GALAXY MEDICARE,BHUBANESWAR vs. ACIT, CIRCLE-2(1), BHUBANESWAR

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ITA 34/CTK/2017Status: DisposedITAT Cuttack26 May 2017AY 2011-129 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that trademark and ISO expenses are revenue in nature, bad debts written off are allowable if written off in accounts, and the cash payment for stall charges was allowable due to business expediency under the exceptions to Section 40A(3).

What were the facts?

The assessee claimed trademark and ISO expenses as revenue expenditure, which the AO disallowed as capital expenditure. The assessee also claimed bad debts written off, which the AO disallowed for lack of evidence. Additionally, a cash payment for stall charges was disallowed under Section 40A(3).

What were the issues?

Whether trademark and ISO expenses are capital or revenue expenditure, and whether bad debts written off and cash payments for business expenses are allowable deductions.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 36(1)(vii),Section 36(2),Section 40A(3)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, CUTTACK

Before: SHRI N.S SAINI

For Appellant: Shri P.R.Mohanty, AR
For Respondent: Shri D.K.Pradhan, DR
Pronounced: 26/05/2017

This is an appeal filed by the assessee against the order of CIT(A)-1,

Bhubaneswar, dated 18.11.2016, for the assessment year 2011-12.

2.

Ground Nos.1 & 5 are general in nature and hence, requires no

separate adjudication by me.

3.

In Ground No.2 of the appeal, the grievance of the assessee is that

the ld CIT(A) erred in confirming the disallowance of Rs.1,02,200/- and

Rs.58,874/- claimed towards trade mark & ISO expenditure.

4.

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the

assessee claimed expenditure of Rs.1,02,200/- under the head “trade

mark” and Rs.58,874/- under the head “ISO “ as revenue expenditure in

the profit and loss account. The Assessing Officer disallowed treating the

same as capital expenditure.

5.

Before the CIT(A), the assessee submitted that the expenses were

required to be incurred to meet the regulatory requirement of foreign

governments, which protect the assessee against any infringement claim

by or against it in respect of use of brand name and avoid future

costs/losses on this account. It was submitted that the expenditure is

allowable as revenue expenditure. The Assessing Officer did not accept the

explanation of the assessee as such expenses certainly adds to the value

of trademark and would have resulted in benefit of enduring nature to the

assessee by way of long term business potential under the registered

trademark. It was argued that the test of enduring benefit cannot be

applied in isolation disregarding the other factors like creation of

new/additional assets and/or creation of new/additional sources of income.

Reliance was placed on the decision of Hon’ble Supreme Court in the case

of Empire Jute co. Ltd vs CIT, 124 ITR 1 (SC), wherein, it was held that

that expenditure for registering trademarks in India is allowable as revenue

expenditure by the Assessing Officer. Ld CIT(A), however, confirmed the

order of the Assessing Officer for the very same reason based on which the

disallowance was made by the Assessing Officer.

6.

Ld A.R. of the assessee before me relied on the decision of

Ahmedabad Bench of the Tribunal in the case of Fortune Infotech Limited

vs ACIT in ITA No.1384 & 1386/Ahd/2008 for the assessment year 2004-

05 order dated 15.7.2011, wherein, it was held as under:

“We have heard both the parties and gone through the facts of the case as also the aforecited decisions. W bile adjudicating the claim in the context of claim of expenditure for obtaining ISO 9002 certification, a co-ordinate Bench in their decision in Tirupati Microtech (P) Ltd. (supra), while referring to decision Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1 concluded that since by making payments for obtaining ISO 9002 certification, the fixed capital of the company did not enhance in any manner; il rather created a positive image of products of the assessee for the smooth conduct of the business, expenditure was revenue in nature. Following this decision, another Bench in Climate Systems India Ltd.(supra) allowed the claim of the assessee on account of ISO certification charges. In the light of view taken in these decisions, especially when the Id. DR did not place any material before us so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no alternative but to allow the claim of the assessee. Therefore, ground no..1in the appeal of the assessee is allowed.” 7. He further placed reliance on the decision of Mumbai Benches of the

Tribunal in the case of DCIT vs. M/s. USV Limited in ITA No.453/Mum/2009

for the assessment year 2006-07 order dated 18.3.2010, wherein, it was

held that the Hon’ble Supreme Court in the case of Finlay Mills vs CIT, 20

ITR 475 (SC) has held as under:

“The result however of the trade marks Act is only two fold. By registration, the owner is absolved from the obligation to prove his ownership of the trademark. It is treated as prima facie proved on production of the registration certificate. Thus, it

merely saves him the trouble of leading evidence, in the event of a suit, in a court of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers. Cancel the registration and he has till his right enforceable at common law to restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage so as to make payment for its registration a capital expenditure.”

8.

He submitted that the Tribunal following the same allowed the claim

as revenue expenditure to the assessee. He further relied on the decision

of Ahmedabad Tribunal in the case of Lubi Electricals Ltd vs Department of

Income Tax in ITA No.1925 and 2760/Ahd/2007 for the assessment years

2002-03 and 2005-06 order dated 23.4.2010, wherein, it was held that ISO

-9000 expenses was allowable as business expenditure under section 37(1)

of the Act. Therefore, it was his submission that the disallowance made

may be deleted.

9.

Ld D.R. relied on the orders of lower authorities.

10.

