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TMI Blog2009 (12) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... by the decision of the Hon'ble Apex Court in the case of Punjab State Industrial Development Corporation Ltd. reported in 225 ITR 792. In this case it was held that amount paid by the company to ROC as filing for enhancement of capital base of company cannot be allowed as revenue expenditure. 5. Respectfully following the precedent, we uphold the order of the ld. CIT(A) on this issue and decide the issue against the assessee. 6. The next common issue raised is that the ld. CIT(A) erred in confirming the disallowance of expenditure on acquisition of fire extinguishers upholding that the expenditure was capital in nature. 7. On this issue the assessee expenditure on fire extinguishers which was debited as revenue expense was disallowed by the AO, who held them to be capital in nature. 8. Upon assessee's appeal the ld. CIT(A) confirmed the same. The ld. CIT(A held that the fire extinguisher is not an item which was consumed in the day to day business of the working of the company. It, therefore, can be said to be expenditure made, which is of lasting value and hence he confirmed the AO's action. 9. Against this order the assessee is in appeal before us. 10. Ld. Counsel of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue AO disallowed the expenditure of Rs. 70838/- for assessment year 2001-02 and Rs. 49843/- for assessment year 2002-03 incurred as expenditure on club services. The AO held that use of club services cannot be termed as expenditure for the purpose of business of the assessee company. 14. Upon assessee's appeal for assessment year 2001-02 ld. CIT(A) affirmed the addition and for assessment year 2002-03, he deleted the addition to the extent of 50%. 15. Against this order the assessee is in appeal before us. 16. We have heard both the counsels and perused the records. In assessment year 2002-03 ld. CIT(A) has stated that these expenditures are not all in the nature of subscription fees to clubs. Furthermore, the ld. CIT(A) observed that these expenditures have been "made for purchase and entertainment, in which the element of expenditure for personal though cannot be demarcated, but nonetheless it does exist." Upon careful consideration, we are of the opinion that use of club services for the promotion of business in the modern age cannot be denied. Further the expenditure in comparison with the turnover of the assessee is a very miniscule amount. For assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly fall within the ambit of expenses which call for amortization. Hence he confirmed the AO's action in this respect. He directed the AO to allow the balance expenditure in full. 20. Against this order both the assessee and revenue are in cross appeals before us. 21. Ld. Cousnel of the assessee submitted that the ld. CIT(A) has completely erred in holding that amortization of expenses as per section 35D of the IT Act is applicable. He submitted that section 35D deals with the amortization of preliminary expenses which are incurred before the commencement of business or after the commencement of business in connection with extension of the undertaking or in connection with setting up of new unit. He claimed that the advertisement expenditures incurred by the assessee are not at all preliminary expenses as envisaged under section 35D of the IT Act. Ld. Counsel contended that these expenditures have actually been incurred for the purpose of business of the assessee. He argued that there is no reason why these expenditures should not be allowed in full. He argued that there is no concept of deferred revenue expenditure in tax laws. In this regard, the ld. Counsel referred the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promotion, establishment expenses, expenses under technical assistance agreements, etc. This was disallowed by the Income Tax Officer as it was incurred prior to April 1, 1970. However, the Tribunal allowed the same. The assessee claimed deduction under section 35D of the expenditure of Rs. 15,36,631/- incurred on advertisement and publicity, subsidy to farmers warehousing and other handling charges and depreciation. The Tribunal allowed the expenses claimed to the extent of Rs. 11,93,263/- under section 35D disallowing warehousing and other handling charges and depreciation" 24.1 The Hon'ble High Court inter-alia held as under:- "(i) that the expenditure incurred on publicity and promotional expenses amounting to Rs. 35,55,769 during the years 1967-68, 1968- 69 and 1969-70 prior to March 31, 1970 were not deductible in the assessment year 1972-73; (ii) that the expenditure incurred on publicity and promotional expenses amounting to Rs. 33,55,769/- during the years 1967-68, 1968-69 and 1969-70 prior to March 31, 1970, were revenue in nature and not capital in nature and could not be considered to be part of the actual cost; (iii) that the Tribunal was justified in law in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and disallowed 2/3rd thereof. Upon assessee's appeal ld. CIT(A) confirmed the AO's action. 