TMI Blog2010 (2) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... ience. 2. For the sake of brevity the facts in ITA No.6424/M/07 for Assessment Year 2003-04 in the appeal filed by the revenue are that the assessee company is engaged in the business of manufacturing and selling tea and other products. It filed return declaring a loss of Rs.16,12,68,775/-. During the course of assessment it was interalia observed by the Assessing Officer that the assessee has incurred heavy expenditure on brand promotion amounting to Rs.6,82,43,142/- of which 45,70,112/- was debited to the PandL A/c. for the year under consideration. The balance expenditure of Rs.6,36,73,030/- has been deferred over a period of 3 years as deferred revenue expenditure. However, in its return, the assessee company has claimed the entire expenditure incurred on brand promotion as allowable expenses. Accordingly the assessee was asked to substantiate its claim. The assessee vide its letter dt. 23.11.2005 submitted his explanation which is reproduced as under: "1. Brand Promotion expenses During the year under consideration, the assessee company started manufacturing and marketing tea under the brand name 'Godrej'. The company had to incur huge expenses for substantial mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention. 3. However, the AO observed that the assessee in the return has claimed entire expenditure as revenue expenditure but, in the books the assessee has debited Rs.45,70,112/- out of total expenditure of Rs.6,82,43,142/- and the balance expenditure of Rs.6,36,73,030/- has been deferred in the books of the assessee company to be written off over a period of 3 years, thus the assessee cannot blow hot and cold in this manner. The A.O was of the view that the expenditure should be allowed over a period of 3 years in the same manner as has been treated in the books of account and accordingly he disallowed Rs.6,36,73,030/- and added to the income of the assessee. The AO after making some other disallowances completed the assessment at a loss of Rs.8,11,17,664/- vide order dt.30.12.2005 passed u/s.143(3) of the Income tax Act, 1961 (the Act). On appeal, the ld. CIT(A) while observing that the AO had not disputed the expenditure on the ground that it has not accrued during the previous year or that it is not revenue in nature and keeping in view the ratio of decisions including the decision in Madras Industrial Investment Corporation Limited vs. CIT (1997)225 ITR 802(SC) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,70,112/- in the PandL A/c. and balance expenditure of Rs.6,36,73,030/- has been treated as deferred revenue expenditure over a period of three years. However, in the return of income the assessee has claimed entire brand promotion expenses as revenue expenditure. The AO in view of entries recorded in the books of account treated balance expenditure of Rs.6,36,73,030/- as deferred revenue expenditure and disallowed the same with the observation that the expenses would be allowed in subsequent years as per books of account. On appeal, the ld. CIT(A) while observing that the AO had not disputed that the expenses are not revenue in nature and the expenses have been incurred during the year deleted the disallowance made by the AO. Here it is necessary to take note of the cases on the issue. 8. In CIT vs. Berger Paints(India) Ltd.(No.2)(Cal.)(supra), it has been held(page 504 head note): "Held,(i) that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the assessee to it in its own books of account. Advertisement expenses are normally to be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isement must necessarily be capital expenditure. The apex court decisions on which reliance has been placed by the Tribunal namely, Empire Jute Co. Ltd.,[1980] 124 ITR 1(SC) and Alembic Chemical Works Co. Ltd., [1989] 177 ITR 377(SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of the given case. The expression "asset or advantage of an enduring nature" has been evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions. Applying the aforesaid settled legal position to the facts of the case, it is not possible to agree with the appellant-Revenue that the advertisement expenses incurred by the respondent-assessee at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit, so as to be treated as capital in nature." 11. In CIT vs. Bhor Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record regarding accrual of any specific revenue in the years under consideration or subsequently over a defined period with the incurring of the said expenditure. The Assessing Officer himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the ld. Commissioner of Income tax (Appeals)." 14. Applying the ratio of aforesaid settled legal position to the facts of the present case we are of the view that making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure and the same can not be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. It is not the case of the revenue that the expenditure incurred by the assessee on brand promotion are not revenue in nature or have not been incurred wholly and exclusively for the purpose of business. There is nothing to suggest that with this expenditure, any asset tangible or intangible, has been created. There is no law under the Act to say that the revenue expenditure is deferred revenue expenditure. The A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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