TMI Blog2012 (4) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... etic Finance Ltd., to gain access to the detabase and infrastructure of Kinetic Finance Ltd., on the basis that the expenditure provides an enduring benefit to the appellant and hence is capital in nature. 2) That the ld. CIT(A) has erred both on facts and in law in sustaining disallowance of expenditure amounting to Rs. 29,76,461/- in respect of realignment expenses. 2.1) That the ld. CIT(A) has erred both on facts and in law in sustaining the disallowance on the premise that the expenditure is not recurring in nature and provides enduring advantage to the appellant. 2.2) That the ld. CIT(A) has erred in not appreciating the fact that realignment expenses represent routine advertisement expenditure and are not in the nature of re-branding exercise carried out by the appellant. 3) That the orders passed by the Assessing Officer and the CIT(A) in reference to above grounds of appeal is bad in law. The appellant prays for leave to add, alter, rescind from or withdraw any of the above grounds of appeal at or before the hearing of the appeal . I.T.A. No.2688/D/2010[Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,90,35,562/- made on account of capitalization of leasehold improvement expenses ignoring the fact that benefit of enduring nature was drawn by the assessee while incurring such expenditure. 3) The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,62,83,282/- made on account of nonconvertible debentures and commercial paper issue expenses ignoring the fact that such expenditure was relevant for a period of 5 years. 4) The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 8,68,76,973/- made on account of capitalization of loan acquisition fee without considering the fact that these expenses should be amortized over the tenure of loans given by the assessee in the same way as is done in the books, by the assessee. 5) The learned CIT(A) erred in law and on facts in deleting the addition of ₹ 20,37,34,458/- made on account of capitalization of direct selling agent commission expenses without considering the fact that these expenses do not have a chargeability to the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the tenure of the loan period. 5) The ld. CIT(A) erred in law and on facts in deleting the addition of ₹ 7,37,84,000/- made on account of loss on sale of repossessed assets ignoring the fact that the repossessed assets do not constitute assessee s stock in trade and therefore loss on sale of repossessed assets cannot be held as revenue loss for the assessee company. 6) The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 54,51,474/- made on account of disallowance of extra depreciation claimed by the assessee on computer accessories, ignoring the fact that as per Income Tax Rules only computers accessories, ignoring the fact that as per Income-Tax Rules only computers and computer software are eligible for depreciation of 60%, the same cannot be extended to computer accessories and peripherals. 7) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. I.T.A. No.5514/D/2010[ Revenue-AY 2005-06] 1) On facts and circumstances of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. Adverting first to ground no.1 in the appeals of the Revenue for these three assessment years, facts, in brief, as per relevant orders for the AY 2003-04 are that return declaring income of ₹ 30,73,85,800/- filed on 28th November, 2003 by the assessee, a non-banking finance company, after being processed on 01.03.2004 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) was selected for scrutiny with the service of a notice u/s 143(2) of the Act, issued on 15.10.2004. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee debited an amount of ₹ 12,46,86,000/- on account of advertisement, publicity and sales promotion expenses. Since in the AYs 2001-02 and 2002-03, the AO spread over the advertisement expenses over a period of 5 years, to a query by the AO as to why advertisement and publicity expenses be not spread over a period of 5 years in the year under consideration, the assessee replied that the said expenditure is revenue in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 26.03.2010 in appeal No.100/07-8 and 99/07-08. At page 23, the learned CIT(A) has come to the following conclusion: 6. I have gone through submissions made by the appellant and have examined the details filed before me. The matter is covered in appellant s favour by the decision of Delhi Bench of Hon ble ITAT in appellant s own case for assessment year 2001-02 and 2002-03. Since the nature of expenses incurred is similar to those in assessment year 2001-02 and assessment year 2002-03 and there is no change in the factual and legal matrix of the case, respectfully following the aforesaid decision of ITAT and the pleathora of case laws relied upon by the learned AR, I hold that the expenses on advertisement and publicity have to be allowed in full as revenue expenditure during the year under consideration. Therefore, the disallowance made by the Assessing Officer in assessment order, amounting to ₹ 9,97,48,800/- for assessment year 2003-04 and ₹ 13,88,32,000/- for assessment year 2004-05, in this regard are deleted. 