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2009 (7) TMI 1292 - ITAT DELHI

2009 (7) TMI 1292 - ITAT DELHI - TMI - ITA No. 3365 and 3335/Del/08 - Dated:- 6-7-2009 - Vimal Gandhi, President And A.K. Garodia, Accountant Member. J.S. Nauroth and A.K. Singh, DR for the Appellant. Sandeep Sapra and Kamal Khanna for the Respondent. ORDER Vimal Gandhi:- These two appeals by the Revenue for assessment years 2003-04 and 2004-05 are directed against orders of CIT (Appeals) and relate to deletion of disallowance of ₹ 39,60,000/- and ₹ 88,42,980/- claimed towards deferr .....

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the claim of the assessee as "deferred revenue expenses" were to be written off in a period of six years as per books of account. It was further observed that the assessee was following a policy of writing off deferred revenue expenditure in a phased manner over a period of six years. Going by such accounting policy of the assessee, the deferred revenue expenditure incurred on development of samples, according to the Assessing Officer, should have been written off over a period of six .....

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assessee impugned above disallowance in appeal and submitted that entries in the books of account were not determinative of the question whether assessee had earned any profit or suffered any loss. Likewise whether expenditure was to be allowed or not, has to be determined as per provision of law and not on the basis of entries in the books of accounts of the assessee. Reliance for above proposition was placed on the decision of Supreme Court in the case of Kedar Nath Jute Mfg. Co.Ltd. vs. CIT 8 .....

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te Co.Ltd. vs. CIT 124 ITR 1 (SC). The assessee also explained that expenses on account of sample development have been consistently allowed to it in earlier years. Such details are noted by learned CIT (Appeals) in para 6 of the impugned order. 3.1 The learned CIT (Appeals) allowed the expenses as per the following observations: "3.3.1 I have carefully considered the submissions alongwith the documentary evidence as submitted by the appellant alongwith various case laws. I find that the ex .....

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n incurred. 3.3.2 Moreover, there is no provision under the Act by which the revenue expenses incurred in a particular year could be allowed partly in the year in which the same were incurred and the balance expenses in subsequent years as deferred revenue expenses and therefore, it does not make any difference if such expenses had been written off as deferred revenue expenses by the appellant himself in its books as per Clause (i) of Schedule 18 of Notes on Accounts forming part of balance shee .....

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O's reasoning is untenable both factually and legally because even if benefits of revenue expenditure are derived by the appellant over a number of years, then too the total expenditure as incurred which is revenue in nature is to be allowed in the year in which they are incurred/accrued. 3.3.3 It is trite law that revenue expenses are to be allowed in the year in which they are incurred and the AO was not justified in allowing only ₹ 8,12,850/- (1/6th expenses out of the total expense .....

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The learned Departmental Representative contended that as per system of accounting followed by the assessee, deferred revenue expenditure was claimed in the books spread over a period of six years. Therefore, as per above system of accounting which was followed by the assessee, the Assessing Officer was justified in restricting the allowance to 1/6th of expenditure incurred in any particular year. The assessee cannot have two systems of accounting, one in the books of account and the other for f .....

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debited under the head "deferred revenue expenses" in assessment year 1990-91. With similar reasons these were disallowed by invoking provisions of section 254 read with 143(3) of the Income-tax Act. On appeal, the CIT (Appeals) allowed the expenses, notwithstanding that expenses were not claimed in the return. The appeal of the revenue against the order of CIT (Appeals) was dismissed. Thereafter revenue took the following question to the Hon'ble High Court: "Whether the Trib .....

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ear in which it is incurred. It cannot be spread over a number of years even if the assessee had written it off in his books over a period of years. Reliance can be placed on Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802 (SC)." The appeal of the Revenue was dismissed. 5.2 Shri Sapra also drew our attention to the decision of Hon'ble Gujarat High Court in the case of DCIT vs. Core Healthcare Ltd. 221 CTR 580 where while allowing advertisement expenses, in the y .....

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correct approach because insofar as the IT Act is concerned, there is no such category of deferred revenue expenditure. Similarly, making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or in .....

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ss resulted in any enduring benefit, so as to be treated as capital in nature. Advertisement expenses incurred by assessee to create brand image was therefore, allowable as revenue expenditure. - Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113: (1980) 124 ITR 1 (SC), Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1: (1989) 177 ITR 377 (SC) and Hindustan Commercial Bank Ltd., In re (1952) 21 ITR 353 (All) relied on; Core Health Care Ltd. vs. Dy. CIT (2001) 70 TTJ (Ahd)TM 490 affir .....

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6. Having given our consideration to the facts and circumstances of the case and in the light of decisions cited at the Bar, we do not find any substance in these appeals of the revenue. It is well settled preposition that question whether claim of expenditure is to be allowed or not, has to be considered as per statutory provision and not on the basis of entry made in the books of account. The jurisdictional High Court as well as Gujarat High Court have taken the view that assessee can be allo .....

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