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TMI Blog2012 (4) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... inetic Finance Ltd., on the basis that the expenditure provides an enduring benefit to the appellant and hence is capital in nature. 2) That the ld. CIT(A) has erred both on facts and in law in sustaining disallowance of expenditure amounting to Rs.29,76,461/- in respect of realignment expenses. 2.1) That the ld. CIT(A) has erred both on facts and in law in sustaining the disallowance on the premise that the expenditure is not recurring in nature and provides enduring advantage to the appellant. 2.2) That the ld. CIT(A) has erred in not appreciating the fact that realignment expenses represent routine advertisement expenditure and are not in the nature of re-branding exercise carried out by the appellant. 3) That the orders passed by the Assessing Officer and the CIT(A) in reference to above grounds of appeal is bad in law. The appellant prays for leave to add, alter, rescind from or withdraw any of the above grounds of appeal at or before the hearing of the appeal". I.T.A. No.2688/D/2010[Assessee-AY 2004-05] 1) "That the ld. CIT(A) has erred both on facts and in law in sustaining disallowance of expenditure amounting to Rs.1,05,94,000/- in respect of realignmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertible debentures and commercial paper issue expenses ignoring the fact that such expenditure was relevant for a period of 5 years. 4) The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 8,68,76,973/- made on account of capitalization of loan acquisition fee without considering the fact that these expenses should be amortized over the tenure of loans given by the assessee in the same way as is done in the books, by the assessee. 5) The learned CIT(A) erred in law and on facts in deleting the addition of ₹ 20,37,34,458/- made on account of capitalization of direct selling agent commission expenses without considering the fact that these expenses do not have a chargeability to the year in which these are incurred and have a direct bearing over the tenure of the loan period. 6) The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.7,29,73,000/- made on account of loss on sale of repossessed assets ignoring the fact that the repossessed assets do not constitute assessee's stock in trade and therefore loss on sale of repossessed assets cannot be held as revenue loss for the assessee company. 7) The ld. CIT(A) has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Rules only computers accessories, ignoring the fact that as per Income-Tax Rules only computers and computer software are eligible for depreciation of 60%, the same cannot be extended to computer accessories and peripherals. 7) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." I.T.A. No.5514/D/2010[ Revenue-AY 2005-06] 1) "On facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.25,30,57,276/- on account of capitalization of advertisement, publicity and sales promotion expenses ignoring the fact that benefit of enduring nature was drawn by the assessee. 2) On the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.6,56,68,462/- made on account of capitalization of leasehold improvement expenses ignoring the fact that benefit of enduring nature was drawn by the assessee. 3) On the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition of ₹ 28,67,50,647/- made on account of loan acquisition fee and amortization of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and sales promotion expenses. Since in the AYs 2001-02 and 2002-03, the AO spread over the advertisement expenses over a period of 5 years, to a query by the AO as to why advertisement and publicity expenses be not spread over a period of 5 years in the year under consideration, the assessee replied that the said expenditure is revenue in nature incurred for the purpose of their business purpose. However, the AO did not accept the submissions of the assessee and relying on his own findings in the AYs 2001-02 and 2002-03 as also decision of Hon'ble Supreme Court in Madras Industrial Development Corporation Vs. CIT 225 ITR 802(SC) allowed only 1/5th of these expenses in the AY 2003-04 and disallowed the remaining amount of ₹ 9,97,48,800/-. 2.1 Similarly in the AY2004-05, following his findings for the preceding assessment years, the AO allowed only 1/5th expenses of ₹ 17,35,40,000/- and disallowed the remaining amount of ₹ 13,88,32,000/- while in the AY 2005-06, the AO disallowed expenses of ₹ 25,30,57,277/- out of ₹ 31,63,21,595/- . 3. On appeal, the ld. CIT(A) after admitting additional evidence submitted by the assessee in terms of rule 46A(4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- for assessment year 2003-04 and ₹ 13,88,32,000/- for assessment year 2004-05, in this regard are deleted." 5. It is further seen that in a combine order in assessee's own case for the assessment year 2001-02 and 2002-03, the Hon'ble Tribunal at pages 9 to 12 has held as under: "23 We have carefully considered the submissions and perused the records. We find that the said advertisement expenditure has actually been incurred during the year. The nature of expenditure does not fall under the ambit of preliminary expenses as envisaged u/s 35D of the Act. When the expenditure was incurred and there is nexus between the expenditure and the assessee's business, we do not see any reason why the entire expenditure should not be allowed in full during the concerned year. The case laws from Jurisdictional High Court in Salora International case cited above referred by the learned counsel of the assessee duly supported the case that when expenditure and assessee business, the expenditure has to be allowed in full and not deferred by spread over certain number of years. 