M/S. SOUTH SHOURNE CORPORATION (INDIA),,BARODA vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCEL-2(2),, BARODA

The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming the addition of Rs.13,70,000/-made under section 68 of the Act.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming addition of Rs.33,594/- in respect of bad debts written-off.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of sales promotion expenses up to Rs.1,38,014/-being 20% of total expenses out of total disallowance of Rs.3,45,033/- being 50% of total expenses.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming ad hoc disallowance of Rs. 18,318/ being 20% of total vehicle & telephone expenses.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in partly confirming the ad hoc disallowance in respect of travelling and conveyance expenses up to Rs.7,465/- being 10% of total expenses out of total disallowance of Rs. 14,930/- being 20% of total expenses.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming action of AO in treating trademark expenses of Rs.52,000/- as capital expenditure.

The Ld. CIT(A) has erred, both in law and on the facts of the case, in confirming disallowance of interest expenses of Rs.17,404/- under section 36(l)(iii) of the Act.

The Ld. CIT(A) has erred, both in law and on the facts of the case, partly confirming the ad hoc disallowance in respect of factory and welfare expenses up to Rs.23,241/-being 10% of total expenses out of total disallowance of Rs.46,483/-being 20% of total expenses.

Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed in the larger interest of justice.

The Ld. CIT(A) has erred in law and on facts of the case in confirming action of AO in levying interest u/s 234A/B/C of the Act.

The Ld. CIT(A) has erred in law and on facts of the case in confirming action of AO in initiating penalty proceedings u/s 271(l)(c) of the Act. Asstt. Year 2004-05 3

The first issue raised by the assessee is that Ld. CIT(A) erred in confirming the addition of Rs. 13,70,000/- u/s 68 of the Act.

Briefly stated facts are that the assessee is a partnership firm and engaged in the business of Pharmaceuticals. The assessee during the year has taken loans from the parties as detailed under:

1 The assessee claimed that both the parties are non-resident Indians and therefore they do not have any source of income in India.

2 The assessee in support of above loans filed the Xerox copies of the confirmation letters from both the lenders bearing dated 05/03/2004 and 17/02/2004. 4.3 However, the AO observed that the confirmation letters given by the lenders are hand-written by the single person. Accordingly, the AO did not believe the confirmations filed by the assessee. The AO also observed that the assessee failed to furnish the identity, genuineness, and creditworthiness of the lenders. Therefore the AO treated the amount of loan of Rs.13,70,000/- as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee. Asstt. Year 2004-05 4

Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that it had filed confirmations, PAN of the lenders and copies of cheques issued by the lenders. In case of any doubt, the AO could have taken confirmation from the bank. The copies of the cheques issued by the lenders were available with the AO.

1 The assessee also submitted that both the lenders are non-resident Indian and this fact was very much brought to the notice of the AO during the assessment proceedings. Therefore these non-residents Indian maintained NRE account which was used for advancing loans to the assessee.

2 The books of accounts of the assessee were duly audited, and no adverse remark was pointed out by the Auditors regarding the Financial Statements. Therefore there cannot be any question of treating the loan as an unexplained cash credit under section 68 of the Act.

3 The Ld.CIT (A) called for the remand report from the AO who rejected the confirmations letters filed by the assessee vide letter dated 19/03/2013. Ld.CIT (A) after considering the submission of the assessee and remand report of the AO held that the assessee failed to justify the creditworthiness of the lenders and accordingly confirmed the order of the AO.

Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us.

The Ld.AR before us filed a paper book running from pages 1 to 150 and submitted that the bank statement from Bank of Baroda was obtained in Asstt. Year 2004-05 5

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3 Thus, sufficient documentary pieces of evidence about the funds received from the concerned both the people have been placed on record by the assessee.

4 Since certain additional pieces of evidence were furnished, Ld.CIT (A) called for a remand report from AO under which, AO furnished a remand report dated 19/03/2012 which is placed at pages 55 to 58 of the paper book. In such a remand report, the AO has not stated anything worth substance in rebuttal to evidence furnished by the assessee.

