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TMI Blog2015 (5) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner of Income-tax (Appeals) ignored the law laid down by the jurisdictional High Court in the case of CIT v. Geoffrey Manners and Co. Ltd. [2009] 315 ITR 134 (Bom). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing foreign travel expenditure of Rs. 7,10,160. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing market research expenses of Rs. 19,50,234. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing product development expenses of Rs. 13,58,256. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in disallowing the claim for deduction made under section 80-IB by giving reason the claim is academic in nature." 2. The assessee-company is engaged in the business of manufacturing of fruit juice based drink, non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decide, whether the art is reusable for more than a year or not. 5. Before us learned senior counsel, Shri Firoze Andhyarujina submitted that these artwork are basically prepared or conceptualised for advertisement for a particular product for a particular period. These advertisement materials keeps on changing with the need of the time and are based on festival seasons and important events happening in the country. Even from the details as noted by the learned Commissioner of Income-tax (Appeals), it can be seen that these are mostly for advertisement for the products for a particular event or festive season or any announcement of scheme, which is to be advertised. He further submitted that in assessment year 1998-99, the Tribunal has decided this issue in favour of the assessee, vide order dated January 23, 2013 passed in I. T. A. No. 8637/Mum/2010. 6. On the other hand the learned Departmental representative strongly relied upon the order of the learned Commissioner of Income-tax (Appeals). 7. We have heard rival submissions and also perused the relevant orders. The payment of artwork represents amount paid for designing and conceptualising the advertisement idea on paper o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,52,809, which is the subject-matter of litigation now. In this regard, learned counsel mentioned that the criteria adopted by the Commissioner of Income-tax (Appeals), i.e., 'certain artworks for special occasions which can be used only once or for a short period' is completely artificial in nature. The Commissioner of Income-tax (Appeals) ignored the fact that the maximum life of an artwork made on a card paper is six months which is not disputed by the Revenue. In such case, the longest life of an artwork is less than six weeks. In such case, no artwork can be considered capital in nature. On the other hand, the learned Departmental representative relied on the order of the Assessing Officer and the Commissioner of Income-tax (Appeals). We have heard both parties, perused the order of the Revenue authorities and the papers filed before us. It is an admitted fact that similar claim of the assessee was allowed in the past by the Revenue without making additions. It is only in this year, based on artificial criteria, this expenditure was considered as capital in nature. The criteria adopted by the Commissioner of Income-tax (Appeals), in our opinion, is not proper and any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Tour was undertaken to have meeting with Tetra pak at Germany and to see any prospective business opportunity for making export of products Rs. 1,59,717 Mr. Prakash J. Chauhan Tour was undertaken to attend Tetra pak office at Switzerland and UK and to see any prospective business opportunity for making export of products Rs. 5,50,443 The written submission of the assessee in respect of aforesaid two foreign travels before the learned Commissioner of Income-tax (Appeals) as under : "Tour of Schauna Chauhan to Dusseldorf (Germany) The tour was undertaken to visit Tetra pak office at Germany. Ms. Schauna Chauhan being director visited Tetra pak office to understand the nature of demand for their products so that the appellant- company can get idea of German market conditions. The purpose of visit was to find out whether the appellant-company can get any opportunity of doing business in Germany. Tour of Mr. Prakash Chauhan to Switzerland and UK The tour was und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the travel has been duly explained and also the effect of these foreign travel in the subsequent export made by the assessee. Moreover, up till 2006-07 foreign travel has been allowed by the Assessing Officer and in the assessment year 2007-08, the learned Commissioner of Income-tax (Appeals) has deleted such addition and the Revenue has not preferred any appeal on this issue. Thus no disallowance is called for. 11. On the other hand the learned Departmental representative strongly relied upon the order of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals). 12. After considering the rival submissions and also on the perusal of the relevant submissions and finding of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals), we find that out of the five foreign travels, the learned Commissioner of Income-tax (Appeals) has deleted the disallowance which were on account of business conference held in Singapore and Trade Fair in China. However, with regard to the tour undertaken for meeting with Tetra Pak Co. at Germany and Switzerland for prospective business opportunity it has been confirmed. The assessee's explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoting its goods, which are fast moving consumer goods products. The assessee's submissions have been incorporated from pages 17 to 19 of the appellate order. However, the learned Commissioner of Income-tax (Appeals), confirmed the said addition without assigning any proper reason except for stating that the assessee could not produce any copy of the report submitted by the market research agencies. 15. Before us, learned senior counsel submitted that similar issue was involved in the assessment year 2007-08 also, wherein this issue has been decided in favour of the assessee. He submitted that the market research is carried to study the market of its product and about the market trends and consumer preferences so as to decide the future strategy while dealing with the competitors in the same nature of products and to push up sales. These expenditures include collection of data required from the market and other incidental expenses incurred for market study. These market research are carried out only to strengthen the existing brands and expansion of existing business activities. The expenditure as such has not been doubted, except that it has been treated as capital expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without assigning any proper reason, held it to be capital expenditure. 19. Before the learned Commissioner of Income-tax (Appeals), the assessee has filed exhaustive explanation which has been incorporated from pages 20 to 25 of the appellate order. The learned Commissioner of Income-tax (Appeals) after going through the details of the product development expenses, held that out of disallowances of Rs. 21,20,897 as made by the Assessing Officer, a sum of Rs. 13,58,256 has been debited by the assessee as expenditure on March 31, 2008. Moreover, there is increase in the expenses under this head from the last year. Thus, the said amount debited on the last day, reflects abnormality of the expenditure claimed by the assessee. Accordingly he held that 75 per cent. of Rs. 13,58,256 should be disallowed. 20. Before us, the learned senior counsel submitted that the expenditures were incurred during the year only. For example, the assessee has given advances of the products to its manufacturing unit/factory for testing purpose and research and development and the said advances after consumption has been debited on the last date. The list of entire expenses were given before the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the changes in the design of the products and also the quality of the products is an essential part of market strategy to augment sale and profit. Such an expenditure incurred for designing the product cannot be held to be of enduring benefit. Even otherwise also, if the advantage of such expenditure is merely for augmenting the assessee's trading/ business operations or to carry on the business more efficiently for profitability, leaving the fixed capital untouched, the expenditure would generally be on the revenue account, even though the advantage may have an enduring benefit for a brief period. Here in this case, the assessee has changed the design of the bottle and the colour of the cap as is a regular phenomenon to be carried out between one to two years which cannot be held to be for an enduring benefit or major change in the profit making apparatus. Such expenditures are required for either augmenting the sale or to survive in the market under stiff competition. Therefore, such expenditure has to be treated as revenue expenditure and, accordingly, the disallowance as confirmed by the learned Commissioner (Appeals) under the head product development expenditure is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2007-08, the Tribunal has discussed this issue in the following manner (page 128 of 36 ITR (Trib)) : "Regarding additional ground, learned senior counsel submitted before us that the return of income for the assessment year 2007-08, was filed claiming carried forward of losses, which resulted into 'nil' income in the return of income filed. Therefore, the claim of deduction under section 80-IB, was not shown in the computation of income before the Assessing Officer. During the course of the assessment proceedings, it was brought to the notice of the Assessing Officer that the assessee is otherwise eligible for deduction under section 80-IB and a note was put in the computation of income filed along with the return of income, duly certified by the chartered accountant. The Assessing Officer while passing the order under section 143(3), has arrived at positive income, mainly due to disallowance of set-off of carried forward losses, however, while computing the taxable income, he ignored the claim of deduction under section 80-IB. The reason being that, the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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