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2016 (9) TMI 211 - ITAT DELHI

2016 (9) TMI 211 - ITAT DELHI - TMI - Revision iu/s 263 - allowance of advertisement and publicity expenditure - Held that:- As decided in CIT V Vodaphone Essar South Limited [] CIT Could not chose to follow route of section 263 of the act to treat an expenditure as capital expenditure when ld AO has allowed these expenditure as revenue expenditure after due inquiry. Further, the assessee has stated that expenditure on publicity and advertisement is to be treated as revenue in nature and is allo .....

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owing the deduction of advertisement and sales promotion expenditure, we are of the view that ld CIT is no justified in invoking jurisdiction u/s 263 of the Act on this count. - CSR expenditure - Held that:- CSR activities of the assessee cannot be held to be disallowable. It was not shown before us that the view taken by the Assessing Officer is erroneous in allowing these expenditures. In view of above discussion it is apparent that the order of ld AO is not unsustainable in law, there are .....

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f the assessee which makes it capital expenditure and further no contrary decision was pointed out which suggests that CSR expenditure are not deductible u/s 371(1) for the respective assessment year. - Decided in favour of assessee - ITA No.1784/Del/2012 - Dated:- 29-7-2016 - SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh. Ajay Vohra, Sr. Adv Ms. Deepashree Rao, CA For The Revenue : Smt. Paramita M. Biswas, CIT DR ORDER PER PRASHANT MAHARIS .....

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ts and in law in initiating revisionary proceedings under section 263 of the Act, solely on the basis of audit objections, without any independent application of mind. 1.2 That the impugned order dated 24.02.2012 is without jurisdiction, bad in law and void ab initio inasmuch as the assessment order passed by the assessing officer was neither erroneous nor prejudicial to the interests of the Revenue. 1.3 That the CIT erred on facts and in law in failing to appreciate that both the issues with re .....

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found to be capital in nature". 2.1 That the CIT erred on facts and in law in passing the impugned order on grounds other than the grounds stated in the show cause notice, inasmuch as in the show cause notice, the only issue which was raised pertained to the terms over which the above expenditure was allowable, thereby agreeing that the same was revenue in nature, whereas in the impugned order, the CIT has questioned the classification of the expenditure as revenue expenditure. 2.2 The CIT .....

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re not incurred wholly and exclusively for business purpose. 3.1 That the CIT erred on facts and in law in failing to appreciate the nature of the CSR expenses and the purpose for/expediency on account of which the same had been incurred by the appellant. 3. Though assessee has raised as many as three grounds but all the grounds are against the order u/s 263 of the Income Tax Act arguing that the LD CIT has erred in assuming jurisdiction u/s 263 of the act as order passed by ld AO is not erroneo .....

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f ₹ 146600000/-. The show-cause notice says that the expenditure incurred gave enduring benefit which would be realized over a longer period and therefore, this expenditure should have been treated as deferred revenue expenditure and only 1/5 of the same should have been allowed as deduction. The ld AO allowed it fully and therefore the order is erroneous. b. allowability of corporate social responsibility expenditure of ₹ 85314703/-. The notice says that since the said expenditure i .....

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ssessing Officer. The ld CIT held:- i. on the issue of advertisement and publicity that the amounts spent by the assessee under this head was not actually spent only on advertisement but for exhibition, campaigns, corporate films etc. which resulted into enduring benefit to be realized over a longer period and further the AO has not caused proper enquiries to ascertain the revenue nature of the claim but accepted it without a verification. Therefore, the order was found to be erroneous and preju .....

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e of the assessee. The assessee aggrieved with the order has filed this appeal before us challenging the order passed u/s 263 of the Act. 7. Against this assessee has filed this appeal before us. 8. Assailing the above order Ld AR first referred to the show cause notice u/s 263 of the Act at page 236 and 237 of the Paper Book and then took us to reply dated 06.09.2011 submitted before the ld CIT stating that complete details of advertisement and publicity expenditure are available. It was furthe .....

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submitting that the details were provided to the ld AO on 18.11.2009 and such expenditure were allowed after proper verification by the Assessing Officer. He further stated that such expenditure is not all capital in nature as there is no enduring benefit arising to the assessee. He relied on the decision of the Hon ble Delhi High Court in case of CIT Vs. CITI Financial Consumer Finance Ltd. 2011 TIOL 309 (HC) (Del). He further referred to the letter dated 06.06.2011 wherein the details of adve .....

