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A.C.I.T. (OSD) , Circle-8, Ahmedabad Versus M/s. Zydus Wellness Limited

2016 (5) TMI 530 - ITAT AHMEDABAD

Disallowance of depreciation made on non compete fees - Held that:- Since the claim of assessee was allowed in A.Y. 2007-08 and 2008-09, meaning thereby that Revenue has accepted the claim and in such situation, on the same non-compete fees without there being any change in facts, no disallowance on depreciation can be made in the year under consideration. - Decided against revenue

Disallowance of claim of reduction from stock of packing material and finished goods - Held that:- CIT(A .....

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riting off of the stock and procedure has been verified by auditors and the procedure followed by the assessee was as per accounting practices followed by the assessee. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). - Decided against revenue

Disallowance of claim of foreign travel expenses - Held that:- CIT(A) while deleting the addition had given a finding that the assessee had furnished compete details of employees who had travell .....

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ting the addition on account of web designing charges has given a finding that no asset has been created but web designing is only a tool for facilitating the business of the assessee as it provides the means for managing the information about the assessee. With respect to trade mark expenses, he has given a finding that the expenses did not create any asset or result into any advantage of enduring nature and the expenses were only incurred to avoid future litigation and therefore, expenses were .....

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TDS on account of gift articles and promotional articles - Held that:- CIT(A) while deleting the addition had noted that the items that were purchased by the assessee were for sales promotion, were in the nature of ready goods and only logo of the company was printed on the items and the logo was added to promote the business. - Decided against revenue - ITA No. 1674/Ahd/2012 - Dated:- 6-4-2016 - Shri Shailendra Kumar Yadav, Judicial Member and Shri Anil Chaturvedi, Accountant Member For The Rev .....

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ssee filed its return of income for A.Y. 2009-10 on 24.09.2009 declaring total income at ₹ 38,53,16,250/-. The case was selected for scrutiny and thereafter, assessment was framed u/s.143(3) of the Act vide order dated 23.12.2011 and the total income was determined at ₹ 39,85,69,781/-. Aggrieved by the order of A.O., Assessee carried the matter before the ld. CIT(A) who vide order dated 28.05.2012 (in Appeal No. CIT(A)-XVI/Jt. CIT, R-8/227/2011-12) granted substantial relief to the a .....

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ock of finished goods. 3) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad erred in law and on facts in deleting the disallowance of claim of foreign travel expenses at ₹ 3,20,467/-. 4) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad erred in law and on facts in deleting the following expenses which were Revenue in nature. a) Web Designing charges ₹ 7,30,340/- b) Trademark expenses ₹ 13,200/- c) Survey (PR) expenses. Rs.45,81,723/-. 5) The Ld. Commissione .....

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m of depreciation on trademarks and technical know how but the claim with respect to depreciation of non-compete fees was not found acceptable to the A.O. as he was of the view that the nature of intangible assets provided u/s.32 of the Act did not include non-compete fees. He, thereafter, relying on the decision of ITAT, Chennai Bench in case of Srivatsan Surveyours P. Ltd. vs. ITO, 32 SOT 268, denied the claim of depreciation of ₹ 1,40,625/- on non-compete fees. 5. Aggrieved by the order .....

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The appellant has also relied on the decision of Chennai Bench in the case of ITO Vs. Medicorp Technologies Pvt. Ltd. [122 TTJ 394] wherein it was held that non-compete fee was an intangible asset and was covered by the provision of section 32(1)(ii) of the Act. It has further relied on the recent decision of Serum Institute of India Ltd. [135 ITD 69(Pune)] dated 18/01/2012 wherein non-compete fee was held to be an intangible asset and the noncompete right acquired by the company was held to be .....

