2016 (12) TMI 178 - AT - Income Tax

Disallowance under section 14A r.w. Rule 8D - Held that - In view of the fact that the learned CIT(A) has not addressed the assessee s claim made before him that the disallowance under section 14A r.w. rule 8D ought to be not more than ₹ 9,46,325/-, after having noted the assessee s averments in this regard we are of the view that it would not be appropriate for us to adjudicate on the merits of the disallowance under section 14A w.r. rule 8D in the impugned order at this stage, without having the assessee s claim addressed by the learned CIT(A)/AO. In this factual matrix of the case we are of the opinion that the best interest of justice would be served if the issue of the disallowance under section 14A r.w. rule 8D be set aside to the file of the learned CIT(A) to be reconsidered afresh and also in the light of the unaddressed claim of the assessee that the same should be restricted to ₹ 9,46,325/-. Needless to add that the assessee be afforded adequate opportunity of being heard and to file details/submissions in this regard and also to the AO for rebuttal of the same. - Decided in favour of assessee for statistical purposes. Expenditure on Advertisement Film - Held that - In today s world where business processes and products change rapidly, it cannot be said that any advertisement expenditure incurred by the assessee will be long lasting as most advertisement films have a short life. Most leading brands in different business keep on changing their advertisements from time to time based on the popularity of their brand ambassadors. In this factual matrix of the case on hand as discussed ,and respectfully following the decision of the Hon ble Bombay High Court in the case of Geoffrey Manners & Co. Ltd. (2009 (2) TMI 13 - BOMBAY HIGH COURT ) which applies squarely to the facts of the assessee in the case on hand, we uphold the order of the learned CIT(A) in holding that the said expenditure incurred by the assessee on making of short commercial advertisement film to be revenue in nature - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Treatment of expenditure on advertisement films.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The Revenue challenged the CIT(A)'s deletion of the disallowance of ?1,05,54,142/- made by the AO under Section 14A r.w. Rule 8D, arguing that the CIT(A) failed to correctly interpret these provisions. The AO had originally computed a disallowance of ?1,99,65,779/- but the CIT(A) reduced it to the amount disallowed by the assessee itself, ?1,05,54,142/-. The assessee contended that the disallowance should be limited to ?9,46,325/- and that the CIT(A) did not provide reasoning for rejecting this claim.

The Tribunal noted that the CIT(A) did not address the assessee's claim regarding the restriction of disallowance to ?9,46,325/-. The Tribunal referenced the Bombay High Court decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which emphasized that actual expenditure must be incurred for earning exempt income for disallowance under Section 14A. The Supreme Court's decision in CIT vs. Walfort Share & Stock Brokers (P.) Ltd. was also cited, which clarified that only expenditure related to exempt income should be disallowed.

The Tribunal concluded that the CIT(A) should reconsider the disallowance under Section 14A r.w. Rule 8D, specifically addressing the assessee's claim of restricting it to ?9,46,325/-. The issue was remanded to the CIT(A) for fresh consideration, and both the Revenue's and assessee's appeals on this ground were allowed for statistical purposes.

2. Treatment of Expenditure on Advertisement Films:

The Revenue contended that the expenditure on advertisement films should be treated as capital in nature, granting the assessee enduring benefits. The AO had disallowed the expense, treating it as a capital asset and allowing depreciation. The CIT(A) reversed this, treating the expenditure as revenue in nature, following the Bombay High Court's decision in CIT vs. Geoffrey Manners & Co. Ltd.

The Tribunal upheld the CIT(A)'s decision, noting that the expenditure was for ongoing business and did not result in a capital asset or enduring benefit. The Tribunal referenced the Bombay High Court's distinction in Geoffrey Manners & Co. Ltd. from Patel International Film Ltd., emphasizing that advertisement expenses for ongoing business are revenue in nature. The Tribunal also noted the transient nature of advertisement films in today's business environment.

Consequently, the Tribunal dismissed the Revenue's appeal on this ground, affirming the CIT(A)'s treatment of the advertisement film expenditure as revenue in nature.

Conclusion:

The Tribunal's judgment resulted in a partial allowance of the Revenue's appeal for statistical purposes and a full allowance of the assessee's cross-appeal for statistical purposes. The Tribunal ordered a remand to the CIT(A) for reconsideration of the Section 14A disallowance, while upholding the CIT(A)'s treatment of advertisement film expenditure as revenue in nature. The order was pronounced on 18th November 2016.