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TMI Blog2022 (1) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the televisions are within the provisions of the above said Cable Television Networks (Regulation) Act, 1995. Therefore, in the absence of any such proceedings the Income-tax authorities have no jurisdiction to presume that assessee has contravened any provision of the Cable Television Networks (Regulation) Act merely because assessee has several products to market some of them may be prohibited to advertise and others are not. One cannot presume that the assessee is only promoting the products for which advertisements are prohibited as long as the advertisements are allowed to broadcast in the televisions which is approved by the proper authority, the assessee cannot be penalized by invoking the provisions of Cable Television Networks (Regulation) Act, 1995. Thus in the absence of any adverse remark or penalties levied by the broadcasting authorities the Assessing Officer need not go into verification of regular expenditure which assessee was regularly claiming over the years. We observe that Assessing Officer has also collected several information before allowing the expenses claimed by the assessee. Therefore Ld. Pr.CIT cannot invoke the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse assessee company filed detailed submissions vide letter dated 17.03.2021. Ld. Pr.CIT observed that, the assessee in its submissions has stated that, revisionary assessment proceedings cannot be initiated unless the conjunctive conditions of Sec. 263 of the Act are satisfied. Further, it is stated that, revision proceedings are not valid where Assessing Officer has duly examined all the records at the time of assessment proceedings with due application of mind and revisionary assessment proceedings cannot be initiated on the possibility of further enquiry. Assessee relying on various judicial pronouncements submitted that the company has not incurred any advertisement and publicity expenditure for any purpose which is prohibited by law. No advertisement expenses are incurred for sale of alcoholic liquor by the company at platforms which is prohibited by law. Further, assessee submitted in the same letter dated 17.03.2021 as under: - Without prejudice to the above, the company submits that it has not incurred any advertisement and publicity expenditure for any purpose which is prohibited by law. Other expenditure of Rs.86,43,33,466/- debited to the advertisement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure must not be capital in nature. The Explanation to sub-section (1) was inserted by the Finance (No. 2) Act, 1998, with retrospective effect from April 1, 1962, which reads thus: Explanation.- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The purpose for incorporation of this Explanation had been explained by the Central Board of Direct Taxes in Circular No. 772, dated December 23, 1998 ([1999] 235 ITR (St.) 35, 53) as under : 20. Disallowance of illegal expenses. 20.1 Section 37 of the Income-tax Act is amended to provide that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deduction or allowance shall be made in respect of such expenditure. This amendment will result in disallowance of the claims made by certain assessees i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, 1961. It is settled proposition of Law that failure of the A.O. to carry out relevant and meaningful enquiries as warranted by the facts and circumstances of the case renders the assessment order erroneous and prejudicial to the interest of the revenue falling within the parameters of provisions of section 263 of the I.T. Act, 1961. 1. It has also been held in many cases that the Commissioner is not necessarily required to record a final conclusion on the point on the issue in hand. An order found erroneous will generally be prejudicial to the interest of revenue, if it has implication of revenue escapement. 1. Considering the same, in exercise of powers conferred u/s. 263 of the Income Tax Act, 1961, set-aside the order made u/s. 143(3) r.w.s. 144C(13)of I.T. Act, 1961 passed on 30.10.2017, on the issues discussed above. The AO will examine the decisions relied upon by the assessee if any, as also other decisions on the said issue and decide the issue in accordance with law. The A.O. is directed to reframe the assessment afresh after giving due opportunity to the assessee before passing his order. The A.O. will complete the assessment in the light of the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted under the Cable TV Rules, and the balance expenditure of Rs 86,43,33,466 is in the nature of sales promotion, market research, brand promotion etc. which are not regulated nor prohibited under the Cable TV Rules. 6. erred in holding that the Appellant is advertising for alcoholic products under the guise of non-alcoholic beverages without appreciating the fact that the media advertisements of the Appellant are towards non-alcoholic products which are not prohibited under any law 7. erred in holding that the Appellant being in the business of mainly alcoholic beverages has incurred such advertisement and publicity expenses which are not permissible under law and cannot be allowed under section 37 of the Act, without appreciating the fact that the expenditure incurred by the Appellant is wholly and exclusively incurred for the purpose of its regular business, which is not in violation of any law and is accordance with the principles of commercial expediency. 