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at the time of initiating proceedings u/s 263 of the Act. For this he submitted that on the advertisement expenditure it was stated in notice as deferred revenue expenditure whereas the order u/s 263 says that they are capital in nature. He further submitted that once an issue has been examined by the Assessing Officer the ld CIT cannot set aside the issue to the Assessing Officer to make an enquiry in a particular manner, in nutshell he submitted that the AO allowed the expenditure after proper .....

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with respect to advertisement and publicity expenditure . Therefore according to him the order of the LD AO is correct and there is no error and also passed after due inquiry. Hence on this count it cannot be revised u/s 263 by ld CIT. On CSR expenditure he submitted they are held to be allowable by many courts. He further submitted that the view taken by the Assessing Officer cannot be said to be unsustainable and therefore the order u/s 263 is not a valid order. He relied on plethora of case .....

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ssee has earned enduring benefit to the business of the assessee and ld AO has not caused proper enquiry to ascertain the revenue nature of the claim of the assessee and without verification has allowed the claim. It is demonstrated that Vide letter dated 10.11.2009 Assessing Officer asked the information vide para no. 12 about the break-up of advertisement and publicity expenditure. Vide letter dated 10.11.2009 assessee has submitted vide Sl No. 13 details of advertisement and publicity expendi .....

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ses incurred by the assessee are purely of advertisement and publicity expenses, which are not shown to have resulted in to any enduring benefit. On examining the nature of expenditure submitted by the assessee we failed to understand how the same are not of revenue nature. The LD CIT has not given any reason for holding that they are of capital in nature. Further it is not a case of No inquiry . The ld CIT has stated that the ld Assessing Officer has not caused proper enquiries to ascertain the .....

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is allowable to the assessee. There is no material on record which suggests that such expenditure is capital in nature. According to us as in the original assessment this issue was duly examined and a conscious decision has been arrived by the ld AO at in allowing those expenditure. We do not subscribe to the view that provision of section 263 of the act can be used to make inquiry by the ld AO in the manner desired by the ld CIT and according to his satisfaction. Hon'ble Delhi High court i .....

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e when ld AO has allowed these expenditure as revenue expenditure after due inquiry. Further, the assessee has stated that expenditure on publicity and advertisement is to be treated as revenue in nature and is allowable fully in the year in which it is incurred. The above proposition is also supported by several judicial pronouncements. Therefore, the view taken by the Assessing Officer in allowing this expenditure cannot be said unsustainable in law. In view of the above facts and also the dec .....

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ther expenses wherein these expenses are grouped asking for the purpose and its nature and note on its allowability as revenue expenditure was asked. The same query was replied by para No. 4 of letter dated 10.11.2009 explained. In particular para the CSR expenses of ₹ 8.53 crores was mentioned. Therefore, it is apparent that specific questions on account of the claim of the expenses was raised by the Assessing Officer during assessment proceedings and assessee replied to the queries of th .....

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e previous years and subsequent years as stated by the Assessing Officer in his reply before the ld CIT which is reproduced at Page 22 and 23 of the order of the ld CIT u/s 263 of the Act wherein the Assessing Officer has stated that this proposal u/s 263 was made taking into consideration mistake reported by the audit party. As the above expense have been allowed to the assessee in past years as well as subsequent years by the revenue and no action u/s 263 or 147 of the Act has been initiated t .....

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a business expenditure in several judicial precedents notably amongst them is Hon ble Delhi High Court in case of CIT Vs. DTTDC Ltd 350 ITR 1 wherein, expenditure on development of flyovers etc was held to be allowable. Furthermore, coordinate bench in 96 ITD 186 has held that even implementation of the 20 points programmes expenditure are also allowable u/s 371(1) of the Income Tax Act in case of Public Sector Undertaking. In view of these judicial precedents the above expenditure on CSR activi .....

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show cause notice ld CIT has taken a view that the advertisement sales promotion expenditure are of deferred revenue expenditure where in the order u/s 263 , he has take a vi that these are in the nature of capital expenditure. We are of the view that now this issue does not required to be adjudicated in view of the decision of Hon'ble Supreme Court in case of CIT V Amitabh Bacchan [384 ITR 200] that section 263 does not require any specific show cause notice detailing specific grounds on w .....

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said that ld CIT has to restrict on the issues and view expressed in the show cause notices only, if issued. 13. Hon ble Supreme court in case of CIT V Max India Limited has held that 2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd.(supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under section 263 has to be read in conjunction with the expression "erroneous" order p .....

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revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General on interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection he has further submitted that in fact 2005 amendment which is clarificatory and retrospective in nature itself indicates .....

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