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TMI Blog2015 (5) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Appellant : Shri Firoze Andhyarujina For the Respondent : Shri Sachchidanand Dubey ORDER Amit Shukla (Judicial Member).- This appeal has been preferred by the assessee against order dated January 19, 2012 passed by the learned Commissioner of Income-tax (Appeals)-39, Mumbai, for the quantum of assessment passed under section 143(3), for the assessment year 2008-09, mainly on the following grounds of appeal : On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) erred in directing the Assessing Officer to treat the reusable artwork expenses as capital expenses. The learned Commissioner of Income-tax (Appeals) had given the direction to the Assessing Officer for capitalising artwork expenses which is incurred on artwork which is reusable for more than one year. The learned Commissioner of Income-tax (Appeals) ignored the law laid down by the jurisdictional High Court in the case of CIT v. Geoffrey Manners and Co. Ltd. [2009] 315 ITR 134 (Bom). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be developed by the designers time and again. These artwork are designed on the theme based on Diwali season, sports events, festivals or any other events, which cannot be reused in future. It does not result into acquisition of any capital asset. It was further submitted that, this issue is squarely covered by the order of the learned Commissioner of Income-tax (Appeals) for the assessment years 2005-06 and 2006-07. The learned Commissioner of Income-tax (Appeals) after considering the entire facts and the details of artwork expenses which have been reproduced from pages 9 to 11 of the appellate order, held that some of the artwork prepared in electronic form can be reused, however, it is also possible that certain artwork can be used for many years. Thus he agreed that some of them cannot be reused and therefore, he directed the Assessing Officer to examine each artwork and decide, whether the art is reusable for more than a year or not. 5. Before us learned senior counsel, Shri Firoze Andhyarujina submitted that these artwork are basically prepared or conceptualised for advertisement for a particular product for a particular period. These advertisement materials keeps on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e artwork and other expenses. The Commissioner of Income-tax (Appeals) segregated the said artworks made for special occasions with reusable value and usa ble only for a short period. On this basis, the Commissioner of Income-tax (Appeals) held certain artworks are made for special occasions which can be used only once or for a very short period worked out at ₹ 4,58,425 and rest of the amount, i.e., (Rs. 6,11,234 ₹ 4,58,425) ₹ 1,52,809 is confirmed and granted depreciation on the confirmed portion of the addition. Before us, learned counsel read out the relevant facts and the sub missions of the assessee and the reasoning given by the Assessing Officer for making addition and finally the logic basing on which the Commissioner of Income-tax (Appeals) granted substantial relief and confirming the amount of ₹ 1,52,809, which is the subject-matter of litigation now. In this regard, learned counsel mentioned that the criteria adopted by the Commissioner of Income-tax (Appeals), i.e., 'certain artworks for special occasions which can be used only once or for a short period' is completely artificial in nature. The Commissioner of Income-tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted by the assessee that, all the relevant details of foreign travelling and also the reasons for such foreign travel was duly filed and explained before the Assessing Officer. The assessee had also submitted copy of letters and communications relating to foreign travel by the directors and other related documents. It was further submitted that similar addition made was deleted in the assessment year 2007-08. The details of such foreign travel has been incorporated by the learned Commissioner of Income-tax (Appeals) at pages 13 and 14 of the appellate order in respect to the five travels undertaken by the directors. Out of the said five travels, the learned Commissioner of Income-tax (Appeals) has deleted expenses in respect of 3 travels which were less than one lakh and with regard to the following two travels he has confirmed. Ms. Schauna Chauhan Tour was undertaken to have meeting with Tetra pak at Germany and to see any prospective business opportunity for making export of products ₹ 1,59,717 Mr. Prakash J. Chauhan Tour was undertaken to attend Tetra pak office at Switzer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2008-09. As regards Germany and Switzerland the appellant started its export in the financial years 2010-11 and 2011-12. We are enclosing sample copies of export invoices and copy of sales register for assessment year 2008-09 showing export sales on pages 15-18. In view of the above facts the foreign travel expenditure of directors were incurred for business purpose as 'the above explanation prove that there was commercial expediency for incurring of such expenditure'. However, the learned Commissioner of Income-tax (Appeals) has disallowed this expenditure on the ground that the assessee could not give proper explanation with concrete evidence. 