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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI VIKAS AWASTHY
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-17, Mumbai [hereinafter referred to as ‘the CIT(A)’] ' dated 22.03.2019 (subsequently rectified vide corrigendum dated 10.04.2019) for the Assessment Year (AY) 2014-15. The Revenue in appeal has assailed the order of CIT(A) by raising following grounds of appeal: “(1.) On the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in not treating the advertisement expenses of Rs. 3,65,37,689/- [5,87,45,131-2,20,07,442/- (being allowed deduction u/s. 35D)] as capital in nature ignoring the facts that the assessee has shown deduction of Rs. 5,87,45,131/- under the head ‘Brand Building Expenditure’ and were made for business promotion as advertisement of Brand, which is going to give enduring benefits to the assessee. (2.) On the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in not treating the advertisement expenses of Rs. 3,65,37,689/- [5,87,45,131-2,22,07,442/- (being allowed deduction u/s. 35D)] as capital in nature without appreciating the fact that the assessee itself considered the advertisement expenses as deferred expenditure in its books of account but changed its stand subsequently and claimed the said expenditure as revenue expenditure.”
2. Shri Gurbinder Singh representing the Department submitted that Revenue in appeal has raised solitary ground assailing the findings of CIT(A) in allowing brand building expenditure as revenue expenditure. The Assessing Officer (AO) has disallowed assessee’s claim under section 37(1) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] and has held the expenditure as allowable u/s. 35D of the Act. The ld. DR submitted that the assessee in its books had considered display and listing charges as deferred expenditure. Subsequently, the assessee changed its stand and claimed the said expenditure as revenue in nature. The ld. Departmental Representative (DR) vehemently supported the findings of AO and prayed for reversing the findings of CIT(A) on this issue.
3. On the other hand, Shri Lalchand Choudhary appearing on behalf of the assessee has vehemently defended the impugned order and prayed for dismissing the appeal of Revenue. Narrating the facts, the ld. Authorized Representative submitted that the assessee is engaged in the business of Fast Moving Consumer Goods (FMCG) and is selling various types of packed fruit juices under the brand “Harvest”. The assessee is required to constantly incur expenditure on publicity and advertisement of its FMCG products on television, newspaper, magazine, etc. The expenditure incurred on advertisement does not create any benefit of enduring nature as no capital asset is created. The assessee has claimed deduction of Rs. 5,87,45,131/- incurred in respect of publicity and advertisement of its FMCG products under the head “Advertisement Expenditure”. In the first place, the Revenue has erred in changing the nomenclature of the expenditure as “Brand Building Expenditure”. This is the fourth year of controversy, the respondent/assessee has been constantly claiming full deduction in respect of advertisement and publicity expenditure. The assessee claimed advertisement and publicity expenditure for the first time in AY 2010-11, the assessment was framed under section 143(3) of the Act and assessee’s claim was allowed in full. In subsequent AYs i.e. AY 2011-12, 2012-13 & 2013-14, the AO disallowed assessee’s entire claim made under two heads i.e. (1) Display charges and listing fees and (2) Advertisement Expenditure. The AO invoked the provisions of section 35D of the Act and allowed 1/5th expenditure in respect of both the above heads. In First Appellate proceedings, the CIT(A) allowed assessee’s claim and reversed the findings of AO in invoking provisions of section 35D of the Act. The CIT(A) has been constantly deciding this issue in favour of assessee. The Revenue never contested the issue and accepted the view taken by the CIT(A). Hence, the issue has attained finality. The Revenue has contested the ground of advertisement expenditure for the first time in the impugned AY. The ld. AR submitted that since the issue was settled in AYs 2011-12, 2012-13 & 2013-14, as the Revenue accepted the order of CIT(A), the present appeal by the Revenue is liable to be dismissed on the ground of consistency. The ld. AR further submitted that on merits, the issue is squarely covered by the judgment rendered in the case of Taparia Tools Ltd. v/s JCIT, 372 ITR 605 (SC) and CIT Vs. Fine Jewellery (India) Ltd. 372 ITR 303 (Bom.). The ld. AR pointed that the Hon’ble Supreme Court of India in the aforesaid decision held that accounting treatment of any expenditure would not determine the allowability, if the expenditure is otherwise revenue in nature and the claim has been made by the assessee in its return of income. The ld. AR asserted that the Hon’ble Supreme Court in the aforesaid decision has emphatically held that merely because different treatment to any expenditure was given in the books of account, would not deprive the assessee from claiming entire expenditure as deduction.
The ld. AR defending the impugned order asserted that expenditure was incurred by the assessee only for the purpose of Advertisement and not creating any right falling in the realm of capital asset. The expenditure was incurred in the course of business and hence, is revenue in nature, allowable under section 37(1) of the Act.
Both sides heard, orders of the authorities below examined. The short issue in the present appeal by the Revenue is; Whether the expenditure on advertisement amounting to Rs. 5,87,45,131/- is allowable under section 37(1) of the Act or section 35D of the Act? The assessee has accounted the said expenditure in its books of account as deferred revenue expenditure, whereas, in computation of income, the entire expenditure has been claimed as deduction. The AO rejected the claim of assessee and held that the expenditure is in the nature of brand building exercise. The AO allowed 1/5th of the expenditure under section 35D of the Act. A perusal of the impugned order shows that in the preceding AYs i.e. AYs 2011-12, 2012-13 & 2013-14, the assessee had claimed the expenditure in respect of listing and display charges under the head Advertisement Expenditure. The AO for similar reasons invoked the provisions of section 35D of the Act and allowed 1/5th of the expenditure in each of the AYs. In First Appellate proceedings, the CIT(A) reversed the findings of AO and allowed assessee’s claim in full under section 37(1) of the Act. The ld. AR of the assessee stated at the Bar that the Revenue in preceding AYs has assailed the findings of CIT(A) qua listing and display charges in for AY 2011-12, ITA No. 3926/Mum/2016 for AY 2012-13 and in ITA No. 6685/Mum/2017 for AY 2013-14. In none of the aforesaid appeals, the Revenue has assailed the findings on the issue of advertisement expenditure. Thus, the Revenue accepted the findings of the CIT(A). The said appeals by the Revenue were dismissed by the Tribunal on account of low tax effect.
It is observed that in the impugned AY, the expenditure under the head Advertisement Expenditure includes expenditure towards listing and display charges and expenditure incurred for advertisement and publicity through Mass-communication medium like T.V., Radio, Web, hoardings on Bus shelters, etc. Since, the assessee is in the business of FMCG the advertisement expenditure is inextricably linked to the business of assessee and hence, an integral part of profit earning process. The expenditure incurred by the assessee under the head Advertisement Expenditure does not create any capital asset or benefit of enduring nature to the assessee. Therefore, for the reasons mentioned above the same is allowable under section 37(1) of the Act.
The second ground raised
in the appeal by the Revenue is that assessee in its books has claimed expenditure as a deferred revenue, whereas in computation of income, the entire expenditure has been claimed as revenue. It is a well settled law that entries in the books of account are not determinative of the nature of expenditure. If the expenditure has been incurred for running profitable business of the assessee and is inextricably linked to the business the expenditure is allowable as revenue expenditure. The Hon’ble Supreme Court of India in the case of Taparia Tools Ltd. v/s JCIT (supra) has settled this issue. For the sake of completeness the relevant extract of the judgment is reproduced here-in-below: ‘‘19. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).
20. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(1)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return.