2021 (3) TMI 880 - AT - Income Tax

Disallowance of advertisement expenditure - HELD THAT - It is not in dispute that the assessee has prima-facie discharged its onus of filing on record all the documentary evidence regarding the impugned advertisement expenditure in the regular course of business. The fact also remains that the two of its payees have been found to be included in the list of shell entities thereby providing mere accommodation entries. Hon'ble apex courts landmark decisions Sumati Dayal Vs. CIT 1995 (3) TMI 3 - SUPREME COURT and CIT Vs. Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT hold that the relevant explanation in income tax proceedings has to be examined in the light of human probabilities by removing all blinkers. We adopt the very methodology herein as well and find that the assessee s recipients status as shell companies has indeed cost doubts on its advertisements claim. The fact also remains that the role of day-to-day advertisements in assessee s line of publication business cannot be altogether ruled out. This taxpayer has further filed supportive relevant details of the advertisement spots as well as photographs thereof in the paper book. It can be sufficiently presumed that this assessee has carried out some advertisements in regular course of business but it could not be proved since the recipients have been treated as accommodation entry providers. Faced with this situation, we deem it appropriate in larger interest of justice that the impugned disallowance deserves to be confirmed @40% only. More so to avoid abnormally high rate of profits in publication business. The remaining 60% of the impugned disallowance thereof stands deleted. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of advertisement expenditure.
2. Legitimacy of the vendors as shell companies.
3. Assessment of total income against the returned loss.
4. Interest charge under section 234A & 234B of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Advertisement Expenditure:
The assessee challenged the disallowance of ?1,11,70,500/- claimed as advertisement expenditure. The Assessing Officer (AO) observed discrepancies in the invoices submitted by the assessee, including different addresses and invoice numbers for the same vendors, M/s Funidea Housing Pvt. Ltd. and M/s Overtop Conclave Pvt. Ltd. Notices issued to these companies were returned unserved, leading the AO to treat the expenditure as bogus. The CIT(A) upheld the AO's decision, noting the vendors were listed as shell companies and the assessee failed to substantiate the claim with consistent evidence.

2. Legitimacy of the Vendors as Shell Companies:
The vendors, M/s Funidea Housing Pvt. Ltd. and M/s Overtop Conclave Pvt. Ltd., were found in the list of shell companies. The assessee argued that it had no control over the vendors' subsequent activities and had genuinely incurred the expenditure for advertisements. Despite submitting confirmation letters, TDS certificates, and financial statements of the vendors, the CIT(A) dismissed the submissions due to inconsistencies in the addresses and the vendors' inclusion in the shell companies list.

3. Assessment of Total Income Against the Returned Loss:
The assessee denied liability to be assessed on a total income of ?86,07,706/- against the returned loss of ?24,62,794/-. The AO's disallowance of the advertisement expenditure significantly impacted the assessed income. The Tribunal noted that while the assessee provided substantial evidence of the advertisement activities, the vendors' status as shell companies cast doubts on the genuineness of the expenditure. Consequently, the Tribunal partially allowed the appeal, confirming 40% of the disallowance and deleting the remaining 60%.

4. Interest Charge Under Section 234A & 234B of the Income Tax Act:
The assessee contested the interest charged under sections 234A and 234B. The Tribunal's decision to partially allow the appeal, reducing the disallowed expenditure, would affect the computation of interest. The necessary adjustments would follow as per the law.

Conclusion:
The Tribunal acknowledged the assessee’s evidence of advertisement activities but balanced it against the vendors' dubious status. It confirmed 40% of the disallowed expenditure to avoid an abnormally high profit rate in the publication business, deleting the remaining 60%. The decision emphasized the importance of examining explanations in light of human probabilities, as guided by the apex court's rulings. The appeal was partly allowed, and necessary computations were to follow as per the law.