TMI Blog2014 (8) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... necessity to incur such expenditure - CIT(A) while considering each and very aspect of the matter has come to a correct conclusion – Decided against Revenue. Sundry balance written off – Held that:- The AO has not examined whether the debt has been written off in accounts of the assessee - When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors - Following the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] - no contrary material or evidence has been furnished nor any infirmity or flaw has been pointed out – Decided against Revenue. Employees contribution to ESI u/s 36(1)(va) – Amount deposited after due date - Held that:- The deduction of payment needed to be allowed to the assessee in the relevant AY - Relying upon CIT vs. AIMIL Ltd. [2009 (12) TMI 38 - DELHI HIGH COURT] - CIT(A) while considering and accepting the plea of the assessee has concluded to delete the addition made in this regard - the entire amount of employees contribution to the ESI was deposited by the assessee befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shumana Sen, Sr.DR ORDER Per U. B. S. Bedi, JM: These four appeals of the Department comprise of - one relating to order passed in appeal against the order u/s 143(3) pursuant to order passed u/s 263 of the I.T. Act, 1961 for assessment year 2003-04 and other three appeals are appeals against orders u/s 143(3) passed by Ld. CIT(A)-XIII, New Delhi for assessment years 2003-04 04-05 05-06 respectively. 2. In these appeals, some of the issues involved are common and these were heard together, therefore, being disposed off by a single order for the sake of convenience. I.T.A. No. 183/Del/2011 (assessment year 2003-04): 3. In this case, Revenue has raised, in all seven grounds, whereas ground no.1 and 7 are general and effective grounds No.2-6.1 read as under: 2. The Ld. CIT (A) ignored the fact that the nature of expense is capital and the assessee will get enduring benefit. 3. On the facts and in the circumstances of the case and in law, the learned CIT (A) has been in deleting the addition of ₹ 1,09,10,366/ made by the AO by capitalizing 25% of advertisement expenses. 3.1. The Ld. CIT(A) ignored the fact that the assessee will get enduring benefit by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. (Pumps) Ltd., 232 ITR 316 (SC) and Arvind Mills, 197 ITR 422 (SC) has treated for reversal of the impugned order on this issue. 6. Ld. Counsel for the assessee while relying upon the basis and reasoning as given by the CIT(A) has contended for confirmation of the order of CIT(A) on this issue. She has further submitted that so far as initial franchisee fee of $ 20,000/- is concerned, same has already been capitalized by the assessee, but so far as franchisee fee is concerned which is fixed at 3% of the entire sale is nothing but revenue expenditure. Since, Domino Pizza is a global name and by placing agreement of franchisee dated 27.3.1995 and making reference to various clauses of the said agreement, Ld. Counsel for the assessee submitted that the licence given to the assessee is with respect to right to use which is not permanent one. There is also a confidentiality clause in the said agreement together with post termination covenant and as per agreement even after termination of agreement upto 2 years, assessee cannot use it and everything given in terms of the agreement has to be returned to the persons concerned, could not work in such line and moreover before giving same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - the brand name of the assessee is well known name in the industry and market; - there is no proper justification of expenses of more than 100% in comparison to expenses incurred in the immediately preceding year; - the sale has also declined as compared to the last year and giving the enduring nature of benefit derived from display of such advertisement Assessing Officer disallowed 25% of the advertisement expenses treating it to be of enduring nature and thereby treated the same as capital expenditure. 11. Assessee took up the matter in appeal and filed detailed submissions before CIT(A), who incorporated such submission in his order from page 16 to first paragraph of page 22 and by relying upon case laws in the case of Sassoon J. David and Co. (P) Ltd. vs. CIT, 118 ITR 261 (SC), CIT vs. Salora International Limited, 308 ITR 199 (Del.) and Sony India P. Ltd. vs. DCIT, 315 ITR (AT) 150 (Del.), he has concluded to delete the impugned the addition as per para.7.1 of his order as under: "I have carefully considered the Assessment order and the submissions and documentary evidences produced before me by the appellant. I have also examined the sample invoices furnished be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e competition in Indian market for selling its products in India. Further in the case of Berger Paints (India) Ltd. (254 ITR 503) the Calcutta High Court has held that advertisement expenditure is generally of revenue nature since the memory of purchasing market is short and the advertisement is required to be done from year to year. In view of the above discussion and placing reliance on the above referred decisions of Sassoon J. David and Co. (P.) Ltd. vs. CIT, Sony India P. Ltd. v. DCIT, and CIT v. Salora International Limited, Berger Paints (India) Ltd.. 254 ITR 503(Cal) the addition of ₹ 1,09, 10,366/- is hereby deleted." 