DCIT- 11(1)(2), Mumbai v. Samsonite South Asia Pvt. Ltd
[Citation -2019-LL-0930-107]

Citation 2019-LL-0930-107
Appellant Name DCIT- 11(1)(2), Mumbai
Respondent Name Samsonite South Asia Pvt. Ltd.
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 30/09/2019
Assessment Year 2014-15
Judgment View Judgment
Keyword Tags sales promotion expenditure • intangible right • enduring benefit • capital expenses • deferred revenue expenditure • scrutiny assessment • advertisement expense • brand promotion expenses • capitalized expenditure • block of asset • capital expenditure • ad hoc disallowance of expenses • revenue expenditure
Bot Summary: Accordingly, the A.O was of the view, that as the expenses incurred by the assessee had also contributed towards creation of intangible rights in the form of brand value which were assignable over a period of time the expenditure to the said extent having been incurred in the capital field was liable to be disallowed. Not being oblivious of the fact, that part of the aforesaid expenses had been incurred by the assessee for promoting its sales for the year under consideration the A.O was of the view that the entire amount of the expenditure could not be characterized as a capital expenditure. Accordingly, on the basis of his aforesaid deliberations, the A.O on an ad hoc basis disallowed part of the expenses by treating the same as being in the nature of a capital expenditure, as under :- Sr.No. Nature of Expenses Amount Allowed as Remarks Revenue 1. Sales Promotion Expenses 2,36,40,265/- Allowed 60 of the total Sales Promotion Expenses incurred i.e. 60 of Rs. 39,400,441/- Total Expenses Allowed 15,93,56,032/- As such, out of the total advertisement and sales promotion expenditure of Rs. 31,08,31,975/- , a sum of Rs. 15,93,56,032/- was allowed to be claimed as a revenue expenditure, while for the balance amount of Rs. 15,14,75,943/- was considered as a capital expenditure and accordingly disallowed. Our indulgence has been sought by the revenue, to adjudicate, as to whether the assesses claim towards advertisement expenses and sales promotion expenses had rightly been allowed by the CIT(A) by treating the same as a revenue expenditure. Accordingly, out of total advertisement and sales promotion expenditure of Rs. 31,08,31,975/-, a sum of Rs. 15,93,56,032/- was allowed by the A.O as a revenue expenditure, while for the balance amount of Rs. 15,14,75,943/- was considered by him as a capital expenditure and disallowed. The case laws referred by the learned Counsel of the assessee duly indicate that expenditure incurred by the assessee company to maintain its corporate image which resulted in increased sales of the product is to be allowed as revenue expenditure.


P g e |1 ITA No.3264/Mum/2018 A.Y. 2014-15 DCIT 11(1)(2) Vs. M/s Samsonite South Asia Pvt. Ltd.. IN INCOME TAX APPELLATE TRIBUNAL G Bench, Mumbai Before Shri Pramod Kumar, Vice President and Shri Ravish Sood, Judicial Member ITA No.3264/Mum/2018 (Assessment Year: 2014-15) DCIT-11(1)(2), Room NO.1, Ground Floor, M/s Samsonite South Asia Pvt. Ltd, 402, Akruti Aayakar Bhavan, M.K. Road, Star, Opp. Akruti Centre Point, MIDC, Mumbai 400 020 Vs. Andheri(East), Mumbai 400 093 PAN AAACS8598L (Appellant) (Respondent) Appellant by : Shri Anoop Hiwase, D.R Respondent by : None Date of Hearing : 19.09.2019 Date of Pronouncement : 30.09.2019 ORDER PER RAVISH SOOD, JM present appeal filed by revenue is directed against order passed by CIT(A)-18, Mumbai, dated 28.02.2018, which in turn arises from order passed by A.O under Sec. 143(3) of Income Tax Act, 1961 (for short Act ), dated 27.12.2016 for A.Y. 2014-15. revenue has assailed impugned order on following grounds of appeal :- 1. On facts and circumstances of case and in law, whether Ld. CIT(A) failed to appreciate that, assessee in into long term agreement with its parent company Samsonite Corporation and also being sole license holder of said company in India; any expenses incurred by it in building of brand is nothing but in form of intangible rights which are bound to give it enduring benefit over period of time . P g e |2 ITA No.3264/Mum/2018 A.Y. 2014-15 DCIT 11(1)(2) Vs. M/s Samsonite South Asia Pvt. Ltd.. 2. Whether on facts and in circumstances of case and in law, Ld. CIT(A) us right in treating capital expenses incurred by assessee for creating intangible rights in its favour as deferred revenue expenses without appreciating fact that number of invoices of such expenses mentioned nature as cost of branding . 