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TMI Blog2023 (12) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... s including advertisement expenses of head office as per the rate of turnover of the eligible unit to the turnover of the assessee company which was duly certified by a Chartered Accountant. The co-ordinate bench has accepted the allocation made by the assessee and directed the ld. A.O. not to make any further allocation for computation of deduction u/s. 80IB of the Act. Decided in favour of assessee. Nature of expenses - advertisement expenses incurred on brand building - revenue or capital expenditure - HELD THAT:- As decided in Asian Pains (India) Ltd. [ 2016 (11) TMI 258 - BOMBAY HIGH COURT] wherein it was held that the expenditure incurred for advertisement in respect of a brand is to be seen whether the same was for a business which is to be commenced or which is for an ongoing business. Further, it held that the expenditure for advertisement of a brand of an existing ongoing business is in the nature of maintaining the brand and not for creation of a brand We hold that the expenditure incurred towards Brand Building is for the maintenance of the existing business and not for commencement of a new business and the same is held to be revenue expenditure in nature. Hence, groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nivasu ORDER PER KAVITHA RAJAGOPAL, J M: These are cross appeals filed by the assessee and the Revenue, challenging the order of the learned Commissioner of Income Tax (Appeals)-1, Mumbai ('ld.CIT(A) for short) passed u/s. 250 of the Income Tax Act, 1961 ('the Act'), pertaining to the Assessment Year ('A.Y.' for short) 2006-07. 2. The assessee has challenged the appeal on the following grounds: 1.0 We beg to refer to the above appeal, which is yet to be disposed off by the Hon'ble Tribunal. In this regard, we would humbly request for inclusion of the enclosed additional grounds of appeal which does not require any further investigation of facts. 2.0 During the previous year relevant to assessment year under consideration, the Dadra Unit of the appellant situated in the Union Territory of Dadra & Nagar Haveli had received sales tax incentive of Rs. 17,98,29,328 /- for setting up and/or expansion of industries in the backward areas of Dadra & Nagar Haveli and to generate employment opportunities. The same should be considered as capital in nature and hence not liable to tax. 3.0 In the computation of total income for the instant Assessment Year, the appellant has di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid are to be disallowed. Following the same analogy only the taxes paid are to be disallowed u/s 115-0(5) and 40(a) (ic) in the case of Dividend Distribution Tax and Fringe Benefit Tax respectively. 5.1 In view of the aforesaid circular, Education Cess amounting to Rs. 43,89,275/- on Income Tax, Dividend, Distribution Tax and Fringe Benefit Tax debited to the P& L Account by the appellant during the previous year relevant to the Assessment Year under consideration should be allowed as deduction in computing total income. 6.0 The appellant undertakes contracts for erection and commissioning of air conditioning system, wherein certain percentage of the bill raised by the appellant is retained by the parties as retention money to be paid after successful completion of the contract or on fulfillment of certain predetermined conditions mentioned therein. The appellant has no right to receive the said money by virtue of the terms of the contract & also has no right to enforce payment till the completion of contract or fulfillment of predetermined conditions for claiming the retention money. Thus, the said amount has not accrued as income to the appellant during the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 50,94,17,260/- and the same was processed u/s. 143(1) of the Act. The assessee's case was selected for scrutiny and the notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. 5. The ld. Assessing Officer ('A.O.' for short) passed the assessment order dated 22.12.2008 u/s. 143(3) of the Act determining the total income at Rs. 55,76,83,130/- after making various additions/disallowances. 6. Aggrieved, the assessee was in appeal before the ld. CIT(A) who vide order dated 16.03.2011 had partly allowed the appeal filed by the assessee. 