similarly, the AO disallowed an amount of Rs. 7,37,84,000/- in the AY2004-05 and Rs. 6,04,25,724/- in the AY 2005-06 while relying upon aforesaid decision of Hon'ble Allahabad High Court in Motor and General Sales (P) Ltd. Vs. CIT, 226 ITR 137 (All.). 15. On appeal, the ld. CIT(A) allowed the claim of the assessee in the AYs 2003-04 & 2004-05 while relying upon decision of the ITAT in assessee's own case for the AY 2002-03 in the following terms:- "19 I have gone throug....
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.... already decided on the issue in the assessee's group case file. The arguments as taken by the learned Assessing Officer are the same as that of assessee's own case during the subject year. Thus, the assessee deserves to succeed in ground of appeal No.6. While adjudicating this issue, the learned AR of the assessee had submitted that the case stands decided in favour of the assessee in the assessment year 2002-03, which to my mind is an inadvertent error as I have gone through the order of the Tribunal and the issue was not even a part of ground of appeal. In the final analysis assessee succeeds in ground of appeal No.6." 16. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the orders of the AO. On the other hand, the ld. ld AR on behalf of the assessee while inviting our attention to order dated 9th October, 2009 of the ITAT in assessee's own case for the AY 2002-03 , upheld by the Hon'ble High Court in their order 4.03.2011 in I.T.A. no.451/2011 contended that the issue is squarely covered by the said decision. The ld. AR added that SLP no.3125/2011 filed by the Revenue against the decision dated 4th March, 2011 of th....
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....able because of change in law as we have noted that section 36(1)(vii) of the Act has been amended w.e.f. 1.4.1989. We, therefore, decide this issue also in favour of the assessee." 17.1 Subsequently, Hon'ble High Court in their order 4.03.2011 in I.T.A. no.451/2011 upheld the aforesaid decision of the ITAT in the light of view taken by the Hon'ble High Court in their decision dated 9.11.2010 in CIT vs.Citicorp Maruti Finanace Ltd in ITA nos. 1712&1714/2010 ,holding that the assessee was entitled to loss on sale of repossessed assets under section 36(1)(vii) read with section 36(2) of the Act. 17.2 In the light of aforesaid view taken by the Hon'ble jurisdictional High Court, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.6 in the appeal of the Revenue for the AY 2003-04 and ground no.5 in their appeals for the AYs 2004-05 and 2005-06 are dismissed. 18.. Ground no.7 in the appeal of the Revenue for AY 2003-....
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....he assessee in view of Delhi High Court decision in CIT Vs. BSES Rajdhani Powers Ltd. in I.T.A. No.1266/2010. This was decided on 31.08.2010. In para 3 & 4 it was held as following: "However, upon a perusal of the file, we find that the higher rate of depreciation was allowed both by the CIT(A) and the Tribunal. In fact, the Tribunal in its impugned order has observed as under:- "The issue involved in this appeal is covered by the decision of Coordinate Bench of the Tribunal as discussed below:- In the case of Income Tax Officer Vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.), ITAT Tata Bench 'B', has taken a view that the printer and scanner are integral part of the computer system and are to be treated as computer for the purposes of allowing higher rate of depreciation, i.e., 60%. 3.2 The ITAT, Delhi 'F' Bench in the case of Expeditors International (India) (P) Ltd. Vs. learned CIT(A) reported in (2008) 118 TTJ 652 has held that peripherals such as printer, scanners, NT Server, etc. form integral part of the computer and the same, therefore, are eligible for depreciation at the rate of 60% as applicable to a computer. 4. Respectfully fo....
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....nternational India (P) Ltd. vs. Addl, CIT ,118 TTJ(Del.) 652 The Mumbai Special Bench in their decision dated July 9, 2010 in DCIT v. Datacraft India Ltd., in ITA nos. 7462 & 754/Mum/2007, held that routers and switches are to be included in the block of `Computer' entitled to depreciation at the rate of 60%. In another decision dated 9.11.2010, Hon'ble Delhi High Court in CIT vs. Citycorp Maruti Finance Ltd. in ITA nos. 1712& 1714/2010 followed their own decision in BSES Yamuna Powers Ltd.(supra) and upheld the view of the ITAT, allowing depreciation @60% on computer accessories and peripherals like printers etc. .A similar view was taken in Bonanza Portfolio Ltd.(supra) by the Hon'ble jurisdictional High Court in their decision dated 10.8.2011. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A),allowing depreciation @60% on computer peripherals and accessories. Therefore, ground no.7 in the appeal of the Revenue for the AY 2003-04 and ground no.6 in their ....
