Cit vs M/S. Bonanza Portfolio Ltd.
2011 Latest Caselaw 3855 Del

*               THE HIGH COURT OF DELHI AT NEW DELHI

+                            ITA No.833 of 2011

                                         Date of Decision : 10.08.2011

CIT                                                       ...... Appellant

                             Through:    Mr. Deepak Chopra, Advocate

                                   Versus

M/s. Bonanza Portfolio Ltd.                             ...... Respondent

                             Through:    Mr. Rakesh Gupta, Advocate for
                                         Ms. Poonam Ahuja and Ms. Rani
                                         Kiyala, Advocates


CORAM :
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA

1.      Whether Reporters of local papers may be
        allowed to see the judgment?
2.      To be referred to the Reporter or not ?
3.      Whether the judgment should be reported
        in the Digest ?

M.L. MEHTA, J. (Oral)

1. The assessee company (respondent herein) is engaged in the

business of stock broking and earning commission income from share

transactions from clients being a member of the National Stock

Exchange and Bombay Stock Exchange. It filed its original return of

income declaring income of `8,19,15,021/- on 25th September, 2008.

Thereafter, the revised return was filed on 20th May, 2008 declaring

total income of `7,27,01,919/-. In the revised return, the assessee had

amortized expenditure amounting to `1,15,16,377/- incurred on

advertisements, ad films and website expenses over a period of 5

years. The department initiated scrutiny assessment proceedings and

issued notice under Section 143(2) of the Income Tax Act, 1961 ("the

Act" for short) on 16th September, 2008. The Assessing Officer (AO)

proceeded to compute the assessment under Section 143(2) of the Act

on a total income of `8,56,87,742/-. The AO noted that the expenditure

on advertisement, ad films and website expenses were in the nature of

capital expenses since they resulted in the earnings to the assessee for

a number of years. Consequently, he computed income as per the

original return where such an expenditure had been amortized for a

period of five years. Resultantly, AO made additions of `92,13,102/- and

made assessment on total income of `8,56,87,742/-. AO also disallowed

depreciation claimed by the assessee @ 60% on computer peripherals

like printers, scanners etc stating that the depreciation @ 60% was

allowable only in the case of computers and computer software and was

not applicable on computer peripherals. He accordingly disallowed the

deduction of `341,313/- on this count. The assessee preferred an appeal

before the CIT(A) which was allowed on both the counts. Consequently,

CIT(A) deleted all the additions made by AO. Aggrieved with the order of

CIT(A), the revenue preferred an appeal before ITAT which came to be

dismissed vide impugned order dated 29th November 2010. The

revenue is in appeal before us against the said order of the Tribunal.

2. Vide our order dated 11th July, 2011, we have at the previous

stage held that as far as expenditure on advertisement is concerned,

the said expenditure incurred on advertisements for sale promotion was

of revenue in nature. In this regard we refer to our decision in ITA

No.1820 of 2010 titled The Commissioner of Income Tax v Citi Financial

Consumer Fin. Ltd. (decided on 30th March, 2011). With regard to the

expenditure incurred on website, we rely upon the judgment of this

Court in CIT v Indian Visit.Com (P) Ltd. 219 CTR (Del) 603 and hold the

same to be of revenue in nature. Similarly, with regard to depreciation

@ 60% on computer peripherals, we rely upon the judgment of this

Court in Commissioner of Income Tax v Citicorp Maruti Finance Ltd. (ITA

1712/2010 and ITA 1714/2010 decided on 9 th November 2010) and held

that the computer peripherals are entitled to depreciation @ 60%.

3. Vide the said order dated 11th July, 2011, notice was issued to the

respondent only to the limited question as to whether the expenditure

incurred on ad film is to be treated as capital or revenue in nature.

4. We have heard the counsel for the parties on this issue. The

assessee has placed reliance on the case of CIT v Geoffrey Manners &

Co. Ltd. 315 ITR 134 (2009); Patel International Films Ltd. 102 ITR 219

and CIT v Patel International Films Ltd. 102 ITR 219. On the other hand,

revenue has placed reliance on CIT v Bose Corporation India Pvt. Ltd

(ITA No.1494 of 2010). We have perused the judgments cited by the

parties. The case of Patel Engineering (supra) was also referred to and

discussed in CIT v Geoffrey Manners (supra). The undermentioned

observations of the Bombay High Court in CIT v Geoffrey Manners

(supra) with which we are in complete agreement and which distinguish

the case of Patel International (supra), would be suffice to arrive at the

conclusion that the appellant being engaged in the business of stock

broking and share transactions, the expenditure incurred on ad films by

way of advertisements for promotion and marketing of its products,

being on the ongoing business, would be of revenue in nature and thus

allowable as revenue expenditure.

5. In CIT v Geoffrey Manners (supra) in paras 3, 4 and 5, it was

observed as under:

"The only ground based on which the Revenue has approached this Court is as pointed out earlier that the Tribunal ignored the ratio of the judgment in Patel International Film Ltd. (supra).

We may point out, that on facts there the assessee company was in the business of processing and printing movie films in a processing and printing laboratory purchased by them. It subsequently purchased a film processor in the laboratory to serve as a model for exhibition to induce confidence in its customers by way of advertisement and claimed the amount spent on the purchase as business expenditure. After considering the facts a learned Bench of this Court noted as under: "In other words, the asset that was acquired by the assessee company was a capital asset to be used for the purpose of advertisement of the business that the assessee company was going to carry on in future and, therefore, the expenditure will have to be regarded as a capital expenditure and not revenue expenditure."

It would, thus be clear that the machinery purchased was not in respect of an ongoing business of the assessee, but in respect of the business which was going to be carried out in the future.

In the instant case as the facts bear out, the advertisement was in respect of an ongoing business of the assessee herein.

4. A similar issue had come up for consideration before he Division Bench of the High Court of Punjab & Haryana in CIT vs. Liberty Group Marketing Division (2008) 8 DTR (P&H) 28. In that case the assessee had claimed expenditure incurred on glow sign boards as also T.V. films. The expenditure was held to be revenue in nature.

5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Film Ltd. (supra) is clearly distinguishable. The CIT(A) and the Tribunal on the facts of this case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect of promoting ongoing products of the assessee herein."

6. In view of the aforesaid reasons, we find no merits in this appeal

which is accordingly dismissed.

(M.L. MEHTA) JUDGE

(A.K. SIKRI) JUDGE August 10, 2011 rd