2016 (5) TMI 530 - AT - Income Tax

Disallowance of depreciation made on non compete fees - Held that - Since the claim of assessee was allowed in A.Y. 2007-08 and 2008-09, meaning thereby that Revenue has accepted the claim and in such situation, on the same non-compete fees without there being any change in facts, no disallowance on depreciation can be made in the year under consideration. - Decided against revenue Disallowance of claim of reduction from stock of packing material and finished goods - Held that - CIT(A) while deleting the addition made by A.O. has given a finding that the list of packing material which were written off contains clear justification the goods that were considered to be not usable and it showed the material, quantity and description of the various items which were lying at different godowns and which were considered to be as damaged. With respect to the reduction from closing stock of finished goods, the ld. CIT(A) has given finding that assessee has followed due procedure for writing off of the stock and procedure has been verified by auditors and the procedure followed by the assessee was as per accounting practices followed by the assessee. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). - Decided against revenue Disallowance of claim of foreign travel expenses - Held that - CIT(A) while deleting the addition had given a finding that the assessee had furnished compete details of employees who had travelled abroad, duration of visit, countries visited, nature and amount of expenses and purpose of travel. He has also noted that the evidences placed on record include the correspondences made with the travel agents and the expenses were reasonable as compared to the total turnover of the company. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A).- Decided against revenue Disallowance of web designing charges - Held that - CIT(A) while deleting the addition on account of web designing charges has given a finding that no asset has been created but web designing is only a tool for facilitating the business of the assessee as it provides the means for managing the information about the assessee. With respect to trade mark expenses, he has given a finding that the expenses did not create any asset or result into any advantage of enduring nature and the expenses were only incurred to avoid future litigation and therefore, expenses were revenue in nature. With respect to survey expenses, he has given a finding that the expenses have been incurred to improve efficiency of the business by finding out customers preferences for sugar substitute, market research for its product, evaluation of its product and the expenses are necessary in line of the business. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). - Decided against revenue Disallowance made u/s.40(a)(ia) - non TDS on account of gift articles and promotional articles - Held that - CIT(A) while deleting the addition had noted that the items that were purchased by the assessee were for sales promotion, were in the nature of ready goods and only logo of the company was printed on the items and the logo was added to promote the business. - Decided against revenue

Issues Involved:
1. Deletion of disallowance of depreciation on non-compete fees.
2. Deletion of disallowance of reduction from stock of packing material and finished goods.
3. Deletion of disallowance of foreign travel expenses.
4. Deletion of disallowance of certain expenses considered capital in nature.
5. Deletion of disallowance made under section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of depreciation on non-compete fees:
The Assessee claimed depreciation on non-compete fees, which the Assessing Officer (A.O.) disallowed, stating that non-compete fees do not fall under the category of intangible assets as per section 32 of the Income Tax Act. The CIT(A) allowed the claim, referencing decisions from the ITAT Chennai Bench and ITAT Pune Bench, which recognized non-compete fees as intangible assets eligible for depreciation under section 32(1)(ii). The Tribunal upheld the CIT(A)'s decision, noting that the claim was allowed in previous assessment years and no new facts warranted a change.

2. Deletion of disallowance of reduction from stock of packing material and finished goods:
The A.O. disallowed reductions from the closing stock of packing material and finished goods due to lack of supporting evidence. The CIT(A) accepted the Assessee's detailed lists and procedures for write-offs, stating that these were in line with standard accounting practices and verified by auditors. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the Revenue did not provide contrary evidence.

3. Deletion of disallowance of foreign travel expenses:
The A.O. disallowed foreign travel expenses due to insufficient details proving business purposes. The CIT(A) overturned this, accepting the Assessee's documentation of travel details, destinations, and business purposes, noting that the expenses were reasonable relative to the company's turnover. The Tribunal upheld the CIT(A)'s decision, as the Revenue failed to provide evidence to the contrary.

4. Deletion of disallowance of certain expenses considered capital in nature:
The A.O. treated web designing charges, trademark expenses, and survey expenses as capital expenditures. The CIT(A) reclassified these as revenue expenditures, citing relevant case law and the nature of the expenses:
- Web designing charges: Cited Delhi High Court's decision in CIT vs. Indian Visit.com Pvt. Ltd., stating that web designing is a tool for business facilitation, not an asset creation.
- Trademark expenses: Referenced Finlay Mills Ltd., stating that trademark registration avoids future litigation and does not create an enduring asset.
- Survey expenses: Highlighted that these expenses improve business efficiency and are necessary for consumer-related companies to stay competitive.
The Tribunal found no reason to interfere with the CIT(A)'s findings, as the Revenue did not provide contrary evidence.

5. Deletion of disallowance made under section 40(a)(ia) of the Income Tax Act:
The A.O. disallowed expenses on gift articles, asserting they were works contracts requiring TDS deduction under section 194C. The CIT(A) disagreed, stating the items were ready goods with the company's logo added for promotion, not works contracts. The Tribunal upheld the CIT(A)'s decision, noting the distinction from the ITAT Pune Bench's decision in BDA Limited vs. ITO, as the Assessee's purchases were not custom-made but standard promotional items.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, as the Revenue failed to provide sufficient evidence to counter the CIT(A)'s findings. The order was pronounced in open court on 06/04/2016.

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