Commissioner Of Income Tax, Bhopal v. M/S Godrej Foods Limited

THE HIGH COURT OF MADHYA PRADESH: JABALPUR(Division Bench) MAIT No. 140/2007 Commissioner of Income Tax, Bhopal Versus M/s Godrej Foods Limited …Appellant/Revenue …Respondent/Assessee With MAIT No. 142/2007 Commissioner of Income Tax, Bhopal …Appellant/Revenue Versus M/s Godrej Foods Limited …Respondent/Assessee ====================================================== Coram: Hon’ble Shri Justice Ajay Kumar Mittal, Chief JusticeHon’ble Shri Justice Vijay Kumar Shukla, Judge ====================================================== Appearance: Shri Sanjay Lal, Advocate for the Appellants/Revenue. Shri Mukesh Agarwal, Advocate for the Respondents/Assessee. ====================================================== JUDGMENT (Oral)(23.01.2020) Per: Ajay Kumar Mittal, Chief Justice: Both the present appeals preferred by the Revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) are involvingidentical substantial question of law framed vide order dated 30.11.2007 andtherefore, are disposed of by this common order. 2.The present appeals i.e. MAIT No.140/2007 and MAIT No.142/2007have arisen out of the orders dated 30.03.2007 passed by the Income Tax Appellate Tribunal, Indore (for brevity “the Tribunal”) in ITANo.615/IND/2005 (assessment year 2001-02) and ITA No.73/IND/2006(assessment year 2002-03) respectively. 3.For the sake of brevity, the facts are taken from MAIT No.140/2007.The appeal was admitted on 30.11.2007 for determination of the followingsubstantial question of law:- “(i)Whether in the facts and circumstances of the case theIncome Tax Appellate Tribunal was justified in law indeleting the addition of Rs.5,32,75,978/- made by theAssessing Officer on account of deferred Revenueexpenditure?”Income Tax Appellate Tribunal was justified in law indeleting the addition of Rs.5,32,75,978/- made by theAssessing Officer on account of deferred Revenueexpenditure?” 4.The facts leading to the present appeal are that the assessee is in thestatus of a Company and engaged in manufacturing and trading of Vanaspati,Refined edible oils, almonds and fruit drinks etc. The assessee submitted itsreturn of income declaring loss of Rs.34,92,86,201/-. The return wasprocessed under Section 143(1) of the Act and was selected for scrutiny andthereafter, notice under Section 143(2) of the Act was issued to the assessee.The assessee claimed deduction of Rs.6,65,94,973/- as ‘deferred revenueexpenditure’ on account of advertisement, publicity, holding conferences,market research, subsidy, various launch schemes, selling and distributionetc. The Assessing Officer vide order dated 19.03.2004 (Annexure A-1) heldthat the expenses were incurred for the accounting year below the line in thebooks of account but the assessee had claimed in full for computing the totalincome as revenue expenditure incurred during the year. The expenditurewas likely to give benefit for not less than five years and therefore, was inthe nature of capital expenditure and hence, the above expenditure was added back to the assessee’s income and following the assessment order forthe assessment year 2000-01, only 1/5th expenditure of Rs.1,33,18,995/- outof total expenditure of Rs.6,65,94,973/- was allowed to the assessee for theassessment year 2001-02 and remaining amount of Rs.5,32,75,978/- wasadded to the income of the assessee. Being aggrieved by the order, theassessee preferred an appeal before the learned Commissioner of Income(Appeals-I), Bhopal [for short “the CIT(A)]. The CIT(A) vide order dated18.05.2005 (Annexure A-2) partly allowed the appeal of the assesseedeleting the addition of remaining amount of Rs.5,32,75,978/-. Dissatisfiedwith that order, the Revenue approached the Tribunal. The Tribunal by orderdated 30.03.2007 (Annexure A-3) affirmed the decision of the CIT(A) anddismissed the appeal of the Revenue. Hence, the present appeal by theRevenue. 5.Learned counsel for the appellant submitted that the deduction inquestion was pertaining to the expenses incurred in advertisement, publicityand sales promotion etc. of the business which would be giving continuingbenefit to the business of the assessee-Company and therefore, the AssessingOfficer did not commit any error in spreading over the expenditure for fiveyears and allowing only 1/5th thereof for the current assessment year butboth the authorities below only on the ground that for the assessment years1993-94 and 1996-97 similar claim was allowed to the assessee and hisappeal claiming the same benefit for the assessment year 2000-01 wasallowed by the Appellate Authority on 22.01.2004, deleted the addition ofRs.5,32,75,978/-. To bolster his submission, the learned counsel for theappellant relied upon the judgment of the Supreme Court in Madras Industrial Investment Corporation Ltd. vs. Commissioner of Income-tax, (1997) 91 Taxman 340 (SC). 