2016 (9) TMI 211 - AT - Income Tax

Revision iu/s 263 - allowance of advertisement and publicity expenditure - Held that - As decided in CIT V Vodaphone Essar South Limited CIT Could not chose to follow route of section 263 of the act to treat an expenditure as capital expenditure when ld AO has allowed these expenditure as revenue expenditure after due inquiry. Further, the assessee has stated that expenditure on publicity and advertisement is to be treated as revenue in nature and is allowable fully in the year in which it is incurred. The above proposition is also supported by several judicial pronouncements. Therefore, the view taken by the Assessing Officer in allowing this expenditure cannot be said unsustainable in law. In view of the above facts and also the decision of Honourable jurisdictional high court, we hold that order of the ld AO is not erroneous on this count. Therefore, when there is no element of un-sustainability in the order of the ld Assessing Officer in allowing the deduction of advertisement and sales promotion expenditure, we are of the view that ld CIT is no justified in invoking jurisdiction u/s 263 of the Act on this count. CSR expenditure - Held that - CSR activities of the assessee cannot be held to be disallowable. It was not shown before us that the view taken by the Assessing Officer is erroneous in allowing these expenditures. In view of above discussion it is apparent that the order of ld AO is not unsustainable in law, there are judicial precedents where in such claim is allowable in case of assessee, Therefore, and on this count the jurisdiction invoked by ld CIT u/s 263 of the Act is not sustainable. CIT may not agree with the view taken by the ld AO. Anyway, this does not make the order passed by the ld Assessing Officer unsustainable in law as on the issue of deductibility of advertisement and sales promotion expenditure, nothing was brought on record to show that any enduring benefit has resulted in favour of the assessee which makes it capital expenditure and further no contrary decision was pointed out which suggests that CSR expenditure are not deductible u/s 371(1) for the respective assessment year. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Allowability of advertisement and publicity expenses.
3. Allowability of corporate social responsibility (CSR) expenses.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The primary contention was whether the Commissioner of Income Tax (CIT) erred in initiating revisionary proceedings under Section 263 based solely on audit objections without independent application of mind. The assessee argued that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue, and that the issues had already been examined by the Assessing Officer (AO) during the original assessment proceedings.

Analysis:
The Tribunal noted that the CIT initiated proceedings under Section 263 on two main grounds: the allowability of advertisement and publicity expenses and the allowability of CSR expenses. The Tribunal examined whether the AO had conducted proper inquiries and whether the CIT's assumption of jurisdiction under Section 263 was justified. It was observed that the AO had indeed made inquiries and had allowed the expenses based on the details provided by the assessee. The Tribunal concluded that the CIT could not invoke Section 263 merely to direct the AO to conduct inquiries in a particular manner, especially when the AO had already made a plausible decision based on the inquiries conducted.

2. Allowability of Advertisement and Publicity Expenses:
The CIT argued that the advertisement and publicity expenses incurred by the assessee provided enduring benefits and should have been treated as deferred revenue expenditure, with only 1/5th being allowed as a deduction. The CIT also contended that the AO had not conducted proper inquiries to ascertain the revenue nature of these expenses.

Analysis:
The Tribunal found that the AO had specifically asked for and received detailed break-ups of the advertisement and publicity expenses during the assessment proceedings. These expenses included costs for printing, tender expenses, publicity, public exhibitions, corporate films, etc., which were allowed as deductible expenses by the AO. The Tribunal emphasized that the expenses were purely for advertisement and publicity, and there was no evidence to suggest they provided enduring benefits. The Tribunal held that the CIT had not provided any substantial reason to classify these expenses as capital in nature. Citing relevant judicial precedents, the Tribunal concluded that the AO's decision to allow these expenses was plausible and sustainable in law, and thus, the CIT's invocation of Section 263 was unjustified.

3. Allowability of Corporate Social Responsibility (CSR) Expenses:
The CIT contended that CSR expenses were not incurred wholly and exclusively for business purposes and therefore, should not be allowed as business deductions under Section 37 of the Income Tax Act.

Analysis:
The Tribunal noted that the AO had inquired about the CSR expenses during the assessment proceedings and had allowed them based on the details provided by the assessee. The CSR expenses were incurred as per the guidelines issued by the concerned Ministry of the Government of India, given the assessee's status as a Navratna Company. The Tribunal referenced judicial precedents where similar CSR expenses were allowed as business expenditures. It was observed that the AO had made a conscious decision to allow these expenses after due inquiry, and there was no material evidence to suggest that these expenses were not allowable. The Tribunal concluded that the AO's decision was sustainable in law, and the CIT's assumption of jurisdiction under Section 263 was unwarranted.

Conclusion:
The Tribunal quashed the CIT's order passed under Section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal filed by the assessee was allowed, and the Tribunal emphasized that the CIT could not invoke Section 263 merely to direct the AO to conduct inquiries in a manner that satisfied the CIT's preferences. The Tribunal also underscored the importance of judicial precedents in determining the allowability of expenses.