PER I.P. BANSAL, J.M. This is an appeal filed by the Assessee. It is directed against the order passed by ld. CIT Delhi IV, New Delhi dated 16.03.2011 u/s 263 of Income Tax Act, 1961 (Act).
2. In the present appeal the assessee has challenged the validity of impugned order. Though assessee has raised various grounds but the grievance of the assessee is that ld. CIT has erred in invoking the powers u/s 263 and the matter is covered in favour of assessee by the decision of Jurisdictional High Court in the case of assessee itself dated 10.03.2011 for A.Y. 2003-04. ITA No. 2625/D/2011 2
3. At the outset, it was submitted by ld. AR that ld. CIT has exercised power u/s 263 to make disallowance of Rs. 377.30 lakh incurred by the assessee as advertisement expenditure. He submitted that ld. CIT has held that the expenditure incurred by the assessee on advertisement are in the nature of capital expenditure, therefore, eligible for depreciation @ 25%. Therefore, net amount of Rs. 282.99 lakh (net of depreciation) is in the nature of capital which has been wrongly allowed as revenue expenditure. The assessee though has taken a plea before ld. CIT that on the same issue in respect of assessees case for A.Y. 2003-04 the ITAT had cancelled the order u/s 263 passed by CIT which was later on challenged by the department in the High Court and the said case was heard on 10.03.2011, therefore, till then the proceeding u/s 263 should be postponed. Ld. CIT has turned down such request of the assessee on the ground that there is a time limitation to pass order u/s 263. The details of expenditures have been described in the order of CIT and which is as under: -
(i) POS Signs (Wall painting) - Rs. 36.80 lacs
(ii) Ice Chests - Rs. 115.83 lacs
(iii)Awnings - Rs. 27.18 lacs
(iv) Neon Signs - Rs. 0.22 lacs
(v) Consumer promotion - Rs. 197.27 lacs Total Rs.377.30 lacs
4. He submitted that the copy of the Tribunal order in respect of A.Y. 2003-04 for which year also ld. CIT had invoked power u/s 263 is placed at pages 88 to 99 of the paper book the said order is dated 06.03.2009 ITA No. 2625/D/2011 3 passed in ITA No. 2010/Del/2008. The observations of the Tribunal while quashing the order u/s 263 were as under: -
3. We have considered the facts of the case and rival submissions. Before proceeding with the determination of the appeal, it may be mentioned that the assessee did not file any paper book and, thus, the show cause notice issued to it has not been placed on record. During the course of hearing, the learned DR placed on record the questionnaire dated 22.10.2005, issued by the AO in the course of assessment. From the questionnaire, it is clear that no query was raised regarding the expenditure under consideration. The learned DR had also filed a copy of assessment order. On perusal thereof, it is found that there is no discussion in the order regarding the expenses. Therefore, from the records of the Tribunal, it transpires that neither any query was raised with the assessee nor any discussion was made in the assessment order regarding the deductibility of the aforesaid expenditure. Therefore, the order is prima facie erroneous and prejudicial to the interest of revenue as expenditure of Rs. 490.91 lakh was allowed to be deducted without any enquiry whatsoever. This view finds support from the decision of Honble Allahabad High Court in the case of Swarup Vegetable Products Industries Ltd. (supra) and Honble Orissa High Court in the case of Umashankar Rice Mill (supra). The question, thus, before us is whether the CIT exercised her jurisdiction on the aforesaid ground or not? Unfortunately, in the absence of the questionnaire ITA No. 2625/D/2011 4 issued by her, the answer to this question has to be found out from the tenor of her order. Paragraph 1 of the order reads - From an examination of the income-tax assessment records of M/s Hindustan Coca Cola Marketing Company Pvt. Ltd., Abdul Faizal Road, Bengali Market, New Delhi for the A.Y. 2002-03, it transpired that in the assessment made vide order dated 14.03.2006 u/s 143(3), the deduction u/s 37(i) of expenditure being capital in nature has been wrongly allowed. While computing the business income a deduction of Rs. 490.91 lakhs (Rs. 124.80 lakhs towards Dealers Sign Boards and Rs. 366.11 lakhs towards Glow signs) included in administration, selling and distribution expenses has been allowed. These expenditure was related to an advantage being for enduring benefit in nature. The decision of Honble Supreme Court in case of Assam Bengal Cement Co. Vs. CIT 27 ITR 34 clearly applies failure to treat the expenditure as capital expenditure had resulted in over assessment and excess carry forward loss amounting to Rs. 490.91 lakh (unquote). On examination of this paragraph, it is seen that on perusal of the records it was found by her that a deduction of Rs. 490.91 lakh has been granted towards the expenditure incurred on dealers sign boards and glow signs, which ennured a benefit of enduring nature to the assessee and, therefore, it was capital expenditure. Therefore, the assessment resulted in over assessment of the loss by an amount of Rs. 490.91 lakh. Neither this paragraph nor paragraph no. 2, dealing with the merits of the case, mentions that the order was erroneous and ITA No. 2625/D/2011 5 prejudicial to the interest of revenue on account of failure of the AO to make any enquiry. In the case of Smt. R.G. Umaranee (supra), it was held that an order of assessment cannot be revised on a ground which is not mentioned in the show cause notice. Such was also the finding of Honble Punjab & Haryana High Court in the case of Jagadhari Electric Supply Company (supra). Therefore, in absence of any clear mention of the failure of the AO to examine the expenses, this issue could not have been made a ground for revision of the order. The Tribunal does not have powers to traverse beyond the show cause notice and the order of the CIT. In view thereof, it is held that on the facts and in the circumstances of this case, the decisions in the case of Swarup Vegetable Products Industries Ltd. and Umashankar Rice Mill (supra) are not applicable. The only ground, on which the order was revised, can be said to be that the expenditure was capital in nature, which was allowed as revenue expenditure by the AO. We have already discussed that the matter is a disputed one and rival decisions exist in this matter. In the case of Liberty group Marketing Division (supra), Honble Punjab & Haryana High Court held that glow sign boards do not bring into existence any asset nor lead to an advantage of enduring benefit to the assessee. Even if this case does not settle the issue in favour of the assessee, it can be said that two views are possible in the matter. In such circumstances, the CIT cannot substitute his judgment in place of the judgment of the AO and hold the order to be erroneous and ITA No. 2625/D/2011 6 prejudicial to the interest of the revenue. In this view of the matter, we are of the view that the ld. CIT erred in revising the order u/s 263(1) of the Act.
