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Facts
The appeal was filed by the revenue against the order of the CIT(A) who deleted the additions made by the Assessing Officer. The issue pertains to the disallowance of advertisement and sales promotion expenses claimed by the assessee as revenue expenditure. The assessee is engaged in the business of manufacturing and distributing luggage and travel accessories under the "Samsonite" brand.
Held
The Tribunal noted that similar issues had been considered in the assessee's own case for subsequent assessment years, and the coordinate bench had consistently allowed such expenses as revenue expenditure. The Tribunal also relied on the decision of the Bombay High Court in the case of CIT vs. Asian Paints (India) Ltd., which held that expenditure incurred for maintaining the corporate image and facilitating business operations, leading to increased sales, is a revenue expenditure.
Key Issues
Whether advertisement and sales promotion expenses incurred for brand building and enhancing sales are revenue or capital expenditure.
Sections Cited
Sec. 143(2), Sec. 143(3), Sec. 92CA, Sec. 92CA(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: BEENA PILLAI & SHRI PRABHASH SHANKAR
O R D E R Per Beena Pillai, JM: Present appeal is filed by the revenue arises out of the order dated 27/09/2023 passed by Ld.CIT(A)/NFAC for Assessment Year 2011-12 on following grounds of appeal:
Brief facts of the case are as under:
The assessee, is a company incorporated under the Companies Act, 1956, and is engaged in the business of manufacturing, marketing and distribution of moulded luggage (hard luggage) and travel accessories as well as importing and distribution of soft luggage of the "Samsonite" brand under an agreement with Samsonite Corporation. It is submitted that two major share holder groups Samsonite Group holding 60% and Tinwala Group holding 40% of the total Capital.
2.1. The assessee filed its return of Income for AY 2011-12 on 30/11/2011 declaring total Income at Rs.50,26,79,310/- under the 2.2. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued alongwith notice u/s. 143(3) of the Act. In response to statutory notices, the assessee filed requisite details as clause for. The Ld. AO noted that assessee had entered into international transaction with its associated enterprise and accordingly a reference was made u/s. 92CA to the transfer pricing office (hereinafter referred as Ld. TPO).
2.3. Upon receipt of the reference, the Ld. TPO called for the economic details of the transaction entered into between the assessee and its AE. The assessee was called upon to furnish the details of the transaction in form 3CEB. On perusal of the details furnished by the assessee, the Ld. TPO analysed the international transaction and came to the conclusion that the same was an arm’s length. The Ld. TPO vide order dated 31/10/2014 passed the order u/s. 92CA(3) accepting the arm’s length price of the transaction reported by the assessee.
2.4.Upon receipt of the transfer pricing order, the Ld. AO, thereafter, issued notice in respect of various corporate taxes issues.
2.4.1. During the course of assessment proceedings, the assessee was called upon to produce details/documents/explanations 2.4.2. The assessee submitted that under a Royalty Agreement with "Samsonite Corporation", the assessee was licensed to manufacture market and distribute Samsonite brand of luggage and travel accessories in India and to Samsonite Group companies worldwide. The assessee submitted that as per the terms of Royalty Agreement (clause 7.1.), the assessee is required to promote the products in which the assessee is dealing. It was submitted that, the advertising cost incurred by the assessee was claimed as business expenditure, as it was incurred exclusively for the purpose of its business.
2.4.3. It is submitted that the break-up of advertisement expenses incurred by the assessee during the year is as follows:
Particulars AY 2011-12 AY 2010-11 Amount (Rs.) Amount (Rs.) Advertisement expenses 261,065,043 178,095,976 CSD Service Charges 70,033,111 38,087,312 CSD Travelling & Sales 23,942,126 19,369,348 Promotion Sales Promotion Expenses 29,129,600 20,899,040
Total 384,169,880 256,451,676 2.4.4 The Ld. AO after considering the submission disallowed advertising and sales promotion expenses of Rs.10,66,27,140/-. On receipt of the draft assessment order, the assessee indicated the Ld. AO to file the appeal before the Ld. CIT(A). Accordingly, the Ld. AO passed the final assessment order making disallowance of the advertisement and sales promotion expenses along with the other disallowances made considered therein.