5. It is further seen that in a combine order in assessee s own case for the assessment year 2001-02 and 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1972-73. ii) That the expenditure incurred on publicity and promotional expenses amounting to ₹ 35,55,769/- 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 holding that a sum of ₹ 11,93,263/- incurred by the assessee by way of advertisement expenses, and by way of subsidy to farmers field extension programme, farmer dealer meeting. etc.. and soil test expenses should be allowed as admissible deductions u/s 35D. The Tribunal rightly came to the conclusion that on warehouse and other handling charges and depreciation no deduction u/s 35D could be allowed. 24.2 From the above it is clear that it was assessee s claim that certain expenditure on advertisement were actually expenditure u/s 35D and Hon ble High Court had noted that the Tribunal had found the expenditure incurred under the various heads were necessary for marketing the products and Hon ble High Court found that terms survey mentioned in section 35D(2)(a)(iii) and compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the expenditure is in fact incurred. ( b) It is also not in dispute that the expenditure in question is business expenditure incurred wholly for the purpose of the business of the assessee. ( c) The expenditure incurred in the nature of advertisement and publicity is incurred forever and in no manner any portion thereof reverts back to the assessee. 9. The aforesaid facts would demonstrate that the ingredients of Section 37 of the Act stand satisfied. Therefore, normally the expenditure is to be allowed as business expenditure in the year in question in which the same is incurred. In this backdrop, we have to consider the arguments of the Revenue predicated on the so called enduring benefit which is the expenditure on account of advertisement and publicity confers. This argument is based on the judgment of the Apex Court in Madras Industrial Investment Corporation Ltd.(supra). In that case, the Supreme Court had referred to this 'matching concept'. It was held that ordinarily revenue expenditure incurred wholly or exclusively for the purpose of business, can be applied in the year in which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entures, the assessee could utilize the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned Counsel for the Revenue herself: The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of ₹ 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirely in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to sprea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which upto now has been restricted to the cases of debentures.' 12. At this stage, it would be of advantage to discuss the judgment of Supreme Court in Empire Jute (supra) which repelled the theory of expenditure of enduring nature, in a great measure. In that case, the Supreme Court noted that by decided cases, the courts evolved various tests for distinguishing between the capital and revenue expenditure but no test is paramount or conclusive. Every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. At the same time, few tests formulated by the Courts were taken note of. One such test which was specifically spelled-out and may be relevant for our purpose was when an expenditure is made not only once and for all, but with a view to bringing into existence of an advantage for which enduring benefit of a trade, the expenditure can be treated as capital in nature and not attributable to revenue . However, cautioned the Court, it would be misleading to suppose that in all ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1 As pointed out by the ld. AR, SLP filed by the Revenue against the aforesaid decision has been dismissed by the Hon ble Supreme Court in their order dated 5.12.2011 in SLP (CC 19979/2011). 5.2 In the light of aforesaid view taken by the Hon ble jurisdictional High Court, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.1 in the appeals of the Revenue for these three assessment years is dismissed. 6.. Ground no.2 in these three appeals of the Revenue relates to capitalization of leasehold improvement expenses. The AO noticed during the course of assessment proceedings that the assessee claimed leasehold improvement expenses of ₹ 1,90,35,562/- on account of renovation carried out in the leased premises, as revenue expenditure in the AY 2003-04 while the assessment records for the preceding years revealed that the assessee treated such expenditure as capital in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005- 06,holding as under: 10 I have gone through the order of the learned Assessing Officer and the submissions made by the learned AR of the assessee. For the assessment year 2001-02 and assessment year 2002-03, the Hon ble Tribunal in an order pronounced in 18.12.2009 has decided in favour of the assessee at paras 35 to 39. It reads as follows: 35. Upon consideration of the assessee s submission the learned CIT(A) gave a finding that he has perused the details filed by the assessee and found that assessee has already bifurcated the expenditure into capital and revenue. Learned CIT(A) observed that Assessing Officer has not at all gone into these details which were pointed out at the time of assessment proceedings itself. Learned CIT(A) observed that the Assessing Officer has not pointed out any of the items which should be considered as capita. Learned CIT(A) held that from the assessment order, it is clear that Assessing Officer has just treated the matter in a very cursory and summary manner without going into the details and giving cogent basis for the disallowance. Accordingly, learned CIT(A) allowed assessee appeal on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble High Court, has been dismissed by the Hon ble Supreme Court. 