2018 (12) TMI 755 - AT - Income Tax

Disallowance of business expenditure on publicity - nexus with business - Held that - The expenses were incurred during the period January 2007 to March 2007 towards the promotion of Times of India Kannad Edition launched in 2007 and the expenses were accounted for in the month of March 2007. A.O. in the remand report did not doubt the genuineness of the expenses incurred by the assessee. Further the authorities below found that it is capital in nature because it provides enduring benefit to the assessee. This question is answered in the case of CIT vs. Berger Paints (India) Ltd. 2002 (2) TMI 97 - CALCUTTA HIGH COURT in favour of the assessee. Considering the nature of business of assessee and that expenses in question were incurred for earning business income therefore it was not capital in nature and would not provide any enduring benefit to the assessee. The assessee submitted before A.O. that income on this account has been accounted for during the year itself. The submissions of assessee has not been disputed by the authorities below. Therefore on the same Head when income is offered for taxation and expenses are incurred to earn the income therefore such expenses were clearly revenue in nature. The authorities below have failed to point-out as to which capital have been generated out of incurring these expenses. - Decided in favour of assessee.

Summary

Issues:
Disallowance of business expenditure on publicity

Analysis:
The appeal was against the disallowance of business expenditure on publicity amounting to ?13,37,691 for the assessment year 2007-2008. The Assessing Officer (A.O.) disallowed the expenses incurred on publicity of Times of India, Kannada edition, stating that the expenses were of capital nature and not incurred wholly and exclusively for the business purpose. The A.O. noted that the expenses were related to the promotion and publicity of Times of India Kannad Edition, which was launched in January 2007. The A.O. held that the expenses were capital in nature as they were incurred to establish and launch a new edition of the newspaper, providing enduring benefit to the assessee. Consequently, an amount of ?13,37,691 was disallowed by the A.O.

Before the Ld. CIT(A), the assessee contended that promoting Bennett Coalman & Co. Ltd.'s publications was an inherent part of the business and that the expenses did not constitute capital expenditure. The assessee submitted additional evidence, including a letter from the company, to support its claim. However, the A.O. opposed the request, stating that the expenses were capital in nature as they were incurred before launching a new product. The Ld. CIT(A) confirmed the addition, holding that the expenses were capital in nature and provided enduring benefit to the assessee, not being wholly and exclusively for business purposes.

The learned counsel for the assessee argued that the expenses were part of business expenditure and no capital asset was created from them. Citing a decision of the Hon'ble Calcutta High Court, the counsel contended that advertisement expenses are typically revenue expenditure and not capital in nature. The counsel urged for the deletion of the addition based on the court's decision.

After considering the submissions and material on record, the ITAT Delhi set aside the orders of the authorities below and deleted the addition. The tribunal found that the expenses were revenue in nature, as they were incurred to earn business income and not to create enduring capital assets. The tribunal emphasized that when income is offered for taxation and expenses are incurred to earn that income, such expenses are revenue in nature. The tribunal concluded that the authorities below were not justified in sustaining the addition, and hence, allowed the appeal of the assessee.

In conclusion, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and deleting the disallowance of the business expenditure on publicity.