GANESH PRASAD BAGARIA,ROURKELA vs. DEPUTY COMMISSIONER OF INCOME TAX, ROURKELA

The assessee in his appeal has raised three grounds appeal, which relates to the disallowance of the advertisement expenses amounting to Rs.49,96,434/-.

Brief facts of the case are that the assessee is a HUF and engaged in the business of trading and manufacturing of spices and groceries etc. under the name and style as M/s Grihasthi Udyog, which was converted into company w.e.f.01.06.2012 under the name and style as M/s Grihasthi Udyog Pvt. Ltd. and all the assets and liabilities were taken over by the new company as a going concern. Therefore, the business of the assessee was existed for two months only during the previous year i.e. from 01.04.2012 to 31.05.2012. The AO by observing that in the profit and loss account the assessee has debited a sum of Rs.76,34,298/- towards advertisement and from perusal of the ledger account submitted by the assessee, the AO found that Rs.49,96,434/- was debited towards provision. The reply of the assessee was sought for and after considering the same, the AO disallowed the expenses to the extent of Rs.49,96,434/- by holding that the same is a provision which cannot be allowed u/s.37 of the Act. In first appeal, ld. CIT(A) concurred with the findings of the AO and confirmed the disallowance so made by the AO, therefore, the assessee is in appeal before us.

During the course of hearing, ld. AR submitted that the assessee has not made any provisions but had claimed expenses incurred during the business operations carried out in two months when the firm was existed under the proprietorship of the assessee HUF. The AO by wrongly appreciating the journal entries made in the ledger account with regard to advertisement expenses accounted for on the basis of bills received in the month of May for which the payments were due, had concluded that the same are provisions. In support of the claim that the entries were made on the basis of the bills issued by the respective parties, our attention was invited to the paper book pages 21 to 27 where the copies of bills are placed. Ld. AR also referred to page No.15 of the Paper Book wherein in Schedule 9 under the title “selling and distribution expenses” a sum of Rs.76,34,298/- stood claimed against the advertisement and publicity expenses and not on account of the provisions. Accordingly, he prayed for deletion of the disallowance so made.

Per Contra, ld. Sr. DR relied on the orders of the authorities below and submitted that the assessee in its books of account has made entry on account of provision for advertisement as is evident from the copy of the ledger account of advertisement and publicity available in paper book at page 28. Therefore, ld. Sr. Dr prayed for confirmation of the disallowance made by the AO and upheld by the ld. CIT(A).

We have considered the rival submission. From perusal of the audited final accounts filed by the assessee, it is seen that the assessee has claimed expenses under the head advertisement and publicity expenses at Rs.76,34,298/- and in support of the same a copy of ledger account of advertisement and publicity account as appearing in its books of account was also filed which is available at page 28 of the paper book. In the said account, there were three journal entries made on 31.05.2012 totaling to Rs.49,96,434/- on account of six bills issued by the respective parties pertaining to various dates starting from 26.05.2012 to 31.05.2012. As per the assessee, the services were rendered during the period of business of the assessee i.e. from 01.04.2012 to 31.05.2012 and these bills were pertaining to that period only. Merely for the reason that the amount were outstanding, therefore, a journal entry was made in the account where inadvertently the word "provision" was used while making the entry. From perusal of the details, we find that these expenses were incurred during the period of business operation of the firm of the