2016 (3) TMI 590 - AT - Income Tax

Expenses incurred during the year on account of advertisement and publicity - assessee submitted that marketing costs incurred during the product campaign were deferred and amortized over a period of 4 years - Held that - As decided in assessee s own case the revenue has failed to bring out a case to establish that any capital assets had come into existence. Further, as held by the Hon ble High Court, there is no concept of deferred revenue expenditure in Income-tax laws. The genuineness of the expenditure has not been doubted by the revenue authorities. Keeping all these facts in view expenditure to be allowed - Decided in favour of assessee Depreciation on goodwill - Held that - As decided in assessee s own case AO is directed to grant the depreciation on the consideration for the purchase of the exclusive business rights which are to be treated as intangible assets - Decided in favour of assessee Depreciation on WDV of patent, trademark and intellectual property rights paid to Ciel Aircon Ltd - Held that - once the completion of the agreement is done by payment of the consideration as on the completion date specified in the agreement the assessee would be in possession of the duly executed instruments of transfer, assignment and Conveyances of the assets as specified in the agreement which are basically the intellectual property rights and the fixed assets. This being so, as also the principles as laid down by the Hon ble Supreme Court in the case of Mysore Minerals Ltd. 1999 (9) TMI 1 - SUPREME Court it would have to be held that the assessee was the owner of the property and the assessee having used the same in its business was entitled to depreciation on the same. - Decided in favour of assessee

Issues Involved:
1. Disallowance on account of arm's length price (ALP) adjustment.
2. Disallowance of advertisement and publicity expenses.
3. Depreciation on written down value (WDV) of exclusive business rights (goodwill) paid to Usha International Ltd.
4. Depreciation on WDV of patents, trademarks, and intellectual property rights acquired from Siel Aircon Ltd.

Issue-wise Detailed Analysis:

1. Disallowance on Account of Arm's Length Price (ALP) Adjustment:
The assessee, engaged in the manufacture, export, assembly, supply, distribution, and import of refrigeration equipment, entered into several international transactions during the assessment year 2003-04. The Transfer Pricing Officer (TPO) noted a significant increase in the cost of material relative to sales compared to the previous year. The assessee used the Cost Plus Method (CPM) for benchmarking, taking the associated enterprises (AEs) as the tested party. The TPO rejected this approach, arguing that the foreign AE was not less complex and its accounts were not accessible for verification. Instead, the TPO applied the Transactional Net Margin Method (TNMM) and selected comparables, determining an adjustment of Rs. 141,268,918 based on a margin of 4.09% earned by comparables.

The assessee appealed, arguing that the TPO did not provide an opportunity to comment on the selection of comparables and that an alternative analysis should be considered. The Tribunal found that the TPO failed to give the assessee a proper opportunity to present relevant facts and restored the matter to the TPO for de novo consideration, emphasizing the need for a fair hearing as per the Delhi High Court's decision in Moser Baer India Ltd. vs. Addl. CIT.

2. Disallowance of Advertisement and Publicity Expenses:
The assessee claimed Rs. 52,151,834 as advertisement and publicity expenses, which the Assessing Officer (AO) disallowed, treating them as capital expenditure for launching a new product. The CIT(A) deleted the disallowance, noting that the expenses were for ongoing business activities and did not result in any enduring benefit.

The Tribunal upheld the CIT(A)'s decision, referencing its earlier order in the assessee's case for AY 2002-03 and the Delhi High Court's dismissal of the department's appeal against that order. The Tribunal reiterated that there is no concept of deferred revenue expenditure in income tax laws, and the genuineness of the expenditure was not in doubt.

3. Depreciation on WDV of Exclusive Business Rights (Goodwill) Paid to Usha International Ltd.:
The assessee claimed depreciation on goodwill related to the acquisition of business and commercial rights from Usha International Ltd. The AO disallowed the claim, but the CIT(A) allowed it based on the Tribunal's decision for AY 2001-02, which treated the exclusive business rights as intangible assets eligible for depreciation.

The Tribunal confirmed the CIT(A)'s decision, noting that the issue had been settled in the assessee's favor in earlier years, and there were no changes in the facts for the assessment year in question.

4. Depreciation on WDV of Patents, Trademarks, and Intellectual Property Rights Acquired from Siel Aircon Ltd.:
The assessee claimed depreciation on intellectual property rights acquired from Siel Aircon Ltd. The AO disallowed the claim, arguing that the assets were not registered in the assessee's name. The CIT(A) allowed the claim, following the Tribunal's decision for AY 2001-02, which held that registration was not necessary for claiming depreciation.

The Tribunal upheld the CIT(A)'s decision, referencing its earlier order in the assessee's case and emphasizing that the intellectual property rights were used in the business, making them eligible for depreciation.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, remanding the ALP adjustment issue to the TPO for fresh consideration. The revenue's appeal was dismissed, with the Tribunal upholding the CIT(A)'s decisions on advertisement expenses and depreciation on goodwill and intellectual property rights. The judgment emphasized the importance of providing the assessee with a fair opportunity to present its case and the consistent application of legal principles established in earlier decisions.

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