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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI ASHWANI TANEJA, AM (A.Y:2010-11) Sanofi Synthelabo India Ltd. Addl. Commissioner of Income 54-A, SIR M.V. RD Andheri (E), Tax Vs. 8(3), Aayakar Bhavan, 2 nd Floor, Mumbai-400093 PAN No.AACCS1421J M.K. Rd, Mumbai-400020 Appellant .. Respondent Assessee by .. Shri. Sanjiv M Shah, AR Revenue by .. Shri. B.S. Bist, DR Date of hearing .. 15-12-2016 Date of pronouncement .. 15-12-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-18, Mumbai, in appeal No. CIT(A)-18/Addl.CIT-8(3)/IT-296/2013-14 dated 26-08-2014. The assessment was framed by ACIT-8(3), Mumbai for the A.Y. 2010-11 vide order dated 14-02-2014 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance made by the AO on account of advertisement and sales promotion expenses treating the same as capital expenditure and allowing depreciation thereon @ of 25%. For this assessee has raised following ground: - “
On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (A) (hereinafter referred to as CIT(A) has erred in disallowing advertisement and sales promotion expenses amounting to Rs.4,243,49,609/- by confirming the same as capital expenditure and allowing depreciation thereon @25%. He ought not to have done so.”
3. Briefly stated facts are that the assessee during the year under consideration as debited a sum of Rs.10,55,49,609/- under the head of advertisement and sales promotion and claim the same in P& L account. The AO noticed that the break up which is as follows: - Sr. No A&P Expenses Category wise Break-up Rs. In Crores
1. Brand Reminders (Items of Nominal Value, 2.22 value of each item is less than Rs.1000) 2 Knowledge Literature/Scientific Material, Art* 4.05
Sr. No A&P Expenses Category wise Break-up Rs. In Crores Work for these Items, Medical Education Books/Publications 3. Payments to Advertising Agency and Market 1.16 Research Agency 4. Medical Instruments (Nominal Items like 0.65 Thermometer, Sanitizer/Stethoscope 5. Medical Conferences/Congress 1.75 6. Event & Program Sponsorship 0.71 7. Honorarium to Doctors for Seminars 0.01 Grand Total 10.55 The AO after discussing various facts and after considering the submissions of the assessee allowed the expenses at Rs.6.31 crores and disallowed the balance amount of Rs.3,18,37,207/-, the details of allowable expenses which as under: - Sl Nature of Expense Amount Allowed as Remarks No Revenue (In Rs) 1. Brand Reminders Rs. 1.11 Crores Allowed as pertaining to sales promotion activities to the extent of 50% of the total expenditure debited 2. Knowledge Literature etc., Rs.3.04 crores Allowed as pertaining to sales promotion activities to the extent of 75% of the total expenditure debited 3. Payments to advertising agency Rs.0.58 crores Allowed as pertaining 4. Medical Instruments Rs.0.33 Crores to sales promotion activities to the extent 5. Medical Conferences/Congress Rs.0.88 crores of 50% of the total 6. Event & Program Sponsorship Rs.0.36 Crores expenditure debited 7. Honorarium Paid to Doctors Rs.0.01 Crores Allowed as pertaining to sales promotion activities in full to the extent of 100% of the total expenditure debited. Total Expenses Allowed Rs.6.31 crores -
The AO treated the balance amount of Rs.4,24,49,609/- as capital expenditure and allowed depreciation @ 25% on the same. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the disallowance by following the decision in assessee’s sister
Sanofi Pasteur India P Ltd. for the A.Y.2008-09 a group company by observing as under: -
Since the facts of the present case are the same, therefore, by following the decision in case of the group company, the amount of Rs. 4.05 crores incurred on knowledge literature, books & publications etc. and Rs. 1.75 crores on and medical conferences and Rs. 65 lakhs on medical instruments i.e. Thermometer, Sanitizers and Stethoscope etc. Thus, the total amount comes to at Rs.6.45 crores. However, the A.O. has taken the amount of Rs.4,24,49,609/- for considering in capital expenditure. I agree with the argument of the AO that all this expenditure is not of capital nature, but, Revenue expenditure is also involved in it. Therefore, the capital expenditure is restricted to Rs. 4,24,49,609/- as adopted by the AO. Since the depreciation was already been allowed by the AO, therefore, the disallowance made by the AO is upheld and ground of appeal is dismissed.