24. As regards the decision of the Hon'ble Madras High Court in the case of Madras Fertilizers Ltd. 209 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that terms 'survey' mentioned in section 35D(2)(a)(iii) and compass the same. However, in the present case we find that no case has been made that the nature of advertisement in this case comes under the term of survey. Moreover, the jurisdictional High Court on identical subject in CIT Vs. Salora International Ltd. 308 ITR 199 has held that expenditure of such nature has to be allowed as a whole. 24.3 In the background of the aforesaid discussion and precedent, we set aside the orders of authorities below and decide the issue in favour of the assessee. 6. It is crystal clear that the Hon'ble Tribunal has given a decision in favour of the assessee. The decision of the Tribunal is binding on me and, therefore, the assessee deserves to succeed in ground of appeal No.2 and its part." 4. The Revenue is now in appeal before us against the findings of learned CIT(A).The ld. DR supported the orders of the AO. On the other hand, the ld. ld AR on behalf of the assessee while inviting our attention to an order dated 18th December, 2009 of the ITAT in assessee's own case for the AYs 2001-02 and 2002-03 in I.T.A. nos.4035, 4617/2005 and 2460/2673/2006, upheld by the Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of ensuing years, where allowing the entire expenditure in one year could give a very distorted picture of the profits of a particular year. One such instance was issuing debentures at discount. The Supreme Court was of the opinion that though in such cases the assessee had incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure the benefit over a number of years. There was a continuing benefit to the assessee of the company over the entire period and, therefore, the liability was to be spread over the period of debentures. 10. We are unable to persuade ourselves by the aforesaid submission of the learned counsel for the Revenue. Identical argument was taken by the Revenue in IFCI (supra). Explaining the ratio of Supreme Court in Madras Industrial Investment Corpn. Ltd. (supra), the argument of the Revenue was rejected in the following manner:- "The judgments on which reliance is placed by the learned Counsel for the Revenue would be of no avail in the instant case. The learned Counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. Commissioner of Income-Tax, Calcutta-I (1983) 144 ITR 474 = (2003-TIOL- 137-HC-KOL-IT), the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... none-the-less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assesses that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." 13. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches &,glazing on ventilators, and all these items are in the nature of revenue expenses. Since there was no expenditure on addition or extension of building in the leased premises, expenditure could not be capitalized, the assessee pleaded. However, the AO did not accept the submissions of the assessee in the light of explanation 1 to sec. 32(1) of the Act and while relying upon decisions in CIT vs. Indian Metal & Metallurgical Corporation,141 ITR 40(Mad.),CIT vs.Lake Palace Hotels & motels (P) Ltd.,131 ITR 836(Raj.),M.Subbiah Nadar vs. CIT,23 ITR 58(Mad.),CIT vs. Chandra Agro Pvt. Ltd.,117 ITR 251(All.),Addl. CIT vs. Lawly Enterprises (private) Ltd.,100 ITR 369(Pat.)& Mysore Minerals Ltd. vs. CIT,239 ITR 775(SC),disallowed the claim of expenditure of ₹ 1,90,35,562/- and allowed depreciation @10% thereon. . 6.1 Similarly, the AO disallowed an amount of ₹ 1,76,13,260/- in the AY 2004-05 and ₹ 6,56,68,462/- in the AY 2005-06 and allowed depreciation @10% thereon. 7. On appeal, the ld. CIT(A) allowed the claim of assessee in the AYs 2003-04 & 2004-05 in the following terms:- "8. I have considered the submissions made by the appellant and also perused the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt involved is allowable as revenue expenditure, hence he argued that the learned CIT(A)'s order should be upheld. 39. We have carefully considered the submissions, we find that the learned CIT(A) has given a categorically finding that the assessee has duly produced all the necessary details and that the assessee has duly identified the capital portion of the expenditure incurred and the amount on the improvements expenses which were of revenue in nature. We also find that it is a settled law that powers and duties of the CIT(A) are co-terminus with that of Assessing Officer. Hence, in our considered opinion, there is no need to interfere with the finding of the learned CIT(A). Accordingly, we uphold the same." 11. Once the Hon'ble Delhi Tribunal has decided in favour of the assessee. I have no option but to decide this ground of appeal in the assessee's favour. Being a higher judicial forum, the decision of the Tribunal becomes binding on me, unless a superior Court decides otherwise, for which no evidence has been brought in the impugned order. Thus, ground of appeal No.3 is decided in favour of the assessee." 