2012 (8) TMI 807 - AT - Income Tax

Disallowance of deferred revenue expenses written off - CIT(A) deleted the addition - assessee distributed the advertisement expenses towards brand building over a period of four years - Held that - As decided in ACIT vs. Ashima Syntex Ltd. 2008 (10) TMI 298 - ITAT AHMEDABAD-B the concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act - deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g., expenditure on advertisement, sales promotion etc. - thus advertisement expenses towards brand building are revenue in nature nor any material has been placed before us by the Revenue, suggesting that any tangible or intangible asset has been created by the assessee - in favour of assessee. Disallowance of bad debts written off - CIT(A) deleted the addition - Held that - As decided in T.R.F. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT it is a well-settled law that after 1st April, 1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 37,03,788/- on account of deferred revenue expenses written off.
2. Deletion of disallowance of Rs. 80,48,309/- on account of bad debts written off.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 37,03,788/- on Account of Deferred Revenue Expenses Written Off:

The primary issue is whether the CIT(A) was correct in deleting the disallowance made by the AO regarding deferred revenue expenses. The assessee, engaged in publishing telephone directories, claimed Rs. 37,03,788/- as deferred revenue expenses related to advertisement and brand building for the brand 'GETIT'. The AO disallowed this claim, stating these expenses did not fall under section 35D nor resulted in any intangible asset.

On appeal, the CIT(A) allowed the claim, referencing past decisions where similar claims were allowed as revenue expenditure by the ITAT and the Delhi High Court. The CIT(A) noted that the nature of the expenses was akin to advertisement costs, which are generally considered revenue in nature. The CIT(A) cited the ITAT's earlier decision, which emphasized that such expenditures did not create any fixed capital asset and thus should be treated as revenue expenditure. The Delhi High Court upheld this view, stating that advertisement expenses are revenue in nature.

The Tribunal, upon reviewing the facts and referencing the Special Bench decision in ACIT vs. Ashima Syntex Ltd., agreed with the CIT(A). The Tribunal noted that deferred revenue expenditure is an accounting concept not recognized by the Income-tax Act, which only distinguishes between capital and revenue expenditure. Since the expenses were for advertisement and brand building, they were deemed revenue in nature. The Tribunal dismissed the Revenue's ground, affirming the CIT(A)'s decision to allow the expenses as revenue expenditure.

2. Deletion of Disallowance of Rs. 80,48,309/- on Account of Bad Debts Written Off:

The second issue concerns the disallowance of Rs. 80,48,309/- claimed as bad debts. The AO disallowed the claim, arguing the assessee did not provide evidence of when the amount was offered as income or proof of actual write-off in the books, thus not fulfilling conditions under section 36(1)(vii) read with Section 36(2).

The CIT(A) allowed the claim after admitting additional evidence, which showed the debts were related to unrealized revenue from BSNL stations. The CIT(A) referenced earlier decisions where similar claims were allowed by the ITAT and the High Court. The CIT(A) noted that the assessee had written off the debts in its books, satisfying the requirement under the amended section 36(1)(vii).

The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in TRF Limited vs. CIT, which stated that post-1st April 1989, it is sufficient for the debt to be written off in the accounts of the assessee to claim it as a bad debt. The Tribunal found no material evidence from the Revenue to contradict the CIT(A)'s findings and dismissed the Revenue's ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal on both grounds. The deferred revenue expenses were allowed as revenue expenditure based on past judicial decisions and the nature of the expenses. The bad debts were allowed as the assessee had written them off in its books, aligning with the legal requirements post-amendment of section 36(1)(vii). The Tribunal found no merit in the Revenue's arguments and upheld the CIT(A)'s decisions.