3. On facts and circumstances of case and in law, whether Ld. CIT(A) failed to appreciate fact that decision of Hon ble ITAT, Mumbai K Bench, in assesses own case for A.Y. 2012-13 was not accepted by department and revenue has preferred further appeal before Hon ble Bombay High Court (Lg. No. 69/2018 dated 21.03.2018). 2. Briefly stated, assessee company which is incorporated in India with its shareholding vested with two major groups viz. (i) Samsonite Group (60% holding); and (ii) Tainwala Group (40% holding) is engaged in business of manufacturing and distribution of molded luggage, soft luggage, footwear and other travel accessories. assessee company had e-filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total income at Rs. 110,46,01,680/-. Subsequently, case of assessee was selected for scrutiny assessment under Sec. 143(2) of Act. 3. During course of assessment proceedings it was observed by A.O that assesse pursuant to royalty agreement with its parent company viz. Samsonite Corporation was licensed to manufacture, market and distribute samsonite brand of luggage and travel accessories in India and to other Samsonite Group Companies worldwide. It was observed by A.O, that assessee had debited advertisement expenses of Rs. 27,14,31,534/- and sales promotion expenses of Rs. 3,94,00,441/- in its profit and loss account for year under consideration. As was discernible from records, aforesaid expenses had witnessed whopping 68% increase as in comparison to immediately preceding year. On perusal of details of expenses which were booked by assessee under head advertisement and sales promotion expenses, A.O was of view, that same had also contributed towards brand promotion. In fact, A.O held strong conviction that though expenses incurred by assesse towards conducting surveys and training, educating and motivating of sales personnel as well as dealers/distributors had facilitated increase in sales, but at same time, those had also contributed towards brand building. Accordingly, A.O was of view, that as expenses incurred by assessee had also contributed towards creation of intangible rights in form of brand value which were assignable over period of time, therefore, expenditure to said extent having been incurred in capital field was liable to be disallowed. However, A.O was of view that assessee would be entitled P g e |3 ITA No.3264/Mum/2018 A.Y. 2014-15 DCIT 11(1)(2) Vs. M/s Samsonite South Asia Pvt. Ltd.. for depreciation on capitalized expenditure, as same qualified as eligible block of intangible assets. Also, not being oblivious of fact, that part of aforesaid expenses had been incurred by assessee for promoting its sales for year under consideration, therefore, A.O was of view that entire amount of expenditure could not be characterized as capital expenditure. Accordingly, on basis of his aforesaid deliberations, A.O on ad hoc basis disallowed part of expenses by treating same as being in nature of capital expenditure, as under :- Sr.No. Nature of Expenses Amount Allowed as Remarks Revenue (In Rs.) 1. Advertisement Expenses 135,715,767/- Allowed 50% of total Advt. Expenses incurred i.e. 50% of Rs. 271,431,534/- 2. Sales Promotion Expenses 2,36,40,265/- Allowed 60% of total Sales Promotion Expenses incurred i.e. 60% of Rs. 39,400,441/- Total Expenses Allowed 15,93,56,032/- As such, out of total advertisement and sales promotion expenditure of Rs. 31,08,31,975/- , sum of Rs. 15,93,56,032/- was allowed to be claimed as revenue expenditure, while for balance amount of Rs. 15,14,75,943/- was considered as capital expenditure and accordingly disallowed. However, depreciation of Rs. 3,78,68,986/- i.e. @ 25% on aforesaid amount of capitalized expenditure of Rs. 15,14,75,943/- was allowed by A.O while computing total income of assessee. 4. Aggrieved, assessee carried matter in appeal before CIT(A). It was observed by CIT(A), that Tribunal in assesses own case for A.Y. 2012-13, had vide its order passed in ITA No. 1934/Mum/2017, dated 01.09.2017, had concluded, that advertisement and sales promotion expenses were rightly claimed by assessee as revenue expenditure. Accordingly, following view taken by Tribunal net addition of Rs. 11,36,06,957/- made by A.O was vacated by CIT(A). 5. revenue being aggrieved with order passed by CIT(A) has carried matter in appeal before us. As assessee despite having been put to notice about hearing of appeal has failed to put up appearance before us, therefore, we proceed with as per Rule 25 of Appellate Tribunal Rules, 1963 and dispose off appeal after hearing appellant revenue and perusing orders of lower authorities. P g e |4 ITA No.3264/Mum/2018 A.Y. 2014-15 DCIT 11(1)(2) Vs. M/s Samsonite South Asia Pvt. Ltd.. 6. Learned Departmental Representative (for short D.R ) relied on order of A.O. However, Ld. D.R did not controvert observation of CIT(A) that issue involved in present appeal was squarely covered by order of Tribunal in assesse s own case for A.Y. 2012-13. 