9. We have heard both the parties and gone through the facts of the case. At the outset, decision of Hon ble Madras High Court relied upon by the ld. DR in Indian Metal Metallurgical Corporation(supra) ,where in it was held that partitions and false ceilings provided by the assessee in Cinema house were classifiable as fittings and not buildings and consequently entitled to depreciation@15%, is not applicable in the instant case in view of decision dated 15.9.2008 of the Hon ble jurisdictional High Court in CIT vs. Hi Line Pens Pvt. Ltd in ITA no.1202/2006,whereinHon ble High Court upheld the findings of the ITAT, holding that expenditure towards false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric wiring, earthling, replacement of GI pipes etc. was revenue in nature. The ld. DR did not bring to our notice any decision of the Hon ble jurisdictional High Court where in contrary view has been taken. With due respect, in view of aforesaid decision of jurisdictional High Court, we are unable to subscribe to the views of the Hon ble Madras High Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and gave his categorical finding based thereupon. This would, thus, be a mere question of fact and no question of law arises thereupon. 9.2 In the light of aforesaid view taken by the Hon ble jurisdictional High Court, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no.2 in the appeals of the Revenue for these three assessment years is dismissed. 10.. Ground no.5 in the appeal of the Revenue for the AY 2003-04 and ground no.4 in their appeals for the AYs 2004-05 and 2005-06 relate to disallowance of DSA commission. The AO noticed during the course of assessment proceedings for the AY 2003-04 that the assessee claimed DSA commission of ₹ 30,56,01,687/- while in the preceding assessment years 2001- 02 and 2002-03, the DSA commission expenses were amortized over a period of 3 years , these being not pertaining exclusively to the current year. To a query by the AO, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to those in assessment year 2001-02 and assessment year 2002-03 and there is no change in the factual and legal matrix of the case, respectfully following the aforesaid decision of Hon ble ITAT, the expenses on account of DSA commission have to be allowed in full and cannot be deferred by spreading over certain number of years. Therefore, the disallowance of expenses made by the Assessing Officer in assessment order, amounting to Rs. 20,37,34,458/- for assessment year 2003-04 and ₹ 31,25,87,254/- for assessment year 2004-05, in this regard are deleted. 11.1 Following his aforesaid order in the AYs 2003-04 and 2004-05, the ld. CIT(A) allowed the claim in the AY 2005-06,holding as under: 19. I have considered the order of the Id. AD and the submissions made by the Id. AR of the assessee. For AY 2001-02 and 2002-03, the Hon'ble Delhi Tribunal has dealt with the case and the issue in great detail and has held as under: 30. We have heard both the counsels and perused the records. We find that in the present case before us the only case made out by the AD is that the assessee has been financing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in the case of Calcutta Co. Ltd. Vs. CIT 37 ITR 1 has held that the sum of ₹ 24,809/- represented the estimated amount which would have to be expended by the assessee in the course of carrying on its business and was incidental to the business and, having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income Tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the appellant, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The expression profit or gains in section 10(1) of the IT Act has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipts is deducted there from - whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. n Further, Hon'ble Jurisdictional High Court decision in the case of CIT Vs. Salora Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to pay municipal rates and taxes under normal conditions for a period of fifteen years. If these liabilities had to be paid, the payments would have been- on revenue account and hence the advantage secured was in the field of revenue and not capital. As a result of the expenditure incurred there was no addition to the capital assets of the assessee-company and no change in its capital structure. The pipelines, etc., which might have been regarded as capital assets and which came into existence as a result of the expenditure incurred did not belong to the assessee-company but to the municipality. In these circumstances, applying the principles laid down in Empire Jute Co.'s case [1980]124 ITR 1 (SC), the expenditure is clearly liable to be allowed as deductible from the profits under section 10(2)(xv) of the Indian Income Tax Act. In the result, the appeals fails and is dismissed with costs. Even at the cost of repetition we refer to the following from the Hon'ble Apex Court decision in the case of Empire Jute Company Ltd. Vs. CIT in 124 ITR 1 wherein it was observed that there may be cases where expenditure, even if incurred for obtaining an advantag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... squarely covered by the said decision. The ld. AR added that SLP filed by the Revenue against the decision dated 30th March, 2011 of the Hon ble High Court, has been dismissed by the Hon ble Supreme Court. 