5 However, Ld.CIT (A) wrote a letter dated 15/05/2012 to AO stating that it is not good on the part of AO to send a report on the basis of his Asstt. Year 2004-05 6

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7 Ld.AR, stated that section 68 of the Act cast an initial burden on the assessee to prove identity, genuineness, and creditworthiness of lenders which has been discharged by placing on record documentary evidence. Having discharged the initial onus with a satisfactory explanation, onus shifts on the Revenue.

8 It transpires that objection of AO & CIT(A) was also that assessee had not proved a source of such persons to provide loans to the assessee.

9 The Ld.AR further submitted that section 68 of the Act, doesn’t require an assessee to prove the source of the source of deposits. Hence no addition is called for u/s.68 of the Act. The Ld.AR also placed reliance upon the judgment as follows: Asstt. Year 2004-05 7

10 Having furnished the aforesaid details, the concerned credits, by no stretch of imagination, remain unexplained any further in the assessee’s hands. In the light of the above, Ld.CIT (A) ought to have deleted the impugned addition.

On the other hand Ld.DR submitted that assessee failed to prove the creditworthiness of lenders. Therefore the cash credit remained unexplained under the provision of section 68 of the Act. The Ld.DR vehemently supported the order of the authorities below.

We have heard the rival contentions and perused the materials available on record. The assessee in the present case has taken the unsecured loan from 2 parties aggregating to Rs. 13,70,000/- as detailed under:

1 The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under:

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10 We also note that the assessee has taken a loan of Rs. 5,80000/- in the assessment year 2005- 06 from Shri Shushibhai Patel which was not doubted by the Revenue in the assessment proceedings framed under section 143(3) of the Act. Thus it is clear that the Revenue doubted the loan taken by the assessee in the year under consideration whereas the Revenue did not doubt the loan taken by the assessee from the same party in the subsequent year. Thus it is clear that the Revenue has taken the contradictory stand in two different assessment years. Asstt. Year 2004-05 11

11 We also note that the lenders are non-resident Indians and the loan was given to the assessee out of the NRE accounts. This fact has not been doubted by the authorities below. It is an established the fact that the income in an NRE account can be deposited only from the foreign countries. The fund cannot be deposited in NRE accounts from India.

12 There was no allegation of the Revenue that the assessee has provided funds from his unaccounted fund to the lenders to get its unaccounted fund in the accounting form. In the absence of any adverse remarks by the Revenue on this issue, we are of the view that the lenders have provided funds to the assessee out of their sources generated by them.

13 In view of the above we are of the view that the loan taken by the assessee in the instant case as discussed above cannot be treated as unexplained cash credit under section 68 of the Act. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition made by him.

The second ground raised by the assessee is that Ld.CIT (A) erred in confirming the addition of Rs. 33,594 in respect of bad debts written-off.

The assessee during the year has written-off bad debts amounting to Rs. 33,594/- only. However, on the question by the AO about the supporting evidence the assessee failed to file the necessary details as desired by the AO. Therefore, the AO disallowed the claim of the assessee and added the bad debts written-off amount to Rs.33,594/- as the total income of the assessee. Asstt. Year 2004-05 12

Aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that it has wrongly claimed the deduction of Rs. 33,594/- under the head ‘’bad debts’’. As such the amount represents advance given to the parties which were written-off in the year under consideration on the ground that there was nothing recoverable from such parties. The assessee furnished the details of advances as reproduced below:

Kancharabhai S Mali Paid for Furniture 2188 Repairing Total 33594

1 The assessee further submitted that the advances were given in the course of business. Therefore the same are liable for deduction u/s 37(1) of the Act.

2 The remand report was called upon by the Ld. CIT (A) from the AO who submitted that the assessee had not filed any documentary evidence suggesting that these advances were given in the course of business. Accordingly, the AO crave to sustain the addition. Asstt. Year 2004-05 13

3 The Ld.CIT (A) after considering the remand report confirmed the order of AO by observing that the assessee filed no supporting evidence justifying that the advances were given in the course of business.