4. In the result, the appeal is allowed.
5. He further referred to the decision of Honble High Court vide which the aforementioned order of the Tribunal was upheld. The said order is dated 10.03.2011 in ITA No. 410/2010 and copy of which is placed at page 102 of the paper book and the observations of their lordships in that order are as under: - The assessee had filed its return for the AY 2003-04 declaring loss of Rs. 79,47,74,050/-. Assessment was carried out under the provisions of Sec. 143(3) of the Income-Tax Act and was completed by the AO at a loss of Rs. 35,59,74,060/-. The matter was thereafter taken up by the CIT(A) who passed orders dated 31.3.2008 in exercise of power u/s 263 of the Act. According to him, the assessee had claimed the deduction of Rs. 490.91 lacs comprising of expenditure towards dealer sings boards and also administration, selling and distribution expenses. The Commissioner was of the opinion that these expenses were capital in nature as they were incurred for enduring benefit and the AO has wrongly allowed the same u/s 37(i) of the Act. This order of the Commissioner was challenged by the assessee by preferring appeal before the Tribunal and the Tribunal has set aside the said order vide impugned decision dated 6.3.2009 inter alia, on the ground that in the matter like this two views were possible and, therefore, it was not permissible for the ITA No. 2625/D/2011 7 CIT(A) to substitute his judgment in place of the judgment of the AO and hold the order to be erroneous and prejudicial to the interest of the Revenue. Under similar circumstances, in the case of this very assessee the Commissioner had passed orders u/s
263 of the Act, albeit on the issue of depreciation which arose in that case and the said order was set aside by the ITAT. Appeals there against i.e. ITA 1391/2010, 1394/2010 and 1396/2010 have been dismissed by this Court vide its details judgment dated 14th January, 2011, inter alia, observing as under: - Regard being had to the wider expansion of the definition after the amendment of Section 32 by the Finance Act (2) 1998 and the auditors report and the explanation offered before the AO, we are of the considered opinion that the Tribunal is justified in holding that if two views were possible and when the AO had accepted one view which is plausible one, it was not appropriate on the part of the Commissioner to exercise his power u/s 263 solely on the ground that in the books of accounts it was mentioned as goodwill and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd. (supra), Max India Ltd. (supra) and CIT Vs. Vimgi Investment P. Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power u/s 263 of the Act. Following the aforesaid judgment, we are of the view that no question of law arises for consideration. This appeal is accordingly dismissed. ITA No. 2625/D/2011 8
6. Ld. AR further referred to the decision of the Tribunal in the case of the assessee itself in respect of A.Y. 2004-05 coy of which is placed at pages 103 to 108 of the paper book in which also similar powers were exercised by ld. CIT and the order u/s 263 was quashed by the Tribunal vide its order dated 30.10.2009. It was further submitted that the said order of the Tribunal has been upheld by the Honble Delhi High Court vide its decision dated 1.04.2011 in ITA Nos. 1526/2010 and 1531/2010 and copy of such order is placed at pages 109 & 110 of the paper book.
7. In view of above discussion, it was the submission of ld. AR that the issue raised by assessee is covered in favour of assessee and, therefore, the order passed by CIT u/s 263 should be quashed.
8. On the other hand, ld. DR relying upon the order of ld. CIT.
9. We have carefully considered the rival submission in the light of material placed before us. The issue is squarely covered by the aforementioned two decisions of ITAT & Honble Delhi High Court in respect of assessees own case for assessment years 2003-04 & 2004-
05. It was submitted by the assessee before ld. CIT that the matter has already been heard and decision of Delhi High Court is awaited. However, such request of assessee has been turned down by ld. CIT on the ground that limitation is involved to pass order u/s 263. However, later on Honble Delhi High Court has upheld the order of Tribunal in respect of A.Y. 2003-04. It is not the case of ld. CIT that the facts of that ITA No. 2625/D/2011 9 case are in any way different from the facts of the present year. Therefore, applying the same ratio we find no justification for invocation of power u/s 263. Therefore, we cancel the order passed u/s 263 and allow the appeal filed by the assessee.
10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Open Court on 29th July, 2011. Sd/- Sd/- (K.G. BANSAL) (I.P. BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29.7.11 *Kavita Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT TRUE COPY By Order, DEPUTY REGISTRAR