2018 (6) TMI 1555 - AT - Income Tax

Addition @5% to the total turnover - inflation of expenses - Held that - No details of financials of the assessee were filed before the Tribunal. While summarising the facts in the Cross Objection the submission of the assessee is that the Assessing Officer made addition of Rs..6, 41, 04, 662/- being 5% of the turnover is also factually wrong since 5% of the total turnover is only Rs..6.1 crores Rs..122 crores x 5% . Since there is variation in the profit declared by the assessee in the assessment year under consideration compared with previous year it cannot be ruled out that the assessee has not inflated the expenses and the same is determined by the Assessing Officer at 5% is also in higher side. Accordingly we direct the Assessing Officer to adopt 2.5% of the total turnover may be disallowed towards inflated expenses. - Decided partly in favour of revenue Nature of expenditure - Disallowance of exhibition expenses - Revenue or capital expenditure - Held that - The corporate advertisement expenses exhibition expenses public relation expenses cultural programme expenses quota expenses and sales promotion expenses are revenue in nature and cannot be held as capital. Moreover in the present case the Assessing Officer has not recorded any findings that there was revenue generation against the exhibition expenses or such expenses created any tangible or intangible asset to the assessee. Accordingly the ground raised by the Revenue is dismissed.

Summary

Issues:
1. Deletion of disallowance of exhibition expenses
2. Deletion of addition of 5% to the total turnover

Deletion of addition of 5% to the total turnover:
The appeal by the Revenue challenged the deletion of an addition of &8377;6,15,26,406 made at the rate of 5% to the total turnover for the assessment year 2014-15. The Assessing Officer noted a decrease in profit percentage compared to the previous year and concluded that the expenses were inflated. The Assessing Officer estimated the gross profit at 5% of the turnover and added it to the total income. The CIT(A) deleted the addition. The Tribunal found a variation in profits declared by the assessee for the two years and directed the Assessing Officer to adopt 2.5% of the total turnover towards inflated expenses, partially allowing the Revenue's ground.

Deletion of disallowance of exhibition expenses:
The Revenue appealed the deletion of disallowance of exhibition expenses amounting to &8377;25,78,256. The Assessing Officer argued that these expenses were capital in nature due to enduring benefits from exhibitions. The CIT(A) held them as revenue expenses. The Revenue contended that the benefits were enduring. The assessee cited legal precedents supporting the revenue nature of such expenses. The Tribunal, following previous decisions, determined that exhibition expenses are revenue in nature, dismissing the Revenue's ground.

Conclusion:
The Tribunal partly allowed the Revenue's appeal regarding the addition to the total turnover and dismissed the appeal concerning the exhibition expenses. The Cross Objection filed by the assessee was deemed infructuous and dismissed. The appeal by the Revenue was partly allowed for statistical purposes, and the Cross Objection by the assessee was dismissed.