2012 (6) TMI 160 - AT - Income Tax

Deffered revenue expenditure - The facts are that the expenditure has been incurred for promoting Bacardi brand which is not owned by the assessee but by the BIL. The advertisement on TV channels is also accessible to persons outside India who are not the customers of the assessee - the expenditure has been incurred for the purpose of the business of the assessee - assessee could have claimed the whole of the expenditure as revenue expenditure in this year as advertisement expenses are in the nature of revenue expenditure. However, it has claimed only 1/5th of the expenditure in this year and the balance expenditure has been claimed and allowed in assessment years 2004-05 to 2007-08 - Decided in favor of the assessee

Summary

Issues Involved:
1. Deductibility of advertisement expenditure as deferred revenue expenditure.
2. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Deductibility of Advertisement Expenditure as Deferred Revenue Expenditure:

The primary issue in this appeal was whether the advertisement expenditure of Rs.8,18,06,964/- should be treated as deferred revenue expenditure, allowing 1/5th of it in the current year and the balance in the succeeding four years, as directed by the CIT(A), or if it should be disallowed entirely as contended by the AO.

The AO argued that the expenditure was for promoting the 'Bacardi' brand, which the assessee did not own, and thus, it was not incurred wholly and exclusively for the assessee's business. The AO noted that the 'Bacardi' brand is owned by Bacardi International Ltd. (BIL), Bermuda, the holding company, and the advertisement was accessible outside India where the assessee's products were not sold.

The assessee contended that promoting the 'Bacardi' brand in India directly benefited its business as it was the sole manufacturer, distributor, and seller of Bacardi products in India. The CIT(A) agreed with the assessee, stating that the expenditure was incurred wholly and exclusively for the business purpose and that incidental benefits to BIL were irrelevant for deciding the deductibility under Section 37(1) of the Income-tax Act, 1961. The CIT(A) noted that the practice of allowing 1/5th of such expenses had been followed in earlier years and should continue.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the promotion of the 'Bacardi' brand increased the assessee's sales in India, thus the expenditure was for the business purpose. The Tribunal also noted that the assessee had consistently treated the expenditure as deferred revenue expenditure, claiming only 1/5th in the current year and the balance in subsequent years, which the AO had allowed. Therefore, the Tribunal dismissed the revenue's ground on merits.

2. Condonation of Delay in Filing the Appeal:

The revenue's appeal was also delayed. The CIT filed an application for condonation of delay, explaining that the original appeal was filed on 21.03.2007 but was dismissed on 03.07.2008 due to an incorrect amount being mentioned. A subsequent miscellaneous application was also dismissed on 27.11.2009, with the Tribunal granting liberty to file a fresh appeal with appropriate grounds and an application for condonation of delay. The fresh appeal was filed, but with an incorrect date of receipt of the impugned order.

The assessee opposed the condonation, arguing that the revenue had not acted with due diligence and that the delay was significant. The Tribunal noted that the appeal had already been dismissed on merits, making the question of limitation academic. Consequently, the Tribunal did not delve deeply into the condonation issue, as the ground taken by the revenue lacked merit.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming that the advertisement expenditure was incurred wholly and exclusively for the assessee's business and should be treated as deferred revenue expenditure, with 1/5th allowed in the current year. The Tribunal also found the condonation of delay issue to be of academic interest, given the dismissal on merits.