2015 (2) TMI 732 - HC - Income Tax

Revision u/s 263 - AO erred in allowing the expenditure incurred as miscellaneous expenses for creation of brand Nirvana as revenue expenditure - tribunal quashed revision order u/s 263 - Held that - Tribunal does record the fact that specific queries were made during the Assessment proceedings with regard to details of expenditure claimed under the head miscellaneous expenses aggregating to ₹ 2.94 crores. The respondent-assessee had responded to the same and on consideration of response of the respondent-assessee, the Assessing Officer held that of an amount of ₹ 17.98 lakhs incurred on account of repairs and maintenance out of ₹ 2.94 cores is capital expenditure. This itself would be indication of application of mind by the Assessing Officer while passing the impugned order. The fact that the assessment order itself does not contain any discussion with regard to the balance amount of expenditure of ₹ 1.76 crores i.e. ₹ 2.94 crores less ₹ 17.98 lakhs claimed as revenue expenditure would not by itself indicate non application of mind to this issue by the Assessing Officer in view of specific queries made during the assessment proceedings and the Respondent-assessee's response to it. In fact this Court in the case of Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors., 2008 (2) TMI 146 - BOMBAY HIGH COURT has held that if a query is raised during assessment proceedings and responded to by the Assessee, the mere fact that it is not dealt with in the Assessment Order would not lead to a conclusion that no mind had been applied to it. Also from the nature of expenditure as explained by the petitioner the view that the same were in the realm of revenue expenditure, is a possible view. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to order under Section 263 of the Income Tax Act, 1961 regarding expenditure incurred for creating an intangible asset.
2. Disallowance of capital expenditure by the Assessing Officer.
3. Revision of assessment order by the Commissioner of Income Tax.
4. Tribunal's decision on the nature of expenditure for brand building exercise.
5. Application of mind by the Assessing Officer during assessment proceedings.
6. Interpretation of expenditure as revenue or capital nature.

Analysis:

1. The appeal challenged the Tribunal's order under Section 263 of the Income Tax Act, 1961, regarding the expenditure of Rs. 2.94 crores incurred to create the brand "Nirvana" as an intangible asset for Assessment Year 2006-07. The Revenue contended that the expenditure was capital in nature, while the respondent argued it was revenue in nature, including advertisement expenses, training fees, legal fees, etc.

2. The Assessing Officer disallowed Rs. 17.98 lakhs out of the total expenditure of Rs. 2.94 crores as capital expenditure during the assessment proceedings. The Commissioner of Income Tax sought to revise the assessment order, considering the entire expenditure as capital. The respondent's submissions were rejected, leading to the appeal before the Tribunal.

3. The Tribunal, based on the details submitted during assessment proceedings, found that a major portion of the expenditure was not capital in nature, and only disallowed the sum of Rs. 17.98 lakhs as capital expenditure. Citing the judgment in "CIT Vs. Max India Ltd.," the Tribunal held that if the Assessing Officer's view is a possible one after examining details, the order cannot be considered erroneous.

4. The Revenue's grievance was that the Assessment Order did not reflect due consideration of the respondent's claim regarding the nature of the expenditure. However, the Tribunal's order indicated that specific queries were raised during assessment, and the Assessing Officer had applied his mind by disallowing a portion as capital expenditure.

5. The High Court found that the Assessing Officer had considered the expenditure during assessment proceedings, even though the assessment order did not discuss the entire expenditure. Referring to a previous case, the Court held that if queries were raised and responded to by the Assessee, it did not imply a lack of consideration.

6. Considering the nature of expenditure explained by the respondent during assessment, the Court found that viewing it as revenue expenditure was a possible interpretation. Therefore, the Court upheld the Tribunal's decision, following the Supreme Court's ruling in the case of Max India Ltd., and dismissed the appeal, stating no substantial question of law arose for consideration.