2020 (4) TMI 826 - HC - Income Tax

Deferred Revenue expenditure disallowance - deferred revenue expenditure on account of advertisement publicity holding conferences market research subsidy various launch schemes selling and distribution etc.- AO held that the expenses were incurred for the accounting year below the line in the books of account but the assessee had claimed in full for computing the total income as revenue expenditure incurred during the year - HELD THAT -In the present case the expenditure on advertisement and sales promotion has been claimed for deduction as revenue expenditure. The advertisement and sales promotion is the necessity of the business and thus an integral part of the business activity. Therefore the expenses incurred on advertisement etc. are not for acquisition of an asset or right of a permanent character therefore cannot be said to be a capital expenditure. It is but a revenue expenditure. Whether the expenses on account of advertisement publicity and sales promotion in relation to the business are in the nature of deferred revenue expenditure and although the benefit of such expenses would be availed by the assessee over a number of years but should it be allowed for the relevant assessment year for which assessee claims exemption also came up for consideration before a Division Bench of Punjab and Haryana High Court in Commissioner of Income Tax vs. M/s Glen Appliances Pvt. Ltd.D. 2011 (5) TMI 1108 - PUNJAB AND HARYANA HIGH COURT accepting the plea of the assessee had held that the expenses incurred by the assessee on the aforesaid activities were revenue in nature and the entire amount was admissible in the year in which it was incurred. - Decided in favour of the assessee.

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in deleting the addition of deferred Revenue expenditure?

Analysis:
1. The appeals involved identical substantial questions of law and were disposed of by a common order.
2. The appeals arose from orders passed by the Income Tax Appellate Tribunal in relation to assessment years 2001-02 and 2002-03.
3. The primary issue for determination was whether the Tribunal was correct in deleting the addition of ?5,32,75,978 made by the Assessing Officer on account of deferred Revenue expenditure.
4. The assessee, a Company engaged in manufacturing and trading, claimed a deduction of ?6,65,94,973 as deferred revenue expenditure for various business activities.
5. The Assessing Officer treated the expenditure as capital in nature, adding back a portion to the assessee's income for the relevant assessment year.
6. The Commissioner of Income (Appeals) partly allowed the appeal, deleting the remaining amount added by the Assessing Officer.
7. The Tribunal affirmed the decision of the CIT(A) and dismissed the Revenue's appeal.
8. The Tribunal found that similar deductions had been allowed to the assessee in earlier years, which had been accepted by the Department, and concluded that the expenditure was revenue in nature and should be allowed in the year it was incurred.
9. The Tribunal distinguished a Supreme Court judgment on debenture discounts, stating that the advertisement expenses were necessary for business and not capital in nature.
10. A similar issue was considered by the Punjab and Haryana High Court in a different case, where the Tribunal's decision in favor of the assessee was upheld.
11. The Court found no merit in the Revenue's appeals, as the Tribunal's findings were reasoned and no illegality was pointed out by the Revenue's counsel.
12. Ultimately, the Court dismissed the appeals, ruling in favor of the assessee and upholding the Tribunal's decision to delete the deferred revenue expenditure addition.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the reasoning behind the decision reached by the High Court.

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