7. Both the assessee as well as the Revenue are in appeal before us challenging the impugned order of the ld. CIT(A). ITA No. 4792/Mum/2011 8. Ground no. 1 of the assessee's appeal is on the allocation of advertisement expenses amounting to Rs. 648.15 lacs to the eligible units in the ratio of turnover of eligible units to the total turnover of the assessee while computing the deduction u/s. 80IB/80IC of the Act. 9. The brief facts are that the assessee had claimed deduction u/s. 80IB of the Act of Rs. 18,52,30,000/- for the unit at Dadra & Nagar Haveli and u/s. 80IC amounting to Rs. 2,20,78,000/- for the newly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)'s order for A.Ys. 2003-04 and 2004-05 have acknowledged the said methodology adopted by the assessee in computing the deduction u/s. 80IB and 80IC of the Act. The ld. A.O. rejected the contention of the assessee and held that the head office expenses should be borne by all the units in the ratio of turnover of specific units to the total turnover of the assessee company and after considering the assessee's suo moto disallowance on advertisement expenses and travelling expenses computed u/s. 80IB/80IC provided as below: 8.4 In view of the above, the 80IB profit of the assessee is computed as under: Net profit of eligible unit as per Form No. 10CCB 61,74,33,000 Less: Expenses as per revised computation furnished by assessee Corporate expenses 5,54,25,000 Advertisement expenses 3,27,77,000 Travelling expenses 1,99,15,000 Commission expenses 2,31,56,000 13,12,73,000 Add: Expenses already considered by the assessee Corporate expenses 2,65,79,000 Profit of eligible undertaking 51,27,39,000 Deduction u/s. 80IB @ 30% 15,38,21,000 8.5 The 80IC profit of the assessee is computed as under: Net profit of eligible unit as per Form No. 10CCB 2,20,78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enhances increase in the sale of product of the assessee company thereby benefitting the eligible units also. The ld. DR further contended that the lower authorities have rightly allocated the advertisement expenses in proportion to the turnover of the eligible units to the total turnover of the assessee. The ld. DR relied on the order of the lower authorities. 15. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee company has incurred advertisement expenses on account of publication of quarterly, half yearly and annual result, public notice, company meeting etc. These expenses are said to enhance sale of the product of the assessee company and according to the Revenue are directly benefitting the eligible units by increasing the customer base for sale of the product. The assessee has relied on the word 'derived from' as per the provision which according to the assessee relates to the expenses which have direct nexus pertaining to the eligible units for claiming deduction u/s. 80IB/80IC of the Act. The Revenue, on the other hand, has contradicted the same by stating that this interpretation of the assessee is not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance on account of deprecation of Head Office is warranted. The Assessing Officer is directed to calculate the disallowance amount by adopting source basis and ratio as adopted by the assessee for considering Head Office expenses. The Assessing Officer is directed according. 16. As this issue has been dealt with by the co-ordinate bench and as there is no change in circumstances, we deem it fit to respectfully follow the said decision. Therefore, ground no. 1 raised by the assessee is allowed. 17. Ground no. 2 of the assessee's appeal pertains to treating of advertisement expenses amounting to Rs. 737.27 lacs as capital expenditure thereby enhancing the income of the assessee which is treated as capital expenditure as against revenue expenditure. It is observed that the assessee company has incurred an expense of Rs. 737.27 lacs on brand building under the head 'advertisement expenses' of Rs. 1385.42 lacs. 18. Though this issue was not raised by the ld. A.O. during the assessment proceeding, the ld. CIT(A) exercised the power of enhancement u/s. 251 of the Act and sought for explanation as to why the impugned expenses on advertisement mainly for the advertisements in electron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question whether the expenses incurred by the Respondent-Assessee therein for making advertisement films is to be treated as a capital or revenue expenditure. This Court opined that the correct test to be applied in respect of expenditure incurred for making advertisement films was that when the same was incurred in respect of an ongoing business of the Assessee, it is Revenue. On the other hand, when the expenditure is incurred in respect of a brand which is to be used in a business which is yet to be commenced, it is capital expenditure. In this case also, the expenditure on corporate advertisement films is in respect of ongoing business. The expenditure for advertisement of a brand or corporate name of an existing ongoing business is in the nature of maintaining the brand and/or corporate image and it is not for creation of a brand. Further, the test of enduring benefit urged by the Revenue was considered by the Apex Court in Empire Jute Co.Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 to hold that it is not a conclusive test in all cases so that such expenditure is always on capital account. The Court observed that what is to be examined is the nature of advantage obtained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that while determining the character of receipt the purpose for which the subsidiary is given has to be considered by the purpose test and the time and source as to when it was granted becomes irrelevant. The ld. AR also relied on the decision of the Hon'ble Supreme Court in the case of Shree. Balaji Alloys & Ors [2016] 138 DTR 36 (SC) and the Hon'ble High Court decision in the case of CIT vs. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014 vide order dated 04.01.2017)along with the various other decisions. 23. The ld. DR controverted the said fact and stated that the assessee has not raised this issue before the lower authorities and since it requires its factual verification, the same additional ground raised by the assessee ought not to be admitted. 24. We have heard the rival submissions and perused the materials available on record. As this additional ground of appeal raised by the assessee requires factual verification, we deem it fit to remand this issue back to the file of the ld. A.O. for verification of the facts and decide the issue on the merits of the case based on the submission of the assessee. We, therefore, remand this issue to the file of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of retention money included in sales, since the same has not accrued during the year, in computing total income under the normal provisions of the Act (Rs. 9,09,22,620/-). 30. The assessee has contended that as it was engaged in the contract business of erection commission and of air conditioning system where certain percentage of bills is retained by the parties as retention money which has been credited to the profit and loss account along with the work bills (revenue from contract business), aggregating to Rs. 9,09,22,630/-. The assessee contended that the said retention money will be paid after completion of the contract or on fulfillment of certain conditions mentioned in the order and the said retention money are already included in the sale as the sale are booked on percentage completion method. The assessee contended that as the said amount does not accrue as income to the assessee, the same has to be excluded from the computation of the total income. The assessee relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Associated Cables Pvt. Ltd. [2006] 286 ITR 596 (Bom) which had relied on the decision of the Hon'ble Calcutta High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Associated Cables Pvt. Ltd. (supra). The ground no. 6 raised by the assessee is allowed for statistical purpose. 32. Ground no. 7 is general in nature and requires no separate adjudication. ITA No. 5550/Mum/2011 33. Ground no. 1 of the Revenue's appeal is on the disallowance of Rs. 8,16,995/- u/s. 14A read with Rule 8D of the Rules. It is observed that the assessee company has invested in shares yielding exempt income of Rs. 329.65 lacs as per the balance sheet and has earned dividend income of Rs. 2,24,28,375/- as exempt income u/s. 10(34)of the Act. The ld. A.O. observed that the assessee has not made any suo moto disallowance u/s. 14A with respect to the expenditure incurred for earning of the exempt income. The assessee had own funds as share capital and reserves to the tune of Rs. 17271.06 lacs and the borrowed capital from secured and unsecured loans were Rs. 7587.13 lacs and contended that the investment which had earned exempt income was out of the interest free fund and not from the borrowed funds. The ld. A.O. disagreed with the submission of the assessee. The ld. A.O. held that the assessee has not proved the nexus between the investment in shares whether the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of 50% of the head office expenses as against 100% of the allocated by the ld. A.O. while computing deduction u/s. 80IB of the Act. 38. Ground no. 3 pertains to the allocation of 50% of the depreciation of head office on assets as against 100% allocated by the ld. A.O. to the eligible units while computing the deduction u/s. 80IB of the Act. 39. Ground no. 4 pertains to the allocation of 50% of the depreciation on head office on assets as against 100% allocated to the ld. A.O. to the eligible unit while computing deduction u/s. 80IC of the Act. 40. As we have already decided this issue in favour of the assessee as per the finding in ground no. 1 of the assessee's appeal, by following the decision of the co-ordinate bench in assessee's case for the earlier years, we hereby dismiss ground nos. 2, 3 and 4 raised by the Revenue based on the finding given in ground no. 1 of the assessee's appeal. 41. Ground no. 5 of the Revenue's appeal relates to the allocation of travelling expenditures made by the assessee while computing deduction u/s. 80IB of the Act. It is observed that the ld. A.O. has allocated travelling expenses amounting to Rs. 1,99,15,000/- to Dadra unit while compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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