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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
ORDER This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Mumbai [hereinafter referred to as ‘the CIT(A)’] dated 02.11.2018 for the Assessment Year (AY) 2014-15. 2. The assessee in appeal has assailed the findings of CIT(A) in confirming the disallowance made in respect of :
2 आअसं. 17/मुं/2019 (िन.व. 2014-15) (AY 2014-15) (i) Sales Promotion Expenses Rs. 23,50,259/- (ii) Cost of modal of project Rs. 31,89,375/- 3. Sh. Nitesh Joshi appearing on behalf of the assessee submitted that the assessee had claimed Sales Promotion Expenses and the Cost of Modal of the project as revenue expenditure. The Assessing Officer (AO) disallowed assessee’s claim and treated the aforesaid expenditure as capital in nature. The assessee carried the issue in appeal before the First Appellate Authority. In First Appellate proceedings, the CIT(A) confirmed the findings of the AO qua aforesaid two items and deleted the other items of expenditures. The ld. AR pointed that Sales Promotion Expenses disallowed by the CIT(A() are purely in the nature of professional fee paid for market assessment study, market feasibility study, market research etc. The ld. AR pointed that the AO in immediately preceding AY i.e. AY 2013-14, allowed Professional Fee paid to Mahajan & Aibara for market and feasibility study. The ld. AR referred to the assessment order dated 07.03.2016 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2013-14 at page no. 67 to 69 of the Paper Book (PB). The ld. AR further referred to the reply to questionnaire issued under section 142(1) of the Act, during the course of assessment proceedings for AY 2013-14. The ld. AR pointed that the assessee had furnished details of Market & Business Promotion Expenses along with invoices which clearly indicate that the consultancy fee is paid for market research carried out by Mahajan & Aibara. The ld. AR submitted that following the principle of consistency, the expenditure should be allowed. In respect of disallowance of expenditure towards the modal of the project, the ld. AR submitted that the authorities below have erred in capitalizing the expenditure only for the reason that the modal can be retained for a longer time. Whereas, the assessee would not have any enduring benefit 3 आअसं. 17/मुं/2019 (िन.व. 2014-15) (AY 2014-15) from the modal. The test of endurance alone would not determine the nature of expenditure. To buttress his contentions, the ld. AR placed reliance on the decision of Hon’ble Supreme Court of India in the case of Empire Jute Company Ltd. Vs. CIT 3 Taxman 69 and the decision of Hon’ble Bombay High Court in the case of CIT Vs. Asian Paints India Ltd. 75 taxmann.com 152.
Per contra, Sh. Mehul Jain representing the Department vehemently defended the findings of the CIT(A) and prayed for dismissing the appeal of assessee.
We have heard the submissions made by rival sides and have perused the orders of authorities below. The assessee is a special purpose vehicle incorporated to execute construction of a railway station and transit oriented development at Seawoods, Navi Mumbai. The assessee had entered into a development agreement with CIDCO for development of integrated commercial complex. The scope of work included construction of Railway Station and development of other commercial, retail and office spaces. In lieu of construction of Railway Station, the assessee was granted sailable rights over the constructed development. The assessee followed Project Completion Method to recognize the profits. During the period relevant to AY under appeal, the assessee incurred Market & Business Promotion Expenses for promoting its development project amounting to Rs. 1,30,96,301/- and claimed the same as Business Expenditure under section 37 of the Act. In assessment proceedings, the AO disallowed entire Sales Promotion Expenses. The expenditure claimed by assessee on marketing and sales interalia includes professional payment for market assessment study, professional charges for market research, retainer ship fees, expenditure towards Experience Zone Signage, project modal, etc. In First Appellate proceedings, the CIT(A) granted part relief to the assessee by allowing some of the expenditure आअसं. 17/मुं/2019 (िन.व. 2014-15) ITA No. 17/M/2019 (AY 2014-15) claimed under the head “Market and Sales Expenditure”. Following expenditure were held by the CIT(A) as capital in nature. S.No. Name of the Party Bill Particulars Amount 1 Cushman and Wakefield India Pvt. 188765 Market Assessment Study Ltd. 2 Cushman and Wakefield India Pvt. 125843 Market Assessment Study Ltd. 3 Mahajan & Aibara 113485 Fees for professional services (Market & feasibility study) 4 Jones Lang Lasalle 269664 Professional fees (Market Research) 5 Jones Lang Lasalle 215731 Professional fees (Market Research) 6 Jones Lang Lasalle 53932 Professional fees (Market Research) 7 DDB Mudra max Pvt. Ltd. 1382839 Experience Zone Signages 8 Shekhar Patil & Associates 3189375 Expenditure for Project Model
A perusal of the impugned order shows that the CIT(A) has held the aforesaid expenditure to be capital in nature for the reason that market research, real estate consultancy are not in the nature of selling expenses and for the reason that some of the expenditure are non-reckoning expenditure, therefore, should be capitalized. The ld. AR has drawn our attention to the assessment order for AY 2013-14 wherein the AO in scrutiny assessment proceedings after examining the expenditure incurred by the assessee towards the professional services rendered for marketing and feasibility study allowed the same as Revenue expenditure. It is pertinent to mention that the assessee had paid professional charges to the same party in the impugned assessment year as well which has been disallowed by the AO as well as by the CIT(A) in the immediate preceding AY. The nature of services rendered as per the bill raised is identical. Apart from above, we find that the assessee has made payments to various parties for rendering professional services towards market assessment study and आअसं. 17/मुं/2019 (िन.व. 2014-15) (AY 2014-15) market research. The allowability of these expenditure is not merely based on endurance test or the duration of benefit, the assessee would draw over the period of time. The Hon’ble Bombay High Court in the case of CIT Vs. Asian Paints (supra) had occasion to deal with somewhat similar issue wherein expenditure of corporate brand building was under dispute i.e. whether the expenditure is on capital account or Revenue. The substantial question of law before the Hon’ble Court for consideration was : “Whether on the facts and the circumstances of the case and in law the Tribunal was justified in deleting the disallowance made by the Assessing Officer on expenditure on ‘Corporate Brand' building, treating such expenditure as revenue in nature?" The Hon’ble Court answered the question in favour of the assessee by observing as under: “(e) We find that an identical issue had arisen before this Court in case of CIT v. Jeoffrey Manners & Co. Ltd. [2009] 315 ITR 134/180 Taxman 87 (Bom.), wherein the Court was considering a question whether the expenses incurred by the Respondent-Assessee therein for making advertisement films is to be treated as a capital or revenue expenditure. This Court opined that the correct test to be applied in respect of expenditure incurred for making advertisement films was that when the same was incurred in respect of an ongoing business of the Assessee, it is Revenue. On the other hand, when the expenditure is incurred in respect of a brand which is to be used in a business which is yet to be commenced, it is capital expenditure. In this case also, the expenditure on corporate advertisement films is in respect of ongoing business. The expenditure for advertisement of a brand or corporate name of an existing ongoing business is in the nature of maintaining the brand and/or corporate image and it is not for creation of a brand. Further, the test of enduring benefit urged by the Revenue was considered by the Apex Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 to hold that it is not a conclusive test in all cases so that such expenditure is always on capital account. The Court observed that what is to be examined is the nature of advantage obtained in the commercial sense by incurring the expenditure. If the expenditure consists of merely facilitating the assessee to carry on business more profitably leaving the fixed capital untouched, it would be on revenue account. The entire expenditure, the Court observed, has