Aggrieved, now assessee is in second appeal before Tribunal.
At the outset, the learned Counsel for the assessee drew our attention to Tribunals order in assessee’s sister concern case for the A.Y. 2006-07 in in the case of DCIT vs Sonfi pasteur P Ltd order dated 13-12-2015, whereby the Tribunal has deleted the disallowance: - “6. We proceed with appeal for assessment year 2005-06, being the lead year. 7. The assessee is a company and is in the business of sales and distribution of vaccines imported from other countries, primarily from France. 8. In the course of assessment proceedings, the AO treated expenses incurred on advertisement at Rs. 7,96,873/- as capital in nature being 30% of Rs. 26,56,245/- as it would give enduring benefit to the assessee. 9. The assessee took the issue before the CIT(A), who after going through the details held, “The contention of the Appellant Company is justifiable in view of the fact that the expenditure incurred on advertisement, sales promotion and publicity is an expenditure which is incurred in the normal course of business of the Appellant Company. The fact that such expenditure is revenue in nature is supported by numerous judgments as relied upon by the Appellant Company. 2.6 The cases referred by the Ld. AC are in reference to the treatment of an expenditure which provides enduring benefit to assessee. The appellant has pointed out that it has been time and again held by various Hon'ble Tribunals including the jurisdictional Hon'ble Delhi Tribunal that expenditure incurred on advertisement and sales promotion does not ensure any enduring benefit to a company. Page 3 of 5 2.7 The appellant has relied on the observations of the Hon'ble Supreme Court in the cases of Empire Jute Company Ltd (Supra) and Alembic Chemical Works Company Ltd (supra). The Supreme Court observed that in such cases 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. 2.8 The appellant has pointed out that in Alembic Chemical Works Company Ltd (supra), the Hon'ble Supreme Court observed that the idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions: nor are the notions of capital or revenue a judicial fetish. The Supreme Court also observed that the once for all payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. The Supreme Court also noted that in a given case, the test of enduring benefit might break down. 2.9 The allegation of the Ld. AO that such expenditure results into brand building of the Appellant Company and its parent company is also of no consequence as it is merely a theoretical argument as held by various recent judicial pronouncements. 2.10 Moreover, the Ld. AO has failed to point out as to why the figure of 30 percent of expenditure has been treated as capita nature and not any other amount. This is clearly a case of adhoc disallowance which cannot be upheld, as observed by various judicial decisions. 2.11 In view of the above, the adhoc disallowance of 30% of the expenditure incurred on advertisement made by the Ld. AO is deleted”.
The CIT(A) reversed the order of the AO and accordingly gave relief to the assessee by deleting the disallowance of Rs. 7,96,873/-.
Against this order of the CIT(A), the department is in appeal before the ITAT.
Before us, the DR relied on the order of the AO, whereas, the AR relied on the order of the CIT(A).
After hearing both the parties and on going through the details and various case laws referred before us in the APB, we are of the opinion that there was no infirmity in the order of the CIT(A), who relied on the ratios laid down by the Hon’ble Supreme Court in the cases of Empire Jute Co. Ltd. vs CIT reported in 124 ITR 01 and Alembic Chemicals Works Company Ltd. vs CIT, reported in 177 ITR 377.
We, therefore, sustain the order of the CIT(A) on this issue and rejected the ground of appeal taken by the department.” When this was pointed out to the learned Sr. DR, he could not reply on the same.
6. After hearing both the sides and going through the facts of the case, we find that the facts and circumstances are exactly identical, what was before the co-ordinate Bench in assessee’s sister concerns case for the A.Y. 2006-07 in in the case of DCIT vs Sonfi pasteur P Ltd order dated 13-12-2015, wherein Tribunal deleted the addition. The nature of expenditure is the same what was in the case of sister concern. Respectfully, following the Tribunal’s decision in sister concern’s case, we delete the disallowance treating the expenditure as Revenue in nature. This issue of assessee’s appeal is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on15-12-2016.