M/S. MOET HENNESSY INDIA PVT. LTD.,MUMBAI vs. ACIT, SPECIAL RANGE-6, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’ : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.5003/Del/2017 (ASSESSMENT YEAR : 2012-13) ITA No.5004/Del/2017 (ASSESSMENT YEAR : 2013-14) M/s. Moet Hennessy India Pvt. Ltd., vs. ACIT, Special Range 6, 1903, 19th Floor, New Delhi. India Bulls Finance Centre, Senapati Bapat Marg, Elphinstone Road, Mumbai – 400 013.

(PAN : AACCM4079L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Sumit Mangal, Advocate Shri Saksham Singhal, CA REVENUE BY : Ms. Pramita M. Biswas, CIT DR Date of Hearing : 10.04.2019 Date of Order : 24.04.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in the aforesaid appeals, the same are being disposed off by way of composite order to avoid repetition of discussion. 2. The Appellant, M/s. Moet Hennessy India Pvt. Ltd. (hereinafter referred to as the ‘assessee’) by filing the present

2 ITA No.5003/Del/2014 ITA No.5004/Del/2014 appeals sought to set aside the impugned orders dated 02.06.2017

& 21.06.2017 passed by the Commissioner of Income-tax

(Appeals)-6, New Delhi, qua the assessment years 2012-13 &

2013-14 respectively on the grounds inter alia that :-

“ITA NO.5003/DEL/2014 (AY 2012-13 1. The order passed by the Learned Commissioner of Income Tax (Appeals)-6 ("Ld. CIT(A)") under Section 250 of the Act is bad in law and on the facts and circumstances of the case. 2. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by holding that the expenses incurred by appellant on advertisement and sales promotion were in the nature of capital expense and thereby disallowing the said expenses. 3. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by not following the principle of consistency, despite there being no change in facts.” “ITA NO.5004/DEL/2014 (AY 2013-14 1. The order passed by the Learned Commissioner of Income Tax (Appeals)-6 ("Ld. CIT(A)") under Section 250 of the Act is bad in law and on the facts and circumstances of the case. 2. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by holding that the expenses incurred by appellant on advertisement and sales promotion were in the nature of capital expense and thereby disallowing the said expenses. 3. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by holding that the road access charges incurred by appellant were in the nature of capital expense and thereby disallowing the said expenses. 4. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by holding that the expenses incurred by appellant on bank guarantee charges paid to banks were liable for tax deduction and thereby disallowing said expenses due to alleged failure to deduct tax.

3 ITA No.5003/Del/2014 ITA No.5004/Del/2014 5. The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by not following the principle of consistency, despite there being no change in facts. 6. The above grounds of appeals are independent and without prejudice to one another.”

controversy at hand are : The assessee is into the business of bulk

import of wines and spirits from group companies and distribution

of the same. Initially, the case was referred to the Transfer Pricing

Officer for computation of Arm’s Length Price (ALP) qua

international transactions, but the ld. TPO has not drawn any

adverse inference in respect of ALP of international transactions

for AY 2012-13 as well as AY 2013-14.

Rs.14,69,15,576/- in profit & loss account on account of

advertisement & sales promotion expenses for AYs 2012-13 &

2013-14 respectively. Aforesaid expenses have been treated as

revenue in nature by the assessee. However, declining the

contentions raised by the assessee, AO treated the advertisement &

sales promotion expenses as capital in nature on the ground that the

same have been incurred to propagate the brand name of the

assessee in the market having enduring benefit to the assessee.

by the assessee in the P&L account on account of road access

4 ITA No.5003/Del/2014 ITA No.5004/Del/2014 construction charges on the ground that the assessee has not filed

any written submissions to prove the fact that the same are revenue

in nature. AO also made addition of Rs.9,81,336/- debited by the

assessee in P&L account on account of bank guarantee commission

on the ground that the assessee has not debited TDS on these

expenses by disallowing the same under section 40A (ia) of the

Income-tax Act, 1961 (for short ‘the Act’).