Aggrieved by the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A).
Before the Ld. CIT(A), assessee filed order passed by this Tribunal in assessee’s own case for assessment year 2012-13 vide order dated 01/09/2017, wherein the identical issues was considered on similar facts and circumstances. The Ld. CIT(A), following the order of this Tribunal deleted the additions made by the Ld. AO.
Aggrieved by the order of the Ld. CIT(A), revenue filed appeal before this Tribunal.
4.1. The Ld. D.R. placed reliance on the observations of the Ld. AO in support of the argument that, the expenditure incurred by the assessee towards sales promotion and advertising expenses cannot be considered as revenue expenses. He submitted that, these expenses were incurred by the assessee to facilitate increased sales of the product over a period of time. Thereby, ensuring an enduring benefit of the assessee.The Ld. DR submitted that, these expenses deserve to be disallowed.
4.2. On the contrary, the Ld.AR placed reliance on the decisions of the coordinate bench of this Tribunal in assessee’s own case for subsequent assessment year, the details of which are as under:-
“i. Samsonite South Asia Private Limited vs. Dy. CIT, Income Tax Act No.1934/Mum/2017 dated September 01, 2017 for AY 2012-13 ii.Samsonite South Asia Private Limited vs. ACIT dated August 31, 2018 for AY 2013-14 iii.DCIT vs. Samsonite South Asia Private Limited, dated September 30, 2019 for AY 2014-15” 4.3. The Ld. AR also placed reliance on the decision of the Hon'ble Bombay High Court in case of CIT vs. Asian Paints (India) Ltd. reported in [2016] 75 taxmann.com 152, wherein, identical expenditure incurred by the Asian Paints was allowed as revenue expenditure. He, thus, vehemently supported the orders passed by the Ld. CIT(A).
It is noted that similar issue has been considered by coordinate bench of this tribunal on identical facts and circumstances in assessee’s own case for assessment year 2012-13, 2013-14, 2014- 15. Facts of the orders have been relied upon by the Ld.AR herein above. We note that the Ld.DR could not contrast the factual similarity between the assessment year under consideration viz-a- viz for subsequent assessment year which was the matter of appeal before this tribunal. On perusal of the order passed by this tribunal for assessment year 2014-15, we note that this tribunal confirmed the view of the Ld. CIT(A) by observing as under:-
‘We have deliberated at length on the issue involved in the present appeal in the backdrop of the facts discernible from the record and the contentions advanced by the authorised representatives for both the parties. In our considered view, the issue involved in the present appeal is squarely covered by the order passed by the Tribunal in the assessee’s own case for A.Y. 2012-13 in /2017, dated 01.09.2017. In the aforesaid case, it was observed by the Tribunal, that the 'advertisement and sales promotion expenses' incurred by the assesse were allowable as a revenue expenditure. The Tribunal while concluding as hereinabove, had observed as under:- "24. Up on careful consideration, we note that assessee has incurred expenditure on advertisement and sales promotion. The assessing officer & DRP have held on an adhoc basis that a certain portion out of the above is aimed at brand building and the same is to be held as capital expenditure and the assessee can be granted depreciation their upon. When this is considered in light of the fact that the brand doesn't belong to the assessee and it is not the case of the revenue that assessee has incurred expenditure aimed at benefiting the associated enterprise this addition is clearly not sustainable. When the brand doesn't belong to the assessee there is no question of incurring expenditure over building of 5.2. On perusal of the decision of the Hon'ble Bombay High Court, question of law on identical issue was subject matter of consideration. Hon'ble High Court in the case of Asian Paint (India) Ltd. (supra) observed and held 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 5.3.Under such circumstances, we do not find any confirmity in the view taken by Ld. CIT(A) and the same observed to be upheld. The Ld. DR has also placed nothing on record in order to distinguish the order under consideration with that all the subsequent assessment orders factually.
In the result the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 30-10-2024.