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2015 (5) TMI 643 - AT - Income TaxReusable artwork expenses - revenue v/s capital expenditure - Held that - . It is an admitted fact that similar claim of the assessee was allowed in the past by the Revenue without making additions. It is only in this year, based on artificial criteria, this expenditure was considered as capital in nature. The criteria adopted by the Commissioner of Income-tax (Appeals), in our opinion, is not proper and any artwork which has a life of six months or less, by no reasoning, can be considered as capital expenditure. Considering the average life span of such artwork, which is only less than six months, it cannot be inferred that any capital apparatus has come into existence which can be the source of income generation for the assessee. It is not justifiable that the artworks fall in the capital field. Accordingly, we direct for deleting the addition as expenses claim under the head artwork is to be allowed as business expenditure. - Decided in favour of assessee. Disallowance of foreign travel expenses - CIT(A) deleted the disallowance which were on account of business conference held in Singapore and Trade Fair in China - Held that - he business and commercial expediency has to be seen from the businessman s point of view and if proper explanation with supporting evidence has been given, then disallowance cannot be made on some flimsy ground. The entire explanation and evidences have been negated by the CIT (A) on the ground that no concrete evidence has been given. However, what evidences are lacking have not been specified. It appears that CIT(A) has confirmed the expenses mainly on the ground that travel expenses was more than one lakh. Whatever expenditure was less than one lakh has been deleted by him holding it to be so for business purpose and other for non-business purpose, without pointing out any personal uses. Thus, we do not find any reason to affirm such a finding in the conclusion of the learned Commissioner of Income-tax (Appeals) based on such a dichotomy. Accordingly disallowances made on account of foreign travel expenses for sums aggregating ₹ 7,10,160 is deleted. - Decided in favour of assessee. Disallowance of market research expenses - Held that - Such an expenditure which are regularly to be undertaken for sustaining the market and to push up sales are not in capital field but are essential and are incurred in the ordinary course of business for promoting the existing brands. We also find that in immediately preceding assessment year, that is, in 2007-08, while deciding the Revenue s appeal this issue has been decided in favour of the assessee. Accordingly, consistent with the same precedence on similar facts which are permeating through in this year also, we allow the said expenses - Decided in favour of assessee. Disallowance of product development expenses which includes design charges - Held that - So far as the expenditure incurred on product development and design charges, we delete the disallowance as these are purely revenue expenditure. So far as the finding of the learned Commissioner of Income-tax (Appeals) that certain expenditure has been claimed on the last date of the accounting year, we find that learned senior counsel has pointed out that, the assessee was issuing various product ingredients to its manufacturing unit/factory for testing purpose during the year and same has been accounted for after receiving the details of consumption. Whatever has been consumed, is accounted for in the books of account and claimed as expenditure. Certain advances of products given in the later half of the accounting year has been debited on the last day. So far as the factum of incurring the expenditure, the same has not been doubted.- Decided in favour of assessee. Disallowance of claim of deduction under section 80-IB - there would be no carried forward of losses, hence, will result into positive income and then deduction under section 80-IB has to be allowed as per assessee - Held that - As decided in assessee s own case in the assessment year 2007-08 on the same line of issue that being a legal plea based on statutory provision, we direct the Assessing Officer that in case, as a result of any order passed by the High Court, resulting into setting aside of the Tribunal order or denying the claim of carried forward of losses, then the Assessing Officer while computing the positive income of the assessee for this year, shall examine the claim of deduction under section 80-IB. - Decided in favour of assessee for statistical purpose.
Issues Involved:
1. Disallowance of artwork expenses. 2. Disallowance of foreign travel expenses. 3. Disallowance of market research expenses. 4. Disallowance of product development expenses. 5. Disallowance of claim for deduction under section 80-IB. Issue-wise Detailed Analysis: 1. Disallowance of Artwork Expenses: The assessee challenged the disallowance of Rs. 34,22,131 on account of artwork expenses. The Assessing Officer (AO) treated these expenses as capital expenditure, allowing depreciation at 25%. The assessee argued that the artwork had a life of less than six months and was mainly for advertisement purposes, thus should be considered as revenue expenditure. The Commissioner of Income-tax (Appeals) (CIT(A)) directed the AO to examine if the artwork was reusable for more than a year. The Tribunal found that the artwork expenses were for short-duration advertisements and followed the precedent from the earlier year, deciding in favor of the assessee. The Tribunal held that the artwork expenses should be allowed as business expenditure. 2. Disallowance of Foreign Travel Expenses: The assessee challenged the disallowance of Rs. 7,10,160 out of Rs. 9,39,258 debited for foreign travel expenses. The AO disallowed the expenses due to insufficient details provided by the assessee. The CIT(A) allowed expenses for three travels but disallowed two travels to Germany and Switzerland, citing lack of concrete evidence. The Tribunal found that the foreign travel was for business purposes, such as understanding market conditions and exploring business opportunities with Tetra Pak. The Tribunal noted that the assessee provided sufficient material to show the business purpose of the travel and deleted the disallowance. 3. Disallowance of Market Research Expenses: The assessee challenged the disallowance of Rs. 19,50,234 on account of market research expenses. The AO treated these expenses as capital expenditure due to lack of explanation from the assessee. The CIT(A) confirmed the disallowance, stating that the assessee did not produce the market research reports. The Tribunal found that the market research was essential for understanding market trends and consumer preferences, which is crucial for the assessee's business. The Tribunal noted that similar expenses were allowed in the previous year and held that these expenses should be treated as revenue expenditure. 4. Disallowance of Product Development Expenses: The assessee challenged the disallowance of Rs. 13,58,256 out of Rs. 21,20,897 claimed as product development expenses. The AO treated these expenses as capital expenditure without proper reasoning. The CIT(A) disallowed 75% of the expenses debited on the last day of the accounting year, citing abnormality. The Tribunal found that the expenses were incurred for testing and research purposes and were debited after consumption. The Tribunal noted that similar expenses were allowed in the previous year and held that these expenses should be treated as revenue expenditure. 5. Disallowance of Claim for Deduction Under Section 80-IB: The assessee challenged the disallowance of the claim for deduction under section 80-IB. The AO disallowed the claim due to the assessee showing income on book profit under section 115JB and disallowing the loss of earlier years. The Tribunal directed the AO to examine the claim of deduction under section 80-IB if, as a result of the computation of income of earlier years, positive income is arrived at. The Tribunal followed the precedent from the previous year and allowed the ground for statistical purposes. Conclusion: The appeal filed by the assessee was partly allowed for statistical purposes. The Tribunal directed the AO to re-examine certain disallowances and allowed other expenses as revenue expenditures based on precedents and the nature of the expenses. The order was pronounced in the open court on December 12, 2014.
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