2018 (9) TMI 473 - AT - Income Tax

Allowability of foreign tour expenses - Held that - Mrs. Zhu Xintian, the research manager having visited foreign countries wholly and exclusively for business purposes of the assessee company and therefore is entitled to claim the expenditure and we do not want to interfere in the order of the Ld. CIT(A), which is hereby upheld. TDS u/s 194C - Disallowance under the head Publicity Expenses - according to AO assessee violated the principal norm of business and claimed expenditure for the business as a manufacturer cum trader (seller) and not as a consignor - Held that - As decided in assessee s own case for AY 2011-12 2018 (4) TMI 709 - ITAT KOLKATA due to restriction of production of liquids in the factory premises by the land lord of the assessee, due to effluent water problem, the production of SORBILINE was shifted to backward area as ancillary costs for manufacturing the said product are low. In this regard, the assessee entered into an agreement with M/s.STP Pharmaceuticals Pvt. Ltd. according to which M/s. STP will manufacture the pharmaceutical products in the brand name Sorbiline by using materials from its own source and sell the same to the assessee on principal to principal basis. Therefore, undoubtedly the provisions of clause (e) of Explanation (iv) of sec. 194C gets attracted in the instant case and as such, the entire expenditure of ₹ 58,77,566/- being paid to M/s.STP Pharmaceuticals Pvt. Ltd for purchase of Sorbiline does not come under the ambit of sec. 194C, therefore, the AO erred on this issue. - Decided in favour of assessee Allowability of repairing expenses incurred on factory building - Held that - The expenditure incurred in this connection has not brought into existence any new advantage or any new asset and the expenditure was incurred only in the process of earning profit in the course of its business activities. Even after incurring expenditure on repair, the assessee continued to be lessee of the factory premise and continued to carry on the same business. Therefore, the business of the assessee remained the same even after the expenditure and the asset continued to be one of the lease holding assets. Hence, the claim of the assessee has to be allowed u/s 30(a) (i) of the Act. When the nature of work undertaken by the assessee is to carry on the business and not to obtain any capital asset, the expenditure incurred in this connection is to be treated as revenue expenditure. And it should be kept in mind that even though the advantage that accrues to the assessee on the incurring of the expenditure may endure for an indefinite future, still since the advantage consisted merely in facilitating the assessee s business to be carried on more efficiently or profitably while leaving the fixed capital untouched, the advantage would be of revenue nature. - Decided against revenue

Summary

Issues Involved:
1. Foreign tour expenses.
2. Disallowance under the head "Publicity Expenses."
3. Repairing expenses incurred on factory building.

Issue-wise Detailed Analysis:

1. Foreign Tour Expenses:
The revenue contested the partial relief granted by the Ld. CIT(A) on foreign tour expenses claimed by the assessee. The assessee argued that the foreign tours were essential for increasing export turnover and acquiring new technologies. The AO disallowed the expenses, questioning the business nexus and lack of substantiating documents. The Ld. CIT(A) provided partial relief, allowing 80% of the expenses. The Tribunal upheld the Ld. CIT(A)'s decision, noting the increase in export turnover and the relevance of the tours to business purposes. The Tribunal referenced a previous decision in the assessee's favor for AY 2011-12, confirming that the expenses were incurred wholly and exclusively for business purposes.

2. Disallowance Under the Head "Publicity Expenses":
The revenue appealed against the deletion of disallowance of ?6,78,696/- claimed as publicity expenses for physician samples. The AO disallowed the expenses, citing a violation of business norms and non-deduction of tax under Section 194C. The Ld. CIT(A) allowed the expenses, recognizing them as a marketing strategy to boost sales. The Tribunal upheld the Ld. CIT(A)'s decision, referencing a previous ruling for AY 2011-12. The Tribunal clarified that the expenses did not fall under Section 194C as the materials were sourced from a third party, not the assessee, and thus were not subject to TDS.

3. Repairing Expenses Incurred on Factory Building:
The revenue challenged the Ld. CIT(A)'s decision to allow repairing expenses on the factory building as revenue expenditure. The AO had treated the expenses as capital in nature, allowing only depreciation. The Ld. CIT(A) allowed the full amount, considering the expenses necessary for business operations. The Tribunal upheld the Ld. CIT(A)'s decision, citing various judicial precedents. The Tribunal noted that the repairs were in line with the lease agreement and were essential for maintaining the business premises. The expenses did not create any new capital asset and were therefore considered revenue in nature.

In conclusion, the Tribunal dismissed the revenue's appeal on all grounds, upholding the Ld. CIT(A)'s decisions on foreign tour expenses, publicity expenses, and repairing expenses. The judgments were based on previous rulings, the nature of the expenses, and their relevance to business operations.