8. The Revenue is now in appeal before us against the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks, brickworks, flooring etc. would clearly show that this expenditure could be capital in nature. Her grievance was that the CIT (A) or the Tribunal did not go into this question at all and simply accepted the bifurcation given by the assessee in capitalizing the portion of the expenditure and treating the part of the expenditure as revenue. Her plea, therefore, was that the matter be remitted back to the AO. She conceded, at the same time, that even the AO had not done this exercise. It is clear that the Assessing Officer had not gone into the question as to whether the expenditure incurred on leasehold improvements was capital or revenue in nature. A large number of premises are taken on lease by the assessee throughout the country and expenditure on improvements of these lease premises was incurred by the assessee. The assessee has treated part of the said expenditure as capital in nature and depreciation thereon. In so far as expenditure to the extent of ₹ 1.52 crores is concerned, the same is treated as revenue in nature. 21. Mrs. Bansal may not be correct in her submission that the CIT (A) simply accepted the assertion of the assessee. The order of the CIT reveals t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng one time cost payable in the year in which the loan was given to the borrower and being non-refundable, was allowable in the year under consideration, the assessee argued. However, the AO did not accept the submissions of the assessee and following his decision for the AY 2001-02 & decision of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. CIT,225 ITR 802, concluded that the nature of the expense was such that the benefit being for a number of years, the expenditure has to be spread to number of years. Accordingly, while allowing only 1/3rd of the total DSA commission ,disallowed the remaining amount of ₹ 20,37,34,458/- 10.1 Similarly, in the AYs 2004-05 and 2005-06, the AO allowed only 1/3rd of the expenses out of DSA Commission and disallowed an amount of ₹ 31,25,87,254/- in the AY 2004-05 and ₹ 50,40,27,813/- in the AY 2005-06. 11. On appeal, the ld. CIT(A) following the decisions of the ITAT in the assessee's own case for the AYs 2001-02 and 2002-03, allowed the claim of the assessee in the AYs 2003-04 & 2004-05 in the following terms:- "14 I have gone through submissions made by the appellant and have examined the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee in the impugned financial years. The commission become due and payable to the agents as soon as the business is procured by them. Under no circumstances, the amount is liable to be returned to the assessee. It is also evident from the documents regarding AO's enquiry and assessee's response that A0 has duly examined the aspect and found that in the current period the amount paid as commission is not at all linked with the loan disbursement during the year. It is also evident that amount paid as commission in a particular year can in not way be claimed as refund by the assessee under any circumstances, even if the amount financed is forfeited. We also find form the orders of the authorities below and in the written submission filed by the assessee before them that neither of the authorities below have disputed either to nature of services rendered by agents or how the liability to pay the commission is computed. It has also not disputed that how the brokerage is payable and is linked to what. The only case made out by the revenue is that expenditure should be spread over a certain period of time. In our opinion, there is no cogency in the case made out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as running a cement factory at Shahabad. The then Government of Hyderabad included the factory premises within the limits of Shahabad Municipality. A tripartite agreement was entered into between the government, the municipality and the respondent company, whereby the company undertook (i) to supply water to the municipality and provide water pipelines, (ii) to supply electricity for street lighting in the municipality and put up a transmission line therefore, and (iii) to concrete the main road from the factory to the railway station. In return, the respondent was not liable to pay municipal rates and taxes for a period of 15 years. During the previous year relevant to the assessment year 1959-60, the respondent spent a sum of ₹ 2, 09, 459/- towards installing water pipelines and accessories outside the factory premises which were to belong to and be maintained by the municipality. Since it was not disputed that the entire expenditure concerned installations and accessories which came to the ownership of the municipality, the High Court, on a reference held that the expenditure was revenue in nature and deductible in computing the profits of the company. " The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now in the instant case before us, we find that expenditure which have been made