2021 (9) TMI 810 - AT - Income Tax

Allowability of marketing expenses as revenue expenditure - HELD THAT - Similar view has been taken in the case of Hitz FM Radio India Ltd. 2015 (9) TMI 898 - ITAT DELHI wherein it has been held that there is no Law under the Act to say that revenue expenditure is deferred revenue expenditure. It has been held that when A.O. had himself admitted that expenditure in question was a revenue expenditure, he should have allowed the entire claim of assessee in assessment year in question itself - CIT(A) was not justified in disallowing the marketing expenses as revenue expenditure in the year under consideration - Grounds of Appeal Number.1 of the assessee is allowed. Adhoc disallowance on account of vehicle running and maintenance expenses, depreciation on motorcar and adhoc disallowance on account of telephone and interest expenses - HELD THAT - As total amount A.O. disallowed 10% of the same which the Ld. CIT(A) has restricted - It is the submission Assessee that disallowance of such item of 5% of the expenses is on the higher side - disallowance of ₹ 25,000/- lump sum on estimate basis out of these expenses will meet the ends of justice - as hold and direct accordingly. Grounds of Appeal by the assessee are accordingly partly allowed.

Issues Involved:
1. Allowability of marketing expenses of ?35 lakhs as revenue expenditure.
2. Ad hoc disallowance on account of vehicle running and maintenance expenses.
3. Ad hoc disallowance on account of depreciation on car.
4. Ad hoc disallowance on account of telephone and interest expenses.

Issue-wise Detailed Analysis:

1. Allowability of Marketing Expenses of ?35 Lakhs as Revenue Expenditure:

The assessee, an individual engaged in trading and sale/purchase of medical equipment, claimed marketing expenses of ?35 lakhs as revenue expenditure in the computation of income for the A.Y. 2015-2016. The A.O. disallowed this claim, noting that the marketing expenses were shown as "Advances" on the asset side of the Balance Sheet and were to be written off over five years as per the Significant Accounting Policies and Notes to Accounts. The A.O. argued that the assessee had willfully furnished inaccurate particulars of income and thus added back the ?35 lakhs to the income.

The Ld. CIT(A) sustained the addition, stating that the expenditure, although revenue in nature, was not justified to be deferred and did not align with the provisions of the Income Tax Act. The assessee argued that such expenses should be allowed as revenue expenditure, citing decisions from the Ahmedabad Special Bench of the Tribunal in ACIT vs. Ashima Syntex Ltd. and the Hon’ble Delhi High Court in CIT vs. Citi Financial Consumer Fin. Ltd., which allowed similar expenditures as revenue in nature.

The Tribunal agreed with the assessee, referencing these decisions and noting that there is no concept of deferred revenue expenditure in income tax law. Therefore, the marketing expenses of ?35 lakhs were allowed as revenue expenditure in the year incurred.

2. Ad Hoc Disallowance on Account of Vehicle Running and Maintenance Expenses:

The A.O. made an ad hoc disallowance of ?29,372/- (10% of ?2,93,718/-) on vehicle running and maintenance expenses, which was partly sustained by the Ld. CIT(A) at ?14,686/-. The Tribunal, considering the totality of the facts, reduced this disallowance to a lump sum of ?25,000/- for all ad hoc disallowances combined.

3. Ad Hoc Disallowance on Account of Depreciation on Car:

The A.O. disallowed ?23,305/- (10% of ?2,33,057/-) on depreciation of the car, which was partly sustained by the Ld. CIT(A) at ?11,653/-. This was included in the lump sum reduction to ?25,000/- by the Tribunal for all ad hoc disallowances.

4. Ad Hoc Disallowance on Account of Telephone and Interest Expenses:

The A.O. disallowed ?36,301/- (10% of ?3,63,010/-) on telephone and interest expenses, which was partly sustained by the Ld. CIT(A) at ?18,150/-. This was also included in the lump sum reduction to ?25,000/- by the Tribunal for all ad hoc disallowances.

Conclusion:

The Tribunal allowed the marketing expenses of ?35 lakhs as revenue expenditure for the year under consideration. It also reduced the total ad hoc disallowances on vehicle running and maintenance expenses, depreciation on the car, and telephone and interest expenses to a lump sum of ?25,000/-. The appeal was partly allowed, providing relief to the assessee on these grounds.

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