M/S. LA OPALA RG LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 11(1) [FORMERLY JCIT, RANGE-12, KOLKATA ], KOLKATA

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ITA 1865/KOL/2024Status: DisposedITAT Kolkata16 December 2024AY 2012-2013Bench: SHRI RAJESH KUMAR (Accountant Member), SHRI PRADIP KUMAR CHOUBEY (Judicial Member)8 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that expenses for styling and designing by a renowned designer for brand endorsement are for the purpose of business and allowable. However, prior period expenses were not allowed as the assessee failed to provide sufficient evidence that they crystallized in the current year.

What were the facts?

The assessee incurred expenses for styling and designing by a famous designer, which the AO disallowed as not being for brand endorsement. The assessee also debited prior period expenses to its P&L account.

What were the issues?

Whether expenses incurred for styling and designing by a celebrity are for business purposes and allowable, and whether prior period expenses are deductible in the current year without proper justification.

Which sections of the Income-tax Act were involved?

Section 37,Section 40(a)(i),Section 195,Section 41(1),Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, KOLKATA

For Appellant: Shri Ashok Kumar Tulsyan, &
For Respondent: Shri Ruchika Sharma, DR
Hearing: 21.11.2024Pronounced: 16.12.2024

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 31.07.2024 for the AY 2012-13.

2.

At the time of hearing, the issue raised in ground no.1 is not pressed, hence, dismissed as not pressed.

3.

Ground no.2 is against the confirmation of addition of a sum of ₹25,36,900/- by ld CIT(A) as made by the AO u/s 37 of the Act, in relation to expenses incurred on account of endorsement, styling and designing expenses paid to Mr. Manish Malhotra.

5.

In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee for the same reason that he is providing styling and designing services and not brand endorsement and therefore, the ld. AO has rightly disallowed the same.

6.

After hearing the rival contentions and perusing the materials available on record, we find that the assessee is carrying on the business of manufacturing of Opal & Crystal Glassware and generation and sale of electricity from wind farm. We note that the assessee hired Mr. Manish Malhotra, a leading designer for endorsing its brand of crockery and table ware. We note that the ld. AO has not doubted the

7.

Ground no.3, the issue raised in this ground is against the confirmation of addition of ₹11,54,885/- as made by the ld. AO on account of prior period of expenses. The facts in brief are that during the course of assessment proceedings, the ld. AO found on the perusal of clause 22(b) of tax audit report that prior to period expenditure amounting to ₹11,54,885/-, were debited to Profit and Loss account which are related to earlier assessment years. Accordingly, the same were added to the return of income of the assessee.

8.

In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee by holding that and observing as under: -

“6.1 I have gone through the assessment order and grounds of appeal. The Id. AO has carried out multiple addition to total income. Aggrieved by said assessment order, the appellant has filed appeal with multiple grounds which are adjudicated as under: Ground 1 6.2 that the appellant has entered into an agreement with Shri Manish Malhotra and has acquired the exclusive rights to utilize Manish Malhotra's name and image and to avail his services for the advertisement, promotion and endorsement of the products. the Ld A.O, in order to verify the nature and genuineness of the said transaction has issued notice u/s 133(6) to Shri Manish Malhotra. Against the said notice Mr. Manish Malhotra and his A/R has made the reply, stating that the payments were received towards styling and designing provided by Manish Malhotra. The A.O on the basis of said reply has concluded that the payment of Rs. 25,36,900/- has been made by the appellant towards styling and designing of Clothes and not the tableware /crockery sets produced by the company. Thus, the Ld.AO disallowed amount paid since it was not towards business of the appellant.

10. The issue raised in ground no. 4 is against the confirmation of addition of ₹24,624/- as made by the ld. AO u/s 14A read with Rule 8D (2)(ii) of the Rules.

11. After hearing the rival contentions and perused the materials available on record, we find that in this case, the assessee has sufficient owned funds as is apparent from para no.6.23 of the appellate order, wherein the ld. CIT (A) noted that the assessee’s own funds were ₹55,65,29,740/-, whereas total investments in shares were amounting to ₹8,79,983/-. The ld. CIT (A) dismissed the appeal of the assessee on the ground that the assessee has not proved by way of documentary evidences that investments were made out of such interest free funds. In our opinion, apparently on the basis of balance sheet, the interest free funds available with the assessee are more than the investments in shares and securities ,then a presumption has to be drawn that investment in shares and securities were made out of interest free funds available to the assessee. Accordingly, ground no.4 of the appeal is allowed.

12.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 16.12.2024.

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