8. erred in directing the AO to frame a fresh assessment to verify and decide the allowability of the advertisement and publicity expenditure incurred by the Appellant under the Cable TV Rules, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings for the subject AY, the learned Assistant Commissioner of Income Tax, Circle 11(1)(2), Mumbai ( AO ) issued various notices seeking for details/ information in connection with the return of income filed by the Company to which the Company has duly filed all submissions. 5. Specifically, the learned AO vide a notice dated 10 November 2015 sought for information relating to the major expenses debited to the trading and profit and loss account for the year. Advertisement and publicity expenditure being one of the major heads of its expenditure, the Assessee vide its letter dated 3 August 2016 filed a detailed break-up of the advertisement and publicity expenditure debited to the profit and loss account as below along with the party wise details of the expenditure incurred by the Assessee. (Refer Page No 79-93 of the paperbook for the copy of the letter dated 3 August 2016) PARTICULARS AMOUNT (RS.) Prints and Production 6,46,07,713 Media-TV/Outdoor 20,63,83,780 Media - Radio and Others 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, asking to show cause regarding the allowability of advertisement and publicity expenditure incurred by the Appellant. 10. The PCIT was of the view that since the Appellant is engaged in the business of brewing, and sale of alcoholic beer, it is prohibited from advertising its products as per the Cable Television Network (Regulation) Amendment Bill and the learned AO has completed the original assessment without making any verification of facts relating to the Advertisement and Publicity expenditure. 11. In response to the show cause notice issued by the learned PCIT, the Appellant vide a submission dated 17 March 2021 filed a detailed objections against the initiation of revisionary proceedings as well as on the merits of the case. (Refer Page No 61-78 of the paperbook for the copy of the letter dated 3 August 2016) 12. However, the learned PCIT disregarded the submissions made by the Appellant and passed an order under 263 of the Act by setting aside the order passed under section 143(3) read with rule 144C(13) of the Act dated 31 March 2021 and directed the learned AO to reframe the assessment afresh after considering prevailing law and submissions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understocd in its ordinary meaning it is of wide import and is not confined to loss of tax. The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book An erroneous order does not mean a wrong order; it does not mean an order with which the Commissioner is unable to agree. An erroneous order would be an order which suffers from a patent lack of jurisdiction; the error must be with reference to jurisdiction. Prejudicial to the interest of the Revenue would mean an erroneous order which goes against the interest of Revenue collection. Both the conditions must pre-exist to enable the CIT to exercise the power under Section 263. Having Said that, it will not be necessary to burden this order with any further description or narration. The foundation for the exercise of the power being the formation of an opinion or conclusion, there is no escape from the view that the CIT must record his conclusions in the matter before setting aside an order of assessment in exercise of the power under Section 263. It will again be futile to embark upon any discussion as to the intensity or strength of the conclusion that must be reached by the CIT before setting aside an assessment under Section 263 as the answer to the said question would really depend on the facts that may be confronting the Commissioner in any given case. The posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 (Refer Page No 127-134 of the legal paperbook) 9.10 Further, in our view, no doubt, AO has not applied his mind, but, the CIT has not established how the order of AO is prejudicial to the interests of revenue. Looking at the facts submitted before us and the findings of Hon'ble Jurisdictional High Court that the seeds cannot be produced without basic agricultural activities, in our view, CIT should not stop merely on finding that the order is erroneous but also has to establish that the order of AO is prejudicial to the interests of revenue. In the given case, the only missing link is the verification of lease agreement with the farmers and activities whether it is similar to the Prabhat Agri Biotech or not. This could also be verified by Id. CIT and established that it is prejudicial to the interests of revenue. Ld. CIT has failed in this aspect. This is in line with the decision of Hon'ble Supreme Court in the case of Malabar Industrial co. Ltd., 243 ITR 83(SC) and CIT Vs. Green World Corporation 314 ITR 81 (SC). Therefore, in our view, no doubt, the assessment order is erroneous but not prejudicial to the revenue considering the case law submitted before us. