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2016 (7) TMI 59 - ITAT MUMBAI

2016 (7) TMI 59 - ITAT MUMBAI - TMI - Product Development Expenses(PDE) - revenue or capital expenditure - Held that:- We find that while deciding the appeal for AY. 2007-08 [2015 (5) TMI 643 - ITAT MUMBAI ] the Tribunal had decided the issue in favour of the assessee held 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 - Decided .....

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cation in respect of Head Office corporate expenses and advertisement expenses made by the assessee are required to be accepted. - Decided in favour of assessee - Treatment to the reusable artwork expenses - revenue or capital - Held 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 held that as considering the average life span of such artwork, which was only less than six months, it could not be infer .....

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expenditure and to decide its business needs. Therefore, reversing the order of the FAA and following order of the Tribunal for the earlier AY. , we decide the third ground of appeal in favour of the assessee. - ITA/3343/Mum/2013, ITA/3688/Mum/2013 - Dated:- 29-6-2016 - Sh. Rajendra, Accountant Member And Pawan Singh, Judicial Member For the Revenue : Shri Vijay Kumar Soni-DR For the Assessee : Shri Firoze Andhyarujina-AR ORDER Per Rajendra, AM Challenging the order, dtd. 26. 02, 2013 of the CIT .....

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011, determining the income of the assessee at ₹ 14. 09 Crores. ITA/3688/Mum/2013: 2. The solitary ground of appeal, raised by the AO, is about is deleting the disallowance of ₹ 25. 41 lakhs. During the assessment proceedings, 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 t .....

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nd was treated as capital expenditure. The AO allowed depreciation @ 25% i. e. of ₹ 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 product and concentrate in the library, that such an exercise woul .....

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ges were also incurred, that it would try to make improvement in the existing products by way of studying ingredient of different raw material, that the assessee was operating in the fast moving consumer goods industry, that it had lot of competition in the market, that the product development study would help it to understand the rival products and features of their products by studying their ingredient, that the product cost development included cost of material consumed for developing new pro .....

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me in the laboratory, that these were routine studies/experiments to address the issue relating to taste, appearance, ingredients of rival competitors, that being in the FMCG sector PDE were necessary, that there could not be any benefit of enduring nature from such expenses, that it required quick thinking and acting to combat same or similar products from a competitor, that the expenditure could not be treated capital expenditure, that same was allowable as per the provisions of section 37 (1) .....

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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 .....

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or calculating profit of Silvassa unit that was eligible for deduction u/s. 80 IB of the Act. During the assessment proceedings, the AO found that the assessee was selling NABB to various franchises as per the agreement entered with them, that they would manufacture finished products and sell it in the market, that the assessee would undertakes in-house manufacturing and sale of fruit juices at its various factories. After going through the details of all the expenses allocated by the assessee t .....

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the allocation of expenses were made on the basis of sale of assessee-company and its franchisee, that accordingly ratio was arrived at 68: 32 respectively, that it was claiming Cenvat Credit for service tax levied to advertisement expenses and for claiming the same ratio of sales were worked out, that it was carrying on business in different category of products, that the advertisement expenses which were having direct nexus with Frooty and Appy were considered for allocation purpose, that the .....

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all the expenses mentioned above were very much related to the advertisement cost of fruit-based products. Therefore, following expenses were considered for allocation purposes in the ratio of 68: 32 and accordingly 32% of the expenses were allocated to NABB unit of Silvassa: (table at page number 4 of the AO s order). Nature of Advertisement Expenses Amount (Rs. ) POP Material 4, 53, 92, 345 Advertisement Exp. -Special Events 31, 45, 928 Trade/Fare Participation fees 1, 11, 056 Display 12, 03, .....

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penses allocated to eligible units - ₹ 2. 46 Crores ₹ 14. 11 Crores Deduction u/s. 80 IB at the rate of 30% of above ₹ 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 c .....

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those to products were considered to arrive at profit of Silvassa unit, that the advertisement related expenses which were not having direct nexus with NABB were wrongly allocated by the AO. After considering the submission of the assessee and the assessment order, the FAA held that advertisement expenditure would generally benefit the company as a whole, that expenditure incurred by the assessee was to be considered for allocation to its Silvassa unit also, that the argument advanced by the ass .....

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rcated the advertisement expenditure with regard to NABB products and other products, that the expenditure incurred by it under various heads had no connection with the sale of NABB products. He relied upon the cases of Blue Star Ltd. (ITA/ 3363/Mum/05 AY. 2001-02 and ITA/3582/Mum/2007, AY. 2003-04, dated23/09/2008 and 19/ 06/ 2009). The DR supported the order of the FAA. 9. We have considered the rival submissions and have perused the material before us. We find that while preparing the P&L .....

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amp; 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 .....

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e 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 ₹ 18. 76 Crores, that the deduction was claimed in respect of assessee s industrial unit situated at Dadra (Silvassa), that the AO allowed the deduction of ₹ 15. 17 Crores only, that the variation in deduction was mainly due to reduction of amount of duty drawback from net sales of the Dadra unit and al .....

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nover of the company, that the FAA upheld order of the AO. Allowing the appeal of the assessee, the Tribunal held as under: We have heard the learned representatives of the parties and have perused the material placed on record. After considering the facts of the case, we notice that the assessee company on its own has allocated 50% corporate expenses, including advertisement expenses, of Head Office in the ratio of Turnover of Dadra unit to total Turnover of the assessee company. The allocation .....

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essing Officer is directed to accept the allocation of the expenses as per the allocation of the expenses made by the assessee……. . Considering the peculiar facts and circumstances of the case under consideration and respectfully following above decision of the Tribunal, delivered in the case of Blue Star (supra), we decide the first ground of appeal in favour of the assessee. 10. Second ground of appeal is about direction given by the FAA to the AO to treat the reusable artwork ex .....

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ue 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 a .....

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er directed the assessee to submit the justification for foreign travel and to furnish the purpose for which the Directors had undertaken the foreign travel and the benefits derived by the company out of the foreign travel expenditure. The assessee explained the foreign travel expenditure had been incurred for the purpose of business and was allowable as detectable expenditure u/s. 37(1) of the Act. The AO held that assessee had not quantified the exact purpose of each foreign travel and the ben .....

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