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Facts
The assessee incurred expenses described as 'brand promotion expenses' and capitalized them. The Assessing Officer (AO) disallowed these as revenue expenses, considering them to be of enduring advantage, and disallowed proportionate depreciation. The assessee argued that similar expenses were allowed in previous years and that there was no opportunity to explain the disallowance.
Held
The Tribunal held that brand promotion expenses, being routine business expenses incurred in the course of running an ongoing business, are revenue in nature. The Tribunal also found substance in the explanation for certain cash payments and partly allowed the appeal regarding disallowance of expenses under Section 40A(3). Furthermore, the Tribunal ruled that no adjustment can be made in book profits for MAT purposes concerning disallowance under Section 14A.
Key Issues
Whether brand promotion expenses are revenue or capital in nature; whether disallowances under Section 40A(3) were justified without proper opportunity and evidence; and whether adjustment for Section 14A disallowance is permissible in book profits for MAT purposes.
Sections Cited
143(3), 40A(3), 14A, Rule 8D, 115JB
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Income Tax Appellate Tribunal, DELHI BENCHES: C : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
Assessment Year: 2012-13 Globus Spirits Ltd., Vs DCIT, F-0, Ground Floor, Circle-10(1), The Mira Corporate Suit, New Delhi. Ishwar Nagar, Mathura Road, Delhi. PAN: AAACG2634B (Appellant) (Respondent) Assessee by : Shri Anil Kumar Chopra, Advocate & Shri Parveen Kumar, CA Revenue by : Shri Om Parkash, Sr. DR Date of Hearing : 29.04.2025 Date of Pronouncement : 04.06.2025 ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 25.11.2016 of the Commissioner of Income-tax (Appeals)-35, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.20/15-16 arising out of the appeal before it against the order dated 20.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle-10(1), New Delhi (hereinafter referred to as the Ld. AO).
The assessee’s return of income was selected for scrutiny and mandatory notices were issued for assumption of jurisdiction. During the year the assessee company was engaged in the business of manufacture of industrial alcohol, ENA, IMFL country liquor and processing of bio-degradable waste and generation of power. The AO examined the expenses incurred as ‘brand promotion expenses’ capitalized under the head ‘Intangible know-how and New brand development.’ However, proportionate depreciation thereon has been added in the computation of total income and the net claim was made and reduced from taxable income. The AO, relying the assessments for the previous AYs 2008-09, 2009-10, 2010-11 and 2011-12, concluded that the brand promotion expenses as incurred by the assessee vests with the assessee a perpetual, intangible and enduring advantage and, accordingly, the claim of the assessee that the same are revenue expenses were not entertained and the expenses were disallowed with the proportionate depreciation. During the hearing, the ld. AR has pointed out that this issue has been examined in the case of the assessee in earlier AYs 2008-09, 2009-10 and 2011-12 and by a common order the issue has been decided in favour of the assessee.
3. The ld. DR could not dispute the aforesaid facts. We find that the ld. tax authorities below have also relied the previous year’s reasoning which no more helps the case of the Revenue.
The relevant findings in favour of assessee, for AY 2008-09 vide order dated 27.06.2017 in are reproduced below:- “4.4 On the basis of above material facts, the ld. CIT (Appeals) has come to the conclusion that the expenses claimed as Revenue expenses in this year are routine business expenses required to be incurred in the course of business. The marketing and brand promotion is an integral part of business activity of the assessee company and the entire expenses are of routine business expenses and have been incurred in the course of running the existing business. The Assessing Officer has not pointed out any specific expense, which is of enduring benefit or has been incurred to acquire any capital asset. Such expenses in respect of on-going business are undisputedly Revenue in nature. Under the above facts, we fully concur with the findings of the ld. CIT (Appeals) also because similar recurring expenses incurred in earlier years have been allowed as Revenue expenses. The decisions relied upon by the ld. CIT (Appeals) also strengthen the finding arrived at by him under the facts and circumstances of the present case on the issue. The Hon’ble Supreme court in the case of Empire Jute Company Vs. CIT (supra) has been pleased to hold that it is only when an enduring advantage is in the capital field that the expenditure would be disallowable. If advantage of enduring benefit is in the Revenue field it would be on the Revenue account. The Hon’ble jurisdictional High Court of Delhi in the case of CIT Vs. Siti Financial Consumer Fin. Ltd. (supra) has been pleased to hold that advertisement and publicity expenses even when substantial, having been incurred to facilitate business, no advantage in capital field is resulted. Again in the case of CIT Vs. Usha Iron & Ferro Metal Corporation Ltd. (supra) the Hon’ble jurisdictional High Court of Delhi has been pleased to hold that the expenditure incurred by the assessee towards improving its business was for the expansion of its existing business. Merely because the assessee treated the amount as a capital expenditure in its books, it would not be bound by as there is no estoppels against the law and just assessment is the object of the Legislature under the provisions of the I. T. Act. The first appellate order on the issue is comprehensive and reasoned one to which we fully concur with. The same is upheld. Ground No. 2 is accordingly rejected.”