in the concerned years were paid to the selling agents for sourcing the customers from whom the assessee had generated the income by way of granting of loan finances. The amount paid as commission is not refundable in any circumstances. Undisputedly income in this regard has been accounted for in the current years also. Under such circumstances, examining the present issue on the anvil of Hon'ble Jurisdictional High Court decision and Hon'ble Apex Court decision cited above, we find that the expenditures on commission and stamping fee have to be allowed in full in the impugned assessment years as deferral of the same over a number of year is not sustainable. Under such circumstances, we set aside the orders of the learned CIT(A) and decide the issue in favour of the assessee." In view of the binding decision of the Hon'ble Tribunal, the assessee deserves to succeed in ground of appeal no.5. 12. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the orders of the AO. On the other hand, the ld. ld AR on behalf of the assessee while invitin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Associates (CPA) and who are paid remuneration as well. Therefore, the expense towards stamping as well as commission paid to the agents is debited in whole in the year in which it is incurred and could not be treated as advertisement expense. 16. The CIT (A) was unimpressed with this argument and found that the assessee was spreading over the income during the number of years that the financing is spread over and, therefore, expenditure on the aforesaid counts was required to be spread over. The ITAT, however, denounced this reasoning of the CIT (A) and accepted the plea that the expenditure incurred had nothing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it was incurred. The Tribunal has further held that the expenditure is incurred once for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring the loan assignments and it is not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. Since the commission is paid to the direct selling agents, for their services in sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. However, the AO did not accept the submissions of the assessee and while relying upon the decision of the Hon'ble Allahabad High Court in the case of Motor and General Sales (P) Ltd. Vs. CIT,226 ITR 137(All.) disallowed the claim for loss on sale of repossessed assets. 14.1 Similarly, the AO disallowed an amount of ₹ 7,37,84,000/- in the AY2004-05 and ₹ 6,04,25,724/- in the AY 2005-06 while relying upon aforesaid decision of Hon'ble Allahabad High Court in Motor and General Sales (P) Ltd. Vs. CIT, 226 ITR 137 (All.). 15. On appeal, the ld. CIT(A) allowed the claim of the assessee in the AYs 2003-04 & 2004-05 while relying upon decision of the ITAT in assessee's own case for the AY 2002-03 in the following terms:- "19 I have gone through submissions made by the appellant and have examined the details filed before me. The matter is covered in appellant's favour by the decision of Delhi Bench of Hon'ble ITAT in appellant's own case for assessment year 2002-03. Since the nature of expenses incurred is similar to those in assessment year 2002-03 and there is no change in the factual and legal matrix of the case, respectfully following the aforesaid decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertent error as I have gone through the order of the Tribunal and the issue was not even a part of ground of appeal. In the final analysis assessee succeeds in ground of appeal No.6." 16. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the orders of the AO. On the other hand, the ld. ld AR on behalf of the assessee while inviting our attention to order dated 9th October, 2009 of the ITAT in assessee's own case for the AY 2002-03 , upheld by the Hon'ble High Court in their order 4.03.2011 in I.T.A. no.451/2011 contended that the issue is squarely covered by the said decision. The ld. AR added that SLP no.3125/2011 filed by the Revenue against the decision dated 4th March, 2011 of the Hon'ble High Court, has been dismissed by the Hon'ble Supreme Court vide their order dated 11th November, 2011. 17. We have heard both the parties and gone through the facts of the case. Indisputably and as pointed out by the ld. CIT(A) in the impugned orders and the AO in his assessment orders, facts and circumstances in the years under consideration are similar to the facts and circumstances in the AY 2002-03. We find that a co-ordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1712&1714/2010 ,holding that the assessee was entitled to loss on sale of repossessed assets under section 36(1)(vii) read with section 36(2) of the Act. 17.2 In the light of aforesaid view taken by the Hon'ble jurisdictional High Court, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.6 in the appeal of the Revenue for the AY 2003-04 and ground no.5 in their appeals for the AYs 2004-05 and 2005-06 are dismissed. 