ASIAN ADVERTISING,MUMBAI vs. ITO 12(3)(4), MUMBAI

The captioned appeal by the assessee is directed against the order of the CIT(A)-23, Mumbai dated 14/03/2014, pertaining to the Assessment Year 2009-10, which in turn has arisen from the order passed by the Assessing Officer dated 21/11/2011 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

M/s Asian Advertising 1. Hoardings Expenses “1.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming treatment of Hoarding Expenses incurred in respect of Hoardings amounting to Rs.8,13,810/- being as Capital Expenditure and adding Rs.6,91,738/- to the appellant’s income after allowing depreciation at 10%. 1.2 The learned CIT (A) failed to appreciate that the said expenses were revenue in nature and as such allowable u/s. 31 and/or Sec. 37 of the I T Act and neither any new asset was created nor did it result in any enduring benefit as alleged.

2. Interest on loan 2.1 On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming addition of Rs.1,73,294/- being ad-hoc 25% out of total interest claimed. 2.2 The learned CIT (A) failed to appreciate that interest expense was incurred wholly and exclusively for the purpose of business of the appellant as amounts receivable are outstanding on account of sales conducted by the appellant and there is direct nexus between the expenditure and business purpose. 2.3 The Learned CIT(A) ought to have held that the estimated disallowance is ad-hoc, arbitrary and uncalled for”.

3.The assessee has filed the return of income on 25th September 2009 declaring income of Rs.4,00,466/-. The assessee is in the business of exhibiting cinema slides and short films in theatres and sole concessionaries and also in allied business related to outdoor adverting. During the year, assessee has received income from hoarding sites given to its sister concern, M/s. Creation Publicity Pvt. Ltd. and the income thereon was shown at Rs.80.03 lacs. The short facts of the case are that assessee has claimed hoarding expenses of Rs.9,35,710/-, out of which amount of Rs.83,900/- and Rs.3,800/- were in the nature of minor repairs. The other expenses were with respect to labour charges for heavy and extensive repairing of existing permanent steel structure

M/s Asian Advertising with cement concrete. The AO was of the view that these expenses wherein the nature of capital expenditure giving enduring benefit and were not in the nature of current repairs. The AO noted that the structure of hoarding mainly consists of frames made with metal reinforced by cement and the entire frame and foundation has been reconstructed. The AO and CIT(A) have relied upon the decision of Hon’ble Supreme Court in the case of Balimal Naval Kishore & Another vs. CIT, 224 ITR 414and held that the expenditure of Rs.8,13,810/- is capital in nature and he allowed the depreciation and disallowance of Rs.6,91,738/- was made. The CIT(A) confirmed the disallowance.

M/s Asian Advertising payer by the co-ordinate Bench of this Tribunal in the case of Empress Advertising (supra) being sister concern of the assessee firm on identical facts and issue’s in the appeal, M/s Empress Advertising v. ITO in for the assessment year 2007-08 whereby Mumbai Tribunal vide its order dated 31-07-2014 (copy of the order placed in the paper book at page 108-111) held as under: -

“3. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the Ld. Counsel for the assessee, the assessee was having 15 hoardings installed in the city during the course of its business of outdoor advertisement and total income of about Rs.88 lacs was generated from this activity giving a net profit of about Rs.18 lacs as shown by the assessee in the P&L account. Therese hoardings were required to be maintained by the assessee and in order to avoid corrosion of the structure and other adverse weathering effects, application of red oxide and painting was regularly required to be done. Similarly, cementing and plastering of foundation was also required to be done regularly in order to maintain the hoarding structures. Keeping in view the nature of business activity carried on by the assessee, we are of the view that expenditure incurred by the assessee to maintain the structures used for hoarding is a revenue in nature especially when the quantum of expenditure incurred is considered in the light of the fact that there were 15 hoarding which were exposed to climate. It is also relevant to note that such expenditure is a recurring expenditure which is required to be incurred by assessee regularly and the same therefore cannot be said to have given any enduring benefit to the assessee in capital field. Moreover, even if the hoarding expenditure claimed by the assessee is inclusive of replacement of M.S. Angles etc., as noted by the A.O., the same is in the nature of M/s Asian Advertising replacement of parts of the hoarding structure which cannot be treated as capital expenditure. As such, considering all the facts of the case, we are of the view that the assessee is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. In that view of the matter, we delete, the disallowance made by the A.O. and confirmed by the Ld. CIT(A) on this issue and allow the appeal of the assessee.”

Respectfully following the afore-stated decision of the Mumbai Tribunal in the case of Empress Advertising(supra) as the facts and issues involved are identical, we allow this ground of appeal raised by the assessee firm in favour of the assessee firm. We order accordingly.”

We find that a similar issue has come up in this year, therefore, respectfully following the same we allow the claim of the assessee. In the result, the assessee’s appeal is allowed.

M/s Asian Advertising and not utilising the borrowed funds in his own business is to reduce the tax liability, therefore, he disallowed 25% of the interest and held that it was not incurred for the business of assessee. The matter carried to CIT(A) and CIT(A) has confirmed the disallowance.

“16. We have considered the rival contention and also perused the material available on record. We have observed that the assessee firm has borrowed funds which were utilized for the purpose of its business. The assessee has made turnover of Rs.54.23 lacs which was with respect to transactions with M/s Creations Publicity P. Ltd., assessee’s group concern and this is the only sale made by the assessee firm during the assessment year. The assessee firm stated that the said sale has been made based on commercial expediency. We have observed that identical matter of allowability of claim of interest expenditure was decided by the Mumbai- Tribunal in for the assessment year 2007-08 vide orders dated 27.05.2014 in the case of group concern of the assessee firm i.e. M/s Creasons as under:

“8. I have carefully considered the submissions of learned Department Representative and perused the record. It is not in dispute that the assessee has obtained loan for business purpose and utilised the same for the purpose of business. Interest paid by the M/s Asian Advertising assessee on such loan was allowed as deduction from year to year. Therefore, there is not dispute with regard to the fact that expenditure is wholly and exclusively incurred for the purpose of business. The assessee is at liberty to arrange its affairs in such a way which would strengthen business relations and the Assessing Officer cannot put himself in the shoes of the businessman to decide as to what would be the course of action that needs to be taken in a given situation. In the instant case the assessee explained the reasons for permitting group concerns long term credit. Merely because the Assessing Officer views its otherwise, expenditure incurred for the purpose of business cannot be disallowed, particularly in the light of the decision of Hon’ble Apex Court in the case of S.A. Builders Ltd. (supra).

9. Having regard to overall circumstances of the case, I am of the firm view that the tax authorities have not made out any case for disallowance of 25% of the total claim. The assessing Officer is directed to allow the claim in its entirety.”

Respectfully following the afore-said orders of the co-ordinate Bench of the Tribunal as detailed above which was on identical issue, we allow the claim of interest expenditure of Rs.34,932/- of the assessee company which was disallowed by the CIT(A) vide orders dated 31.12.2012. We order accordingly.”

Respectfully following the decision in assessee’s own case for AY 2007-08, we allow the claim of the assessee.

M/s Asian Advertising Order pronounced in the open court 17 February, 2017