CIT vs. DABON INTERNATIONAL INDIA PVT LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 235/2012 . . . CIT ..... Appellant . Through: Mr. N.P. Sahni, Advocate. . . . versus . . . DABON INTERNATIONAL INDIA PVT LTD ..... Respondent . Through: None. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 20.04.2012 . 1. This appeal by the Revenue pertains to the assessment year 2004- 2005. . 2. The first issue raised in the present appeal pertains to deletion of the addition of `43,04,349/- made by the Assessing Officer on account of advertising and publicity expenses. The assessee had incurred advertisement and publicity expenses of `86,08,699/-. The Assessing Officer for the reasons reproduced below, held that 50 per cent of the said expenses should be treated as capital expenses: - . ?As per details submitted by the assessee vide letter dated 27/12/2006, it was observed that such expenses comprised ?Market research?, ?Interactive promotions?, as well, meaning thereby, the assessee was still in the process of product launch/brand building during the year under consideration. Hence, an element of capital nature is definitely laced in these expenses. However, since the sales too have risen during the year, only 50% of these expenses i.e. `43,04,349/- are, hereby, disallowed by treating the same as that of capital in nature. Penalty proceedings u/s 271 (1) (c) are initiated for furnishing inaccurate particulars of income.? . . . 3. The CIT (Appeals) deleted the said addition after calling for remand report and after examining the full details furnished by the assessee. The CIT (Appeals) noticed that the assessee is in the business of manufacturing and marketing cheese as well as other dairy products in India and the expenses were incurred to market and sell the said . products. Details and break-up of the said expenses were provided by the assessee and accepted. The reasoning given by the CIT (Appeals) reads as under: - . ?Keeping in view the fact that the question relating to these expenses were put forth during the far end of assessment proceedings, the same are admitted, in order to impart substantive justice. I have also carefully considered the submission and paper book filed by the appellant and the reliance placed by the appellant on the case of Berger Paint (Supra). The nature of advertisement cases have also been provided in a summarized form. These are inter alia related to cost of samples given free to distributor for promotion; window display, participation in vyapari mandal; advertisement in media (including print and ration); T-shirt for distribution, posters, stickers, visicoolers; printing of posters for publicity; market research expenses for getting taste preferences. All the above expenses are clearly related to advertisement, promotion and for increasing market penetration and product awareness and visibility and are necessary concomitant for a product manufactures and sold by the appellant, which is highly dependent on its market visibility. . . . I have also gone through the specific expenses on which the AO has commented in his remand report and an of the view that expenses on film festival conducted by Hindustan Times in Siri Fort Auditorium, where about 80000 children from various schools participated is very much a part of marketing exercise of the appellant as children are definitely the target group for selling of ?cheese? produced by the appellant. The other expenses are distribution of leaflets on different varieties of cheese/paneer; expenses on knowing the taste preferences of school children, expenses on conducting tasting/sampling the products of appellant company among school children; interactive promotions and making slides for LeBon Move fiesta for school children and payment to Frigoglass India P. Ltd. for 15 visicoolers purchased for giving to preferred shops for stocking of perishable products of the appellant which is milk products, so as to promote the product (these visi coolers are not returnable). All the above expenses are for purpose of advertisement and publicity of appellant?s product and are therefore allowable as revenue expenses. Accordingly, the addition made for `43,04,349/- is directed to be deleted.? . . . 5. The aforesaid findings are being confirmed by the Income Tax Appellate Tribunal (?Tribunal?, for short). . 6. A similar issue was raised in the case of CIT Vs. Monto Motors Ltd. ITA 235/2012, decided on 12.12.2011, wherein we had held as under:- . ?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. Advertisement 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 factors are brought on record. Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay.? . . . 7. Keeping in view the aforesaid factual position, we are not inclined to admit the present appeal on the first issue. . 