2023 (8) TMI 152 - AT - Income Tax

Nature of expenses - video shooting expenses claimed by the assessee as revenue expenditure in the computation of income but capitalized into the books of accounts and shown in the balance sheet - HELD THAT - We find that the assessee has incurred the video shooting expenditure of various tourist locations for the business purposes. Undoubtedly, the assessee has capitalized the same in its books of account following the AS-26 on intangible assets. DRP following the decision of PROCTOR GAMBLE HOME PRODUCTS LTD. 2015 (3) TMI 272 - BOMBAY HIGH COURT held that the expenditure is allowable to the assessee. This shows that in the books of account the expenditure have been wrongly capitalized by the assessee. Though we fully agree with the learned assessing officer that the guiding principles classifying the expenditure as revenue on as a capital expenditure cannot be different for the books of account of the assessee and to claim as deduction in the income tax return. The video shooting expenditure does not give any enduring benefit to the assessee. Therefore, the above expenditure may be wrongly capitalized in the books of account. However for the income tax purposes, the learned dispute resolution panel after considering the facts of the case held that the same is revenue expenditure. The learned departmental representative could not show that how the video shooting expenditure with respect to the two central business of the assessee can be considered as capital expenditure - Decided against revenue. Expenditure incurred on issue of non-convertible debenture - HELD THAT - DRP has categorically held that expenditures incurred on issue of non-convertible debentures are similar to the expenditure incurred as interest on non-convertible debentures. DRP has further restricted disallowances of such expenditure to the extent of proportionate amount invested in fixed assets which have not been put to use during the year. AO could not show any infirmity in the order of DRP. Further, apparently the accounting treatment given by the assessee by reducing share premium account by expenditure incurred for issue of non-convertible debenture is incorrect. Accordingly, we dismiss ground of the appeal of AO.

Summary

Issues Involved:
1. Dispute regarding video shooting expenses claimed as revenue expenditure but capitalized in books.
2. Dispute over expenditure on issue of nonconvertible debentures.

Video Shooting Expenses Dispute:
The appeal concerns the treatment of video shooting expenses totaling &8377;3,33,41,372/- by the assessee. The expenses were claimed as revenue expenditure but capitalized in the books of accounts. The Assessing Officer initially added the amount in the draft assessment order, later directed to delete the addition by the Dispute Resolution Panel. The Panel cited precedents supporting the assessee's position, emphasizing the expenses were for advertisement films for the business. The Tribunal upheld the Panel's decision, stating the expenditure did not provide enduring benefit and should be treated as revenue expenditure for tax purposes.

Nonconvertible Debentures Expenditure Dispute:
The second issue pertains to the expenditure incurred on issuing nonconvertible debentures (NCDs). The Assessing Officer disallowed &8377;4,09,94,700/- debited to the share premium account by the assessee. The Panel found that part of the debenture proceeds was used for fixed assets, directing a proportionate capitalization of the expenditure. The Tribunal agreed with the Panel, noting that the nature of the expenditure was akin to interest on NCDs and restricted the disallowance to the extent invested in unused fixed assets. The Tribunal dismissed the Assessing Officer's appeal, affirming the Panel's decision on the treatment of NCD expenditure.