9911796707
TMI Blog2016 (1) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the CIT(A) has erred in deleting the addition of Rs. 7,58,70,585/- on account of depreciation claimed by assessee. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 4. First issue vide Ground No. 1 relates to the deletion of addition of Rs. 1,64,99,137/- made by the AO on account of brand building and advertisement expenses. 5. Facts of the case in brief are that the assessee filed the return of income on 26.10.2005 declaring a loss of Rs. 32,38,08,320/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 03.02.2007. Later on the case was selected for scrutiny. The AO during the course of assessment proceedings noticed that the assessee had claimed advertising and Brand Building expenses to the tune of Rs. 2,06,23,921/-. He asked the assessee to furnish the details of the said expenses. In response, the assessee furnished the details vide letter dated 31.10.2007. From the said details, the AO noted that the assessee had incurred expenses of Rs. 21,99,636/- on account of Designing & Production charges, Rs. 1.28 crores for advertisement expenses etc. According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. Expenditure can be looked at either from the point of views of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an assets or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose bringing into existence any such assets or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as revenue expenditure, then that legal right of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year. The tribunal was justified in law in allowing the sum as revenue expenditure. Kedar Nath Jute Mfg. Co. Ltd. Vs CIT (1971) 82 ITR 363 (SC) and CIT Vs India Discount Co. Ltd. Vs CIT (1970) 75 ITR 1991 (SC). (v) Respectfully following the above case laws it is prayed that the disallowance of Rs. 1,64,99,137/- made by the AO out of advertisement expenses may kindly be deleted." 7. The ld. CIT(A) after considering the submissions of the assessee observed that the partywise and monthwise details of Advertisement & Brand Building expenses provided by the assessee revealed that those expenses had been incurred on account of press advertisement, cable advertisement, printing of trend book, telecast in television, radio, designing and printing of posters and sign boards. According to the ld. CIT(A) those expenses were revenue in nature because those were incurred for increasing the profitability and more efficient running of the business of the assessee, which was business of computerized lottery. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is not estopped by the treatment given by the assessee to it in its own books of account. Advertisement expenses are normally to be treated as revenue expenditure." 11. Similarly the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Liberty Group Marketing Division (2009) 315 ITR 125 held as under: "that the expenditure incurred by the assessee on glow sign boards did not bring into existence an asset or advantage for the enduring benefit of the business which was attributable to capital. The glow sign board was not an asset of permanent nature. The Tribunal had recorded a finding that the assessee had to incur expenditure on glow sign boards regularly in almost each year. The assessee had incurred the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire an asset of enduring nature. Therefore the expenditure was of revenue nature and the Tribunal had rightly treated it as of revenue nature." 12. The Hon'ble Jurisdictional High Court while deciding the similar issue in the case of CIT Vs Orient Ceramics and Industries Ltd. (2013) 358 ITR 49 (Del) held that the expenditure on glow sign boards dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable and not @ 60% as has been claimed by the assessee. The rate of 60% is applicable only on the computers which are being used as computer. Hence depreciation amounting to Rs. 5,47,63,830/- is allowed on P&M as against the claim of Rs. 13,06,34,415/- and balance depreciation of Rs. 7,58,70,585/- is disallowed and added to the income of the assessee. Penalty proceedings u/s 271(1)(c) of the Act is initiated for furnishing inaccurate particulars of income." (iii) You will kindly see from the enclosed details that the items grouped under the head Plant & Machinery are POS Terminal Hardware. One set of POS Terminal consist of a monitor, a CPU, a Printer, a scanner and a Card swipe machine and a UPS, which has been separately shown in the details. The computers are also Plant & Machinery entitled for higher rate of depreciation. All the items which comprised in the POS Terminal are integral part of a computer system and therefore, the assessee company is entitled for higher rate of depreciation @ 60% as applicable to computer system. (iv) In view of above submissions the appellant company prays to delete the disallowance and direct the Assessing Officer to allow depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of deprecation on sealed premises. 24. Facts related to this issue in brief are that the AO during the course of assessment proceedings asked the assessee to furnish the details regarding a note below the depreciation chart stating that certain buildings premises had been sealed. He also asked the assessee to explain as to whether depreciation had been claimed on those sealed premises. In response the assessee submitted as under: "The assessee company was operating under the license of Arunachal Pradesh Government to run the lottery business. It was operating in Arunachal Pradesh and also in other states on the basis of same license. The company had office and Godown in Kolkata, West Bengal and it was also validly running lottery business in West Bengal. In the mean time, West Bengal Government imposed ban on the running of lottery of other states in West Bengal. The West Bengal Government sealed the office premises and Godown of the assessee company and other companies running lottery business in Kolkata." 25. The AO after considering the submissions of the assessee observed that the assets worth Rs. 3,46,07,406/- were not put to use because of the sealing of wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1988-89 the basic structure of depreciation allowance has changed. Under the block system, identification of each asset is not possible. It would therefore, mean that in block depreciation, except to the limited extent as to requirement of use at the point of entry into the block, the concept of user cannot be applied to assets in the block. Once it enters the block, it automatically gets depreciation along with other assets as long as block itself is in use. (iv) In the present case the assets under consideration on which depreciation was disallowed entered the block in the preceding years and also the business of the appellant company continued in other states except West Bengal and it earned total revenue of Rs. 109.03 Crores from business during the year under appeal. (v) The appellant company further relies on the following judgments. 1. CIT Vs Udaipur Distillery Company Ltd. (2004) 268 ITR 461 (Raj.), where it was held that if part of business remained closed, right to depreciation is not lost. 2. In the case of Vishwanath Bhaskar Sathe Vs CIT 10 ITC 386 (Bom), where the assessee was a member of ginning factories pool but his factory did not work under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below and further submitted that the assets were included in the block of assets which were entitled for depreciation. Therefore, the ld. CIT(A) rightly directed the AO to allow the depreciation on the assets of the assessee which were included in the block of assets. The reliance was placed on the following case laws: CIT Vs Oswal Agro Mills Ltd. 341 ITR 467 (Del) CIT Vs Sonal Gum Industries 322 ITR 542 (Guj) 30. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assets on which depreciation has been disallowed by the AO were forming part of the block of assets of the assessee. The AO disallowed the depreciation for the reason that the assets were sealed. 31. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs Oswal Agro Mills Ltd. (supra) has held as under: "After the amendment of section 32 of the Income-tax Act, 1961, by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, section 32(1) of the Act allows depreciation on the written down value of a block of assets. Section 2(11) of the Act define ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