13. We have heard both the parties and gone through the facts of the case. Indisputably and as pointed out by the ld. CIT(A) in the impugned orders and the AO in his assessment orders, facts and circumstances in the years under consideration are similar to the facts and circumstances in the AYs 2001-02 2002-03.We find that Hon ble jurisdictional High Court in their aforesaid decision dated 30th March, 2011 while adjudicating a similar issue in the AYs 2001-02 and 2002-03 concluded as under:- 15. As per the Assessing Officer, the assessee had been financing the hire purchase of vehicles and homes etc. and the period of such financing were ranging from less than one year to upto 5 years. On such transactions, direct selling expenses, stamping fee and commission paid to the selling agents could not be treated as expense relating to the year in which the transaction took place as the period of financing was normally more than one year. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation clause in the agreement. Thus, as the entire expenditure was incurred which admittedly have nexus with the business of the assessee, it was treated as business expenditure allowable under Section 37 of the Act. The Tribunal also relied upon the judgment of Supreme Court in the cases of Calcutta Company Ltd. Vs. CIT, 37 ITR 1, CIT Vs. Associated Cement Companies Ltd, 172 ITR 257, Empire Jute Company Ltd. Vs. CIT, 124 ITR 01 and judgment of this Court in CIT Vs. Salora International Ltd. 308 ITR 199. 17. We are in agreement with the aforesaid view taken by the Tribunal and hold that the expenditure was required to be allowed as revenue/business expenditure incurred in that year. The reasons given by us while allowing the advertisement and publicity expenditure will apply here as well. 13.1 In the light of aforesaid view taken by the Hon ble jurisdictional High Court, especially when the Revenue have not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter nor brought to our notice any contrary decision, we have no hesitation in uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extricably linked with the business of the company, the same is allowable u/s 28 of the Act. Moreover as held by Hon ble ITAT, the loss on sale of repossessed assets written off in the books of accounts is also allowable as bad debts written off u/s 36(1)(vii) of the Act. Therefore, the disallowance of loss made by the Assessing Officer in assessment order, amounting to Rs. 7,29,73,000/- for assessment year 2003-04 and Rs. 7,37,84,000/- for assessment year 2004-05 in this regard are deleted. 15.1 Following the aforesaid decision, the ld. CIT(A) allowed the claim in the AY 2005-06,holding as under:- 23. This issue stands decided in favour of the assessee in ACIT Vs. M/s City Core Maruti Fin. Ltd. in I.T.A. No.3749/D/09 for the assessment years 2003-04 and 2004-05. The Hon ble Delhi Tribunal has at para 6 held as under:- 6. On considering the submissions of both the parties, perusing the orders of the tax authorities below, we are of the opinion that the Assessing Officer while disallowing the claim of the assessee has wrongly placed reliance on the decision of Hon ble Allahabad High Court in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 9th October, 2009 in I.T.A. No.1966/D/09 for the AY 2002-03 concluded as under:- 12. We have heard the rival submissions and have gone through the material available on record. We find that it has been noted by the learned CIT(A) in para No.3.3 of his order that it was submitted before him that the assessee has claimed an amount of ₹ 56,926,000/- on account of loss on sale of repossessed assets as revenue expenditure. It is also noted that it is the claim of the assessee that the claim of the assessee is nothing but bad debts incurred by the assessee during the course of its normal business operations. Learned CIT(A) has decided this issue against the assessee on the basis that this loss is related to write off of repossessed assets and is not related to debts as such. We are of the considered opinion that this loss is allowable to the assessee since the loss has been incurred in normal course of business. Repossession of the asset was taken by the assessee in the course of normal business operations and such repossessed assets were sold and loss incurred in this process is a normal business loss allowable to the assessee. The same is allowable u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year, the assessee made addition to the extent of ₹ 6,03,90,216/- to the computer/software and claimed depreciation @60% on the computer accessories and peripherals like printers, scanners, racks, network cables etc.. While explaining the term computers in the context of item 5 in new Appendix I to the Income-tax Rules, 1962, the assessee submitted that they were entitled to depreciation @60%.However, the AO did not accept the submissions of the assessee on the ground that only the computers and computer software were eligible for depreciation of 60% and the same could not be extended to computer accessories and peripherals. Accordingly, the AO restricted the depreciation @25% against the claim of 60%,resulting in disallowance of ₹ 72,00,478/- in the AY 2003-04. 