TIGRE SAS LIQUORS INDIA PVT. LTD.,NEW DELHI vs. DCIT, CIRCLE-25(1), NEW DELHI

Ground no. 1 is general in nature, hence, need not be adjudicated.

As regards ground no. 2 & 3 confirming the adhoc disallowance on account of legal and professional expenses amounting to Rs. 35,52,173/- on account of legal expenditure incurred towards registration of trade mark and Rs. 4,77,794/- towards label registration charges, considering the same as intangible asset being capital in nature. The assesse has incurred an expenditure of Rs. 47,36,231/- and Rs. 6,37,058/- towards registration of its trademarks in various countries and towards label designing charges. The assesse has claimed such expenditure to be revenue in nature and hence, has claimed the same in the statement of profit and loss account. AO observed that the registration of trade mark has led to generation of an intangible asset and hence, the same is supposed to be capitalised and thus, eligible for depreciation @25%. Thereafter, the AO disallowed the balance 75% and Ld. CIT(A) confirmed the same. During the hearing, Ld. AR submitted that during the year assesse company has incurred total legal and professional expenses amounting to Rs. 77,42,054/-, out of this a sum of Rs. 47,31,231/- has been incurred in respect of trade mark/brand. Complete bills and detail of the same has already been submitted and the expenditure incurred in respect of trade mark is an admissible deduction u/s. 37 of the Act. Ld. AR draw our attention towards the page no. 10-11 placed at Paper Book containing the copy of detail regarding legal and professional charges pertaining to brand development incurred by the assesse company during the AY 2014-15. He further draw our attention towards page no. 41-113 of the PB containing the copies of various bills of professional fees are the copies of ledger account from Page 213 to 220. He further draw our attention towards page no. 12-13 of the PB containing the copy of Label Registration Fees Ledger Account for the period 1.4.2013 to 31.3.2014. We note that expenditure of Rs. 35,52,173/- incurred by the assesse are on account of legal expenditure. We note that the assesse company incurred amounting to Rs. 47,36,231/- which the assesse claims to be revenue expenditure, and thus had claimed the deduction of the same in its statement of profit and loss and further the assesse had also incurred Rs. 6,37,058/- towards label registration charges for the same brand. In fact as per Section 32(1)(ii) expenditure for trade-mark /copy right, license, franchise are to be treated as capital in nature. Therefore, we do not find any reason to interfere in the finding given by the CIT(A) on this issue, thus assessee appeal on these issue are dismissed.

As regards ground no. 4 relates to confirmation of addition of Rs. 2,72,73,854/- regarding marketing expenses. The assesse had incurred some marketing expenditure, collectively amounting to Rs. 3,56,19,078/- and the assesse claimed that the said expenditure, collectively amounting to Rs. 3,56,19,078/- . However, the AO observed that after incurring this marketing expenditure, would create a brand identity, that would lead to it to have enduring benefits. Thus, the AO considered the expenditure to be deferred revenue expenditure and hence disallowed 80% of the same and Ld. CIT(A) partly confirmed the action of the AO. During the hearing, Ld. AR has submitted that marketing expenses amounting to Rs. 3,56,19,078/- includes expenses amounting to Rs. 66,65,457/- on which TDS has been deducted @ 10%. As the said amount was paid for the professional services obtained by Tigre SAS Liquors India Pvt. Ltd., thus, the same have been covered under section 194J and TDS have been deducted @10%. It was further submitted that as far as balance marketing expenses are concerned amount is paid in respect of contracts payments in regard to marketing expenses. Accordingly, TDS @2% is deducted on the same. He draw our attention towards page no. 122-190 of PB which are mostly the copies of the Bill raised by USP Entertainment Solutions before the assesse and the PB page no. 213 to 220 are the copies of Ledger Account for the period 1.4.2013 to 31.3.2014 for detention charges, advt. and publicity, legal and professional charges etc. In view of the above discussion, it is abundant clear that expenditure incurred by the assesse suits the commercial expediencies of its business, and thus the assesse’s claim that it is eligible to claim the entire expenditure seems to be genuine one. Accordingly, the addition partly sustained by the Ld. CIT(A) is hereby deleted and ground no. 4 is allowed.

As regards ground no. 5 relating to not giving benefit of the losses of preceding year 2013-14 amounting to Rs. 2,43,02,348/- available to the assessee company is concerned, we note that Ld. CIT(A) has noted that amount of loss is consequential to the recalculation, that ought to be done as a consequence of the appellate order for AY 2013-14 and such recalculated loss ought to have been allowed to the assessee, on fulfilment of the subjected terms and conditions. Hence, he rightly directed the AO to verify the computation of taxes, in light of the provisions of Section 72 and Section 139(1) and allow the benefit of losses, if allowable to the assessee. Accordingly, we affirm the action of the Ld. CIT(A) and thus reject the ground no. 5 raised by the assessee.

In the result, the appeal of the assessee is partly allowed.

That Ld. CIT(A) has erred both in law and on facts of the case in confirming the disallowing of expenditure incurred on registration of trade mark of Rs. 79,55,233/-.

The CIT(A) has erred in both in law and on facts of the case in confirming the interest u/s. 234B of the Act. 9. Ground no. 1 is general in nature, hence, need not be adjudicated.

