Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘B’ NEW DELHI
(ASSESSMENT YEAR: 2011-12) Dharampal Satyapal Sons (P) Ltd., vs DCIT, C/o-Kapil Goel, Adv., Central F-26/124, Sector-7, Rohini, Circle-4, New Delhi-110085. New Delhi. PAN-AABCD9090K (Appellant) (Respondent) Appellant by Sh. Kapil Goel, Adv. Respondent by Ms. Rachna Singh, CIT DR Date of Hearing 26.10.2017 Date of Pronouncement 09.11.2017 ORDER
PER K.N.CHARY, JUDICIAL MEMBER
The assessee preferred this appeal challenging the order dated 02.07.2014 in Appeal No.29/13-14/1180 passing by the Commissioner of Income Tax (Appeal) [in short “CIT(A)”]-XXXIII, New Delhi for 2011-12 Assessment Year on the following grounds:-
1. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the wrongful addition made by Ld.AO (for Assessing Officer) amounting to Rs.8,48,358/-, erroneously treating the fully allowable advertisement expenses as capital in nature under section 37 of the Act.
2. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the wrongful addition made by Ld.AO amounting to Rs.95,90,000/-, erroneously treating the fully allowable expense as not accrued and crystallized during extant period.”
2. Briefly stated facts are that the assessee is a company deriving income from the manufacturing of scented, chewing tobacco, kimam and perfumery compounds. During the financial year 2010-11, the assessee company is also started business operations for selling luxury brand merchandise under the Franchise Agreement with Tom Ford International LLC and paid advertisement charges amounting to Rs.8,48,358/- to them. However, holding that the assessee company does not satisfy the test of incurring of the expenses wholly and exclusively for the purpose of business, laid down in section 37(1) of the Income Tax Act, 1961 (in short “Act”), the AO disallowed the same. So also challenging the demand of Rs.16,91,79,394/- on account of excise duty for the period from 01.04.1994 to 03.10.1996 on blended perfumery compounds, the assessee preferred the appeal before CESTAT and by order dated 27.04.2011, CESTAT confirmed the same. Provision for this liability to an extent of Rs.1,04,10,000/- was credited in the books of accounts for AY 2004-05, another sum of Rs.7,50,00,000/- was deposited during the FY 2005-06 and during the year, provision for Rs.8,37,69,394/- was created. Out of this provision, the assessee paid a sum of Rs.95,90,000/- before the filing of income tax return and claimed deduction u/s 43B of the Act. However, the AO held that the liability was crystallized after the closer of the FY 2010-11 i.e. 31.03.2011 as such the deduction cannot be allowed for the AY 2011-12. In appeal, Ld.CIT(A) confirmed both these additions. Hence, the assessee is before us in this appeal.
3. It is the argument of the Ld.AR in respect of Ground No.1 that no opportunity whatsoever was given by the AO while making addition of Rs.8,48,358/- and even the Ld. CIT(A) also concluded the matter on reading the agreement, but without allowing the opportunity to the assessee to put forth their contentions. Order of the Ld.CIT(A) also reads that it is the contention of the assessee that without affording an opportunity to the assessee to explain the stand in respect of the brand advertisement expense in the light of Franchise Agreement dated 02.04.2010, the AO decided the issue making the addition. Having regard to the facts and circumstances of the case, we are of the considered opinion that it is a fit case to remand the matter to the file of the AO to verify the stand of the assessee in respect of the brand advertisement expenses in the light of the Franchise Agreement dated 02.04.2010 to reach the conclusion as to the nature and genuineness of the expenses. With this view of the matter, we set aside the issue to the file of the AO.
4. Now coming to the second ground, it is the contention of the assessee that unlike the cases relied upon by the AO in this matter, the liability was definite and the provision was created during the relevant FY to the tune of Rs.8,37,69,394/- out of which only a sum of Rs.95,90,000/- was paid before the due date for filing the return. According to the assessee, in view of the fact that the provision was very much available during the FY, the liability was crystallized before the due date for filing the income tax returns, the payment of Rs.95,90,000/- towards the excise duty is an allowable expenditure for the AY 2011-12. Factually, there is no dispute that there was a demand under challenge in respect of Rs.16,91,79,394/- towards excise demand, creation of provision to a tune of Rs.8,37,69,394/- during the FY 2010-11 and payment of excise duty to the tune of Rs.95,90,000/- pursuant to the order dated 27.04.2011. Further, there is no dispute that the tax rates are similar for the AYs 2011-12 & 2012-13. Reliance is placed on the decision of the Hon’ble Apex Court in the case of CIT vs Triveni Engineering & Industries Ltd. in of 2009 vide para 11 for the principle that,-
“…………However, in the projected scenario of this case after taking stock of the entire situation, we are of the opinion that it is not necessary to conclusively answer the aforesaid questions formulated. It is because of the reason that we find that the entire exercise is revenue neutral. It may be pointed that it is a matter of record that against the provision of Rs.139 lacs, i.e, more than the provision made. It is undisputed that the expenditure incurred by the assessee on the project is admissible deduction. The only dispute that the Revenue seeks to raise is regarding the year of allowability of expenditure. Considering that the assessee is a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure is, in any case, revenue neutral.”
In the case on hand also as against the provision, the assessee made payment of Rs.95,90,000/- and the tax rates are uniform for the relevant and subsequent assessment years, as such in a tax neutral scenario, it is fair to allow the expenditure for this assessment year. We, therefore, allow this ground of appeal and direct the AO to delete the addition on this count.
In the result, the appeal of the assessee is allowed in part for statistical purposes.
The order is pronounced in the open court on 09th November, 2017.