2017 (11) TMI 1284 - AT - Income Tax

Addition being 2/3rd of the expenditure incurred by the assessee towards advertisement in media/magazine - Held that - The facts are not in dispute that the assessee has incurred this expenditure mainly on brand promotion during the year including advertising in Media/ Magazine. It is also not disputed by Revenue. Now before us, that this expenditure is not a corporate advertising films, is in respect of ongoing business. Once, this is for the business and expenditure incurred on brand advertisement, the same is to be allowed as Revenue in nature. Respectively, following Hon ble Bombay High Court in the case of Asian Paints India Limited (2016 (11) TMI 258 - BOMBAY HIGH COURT) we confirm the order of CIT(A) allowing the claim of the assessee and dismiss this issue of Revenue s appeal. Revenue s appeal is dismissed. Disallowance of expenses relatable to exempt income invoking the provisions of section 14A read with rule 8D - Held that - AO despite the fact that all the books of accounts were produced before him, he could not point out any nexus with the exempt income and that of the expenditure relatable to this exempt income. Even the Hon ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. (2017 (5) TMI 403 - SUPREME COURT OF INDIA ), has clearly laid down the principle that the satisfaction of the AO must be there for making disallowance under section 14A of the Act read with Rule 8D of the Rules. In the present case, the satisfaction is missing in all the years. Accordingly, we allow the appeals of the assessee on this issue except suo moto disallowance of a sum of ₹ 3,81,528/-in AY 2008-09 be enhanced to as sum of ₹ 6,48,945/- as it has revised the disallowance. The AO will recompute the income accordingly in all these years.

Summary

Issues Involved:
1. Disallowance of advertisement expenditure.
2. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance of Advertisement Expenditure:

The Revenue appealed against the CIT(A)'s decision to delete the disallowance of ?40,65,668/- incurred by the assessee towards advertisement in media/magazine, arguing that the benefit to the assessee is of an enduring nature over a long period. The assessee had debited ?68,23,934/- in its P&L Account for advertisement expenses, with significant payments to NDTV Ltd. and Mudra Communication Ltd. The AO allowed only 1/3rd of the expenses, disallowing the remaining ?40,65,668/-, claiming it was not revenue in nature.

The CIT(A) deleted the disallowance, stating that the expenses were recurring and did not provide an enduring benefit, following the rule of consistency from previous and subsequent years where no disallowance was made. The Tribunal upheld this view, noting that the expenses were for ongoing business activities and were revenue in nature, referencing the Bombay High Court's decision in CIT vs. Asian Paints India Limited, which held that corporate advertisement expenses facilitating business and increasing sales are revenue expenses. Consequently, the Tribunal dismissed the Revenue's appeal.

2. Disallowance of Expenses Related to Exempt Income:

The assessee's appeals concerned the disallowance of expenses related to exempt income under Section 14A read with Rule 8D. The AO applied Rule 8D to disallow various amounts for different assessment years, which the CIT(A) confirmed. The assessee argued that the AO did not record any satisfaction regarding the disallowance, as required by law.

The Tribunal noted that the AO had not provided reasons for dissatisfaction with the assessee's claim, referencing the Supreme Court's decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which mandates that the AO must record satisfaction before applying Rule 8D. The Tribunal found that the AO failed to establish a nexus between the expenditure and exempt income. Consequently, the Tribunal allowed the assessee's appeals, except for the suo moto disallowance revised by the assessee for AY 2008-09.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding the disallowance of advertisement expenditure, confirming it as revenue in nature. It allowed the assessee's appeals on the disallowance of expenses related to exempt income, except for the revised suo moto disallowance for AY 2008-09. The order was pronounced in the open court on 16-11-2017.