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TMI Blog2017 (4) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... t the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding disallowance of a sum of Rs. 50,33,418/- by restricting the claim of deduction in respect of loaner and demo sets at Rs. 40,28,706/- instead of claim of Rs. 93,97,124/- by the appellant company by holding that such assets are "capital assets" eligible for depreciation u/s 32(1) of the Act. ii. That in any case the learned Commissioner of Income Tax (Appeals) has failed to appreciate that expenditure claimed was eligible revenue expenditure incurred wholly and exclusively for the purpose of business and as such eligible for deduction u/s 37(1) of the Act. iii. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in sustaining disallowance of sum of Rs. 11,49,037/- out of expenditure incurred of Rs. 22,98,075/- under the head advertisement and promotional expenses incurred by the appellant company. iv. That the learned Commissioner of Income Tax (Appeals) has further erred in not deleting disallowance of sum of Rs. 2,08,711/- representing expenditure incurred under the head 'selling commission' by treating it as prior period expenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pments were sterilized and then given to next customers and estimated useful life of such equipments/instruments was 36 months and the assessee has consistently amortized the cost accordingly. The Assessing Officer, however, was not convinced with the above explanation and held that since the assessee had itself accepted that the instruments/equipments were lasting more than a year and, therefore, there is no doubt that such equipments/instruments used by the assessee for its business interest were not consumed within the year. He, therefore, held that such equipment/instruments are capital assets of the assessee company and, therefore, should be treated under the head 'plant and machinery' for the purpose of depreciation. He, accordingly, held that since the assessee claimed amortization of Rs. 93,97,124/- the same would translate into assets of Rs. 2,81,91,372/-and, therefore, after allowing depreciation at the rate of 15% on the aforesaid sum, which was computed at Rs. 42,28,706/-, he made disallowance of Rs. 50,33,418/- and added the same to the income of the assessee. The Ld. CIT-A confirmed the aforesaid disallowance and held that instruments in reference are capital in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not allowed depreciation on the estimated WDV of the instant year. Furthermore, it was also submitted that even the figures adopted by the Assessing Officer for computing the value of 'loaner' sets at Rs. 28,19,137/- was based on assumption and the correct figure was of Rs. 4,18,66,126/- and on the basis, adopted by the Assessing Officer, the depreciation would be of Rs. 62,79,919/- and thus the disallowance at best could be of Rs. 31,17,205/- and not at Rs. 50,33,418/- computed by the Assessing Officer. 4.2 On the other hand, the Ld. Senior DR relied on the order of the lower authorities and submitted that claim of amortization was not in accordance with law. 4.3 We have considered the rival submission and perused the relevant material on record. We find that the assessee company was engaged in trading of medical implants, surgical instruments etc in the field of orthopaedic. The assessee in the course of trading operations, purchased equipments/instruments for fixing the implants in the human body and out of those few items were given as 'loaner' sets to various hospitals/doctors on returnable basis. The issue therefore, is whether equipments/instruments given as 'loaner' se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of deferred revenue expenditure, is not correct. It is a case of valuation of inventory and the method of valuation has been consistently accepted by the Revenue. Moreover even otherwise expenditure on purchase of 'loaner' sets is not capital expenditure and therefore eligible for deduction as revenue expenditure, which at the option of the assessee can be amortized over a period of years as held in the judgment of the Hon'ble Apex Court in the case of Taparia Tools Ltd Vs. JCIT (supra), as under: "Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in which it is incurred but at the instance of the assessee, spreading out of the expenditure is permissible. 4.3.5 In such circumstances, we are of considered opinion that the amount of Rs. 50,33,418/- treating loaner sets expenditure as capital expenditure was not in accordance with law and therefore, directed to be deleted. Thus, the grounds No. 1 and 2 of the appeal are accordingly allowed. 5. The ground No. 3 relates to disallowance of Rs. 11,49,037/- out of expenditure of Rs. 28,72,572/- under the head 'advertisement and promotional' expenses incurred by the assessee company. The Assessing Officer disallowed a sum of Rs. 22,98,075/- and allowed 1/5th of the expenditure, amounting to Rs. 5,75,118/-n out of the total expenditure of Rs. 28,72,592/- by following the decision in the case of Madras Industrial Investment Corporation Limited Vs. CIT 225 ITR 802. The Ld. CIT-A accepted the claim of expenditure incurred on advertisement of Rs. 42,000/- but as regard the expenditure incurred or sales promotion of Rs. 22,03,897/-, he disallowed 50% of the claim for want of proper documentation and adequate evidence regarding use of said items for business purpose. 5.1 Before us, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute, the commercial expediency cannot be rejected on the ground of suspicion. No material was led by the revenue to allege that the expenditure incurred in the course of business is not an eligible expenditure. We accept the contention of the Ld. counsel that it is not possible to get receipt of keychains either from the doctors or distributors distributed for the purpose of development of the business of the assessee . The entire action of the authorities below is based on suspicion and therefore found untenable. Accordingly, the disallowance made on this account is deleted and the ground No. 3 of the appeal is allowed. 6. The ground No. 4 relates to disallowance of Rs. 2,08,711/- representing expenditure under the head 'selling commission' by treating it as prior period expenses. We find that The Ld. CIT-A in respect of aforesaid disallowance has observed as under: "6.3 After going through the observations of the A.O. and submissions of the A.R. of the appellant, the A.O. is directed to verify whether contention of the A.R. of the appellant on this issue is justified. It appears that the A.R. has stated it to be a mistake apparent from record. On verification, if the factual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction u/s 37(1) of the Act. iii. