9911796707
TMI Blog2021 (5) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961 (hereinafter the Act ). 2. The only issue in this appeal of assessee is against the order of CIT(A) in holding the payment of ₹ 9.13 crores made to Lakme Exports Ltd. and ₹ 1.820 crores to Lakme Exports Ltd. as capital in nature as against the claim made by the assessee as revenue in nature. For this, assessee has raised the following 6 grounds:- 1. The Learned CIT(A) erred in Law and on facts in holding that the payment of ₹ 9,13,00,000 made to Lakme Ltd and ₹ 1,82,00,000 made to Lakme Exports Ltd. under agreement dated 27.3.96 are not deductible as revenue expenditure. 2. The Learned CIT(A) erred in holding that the payment made to Lakme Ltd and Lakme Exports Ltd. under the agreement dated 27.3.96 constitute capital expenditure. 3. He failed to appreciate that the agreement with Lakme Ltd and Lakme Exports Ltd. merely seek to align the marketing operation of the appellant for a period of 10 years. 4. He further failed to appreciate that Lakme Ltd and Lakme Exports Ltd. have not given up their right to manufacture, produce or process the articles covered by the agreement. 5. He failed to appreciate that Lakme Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acquired any capital assets remanded the matter back to AO to take into consideration relevant facts such as whether the arrangement has resulted in reduction into the advertisement and other cost or whether the arrangement has favourably affected the price strategy or sales of the company, to determine if the advantage in the revenue field and not in the Capital field and accordingly allow the expense. The relevant directions of the Tribunal reads as under:- 10. There is no dispute about the legal position laid down by the Hon ble Supreme Court in the case of Empire Jute Co. Ltd. (Supra) and Coal Shipment Pvt. Ltd. (supra) relied on by the learned Counsel for the assessee as well as directed on by the Revenue. The basic question is whether advantage obtained by the assessee is in capital field or revenue field. The question can be answered only by referring to the relevant materials on record. The learned Counsel has argued that the arrangement between the parties would reduce the cost of assessee but nothing has been brought on record to substantiate the same. The cost incurred by the assessee prior to and after the agreement has to examined and the onus being on the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly or in joint venture with other Indian companies. In order to maintain the volume and grow in such a competitive market, the company had to spend a lot of money on advertisement of its products. Normally such aggressive competition also affects adversely the pricing strategy of these products. Both these factors put a severe strain on profitability. In view of the above, the company decided to enter into a Strategic Alliance with Lakme Ltd and Lakme Exports Ltd, the major players also engaged in manufacture and sale of personal products. The Company together with Hindustan Unilever Ltd (formerly Hindustan Lever Ltd.) and Lever India Exports Ltd (hereinafter referred to as HUL Group) entered into an agreement with Lakme Ltd and Lakme Exports Ltd. Under the agreement, Lakme Ltd and Lakme Exports Ltd. have agreed not to engage in the direct marketing/ selling/distribution of the products manufactured by them in the retail market for a period of 10 years. For this, the assessee has paid ₹ 9,13,00,000 to Lakme Ltd. and ₹ 1,82,00,000 to Lakme Exports Ltd. 6. He explained that during the course of original assessment proceeding, the assessee was called upon to justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of being heard by the assessee company. Such order passed by him is against the principal of natural justice and bad in law. 8. It was contended, on merits, in view of the above given facts that all the facts were before the AO and even during set aside assessment proceedings. He contended that the non compete fee paid to Lakme Ltd. and Lakrne Export Ltd. is fully allowable as revenue expenditure under sec 37(1) of the Act. For this, the assessee pointed out and the relevant points are as under:- a) Lakme Ltd. and Lakme Exports Ltd, had agreed to market, distribute, sell their products through the assessee and its associates merely for a period of 10 years. b) Lakme Ltd. and Lakme Exports Ltd. had not given up their basic right to manufacture, produce, process the specified articles. C) Lakme Ltd. and Lakme Exports Ltd. had not given up their source of income. d) The assessee did not acquire any capital assets or a right under the agreement. 9. The learned Counsel for the assessee further narrated from the facts of the case, that before CIT(A) the complete detail in respect to the directions of Hon ble ITAT, provided certain clarification and details to substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Lakme Exports Ltd. Were required to sale the products through HLL Group, gave HLL Group full visibility for the new product launched, market availability for trapping etc. This resulted into a higher sales year on year, more particularly in the personal product category for the HLL Group. This clearly shows that the assessee to safeguard the business interest and to ensure the excessive competition did not result in erosion of its profitability has entered into aforesaid arrangement with other HLL Group companies. Hence, the expenditure incurred on this strategic alliance to safeguard assessee s business interest is in the revenue field and not in the capital field. 11. On the other hand, the learned CIT DR heavily relied on the order of the CIT(A) and stated that the statistics given by the assessee company with regard to advertisement and promotional expenses have not been uniformaly reducing the expenses and also considering the sales increased, which is not study in the calendar years 1995 to 2000. 12. We have also considered the decision of Hon ble Supreme Court in the case of Empire Jute Company Ltd. Vs. CIT (1980) 124 ITR 1 (SC), wherein, Hon ble Supreme Court has o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