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which was taken over as noncompete fee. The decision of ITAT, Pune Bench and Chennai Bench relied by the appellant appears to be quite logical as the payment of non - compete fee to another person to reduce the competition, tantamounts to a right and is, therefore, a capital asset which is intangible in nature. This asset is eligible for depreciation u/s. 32(1)(ii) of the Act. Further, the claim of depreciation has been allowed in earlier two assessment years also, The disallowance made by the A .....

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ed that non-compete fee was capitalized as an intangible asset in F.Y. 2006- 07 and the depreciation claimed on it was allowed in A.Y. 2007-08 & 2008-09. He further placed reliance on the decision of Chennai Bench in the case of ITO vs. Medicorp Technologies Pvt. Ltd. 122 TTJ 394 and the decision in case of Serum Institute of India Ltd. 135 ITD 69(Pune). Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). Further, since the claim of assessee was .....

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ds. 8.1 A.O. on perusing the details of closing stock noticed that assessee had reduced ₹ 5,18,761/- from the gross value of closing stock of packing material and ₹ 27,17,342/- on account of provisions for damages of finished goods. Assessee was asked to justify its claim. The submission of assessee about the reasons of being shortage found at the time of physical verification in respect of packing material and the stock of finished goods were damaged, was not found acceptable to the .....

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4.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The addition has been made by the A. O. by disallowing the claim of reduction of ₹ 5,18,761/-from stock of packing material and ₹ 27,17,242/- from stock of finished goods. It has been held by the A. O. that no proof regarding the write off has been produced. The report of the technical / audit committee who had verified such stock has not been submitted. The A. O. has further held .....

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packing material which also gives the detail of the stock that was written off. Regarding the stock of damaged goods, it has submitted a detailed annexure containing location of the goods, quantity rate and value of the stock written off. The write off is duly supported by the procedure followed by the appellant company and is, therefore, fully allowable. There is no .requirement of any technical or audit committee before the write off. Regarding the write off of ₹ 27,17,242/-, the appell .....

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efore me by the appellant, I am inclined to accept the submission made by the appellant. There is a proper procedure which has been followed by the appellant. The list of packaging material contains clear description .of the goods that were considered to be not usable. Similarly, the list for damaged stock clearly show the material, quantity and description of the various items which were lying at different godowns across the country which were considered to be damaged and accordingly the statem .....

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by factual evidences is accordingly allowable. The ground of appeal is accordingly allowed. 10. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us. 10.1 Before us, ld. D.R. supported the order of A.O. On the other hand, ld. A.R. reiterated the submissions made before the A.O. and ld. CIT(A) and supported the order of ld. CIT(A). 11. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deleting the addition made by A.O. has g .....

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erified by auditors and the procedure followed by the assessee was as per accounting practices followed by the assessee. Before us, Revenue has not brought any material on record to controvert the finding of ld. CIT(A). We, thus, find no reason to interfere with the order of ld. CIT(A). Thus, this ground of Revenue is dismissed. 12. Ground no.3 is with respect to deleting the disallowance of claim of foreign travel expenses. 12.1 A.O., on verification of the details of travelling expenses, notic .....

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claim of assessee cannot be allowed. He, therefore, disallowed the expenses on account of foreign travel expenses of ₹ 3,20,467/-. 13. Aggrieved by the order of A.O., Assessee carried the matter before the ld. CIT(A) who deleted the addition by holding as under: 5.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The appellant has submitted that the complete details of employees who had travelled abroad, duration of visit, countries visi .....

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pany such as Senior Vice President and marketing persons have visited Dhaka and Colombo on various dates for business promotion. The expenses shown are also very reasonable and the A. O. has merely disallowed it on the basis that business purpose has not been established. The A. O. was not justified in disallowing the expenses merely on the suspicion. The evidences that have been placed on record also includes the correspondence made to the travel agent which show that it was a business visit. T .....

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. 14.1 Before us, ld. D.R. supported the order of A.O. On the other hand, ld. A.R. reiterated the submissions made before the A.O. and ld. CIT(A) and supported the order of ld. CIT(A). 15. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deleting the addition had given a finding that the assessee had furnished compete details of employees who had travelled abroad, duration of visit, countries visited, nature and amount of expenses and purpose .....