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in sustaining disallowance of sum of Rs. 25,60,981/- out of expenditure incurred of Rs. 51,21,962/- under the head advertisement and promotional expenses incurred by the appellant company. iv. That the learned Commissioner of Income Tax (Appeals) has further erred in not deleting disallowance of sum of Rs. 26,45,655/- representing expenditure incurred under the head "selling commission" by treating it as prior period expenses and instead thereof, directing that on verification if the factual mistake is detected, the learned Assessing Officer is directed to delete this addition. v. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the disallowance of Rs. 15,88,440/- representing expenditure incurred for holding a sales conference by the appellant company. vi. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining a disallowance of Rs. 17,83,914/- representing expenditure incurred on payment made by the appellant company to overseas e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disposing of ground No. 3 for assessment year 2007-08, we hold that claim of the assessee is in accordance with law. Accordingly, disallowance made by the Assessing Officer and sustained by Ld. CIT-A is deleted. Thus, ground no. 3 of the assessee's appeal is allowed and ground no. 1 of the Revenue's appeal is dismissed. 11. The ground No. 4 relates to disallowance of sum of Rs. 26,45,655/- representing the expenditure incurred under the head 'selling commission' by treating it as prior period expenses. The finding of the Ld. CIT-A on the issue in dispute is extracted as under: "6.3 After going through the observations of the A.O. and submissions of the A.R. of the appellant, as already decided by the undersigned in my earlier decision in A.Y. 2007-08 in the appellant's own case, the A.O. is directed to verify whether contentions of the A.R. of the appellant on this issue is justified. It appears that the A.R. has stated it to be a mistake apparent from record. On verification, if the factual mistake is detected, the A.O. is directed to delete this addition. Accordingly, this ground is treated as partly allowed subject to verification." 11.1 Before us, the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee was in accordance with law. 12.3 We have considered the rival submissions and perused the relevant material on record. We find that the Assessing Officer stated that evidences in support of the expenditure were not furnished, whereas the Ld. CIT-A has accepted that the evidences were furnished before him, still he confirmed the action of the Assessing Officer. In the facts of the case, in our opinion, the authorities below have not examined the evidence supporting the claim that staff members of the assessee have attended the training programs conducted by the assessee. In such circumstances, we feel it appropriate to restore the issue to the file of the Assessing Officer for examination of the claim of the assessee viz-a-viz the evidences tendered and then decide the issue in accordance with law after granting due opportunity of hearing to the assessee. Accordingly, the ground no. 5 of the appeal is allowed for statistical purpose. 13. The ground No. 6 relates to disallowance of Rs. 17,83,914/- representing expenditure incurred on payment made by the assessee company to overseas education foundation for participation of selected Indian doctors for advance training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment was not paid for rendering any managerial, technical or consultancy services. In such circumstances, the expenditure incurred towards payment to the overseas education foundation, cannot be held as fee for technical services provided to the assessee. The Tribunal in the case of Holcim Services South Asia Ltd Vs. DCIT (supra) has held as under: "5. We have heard the rival contentions and also perused the relevant findings given in the impugned order. It is an undisputed fact that the assessee has made payment to HGSL which is a non-resident company based at Switzerland. The payment has been made for training conducted by the HGSL to its delegates outside India. It is an admitted fact here that neither the services have been rendered in India nor such services have been utilized in India. Out of the total payment of Rs. 65,49,217/-, the assessee had not deducted TDS on the payment aggregating to Rs. 33,93,493/- (on the balance amount TDS has been deducted), on the ground that, such payment relate to services rendered outside India. The revenue's case is that, in view of the Explanation brought in the statute by the Finance Act, 2010 which got the President's assent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , disallowance under section 40(a)(i) on account of any retrospective amendment is wholly vitiated and cannot be sustained. Accordingly, ground raised by the assessee is allowed." 13.3.2 Therefore, respectfully following the aforesaid precedent, we delete the disallowance and allow the ground no. 6 of appeal raised by the assessee. 14. The ground No. 7 relates to disallowance of Rs. 13,31,716/- representing expenses on training of doctors in India. From the perusal of the order of assessment, we find that a sum of Rs. 19,35,311/- was incurred towards booking of 13 rooms and a banquet charges in 'Le Meridian' , Bangalore. Further, an amount of Rs. 18,17,305/- has been paid to Hotel 'Ambassador' and the bills are in different names of various doctors. Also an amount of Rs. 6,56,126/- was made to 'Habitat word'. The Assessing Officer held that it was difficult to verify whether the expenditure was on account of business or personal in nature. He, therefore, disallowed 25% of the above expenditure aggregating to Rs. 8,52,186/-. Apart from above, he noted that an amount of Rs. 4,79,530/- was paid to Hotel 'presidency' on account of expenses claimed by one GV Anmegutak, however, no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue may kindly be restored to the file of the Assessing Officer for adjudication afresh. 15.2 The Ld. Senior DR did not oppose the aforesaid prayer. Therefore, we restore the issue to the file of the Assessing Officer for a fresh adjudication. Needless to mention, the Assessing Officer shall provide sufficient opportunity of hearing to the assessee. The ground no. 8 of the appeal is accordingly allowed for statistical purposes. 16. In ground No. 2, the Revenue has raised the issue of disallowance of Rs. 40,06,070/- on account of recruitment and training expenditure. 16.1 We have heard the rival submission and perused the relevant material on record. We find that The Ld. CIT-A has deleted the aforesaid disallowance by holding as under: "4.3 After going through the observations of the A.O., submissions of the A.R. of the appellant and various judicial pronouncements, this ground is being finalized after making the following observations: (a) The A.O. has made this disallowance on training expenses by treating it as deferred revenue expenditure and stating that the expenditure should be allowed over a period of 5 years. The A.R., has, however, argued that I the past, similar ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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