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TMI Blog2015 (7) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... goods is reversed the moment the goods reached the destination only actual breakages are charged to P&L account. It is only in respect of the goods which are under dispatch at the year end the provision was created. This shows that the amount debited to P&L account represents mostly actual breakages and this system of accounting is being followed continuously by the appellant. The provision is made on scientific basis and can be estimated such provision can be allowed as a deduction. Applying this principle to the facts of the case, even in this case the provision was made based on past experience and the actual damages were taken into account immediately after the goods reached the destination which means that the provision was made only in respect of goods which were under dispatch as at the end of the year. This provision was made based on the past experience. Therefore, the provision had been made on some basis. Therefore, based on the ratio laid down in the above cases, the provision is allowable as a deduction.- Decided in favour of assessee. Restricting the allowance of brand expenses to only 1/5th of such expenses - Held that:- From the details, it is clear that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-09. ITA Nos. 4278/Del/2010 for AY 2006-07, 287/Del/2012 for AY 2007-08 288/Del/2012 for AY 2008-09 3. The grounds of appeal raised by the assessee in ITA No. 4287/Del/2010 are as follows: i. That the order of the Commissioner of Income Tax (Appeals) {CIT(A)} in so far as in prejudicial to the appellant, is bad in law and deserves to be set aside. ii. That the ld. CIT(A) grossly erred in law in not allowing the brand registration expenses of ₹ 1,279,500/- as revenue expenditure for the year under consideration and in limiting the allowance of such expenditure only to 1/5th of such expenditure. iii. That the ld. CIT(A) grossly erred in law in holding such brand registration expenses to be capital in nature and holding that on account of such expenses the assessee would continue to derive benefit over a number of years. iv. That the ld. CIT(A) completely erred in not appreciating that the assessee was mandatorily required to register its brand under in various states every year in order to sell in such states and there was no enduring benefit which arose from such expenditure. v. That the ld. CIT(A) grossly erred in sustaining the addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant reserves its right to add, alter, amend, or modify any ground of appeal either before or at the time of hearing of this appeal. 4. The similar grounds were raised for the other assessment years, namely, 2007-08 and 2008-09. 5. Facts in brief are that the appellant is a company incorporated under the Companies Act, 1956. It is a subsidiary of Pernod Ricard India Pvt. Ltd. (PRIPL), Barakhamba Road, New Delhi and the main holding company is Pernod Ricard SPA France. The appellant is engaged in the business of manufacturing and sale of grain neutral spirit (GNS). The appellant filed its return of income on 30.11.2006 declaring total income at ₹ 1,18,85,38,845/-. The return was processed under section 143(1) of the Income-tax Act, 1956 (for short the Act ) and thereafter the case was selected for scrutiny. The assessment was completed on 16.12.2009 under Section 143(3) of the Act at a total income of ₹ 1,29,53,57,400/- after making several disallowances to the tune 10,68,18,564/-, addition on account of provision of transit breakage ₹ 14,01,233/-, on account of depreciation ₹ 25,27,254/-, on account of brand registration ₹ 12,79,500/- and on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s appeal for assessment year 2002-03, the other dispute is with regard to disallowance of ₹ 2 lakhs on account of brand registration expenses. The assessee incurred a sum of ₹ 3,90,000/- on brand registration expenses which was disallowed by the Assessing Officer on the ground that they were capital in nature. The CIT(Appeals) however noted that these expenses were for fees required to be paid for as per state excise law for registration of the brand and allowed a sum of ₹ 1,90,000/- by holding the same as revenue in nature. He, however, confirmed a disallowance of ₹ 2 lacs since the receipts for such amount had not been produced. 13. Before us also, the assessee has not produced any evidence. In these circumstances, we uphold the disallowance and the order of the CIT(Appeals). Accordingly, this ground is dismissed. 8.3 Respectfully following the decision of this Tribunal in the appellant s own case for the assessment year 2002-03, we allow this ground of appeal filed by the assessee. 9. Ground no. 3 relates to the disallowance of provision for transit breakages of ₹ 14,01,233/- for AY 2006-07, ₹ 27,74,953/- for AY 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004-05 4275,111 4027,830 371,755 30,500 300,000 702,244 427,851 27,112 673,566 1128,529 247,281 During the year a provision of ₹ 702,244 has been created and a reversal of ₹ 1,128,529 pertaining to the assessment year 2003- 04 has been made. The Assessing Officer has wrongly made an addition of ₹ 247,281 without giving the credit of ₹ 673,281 relating to assessment year 2003-04 reversed in the current year. No addition ought to have been made since the figure of reversal is higher that the figure of provision made during the year. The assessee is new in the business, therefore, cannot have any basis on its own experience of break-up. On a perusal of the chart aforesaid, we however find that the provision is without any basis much less the scientific one. This is evident by the fact that the assessee itself has reversed the provision on the first day of next year. In any case, even the expenditure claimed by the assessee stood at ₹ 2,874/- only as against the provision made by the assessee at ₹ 6,40, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance and his orders in the appeals for assessment years 2002-03 to 2004-05. 