2023 (3) TMI 599 - AT - Income Tax

Business expenditure u/s 37 - Allowability of advertisements, sales and marketing expenses - CIT-A allowed deduction - HELD THAT - Hon ble Gujarat High Court in the case of Smt. Virmati Ramkrishna 1976 (2) TMI 4 - GUJARAT HIGH COURT held that the said expenses was allowable as business expenditure as per the provision of section 37 of the Act in which case also the A.O. has not questioned the genuinity of the expenses. The Hon ble Tribunal has stated that earning of income is not a criteria for allowability of the business expenditure when the said expenditure was incurred wholly in the course of business activity. The co-ordinate bench has also laid its hands on the proposition laid down by the Hon ble Gujarat High Court in allowing the business expenditure and the criteria for the eligibility of claiming of the expenditure which are expended for the purpose of business. As this issue has been already dealt with by the co-ordinate bench for A.Y. 2016-17 2022 (8) TMI 1355 - ITAT MUMBAI we do not find any justification in deciding otherwise. Charging of 35% of the total receipts from on-money on the basis of the order of the Hon ble Settlement Commission passed u/s. 245D(4) - An assessee s case for A.Y. 2016-17, on similar facts the Tribunal has held the addition on on-money to be restricted to the extent of 35% of the total on-money by stating that the order of the Hon ble Settlement Commission is appealed before the Hon'ble High Court, does not bar the ld. CIT(A) from adhering to the said order. Tribunal also held that unless any of the order passed by the Revenue authority is stayed, it does not prevent the lower authorities to rely on the said decision. By holding so, the Tribunal has restricted the addition to 35% of the total on-money. As in this appeal also, the facts are identical to that of A.Y. 2016-17, we find no justification in interfering with the decision of the tribunal in the previous year. From the above observation, we find no infirmity in the order of the ld. CIT(A). Hence, the ground nos.3, 4 5 raised by the Revenue are dismissed.

Summary

Issues:
- Appeal challenging the order of the Commissioner of Income Tax (Appeals) on advertisements, sales, and marketing expenses.
- Delay in filing the appeal and its condonation.
- Disallowance of expenses due to lack of revenue.
- Treatment of expenses as sales expenses.
- Disallowance of on-money receipts.
- Application of the Hon'ble Settlement Commission's order on on-money.

Analysis:

1. Delay in Filing Appeal:
The Revenue's appeal was challenged due to being two days late. The delay was condoned, citing "sufficient cause" based on a precedent where the limitation period was extended.

2. Disallowance of Expenses:
The Revenue contested the disallowance of advertisements, sales, and marketing expenses, arguing that the assessee had not earned revenue during the relevant year. However, the assessee justified the expenses as necessary for business promotion. The Commissioner (Appeals) allowed the expenses, relying on legal precedents and directing the Assessing Officer not to capitalize them as work in progress.

3. Treatment of Expenses as Sales Expenses:
The Tribunal upheld the Commissioner's decision, emphasizing that the expenses were legitimate business expenditures under Section 37 of the Income Tax Act. The Tribunal highlighted that income generation is not a prerequisite for expense allowability if incurred in the course of business activities.

4. Disallowance of On-Money Receipts:
Regarding the addition on on-money receipts, the Tribunal referred to the Hon'ble Settlement Commission's order, restricting the addition to 35% of the total amount based on similar cases. The Tribunal reasoned that the Commissioner's adherence to the Settlement Commission's order was justified, especially since the order was not stayed.

5. Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision on both the expenses and on-money receipts. The judgment highlighted consistency with previous decisions and legal precedents, ultimately upholding the allowance of expenses and the restriction on on-money additions.