D. MANMOHAN, VICE-PRESIDENT 
AND SANJAY ARORA, ACCOUNTANT MEMBER

Kantilal B. Parekh for the Appellant. 
Pitambar Das for the Respondent.

ORDER

Sanjay Arora, Accountant Member - The present set of Appeals arise out of the Orders by the Commissioner of Income Tax (Appeals)-16, Mumbai ('CIT(A)' for short) for assessment year (A.Y.) 2009-10 (dated 01.03.2012) and for A.Y. 2010-11 (dated 17.06.2013), being contested by the assessee and Revenue respectively. This is as the first appellate authority had disallowed and allowed the assessee's appeals contesting its assessments for the said two consecutive years respectively. The appeals being in relation to the same issue, were posted for and, accordingly, taken up for hearing together, and are being disposed of vide a common, consolidated order.

2. Opening the arguments for and on behalf of the assessee, a manufacturer and exporter of jewellery, it was contended by the ld. Authorized Representative (AR), the assessee's counsel, that the issue under consideration, i.e., the allowability of expenditure on brand building - of a brand of jewellery by the name 'Nirvana', as incurred by the assessee, must be treated as a covered issue in the assessee's favour in view of the Tribunal's order for A.Y. 2006-07 (in ITA No. 3124/Mum(F)/2011 dated 31.07.2012/PB pgs. 13-17), taking us through the relevant part thereof. Though the appeal before the tribunal for that year was in relation to section 263 proceedings; the competent authority having set aside the assessment, restoring the matter back to the file of the assessing authority for lack of proper enquiry in the matter, the tribunal not only quashed the revision, but also expressed a clear view of the impugned expenditure being a revenue expenditure. It is this that prevailed with the ld. CIT(A) for the latter of the two years in appeal (A.Y. 2010-11), diverging from the view as adopted by his predecessor for the immediately preceding year.

2.1 The ld. Departmental Representative (DR), on the other hand, would submit that it is not so, and that the tribunal has not expressed any final view on merits, which stands thus decided against the assessee for both the assessment years under reference, i.e., on merits.

3. We have heard the parties, and perused the material on record.
3.1 The first question, therefore, before us is whether the assessee's case can be said to be covered in its favour by the tribunal's order deciding the assessee's appeal against the revision order u/s. 263 for A.Y. 2006-07. The operating part of the said order (supra), also referred to by the ld. AR, is contained at para 9 thereof, which reads as under:

'9. Thus from the facts of the case we do not find that these expenses incurred by the assessee has resulted in any kind of addition or augmentation of any profit making asset. Thus the view taken by the A.O. is prima facie correct view and, therefore, we do not find any reason to hold that such an order is erroneous or it is prejudicial to the interest of the Revenue. Thus the conclusion drawn by the Ld. CIT in the impugned order is not tenable both in law and on facts and accordingly we cancel the impugned order passed u/s.263. In the result, the grounds taken by the assessee are allowed and the appeal of the assessee is also treated as allowed.'

Clearly, the tribunal had only expressed a prima facie view; holding that in its view the A.O.'s view is, prima facie, a correct view, so that his order could not be said to be erroneous and prejudicial to the interest of the Revenue and, thus, liable for review u/s. 263. It is well settled that where the Assessing Officer (A.O.) has adopted one of the two permissible courses of action, his order cannot be regarded as erroneous insofar as it is prejudicial to the interest of the Revenue, so as to attract section 263. The same, thus, cannot be regarded as expression of any final view or a clear verdict in favour of the impugned expenditure being revenue expenditure by the tribunal. Another aspect that is relevant is that the tribunal was concerned with the expenditure as incurred for a particular year - which in fact was the first year, without in any manner noticing or it being brought to its notice that the said expenditure on brand building, claimed as revenue, stands in fact incurred by the assessee as a part of, as is apparent, a strategic exercise, from year to year, aggregating to nearly Rs.12 crores, as under:
(Amt. in Rs. lacs)

We say so as we find no reference to it either in the revision order for A.Y. 2006-07 (PB pgs.6-12) or in that by the tribunal (for that year) and, further, without doubt the same has a definite bearing on the specific business purpose and the character of the expenditure. The only implication, however, of the foregoing, would be that the matter would require being examined by us on merits, which we would have abstained from if the tribunal had in our view expressed its' final view on merits upon examination of the facts; the matter being primarily factual. While the Revenue's case is that the expenditure has admittedly been incurred in creating a product brand 'Nirvana', a capital asset, albeit intangible, the assessee claims that no capital asset - tangible or intangible, had come into existence thereby. It is only where a benefit or advantage of an enduring nature comes into being as a result or in consequence of such expenditure, and which is in the capital filed, that a capital asset can be said to have been acquired.