Being aggrieved by the order of Ld.CIT (A) assessee is in appeal before us.

The Ld.AR submitted that such advances were given in the course of business of the assessee and hence if the amount so written-off is not allowed as bad-debts, then the same must be allowed as business loss u/s 28 or u/s 37 of the Act.

On the other hand Ld.DR vehemently supported the order of the authorities below:

We have heard the rival contentions and perused the materials available on record. The assessee, in this case, has claimed bad debts amounting to Rs. 33,594/-. But no detail submitted by the assessee before the AO to substantiate its claim of bad debts. Therefore the AO had no alternative but to disallow the claim of the assessee of bad debts.

1 However the assessee before the Ld. CIT(A) has changed his stand and submitted that it has wrongly claimed as bad debts in the books of accounts. As such these were representing the trade advances given to the parties in the course of the business. Therefore the same is allowable for deduction under section 37(1) and section 28 of the Act. Asstt. Year 2004-05 14

2 There is no ambiguity that any advance given by the assessee in the course of the business can be written off in the books of accounts and the assessee is entitled to the deduction either under section 37(1) or section 28 of the Act. In this regard, we find support and guidance from the judgment of Hon’ble tribunal of Kolkata in case of DCIT Vs. J.thomas & co reported in 87 taxmann.com 250 wherein it was held as under: The assessee had written off the advances given in the normal course of business to aforesaid three parties after taking necessary steps for recovery of the same and also preferring civil suits and criminal suits, wherever possible, as the case may be. The assessee had also enclosed the necessary evidences in this regard before the Assessing Officer. Hence, it would be factually incorrect to state that no legal steps were taken by the assessee for recovery of the dues. The relevant evidences with regard to steps taken by the assessee for recovery of these advances and consequential write off thereon are enclosed. The issue under dispute is squarely covered by the Co-ordinate Bench decision of this Tribunal in favour of the assessee in assessee's own case for the assessment year 2009-10 in Dy. CIT v. J. Thomas & Co. (P.) Ltd. [I.T. Appeal No. 275/Kol/2014, dated 28-2-2017]

3 However, on the perusal of Ld. CIT(A) order we find that the claim of the assessee was denied due to non-furnishing of supporting evidence by the assessee. Though, the assessee claimed in the submission before the Ld. CIT(A) that the copies of the ledgers of the parties were filed vide letter dated 13 January 2012. 16.4 From the preceding discussion, we find a contradiction in the submission of the assessee before the Ld. CIT(A) vis a vis the finding of the Ld. CIT(A). We also find that the Ld. Counsel for the assessee had not furnished the copies of the ledgers of the parties in the paper book filed before us to whom the assessee provided the trade advances.

5 Thus we hold that the facts of the dispute are not clear as discussed above from the order of authorities below. But we note that the onus lies on Asstt. Year 2004-05 15

The third ground raised by the assessee is that Ld.CIT (A) partly confirmed the ad-hoc disallowances for Rs. 1,38,014/- incurred for sales promotion expenses.

The assessee during the year has claimed sales promotion expenses amounting to Rs. 6,90,065/- only. The assessee submitted that these expenses were necessary to increase the sales in the competitive environment.

1 However, the AO found that these expenditures were incurred on the purchase of gift articles in cash. He also found that the expenses are exorbitant comparing to the business of the assessee. Accordingly, he made the disallowance of such expenses to the tune of Rs.3,45,033/- being 50% of the sales promotion expenses. The amount was disallowed and added to the total income of the assessee.

The aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that the AO had made the disallowance on an ad-hoc basis and without pointing out any specific defect/discrepancies in the details submitted by it.

1 There was increased in the sales of the assessee in comparison to the earlier years which certainly justify the sales promotion expenses. Asstt. Year 2004-05 16

2 The books of accounts of the assessee were duly audited u/s 44 AB of the Act, and there was no adverse remark made against the sales promotion expenses.

3 However, the Ld.CIT (A) observed that the expenses were incurred in cash. Therefore it was not possible to verify the expenses incurred by the assessee. However, he was of the view the disallowance at the rate of 50% is quite excessive. Accordingly, Ld.CIT (A) restricted the expenses to Rs.1,38,014/- being 20% of the total expenses.

