2017 (4) TMI 920 - HC - Income Tax

Disallowance of claim of depreciation on non compete fees - Held that - Considering the fact that the similar claim on non compete fees was allowed in the earlier years and same has been accepted by the Revenue in essence of any change in facts, the assessee is rightly held to be entitled to the depreciation on non compete fees. In the recent decision in the case of Commissioner of Income Tax, Delhi IV vs. M/s. Dalamia Promoters & Devels (P) Ltd 2015 (9) TMI 1247 - SUPREME COURT has observed and held that Rule of consistency does demand that there being no change in circumstances, the similar treatment is required to be given as per previous years. - Decided in favour of assessee Disallowance of claim of reduction from stock of packing material and from stock of finished goods - AO disallowed the said claim due to failure on the part of the assessee to produce requisite evidence in respect of its claim of reduction of closing stock - Held that - As found that the assessee has followed due procedure, maintained the list of packaging material contains clear description of the goods that were considered to be not usable and also the list for damaged stock clearly show the material, quantity and description of the various items which were lying at different godowns across the country which were considered to be damaged and accordingly the statement for provision for damage was prepared and on that basis the goods have actually been reduced from the closing stock of finished goods, it cannot be said that the learned CIT(A) as well as learned Tribunal has committed any error in deleting the disallowance of claim - Decided in favour of assessee Disallowance of claim of foreign travel expenses - Assessee could not furnish the details to substantiate the nature of expenses incurred whether they were for personal or business purpose - Held that - The assessee has submitted the complete details of employees who have travelled abroad, duration of visit, countries visit, nature and amount of expenses and purpose of travel. The learned CIT(A) also observed that even otherwise considering annual turnover of more than ₹ 195 crores, the foreign travel expenditure of ₹ 3,20,467/only was required to be allowed, more particularly, when the same was duly supported by documentary evidence. The aforesaid has been confirmed by the learned Tribunal. Considering the facts and circumstances of the case, we are of the opinion that the learned Tribunal as well as learned CIT(A) rightly deleted the disallowance - Decided in favour of assessee Disallowance of web designing charges, trade mark expenses and survey expenses - AO disallowed the said expenditure by treating the same as capital expenditure - Held that - Delhi High Court in the case of CIT vs. Indian Visit Com Pvt Ltd (2008 (9) TMI 8 - DELHI HIGH COURT ) held that in case of expenditure on website, there is no change in the fixed assets of the assessee and no asset has been created but it is a tool for facilitating the business of the assessee and therefore, held expenditure of website to be of revenue nature. - Decided in favour of assessee Trade mark expenses, also and following decision of the Hon ble Supreme Court in the case of Finlay Mills Ltd (1951 (10) TMI 1 - SUPREME Court) the learned CIT(A) held that the trade mark expenses is of revenue in nature as the same does not created any assets or it does not result into any advantage of enduring nature.- Decided in favour of assessee Survey expenses looking to the nature of the business of the assessee to keep their products constantly updated keeping in view the customer preferences and the market demand and requirement trends, such survey is required. Therefore, the learned Tribunal correctly held survey expenses as revenue in nature.- Decided in favour of assessee TDS u/s 194C - disallowance u/s 40(a)(ia) incurred on account of gift article purchased for sales promotion - Held that - Considering the fact that merely because the logo of the company was added on the gift article which was to permit its business, it cannot be said that the purchase of goods article was a work contract for which TDS was required to be deducted. Logo was required only for the purpose of identification of the company. Therefore, the same is rightly held to be allowable as business expenditure. We are in complete agreement with the view taken by the learned CIT(A) as also learned Tribunal.- Decided in favour of assessee

Issues Involved:
1. Depreciation on non-compete fees.
2. Reduction of stock value for packing material and finished goods.
3. Foreign travel expenses.
4. Web design charges, trademark expenses, and survey expenses.
5. Disallowance under Section 40(a)(ia) of the Income Tax Act for gift articles.

Issue-wise Detailed Analysis:

1. Depreciation on Non-Compete Fees:
The Tribunal addressed whether the non-compete fees, capitalized as an intangible asset, were eligible for depreciation under Section 32 of the Income Tax Act. The Assessing Officer (AO) disallowed the depreciation on the grounds that non-compete fees did not qualify as an intangible asset. However, the CIT(A) allowed the depreciation, referencing decisions from the Chennai and Pune Benches and noting that similar claims had been accepted in previous assessment years. The Tribunal upheld this view, emphasizing the principle of consistency as endorsed by the Supreme Court in Commissioner of Income Tax, Delhi IV vs. M/s. Dalamia Promoters & Devels (P) Ltd.

2. Reduction of Stock Value for Packing Material and Finished Goods:
The AO disallowed reductions in stock value due to insufficient evidence. The CIT(A) overturned this, noting that the reductions were supported by detailed lists and proper procedures followed by the assessee, including physical verification and documentation of non-usable and damaged goods. The Tribunal confirmed this decision, agreeing that the assessee had provided adequate evidence and followed due procedure.

3. Foreign Travel Expenses:
The AO disallowed foreign travel expenses due to a lack of substantiating details. The CIT(A) reversed this decision, noting that the assessee provided comprehensive details of the travel, including employee names, travel duration, destinations, and purposes. The Tribunal upheld this, considering the expenses reasonable given the assessee's substantial turnover.

4. Web Design Charges, Trademark Expenses, and Survey Expenses:
The AO treated these expenses as capital expenditures. The CIT(A), referencing the Delhi High Court decision in CIT vs. Indian Visit Com Pvt Ltd, held that web design expenses were revenue in nature as they facilitated business without creating a new asset. Trademark expenses were also deemed revenue, following the Supreme Court's decision in Finlay Mills Ltd, as they did not create an enduring advantage. Survey expenses were considered necessary for business efficiency and customer preference analysis. The Tribunal upheld the CIT(A)'s view, confirming these expenses as revenue in nature.

5. Disallowance under Section 40(a)(ia) for Gift Articles:
The AO disallowed expenses for gift articles due to non-deduction of TDS under Section 194C, treating them as work contracts. The CIT(A) disagreed, stating that the expenses were for promotional articles with the company logo, which did not constitute a work contract. The Tribunal supported this, noting that adding a logo for business promotion did not require TDS deduction, and thus, the expenses were allowable.

Conclusion:
The High Court dismissed the Revenue's appeal, affirming the Tribunal's decisions on all issues, thereby upholding the CIT(A)'s allowances of the disputed claims.

← Previous Next →