2015 (3) TMI 1418 - AT - Income Tax

Nature of expenses - Service charges/ Technical advisory and management fee - services availed from M/s. United Breweries Ltd. etc are technical knowhow etc in its nature, where the benefits are enduring in nature and hence constitutes capital expenditure - AO treated these expenses as capital expenditure and disallowed from the revenue expenditure and allowed depreciation @ 25% as applicable to intangible assets - HELD THAT - The Tribunal has considered the issue in appeal 2013 (2) TMI 716 - ITAT CHENNAI for the assessment year 2008-09 and decided the issue in favour of the assessee. Depreciation on intangible assets - HELD THAT - The present assessment years under consideration i.e. assessment years 2003-04 and 2010-11since the facts are identical and the issue is recurring one, the ld. CIT(A), by following the above decisions of the Tribunal allowed the depreciation claim of the assessee for the assessment years 2003-04 and 2010-11. CIT(A), while deciding the issue has considered the entire issue of depreciation and also extracted the order of the ld. CIT(A) for the assessment year 2008-09 2013 (2) TMI 716 - ITAT CHENNAI Allowability of sales promotion expenses - HELD THAT - CIT(A) after considering the entire facts of the case, came to the conclusion that there is possibility of unreasonableness and excessive claim and disallowed 7.5% of total sales promotional expenses of Rs. 14,03,35,927/- and allowed only Rs. 12,39,29,825/- Rs. 13,44,55,019 Rs. 1,05,25,194 . We find that the order passed by the CIT(A) is just fair and reasonable by considering all relevant materials and we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue is dismissed. Possibility of excess claim to the extent of 7.5% in sales promotion expenses claimed by the assessee - HELD THAT - During the hearing of the appeal assessee has not able to controvert the findings of the ld. CIT(A) towards the disallowance except stating that the entire claim of the assessee ought to have been allowed by the ld. CIT(A). We find that, after examining all the details filed by the assessee, CIT(A) came to a reasonable conclusion that the claim of the assessee is excessive to the extent of 7.5%. We find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of Service Charges/Technical Advisory and Management Fee.
2. Depreciation on Intangible Assets.
3. Disallowance of Sales Promotion Expenses.

Detailed Analysis:

1. Disallowance of Service Charges/Technical Advisory and Management Fee:
The primary issue was whether the service charges/technical advisory and management fees paid to M/s. United Breweries Ltd. were capital or revenue expenditures. The Assessing Officer (AO) treated these expenses as capital expenditures, allowing only depreciation on them. The assessee argued that similar disallowances in earlier years had been overturned by the ITAT, and the CIT(A) agreed, directing the AO to treat these as revenue expenses. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by previous Tribunal decisions in the assessee's favor.

2. Depreciation on Intangible Assets:
The second issue was the disallowance of depreciation on intangible assets such as trademarks, licenses, and permissions acquired from M/s. Empee Distilleries Ltd. The AO disallowed the depreciation, questioning the valuation and genuineness of the assets. The CIT(A) allowed the depreciation, citing previous Tribunal decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee had substantiated its claim and that the depreciation was allowable based on the written down value (WDV) method.

3. Disallowance of Sales Promotion Expenses:
The third issue involved the disallowance of sales promotion expenses amounting to Rs. 13,44,55,019/-. The AO questioned the necessity and genuineness of these expenses, especially since the assessee's products were sold through TASMAC, a state monopoly. The AO also doubted the authenticity of the transactions with M/s. Presidency Projects Private Limited (PPPL), which handled the sales promotion activities. The CIT(A) found that the AO had not given the assessee an opportunity to address the adverse findings from the Inspector's report and had not sufficiently substantiated the disallowance. The CIT(A) allowed most of the expenses but disallowed 7.5% as excessive and unreasonable. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were genuine and incurred for business purposes, and the disallowance of 7.5% was reasonable.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and upheld the CIT(A)'s decisions on all issues. The Tribunal also dismissed the assessee's appeal and cross-objection, finding no reason to interfere with the CIT(A)'s conclusions.