Sanofi Pasteur (P) Ltd , vs Department Of Income Tax

ITA No. : 2356/Del/2010 (Assessment year: 2005-06) ITA No. : 4903/Del/2010 (Assessment year: 2006-07) DCIT, Cir-7(1), Vs M/s Sanofi Pasteur (P) Ltd., Rom No. 312, 3rd Floor, D-2, IV floor, Southern Park, C R Building, DDA Commercial Centre, Saket, I P Estate, New Delhi -110 007 New Delhi ःथयी लेखा सं.:PAN: AACCA 8477 A

अपीलाथ (Appellant) ू यथ (Respondent) Appellant by : Shri Pavan Kumar Beerla Respondent by : Shri J D Mistry & Shri Nitesh Joshi

सुनवाई क# तार%ख /Date of Hearing : 20-11-2014 घोषणा क# तार%ख /Date of Pronouncement : 13-02-2015

आदेश ORDER ी िववेक वमा , या स: स: PER VIVEK VARMA, JM:

The appeals are field by the department against the orders of CIT(A)-X, Delhi, dated 18.02.2010 & 30.08.2010 respectively. The following grounds have been taken in the two years:

ITA No. 2356/Mum/2010 : 1. "The Ld. Commissioner of Income Tax (Appeals) erred, in law and on facts by the AO on account of advertisement, sales promotion and publicity.

2. Ld. Commissioner of Income Tax (Appeals) erred, in law and on facts and circumstances of the case, in deleting the addition of Rs. 1,45,980/- made by the AO on account of depreciation on computer peripherals and accessories.

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3. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal".

ITA No. 4903/Mum/2010 : 1. "On the facts and in the circumstances of the case the Ld. CIT (A) erred in law as well as on merits in deleting the addition of Rs. 1,45,40,201/- made by AO on account of Advertisement and business promotion expenses being capital in nature.

2. The appellant craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal".

2. The captioned appeals were filed with ITAT, Delhi Benches, Delhi.

3. Since the records of the assessee were transferred from Delhi to Mumbai, it was requested by the assessee vide letter dated 10.08.2011 to transfer the captioned appeals, as filed at Delhi to Mumbai. The cases were transferred accordingly, after receiving no objections from the officers concerned at various levels.

4. Hence the appeals before the ITAT Mumbai Benches, which finally came up for hearing on 20.11.2014.

5. Since the issues in both the captioned appeals are common, we are disposing off the appeals through this common and consolidated order for the sake of convenience and brevity.

Asst. Year 2005-06 :

6. We proceed with appeal for assessment year 2005-06, being the lead year.

7. The assessee is a company and is in the business of sales and distribution of vaccines imported from other countries, primarily from France.

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8. In the course of assessment proceedings, the AO treated expenses incurred on advertisement at Rs. 7,96,873/- as capital in nature being 30% of Rs. 26,56,245/- as it would give enduring benefit to the assessee.

9. The assessee took the issue before the CIT(A), who after going through the details held, "The contention of the Appellant Company is justifiable in view of the fact that the expenditure incurred on advertisement, sales promotion and publicity is an expenditure which is incurred in the normal course of business of the Appellant Company. The fact that such expenditure is revenue in nature is supported by numerous judgments as relied upon by the Appellant Company.

2.6 The cases referred by the Ld. AC are in reference to the treatment of an expenditure which provides enduring benefit to assessee. The appellant has pointed out that it has been time and again held by various Hon'ble Tribunals including the jurisdictional Hon'ble Delhi Tribunal that expenditure incurred on advertisement and sales promotion does not ensure any enduring benefit to a company.

2.7 The appellant has relied on the observations of the Hon'ble Supreme Court in the cases of Empire Jute Company Ltd (Supra) and Alembic Chemical Works Company Ltd (supra). The Supreme Court observed that in such cases the test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the Particular facts and circumstances of a given case. 2.8 The appellant has pointed out that in Alembic Chemical Works Company Ltd (supra), the Hon'ble Supreme Court 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. The Supreme Court also observed that the once for all payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. The Supreme Court also noted that in a given case, the test of enduring benefit might break down.

2.9 The allegation of the Ld. AO that such expenditure results into brand building of the Appellant Company and its parent company is also of no consequence as it is merely a theoretical argument as held by various recent judicial pronouncements.

2.10 Moreover, the Ld. AO has failed to point out as to why the figure of 30 percent of expenditure has been treated as capita nature and not any other amount. This is clearly a case of adhoc disallowance which cannot be 4 M/s Sanofi Pasteur (P) Ltd.

ITA 2356/Del/2010 ITA 4903/Del/2010 upheld, as observed by various judicial decisions. 2.11 In view of the above, the adhoc disallowance of 30% of the expenditure incurred on advertisement made by the Ld. AO is deleted".

10. The CIT(A) reversed the order of the AO and accordingly gave relief to the assessee by deleting the disallowance of Rs. 7,96,873/-.

11. Against this order of the CIT(A), the department is in appeal before the ITAT.

12. Before us, the DR relied on the order of the AO, whereas, the AR relied on the order of the CIT(A).

13. After hearing both the parties and on going through the details and various case laws referred before us in the APB, we are of the opinion that there was no infirmity in the order of the CIT(A), who relied on the ratios laid down by the Hon'ble Supreme Court in the cases of Empire Jute Co. Ltd. vs CIT reported in 124 ITR 01 and Alembic Chemicals Works Company Ltd. vs CIT, reported in 177 ITR 377.

14. We, therefore, sustain the order of the CIT(A) on this issue and rejected the ground of appeal taken by the department.