6.On the other hand, learned counsel for the assessee argued in supportof the impugned order and prayed that cogent reasons have been assigned bythe learned Tribunal while passing the order and therefore, this appeal bedismissed. 7.Having heard learned counsel for the parties, we find that there is nomerit in the appeals. 8.The learned Tribunal while considering the appeal came to theconclusion that in the earlier years, the Assessing Officer had alloweddeduction of the similar advertisement expenses in favour of the assessee inthe scrutiny proceedings, which was accepted by the Department. The orderhad attained finality. The advertisement expenditure, claimed by theassessee, is in the nature of revenue expenditure and since it was adjudged assuch, it has to be allowed in the year under consideration in which it wasincurred wholly and exclusively for the purpose of business. Learnedcounsel could not point out any perversity or illegality in the findingsrecorded by the Tribunal and therefore, no interference is called for on thatground raised by the appellant in these appeals. 9.Examining the case law relied upon by the learned counsel for theappellant, the question before the Supreme Court in Madras IndustrialInvestment Corporation (supra) was as to whether the discount ondebentures could be treated as an expenditure and the entire amount ofdiscount was to be allowed in the year related to the year of issue itself. The Supreme Court held that although while issuing debentures at a discount theassessee has incurred the liability to pay the discount in the year of issue ofdebentures but by such payment the assessee would secure a benefit over anumber of years and there would be a continuing benefit to the business ofthe company over the entire period and therefore, such liability should bespread over the period of the debentures issued. We have carefully gonethrough the said decision of the Supreme Court and are of the consideredview that the said decision is not applicable to the facts and circumstances ofthe present case. In the present case, the expenditure on advertisement andsales promotion has been claimed for deduction as revenue expenditure. Theadvertisement and sales promotion is the necessity of the business and thus,an integral part of the business activity. Therefore, the expenses incurred onadvertisement etc. are not for acquisition of an asset or right of a permanentcharacter, therefore, cannot be said to be a capital expenditure. It is but arevenue expenditure. 10.A similar question: as to whether the expenses on account ofadvertisement, publicity and sales promotion in relation to the business arein the nature of deferred revenue expenditure and although the benefit ofsuch expenses would be availed by the assessee over a number of years butshould it be allowed for the relevant assessment year for which assesseeclaims exemption, also came up for consideration before a Division Benchof Punjab and Haryana High Court in Commissioner of Income Tax vs.M/s Glen Appliances Pvt. Ltd., ITA No.858/2010 decided on 2[nd] May,2011. The Bench also considered the judgment of the Supreme Court in Madras Industrial Investment Corporation (supra) and held in favour of the assessee as under:- “6. We are unable to accept the submission of the learned counsel. TheTribunal while accepting the plea of the assessee had held that theexpenses incurred by the assessee on the aforesaid activities were revenuein nature and the entire amount was admissible in the year in which it wasTribunal while accepting the plea of the assessee had held that theexpenses incurred by the assessee on the aforesaid activities were revenuein nature and the entire amount was admissible in the year in which it was incurred. The finding recorded is as under:- Madras Industrial Investment Corporation (supra) and held in favour of the assessee as under:- “6. We are unable to accept the submission of the learned counsel. TheTribunal while accepting the plea of the assessee had held that theexpenses incurred by the assessee on the aforesaid activities were revenuein nature and the entire amount was admissible in the year in which it wasTribunal while accepting the plea of