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submitted the relevant details and the AO is satisfied about the admissibility of the claim based on the details submitted. Further reliance is also placed on the following judicial precedents: Nirav Modi (2017) (SC) approving Bombay High Court decision reported as 390 ITR 292 (Bom) (Refer Page No 135-139 of the legal paperbook) Tata Motors Ltd. [2019] ITA No.3425 dated 5 March 2021 (Refer Page No 143-174 of the legal paperbook) IBM India Private Limited (ITA No 598/Bang/2011) dated 5 July 2013 (Refer Page No 175-210 of the legal paperbook) 21. The Appellant humbly submits that there is a distinction between lack of enquiry and inadequate enquiry . If there is an enquiry, even inadequate, that would not by itself give occasion to pass an order under section 263 of the Act merely because the AO has a different opinion in the matter. Such a course of action is open only in cases of lack of enquiry. Revisionary assessment proceedings cannot be initiated on the possibility of further enquiry: 22. In this regard, we humbly wish to submit before your Honours that where an AO has made an enquiry, the assessment order cannot be setasid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with any decision which is prejudicial to the Assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the Assessee or any other person. 27. The Appellant submits that based on the following reasons tabulated below, conditions as set out in Explanation 2 to Section 263(1) are not satisfied to make the order erroneous: Condition Reason Clause (a) The order is passed without making inquiries or verification which should have been made Clause (b) The order is passed allowing any relief without inquiring into the claim During assessment proceedings the AO had issued notice dated 10 November 2015, where the learned AO has enquired into various expenses debited to Profit Loss account. The Appellant filed the details of advertisement and publicity expenses incurred by the Company and provided break-up of the expenditure debited under the head 'Advertisement and Publicity'. The Assessee has also furnished party wise details of major payments under this head. The AO after examining the documents, did not make any addition to the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing revisionary proceedings: 31. Where the AO has raised a query, which was answered to his satisfaction and not reflected in his order, a conclusion cannot be drawn by the Commissioner that no enquiry for that issue was made by the AO. Reliance in this regard is placed on the following decisions: CIT vs. Gabriel India Ltd (1993) (203 ITR 108) (SC) (Refer Page No 101-106 of the legal paperbook) Anil Shah vs ACIT (2007) ITA no. 2020 (Mumbai ITAT) dated 21 April 2006 (Refer Page No 227-232 of the legal paperbook) CIT v. Ashish Rajpal [2009] 320 ITR 674 (Delhi) (HC) (Refer Page No 233-243 of the legal paperbook) CIT v. Vikas Polymers 20121 3411 ITR 537 Delhi HC Refer P-. 245 to 252 of Le: al Paperbook) 32. Accordingly, in the instant case, the issue relating to the expenses debited to the profit loss account in the nature of Advertisement and Publicity was submitted to the learned AO but since the AO was satisfied with the response, this fact was not reproduced in the order passed by the learned AO. Hence, it cannot be held that no proper enquiry was made by the learned AO granting your Honour the jurisdiction under section 263. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,83,780 is governed and permitted under the Cable TV Rules and the balance expenditure of Rs 86,43,33,466 is in the nature of sales promotion, market research, brand promotion etc. which are not regulated nor prohibited under the Cable TV Rules. 3. The expenditure incurred under the head Advertisement and Publicity expenses of the profit and loss account broadly comprises of expenditure under the following broad categories: Sl No. Nature of Expense Description Amount (INR) Remarks 1 Sales promotion expenses Brand penetration material such as Tshirts, key chains, calendars, photos, glasses, gift cards provided to the retailers/ wholesalers to have brand penetration and create brand awareness (upon purchase of certain specified quantity) 86,43,33,466 Regular business expenditure incurred wholly and exclusively for the purpose of the business and is outside the purview of the cable TV law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re given only to existing consumers and are not open advertisements and allow the claim accordingly. Signage and brand awareness in liquor outlets amounting to 22,08,39,422 Market research, census and survey expenses and Other Expenses amounting to 16,54,16,090. 