3.2 We have examined the expenditure profile, i.e., for the three years - being A.Ys. 2006-07, 2009-10 and 2010-11, for which its composition is on record. The same consists predominately of expenditure on advertisement. A sustained advertisement campaign, as it appears, presumably to create public awareness and consciousness of the brand, and of the product characteristics, has been launched, impinging the public mind. Further, as it appears - from the incurring of expenditure on legal and professional expenses, the firm has hired consultants for the purpose. It is for this reason that sustained and concerted advertising campaigns are generally undertaken, i.e., to create brand consciousness/value. The other expenditure incurred, viz. on product display, visual display in stores, product launch, exhibition expenses, staff recruitment, legal and professional expenses, are essentially ancillary or toward sub-serving the brand building exercise through the advertisement campaign. The only other expenditure incurred is on repairs and maintenance, which is, at Rs. 17.98 lacs, only for A.Y. 2006-07, so that the same appears to be a one-time expenditure, even the details of which are not on record, for us to consider it of any significance toward expenditure on creating brand value. The expenditure, without doubt, and on which we observe no dispute, stands incurred for the purposes of business. Again, it is not per se capital in nature, and that is what is meant when the assessee says - and on which we again find an agreement by the Revenue, that the expenditure incurred is 'revenue' in nature. Expenditure is not 'capital' or 'revenue', but gets so classified on the basis of the purpose for which it is incurred. Expenditure on the same 'goods' and 'labour, for example, would be construed as of 'revenue' or 'capital' nature where incurred for a trading asset or, as the case may be, a capital asset. As such, what is to be seen is whether any capital asset stands acquired by the assessee through its concerted advertisement campaign. No evidence in this regard has been brought on record. Though ordinarily, the onus to prove its return, and the claims preferred thereby, is only on the assessee (refer: CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC)), we consider the assessee to have discharged the initial onus on it; the genuineness of the expenditure, or of it having been incurred for the purpose/s of business, as afore-stated, being not in dispute. It is not the nature of such expenditure, but that of the resulting advantage to the business, a subject matter of an inferential finding, that the controversy revolves around. Toward this, therefore, our first observation is that the onus to prove so is on the Revenue. This is as it claims an advantage or benefit in the capital field to have arisen or accrued to the assessee as a result of the brand building exercise. In fact, no holistic view in its respect has been taken or sought to be adopted by it, enquiring into the details of the exercise undertaken by the assessee, but by viewing only one year at a time, even as the same would, as it appears to us, is in the nature or assumes the nature of a project. Why, the Revenue in fact insists on a capital advantage accruing to the assessee from the very first year (A.Y. 2006-07) itself! No doubt, the expenditure is toward building a brand (by the name 'Nirvana'), but what is there to show that a brand of any value, i.e., in terms of brand equity or loyalty, leading to an increased sales or customer base on that account, or of any price premium, has come into existence. There has been no enquiry on these lines and, resultantly, no empirical data or objective facts on record for us to hold so. The assessee stating that no such advantage had actually come into existence, it cannot possibly be called upon to prove a negative.

3.3 It may be argued that the assessee having admittedly incurred the expenditure on brand building, it cannot retract from the same; its books of account, reflecting its understanding, represent its' correct state of affairs. That is, the onus is on the assessee to show that its accounts - duly audited, with the Auditors expressing an expert opinion thereon, do not, despite being so, represent a true state of its affairs. True, and for which we may refer to the decision by the hon'ble apex court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18. However, the assessee has not, it needs to be appreciated, considered the expenditure in its accounts as on capital account. The expenditure being heavy, it has only, in accord with the matching principle, estimating it to translate into tangible results over a period of two to three years, staggered the charge in its respect to its operating statement uniformly over a period of three years. Or, alternatively, allowed the revenue for that period to fully absorb the said expenditure. Nothing more, and nothing less, and which would not impact its taxable income in any manner in-as-much as the same is governed by the statute. The same cannot in any manner be construed to imply an admission or a statement of the same being capital expenditure and, further, resulting in a capital asset, yielding benefit, if not in perpetuity, for a considerable period of time in future, so as to be regarded as enduring. On the contrary, it could equally be argued that the very fact that the assessee had to incur the expenditure year after year, shows the benefit arising therefrom to be transitory, so that where the advertisement was not followed up subsequently, even the advantage secured from the earlier advertisement would get dissipated.

3.4 Was the advertisement campaign successful? Did it cross the threshold level to be of moment and generate a positive enduring value for the assessee? In the absence of any objective basis to hold so, it would be presumptuous to answer the same in the affirmative. That is, the proposition of the expenditure having yielded an enduring advantage in the capital field, would in the absence of any objective material, be merely a hypothesis or a surmise. In fact, expenditure on product launch, product display, staff recruitment, exhibition, legal and professional expenses (nature unknown), also treated as part of the capital asset, have a much lesser degree of direct, or only a tenuous relationship, i.e., than the advertisement expenditure, with brand building. Apart from the coming into existence of a brand value, there are issues with regard to its valuation and cost. We say so as a relationship between the expenditure and the asset, assuming its existence, has to be direct for it to be considered as forming part of its cost, and which cannot be said to be so in the instant case. Just because an expenditure is debited in books as toward brand building, which it purportedly is, and a statutory recognition has since been accorded to such intangible assets, as a 'brand', would not by itself imply that an advantage in the capital field, or of enduring value to the business, has arisen to the assessee upon incurring the expenditure. Rather, the business being competitive, and prudence and conservatism being fundamental accounting assumptions, capitalization of such expenses, or ascribing lasting/abiding value to such expenses, could only be done on sound footings and cogent basis. Reference in this context may be made with profit to the decision by the apex court in Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377/43 Taxman 312.

4. In view of the foregoing, we find no basis to hold that the impugned expenditure, incurred in the regular course of its business by the assessee, has translated or manifested in, or resulted in the acquisition of, a capital asset or a in a profit making apparatus by the assessee, or of it being in the nature of capital expenditure, i.e., per se. The same, therefore, has been rightly treated by it as revenue expenditure, admissible u/s.37(1) of the Act. We decide accordingly.

5. In the result, the assessee's appeal (for A.Y. 2009-10) is allowed, and the Revenue's appeal (for A.Y. 2010-11) is dismissed.