In the light of the aforesaid, the grounds No.1 to 4 stands sustained.
Coming to grounds No.5 and 6 which arise out of disallowance made allegedly in violation of provisions of section 40A(3) of the Act, we find that ld. tax authorities below and also ld. DR, supporting the findings of ld. tax authorities below are of the view that in the absence of bills and vouchers, these expenses were rightly disallowed. On the basis of the material before us in the form of paper book, the ld. AR has given details of the expenses and the same are reproduced for convenience as follows:-
S. No Date Ledger A/c Particular Nature of Amount (Expenses) Voucher 1. 26.02.2012 Accident Petty Cash Cash 23,655/- payment 2. 03.06.2011 Legal & Cash Delhi Cash 1,10,000/- Prof. payment for stamp papers
31.12.2011 Travelling Air Travel Journal 40,106/- Bureau Ltd Voucher 4. 18.01.2012 Travelling Exp. Payable Journal 37,000/- Voucher 5. 08.02.2012 Travelling Air Travel Journal 20,205/- Bureau Ltd Voucher 6. 31.03.2012 Travelling Globus Spirits CI Journal 33,726/- Unit Voucher 7. 31.03.2012 Travelling Globus Spirits CI Journal 28,743/- Unit Voucher 8. 31.03.2012 Travelling Globus Spirits CI Journal 21,658/- Unit Voucher TOTAL 3,15,093/-
The ld. AR has submitted that no opportunity was given to explain the expenses and merely based on suspicions the disallowances are made. The copies of relevant ledgers of expenses involved to justify the expenditure were filed. It was submitted that cash payments of Rs.1,10,000/- was incurred towards legal and professional expenses relating to purchase of stamp papers for execution of surety given to Sales-tax Department Rs.23,655/- and a cash payment was paid in connection with IMFL Lorry accident. It was submitted that submissions were given to the ld. tax authorities below, however, the same has not been taken into consideration.
We find that there is substance in the explanation with regard to these two amounts of Rs.1,10,000/- and Rs.23,655/-. However, with regard to the remaining expenses, merely production of ledger account is not sufficient and general vouchers unsupported with any corresponding bills as evidences, further establishing the justification for the expenditure on account of travelling being not established were rightly disallowed. Thus, these grounds are sustained partly to the extent of the aforesaid amount of Rs.1,10,000/- and Rs.23,655/-.
As regards the ground No.7, the same arises out of increase in book profits for making adjustment of Rs.1,05,006/- while computing income u/s 115JB of the Act on account of disallowance u/s 14A of the Act as per Rule 8D. The ld.CIT(A) has restricted the amount to the exempt income of Rs.59,971/- on merits, but, confirmed the adjustment directing the AO to restrict the adjustment to the extent of Rs.59,971/-. It is trite law that no adjustment can be made in the book profits for the purpose of MAT u/s 115JB of the Act and the Hon’ble jurisdictional High Court of Delhi and Special Bench of the Delhi Tribunal have ruled the same in favour of the assessee for which reliance is placed on the following decisions:- (i) PCIT Vs Atria Power Corporation Ltd. [2022] 142 taxmann.com 413 (SC) [SLP dismissed against Pr. CIT v. Atria Power Corporation Ltd. [2022] 142 taxmann.com 412 (Kar.)]; (ii) Pr. CIT V. Bhushan Steel Ltd.:
(Delhi High Court); & (iii) ACIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi- Trib.) (SB)
In the light of the aforesaid, the addition to the book profit on account of disallowance u/s 14A of the Act as made by the ld. AO and confirmed by the ld.CIT(A) deserves to be deleted. This ground is accordingly decided in favour of the assessee.