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ature. 16.1 A.O. noticed that assessee has claimed expenses on account of web designing charges (Rs.7,30,340/-), trademark expenses (Rs.13,200/-) and survey (PR) expenses (Rs.45,81,723/-). A.O. was of the view that the expenses incurred for web designing was towards development of a new website and therefore, the expeneses were capital in nature. With respect to the expenses of trademark expenses, he was of the view that acquisition of trade mark was capital in nature and expenses related to its .....

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., Assessee carried the matter before the ld. CIT(A) who deleted the addition by holding as under: 7.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has disallowed the expenses as it was held by him that these were in the nature of capital expenses. For the sake of convenience each item is discussed separately. (i) Web designing charges: The A. O. has held that the charges were incurred for creating new website which is the property .....

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se behind the creation of website is not to create ,an asset but only to provide means for disseminating the information about the assessee. The court has further held that the website enable companies to do what printed brochures did but in a much more efficient manner. The decision mentioned by the appellant is directly applicable to the facts of the case. There is no asset that has been created but it is a tool for facilitating the business of the appellant company and, therefore, the expendi .....

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a revenue expenditure. It does not create any asset or it does not result into any advantage of enduring nature. It is only done to avoid the future litigation to prove that the title of the trademark is own by the person who has registered it. Therefore, the advantage derived is of revenue in nature. Therefore, the expenditure is held to be revenue in nature. (iv) Survey expsnses: The A. O. has treated the expenses as capital as it was held by him that it gives enduring benefit and an expenditu .....

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e appellant, I am of the considered opinion that the expenditure incurred on survey should be treated as revenue in nature for the reason that the survey expenses have been incurred to improve the efficiency of the business by finding out customers preferences for sugar substitute, market research for butter margarine, evaluation of cosmetic product, software support and maintenance etc. The appellant company is a consumer related company and it has to keep their products constantly updated keep .....

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o applicable on the present facts. Therefore, the expenditure incurred by the appellant company on survey is held to be of revenue nature. In view of the above discussion, all the three expenses which have been held by the A. O. as capital in nature are held to be of revenue nature and the disallowance made by the A. O. is directed to be deleted. The ground of appeal is accordingly allowed. 18. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us. 18.1 Before us, ld. D.R. sup .....

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on about the assessee. With respect to trade mark expenses, he has given a finding that the expenses did not create any asset or result into any advantage of enduring nature and the expenses were only incurred to avoid future litigation and therefore, expenses were revenue in nature. With respect to survey expenses, he has given a finding that the expenses have been incurred to improve efficiency of the business by finding out customers preferences for sugar substitute, market research for its p .....

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had incurred expenses of ₹ 36,60,981/- on account of gift articles and while making payment, assessee did not deduct TDS. The submission of the assessee that it was not required to deduct TDS as it was purchase of goods on principal-to-principal basis and it was not a contract for carrying out any work, was not found acceptable to the A.O. as he was of the view that expenses on gift articles contained the Logo of the assessee and for acquiring gift and promotional articles, assessee had gi .....

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the Act and made addition of ₹ 36,60,981/-. 21. Aggrieved by the order of A.O., Assessee carried the matter before the ld. CIT(A) who deleted the addition by holding as under: 8.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has treated the expenditure on certain items of sales promotion expenses amounting to ₹ 36,60,981/- as liable for deduction of TDS u/s. 194C of the Act holding it as work contract. The appellant has .....

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the logo of the company for sales promotion. The items were in the nature of ready goods and only logo of the company was printed on the items. These items appeared to be the items available in the market off the shelf. The appellant has only added its logo on those items to promote its business. It is nowhere indicated in the assessment order or the facts that the design and description of the article was provided by the appellant. The reliance placed by the A. O. on the decision of ITAT, Pune .....

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