18.. Ground no.7 in the appeal of the Revenue for AY 2003-04 and ground no.6 in their appeals for the AYs 2004-05 and 2005-06 relate to disallowance of excess claim of depreciation on computer peripherals. The AO noticed during the course of assessment proceedings for the AY 2003-04 that the assessee claimed depreciation @60% on computer accessories and peripherals like printers, scanners, racks, network cables etc. To a query by the AO, the assessee explained that during the year, the assessee made addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Coordinate Bench of the Tribunal as discussed below:- In the case of Income Tax Officer Vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.), ITAT Tata Bench 'B', has taken a view that the printer and scanner are integral part of the computer system and are to be treated as computer for the purposes of allowing higher rate of depreciation, i.e., 60%. 3.2 The ITAT, Delhi 'F' Bench in the case of Expeditors International (India) (P) Ltd. Vs. learned CIT(A) reported in (2008) 118 TTJ 652 has held that peripherals such as printer, scanners, NT Server, etc. form integral part of the computer and the same, therefore, are eligible for depreciation at the rate of 60% as applicable to a computer. 4. Respectfully following the aforesaid decisions of the Co_ordinate Bench, we uphold the order of learned CIT(A) in allowing the depreciation at 60% on computer peripherals and accessories, and thus, the ground raised by the revenue is rejected. 5. In the result, the appeal filed by the revenue is dismissed." 4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd.(supra) and upheld the view of the ITAT, allowing depreciation @60% on computer accessories and peripherals like printers etc. .A similar view was taken in Bonanza Portfolio Ltd.(supra) by the Hon'ble jurisdictional High Court in their decision dated 10.8.2011. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A),allowing depreciation @60% on computer peripherals and accessories. Therefore, ground no.7 in the appeal of the Revenue for the AY 2003-04 and ground no.6 in their appeals for the AYs 2004-05 and 2005-06 are dismissed. 22. Next ground no.3 in the appeal of the Revenue in the AY 2003-04 and ground no.7 in their appeal for the AY 2005-06 relate to expenditure in relation to issue of non convertible debentures and commercial paper. During the course of assessment year proceedings for the AY 2003-04, the AO noticed that the assessee claimed expenditure towards non convertible debentures (NCD) and commercial paper issue expenses of ₹ 2,03,54,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of India Cements (supra) and Hon'ble Delhi High Court's decision in the case of Thirani Chemicals. Accordingly, the expenditure on issue of NCD and CP is allowable in full in the year in which the same were incurred and cannot be spread over a number of years. The disallowance made by the Assessing Officer in assessment order amounting to Rs.1,62,83,282/- for assessment year 2003-04 is, therefore, deleted." 23.1 Similarly, in the AY 2005-06, the ld. CIT(A) allowed the claim in the following terms: "38. I have gone through the order of the learned Assessing Officer and the submissions made by the learned AR of the assessee. There is no doubt that the non convertible debentures (NCD) and the commercial papers (CP) were loans. In other words, the loan was not an asset and when a company borrows money to such financial instruments the expenses in connection with the borrowings are allowable as revenue expenditure. While it cannot be disputed that the decision in India Cements Ltd. (supra) was rendered in the backdrop of 1922 Act, the expenses if any under any circumstances cannot be taken as an asset which would justify the expenditure as capital in nature. The assessee had me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefits derived wherefrom are ephemeral and transitory in nature in as much as these are incurred as a part of a continuous process and need to be expended in order to generate and increase the brand recall and sustain it in the minds of customers. Whether or not expenditure is of enduring nature, the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 has itself observed that "The idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions ; nor are the notions of "capital" or "revenue" a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context." 25.1. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of account are concerned, it is well settled that they do not clinch the issue either way, and are not determinative of the allowability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and in the case of CIT v. Indian Discounts Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue. The accounting entries in the books of accounts are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per share, impact on share prices etc.. The Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT ((1971) 82 ITR 363) (SC) also affirmed the above view by observing that "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.3 in the appeal of the Revenue for the AY 2003-04 and ground no.7 in their appeal for the AY 2005-06 are dismissed. 