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2019 (6) TMI 661 - ITAT CHENNAIDisallowance of Sales Promotion, Advertisement and Publicity Expenses - allowable business expenses u/s 37 - the said expenditure is hit by the CBDT Circular No.5 / 2012 - HELD THAT:- The expenditure incurred by the assessee towards sales promotion, advertisement and publicity expenses were incurred in line with the business of the assessee and that the revenue had not doubted the genuineness of the incurring of such expenditure.It is well settled that the revenue cannot step into the shoes of the assessee to decide whether the expenditure is required to be incurred by the assessee or not where the genuineness of the same is not questioned. AO has to see whether the particular expenditure incurred is not personal in nature , is not capital in nature and incurred wholly and exclusively for the purpose of business of the assessee. When assessee is able to provide the business nexus of incurrence of certain expenditure with supporting documents, it cannot be simply denied / rejected by the revenue merely on the ground of propriety, which action would lead to, travelling beyond the brief and stepping into the shoes of the assessee by the revenue. We therefore hold that the expenditure incurred by the assessee towards sales promotion, advertisement and publicity is an allowable expenditure. The assessee had only distributed the DVD players, silver coins, calenders and diaries to Tablets India Ltd which was marketing the products of the assessee. There was absolutely no distribution of gifts made by assessee to any medical practitioners and hence the applicability of CBDT Circular No. 5/2012 itself deserves to be rejected. Circular issued by the CBDT cannot enlarge the scope of a different regulation issued under a different act so as to impose any kind of hardship or liability to the assessee. - Decided in favour of assessee. Claim of deduction u/s 80IC - whether disallowance of aforesaid expenditure would correspondingly go to increase the claim of deduction u/s 80IC ? - HELD THAT:- The issue of whether deduction u/s.80IC of the Act should be computed on the profits as increased by the disallowance u/s.37(1) of the Act is covered in favour of the assessee by the decisions in CIT V.Gem Plus Jewellery India Ltd [2010 (6) TMI 65 - BOMBAY HIGH COURT] and DCIT V. Vertex Infosoft Solution (P) Ltd [2014 (11) TMI 975 - ITAT CHANDIGARH] The issue now stands settled by the CBDT Circular No.37 / 2016 dated 02.11.2016 where the Board had clarified that the deduction under Chapter VI-A will be on such profits including disallowance under sections 32, 40(a)(ia), 40A(3), 43B etc of the Act which will include disallowance made u/s.37(1) as well. The computation of income made by the ld AO, that the ld AO had disallowed the entire Sales promotion, advertisement and publicity expenses u/s 37(1) of the Act separately. Further he had again reduced the claim of deduction u/s 80IC of the Act by the very same amount of sales promotion, advertisement and publicity. This would effectively result in double disallowance made by the ld AO which we direct the AO to rectify. Disallowance u/s 14A under normal provisions of the Act - disallowance should be restricted to the exempt income - HELD THAT:- Without going into the veracity of workings of disallowance made under Rule 8D(2) of the Rules made by the AO and without going into the basis of suo moto disallowance made by the assessee in the return of income, we direct the ld AO to restrict the disallowance made u/s 14A to the extent of exempt income i.e ₹ 12,73,586/- under normal provisions of the Act by accepting the additional ground raised by the assessee. Disallowance u/s 14A in computation of book profits u/s 115JB - HELD THAT:- The issue now stands settled in the case of ACIT V. Vireet Investment Pvt Ltd [2017 (6) TMI 1124 - ITAT DELHI] as held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imported into in clause (f) of Explanation to Section 115JB(2) - disallowance of actual expenditure incurred for earning exempt income is required to be made under clause (f) of section 115JB(2) - the assessee itself had disallowed a sum of ₹ 9,89,496/- u/s 14A in the return of income on some actual basis. In order to settle the disputes to rest, we direct the AO to consider this sum of ₹ 9,89,496/- for disallowance under clause (f) of Explanation to Section 115JB(2) of the Act as direct expenditure incurred for earning exempt income.
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