10. Before us, learned senior counsel submitted that the business purpose of the travel has been duly explained and also the effect of these foreign travel in the subsequent export made by the assessee. Moreover, up till 2006-07 foreign travel has been allowed by the Assessing Officer and in the assessment year 2007-08, the learned Commissioner of Income-tax (Appeals) has deleted such addition and the Revenue has not preferred any appeal on this issue. Thus no disallowance is called for. 11. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm 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. 13. In ground No. 3 the assessee has challenged the disallowance on account of market research expenses of ₹ 19,50,234. The Assessing Officer disallowed the said expenditure on the ground that the assessee could not explain the nature of expenditure and, therefore, he treated it as capital expenditure. 14. Before the learned Commissioner of Income-tax (Appeals), the assessee made very detailed submissions with regard to the nature of these expenditure and why market research is carried out for deciding the market strategy for promoting its goods, which are fast moving consumer goods products. The assessee's submissions have been incorporated from pages 17 to 19 of the appellate order. However, the learned Commissioner of Income-tax (Appeals), confirmed the said addition without assigning any proper reason except for stating that the assessee could not produce any copy of the report submitted by the market research agencies. 15. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame precedence on similar facts which are permeating through in this year also, we allow the said expenses. Accordingly, ground No. 3 is treated as allowed. 18. In ground No. 4 the assessee has challenged the disallowance of product development expenses of ₹ 13,58,256 which includes design charges. The product development expenses have been incurred by the assessee to study the combination of ingredients of different products and to study the possible new idea of the product. These expenditures have been incurred for the purchase of various ingredients of the products like pulp juice, concentrate and other products for in-house testing and research and development. The expenses also include cold storage charges to preserve the pulp and concentrate. The Assessing Officer, without assigning any proper reason, held it to be capital expenditure. 19. Before the learned Commissioner of Income-tax (Appeals), the assessee has filed exhaustive explanation which has been incorporated from pages 20 to 25 of the appellate order. The learned Commissioner of Income-tax (Appeals) after going through the details of the product development expenses, held that out of disallowances of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the relevant findings of the authorities below and the material available on record. The only issue before us is on account of expenditure incurred for the designing charges of packaged drinking water bottle and changing of colour of the cap of the beverages bottles. The assessee's contention is that the expenditure incurred for designing of products, etc., is required to be made very frequently i.e., in one to two years to stay in the competitive market and to keep pace with the market trends. The assessee is into manufacturing and sale of fast moving consumer goods products and has various competitors in the market having similar line of products. Keeping with the market trends and pace of consumer preferences, the changes in the design of the products and also the quality of the products is an essential part of market strategy to augment sale and profit. Such an expenditure incurred for designing the product cannot be held to be of enduring benefit. Even otherwise also, if the advantage of such expenditure is merely for augmenting the assessee's trading/ business operations or to carry on the business more efficiently for profitability, leaving the fixed capital untou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 5 the assessee has challenged the disallowance of claim of deduction under section 80-IB. Learned senior counsel submitted that in this year the assessee has shown income on book profit under section 115JB. The Assessing Officer has disallowed the loss of the earlier years. In case in the final outcome of the earlier years the assessee's loss is not accepted, then direction should be given to allow the claim of deduction under section 80-IB. He submitted that this issue had come up for consideration before the Tribunal in the assessment year 2007-08, wherein the Tribunal has directed the Assessing Officer to look into the matter. 24. After considering the submission made by learned counsel we find that in the assessment year 2007-08, the Tribunal has discussed this issue in the following manner (page 128 of 36 ITR (Trib)) : Regarding additional ground, learned senior counsel submitted before us that the return of income for the assessment year 2007-08, was filed claiming carried forward of losses, which resulted into 'nil' income in the return of income filed. Therefore, the claim of deduction under section 80-IB, was not shown in the compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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