2008 (8) TMI 138 - HC - Income Tax

Advertisement expenditure for launching of products held that there was a direct nexus between the advertising expenditure and the business of the assessee and that unless the assessee made its products known to the market, its business would suffer, therefore, entire expenditure on advertising to be of a revenue nature whether unutilized DEPB credit is allowable, whether professional fee for human resource engineering to be amortized are question of law, so appeal is admitted

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Treatment of advertising expenditure as revenue or capital expenditure.
3. Addition of professional fee amortization and treatment of unutilized DEPB amount as expenditure.

Issue 1: Condonation of Delay
The appellant filed an application for condonation of delay in filing the appeal, citing a delay of about 12 days, although the application mentioned only 9 days. The delay was attributed to the CCIT's direction to seek the opinion of the senior standing counsel, who provided the opinion on November 27, 2007. However, due to unforeseen circumstances, the CCIT passed away shortly after receiving the opinion, causing a delay in approving the appeal filing. The High Court, after hearing the parties, found the delay to be fully explained and allowed the application for condonation of delay.

Issue 2: Treatment of Advertising Expenditure
The appeal raised concerns regarding advertising expenditure of approximately Rs 3.08 crores. The Assessing Officer treated one-third of the expenditure as capital expenditure, while the Commissioner of Income-tax (Appeals) considered the entire amount as revenue expenditure. The Income-tax Appellate Tribunal upheld the Commissioner's decision, emphasizing the direct nexus between advertising expenditure and the business's competitiveness in the Indian market. Citing the Supreme Court's decision in Empire Jute Co. Ltd. v. CIT, the Tribunal concluded that the expenditure, despite potentially providing enduring benefits, was of a revenue nature. The High Court found no grounds to interfere with the Tribunal's decision on this matter.

Issue 3: Professional Fee Amortization and DEPB Treatment
The High Court admitted the appeal on two substantial questions of law. Firstly, it questioned the Tribunal's decision to delete the addition of Rs. 25,29,431 made by the Assessing Officer by amortizing the professional fee expenditure towards a project. Secondly, it examined the Tribunal's ruling on allowing the unutilized DEPB amount as expenditure under section 37(1) of the Income-tax Act, 1961. The High Court accepted these two questions for consideration, indicating that further analysis and legal interpretation were required on these specific issues.

In conclusion, the High Court addressed the issues of delay condonation, treatment of advertising expenditure, and the admission of the appeal on specific substantial questions of law related to professional fee amortization and DEPB treatment. The judgment provided detailed explanations for each issue, citing relevant legal precedents and interpretations to support the decisions made.