12. Aggrieved by this order of CIT(A), department has come up in appeal and while relying upon Assessing Officer's order, it was pleaded for setting aside the impugned order and restoring that of the Assessing Officer. It was further submitted that it is a well known brand of Domino's Pizza, which is very famous and advertisement could hardly boost its sale when actual sale has decreased in this case during the year under consideration. Therefore, there was no justification for CIT(A) to allow the relief when A.O. has only capitalized 25% in suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance and before CIT(A), assessee submitted that business of the assessee is that of Domino's Pizza and their sale from retail outlet is throughout India. The sales are affected both at the retail outlets as well as through home delivery to the customers. Most of the sales of the assessee are affected through home delivery. The sales of the pizzas is primarily on cash basis, however, some of the sale to the corporates may be on credit basis. While carrying out day-to-day transactions both at retail outlets and through home delivery to the customers there are some instances where the total sale revenue could not be realised by the assessee on account of a variety of reasons. During the year under consideration, the assessee had already established 81 stores and the total invoices raised by the assessee were in excess of 2.5 million. As a result of this, certain amounts had to be written off by the assessee in its books of accounts. While carrying out day-to-day transactions, there are some instances where the amount for the sale of pizza is not recovered from the customer, such as customer paid short, soiled notes are received and at times not accepted by the bank, Pizza delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished despite opportunity to substantiate the claim. As the assessee has failed to produce necessary material to support his plea in appeal also, but CIT(A) without giving any basis has just given the relief of impugned addition. It was thus pleaded for reversal of the order of the CIT(A) and restoring that of the Assessing Officer. 17. Ld. Counsel for the assessee while relying upon CIT(A)'s order has submitted that just and appropriate conclusions has been drawn by the CIT(A) in the light of material available on record and while relying upon case laws cited, as reported in TRF Ltd. vs. CIT, 323 ITR 397 (SC), DCIT vs. Kama Jewelry Pvt. Ltd. (ITA No.6960/Mum./2008 (Trib.) and DCIT vs. Ganges Lines India Pvt. Ltd., ITAT(Mum.), it was pleaded for confirmation of the impugned order. 18. We have heard both the sides, considered the material on record and find that sundry balances written off are relatable to business need and CIT(A) while considering the entirety of facts, circumstances and material on record has justifiably allowed the relief to the assessee. Since, no contrary material or evidence has been furnished nor any infirmity or flaw has been pointed out or noticed, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the disallowance made by the Assessing Officer is directed to be deleted." 23. No contrary material has been placed on record nor any infirmity or flaw has been pointed or noticed. Since, date of payments are part of audited accounts which clearly indicate that payments of ESI contribution have been made before the due date of filing of the return, therefore, in our considered view, action of the CIT(A) needs confirmation which is confirmed and appeal of the Revenue on this ground is dismissed. 24. Next issue relates to deletion of disallowance of the donation of ₹ 88,000/- made to CRY. Assessee claimed a deduction of ₹ 88,000/- on account of donation made to CRY. Since, assessee was not able to produce the donation receipt, the Assessing Officer disallowed a sum of ₹ 88,000/- in respect of donation. 25. Assessee took up the matter in appeal and submitted that the amount of ₹ 88,000/- was contributed by the assessee towards the donation to CRY and CRY is a recognized institution and donation made to it is allowable as deduction u/s 35AC of the Act, but the Assessing Officer disallowed the said deduction as at the time of assessment the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o franchisees fee and other in relation to sundry balance written off. 31. It is common ground of both the sides that these issues have already been dealt in assessment year 2003-04. So, the decision to be taken in the above appeal may be followed here. 32. Since both the issues involved in this appeal have been dealt by us in earlier part of the order while dealing with ITA No.183/Del./2011 for assessment year 2003-04 except, difference in amount of disallowances, other facts are same and issues are identical. Therefore, following our decision for assessment year 2003-04 in respect of both the issues, we uphold the order of the CIT(A) and dismiss the appeal of the Revenue. 33. There is another issue, which is contained in ground No.4 relates to restricting the addition of ₹ 9,06,977 to ₹ 3,19,680/- made by the Assessing Officer on account of prior period expenses thereby giving relief of ₹ 5,80,207. 