27. Against this order the assessee is in appeal before us. 28. Ld. DR submitted before us that this tribunal in assessee's own case for assessment year 1998-99 has considered the issue and remitted the matter to the files of the AO by holding that "if the brokerage payable is linked to hire charges which are receivable over period of hire purchase finance, the brokerage will also be allowed accordingly. However, if it is otherwise, the same will be allowed in the year of payment itself." Hence the ld. DR submitted that the same order should be followed as the issue stands covered. 29. Ld. Counsel of the assessee on the other hand submitted that this order is not applicable on the facts of the case for the impugned year. He mentioned that in that year i.e. A.Y. 1998-99 on the basis of the case made out by the AO, Tribunal had remitted the matter observing that whether there was some nexus between the disbursement of loan and the commission paid was not clear. In this regard, ld. counsel referred to assessment order and CIT(A)'s Order for assessment year 1998-99. Ld. counsel sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial Corpn. Vs. CIT and on assumption that the expenditure incurred is directly or indirectly related to the period or length of time of incurring the expenditure. However, he contended that in the present case the admitted situation was that the expenditure incurred had nothing to do with the period or length of time had no linkage whatsoever to any period, as the expenditure was incurred for procuring the business and sum was paid to the agents and represented the liability of assessee as soon as the agents procured the business which is also non-refundable by the agents. In this regard, ld. counsel further submitted that in the immediate preceding year to the assessment year under appeal i.e. assessment year 1999-00 and 2000-01 the assessee had claimed the entire expenditure as incurred in respect of direct selling expenditure being commission paid to the direct selling agents and the same was not disallowed by the AO. Hence he further submitted that so far as the assessment year thereafter are concerned, it had to be decided independently, on merits of the case for each of the assessment year. Ld. counsel contended that during the current assessment year AO had made elaborat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure in the year in which it is incurred irrespective to its accounting treatment adopted by the assessee. In the assessment order for assessment year 1998-99, the learned assessing officer has disallowed commission paid to DSAs on the alleged ground that the expenditure on borrowal of funds can be debited over the period of loan as revenue expenditure and relied on the judgement of Hon'ble Supreme Court in the case of Madras Industrial Corp. Vs. CIT reported in 225 ITR 802. The said judgement relates to allowability of deduction on account discount on issue of debentures; i.e.; borrowings. Whereas the facts of the assessee's case are that commission is paid to DSAs for sourcing the hirers. Once the sales commission is paid, it is not refundable even if the finance contract is terminated latter on or repaid prematurely or no recoveries are made subsequently. Hence, commission paid to agents is revenue expenditure and duly allowable for income tax purposes." Thus Ld. Counsel of the assessee contended that during the current year A.Y. 2001-02. AO has duly examined the entire issue and found that the receipt in these years does not have any link with the period of disburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue before us as to whether there is a nexus between amount paid as commission and the disbursement of loan in the concerned year. Hence, the reliance of the DR on the above said Tribunal decision is not applicable. 30.1 Now in this case, we find that the expenditure has actually been incurred 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 AO 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 liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. 30.2 It will also be apt to refer to the decision of the Hon'ble Apex Court in the case of CIT vs. Associated Cement Companies Ltd. in 172 ITR 257 wherein the facts are as under:- "The respondent company, a manufacturer of cement, was 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 therefor, 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." 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 ld. CIT(A) and decide the issue in favour of the assessee. Revenue's appeal 31. One common issue is raised is that the ld. CIT(A) in directing the AO to allow certain portion of advertisement expenses. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving cogent basis for the disallowance. Accordingly, ld. CIT(A) allowed assessee appeal on this issue. 36. Against this order the revenue is in appeal before us. 37. It has been contended by the revenue that details of expenses were not produced before the AO. 38. On the other ld. Counsel of the assessee contended that the details were duly produced and the AO has chosen to ignore the same. However, he submitted that the ld. CIT(A) has duly considered the same and gave a finding that the amount involved is allowable as revenue expenditure, hence he argued that the ld. CIT(A)'s order should be upheld. 39. We have carefully considered the submissions, we find that the ld. 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 AO. Hence, in our considered opinion, there is no need to interfere with the finding of the ld. CIT(A). Accordingly, we uphold the same. 40. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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