9.1 From the above it is clear that this Hon ble Tribunal had confirmed the disallowance only on the ground that there was no basis for making provision for transit breakages. The Tribunal had no benefit of the decision of Hon ble Supreme Court in the case of Rotrok Controls (India) Pvt. Ltd. Vs., 314 ITR 62 (SC). It is undisputed that the provision was made based on the dispatch of goods to various destinations on the basis of past experience. The crucial facts to be taken into consideration that the provision made on the dispatch of goods is reversed the moment the goods reached the destination only actual breakages are charged to P L account. It is only in respect of the goods which are under dispatch at the year end the provision was created. This shows that the amount debited to P L account represents mostly actual breakages and this system of accounting is being followed continuously by the appellant. The Hon ble Apex Court in the case of Rotrok Controls (India) Pvt. Ltd. (supra) held as follows vide para 18: At this stage, we once again reiterate that a liability is a present obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee. It may be noted that in all the impugned judgments before us the assessee(s) has succeeded except in the case of Civil Appeal Nos. 3506 to 3510 of 2009-arising out of SLP(C) Nos. 14178-14182 of 2007-Rotork Controls India (P) Ltd. vs. CIT, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under section 37 of the 1961 Act. However, the High Court has failed to notice the reversal which constituted part of the data systematically maintained by the assessee over last decade. 9.2 Even the Hon ble Jurisdictional High Court in the case of CIT Vs. Insilco Ltd., 320 ITR 322, held as follows: Having heard the learned counsel for the Revenue as well as the assessee, we are of the view that no fault can be found with the reasoning of both the CIT(A) as well as the Tribunal. In our view, the issue raised by the Revenue before us that the liability under the long service award scheme of the assessee is contingent as the payment under the same scheme is dependent on the discretion of the management is a submission which deserves to be rejected at the threshold. It is well settled that if a liability arises within the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent from the analysis aforesaid that the position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows:- 5 Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under Section 28 or section 37 of the Act. 7. The Division Bench of this Court, while considering deductibility of a provision for warranties made by an assessee, which dealt in computers in the case of CIT Vs. Hewlett Packard India (P) Ltd. [2008] 314 ITR 55 (Del.), by its judgment passed in Appeal No. ITA 486/2006 dated 31.03.2008, upheld the deductibility of the provision for warranty on the ground that it was made on the basis of actuarial valuation being covered by the principle set out in Metal Box Company of India Vs. Their Workmen [1969] 73 ITR 53. In view of the aforesaid decisions and given the fact that the provision was estimated based on actuarial calculations, we are of the opinion that the deduction claimed by the assessee had to be allowed. We find no fault with the reasoning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. CIT Vs. Berger Paints (India) Ltd., 254 ITR 503, (Cal.), 3. CIT Vs. Vs. Adidas India Marketing Pvt. Ltd., 195 Taxman 256 (Del.), 4. Addl. Comm. Vs. Delhi Cloth and General Mills, 144 ITR 280 (Del), 5. DCM Vs. CIT, 198 ITR 500 (Del.), 6. The Commissioner of Income Tax Vs. Citi Financial Consumer Financial Ltd., 335 ITR 29 (Del.), 7. CIT Vs. India Visit.Com (P) Ltd., 2019 CTR 603 (Del.), 8. Nestle India Vs. Dy. CIT, 11 TTJ 498 (Del.) 9. CIT Vs. Spice Distribution Ltd., ITA No. 597/2014, dated 19.09.2014 (Delhi H.C.), 10. Sony India Pvt. Ltd. Vs. DCIT, [2008] 114 ITD 448 (Del.), 11. CIT Vs. Modi Revlon Pvt. Ltd., [2012] 26 taxmann.com 133 (Del.), 12. CIT Vs. Monto Motors Ltd., [2012] 19 taxmann.com 57 (Del.), 13. CIT Vs. Salora International Ltd., [2009] 308 ITR 199 (Del.) 10.2 On the other hand, learned DR placed reliance on the order of the Assessing Officer. 10.3 We have heard the rival submissions and perused the details of the expenditure incurred placed at pages no. 76 to 79 of the paper book. From the details, it is clear that the expenditure is incurred only towards sales promotion and on advertisement issued. The issue whether the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion expenses resulting in enduring benefit is in conformity with the specific provisions of the Act, which the AO held the brand registration expenses as capital expenditure. iii. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in direction the AO to allow 1/5th of the brand registration expenses i.e. ₹ 2,55,900/- for the period under consideration and to disallow balance amount of ₹ 10,23,600/- which could be spread over by the appellant for the four successive years subject to other provisions of the Act. iv. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in holding that spreading over five year of brand expenses resulting in enduring benefit is in conformity with the specific provisions of the Act, while the AO held the brand expenses as capital expenditure. v. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in directing the AO allow 1/5th of the brand expenses i.e. ₹ 2,03,22,115/- for the period under consideration and to disallow balance amount of ₹ 8,12,88,462/- which could be spread over by the appellant for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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