Being aggrieved by the order of Ld.CIT (A) assessee is in appeal before us.

The Ld.AR submitted that the AO and Ld.CIT (A) failed to appreciate that the assessee is in the business of manufacturing pharmaceutical formulations and hence, it was to incur huge expenditure in relation to marketing and sale promotion to survive in the environment of cut-throat competition. Such expenses have been incurred wholly and exclusively for the business. Ld.AR further submitted that AO and Ld.CIT (A) cannot sit in the chair of the businessman and decide the reasonableness of any business expense. The details of such expense appear in the audited books of account running from pages 21 to 40 of a paper book. Under such circumstances, Ld.CIT (A) ought to have deleted the impugned addition in toto.

On the other hand the Ld.DR vehemently supported the order of authorities below. Asstt. Year 2004-05 17

We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed sales promotion expenses amounting to Rs. 6,90,065/-only. However, the AO was of the view that the expenses claimed by the assessee under the head sales promotion expenses are exorbitant considering the nature of the business of the assessee. However the Ld. CIT (A) restricted the disallowance to the tune of 20% of such expenses by observing that the expenses were not verifiable as these were incurred in cash.

1 The scheme of the income tax Act mandates that the expenses incurred wholly and exclusively for the purpose of the business are eligible for deduction under section 37(1) of the Act, provided these should not be in the nature of capital expenditure. There was no allegation of the AO that the expenditures were not incurred for the purpose of the business. Therefore in our considered view, the expenses which in the opinion of the AO are exorbitant cannot be the basis for the disallowance.

2 The AO cannot enter into the shoe of the assessee to decide the quantum of the expenses to be incurred in connection with the sales promotion activities. The assessee decides the expenses to be incurred for the purpose of the business. There is no role of the AO in the decision-making process of the assessee.

3 We also note that there is no prohibition for incurring the expenses in cash under the income tax Act subject to the exception such as specified under section 40A(3) of the Act. But in the case on hand, there is no dispute concerning the provisions of section 40A(3) of the Act. The finding of the Ld. CIT(A) does not point out the specific instances of the expenses which are not Asstt. Year 2004-05 18

4 We also note that the basis adopted for the disallowance, i.e. 20% of the expenses are not based on any scientific basis. As such we are of the view that the disallowance has been restricted to 20% on guesswork.

5 There is no allegation from the side of the Revenue stating that the assessee has not filed the necessary vouchers and other documentary evidence in support of such expenses.

6 We also note that the Ld. CIT(A) has not doubted on the reasonableness of such expenses keeping in view the volume of the business of the assessee.

7 The nature of the business of the assessee is the manufacturing of pharmaceuticals. Thus there will be a regular business dealing of the assessee with its creditors and debtors. But there will not be any regular dealing with the parties from whom the assessee is purchasing gift items. Accordingly, when the assessee approaches any party for the purchases of the gift items, it needs to make the payment instantly. It is because there can be a possibility that the assessee and the party are unknown to each other. Thus the party will not supply the gift items to the assessee without receiving the payment at the time of delivery of the gift items. Thus the assessee has no option except to make the payment in cash against the purchases of the gift items. So we are of Asstt. Year 2004-05 19

8 We also find that the Hon’ble Calcutta High Court in the case of Cheviot Co Ltd versus CIT reported in 11 taxmann.com 276 has held that the disallowance of the expenses cannot be made on the basis of the guesswork and without pointing out the specific defects in the expenses claimed by the assessee. The relevant extract of the order is reproduced below: “The assessee produced details of vouchers and other documents in support of the claim in respect of those expenses. It appeared that the Assessing Officer did not at all consider those documents nor did he find those documents to be manufactured or otherwise not relevant and on the basis of a mere guesswork, reduced the deduction claimed. Similarly, the Commissioner (Appeals), after finding that the approach of the Assessing Officer was erroneous, allowed the entire claim of the assessee without verifying those documents and the Tribunal took a midway by modifying both the orders without, however, any reference to any of the materials produced by the assessee All the three authorities assessed the amount without reference to the evidence produced by the assessee but on the basis of guesswork and, as such, assessment was perverse. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in the appeal even though the appeal is permissible only on the substantial question of law. The perversity of the finding itself becomes a substantial question of law.