37. The activities such as organizing private events, contests, press conferences, gifting and giveaways to distributors and wholesalers, etc. are undertaken with a view to push the sales to retailers and consumers. Such expenditure incurred by the Company are purely in the nature of sales promotion and brand extension activities and are not advertisements which are prohibited by any law. 38. In this regard, the Appellant wishes to place reliance on the ruling of the jurisdictional Mumbai Tribunal in the case of Cobra Indian Beer Private Limited vs DIT (ITA No 2761/Mum/2012) dated 12 June 2015 (Refer Page No 253-262 of the legal paperbook) wherein the tribunal held that expenditure incurred by the Assessee for organizing private events/press conference, designing advertisement stalls, photographer charges, etc. were not hit by explanation 1 to section 37(1) of the Act as the same are not prohibit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -315 of the legal paperbook) where the Court had to consider whether expenditure incurred by the assessee therein for sales promotion was allowable under section 37 of the Act The assessee therein was a liquor manufacturer and was banned from direct media and television advertising of its products. Its major customer viz., the Canteen Stores Department was debarred from directly accepting free samples from a liquor manufacturer. The assessee found it commercially expedient to offer sample of its products at various military functions so that the military personnel develop a taste for it and the assessee thereafter would secure larger orders from the Canteen Stores Department. In such circumstances, the Court found that the amount has been spent by way of commercial expediency for promoting the sale of the assessee s product and was m the nature of sales promotion expenditure and was not against public policy and, therefore, was allowable. Applying the principle laid down in the aforesaid judgment, it would be clear that the expenditure referred to hereinbefore is to be regarded as expenditure on sales promotion and, therefore, has to be allowed as a deduction. 43 Further, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules are framed pursuant to the CTN Act, 1985. Rule 7 of the CTN Rules deals with the advertising code. 48. In this regard, we wish to invite your Honour s kind attention to the following provisions under the Cable TV Rules as under: 7. Advertising Code. - (1) Advertising carried in the cable service shall be so designed as to conform to the laws of the country and should not offend morality, decency and religious susceptibilities of the subscribers. (2) No advertisement shall be permitted which (i)... (viii) promotes directly or indirectly production, sale or consumption of(A) cigarettes, tobacco products, wine, alcohol, liquor or other intoxicants; Provided that a product that uses a brand name or logo, which is also used for cigarettes, tobacco products, wine, alcohol, liquor, or other intoxicants, may be advertised on cable services subject to the following conditions that (i) the story board or visual of the advertisement must depict only the product being advertised and not the prohibited products in any form or manner, (ii) the advertisement must not make any direct or indirect reference to prohibited products; (iii) the adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the business and there is commercial expediency for incurrence of the expenditure, then the same is allowable expenditure under section 37 of the Act. What is commercial expediency in a given facts and circumstances of a case is the sole discretion of the Assessee and not of the revenue authorities. Reliance in this regard can be placed on the following rulings: CIT vs. Malayalam Plantation Ltd (53 ITR 140) [SC] wherein it was held that The expression or the purpose of the business is wider in scope than the expression for the purpose of earning profits . Its range is wide; it may take in not only the day to day running of a business but also the rationalization of its administration and modernizaton of s machinery, it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and make an assessment under the Act in the absence of any adverse findings/order against the Appellant by any authorized authority under the Cable TV Law. It is not under the powers and functions of the Income tax authorities to adjudicate whether the Appellant has violated any provisions/ regulations of any Act or Law other than Income tax Act, 1961. 56. Only in case there is a clear finding of any contravention of the provisions of any law by the concerned regulatory authority, the AO is within his power to disallow the corresponding expenditure incurred by the Assessee. However, the income tax authorities are not competent authority to adjudicate the legality or legitimacy of any expenditure incurred by the Assessee under other laws which is outside their jurisdiction and subject matter expertise. 57. The Appellant submits that before the expenditure can be disallowed by virtue of Explanation (1) to section 37(1) of the Act, the AO has to demonstrate that by incurring the expenditure the Assessee has violated a law. That has to be demonstrated by establishing that the regulator concerned with regulating the law has found the assessee to be in violation thereof o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in income tax proceedings the medical ethics will not be taken into consideration. At the most even if it is a professional misconduct it is to be dealt with b Medical Council of India. The income tax authority cannot decide the medical ethics when the original authority has partly allowed the expenses. Gestetner Duplicators Private Limited vs. CIT (117 ITR 1) [SC] (Refer Page No 329337 of the legal paperbook) wherein it was held that The Court had to consider whether the assessee was entitled to a deduction made by way of a contribution to an approved