CIT (A) who has confirmed the assessment orders by partly

allowing the appeals. Feeling aggrieved, the assessee has come up

before the Tribunal by way of filing the present appeals qua AYs

2012-13 & 2013-14.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

GROUND NO.1 IN ITA NO.5003/DEL/2014 (AY 2012-13) ITA NO.5004/DEL/2014 (AY 2013-14)

ITA No.5004/Del/2014 (AY 2013-14) need no findings being

general in nature.

5 ITA No.5003/Del/2014 ITA No.5004/Del/2014 GROUND NO.2 IN ITA NO.5003/DEL/2014 (AY 2012-13) ITA NO.5004/DEL/2014 (AY 2013-14)

Rs.12,33,64,847/- and Rs.14,69,15,576/- in profit & loss account

on account of Advertisement & Sales Promotion (AMP) expenses

for AYs 2012-13 & 2013-14 respectively and treated the expenses

as revenue in nature. It is not in dispute that assessee is an

importer and distributor of wine and spirits in India and bearing

routine risk. It is also not in dispute that in AY 2009-10, first time

AMP expenses incurred by the assessee were brought to tax by the

Revenue under transfer pricing provisions by making ALP

adjustment of Rs.6,64,70,841/- which have been deleted by the

coordinate Bench of the Tribunal vide order dated 23.08.2018 in ITA No.1906/Del/2014, available at pages 123 to 131 of the paper

book.

expenses incurred by the assessee on account of AMP expenses

being capital in nature on the ground that these expenses are giving

long lasting benefit to the assessee of enduring nature and brought

the same to tax.

ld. AR for the assessee contended inter alia that the assessee being

6 ITA No.5003/Del/2014 ITA No.5004/Del/2014 importer and distributor of wine and spirits in India is bearing

entrepreneurial risk and has just incurred the advertisement and

sale promotion expenses in order to boost its sales; that the

expenses are generally in the nature of gifts, display at retail

outlets, distribution of point of sale material (POSM), rent of

warehouse used to store POSM, custom duty charged on POSM,

discount schemes, PR agency fees, salary of marketing staff,

market visit expenses of the marketing staff, expenses incurred on

events etc. and has brought on record the detail list of expenses as

Annexure ‘A’ annexed with the synopsis; that these expenditure

does not pass on enduring and long term benefit to the assessee and

as such cannot be treated as capital in nature and relied upon the

decisions of Hon’ble Delhi High Court in Monto Motors Ltd. –

(2012) 19 taxmann.com 57 (Delhi and Jubliant Foodworks (P.)

Ltd. (2014) 52 taxmann.com 215 (Delhi).

upon assessment order as well as order passed by the ld. CIT (A)

and contended that since the assessee is into import and

distribution of premium products in India and it establishes the

brand image, it certainly has long lasting enduring benefits, so

AMP expenses resulting in better sales of the assessee company

having long lasting benefits.

7 ITA No.5003/Del/2014 ITA No.5004/Del/2014 13. In the backdrop of the aforesaid facts and circumstances of

the case, arguments addressed by ld. ARs of the parties of the

appeals and orders passed by the Revenue authorities, the sole

question arises for determination in this case is :-

“as to whether advertisement and sales promotion expenses incurred by the assessee being an importer and distributor of wine and spirits in India in the forms of gifts, display at retail outlets, discount schemes, custom duty charged on POSM, etc. are revenue in nature as contended by the assessee?”

of Delhi in case of Monto Motors Ltd. (supra) by returning

following findings :-

“4. In view of the factual matrix which is available on record and as the Assessing Officer has not dealt with the factual matrix in detail we are not inclined to admit the present appeal. The advertisement expenses as per the findings of both the CIT (Appeals) and the Tribunal were not of capital nature. 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. The expenses in the present case were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business. It was an on-going expense. Given the factual matrix, it is difficult to hold that the expenses were incurred for setting the profit earning machinery in motion or not for earning profits.”