18.1 Similarly, in the AYs 2004-05 and 2005-06, the AO allowed the depreciation @25% on computer accessories and peripherals as against claim @60%, resulting in disallowance of ₹ 54,51,474/- in the AY 2004-05 and ₹ 2,19,80,723/- in the AY 2005-06. 19. On appeal, the ld. CIT(A) allowed the claim of the assessee in the AYs 2003-04 2004-05 as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, the appeal filed by the revenue is dismissed. 4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. 20. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings of the ld. CIT(A). 21. We have heard both the parties and gone through the facts of the case. We find that the Hon ble Delhi High Court in the case of CIT v. BSES Rajdhani Powers Ltd. in I.T. Appeal no. 1266 (Delhi) of 2010, in their decision dated 31-8- 2010 while adjudicating a similar issue, held as under: We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AY 2005-06 relate to expenditure in relation to issue of non convertible debentures and commercial paper. During the course of assessment year proceedings for the AY 2003-04, the AO noticed that the assessee claimed expenditure towards non convertible debentures (NCD) and commercial paper issue expenses of ₹ 2,03,54,103/- in the computation of income even when the same was treated as deferred revenue expenses in the accounts. To a query by the AO, the assessee replied that there is no concept of deferred revenue expenditure under the Act and that the income under business or profession has to be computed as per sections 28 to 43 of the Act. Accordingly, the assessee pleaded that the claim be allowed in full as revenue expenditure. However, the AO did not accept the submissions of the assessee in the light of decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs. CIT,225 ITR 802(SC) and allowed only 1/5th of the expenditure, resulting in disallowance of ₹ 1,62,83,282/-. 22.1 Similarly, in the AY2005-06, the AO allowed only 1/5th expenditure and disallowed an amount of ₹ 2,70,72,940/- out of tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an asset and when a company borrows money to such financial instruments the expenses in connection with the borrowings are allowable as revenue expenditure. While it cannot be disputed that the decision in India Cements Ltd. (supra) was rendered in the backdrop of 1922 Act, the expenses if any under any circumstances cannot be taken as an asset which would justify the expenditure as capital in nature. The assessee had merely made use of the provisions of section 78 of the Companies Act. the manner in which entries were made in the books of accounts cannot control or decide the question of allowability of the claim in the I.T. assessment and this position is so well settled that it needs no citings of any authority. Thus, the reliance on expenses relating to the issue of NCDs and CPs would have to be taken as loan which is not an asset. Thus, the expenditure would have to be construed as revenue in nature. The assessee succeeds in ground of appeal No.10 and its part. 24. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the orders of the AO while the ld. AR on behalf of the assessee relied upon the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to respond to the changing economic realities of business. The expression asset or advantage of an enduring nature was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. 25.1. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. For the purpose of allowability of any expenditure under the Act , what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. That is why AO himself allowed the 1/5th of the amount.. In a number of judgments viz. Amar Raja Batteries Ltd. v. ACIT [(2004) 91 ITD 280 (Hyd)], JCIT v. Modi Olivetti Ltd. [(2005)4 SOT 859 (Delhi)], ACIT vs. Medicamen Biotech Ltd. [(2005) 1 SOT 347 (Delhi)],Hero Honda Motors Ltd. v. Joint Commissioner of Income Tax [(2005) 3 SOT 572 (Delhi)];Charak Pharmaceuticals v. JCIT [(2005) 4SOT 393 (Mumbai)],and ACIT vs. Ashima Syntex Ltd.,117 ITD 1(Ahd.)(SB)it has been affirmed that where any expenditure is tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported profitability earning per share, impact on share prices etc.. The Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT ((1971) 82 ITR 363) (SC) also affirmed the above view by observing that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter . 25.4. Subsequently the Hon ble Court re-affirmed the said view in Sutlej Cotton Mills. Ltd. Vs. CIT,116 ITR1(SC) But it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AY 2003-04, noticed that the assessee company claimed loan acquisition cost of ₹ 13,03,15,460/- as revenue expenditure and changed the accounting policy for accounting of loan acquisition fee and claimed the same on amortization basis. Total loan acquisition cost incurred during the year was ₹ 13,03,15,460/- and amount shown in the profit and loss account was ₹ 7,44,16,728/- whereas in the computation of income , the assessee claimed entire loan acquisition cost as deductible expenses. To a query by the AO, the assessee explained that in course of its money lending business, the assessee entered into loan agreements and hire purchase agreements with its customers and incurred cost such as credit verification of the borrower, front end processing fee etc.. These costs were booked as loan acquisition costs and were recognized as expenses over the tenor of the loan by applying the Internal Rate of return (IRR), implicit in the agreement on the diminishing balance of the financed amount so as to provide a constant periodic rate of return on the net investment outstanding on the contract. However, in case, the loan was foreclosed, the unamortized portion of the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of three years. This treatment by Assessing Officer is inconsistent. The Assessing Officer cannot take a different stand relating to income and expenditure on the same issue. It is also a well settled principle that treatment in books of accounts does not govern the tax treatment as the same is governed by the provisions of the Income-tax Act. Accordingly, loan acquisition costs are allowable in full in the year in which the same were incurred and cannot be spread over number of years. The disallowance made by the Assessing Officer in assessment orders amounting to Rs. 8,68,76,973/- for assessment year 2003-04 and ₹ 11,38,85,144/- for assessment year 2004-05 are, accordingly, deleted. 27.1 Following the view in the aforesaid decision, the ld. CIT(A) allowed the claim for the AY 2005-06in the following terms: 16. Judicial precedents demands that the order of my ld. Predecessor has to be followed by me unless there is change in facts or in position of law. I do not see any change in facts or in law. Thus, decision in ground of appeal No.4 and its part would have to go to the assessee. While, dissecting this ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. In fact, the Hon ble Supreme Court itself in Madras Industrial Investment Corporation Limited(supra) while discussing the issue, in the said case, and distinguishing between various situations observed that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years . 29.1. In view of detailed reasons given in para 25 to 25.7 above, especially when the Revenue have not brought to our notice any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground no. 4 in the appeal of the Revenue for the AY 2003-04 and ground no.3 in their appeals for the AYs 2004-05 and 2005-06, are dismissed. 30. Now coming to ground no.1 in the appeal of the assessee for the AY 2003-04 relating to payment of ₹ 5 crores to Kinetic Finance Limited[KFL in short], during the course of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case, I find that the expenditure incurred by the appellant would result in providing the appellant a new and added advantage for the purpose of expansion of its business activities. It is not in doubt that the said advantage is of an enduring future which will provide benefits to the appellant to acquire new clients and expand its business by using the database and infrastructure of KFL. Therefore, the same has to be treated as capital expenditure. This view has been supported by the Hon ble SC in the case of CIT Vs. Ashok Leyland Ltd. (1972) 86 ITR 549, 553 wherein the Hon ble Court held that: A long line of decisions have laid down that when an expenditure is made with a view to bringing into existence an asset or advantage for the enduring benefit of a trade, there is good reason (in the absence of special circumstances leading to the opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. Similar view was also taken in the following judicial rulings; Hylam Ltd. Vs. CIT (1973) 87 ITR 310, 326-7 (AP) Benaridas Jagannath (1947) 15 ITR 185, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aster SPV Agreement entered in to on 8th day of November, 2002 between the assessee and M/s Kinetic Engineering Ltd.; Kinetic Motor Company Ltd.; Kinetic Finance Ltd. , it was agreed to establish a Special Purpose Vehicle ( SPV ) in order to set out an arrangement to provide convenient financing arrangements for customers of the Kinetic Groups two wheelers, for KFC to leverage their existing infrastructure, including for other products and for AIFS to leverage off the distribution strengths of the Group. It was provided that SPV would structurally provide a mechanism for the above and also absorb credit losses due to defaults made by borrowers who have taken loans for purpose of two wheeler vehicles, under this arrangement. The aforesaid amount of ₹ 5 crores disallowed by the AO was ,in fact, payment of consideration in terms of clause 9.1 of the agreement, which reads as under; V Payment of consideration In lieu of the business opportunity and access to infrastructure provided by KFL to AIFS, AIFS agrees to pay KFL a premium by way of consideration of ₹ 50,000,000 (INR fifty million only) before incorporation of the SPV. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman423(Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a decision does not merely mean the conclusion . I t embraces within its fold the reasons forming basis for the conclusion. [Mukht iar Singh Vs. State of Punjab,(1995)1SCC 760(SC) ] . 