2022 (2) TMI 331 - AT - Income Tax

Disallowance of Advertisement and Business Promotion expenses - HELD THAT - The returned income for the instant year 2010-11 was loss of ₹ 4,46,56,600/-. The returned income for the A.Y. 2011-12 was also loss of ₹ 12.76 crores. Hence, the issue raised before us is purely tax neutral in the instant case, hence there is no call to go into the technicalities of the issue. Hence, the appeal of the assessee on this ground is allowed. As gone through the expenditure and find that they pertain to barricading for installation of Vinyls, Unipol fabrications and hoardings which are indeed in the nature of advertising. Hence, we hereby direct that the disallowance made by the AO and confirmed by the ld. CIT(A) be obliterated.

Summary

Issues:
1. Disallowance of Advertisement and Business Promotion expenses
2. Disallowance u/s. 14A

Issue 1: Disallowance of Advertisement and Business Promotion expenses
The appellant contested the partial disallowance of Advertisement and Business Promotion expenses amounting to ?13,23,600, arguing that the expenditure had been fully incurred for services rendered during the assessment year. The Assessing Officer disallowed the amount as an advance payment, stating it had not crystallized for the relevant year. The AO's decision was upheld by the ld. CIT(A), leading to the appellant's appeal. The Tribunal noted that the services had been performed, and benefits accrued to the company, making the expenditure allowable under Section 37(1) of the Income Tax Act, 1961. As the issue was tax-neutral and the technicalities unnecessary, the appeal was allowed.

Issue 2: Disallowance u/s. 14A
The second appeal involved the disallowance of Advertisement and Business Promotion (ABP) expenses totaling ?4.72 crores, with the AO disallowing ?3.98 crores due to lack of income from projects undertaken. The ld. CIT(A) allowed ?3.52 crores but sustained the disallowance of ?46.45 lacs, deeming it not related to advertising. The appellant argued that the expenses were indeed for advertising purposes. Upon examination, the Tribunal found the expenses related to barricading for Vinyls, Unipol fabrications, and hoardings, confirming their advertising nature. Consequently, the disallowance made by the AO and upheld by the ld. CIT(A) was overturned, leading to both appeals being allowed.

This judgment clarifies the treatment of Advertisement and Business Promotion expenses, emphasizing the necessity of actual service performance for expenditure allowance. It also highlights the importance of correctly identifying expenses related to advertising activities to prevent unjust disallowances.