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2016 (4) TMI 459 - ITAT PUNE

2016 (4) TMI 459 - ITAT PUNE - TMI - Disallowance of sales promotion expenses - Held that:- The Assessing Officer himself has allowed part of the expenditure and had directed to allow the balance in the succeeding years. In the absence of concept of Deferred Revenue Expenditure being recognized by the Income Tax Act, we find no merit in the order of Assessing Officer in this regard. Accordingly, we uphold the order of CIT(A) in allowing the claim of assessee in entirety. The perusal of order pas .....

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ind no error in the aforesaid observations of CIT(A) and upholding the order of CIT(A), we dismiss the ground of appeal relating to sales promotion expenses raised by Revenue in the appeals relating to assessment years 2002-03, 2003-04 and 2004-05 before us.- Decided in favour of assessee

Disallowance for power and fuel expenses - Held that:- On one hand, the residential colony comprises first the residential accommodation provided to the employees and it is the case of assessee befor .....

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towards discharge of said obligation is business expenditure of the assessee company and is duly allowable in the hands of assessee. Further, the expenditure relatable to residential quarters is no doubt to be recovered from the employees or is to be included as perk in the hands of employees of the assessee company, but merely because no such exercise was carried on, does not merit the disallowance of expenditure in the hands of assessee. - Decided in favour of assessee - ITA No.751/PN/2008, IT .....

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tion 143(3) of the Income Tax Act, 19 61 (in short the Act ). Further, the Revenue also filed two appeals against separate orders of CIT(A)-III, Pune, dated 01.12.2008 and CIT(A)-V, Pune, dated 20.09.2012 relating to assessment years 2005-06 and 2007-08 against respective orders passed under section 143(3) of the Income Tax Act, 19 61 (in short the Act ). 2. This bunch of appeals filed by the Revenue relate to the same assessee on identical issue were heard together and are being disposed of by .....

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to the assessee s business and therefore capital in nature. 2. The order of the CIT(A) may be vacated and that of the AO be restored. 3. The appellant craves leave to add, amend or alter any of the above grounds of appeal. 4. Briefly, in the facts of the present case, the assessee was engaged in the manufacture of different life saving antibiotics in the form of tablets, capsules, injectables, etc. The assessee was a government company. During the year under consideration, the assessee had clai .....

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assessee pointed out that the said expenses were incurred on sales promotion of new / re-launched products comprising of physician samples, advertisement, salary and other related expenses. The assessee company had treated the said expenses as Deferred Revenue Expenditure as it was following the said practice of accounting for the last many years. However, the assessee claimed that much of these expenses were of revenue nature and keeping in view the large amount of expenditure involved, the pra .....

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in all the past assessment years and also the Income Tax Act does not recognize the concept of Deferred Revenue Expenditure and the said expenses were allowable under section 37(1) of the Act, was the plea of the assessee. The Asse ssing Officer rejected the contention of the assessee since it itself had deferred expenditure over a period of 5 years. The Assessing Officer was of the view that though the Deferred Revenue Expenditure was in the nature of revenue expenditure, but because of its spe .....

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he Revenue is in appeal against the order of CIT(A). 7. The learned Departmental Representative for the Revenue pointed out that the appeal of the Revenue relating to assessment year 2001-02 was dismissed by the Tribunal because of lack of COD approval. It was further pointed out by the learned Departmental Representative for the Revenue that though the Miscellaneous Application was moved against the order of Tribunal, but the same was also dismissed because of it being time barred. However, the .....

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osses to the tune of ₹ 108.90 crores. 8. The learned Authorized Representative for the assessee on the other hand, pointed out that the nature of said expenses itself reflects that the same was allowable under section 37(1) of the Act, though in the books of account, the same were treated as Deferred Revenue Expenditure. The learned Authorized Representative for the assessee drew our attention to the Notes of Accounts under the head Deferred Revenue Expenses and the expenses on sales promo .....

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at ₹ 13.74 crores has been adjusted against brought forward losses of assessment years 1997-98 and 1998-99. Further, business losses of assessment year 1998-99 pending adjustment to the tune of ₹ 5.49 crores and depreciation losses totaling ₹ 103.40 crores. The issue arising before us is in respect of sales promotion expenses of ₹ 1,40,19,000/-. In the first instance, the allowability or disallowability of the said expenses is of academic nature because of the losses incu .....

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espect thereof, salary and other related expenses. The assessee was treating the said expenses as Deferred Revenue Expenses in its books of account and this practice was being followed from year to year. In the books of account, the assessee was charging revenue over a period of 5/10 years beginning the first year of accumulation. Accordingly, the expenses were booked as Deferred Revenue Expenditure in the books of account. However, in the computation of income, the entire expenditure was claime .....

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ctive of the accounting treatment of the entries in the books of account, the said expenditure was allowable as revenue expenditure in entirety because of the nature of expenditure under the Income Tax Act, since there is no concept of Deferred Revenue Expenditure. The Act only talks about the expenditure being capital in nature or revenue in nature. Once expenditure is held to be allowable in the hands of assessee though to the extent of 1/5th of the total expenditure, it is no doubt that the s .....

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allowed as deduction under section 37(1) of the Act. The nature of expenditure itself reflects that it is for sales promotion and advertisement, and is duly allowable in the hands of assessee as business expenditure under section 37(1) of the Act. In this regard, we find support from the ratios laid down by the Hon ble Delhi High Court in CIT Vs. Citi Financial Consumer Fin. Ltd. (2011) 335 ITR 29 (Del) and in CIT Vs. Salora International Ltd. (2009) 308 ITR 199 (Del) i.e. the cases relied upon .....

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of the expenditure and had directed to allow the balance in the succeeding years. In the absence of concept of Deferred Revenue Expenditure being recognized by the Income Tax Act, we find no merit in the order of Assessing Officer in this regard. Accordingly, we uphold the order of CIT(A) in allowing the claim of assessee in entirety. The perusal of order passed by the CIT(A) relating to assessment year 2001- 02 reflects that the CIT(A) had observed that the Income Tax Act recognized any expendi .....

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romotion expenses raised by Revenue in the appeals relating to assessment years 2002-03, 2003-04 and 2004-05 before us. 11. Now, coming to the second issue raised by the assessee in assessment years 2003-04, 2004-05, 2005-06 and 2007-08. The ground of appeal No.2 raised in ITA No.752/PN/2008 reads as under:- 2. On the facts and circumstances of the case, and in law the CIT(A) erred in deleting the disallowance for power and fuel expenses made by the AO for being nonrelated to business by holding .....

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y the assessee was not directly related to the business activity and since there was no evidence to suggest that the said facility was being taxed in the hands of beneficiaries in the form of perks, etc., therefore the said expenditure was disallowed and added to the total income of assessee. 13. The CIT(A) was of the view that non-inclusion of the value of perquisites in the income of the employees would not be ground for disallowance of expenditure in the hands of the company. In case the amou .....

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rder of CIT(A) in this regard. 15. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer. 16. The learned Authorized Representative for the assessee on the other hand, pointed out that there is no merit in the order of Assessing Officer since whatever was being paid to the employees, the same was being recovered from the employees. He further pointed out that part of expenditure was spent on providing lighting to the residential colony and also .....

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sessee vis-à-vis the deduction on account of power expenses. The residential colony established by the assessee company has been provided to its employees and it is incumbent upon the assessee to provide power facilities to the said area. On one hand, the residential colony comprises first the residential accommodation provided to the employees and it is the case of assessee before us that in case any expenditure is incurred vis-à-vis residential quarters of the employees, the same .....

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