34. The assessee's claim in respect of expenses of ₹ 9,06,977/- was disallowed by the Assessing Officer as prior period expenses on the ground that such expenses did not pertain to the relevant period under consideration. Assessee challenged such action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a bill raised by them for ₹ 1.21 Lakhs which was settled at ₹ 43,0001-) and after considering the argument I am of the considered view that the liability in respect of the above expenses actually got settled in the current assessment year with both these parties and the appellant should be allowed the deduction in respect of these expenses in the current assessment year. Further the appellant had produced the debit note for ₹ 5,20,000/- for IT services received from Jubiliant Organosys Ltd. and argued that though the expense pertains to A Y 2004-05, but since there was confusion on whether 11 Services provided by the group concern during previous period are free of cost or for which payment is required to be made, this liability ultimately got booked in FY the vendor raised debit note in September 2004 and after considerable corresponden~ave examined the debit note and the argument of the appellant and correspondence with Jubilant Organsoys on the issue of payment and I am of the view that the liability got crystallizedin the current year only and that the appellant should be allowed the deduction of this expense in current _assessment. In allowing this expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the direction to restrict the issue afresh after giving due opportunity to the assessee. This ground of appeal is partly allowed. 39.1 As a result, appeal is partly allowed for statistical purpose. 40. ITA No.184/Del./2011 41. First issue is arising from the order passed by the CIT(A) in appeal of the assessee against order of the Assessing Officer u/s 143(3) read with section 263 of the I.T. Act, 1961 and the other ground relates to deletion of addition of ₹ 20,53,550/- made by the Assessing Officer on account of store allocation expenses. 42. Facts in relation to first ground indicate that the assessee had claimed deduction of ₹ 20,33,590/- in return of income filed by the assessee. The assessee submitted before Assessing Officer, the expenses in relocation was in the nature of rent, security charges, transport expenses on shifting of material from one godown to another and payment for dismantling of items from the stores. All the expenses incurred in the normal course of carrying on the business of the assessee and are revenue in nature and therefore should be allowed as claimed by the assessee. However, Assessing Officer held in the assessment order that - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this head as it could be seen from the details of relocation expenses. And it continues to be in business even today. So, expenses has claimed should be allowed. 45. CIT(A) while considering and accepting the plea of the assessee has concluded to delete the addition as per para 4.1 of his order as under: "I have carefully gone through the Assessment Order and the submissions made by the appellant along with various documents, invoices, agreements furnished by the appellant. After examining the various documents produced by the appellant, it is observed that the expenses incurred by the appellant under this head were in the nature of rent of godown, security guard expenses for godown and stores, transport charges for shifting of material from one place to another on closure of store, dismantling expense, routine repair and maintenance and other expenses of similar nature. From the very nature of these expenses they are found to have been incurred by the appellant in normal course of carrying on their business activities and are revenue in nature. I agree with the contentions of the appellant that they are not capital expenditure and the appellant was justified in claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble debentures of ₹ 25 crores during the financial year 2000-01 to meet its working capital requirements. During the impugned assessment year, the appellant was short of funds and hence, was not in a position to redeem the debentures. Thus, the assessee renegotiated the terms and conditions of the issue of debentures with the holders of such debentures and managed to convince the debenture holders to restructure the terms and made them agreeable for redemption a later date. For carrying out all this functions, the assessee made a one time payment of ₹ 15 lakhs. The assessee place4d reliance on the decision in the case of Premier Automobiles Ltd. vs. CIT (1971) 80 Income Tax Rules, 1962 415 (Bom.), CIT vs. Modi Industries Ltd., (1933) 200 ITR 341 (Del.), in support of his claim for allowance of this expenditure as a revenue expenditure. But, Assessing Officer stated in his order that since it was in regard to subscription of debenture, it was capital in nature and, therefore, added the amount of ₹ 15 lakhs to the income of the assessee. 51. Assessee challenged such action of the Assessing Officer before CIT(A) and reiterated the submissions as made before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Secure Meters Ltd. (321 ITR 611). It has also been mentioned I the judgment of Karnataka high Court that the above order of Rajas than High Court in Secure Meters (supra) was taken up before Supreme Court in SLP, which has been dismissed by the Hon'ble Apex Court. In the facts of the appellant's case the debentures are non-convertible in nature and therefore the expenses incurred in connection with restructuring the same for redemption at a later date are therefore clearly in the nature of revenue expenses and thus the amount of ₹ 15,00,000/- is allowed as a tax deductible expense. The Assessing Officer is accordingly directed to delete the addition." 53. Aggrieved by this order of CIT(A), department has come up in appeal and while relying upon Assessing Officer's order, it was pleaded for setting aside the order of CIT(A) and restoring that of the Assessing Officer as subscrip6tion of debentures are capital in nature, therefore, it was not allowable as revenue expenditure which has already been disallowed by the Assessing Officer and CIT(A) is not justified in deleting such disallowance whose order should be reversed and that of the Assessing Officer be restored ..... X X X X Extracts X X X X X X X X Extracts X X X X
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