15. Ground no. 1 is therefore rejected.

16. Ground no. 2 pertains to percentage of depreciation allowable on computer peripherals.

17. In the return of income, the assessee claimed depreciation at 60% on additions to computers accessories/peripherals, which were laptops, computer, server, UPS, printer etc., which are as under:

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ITA 2356/Del/2010 ITA 4903/Del/2010 Sr. Particulars Amount No. (Rs) 1 Laptop Battery 17,290 2 Laptop Battery 22,754 3 USB Port 8,100 4 USB Port 12,150 5 Backup Tape Drive 99,600 6 Network Switch 109,200 7 1150 HP Laser Jet Printer 17,000 8 1150 HP Laser Jet Printer 17,000 9 Think Centre A-50 P-4 Laptop 39,200 10 SQL Server Call 2000 58,000 11 Connector D Link 15,300 12 Printer 13,400 13 UPS Server 56,000 TOTAL 525,038

18. The AO denied the depreciation at 60% but allowed 25%.

19. Aggrieved, the assessee approached the CIT(A), who after considering the arguments of the assessee, held, "The above submissions of the Appellant Company have been perused very carefully along with the assessment order.

4.5 It has been submitted that the term computer has not been defined in the Act. However, Explanation (a) to clause (xi) of section 36(1) of the Act defines computer system which reads as under:

"computer system' means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, logic, arithmetic, data storage and retrieval, communication and control"

4.6 It is clear from the above definition that a computer system includes its input and output devices. Moreover, the legislature could not have intended to provide a higher rate of depreciation only for a monitor and a central processing unit (CPU) without allowing the higher rate of depreciation on the peripheral equipments which forms part of a wholesome computer system. Without these peripheral equipments, a computer system would become a dumb device and would not be of any use for a prudent person.

4.7 It has also been stated that the issue has been settled by the Hon'ble Delhi Tribunal in the case of Expeditors International India (P) Ltd. vs Addl. CIT 118 TTJ 652, wherein it has been held that the peripherals such as printers, scanners, NT server, etc. form integral part of the computer and the same, therefore, are eligible for depreciation at a higher rate as applicable to a computer. The same view has been followed by Hon'ble 6 M/s Sanofi Pasteur (P) Ltd.

ITA 2356/Del/2010 ITA 4903/Del/2010 Delhi Tribunal in the case of ACIT v. Continental Carders Pvt: Ltd, ITA No 2137/Del/2008 dated 9 January 2009. The Hon'ble Calcutta Tribunal in ITO V. Samiran Majumdar 98 ITD 119 [2005] has also held the computer peripherals to be eligible for higher rate of depreciation. 4.8 After considering the above and respectfully following the decisions in the above cases including the judgments pronounced by the jurisdictional Delhi Tribunal, it is held that the computer peripherals are eligible for higher rate of depreciation i.e. at the rate of 60%.

4.9 Therefore, the addition in respect of low rate of depreciation allowed on computer peripherals is hereby deleted. It is hereby directed that depreciation be allowed at the rate of 60 percent on computer peripherals".

20. The CIT(A), then deleted the addition as made by the AO.

21. Against this order of the CIT(A) on the issue, the department is in appeal before the ITAT.

22. Before us the DR relied on the order of the AO, whereas the AR relied on the order of the CIT(A).

23. We have heard the arguments and have gone through the order of the revenue authorities and we find that the order of the CIT(A) is reasonable and as per the inference drawn from the provision of the Act and decided case laws.

24. We, therefore do not find and any reason to deviate from the well reasoned order of the CIT(A), which we sustain. As a result, the ground of appeal, as filed by the department is rejected.

25. Ground no. 3 is general in nature.

26. As a result, the appeal as filed by the department is dismissed.

Asst. Year 2006-07 :

27. The issue is identical to ground no. 1 in ITA No. 2356/Del/2010.

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28. In the year under consideration, the AO allowed Rs. 48,46,934/- i.e. 25% of Rs. 1,93,86,935/- (i.e. Rs. 1,96,21,862 - Rs. 2,34,927), whereby he arrived at the figure of Rs. 1,45,40,201/-.

29. In the preceding year, we have held that advertisement expenses are revenue in nature by following the decisions of Hon'ble Supreme Court in the cases of Empire Jute Co. Ltd. (supra) and Alembic Chemical Work Co. Ltd. (supra).

30. Since the issue has already been decided in favour of the assessee, we do not find any reason to deviate from our own findings on the same and identical facts.

31. We, therefore, reject the ground taken by the department.

32. Ground no. 1 is therefore, rejected.

33. Ground no. 2 is general.

34. As a result, the appeal as filed by the department is dismissed.

35. In the result, the appeal as filed by the department is dismissed.

36. In the result, the appeals filed by the department in ITA No. 2356/Del/2010 is dismissed ITA No. 4903/Del/2010 is dismissed Order pronounced in the open Court on 13th February, 2015.

(आर.

आर. सी.

सी. शमा ) (िववेक वमा ) Sd/- Sd/-

लेखा सद य याईक सद य (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Date: 13th February, 2015 8 M/s Sanofi Pasteur (P) Ltd.

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ूित/Copy to:-

1) अपीलाथ /The Appellant.

2) ू यथ /The Respondent.

3) The CIT(A) -X, Delhi.

4) The CIT-III, New Delhi.

5) ,वभागीय ूितिनिध "____", आयकर अपीलीय अिधकरण, /द1ली /नई /द1ली The D.R. "____"/Concerned_____ Bench, Delhi/New Delhi.

6) गाड3 फाईल Copy to Guard File.

आदे शानुसार/By Order / / True Copy / /

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai

*च हान व.िन.स *Chavan, Sr.PS