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....o. Ltd. Vs. CIT (Central)(1971), 82 ITR 363(SC); Sutlej cotton Mills Ltd. Vs. CIT 116 ITR (SC); and CIT Vs. Messrs. Shoorji Vallabhdas and Co. 46 ITR 144.In the light of these submissions, the ld. CIT(A) allowed the claim of the assessee in the AY 2003-04,holding as under: "10. I have gone through appellant's submission and judicial rulings cited by the appellant in this regard. The appellant's case is squarely covered by the decision of the Humble Supreme Court in the case of India Cements (supra) and Hon'ble Delhi High Court's decision in the case of Thirani Chemicals. Accordingly, the expenditure on issue of NCD and CP is allowable in full in the year in which the same were incurred and cannot be spread over a number of years. The disallowance made by the Assessing Officer in assessment order amounting to Rs.1,62,83,282/- for assessment year 2003-04 is, therefore, deleted." 23.1 Similarly, in the AY 2005-06, the ld. CIT(A) allowed the claim in the following terms: "38. I have gone through the order of the learned Assessing Officer and the submissions made by the learned AR of the assessee. There is no doubt that the non convertible debentures (NCD) and the c....
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.... have been amortising the same over the expected time period over which the benefits are likely to accrue therefrom. Accordingly, only a proportion of such expenditure is amortised in the Profit and Loss Account but an appropriate adjustment is made in the computation of income, claiming the entire as allowable revenue expenditure in terms of provisions of section 37(1) of the Act. The expenditure which is treated as deferred revenue in the books almost in all cases comprises of items, the benefits derived wherefrom are ephemeral and transitory in nature in as much as these are incurred as a part of a continuous process and need to be expended in order to generate and increase the brand recall and sustain it in the minds of customers. Whether or not expenditure is of enduring nature, the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 has itself observed that "The idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions ; nor are the notions of "capital" or "revenue" a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must....
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....ich is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years". 25.3. Another argument by the ld. DR is the variation and dichotomy between the accounting treatment of such expenditure in the books of account and its claim under the Act. As far as the entries in the books of account are concerned, it is well settled that they do not clinch the issue either way, and are not determinative of the allowability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and in the case of CIT v. Indian Discounts Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue. The accounting entries in the books of accounts are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per ....
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....l of the company, the expenditure should also be construed as capital expenditure. The Hon'ble Supreme Court rejected this contention and held that the debentures were loans and the object of a loan was not relevant. Accordingly, it was concluded that expenses on issue of debentures, whether convertible or not, is allowable as a deduction in computing the income of the assessee. 25.7 In view of the foregoing, especially when the Revenue have not brought to our notice any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.3 in the appeal of the Revenue for the AY 2003-04 and ground no.7 in their appeal for the AY 2005-06 are dismissed. 26. Ground no.4 in the appeal of the Revenue for the AY 2003-04 and ground no.3 in their appeals for the AYs 2004-05 and 2005-06 relate to expenditure incurred in connection with advancing of loan to customers. The AO, during the course of assessment proceedings for the AY 2003-04, noticed that the assessee company claimed loan acquisition cost of Rs. 13,03,15,460/- as revenue expenditure and changed the accoun....
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....ture and disallowed Rs. 11,38,85,144/- out of total of Rs. 17,08,28,717/- in the AY 2004-05 and allowed only Rs. 14,33,75,323/- and disallowed remaining Rs. 28,67,50,647/- out of total expenditure of Rs. 43,01,25,970/- in the AY 2005-06. 27. On appeal, the ld. CIT(A) allowed the claim of the assessee in the AYs 2003-04 and 2004-05,holding as under: "12. I have gone through the submissions given by the appellant and have examined the matter in details. The appellant has deferred both loan acquisition costs and loan processing fees in the books of accounts because of the accounting policy followed by the appellant. However for tax purposes, it has offered loan processing fees (Income) for tax and has claimed loan acquisition costs as expense in the year of accrual. The Assessing Officer has accepted the taxation of loan processing fees as income on upfront basis but at the same time has allowed loan acquisition costs on a deferred basis over a period of three years. This treatment by Assessing Officer is inconsistent. The Assessing Officer cannot take a different stand relating to income and expenditure on the same issue. It is also a well settled principle that treatment....
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....e AY 2003-04 and ground no.7 in their appeal for the AY 2005-06 ,the concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act. The relevant provisions of the Act recognise only capital or revenue expenditure. Indisputably, the amount claimed by the assesee in these three assessment years is revenue in nature. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written-off over a period of time e.g. expenditure on advertisement, sales promotion etc.. There is no material before us to infer that the aforesaid expenditure resulted in creation of any capital asset, tangible or intangible, and thus, the question of treating the same as capital expenditure does not arise. In fact, the Hon'ble Supreme Court itself in Madras Industrial Investment Corporation Limited(supra) while discussing the issue, in the said case, and distinguishing between various situations observed that "ordinarily, revenue expenditure which is incurred wholly and exclusively for the p....