I find that the undisputed facts of the case are that the assessee

during the year incurred expenses of Rs.1,02,200/- and Rs.58,874/- for

registration of trademark and getting ISO certification. The Assessing

Officer disallowed the deduction on the ground that it was capital

expenditure and not revenue expenditure as the same would give enduring

benefit by incurring the said expenditure. Ld A.R. has relied on the decision

of Hon’ble Supreme Court in the case of Empire Jute Co Ltd (supra),

wherein, the Hon’ble Supreme Court has held that

there may be cases where the expenditure even if incurred for obtaining

of an advantage of enduring benefit may none the less, be on revenue

account and the test of enduring benefit may break down.”. Further, the

Ahmedabad Bench of the Tribunal in the case of Lubi Electricals Ltd, held

that ISO -9000 expenses was allowable as business expenditure under

section 37(1) of the Act. No contrary decision could be cited by ld D.R. He

could not show any good reason to not to follow the above quoted decision

of the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd (supra)

and the decision of Ahmedabad Benches of the Tribunal in the case of Lubi

Electricals (supra). Therefore, respectfully following the same, I set aside

the orders of lower authorities and delete the additions of Rs.1,02,200/-

and Rs.58,874/- made by the Assessing Officer under the head “trade mark

expenses and ISO expenses and allow this ground of appeal of the

assessee.

11.

In Ground No.3 of the appeal, the grievance of the assessee is that

the CIT(A) erred in confirming the addition of Rs.2,27,377/- towards bad

debt written off.

12.

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the

undisputed facts of the case are that the assessee had claimed expenditure

of Rs.2,27,377/- under the head “bad debts written off”. The Assessing

Officer disallowed the claim on the ground that the assessee failed to

produce documents/evidences to justify the writing off the same under

section 36(1)(vii) r.w.s 36(2) of the Act.

13.

On appeal, the CIT(A) confirmed the action of the Assessing Officer.

14.

Ld A.R. relied on the decision of this Bench of the Tribunal in the case

of Alfa Transformers Ltd vs ACIT in ITA No.35/CTK/2017 for the assessment

year 2006-07 order dated 26.4.2017, wherein, it was held that the writing

off the security deposits in the interest of the business was a genuine loss

suffered by the assessee and hence, allowable deduction to the assessee.

15.

Ld D.R. relied on the orders of the lower authorities.

16.

I find that the Hon'ble Supreme Court in the case of TRF Limited vs.

CIT, 323 ITR 397 (SC) while adjudicating a similar claim concluded as

under:

"This position in law is well-settled. After 1st April,1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee........."

17.

In the instant case, it is not disputed that the assessee has written

off bad debts in its books of account of 10 parties aggregating to

Rs.2,27,377/- on the ground that those amounts remained outstanding

for more than five years and there is no chance of recovery despite the best

efforts to recover the same and the assessee has submitted the ledger

copies of those parties before the Assessing officer. Therefore, respectfully

following the decision of the Hon'ble Apex Court in TRF Ltd.(supra) , I set

aside the orders of lower authorities and delete the addition of Rs.2,27,377

and allow this ground of appeal of the assessee.

18.

In Ground No.4 of the appeal, the grievance of the assessee is that

the CIT(A) erred in confirming the disallowance of Rs.25,000/- under

section 40A(3) of the Act.

19.

I have heard the rival submissions and perused the orders of lower

authorities and materials available on record. In the instant case, the

Assessing Officer found that the assessee had paid Rs.25,000/- to West

Bengal Orthopedic Association (conference) in cash for stall charges in

violation of the provisions of section 40A(3) of the Act. Therefore, he

disallowed deduction for the same to the assessee.

20.

On appeal before the CIT(A), the assessee submitted that the

expenses were incurred solely and exclusively for the business of the

assessee. The expenses were paid to UBOACON Calcutta for stall which

includes, tent charges, electricity charges, table, chairs, charges for snacks,

which were paid in cash being a business necessity and compulsion being

intrinsic nexus with the business of the assessee.

21.

The CI(A) confirmed the action of the Assessing Officer on the ground

that the purpose for which the payment was made was totally

inconsequential and irrelevant.

22.

Before me, ld A.R. reiterated the submissions made before the lower

authorities.

23.

Ld D.R. relied on the orders of lower authorities.

24.

I find that it is not disputed that the expenditure of Rs.25,000/-

claimed for payment made to WBOACON in cash for stall payment was

genuine. It is also not disputed that the same was incurred solely and

exclusively for the purpose of business of the assessee. The expenditure

was incurred in cash by the assessee in exceptional circumstances to

acquire a stall and the assessee was required to make payment of

Rs.25,000/- in cash. Thus, the expenditure was incurred by the assessee

out of business expediency and hence, covered by the exception provided

in the proviso to section 40A(3A) of the Act. Hence, I set aside the orders

of lower authorities and delete the addition of Rs.25,000/- made u/s.40A(3)

of the Act and allow this ground of appeal of the assessee.

25.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 26/05/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 26/05/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Galaxy Medicare Ltd., Plot No.2, Zone-D, Phase-A, Mancheswar Industrial Estate, Bhubaneswar 2. The Respondent. DCIT, Circle 2(1), Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar BY ORDER, 5. DR, ITAT, Cuttack 6. Guard file. SR.PRIVATE SECRETARY //True Copy// ITAT, Cuttack

Date Initial 1. Draft dictated on 23/05/17 Sr.PS 2. Draft placed before author 23/05/17 (dictation pad Sr.PS has been enclosed along with original file) 3. Draft proposed & placed AM before the second member 4. Draft discussed/approved by AM Second Member. 5. Approved Draft comes to the Sr.PS/ Sr.PS/PS PS 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the H.C. 9. Date on which file goes to the SPS 10. Date of dispatch of Order.

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