9 In view of the above we conclude that the expenses incurred by the assessee under the head sales promotion cannot not be disallowed on an estimated basis. Hence we reverse the order of authorities below. Thus we set aside the order of Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Asstt. Year 2004-05 20

The fourth ground raised by the assessee is that Ld.CIT (A) erred in confirming ad-hoc disallowance of Rs. 18,318/- for vehicle and telephone expenses.

The assessee during the year has claimed following expenses: Sr.No. Particular Amount

1 The assessee in the statement of income has made disallowance at its own for Rs. 29,190/- on account of personal element of the assessee in these expenses.

2 However, the AO observed that personal element in these expenses cannot be denied and therefore made disallowance of Rs.47,508/- being 20% of Rs.2,37,540/-. Thus, the difference amount of Rs.18,318/- (47,508 – 29,190) was disallowed and added to the total income of the assessee.

The aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that there could not be any personal element in the car insurance and depreciation allowance. Therefore this cannot be considered for the disallowance at the rate of 20%. Asstt. Year 2004-05 21

1 It has already made disallowance in the computation of income and therefore no further disallowance on ad-hoc basis can be made. However, the Ld.CIT (A) did not agree with the submission of the assessee on the ground that the assessee failed to furnish evidence in the form of the logbook for the vehicle and call details of the telephone expenses. Therefore he confirmed the disallowance made by the AO.

Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us.

The Ld.AR before us submitted that these expenses comprise of car insurance, vehicle repairs, depreciation on vehicles and telephone expenses which has been incurred wholly and exclusively for the business. Such expenses appear in audited books of the account running from page 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted impugned additions.

The ld. DR vehemently supported the order of authorities below.

We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed vehicle and telephone expenses amounting to Rs. 2,37,540/-only. As per the AO, the personal use of the vehicle & telephone cannot be denied. Therefore the AO worked out the personal expenses at Rs. 47,508/- being 20 % of Rs. 2,37,540.00 and disallowed the sum of Rs. 18,318.00 (Rs. 47,508 – Rs. 29,190 amount already disallowed). Asstt. Year 2004-05 22

2 The Ld. CIT (A) confirm the same by observing that the assessee failed to file the logbook for the use of the car and call details for the use of the telephones.

3 In this regard, we note that the assessee itself has made the disallowance of Rs. 29,190/- treating the same as used for personal purposes. The basis adopted by the assessee for the purpose of the disallowance was not disputed by the authorities below. In our considered view the authorities below before making any further disallowance of the expenses described above on account of personal use of the assessee should have rejected the disallowance made by the assessee at its own with cogent reasons. As such we note that no defect was pointed out by the authorities below in the disallowance made by the assessee.

In view of the above, we conclude that the expenses incurred by the assessee as discussed above cannot be disallowed on an estimated basis.

The fifth ground raised by the assessee is that ''Ld.CIT (A) erred in partly confirming the ad-hoc disallowance of Rs.7,465/- for traveling and conveyance expenses.

The assessee during the year has claimed traveling expenses of Rs.15,616/- and conveyance expense of Rs.59,032/- only. The assessee claimed to have incurred such expenses wholly and exclusively for the purpose of business. Asstt. Year 2004-05 23

1 However, the AO was of the view that element of expense cannot be ignored. Therefore he made the disallowance of Rs.14,930/- being 20% of Rs.74,648/- only. Thus, the amount of Rs.14,390/- was added to the total income of the assessee.

The aggrieved assessee filed an appeal to Ld.CIT (A). The assessee before Ld.CIT (A) submitted that it had furnished all the relevant supporting evidence to the AO during the assessment proceedings. The AO without pointing out any defect in the details filed by it has made ad-hoc disallowance.