34.2. In the instant case before us, as is evident from the aforecited facts, the ld. CIT(A) upheld the disallowance, without even analyzing the terms and conditions of the agreement ,under which payment is claimed to have been made and without any examination as to how the assessee benefited in the existing business or establishment of SPV was a new source of income. In these circumstances, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the claim of deduction of aforesaid amount of ₹ 5 crores mentioned in ground no. 1 in the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard. In my view, the aforesaid expenditure incurred by the appellant has resulted in the creation of brand name of the appellant company and making it part of the global brand of Citygroup. There is no doubt that this exercise of rebranding from Associates India Finance Services Ltd. and again aligning the same to the security system and other parameters of Citygroup and use of the logo of Citygroup in the appellant company s advertisements has created a new and added advantage and enduring benefit to the appellant company for expanding its business and that such benefit will accrue to the appellant company for a number of years. It is settled law that any expenditure resulting in bringing into existence any new or added advantage of enduring nature would pertain to the domain of capital expenditure. This view has been supported by the Hon ble Supreme Court in the case of CIT Vs. Ashok Leyland Ltd. (1972) 86 ITR 549, 553 (supra) and also approved by a large number of judicial decisions viz. Hylam Ltd. Vs. CIT (1973) 87 ITR 310, 326-7 (AP), Benaridas Jagannath (1947) 15 ITR 185, 198-9 (Lahore High Court), Assam Bengal Cement Co. Ltd. Vs. CIT (1955) 27 ITR 34, 45 (S.C.) and Ather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , allowable, without appreciating that the said sum of ₹ 76,79,778/- was since shown as income and was out of the provision made, which provision was not claimed as a deduction. In fact, effectively, a deduction only of ₹ 29,76,461/- was claimed which represented actual expenditure incurred, whereas the AO, when he allowed the claim as per the computation of income assumed that a deduction of ₹ 76,79,778/- has been allowed without appreciating that in fact, such sum represented only the amount which was included in the profit and loss account and was out of provision made and this provision had not been either claimed as a deduction or allowed as a deduction. Similarly for the AY 2004-05, an amount actually incurred was ₹ .1,05,94,000 which was claimed as a deduction in the said assessment year and the balance provision of ₹ 1,04,03,761 was carried forward to next year. In AY 2005-06, no actual disbursements was made and only the balance provision was reversed which was credited to the Profit and Loss Account. Accordingly, the assessee claimed a deduction of the same in the computation of income reducing the provision balance to zero. While relying upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which can be guided by considerations of reported profitability earning per share, impact on share prices etc.. Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT ((1971) 82 ITR 363) (SC) also affirmed the above view by observing that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter . 39.1. Subsequently the Hon ble Court re-affirmed the said view in Sutlej Cotton Mills. Ltd. Vs. CIT,116 ITR1(SC) Tuticorin Alkali Chemicals and Fertilizers Ltd vs. CIT,227 ITR 172(SC). 39.2 Now whether or not expenditure is of enduring nature, the Hon ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 has itself observed that The idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions ; nor are the notions of capital or revenue a judicial fetish. What is capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after some time, but the benefit to the business cannot be termed capital or revenue only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before the Allahabad High Court in Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the bank had to be opened and inaugurated. It has been held by the Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure. The apex court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC) and Alembic Chemical Works Co. Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may break down. We are of the view that the decision of the Tribunal on this aspect of the matter does not call for any interference and, therefore, no substantial question of law arises on this aspect. 39.5 In Indian Visit.com (P) Limited(supra),expenditure on website in travel business was held to be revenue in nature while in Liberty Group Marketing Division(supra) expenditure incurred on Glow Sign Boards was held to be revenue nature. 39.6 In the light of view taken in the aforesaid decisions, we are of the opinion that actual expenditure incurred on advertisement and publicity by the assessee during the years under consideration is admissible as revenue expenditure. In view thereof, ground no.2 in the appeal of the assessee for the AY 2003-04 and ground no.1 in their appeals for the AYs 2004-05 2005-06 are allowed. 40. Ground no. 3 in the appeal of the assessee for the AY 2003-04 ground no.2 in their appeals for the AY 2004-05 2005-06, being general in nature nor any submissions having been made before us on these grounds, do not require any separate adjudication while no additional ground having been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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