Ground No. 7 & 8 are not pressed, hence, the same are dismissed as such.

Ground no. 9 is consequential in nature, thus, need not be adjudicated at this stage. 12. Ground No. 4 is exactly similar and identical which we have already dealt in (AY 2014-15), as aforesaid, wherein we have deleted the addition in dispute in respect of claim of marketing expenditure, hence, respectfully following the aforesaid precedent, we delete the addition in dispute in the instant appeal for AY 2013-14) and accordingly, allow the ground no. 4 raised by the assessee.

As regards ground no. 2 relating to confirmation the disallowance of expenditure incurred on registration of trade marks of Rs. 79,55,233/- is concerned, AO noted that the trademarks are intangible assets and hence, the creation of such intangibles are to be capitalized and accordingly, the asset so created is eligible for depreciation, under the provisions of section 32(1)(ii) hence, the AO allowed the depreciation of 25% on such intangible assets, disallowed the balance expenditure, thereby making an addition of Rs. 79,55,233/- and in appeal Ld. CIT(A) affirmed the action of the AO by holding that trademark is an intangible assets. Before us, Ld. AR has submitted that assessee company has entered into an agreement with Tigre France (supplier of the assessee company) regarding purchase of goods. It is noticed that as per clause 1.1, page no. 1 of the agreement, it is clearly mentioned that assessee company would be free to register its Trademark of Tigre Blanc outside India on its own cost and accordingly would be eligible to enjoy the corresponding revenue on the same. Thus, in support of the agreement assessee company in the year 2013-14 has incurred expenses for registration of trade mark outside India and claimed it as revenue expenditure under section 37 of the Act, but the AO during the course of assessment proceedings has rightly disallowed the said expenditure. We note that in view of Section 32(1)(ii) expenditure for trade-mark /copy right, license, franchise are to be treated as capital in nature. Therefore, we do not find any reason to interfere in the finding given by the CIT(A) on this issue, thus assessee appeal on this issue is dismissed.

As regards ground no. 3 relating to confirmation the claim of expenditure incurred in connection with new line of business activity and thereby making an addition of Rs. 17,97,760/- is concerned, AO noted that assessee was not able to justify the nature of expenses, whether any professional opinions or consultancies were taken for abandoning of such project etc. Further, even though the assessee had incurred expenditure, and AO noted that the appellant was unable to match the expenditures with any substantial benefit or business and therefore, the expenditure on new line of business, being abandoned could not be claimed as an expenditure. Ld. CIT(A) affirmed the action of the AO by noting that expenditure is not allowable to the applicant. Ld. AR submitted that during the year assessee company has incurred expenses amounting to Rs. 17,97,760/- for starting a new project of pizza chain. The said expenses were incurred for developing a brand launch strategy for the premium pizza chain in India. But, unfortunately after incurring the said expenses, assessee company has dropped the idea on the basis of some prognosis that the business will not be fruitful and claimed these expenses as revenue expenditure. However, AO disallowed the said expenses on the ground that the expenses are not related to the assessee present business, but for the proposed line of new business, which was not launched and started and therefore expenses are liable to be disallowed. We note that the said expenses were the legal expenses which were not incurred in the commercial expenses and for all the expenses assessee had already submitted sufficient vouchers invoices to substantiate its claims, copies thereof are placed at paper book pages 55-59 and 141-143. We find plausible contention of the Ld. AR that assessee that the said expenses were also not for any new line of business because the assessee company is in the business of hospitality and not only into sale and purchase of any specific products, and therefore serving liquors along with other product is not a new line of business but a part of hospitality and in the business of hospitality the main object is to identify the needs of their client and fulfilled it i.e. initially assessee company had started supplying liquors and further decided to provide a good quality pizza which could have been served alongwith drinks and therefore incurred certain legal expenses for developing the brand launch strategy for pizza. The expenditure incurred by the assessee company to start new business, which could not be started should not be disallowed. Of late, assessee realised that the said business is not fruitful, hence, he dropped the idea and rightly claimed the expenditure as revenue expenditure under the provisions of section 37 of the Act. In view of the aforesaid factual matrix, we delete the addition in dispute and accordingly, the ground no. 3 is allowed.

Ground no. 5 relating to confirmation of claim of launching expenses and thereby making an addition of Rs. 10,95,212/- is concerned, we note that assessee had incurred an expenditure of Rs. 10,95,212/- towards launching of its brand in a fashion festival and the same was disallowed by the AO on the contention that the expenditure is not towards business activities of the assessee, which was in appeal affirmed by the Ld. CIT(A) by noting that the expenditure is towards building-up of its brand and the brand so built up will obviously tantamount to creation of intangible asset, that would give benefits till the perpetual life of existence of such brand. It was informed by the Ld. AR that these expense have been incurred on launch of the brand ‘Tigre Blanc’ of the assessee company. In view of the aforesaid facts and circumstances, we are of the considered view that Ld. CIT(A) has rightly held that assessee is eligible to claim benefit of 25% of depreciation on such capitalised cost, under the provisions of section 32(1)(ii), which does not need any interference on our part, hence, we affirm the same. Accordingly, the ground raised