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2017 (3) TMI 140 - AT - Income TaxAdvertisement and selling expenses - treatment of the expenses in the books of SCL and the Assessee cannot be different - Held that - As rightly contended by the assessee, the treatment of the expenses by SCL was not conclusive in the matter. Admittedly the sum capitalized by SCL in its books of account had been reimbursed to the assessee and to this extent the parties agreed that the expenditure created brand enhancement of brand SPENCER S of SCL. The expenditure to the extent claimed by the assessee as a deduction, was never the subject matter of treatment in the books of accounts by SCL. Moreover, the treatment of the very same expenses by one of parties to a transaction in it s books of account cannot bind the other party. The nature of expenses incurred by the Assessee was given (though it was a general description) and not disputed by the AO. The conclusion of the CIT(A) in this regard is not based on any material. Even otherwise, the question whether expenditure promoted the brand of SCL or was incurred to promote the sales of the Assessee becomes academic. The decision of the Hon ble Mumbai Bench of ITAT in the case of Brightest Circle Jewellery (P)Ltd., (2012 (10) TMI 238 - ITAT, MUMBAI ) clearly supports the plea of the assessee that the expenditure incurred by a person who is not the owner of the trade mark but which is used by an assessee had to be regarded only as a revenue expenditure. We are therefore satisfied that the claim of the assessee for deduction as revenue expenditure deserves to be accepted. - Decided in favour of assessee Disallowance under section 14A read with Rule 8D - Held that - As the assessee had not earned or received any dividend income during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act. Accordingly the addition made u/s 14A of the Act is directed to be deleted. See Commissioner of Income Tax Versus M/s. REI. Agro Ltd. 2014 (4) TMI 713 - CALCUTTA HIGH COURT - Decided in favour of assessee
Issues Involved:
1. Disallowance of advertisement and selling expenses as capital expenditure. 2. Disallowance under section 14A read with Rule 8D for expenses incurred in earning exempt income. Detailed Analysis: 1. Disallowance of Advertisement and Selling Expenses as Capital Expenditure: The primary issue in this appeal is whether the advertisement and selling expenses incurred by the assessee should be treated as capital expenditure or revenue expenditure. The assessee, engaged in retail trading, entered into an agreement with Spencer and Company Ltd. (SCL) to use the "SPENCER'S" brand name. The agreement stipulated that the assessee would spend significantly on advertising to popularize the brand, with SCL agreeing to share these expenses over five years. The assessee incurred a total expenditure of ?32,11,12,444 under "Advertisement and publicity," of which ?29,42,50,444 was reimbursed by SCL. The remaining ?2,68,62,000 was claimed as a deduction by the assessee. The Assessing Officer (AO) disallowed this deduction, treating the expenditure as capital in nature, arguing that SCL had capitalized similar expenses in its books. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, stating that the entire expenditure was for popularizing the "SPENCER'S" brand owned by SCL and no evidence was provided to prove that the expenses were for the assessee's own brand. The assessee contended that the expenses were for promoting its own sales and not for creating brand value for SCL. The Tribunal found that the AO's approach was flawed as the treatment of expenses by SCL was not conclusive. The Tribunal noted that the AO did not dispute the assessee's claim that the expenses directly benefited its sales. The Tribunal also referenced judicial precedents supporting the view that advertisement expenses to maintain corporate image and increase sales are revenue expenditures. Additionally, the Tribunal highlighted the rule of consistency, noting that similar expenses were allowed as deductions in other assessment years. The Tribunal concluded that the expenses incurred by the assessee were for promoting its sales and not for creating brand value for SCL. Therefore, the Tribunal directed that the deduction claimed by the assessee should be allowed as revenue expenditure. 2. Disallowance Under Section 14A Read with Rule 8D for Expenses Incurred in Earning Exempt Income: The second issue pertains to the disallowance of ?4,53,251 under section 14A read with Rule 8D for expenses incurred in earning exempt income. The assessee argued that there was no exempt income during the previous year, and hence, no disallowance should be made under section 14A. The CIT(A) rejected this claim, relying on the Special Bench decision in Cheminvest Ltd. vs CIT, which allowed disallowance even in years with no exempt income. The Tribunal noted that the Special Bench decision was reversed by the Delhi High Court, which held that disallowance under section 14A cannot be made if no exempt income is earned. The Tribunal also referenced the Kolkata Tribunal's decision in REI Agro Ltd. vs DCIT, affirmed by the Calcutta High Court, which held that only investments yielding dividend during the previous year should be considered for disallowance under Rule 8D. Given the factual position that the assessee had not earned any exempt income during the previous year, the Tribunal directed that no disallowance should be made under section 14A, and the addition was deleted. Conclusion: The appeal by the assessee was allowed, with the Tribunal directing that the advertisement and selling expenses be treated as revenue expenditure and deleting the disallowance under section 14A. The order was pronounced on 01.03.2017.
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