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TMI Blog2011 (1) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... d includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. the expenditure incurred towards advertisement for and on behalf of holding company are undoubtedly on grounds of commercial expediency inasmuch as the assessee undoubtedly would be benefited by making advertisement of the brand name Adidas to augment and promote sale effected by the assessee in the notified territories - Accordingly the appeal of the assessee is allowed - ITA NO. 1889/DELHI/2010 - - - Dated:- 7-1-2011 - ORDER Per C.L. Sethi, Judicial Member The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and debited the same to the holding company and no amount was actually paid by the assessee company to holding company out of the borrowed fund for non-business purposes. It was further clarified by the assessee before the Assessing Officer that the assessee was required to pay royalty to holding company but due to losses, no royalty was paid for the last years as a result thereof, the amount debited to the holding company on account of expenditure on brand promotion remained outstanding. In the light of these facts, the assessee contended before the AO that the amount spent on brand promotion was incurred for the purpose of business specially when the assessee was trading in goods with the brand name (Adidas) and the debit balance was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions that were made before the AO. The assessee's submissions have been summarized by the CIT(A) in his order as under: (1) It was submitted by the AR that the outstanding amount with the holding company was not in the nature of any advance but was actually on account of advertisement expenditure due from them. Accordingly the Assessing Officer was not justified in treating as an advance and disallowing the interest payment. (2) The AR further argued that the interest free advances made by the appellant company to the holding company is guided by the principal of commercial expediency in view of the fact that the amount was mainly spent by the appellant company towards advertisement and promotion of brand Adidas in India. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. To that extent the interest being paid by the appellant on its loans/deposits is not justified for business purposes. The Assessing Officer has rightly disallowed this amount of interest and the AR of the appellant has not provided any convincing reason for justifying the interest free advance provided to its holding company. Accordingly I am of the opinion that in view of the facts and circumstances the disallowance made by the assessing Officer is fully justified. As a result this ground of the appellant is dismissed." 7. Still aggrieved, the assessee is in appeal before us. 8. We have heard both the parties and have carefully perused the orders of the authorities below. We have also gone through various documents and papers pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because the assessee was paying royalty @ 5% to its holding company would not mean that the assessee could not incur the expenditure on advertisement to popularize the products dealt with by it in Indian market. No doubt, brand name of Adidas is already a well-known brand which belongs to the parent company of the assessee. However, to popularize the said product in India and to promote its sale in Indian territories, it became necessary to incur expenditure on advertising to propagate the aforesaid brand name. The benefit thereof has to necessarily accrue to the assessee as the main purpose of the advertisement was to augment the sales. The fact that the advertisement expenditure was incurred based on commercial practice and commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to its holding company. In the course of hearing, it has been pointed out by the learned counsel for the assessee that the identical addition made by the Assessing Officer in the assessment year 2003-04 has been deleted by the CIT(A) vide order dated 22.10.2010 by applying the principle laid down by the Hon'ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) and in that respect, the learned counsel for the assessee relied upon the aforesaid decision of the Hon'ble Supreme Court. In the case of S.A. Builders (supra), the Hon'ble Supreme Court has observed that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency and it is immaterial if a third ..... X X X X Extracts X X X X X X X X Extracts X X X X
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