8 ITA No.5003/Del/2014 ITA No.5004/Del/2014

Jubliant Foodworks (P.) Ltd. (supra) decided the identical issue in

favour of the assessee by following the decision of Monto Motors

Ltd. (supra).

the light of the ratio of Monto Motors Ltd. (supra), it is proved on

record that the assessee has incurred periodical expenses on

account of advertisement and sales promotion which is to increase

the sales of products in order to remind the customer from time to

time so that they do not forget the products and its qualities.

Hon’ble High Court has held that when the advertisement expenses

are incurred to increase the sale of the products, the same are

treated as revenue expenditure because the memory of purchasers

or customers is short-lived. So, in the instant case, the Revenue

has not brought on record any material to prove that advertisement

and sales promotion expenses have created long lasting benefits to

the assessee, because advertisement and sales promotion are

generally made in order to increase the sales and their impact is

limited and felt for a short duration by the customers.

taxman 69 (SC) held that, “no test is paramount or conclusive to

9 ITA No.5003/Del/2014 ITA No.5004/Del/2014 distinguish between capital and revenue expenditure”, however

held that :-

“When an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage (or the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) (or treating such an expenditure as properly attributable not to revenue but to capital. This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965158 ITR 241 (PC), it would be misleading to suppose that, in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all". There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee 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 while 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 conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.”

Healthcare Ltd. (2009) 308 ITR 263 (Gujarat) has held that,

“even brand promotion expenses are revenue in nature, hence

deductible u/s 37 (1) of the Act because such expenditure do not

create any intangible interest and merely because of the fact that

10 ITA No.5003/Del/2014 ITA No.5004/Del/2014 expenditure may bring some benefit of enduring nature to the

assessee, that factor alone is not sufficient to treat the expenditure

as capital expenditure. So, the advertisement expenses even to

create the brand image is allowable as a revenue expenditure.”

advertisement and sales promotion expenses periodically, and not

at once just to refresh the product and quality to be sold in the

memory of its customers. So, it cannot be held to be in the nature

of enduring benefit for a trader.

laid down by Hon’ble Supreme Court and Hon’ble High Courts,

discussed in the preceding paras, advertisement and sales

promotion expenses have been incurred by the assessee just to

enhance its sales and profit and cannot be treated as capital in

nature. Consequently, advertisement and sales promotion expenses

debited by the assessee to the tune of Rs.12,33,64,847/- &

Rs.14,69,15,576/- for AYs 2012-13 & 2013-14 are ordered to be

treated as revenue in nature and addition made/confirmed by the ld.

AO/CIT (A) on this score is ordered to be deleted. Hence, ground

no.2 of ITA No.5003/Del/2014 (AY 2012-13) and ITA

No.5004/Del/2014 (AY 2013-14) is determined in favour of the

assessee.

11 ITA No.5003/Del/2014 ITA No.5004/Del/2014

GROUND NO.3 IN ITA No.5004/Del/2014 (AY 2013-14)

improvement, widening and construction charges in order to

facilitate easy movements of vehicles on the road which has been

treated as expenses of capital nature on the ground that assessee

has not filed any evidence; that road access construction charges

will not give any enduring benefit to the assessee. Ld. AR for the

assessee fairly conceded that he has not brought on record the

complete facts in order to treat these expenses as revenue in nature.

In view of the matter, this issue is remanded back to the AO to

decide afresh after providing an opportunity of being heard to the

assessee, hence ground no.3 of ITA No.5004/Del/2014 (AY 2013-

14) is determined in favour of the assessee for statistical purposes.

GROUND NO.4 IN ITA No.5004/Del/2014 (AY 2013-14)

Notification No.56/2012 dated 31.12.2012 issued by the CBDT

disallowed an amount of Rs.9,81,336/- debited by the assessee in

P&L account on account of bank guarantee commission.

scheduled banks qua bank guarantee provided by the banks on

12 ITA No.5003/Del/2014 ITA No.5004/Del/2014 which TDS was not deducted. The ld. CIT (A) while relying upon

the Notification NO.56/2012 dated 31.12.2012 allowed part relief

to the assessee for the bank guarantee commission paid post-

issuance of the Notification.

