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TMI Blog2016 (7) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, the AO directed the assessee to explain the justification of Product Development Expenses(PDE) and to furnish details about the purpose for which the expenditure was incurred. The assessee was asked to furnish details of the products for which it had incurred the expenses, the results of the expenditure incurred. In its reply, the assessee informed that development of new product was part of business activity, that it would not survive without developing new products, that it had to improve the existing products. As per the AO, the assessee did not file exact details in response to the queries raised by him especially the purpose for which the expenditure was incurred. Accordingly, a sum of Rs. 25, 41, 246/- was disallowed as revenue expenditure and was treated as capital expenditure. The AO allowed depreciation @ 25% i. e. of Rs. 6. 35 lakhs. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). Before him, it was contended that the PDE were incurred to study the combination of ingredient of different product and to study the possible new ideas of the product, that the expenses were incurred only to study the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue was decided in favour of the assessee by the Tribunal, while deciding the appeals for the earlier AY. s. 5. We have heard the rival submissions and perused the material before us. we find that while deciding the appeal for AY. 2007-08 (38 ITR-Trib-203), the Tribunal had decided the issue in favour of the assessee as under: "The assessee claimed deduction of market research expenses. The Assessing Officer held that the assessee could not explain the nature of expenditure and therefore, it was to be treated as capital expenditure and disallowed. The Commissioner (Appeals) confirmed this that the expenditure regularly incurred for sustaining the market and to push up the sales was not in the capital field but was essential and incurred in the ordinary course of business for promoting existing brands. The expenditure was to be allowed. " Respectfully, following the above order of the Tribunal, we decide effective ground of appeal against the AO. ITA/3343/Mum/2013: 6. First ground of appeal deals with upholding the action of the AO for allocating various expenses debited to the advertisement and sales promotion to the extent of Rs. 2. 46 Crores for calculating profit of Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Events 31, 45, 928 Trade/Fare Participation fees 1, 11, 056 Display 12, 03, 670 Display (Ratil) 69, 20, 481 Display (Modern Trade) 8, 87, 325 Display (Institutions) 12, 04, 927 Hoardings 3, 80, 630 Banners 71, 87, 984 Glow Signs 10, 800 Promotional Give always 34, 66, 181 Advertisements Others 70, 15, 810 Total 7, 69, 27, 137 Allocated to Eligible unit of Silvasa 32% 2, 46, 16, 684 Accordingly, profit shown in Form number 10CCB was reduced by Rs. 2. 46 Crores. The AO reworked the deduction u/s. 80 IB is follow: Profit of eligible unit - Rs. 16. 57 Crores Less-expenses allocated to eligible units - Rs. 2. 46 Crores Rs. 14. 11 Crores Deduction u/s. 80 IB at the rate of 30% of above Rs. 4. 23 Crores. 7. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him, it was contended that it had claimed deduction u/s. 80 IB in respect of profit of its Silvassa unit, that while preparing P&L a/c. of the unit for calculating profit from sale of NABB the advertisement expenses having direct nexus with NABB were considered, that the AO had allocated 32% of the advertisement expenses that were booke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erforms & caps, confectionery also. In our opinion, the AO had wrongly held that advertisement requirements of all the products would be same. In the present world of business and trade the assessees have to adopt different strategies for promoting their products. Therefore, the formula 'one size fits all' has to be avoided as far as possible. The assessee was incurring expenditure to promote the sale of NABB products and for that it would require a different kind of advertisement strategy as compared to the strategy of selling confectionery. Therefore, in our opinion the method adopted by the assessee for allocating the expenditure was more justifiable than the method adopted by the AO and confirmed by the FAA. So, we hold that there was no justification to recalculate the advertisement expenditure with regard sale of NABB products namely Frooty and Appy. We find that while deciding the appeal is in the case of Blue Star (supra), the Tribunal has dealt with the similar issue. In that case the AO had calculated and allocated the corporate expenses while computing deduction u/s. 80 IB of the Act, that in the return of income the assessee had claimed deduction u/s. 80 IB at Rs. 18. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that identical issue had arisen in the earlier AY. s. , that the Tribunal, while deciding the appeals for the AY. s. 1998-99, 2007-08 and 2008-09 had decided the issue in favour of the assessee. We would like to reproduce had not software decision of the Tribunal for the AY. 1998-99 (25 ITR-TRIB-551) and same reads as under: "The assessee claimed deduction of artwork charges as constituting revenue expenditure. The Assessing Officer held that the artwork was prepared in the form of card paper which was reused. Though the artwork was in the form of card paper, it could be converted into bromide. In that case, it would have a longer life with enduring advantage. He accordingly held that the expenditure was capital in nature. The Commissioner (Appeals) confirmed this that considering the average life span of such artwork, which was only less than six months, it could not be inferred that any capital apparatus had come into existence which could be the source of income generation for the assessee. The "artworks" was not capital expenditure. " Respectfully, following the above order, we decide the second ground of appeal in favour of the assessee. 12. Last ground of appeal is about ..... X X X X Extracts X X X X X X X X Extracts X X X X
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