2017 (12) TMI 181 - AT - Income Tax

Disallowance in respect of advertisement and publicity expenses - nature of expenditure - revenue or capital - Held that - In the facts of the present case, it is evident that the AO has not demonstrated with cogent evidence, any special circumstances or reasons to hold that the impugned expenditure was capital in nature. It is also note-worthy that no specific instances have been pointed out by the AO in this regard. Ld. Sr. DR, while arguing on behalf of the department, also could not cite any judicial precedents in favour of the Revenue which were in opposition to the judgments relied upon by the Ld. CIT (A). In the given circumstances, we are of the considered opinion that the findings of the Ld. CIT(A) on this issue do not call for any interference on our part and we deem it appropriate to dismiss ground No. 1 of the departmental appeal. Disallowance u/s 14A - Held that - Department could not negate the findings of the Ld. CIT (A) that the assessee did not have any exempt income during the year under consideration. Therefore, we find that the Ld. CIT (A) has rightly applied the ratio of the judgment of the Hon ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT and we find no reason to interfere on this issue also - Decided in favour of assessee.

Summary

Issues: Appeal against the order allowing the assessee's appeal in entirety for assessment year 2011-12, challenging the deletion of disallowances u/s 37 and u/s 14A of the Income Tax Act, 1961.

Analysis:

Issue 1 - Disallowance u/s 37 of the Act:
The AO disallowed a portion of advertisement and publicity expenses, treating it as deferred revenue expenditure. The Ld. CIT(A) deleted this disallowance. The department argued that the brand promotion expenses warranted the disallowance. However, the tribunal found no evidence supporting this claim. The tribunal cited judgments emphasizing that advertisement expenses are typically revenue in nature unless proven otherwise. As the AO failed to demonstrate special circumstances justifying capital treatment, and no contrary precedents were presented, the tribunal upheld the Ld. CIT(A)'s decision, dismissing the department's appeal.

Issue 2 - Disallowance u/s 14A of the Act:
The AO disallowed expenses under u/s 14A, assuming exempt income, but the Ld. CIT(A) found no exempt income during the year. The tribunal referenced a judgment supporting the deletion of disallowance u/s 14A in similar circumstances. Since the department couldn't refute the absence of exempt income, the tribunal upheld the Ld. CIT(A)'s decision, relying on the precedent. Consequently, the tribunal dismissed the department's appeal, affirming the Ld. CIT(A)'s rulings.

In conclusion, the tribunal upheld the Ld. CIT(A)'s decisions to delete the disallowances u/s 37 and u/s 14A, dismissing the department's appeal in its entirety.