(A) have accepted the proposition put forth by the assessee that

bank guarantee commission does not cover under the definition of

“interest”, hence section 194A is not applicable to such payment.

It is also settled principle of law that in case of bank guarantee

commission, section 194H of the Act, where principal agent

relationship are not there, is also not applicable. Reliance in this

regard is placed on the decision rendered by the coordinate Bench

of the Tribunal in Kotak Securities Ltd. vs. DCIT – (2012) 18

taxmann.com 48 (Mum.).

commission paid by the assessee can be disallowed by following

the Notification No.56/2012 dated 31.12.2012. For ready perusal,

aforesaid Notification is extracted as under :-

“NOTIFICATION NO. SO 3069(E) [NO.56/2012 (F. NO.27 SECTION 197A OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - NO DEDUCTION IN CERTAIN CASES - SPECIFIED PAYMENT UNDER SECTION 197A(1F) NOTIFICATION NO. SO 3069(E) [NO.56/2012 (F. NO. 275/53/2012-IT(B)), DATED 31-12-2012

13 ITA No.5003/Del/2014 ITA No.5004/Del/2014 [SUPERSEDED BY NOTIFICATION NO. SO 2143(E) (N0.47/2016 (F.NO.275/53/2012-IT(B), DATED 17-6-2016] In exercise of the powers conferred by sub-section (IF) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, name :- (i) bank guarantee commission; (ii) cash management service charges; (iii) depository charges on maintenance of DE MAT accounts; (iv) charges for warehousing services for commodities; (v) underwriting service charges; (vi) clearing charges (MICR charges); (vii) credit card or debit card commission for transaction between the merchant establishment and acquirer bank. 2. This notification shall come into force from the 1st day of January, 2013.”

prove that this Notification is clarificatory in nature. Applicability

of the aforesaid Notification to a period prior to the period of its

issue has been examined by Hon’ble Delhi High Court in case of

Pr.CIT vs. Make My Trip India Pvt. Ltd. ITA 136/2019 by

returning following findings :-

“11. The above notification was referred to in the order of the CIT (A) but not discussed. The assessee is right in contending that by virtue of the above notification no TDS is deductible from payments made towards “credit card or debit card commission for transaction between the merchant establishment and acquirer bank”. This applies to the changes paid to the banks for providing payment gateway in the case on hand.”

the Act, disallowance cannot be made because bank guarantee

commission paid by the assessee to scheduled banks has been duly

14 ITA No.5003/Del/2014 ITA No.5004/Del/2014 included in the total income of the banks as they are tax resident of

India and they have duly paid the tax on such guarantee

commission. So, under Second Proviso to section 40A (ia), no

disallowance can be made. So, disallowance of Rs.9,81,336/-

made by the AO and restricted by the ld. CIT (A) to Rs.7,92,680/-

is not sustainable in the eyes of law, hence ordered to be deleted.

Hence, ground no.4 of ITA No.5004/Del/2014 (AY 2013-14) is

determined in favour of the assessee.

GROUND NO.3 IN ITA NO.5003/DEL/2014 (AY 2012-13) and GROUND NO.5 & 6 IN ITA NO.5004/DEL/2014 (AY 2013-14) 28. Ground No.3 in ITA NO.5003/Del/2014 (AY 2012-13) and

Grounds No.5 & 6 in ITA No.5004/Del/2014 (AY 2013-14) need

no findings being general in nature.

13) is allowed and the appeal in ITA No.5004/Del/2014 (AY 2013-

14) is allowed for statistical purposes Order pronounced in open court on this 24th day of April, 2019.

Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 24th day of April, 2019/TS

15 ITA No.5003/Del/2014 ITA No.5004/Del/2014