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TMI Blog2012 (8) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... fter hearing the ld. DR. 3. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring nil income, after set off of business loss of Rs.568,87,510/-, filed on 31.10.2005 by the assessee, engaged in the business of publishing of telephone directory with yellow pages, was selected for scrutiny with the service of a notice issued u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') on 19.09.2006. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed a sum of Rs.37,03,788/- towards deferred revenue expenses. To a query by the AO, the assessee replied that it incurred expenditure in the FY 2002-03 on advertisement and brand building to build its brand 'GETIT' and the expenditure was amortised and treated as deferred revenue expenditure. However, the AO did not accept the submissions of the assessee on the ground that these expenses did not fall within the ambit of provisions of section 35D nor resulted in any intangible asset. Accordingly, the AO disallowed the amount. 4. On appeal, the ld. CIT(A) allowed the claim of the assessee in the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own case. In the order dated 15.03.2011, the Hon'ble ITAT has allowed the claim of the appellant company with the following observations:- "6. We have carefully considered the rival submissions in the light of the material placed before us. The details of expenditure incurred by the assessee are filed at pages 14-28 of the paper book. As per para 5.2 of Schedule 21, the following note relevant to the impugned issue was filed by the assessee:- "5.2 During the year company has spent Rs.44,734,823/- on advertisement & brand building expenses to build its brand "GETIT" in the yellow pages segment of the business. Out of the above a sum of Rs.14,815,150/- is spent on brand building expenses, of which a sum of Rs.3,703,787/- has been charged during the year and the balance of Rs.11,111,363/- has been carried as miscellaneous expenditure to be charged over a period of next three years." 7. As it can be seen from the above note, the total expenses of the assessee on advertisement and brand building were incurred at Rs.4,47,34,823/- and out of the said total amount, a sum of Rs.1,48,15,150/- was segregated by the assessee on account of expenses incurred for brand building. The nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdings and neon signs could not also be considered on capital field. The expenditures do not lead to create any capital asset to the assessee. Even there is no benefit of enduring nature so to treat the expenses as capital expenditure. Since by incurring expenditure on advertisement and sales promotion, the assessee has not acquired any fixed capital asset, but these expenditures were incurred for earning better profits, and for facilitating assessee's operation of providing cellular mobile services, there exist direct nexus between the advertisement and sales promotion expenses and the carrying out of the business activity of the assessee. We, therefore, do not find any justification in interfering with the order of the CIT(A) in deleting the disallowance of 10 percent of expenses towards advertisements and sales promotion incurred by the assessee for smooth functioning and carrying on assessee's business effectively, proficiently and profitability. The order of the CIT (A) is, thus, upheld on this issue." 8. It is observed from the order of the CIT (A) that he has upheld the addition on the ground that these expenditures being in the nature of brand building will result in endur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g., expenditure on advertisement, sales promotion etc. Though the nature of such expenditure is revenue, keeping in view the fact that the benefits arising therefrom are expected to be derived over a period of time, stretching sometimes over several accounting years, the assessees have been amortising the same over the expected time period over which the benefits are likely to accrue therefrom. Accordingly, only a proportion of such expenditure is amortised in the Profit and Loss Account but an appropriate adjustment is made in the computation of income, claiming the entire as allowable revenue expenditure in terms of provisions of section 37 (1) of the Act. The expenditure which is treated as deferred revenue in the books, almost in all cases comprises of items, the benefits derived wherefrom are ephemeral and transitory in nature in as much as these are incurred as a part of a continuous process and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to disallowance of claim for bad debt. The AO noticed that the assessee claimed an amount of Rs.80,48,309/- towards bad debts. To a query by the AO, the assessee submitted that bad debts were on account of share of unrealized white pages revenue receivable from various BSNL stations and had been written off. As per contract with BSNL, the assessee was entitled to a share in white pages revenue for additional bold and super bold entries with or without logo. The assessee also pointed out that the amount was billed and realized by concerned BSNL stations from its subscriber and in-turn BSNL paid to the assessee its share of the white pages revenue. At the time of delivering the directories to BSNL, the share of the assessee's revenue was estimated on the basis of entries printed therein. Since this amount was not realized, it was written off as irrecoverable. However, the AO did not accept the submissions of the assessee in the absence of any reply as to when the amount was offered as income and also it had not furnished any evidence to show as to whether this amount had been actually written off in the books of account. Moreover, the assessee did not fulfill the conditions s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of amendment made to section 36(1)(vii) w.e.f. 1-4-89, the assessee is not required to establish that debt has become bad in the relevant previous year mid it is sufficient for claiming deduction on account of bad debt that the concerned debt has been written oil as irrecoverable in the books of accounts of the assessee. The ld. DR on the other hand has strongly supported the impugned order of the ld. CIT(A) relying mainly on the 3rd Member decision of Demi Bench of ITAT in the case of Pashupati Nowtech Ltd. (Supra). 5. After considering the rival submissions and perusing the relevant material on record, we find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of jurisdictional High Court in the case of M/s. Autometres Ltd. (Supra) cited by the ld. Counsel for the assessee. In the said decision, Hon'ble Delhi High Court has considered the effects of amendment made in section 36(1)(vii) w.e.f. 1-4-89 and held that there is a significant difference between the provision as it stood prior to 1-4-89 and the provision as amended w.e.f. 1-4-89 inasmuch as it was necessary for the assessee prior to 1-4-89 to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le ITAT were upheld by the Hon'ble High Court vide order dated 25.08.2008 as under:- "2. The Tribunal, after examining the amendment brought about in Section 36 (1) (vii) of the Income Tax Act, 1% (hereinafter referred to as the 'said Act') with effect from (11.04.1989, arrived at a conclusion that the deduction claimed by the assessee on account of bad debts, part of which went from government departments and the remaining part from private parties, was fully allowable as bad debts written off under the provisions of Section 36 (1) (vii) read with Section 36 (2) of the said Act. 3. It may be relevant to note that in the return of income filed by the assessee a deduction of Rs1,67,33,202/- was claimed by the assessee on account of bad debts written off. Out of this sum an amount of Rs.1,13,40,6551- was in respect of the government telephone department and the remaining amount was in respect of private parties. The Assessing Officer had disallowed the claim of the assessee for deduction of the said amount claimed as bad debts to the extent of 25% relating to the government telephone department and 15% relating to the other private parties. This resulted in an addition of Rs.36,44, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the additional evidence and submit his report. It appears that the AO did not care to submit any report. In these circumstances, the ld. CIT(A) admitted the additional evidence and allowed the claim of the assessee, after examining the material on record and considering the additional evidence admitted by him, in the light of decision of the ITAT and the Hon'ble jurisdictional High Court in the assessee's own case for the AY 2003-04. We find that the Hon'ble Supreme Court in the case of TRF Limited vs. CIT 323 ITR 397 (SC) while adjudicating a similar claim concluded as under: "This position in law is well-settled. After 1st April, 1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee........." 11. In the light of view taken by the Hon'ble Apex Court in their aforesaid decision in TRF Ltd. (supra) and Hon'ble jurisdictional High Court in the assessee's own case in the AY 2003-04 and the Revenue having not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) nor brought to our not ice any contrary decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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