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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the Revenue against the order of the CIT(A)-V, New Delhi dated 18.10.2006 on the following ground: “1. The learned CIT(A) has erred on facts and in law in directing the Assessing Officer to allow brand promotion expenses of Rs.56,78,515/- when the same had rightly been considered by the Assessing Officer as expenditure, which granted benefits of enduring nature and which called for allowance over a period of five years.”
2. The brief facts of the case are that the assessee filed its return of income on 24.11.2003 for the assessment year 2003-04 declaring income of Rs.1,63,77,399/-. The return was processed on 03.02.2004 u/s. 143(1). Subsequently, the return was revised on 17.12.2004 declaring income of Rs.1,38,04,037/-. The case was selected for scrutiny and notice was issued and served upon the assessee. During the scrutiny assessment, the AO noticed that the assessee had claimed a sum of Rs.70,98,143/- as brand building expenses and treated it as revenue expenditure. The same was deferred in the books of account, but claimed as revenue expenditure for the purpose of Income-tax. The ld. AO found that this expenditure was incurred for promotion of the brand “Beetel” by the assessee and the same is deferred over a period of five years as per accounting policy followed by the assessee. In view of this, the AO allowed only 1/5th of above expenses and disallowed 4/5th because the assessee will get benefit of these expenses over the years.
3. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A) and the ld. CIT(A) allowed the appeal of the assessee following the precedent that there was a similar order made by CIT(A) for the assessment year 2001-02. The Revenue aggrieved by the order of ld. CIT(A) is in appeal before the Tribunal. 4. The learned DR relied upon the order of the Assessing Officer. He vehemently opposed the order of the ld. CIT(A) and submitted that the AO has made reasoned order and does not require any interference. He further submitted that the assessee himself has treated it in his books as deferred revenue expenditure over the years, therefore, the tax should also be calculated accordingly.
The ld. AR relied upon the order of the CIT(A) and submitted that it is a revenue expenditure. The same was allowed by the ld.CIT(A) in assessment year 2001-02. Hon’ble ITAT has dismissed the appeal of the Revenue in this matter for the assessment year 2001-02. This expense is covered u/s. 37(1) of the Act. In the Income-tax Act, there is no any provision for deferred revenue expenditure. There are only two types of expenditure considered in the I T Act – either capital or Revenue. In this regard he has placed reliance on the order of ITAT in & 3136/Del./2005 for the assessment year 2001-02 in the case of assessee itself.
We have heard the arguments of both the sides and carefully perused the material placed on record before us. Hon’ble ITAT, Delhi in ITA No. 3135 & 3136/Del./2005 in the case of assessee itself for the assessment year 2001-02 in the identical facts and circumstances, has decided the similar issue in favour of the assessee and dismissed the appeal of the Revenue. The relevant findings of the ITAT given at para 28 of the aforesaid order dated 14.03.2008 read as under : “28. We have carefully considered rival submissions. The reasons for disallowance is limited to the extent of holding that in respect of the expenditure, the assessee received benefit over a period of many years and accordingly, 1/5th of the expenditure was allowed. In our opinion, this contention is not tenable in law. Firstly, the concept of deferred revenue
expenditure is not known under the Income-tax Act. The expenditure can be either capital expenditure or revenue expenditure. If the expenditure is revenue in nature and claimed u/s. 37, the same is allowable in whole and cannot be spread over number of years. Admittedly, the advertisement and publicity expenses are revenue expenses. Admittedly, the advertisement and publicity expenses are revenue expenses. No new asset is created by incurring the expenses. It is also not the case of the AO that the expenses are capital expenditure. The finding of the learned CIT(A) that the expenditure are wholly and exclusively for the purpose of business and which is not challenged in appeal. We, therefore, confirm the deletion of disallowance. The judgment relied by the learned DR will not apply as we are not called upon to determine the nature of expenses, i.e. whether capital or revenue. This ground accordingly fails.”