8. The second issue raised pertains to the addition of `58,50,305/-. The Assessing Officer had made the said addition by adding the entire amount shown as payable at the end of the year to the sundry creditors. The Assessing Officer noted that assessee was asked to furnish confirmations from all the sundry creditors to whom `58,50,305/- were payable but the said confirmations were not submitted. The Assessing Officer invoked Section 68 of the Income Tax Act, 1961 (?Act?, for short) to make the said addition. The whole amount of `58,50,305/- was added. . 9. The CIT (Appeals) deleted the said addition after calling for remand report and held as under: - . ?I have carefully considered the submission and details including copy of account and invoices filed by the appellant who has submitted that the credit for `.58,50,305/- are trading liabilities for goods and services as is apparent from the account of these parties for FY 03-04. That after five years, (in 2009), the appellant is unable to furnish confirmation of the parties as some of them are not in existence and others are not responding to the appellant. From the details furnished in Annexure to letter dated 19.08.09 it is clear that while in some of the cases the credit have been written back in next financial year 04-05 for which copy of account has been attached, in other cases payment have been discharged in the next FY 04-05 through cheque which establishes the existence of these parties and also the factum of payment. That in law when the Assessing Officer has accepted the purchases and sales then the balance in the sundry creditors account cannot be added by him. Regarding the specific objections of the AO in his remand report on the issue of other liabilities credit of ` `13,85,462/- the appellant has provided the break up therefore which comprises of expenses payable for `5,35,002/-; superannuation payable of `53745/-; salary payable of `4,97,093/- provision for expenses for `2,84,099/- and full and final payable of `15,523/-. The copy of account of all these expenses for FY 03-04 and 04- 05 together with the details of payment in the subsequent financial year have been provided. On a perusal thereof it is clear that there is no cash credit involved in these accounts which are running accounts for payment of various liabilities for services. Further, the copy of account of Dabur India Ltd. having a credit balance of `7,76,772/- has also been . furnished and that this liability has been written back in the next FY 04-05 Lastly Mantequerias Arias SA credit of `11,21,964/M is also not a cash credit account but that from this party the appellant had purchased a machinery viz. second hand ultra filtration machine used for manufacture of paneer. That this balance amount for `11219641- is outstanding even to this date on account of dispute. . . . Keeping in view all the details filed by the appellant and its specific reply to the remand report and submission and details by the appellant it is clear that none of the sundry creditors is a case of cash credit u/s 68 of the IT Act and all these amounts pertain to trade creditors, either for services or goods, and therefore the addition made in this round of appeal for `58,50,305/- is accordingly directed to be deleted.? . . . 10. The aforesaid findings reveal that the assessment order for the assessment year in question, that is 2004-2005, was passed on 29th December, 2006 and by then return for next assessment year had been filed. The CIT (Appeals) has recorded a factual finding that some of the sundry creditors were written off and others were paid by cross cheque. With regard to the balance amount, break up and details of `13,85,462/- was provided. `7,76,772/- payable to Dabur India Ltd., sister concern of the assessee. With regard to `11,21,964/-, a specific finding has been given that there was a dispute with the seller of the machine. . 11. The findings recorded are factual. They are not perverse. We do not think any substantial question of law arises for consideration in this appeal under Section 260A of the Act. . 12. Last issue pertains to addition of `11.08 lac made pursuant to the directions issued under Section 144A by the Additional Commissioner of Income Tax. The directions itself record that this contingent liability pertains to last two years and not the year in question. In spite of the aforesaid observation, the Additional Commissioner of Income Tax had directed that this amount should be considered as an income of the assessee. Ld. counsel for the Revenue has not been able to elaborate and explain the said reasoning. . 13. We find that the order of the Tribunal is confusing but the CIT (Appeals) has clearly held that this was not a liability of the year in question but was shown in the earlier period as on 31st March, 2003. This being the factual position, it is apparent that the addition was not justified. . 14. In view of the aforesaid findings, we do not find that any substantial question of law arise for consideration. . The appeal is dismissed. . SANJIV KHANNA, J. . . . . . R.V.EASWAR, J. . APRIL 20, 2012 . ?AA? . $ 46 .