7. We have heard authorized representatives for both parties, perused orders of lower authorities and material available on record. Our indulgence has been sought by revenue, to adjudicate, as to whether assesses claim towards advertisement expenses and sales promotion expenses had rightly been allowed by CIT(A) by treating same as revenue expenditure. As observed by us hereinabove, A.O holding conviction that part of aforesaid expenses incurred by assessee were towards brand building, had thus, on ad hoc basis disallowed part of expenses by characterizing same as having been incurred by assesse in capital field. Accordingly, out of total advertisement and sales promotion expenditure of Rs. 31,08,31,975/-, sum of Rs. 15,93,56,032/- was allowed by A.O as revenue expenditure, while for balance amount of Rs. 15,14,75,943/- was considered by him as capital expenditure and disallowed. At same time, depreciation of Rs. 3,78,68,986/- i.e. @ 25% of aforesaid amount of capitalized expenditure of Rs. 15,14,75,943/- was allowed by A.O while computing total income of assessee. On appeal, as observed by us hereinabove, CIT(A) by following order passed by Tribunal in assesse s own case for A.Y 2012-13 had vacated aforesaid disallowance. 8. We have deliberated at length on issue involved in present appeal in backdrop of facts discernible from record and contentions advanced by authorised representatives for both parties. In our considered view, issue involved in present appeal is squarely covered by order passed by Tribunal in assesse s own case for A.Y. 2012-13 in ITA No. 1934/Mum /2017, dated 01.09.2017. In aforesaid case, it was observed by Tribunal, that advertisement and sales promotion expenses incurred by assesse were allowable as revenue expenditure. Tribunal while concluding as hereinabove, had observed as under :- 24. Up on careful consideration, we note that assessee has incurred expenditure on advertisement and sales promotion. assessing officer & DRP have held on adhoc basis that P g e |5 ITA No.3264/Mum/2018 A.Y. 2014-15 DCIT 11(1)(2) Vs. M/s Samsonite South Asia Pvt. Ltd.. certain portion out of above is aimed at brand building and same is to be held as capital expenditure and assessee can be granted depreciation their upon. When this is considered in light of fact that brand doesn't belong to assessee and it is not case of revenue that assessee has incurred expenditure aimed at benefiting associated enterprise this addition is clearly not sustainable. When brand doesn't belong to assessee there is no question of incurring expenditure over building of brand and assessee creating any intangible rights assignable over number of years. 25. Moreover, it is implicit in order of revenue that these are deferred revenue expenditure for purpose of business of assessee as they are allowing depreciation their upon. Further, there is no question of disallowance of same as it is also settled law that in taxation laws there is no concept of deferred revenue expenditure. case laws referred by learned Counsel of assessee duly indicate that expenditure incurred by assessee company to maintain its corporate image which resulted in increased sales of product is to be allowed as revenue expenditure. We find that these case laws are duly applicable to facts of present case. 26. Hence in background of aforesaid discussion and precedents, we set aside orders of authorities below which ITA No.1934/Mum/2017. M/s. Samsonite South Asia Pvt. Ltd. 29 allocated ad hoc percentage out of advertisement and sales promotion as depreciable capital expenditure. We hold that entire expenditure is revenue expenditure allowable as such. 27. In result, this appeal filed by assessee stands allowed. As facts and issue involved in present appeal remains same, therefore, we respectfully follow aforesaid order of Tribunal in assesses own case for A.Y. 2012- 13. Accordingly, finding no infirmity in order of CIT(A), we uphold same. Resultantly, finding no merit in appeal of revenue, same is dismissed. Order pronounced in open court on 30.09.2019 Sd/- Sd/- (Pramod Kumar) (Ravish Sood) VICE PRESIDENT JUDICIAL MEMBER Mumbai; 30.09.2019 PS. Rohit Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai DCIT- 11(1)(2), Mumbai v. Samsonite South Asia Pvt. Ltd
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