M/S. DHARAMPAL SATYAPAL SONS (P) LTD.,NEW DELHI vs. DCIT, 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

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,-

The order is pronounced in the open court on 09th November, 2017.