TMI Blog2004 (4) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... same during the year. However, while filing the return of income, he had claimed the entire amount of advertisement expenditure. The Assessing Officer relied on the entries in the books of account and disallowed 4/5th of the total advertisement expenditure claimed as deduction, and allowed only the expenditure debited to the profit and loss account in this year. On appeal, the CIT(A) confirmed the said disallowance. Hence, the assessee preferred second appeal on this aspect. 7. There is no dispute about the fact that this is an advertisement expenditure incurred for launching a new product and that this is revenue in nature and that the expenditure is laid out wholly and exclusively for the purpose of business. The CIT(A) at page 9 of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly considered the rival submissions. The undisputed fact is that the expenditure is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. The Hon'ble Supreme Court in the case of Madras High Court in Madras Industrial Investment Corpn. held as follows- "...Section 37(1) further requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, it is very clear that though 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 Hon'ble Supreme Court observed that in certain cases, the facts may justify the assessee to spread over and claim the expenditure over a period of ensuing years. 11. In this case, the assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . is distinguishable on facts. Coming to the Supreme Court decision in the case of Madras Industrial Investment Corpn. Ltd., it was a case where the assessee had paid upfront discount for the debentures issued. The lump sum payment of discount which is an upfront, one time payment, secured benefit to that assessee over a number of years. In fact the upfront payment is calculated by discounting the future instalments of interest payable and it is like prepaid interest. The period for which the assessee secured benefit is specified. That assessee by making one time payment had avoided paying interest on debentures in each of the next five years. The annual compulsorily incurable expenditure on interest has been discounted and paid upfront as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied by Revenue have limited application and can be invoked when expenditure is incurred in lump sum, essentially to get rid of future annual expenditure which is necessarily to be incurred to carry on the business. This is not a case where annual future mandatory expenditure is done away with by a lump sum upfront expenditure. 12. As far as the entries in the books of account are concerned, it is well settled that they do not clinch the issue either way, and they do not determine the allowability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and in the case of CIT v. Indian Discounts Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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