26. Ground no.4 in the appeal of the Revenue for the AY 2003-04 and ground no.3 in their appeals for the AYs 2004-05 and 2005-06 relate to expenditure incurred in connection with advancing of loan to customers. The AO, during the course of assessment proceedings for the AY 2003-04, noticed that the assessee company claimed loan acquisition cost of ₹ 13,03,15,460/- as revenue expenditure and changed the accounting policy for accounting of loan acquisition fee and claimed the same on amortization basis. Total loan acquisition cost incurred during the year was ₹ 13,03,15,460/- and amount shown in the profit and loss account was ₹ 7,44,16,728/- whereas in the computation of income , the assessee claimed entire loan acquisition cost as deductible expenses. To a query by the AO, the assessee explained that in course of its money lending business, the assessee entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter in details. The appellant has deferred both loan acquisition costs and loan processing fees in the books of accounts because of the accounting policy followed by the appellant. However for tax purposes, it has offered loan processing fees (Income) for tax and has claimed loan acquisition costs as expense in the year of accrual. The Assessing Officer has accepted the taxation of loan processing fees as income on upfront basis but at the same time has allowed loan acquisition costs on a deferred basis over a period of three years. This treatment by Assessing Officer is inconsistent. The Assessing Officer cannot take a different stand relating to income and expenditure on the same issue. It is also a well settled principle that treatment in books of accounts does not govern the tax treatment as the same is governed by the provisions of the Income-tax Act. Accordingly, loan acquisition costs are allowable in full in the year in which the same were incurred and cannot be spread over number of years. The disallowance made by the Assessing Officer in assessment orders amounting to Rs.8,68,76,973/- for assessment year 2003-04 and ₹ 11,38,85,144/- for assessment year 2004-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written-off over a period of time e.g. expenditure on advertisement, sales promotion etc.. There is no material before us to infer that the aforesaid expenditure resulted in creation of any capital asset, tangible or intangible, and thus, the question of treating the same as capital expenditure does not arise. In fact, the Hon'ble Supreme Court itself in Madras Industrial Investment Corporation Limited(supra) while discussing the issue, in the said case, and distinguishing between various situations observed that "ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years". 29.1. In view of detailed reasons given in para 25 to 25.7 above, especially when the Revenue have not brought to our notice any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of KFL for the expansion of its business. The issue whether the nature of expenditure is revenue or capital is a question of both facts and law. It is settled law that if the expenditure results in bringing into existence a new asset or advantage of enduring nature, the same is to be treated as capital expenditure. In the facts and circumstances of the instant case, I find that the expenditure incurred by the appellant would result in providing the appellant a new and added advantage for the purpose of expansion of its business activities. It is not in doubt that the said advantage is of an enduring future which will provide benefits to the appellant to acquire new clients and expand its business by using the database and infrastructure of KFL. Therefore, the same has to be treated as capital expenditure. This view has been supported by the Hon'ble SC in the case of CIT Vs. Ashok Leyland Ltd. (1972) 86 ITR 549, 553 wherein the Hon'ble Court held that: "A long line of decisions have laid down that when an expenditure is made with a view to bringing into existence an asset or advantage for the enduring benefit of a trade, there is good reason (in the absence of special circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f agreement entered in to on 8.11.2002[pg. 51 to 96 of PB]. The impugned order as also the assessment order is silent with regard to terms and conditions envisaged in the agreement. In terms of this Master SPV Agreement entered in to on 8th day of November, 2002 between the assessee and M/s Kinetic Engineering Ltd.; Kinetic Motor Company Ltd.;& Kinetic Finance Ltd. , it was agreed to establish a Special Purpose Vehicle ('SPV') in order to set out an arrangement to provide convenient financing arrangements for customers of the Kinetic Groups two wheelers, for KFC to leverage their existing infrastructure, including for other products and for AIFS to leverage off the distribution strengths of the Group. It was provided that SPV would structurally provide a mechanism for the above and also absorb credit losses due to defaults made by borrowers who have taken loans for purpose of two wheeler vehicles, under this arrangement. The aforesaid amount of ₹ 5 crores disallowed by the AO was ,in fact, payment of consideration in terms of clause 9.1 of the agreement, which reads as under; "V Payment of consideration In lieu of the business opportunity and access to infrastructure pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct ion of extraneous or ir relevant considerat ions and minimizes arbit rariness in the decision-making process. Hon'ble jurisdictional High Court in their decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman423(Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a 'decision' does not merely mean the 'conclusion'. I t embraces within its fold the reasons forming basis for the conclusion. [Mukht iar Singh Vs. State of Punjab,(1995)1SCC 760(SC) ] . 