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....s.Rs. 5 crores. 31 On appeal, the ld. CIT(A) upheld the disallowance made by the AO, in the following terms: "16. I have gone through the submissions made by the appellant and the reasons given by the Assessing Officer in the assessment order for treating the expenditure as capital in nature. In this case, I find that the appellant has paid Rs. 5,00,00,000/- to KFL to get access to database of KFL and for right to use the infrastructure of KFL for the expansion of its business. The issue whether the nature of expenditure is revenue or capital is a question of both facts and law. It is settled law that if the expenditure results in bringing into existence a new asset or advantage of enduring nature, the same is to be treated as capital expenditure. In the facts and circumstances of the instant case, I find that the expenditure incurred by the appellant would result in providing the appellant a new and added advantage for the purpose of expansion of its business activities. It is not in doubt that the said advantage is of an enduring future which will provide benefits to the appellant to acquire new clients and expand its business by using the database and infrastructure ....
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....e assessee gained is only business and commercial advantage in its trading operations which enables the assessee to carry on operations more efficiently and profitably. Thus , the expenditure was revenue in nature, the amount having been paid for gaining business opportunity. 33. On the other hand, the ld. DR supported the findings of the ld. CIT(A). 34. We have heard both the parties and gone through the facts of the case. We find that in the paper book, the assessee placed a copy of agreement entered in to on 8.11.2002[pg. 51 to 96 of PB]. The impugned order as also the assessment order is silent with regard to terms and conditions envisaged in the agreement. In terms of this Master SPV Agreement entered in to on 8th day of November, 2002 between the assessee and M/s Kinetic Engineering Ltd.; Kinetic Motor Company Ltd.;& Kinetic Finance Ltd. , it was agreed to establish a Special Purpose Vehicle ('SPV') in order to set out an arrangement to provide convenient financing arrangements for customers of the Kinetic Groups two wheelers, for KFC to leverage their existing infrastructure, including for other products and for AIFS to leverage off the distribution strengths of the Gr....
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....of the Act mandates that the order of the CIT(A) while disposing of the appeal shal l be in wr it ing and shal l state the points for determinat ion, the decision thereon and the reasons for the decision. The requi rement of recording of reasons and communicat ion thereof by the quasi- judicial authorit ies has been read as an integral part of the concept of fair procedure and is an important safeguard to ensure observance of the rule of law. I t introduces clarity, checks the int roduct ion of extraneous or ir relevant considerat ions and minimizes arbit rariness in the decision-making process. Hon'ble jurisdictional High Court in their decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman423(Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a 'decision' does not merely mean the 'conclusion'. I t embraces within its fold the reasons forming basis for the conclusion. [Mukht iar Singh Vs. State of Punjab,(1995)1SCC 760(S....
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....nses incurred on the rebranding exercise carried out by the assessee company is not a recurring exercise and provide enduring advantage to the assessee company .Accordingly, the AO disallowed the aforesaid amount of Rs. 29,76,461/-,trating the same capitalin nature 35.1 For similar reasons, the AO disallowed an amount of Rs. 1,05,94,000/- in the 36. On appeal, the ld. CIT(A) upheld the disallowance in the AYs 2003-04 & 2004-05,in the following terms; ""21. I have gone through the submissions made by the appellant in this regard. In my view, the aforesaid expenditure incurred by the appellant has resulted in the creation of brand name of the appellant company and making it part of the global brand of Citygroup. There is no doubt that this exercise of rebranding from "Associates India Finance Services Ltd." and again aligning the same to the security system and other parameters of Citygroup and use of the logo of Citygroup in the appellant company's advertisements has created a new and added advantage and enduring benefit to the appellant company for expanding its business and that such benefit will accrue to the appellant company for a number of years. It is settled l....
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....mount of Rs. 76,79,778/- was reversed and credited to profit and loss account under the head 'miscellaneous income' and also claimed as deduction in the computation of income. Accordingly, provision of Rs. 3,16,54,000/- was reduced by Rs. 29,76,461/- and Rs. 76,79,778/- and the balance provision of Rs. 2,09,97,761/- was carried forward to next year. Thus, the AO allowed the claim of Rs. 76,79,778/- by assuming the said sum is the expenditure incurred and is ,thus, allowable, without appreciating that the said sum of Rs. 76,79,778/- was since shown as income and was out of the provision made, which provision was not claimed as a deduction. In fact, effectively, a deduction only of Rs. 29,76,461/- was claimed which represented actual expenditure incurred, whereas the AO, when he allowed the claim as per the computation of income assumed that a deduction of Rs. 76,79,778/- has been allowed without appreciating that in fact, such sum represented only the amount which was included in the profit and loss account and was out of provision made and this provision had not been either claimed as a deduction or allowed as a deduction. Similarly for the AY 2004-05, an amount actually incurred w....
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....darnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and in the case of CIT v. Indian Discounts Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue. The accounting entries in the books of accounts are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per share, impact on share prices etc.. Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT ((1971) 82 ITR 363) (SC) also affirmed the above view by observing that "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter". 39.1. Subsequently the Hon'ble Court re-affirmed the said view in Sutlej Cotton Mills. Ltd. Vs. CIT,116 ITR1(SC) & Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT,227 ITR 172(SC). 39.2 Now whether or not e....
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....es not determine the allowability or otherwise of the item of expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure. The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR 1 ....