1 The books of accounts of the assessee were duly audited, and no defect whatsoever was pointed out by the Auditor.

2 The Ld.CIT (A) after considering the submission of the assessee restricted the addition to 10% by observing that the element of personal used cannot be denied.

Being aggrieved by the order of Ld.CIT (A) the assessee is in appeal before us.

The Ld.AR, before us, submitted that such expenses had been incurred wholly and exclusively for the business, and also such expenses appear in audited books o accounts running from pages 21 to 40 of the paper book. Under such circumstances the Ld.CIT (A) ought to have deleted the impugned addition in toto. Alternatively, some token disallowance may be confirmed. Asstt. Year 2004-05 24

On the other hand Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has claimed Travelling & conveyance expenses amounting to Rs. 74,648/-only. As per the AO, the element of the personal expenses cannot be ruled out. Therefore the AO worked out the personal expenses at Rs. 14,930/- being 20% of Rs. 74,648/- and disallowed the sum of Rs. 14,930/-and added back to the total income of the assessee.

1 However the Ld. CIT (A) restricted the disallowance to the tune of 10% of such expenses by observing that the disallowance @ 20 % is excessive and unreasonable.

2 From the preceding discussion we note that the AO made the disallowance on ad hoc basis by observing that the assessee failed to prove whether these expenses were incurred in connection with the business of the assessee.

3 In this regard, we note that the assessee has claimed almost similar expenses in the immediately preceding and succeeding assessment year. There can be negligible difference in the quantum of the expenses comparing to the turnover of the business of the assessee in all the years.

4 However, we note that the onus lie on the assessee to prove that the expenses were incurred wholly and exclusively for the purpose of the business. But the assessee in the case before us failed to do so. Therefore we Asstt. Year 2004-05 25

The sixth ground raised by the assessee is that the Ld.CIT (A) erred in treating the trademark expenses of Rs. 52,000/- as capital expenditure.

The assessee during the year had incurred an expense of Rs.52,000/- for the registration of trademark of its product. The assessee claimed such expenditure as revenue in nature. However, the AO was of the view that the trademark expense is representing the intangible asset, therefore, the same should be treated as capital in nature. Accordingly, the AO treated the trademark expenses as capital in nature and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that the trademark expenses does not create any capital asset and it does not result in any enduring benefit. Therefore, the same should be treated as revenue expenses.

1 However, the Ld.CIT (A) disregarded the contentions of the assessee by observing that the trademark expenditure is creating an intangible asset and therefore the same is treated as capital in nature.

Being aggrieved by the order of Ld. CIT (A) assessee is in appeal before us.

The Ld.AR, before us, submitted that it is mandatory to get the products registered under trademark laws. Such expenses have neither Asstt. Year 2004-05 26

On the other hand the Ld.DR vehemently supported the order of the authorities below.

We have heard the rival contentions and perused the materials available on record. The assessee has incurred expenses for the registration of the trademark of its product amounting to Rs. 52,000/- Only. The assessee claimed such expenses as in the nature of revenue and accordingly debited the same in the profit and loss account. However, the AO was of the view such expenses represents the intangible assets within the meaning of section 32 of the Act. Therefore the AO disallowed the same after allowing the depreciation on such expenses treating the same as intangible assets. The Ld. CIT-A subsequently confirmed the view of the AO.

1 It is an undisputed fact that the trademark represents the intangible assets of the company and duly covered within the definition of assets as provided under section 32 of the Act. Therefore we are of the view that the expenditure incurred on the registration of the trademark cannot be treated as revenue in nature. In this connection, we place our reliance on the order of Hon’ble Mumbai ITAT in case of L&T Demag plastic machinery (P) Ltd. Vs. ITO reported in 123 ITD 391 wherein it was held as under: “Clauses of the agreement between the assessee and L&T clearly showed that the assessee-company was getting a right to use trademark of L&T for the purpose of preparing a combined trademark of L&T and DET. The assessee was also entitled to the use of such combined trademark in India. In pursuance of that agreement, Asstt. Year 2004-05 27