34.2. In the instant case before us, as is evident from the aforecited facts, the ld. CIT(A) upheld the disallowance, without even analyzing the terms and conditions of the agreement ,under which payment is claimed to have been made and without any examination as to how the assessee benefited in the existing business or establishment of SPV was a new source of income. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and resto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. I have gone through the submissions made by the appellant in this regard. In my view, the aforesaid expenditure incurred by the appellant has resulted in the creation of brand name of the appellant company and making it part of the global brand of Citygroup. There is no doubt that this exercise of rebranding from "Associates India Finance Services Ltd." and again aligning the same to the security system and other parameters of Citygroup and use of the logo of Citygroup in the appellant company's advertisements has created a new and added advantage and enduring benefit to the appellant company for expanding its business and that such benefit will accrue to the appellant company for a number of years. It is settled law that any expenditure resulting in bringing into existence any new or added advantage of enduring nature would pertain to the domain of capital expenditure. This view has been supported by the Hon'ble Supreme Court in the case of CIT Vs. Ashok Leyland Ltd. (1972) 86 ITR 549, 553 (supra) and also approved by a large number of judicial decisions viz. Hylam Ltd. Vs. CIT (1973) 87 ITR 310, 326-7 (AP), Benaridas Jagannath (1947) 15 ITR 185, 198-9 (Lahore High Court), Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture incurred and is ,thus, allowable, without appreciating that the said sum of ₹ 76,79,778/- was since shown as income and was out of the provision made, which provision was not claimed as a deduction. In fact, effectively, a deduction only of ₹ 29,76,461/- was claimed which represented actual expenditure incurred, whereas the AO, when he allowed the claim as per the computation of income assumed that a deduction of ₹ 76,79,778/- has been allowed without appreciating that in fact, such sum represented only the amount which was included in the profit and loss account and was out of provision made and this provision had not been either claimed as a deduction or allowed as a deduction. Similarly for the AY 2004-05, an amount actually incurred was ₹ .1,05,94,000 which was claimed as a deduction in the said assessment year and the balance provision of ₹ 1,04,03,761 was carried forward to next year. In AY 2005-06, no actual disbursements was made and only the balance provision was reversed which was credited to the Profit and Loss Account. Accordingly, the assessee claimed a deduction of the same in the computation of income reducing the provision balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich can be guided by considerations of reported profitability earning per share, impact on share prices etc.. Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT ((1971) 82 ITR 363) (SC) also affirmed the above view by observing that "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter". 39.1. Subsequently the Hon'ble Court re-affirmed the said view in Sutlej Cotton Mills. Ltd. Vs. CIT,116 ITR1(SC) & Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT,227 ITR 172(SC). 39.2 Now whether or not expenditure is of enduring nature, the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 has itself observed that "The idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions ; nor are the notions of "capital" or "revenue" a judicial fetish. What is capital expenditure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business cannot be termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure. The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) and Alembic Chemical Works Co. Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The expression "asset or advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Tribunal on this aspect of the matter does not call for any interference and, therefore, no substantial question of law arises on this aspect." 39.5 In Indian Visit.com (P) Limited(supra),expenditure on website in travel business was held to be revenue in nature while in Liberty Group Marketing Division(supra) expenditure incurred on Glow Sign Boards was held to be revenue nature. 39.6 In the light of view taken in the aforesaid decisions, we are of the opinion that actual expenditure incurred on advertisement and publicity by the assessee during the years under consideration is admissible as revenue expenditure. In view thereof, ground no.2 in the appeal of the assessee for the AY 2003-04 and ground no.1 in their appeals for the AYs 2004-05 & 2005-06 are allowed. 40. Ground no. 3 in the appeal of the assessee for the AY 2003-04 & ground no.2 in their appeals for the AY 2004-05 & 2005-06, being general in nature nor any submissions having been made before us on these grounds, do not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no.8 in the appeals of the Revenue for the AY 2003-04 & 2005-06 as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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