2014 (2) TMI 608 - AT - Income Tax

Claim of expenditure on advertisement u/s 37 of the Act Held that - The entire expenditure is incurred for the purposes of advertising the assessee s merchandise in the newspaper - The assessee company is a corporate merchandise provider, advertising about various brands and products being provided by the assessee is a must, in order to attract business - Just because, assessee has claimed the amount as deferred revenue expenditure in the Profit & Loss Account, the nature of expenditure does not change the decision in Amar Raja Batteries Ltd. V/s. ACIT 2004 (4) TMI 280 - ITAT HYDERABAD-B followed - the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred - if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business - the assessee has correctly claimed the expenditure and it should be allowed in its entirety Decided in favour of Assessee.

Summary

Issues:
Claim of expenditure on advertisement for business purposes.

Analysis:
The appeal was filed against the order of the CIT(A) III, Hyderabad regarding the claim of expenditure on advertisement. The assessee, a company engaged in promotional corporate merchandise, filed returns showing income under normal provisions and MAT provisions, with a claim of advertisement expenditure. The Assessing Officer disallowed a portion of the claimed amount invoking the matching principle, stating the benefit of the advertisement was enduring. The CIT(A) upheld this decision, leading to the appeal.

The main contention was whether the entire advertisement expenditure should be allowed as a deduction under S.37(1) as revenue expenditure. The assessee argued that the expenditure was revenue in nature and wholly for business purposes, citing relevant legal precedents. The Departmental Representative supported the Assessing Officer's decision based on the terms of the agreement extending beyond one year.

The Tribunal analyzed the nature of the expenditure, emphasizing that it was revenue and incurred for advertising the merchandise. The matching concept was deemed inapplicable as no enduring benefit or corresponding asset was created. Referring to a similar case, the Tribunal highlighted the Supreme Court's stance on revenue expenditure, stating that if wholly and exclusively incurred for business purposes, it should be allowed in the year of incurrence.

The Tribunal distinguished other cases cited by the Revenue, emphasizing the indeterminacy of the benefit period in the present case. It rejected the argument that entries in the books of account determined the allowability of expenditure, citing relevant legal precedents. Ultimately, the Tribunal held in favor of the assessee, allowing the entire advertisement expenditure for the product launch in the relevant year.

In conclusion, the Tribunal allowed the appeal, stating that the assessee correctly claimed the expenditure for the year under consideration, and therefore, the entire expenditure should be allowed.