provident fund under Section 36(1)(iv) of the Act. The Court held that It was not open to the taxing authorities to question the recognition granted by the Commissioner to the provident fund maintained by the assessee in any of the relevant years on the ground that the assessee s provident fund did not satisfy any particular condition mentioned in rule 4. It would be conducive to judicial discipline and maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. In the case of housing/commercial projects, the corporation aware that there will be certain deviations at the time of approval and no project can be completed without any deviation, The question is, the extent of deviation In case it is within the permissible limits, the approving authorities, allow with compounding the deviation by levying compounding fees, In the given case, the project was completed and the deviations are within the limits, for which the Bangalore Mahanagar Palike has approved the project by compounding fees, which is not in the nature of offence nor prohibition of any law. Henco, it is allowable u/s 37(1) of the Act. Max Hospital, Pitampura vs. Medical Council of India (W.P. No. 1334/2013) (Delhi HC) (Refer Page No 357-364 of the legal paperbook) dated 10 January 2014 wherein it was held that The observations dated 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in the Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. Since the MCI had no jurisdiction to go into the infrastructure facilities, need not also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Assessing Officer allowed the expenses without appreciating the legal position. He observed that assessee manufactures and markets alcoholic beverages which is banned in India for advertisement as per Cable Television Network (Regulation) Amendment Bill which came into effect on 08th September, 2000. He is of the view that the advertisement made by the assessee in Cable Television in order to promote the alcoholic drinks manufactured by the assessee but it advertises nonalcoholic beverages in order to promote the alcoholic beverages which is against the regulations of the cable television laws. However, Ld. AR submitted before Ld. Pr.CIT as well as before us that the expenditure claimed by the assessee under the head advertisement and publicity expenses which includes sales promotion expenses, branding activities, sponsorship and event management expenses and market research and survey expenses, these are all regular business expenditure incurred wholly and exclusively for the purpose of business which does not fall under the category of advertisement in television. Therefore, these expenses are the sales promotion expenditure to the extent of ₹.86,43,33,466/-. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Pr.CIT cannot invoke the provisions of section 263 of the Act to reassess the completed assessment merely on the basis of presumption or with the view that assessee may have contravened the Cable Television Networks (Regulation) Act, 1995. Therefore, in this case Assessing Officer has allowed the expenditure in the absence of any adverse actions against the assessee. Ld. Pr.CIT cannot initiate revisionary proceedings in order to initiate another possible enquiry. ITAT Benches of Delhi and Chandigarh has held that Ld. Pr.CIT cannot initiate such actions, for the sake of brevity we, reproduce the decision of the ITAT Delhi bench in the case of Solara International Ltd., v. Addl. CIT in ITA.No. 1999/Del/2004 dated 14.01.2005. 19. As to the specific issues raised by the learned CIT in the impugned order under section 263, he has alleged that the assessing officer routinely accepted Chartered Accountant's certificate in respect of bad debts and deviation from provisions of section 145A. However, the learned CIT has not pointed out any omission or defect or infirmity in the certificate submitted by the Chartered Accountant during the course of assessment proceedings. In respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again the claim of the assessee was supported by a certificate of the Chartered Accountant. The learned CIT has not pointed out as to in what manner or in what respect the Chartered Accountant had gone wrong. In short, we find that the learned CIT has cancelled the assessment in question more or less on the allegation that the assessment was completed routinely without proper enquiry. For the purpose of holding an assessment order to be erroneous and prejudicial to the interests of revenue on that ground, there should be omission or failure to make such enquiry as was essential on the facts and circumstances of the case. Merely because from a perfectionist point of view it is felt that some more enquiries and verifications could have been made by the assessing officer, the order cannot be declared to be erroneous. In the case before us, we find that the assessment order has been made by the assessing officer in accordance with the past history of the case. For the main objection raised by the learned CIT in relation to royalty allowed by the assessing officer no prima facie case has been made out that the view taken by the assessing officer is erroneous. We, therefore, hold that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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