2014 (12) TMI 1161 - AT - Income Tax

Disallowance of advertisement and marketing expenditure - reopening of assessment - CIT(A) deleted the addition whether by acceptng additional evidence in contravention of Rule 46A without giving opportunity to the AO - transfer pricing adjustment - Held that - As from the record that the documents highlighted by Ld. DR in support of his contention that there was violation of Rule 46A, it is found that these documents comprises of copies of agreement with distributor, statement of advertisement and marketing expenses showing details of bills, name of the distributors, amount and date of payment which were submitted by the assessee in the course of original assessment, wherein the assessment was framed u/s 143(3). Before AO during reassessment proceedings assessee vide his letter informed that all these documents were furnished before AO and TPO during original assessment proceedings and by considering the same vide order dated 25th January, 2005 passed u/s 92CA(3) has examined all materials relating to claim of expenditure of advertisement. Similarly AO vide his order dated 23rd February, 2005 advanced assessee s claim after examining all these documents. Thus all these documents, as pin pointed by DR was not additional documents so as to invoke the provisions of section 46A. - Decided against revenue. As found that claim of such advertisement expenses were made on reimbursement basis, details of which were placed before the original assessment proceedings, completed u/s 143(3) on 28th February, 2005 as well as before Transfer Pricing Officer, who has allowed the assessee s claim vide his order dated 25.01.2005 passed u/s 93A(3). The CIT(A) has also recorded the finding to the effect that the AO has not placed any material or evidence as mentioned in impugned assessment order to support that the expenses were bogus. The CIT(A) observed that a mere intimation from Investigation Wing cannot be basis for any addition. The finding recorded by CIT(A) has not been controverted, by department by brining any positive materials on record. Accordingly, we do not find any reason to interfere with the finding of CIT(A) resulting into deletion of addition on account of advertisement expenses. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of advertisement and marketing expenditure
- Violation of Rule 46A
- Validity of reopening u/s 147

Analysis:

Issue 1: Disallowance of Advertisement and Marketing Expenditure
The appeals filed by the revenue and Cross Objection by the assessee were against the order of CIT(A) for the assessment years 2002-03 & 2003-04. The revenue's common grievance in both years related to the disallowance of advertisement and marketing expenditure. The AO disallowed the expenditure incurred on advertisement based on a report of DDIT (Inv.) after completing the reassessment under section 143(2) r.w.s. 147. The CIT(A) deleted the disallowance, stating that the expenses were genuine and supported by proper documentation. The appellant provided various documents during the original assessment proceedings, including agreements, invoices, and supporting materials. The Transfer Pricing Officer also accepted the claim of expenditure incurred in foreign currency. The CIT(A) concluded that the AO did not provide any evidence to support the claim that the expenses were bogus. The Tribunal confirmed the CIT(A)'s decision to delete the disallowance of the advertisement expenses.

Issue 2: Violation of Rule 46A
The revenue argued that the CIT(A) accepted additional evidence in contravention of Rule 46A without giving the AO an opportunity. However, the Tribunal found that the documents highlighted by the revenue were not additional but were submitted during the original assessment proceedings. Therefore, there was no violation of Rule 46A. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of the advertisement expenses.

Issue 3: Validity of Reopening u/s 147
The assessee raised a ground in the Cross objection regarding the validity of reopening under section 147, but it was not pressed by the Ld. AR. As a result, the Cross objection was dismissed. Both the appeals of the revenue and the assessee's Cross objection for both years were ultimately dismissed by the Tribunal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the disallowance of advertisement expenses, finding that the expenses were genuine and supported by proper documentation. The Tribunal also found no violation of Rule 46A and dismissed the Cross objection regarding the validity of reopening u/s 147 as it was not pressed during the proceedings.