2016 (7) TMI 161 - AT - Income Tax

Disallowance on account of prior period expenses - CIT(A) deleted the disallowance - Held that - Bills were dated 1.4.2009 and the expenses were made in the Month of January & February, 2009. Assessee pleaded that since the assessee has received these bills during FY 2009-10 and made the payment subsequently and the AO has also not doubted the genuineness of expenses, therefore, these expenses are allowable. After going through the facts and circumstances of the present case and the orders passed by the revenue authorities alongwith the judgment of the Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd. (1971 (8) TMI 10 - SUPREME Court ), we are of the considered view that the assessee has received the Bills during the relevant assessment year and making the payment subsequently - Decided in favour of Assessee. Addition being legal and professional charges - Held that - CIT(A) has rightly held that the commission paid could not be treated as capital expenditure, hence, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on this issue - Decided against revenue. Addition by treating the expenditure as capital expenditure - advertisement and promotion expenses - Held that - The assessee was the original holder of publishing rights of the blender magazine. As per the JV agreement with Dennis Publishing, the assessee was supposed to develop and promote the Blender magazine and transfer it to the JV company subsequently. In view of the above, Ld. CIT(A) has rightly held that the assessee spent on advertisement and promotion and transferred the publishing right to the JV company for a sale consideration of ₹ 2.30 crore. In P&L A/c ₹ 2.30 crore was shown below the line which is taken as the profit on sale of fixed asset in the computation of income ( COI ). Similarly, gain on sale of such rights was offered in the computation income as short term capital gain. In view of the above, it was rightly held by the Ld. CIT(A) that disallowance of expenditure ignoring the income from selling of publishing right is not justifiable and addition was rightly deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of prior period expenses
2. Treatment of legal and professional charges as capital expenditure
3. Disallowance of expenditure as capital expenditure

Analysis:

Issue 1: Disallowance of Prior Period Expenses
The Revenue appealed against the deletion of the disallowance of &8377; 17,66,407/- by the Ld. CIT (A) regarding prior period expenses. The AO disallowed these expenses on the grounds that they were not related to the assessment year under consideration. However, the Ld. CIT (A) deleted the addition based on the argument that the bills were received during the relevant assessment year, and the payment was made subsequently. The Tribunal upheld the Ld. CIT (A)'s decision, citing the decision of the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd. vs. CIT (1971) 82 ITR 363 (SC) to support the allowability of the expenses.

Issue 2: Treatment of Legal and Professional Charges as Capital Expenditure
The second issue pertained to the treatment of &8377; 1,10,300/- paid as legal and professional charges to M/s Consort Capital Pvt. Ltd. as capital expenditure. The AO considered this payment as capital expenditure, but the Ld. CIT (A) held that it was a commission payment and not capital in nature. The Tribunal agreed with the Ld. CIT (A) and upheld the decision that the payment could not be treated as capital expenditure.

Issue 3: Disallowance of Expenditure as Capital Expenditure
The final issue involved the disallowance of &8377; 2,16,78,914/- as capital expenditure incurred on advertisement and publicity expenses related to the promotion of a magazine. The AO disallowed this amount as capital expenditure, considering it an investment in a joint venture company. However, the Ld. CIT (A) found that the actual expenditure incurred was lower than the amount disallowed and that the assessee had transferred publishing rights to the joint venture company for a significant sum. The Tribunal agreed with the Ld. CIT (A) that the disallowance was not justified, as the expenditure was offset by the income from selling the publishing rights. Therefore, the addition was deleted, and the Tribunal upheld the decision in favor of the assessee.

In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the decisions of the Ld. CIT (A) on all three issues.