the assessee had held that theexpenses incurred by the assessee on the aforesaid activities were revenuein nature and the entire amount was admissible in the year in which it was incurred. The finding recorded is as under:- "We have considered the facts of the case and rival submissions.The finding of the AO that even if the claim of the assessee thatconstant advertisement is needed in view of short public memory isaccepted, the benefit accruing to the brand name "GLEN" cannotbe ruled out. There is no evidence in support of this finding.Further, the learned CIT(Appeals) upheld the view of the assesseethat the benefit will accrue over a period of two years by relying onthe decision of Hon'ble Supreme Court in the case of MadrasIndustrial Investment Corporation Ltd. (supra). Nothing has beenbrought on record to show that the benefit will accrue over a periodof two years. The advertisement expenses are in the nature ofrevenue expenses. It is not a case where a loan taken on discountwill stay with the assessee for a period of 10 years. Therefore, thedecision of Hon'ble Supreme Court in the case of MadrasIndustrial Investment Corporation Ltd. (supra) is not applicable tothe facts of this case. As the expenditure is revenue in nature, thedecision of Hon'ble Madras High Court in the case of BrilliantTutorials (P) Ltd. (supra) supports the case of the assessee fordeduction of the expenditure in the year of its incurring. In the caseof Amar Raja Batteries Ltd., the Tribunal, after considering thecase of India Discount Company, 75 ITR 191, pointed out that theissue in this behalf is clear, i.e. it has to be decided on the basis oflaw. The expenditure is also in revenue field and, therefore, thewhole of the expenditure is to be allowed in the year of itsincurring. In view of the aforesaid judgments and the order, wehold that the expenditure is revenue in nature and, therefore, it hasto be allowed in full in this year." The finding of the AO that even if the claim of the assessee thatconstant advertisement is needed in view of short public memory isaccepted, the benefit accruing to the brand name "GLEN" cannotbe ruled out. There is no evidence in support of this finding.Further, the learned CIT(Appeals) upheld the view of the assesseethat the benefit will accrue over a period of two years by relying onthe decision of Hon'ble Supreme Court in the case of MadrasIndustrial Investment Corporation Ltd. (supra). Nothing has beenbrought on record to show that the benefit will accrue over a periodof two years. The advertisement expenses are in the nature ofrevenue expenses. It is not a case where a loan taken on discountwill stay with the assessee for a period of 10 years. Therefore, thedecision of Hon'ble Supreme Court in the case of MadrasIndustrial Investment Corporation Ltd. (supra) is not applicable tothe facts of this case. As the expenditure is revenue in nature, thedecision of Hon'ble Madras High Court in the case of BrilliantTutorials (P) Ltd. (supra) supports the case of the assessee fordeduction of the expenditure in the year of its incurring. In the caseof Amar Raja Batteries Ltd., the Tribunal, after considering thecase of India Discount Company, 75 ITR 191, pointed out that theissue in this behalf is clear, i.e. it has to be decided on the basis oflaw. The expenditure is also in revenue field and, therefore, thewhole of the expenditure is to be allowed in the year of itsincurring. In view of the aforesaid judgments and the order, wehold that the expenditure is revenue in nature and, therefore, it hasto be allowed in full in this year." 8. Learned counsel for the revenue was unable to point out any irregularityor illegality in the aforesaid finding recorded by the Tribunal which maywarrant interference by this Court. Accordingly, no substantial question ofor illegality in the aforesaid finding recorded by the Tribunal which maywarrant interference by this Court. Accordingly, no substantial question of s/ law arises in these appeals. The appeals being devoid of merit aredismissed.” 11.In view of the foregoing reasons coupled with the fact that the learned counsel for the Revenue has failed to point out any illegality or perversity inthe findings recorded by the learned Tribunal warranting any interference,the substantial question of law is answered in favour of the assessee andagainst the Revenue. Accordingly, both the appeals stand dismissed. Let acopy of this order be retained in the record of MAIT No.142/2007. (AJAY KUMAR MITTAL) (VIJAY KUMAR SHUKLA) JUDGE CHIEF JUSTICE