TMI Blog2016 (12) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in this regard and also to the AO for rebuttal of the same. - Decided in favour of assessee for statistical purposes. Expenditure on Advertisement Film - Held that:- In today’s world where business processes and products change rapidly, it cannot be said that any advertisement expenditure incurred by the assessee will be long lasting as most advertisement films have a short life. Most leading brands in different business keep on changing their advertisements from time to time based on the popularity of their brand ambassadors. In this factual matrix of the case on hand as discussed ,and respectfully following the decision of the Hon'ble Bombay High Court in the case of Geoffrey Manners & Co. Ltd. (2009 (2) TMI 13 - BOMBAY HIGH COURT ) which applies squarely to the facts of the assessee in the case on hand, we uphold the order of the learned CIT(A) in holding that the said expenditure incurred by the assessee on making of short commercial advertisement film to be revenue in nature - Decided in favour of assessee - ITA No. 2801/Mum/2012, ITA No. 2137/Mum/2012 - - - Dated:- 18-11-2016 - Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain , Judicial Member For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made by the A.O. of ₹ 1,05,54,142/- u/s.14A of the Act on the ground that there was no actual expenditure incurred by the assessee for earning the exempt income without appreciating the fact that the disallowance was rightly made by the A.O. as per Rule 8D which is applicable w.e.f. A.Y. 2008-09. (iii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating the expenditure incurred for advertisement films as revenue in nature without appreciating the fact that the assessee becomes owner of the advertisement films which are reusable over indefinite period of time and which gives enduring benefit to the assessee. 2. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored. 3.2 Assessee s appeal in ITA No. 2891/Mum/2012 for A.Y. 2008-09 Assessee has raised the following grounds of appeal: - 1. Disallowance under section 14A of the Act ₹ 1,05,54,142/- (a) The Commissioner of Income-tax (Appeals) -16, Mumbai [CIT(A)] has erred in not accepting the legal plea raised by the appellant during the course of appellate proceedings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid suo moto disallowance made by the assessee has not been correctly carried out as per the provisions of rule 8D of the I.T. Rules, 1962 and proceeded to compute the disallowance under section 14A r.w. rule 8D at ₹ 1,99,65,779/-. On appeal, the assessee challenged this disallowance of ₹ 199,65,779/- made by the AO under section 14A r.w. rule 8D, seeking deletion of the same entirely. Without prejudice to this, the assessee also contending that if at all disallowance under section 14A r.w. rule 8D was to be made, AO should have excluded interest income directly attributable to any taxable income; under rule 8D the AO ought not to have considered investment in such debentures, share warrants, the income of which is not exempt from tax etc. At para 2.2.2 of the impugned order it is also noted by the learned CIT(A) that the assessee had further submitted that the disallowance under section 14A of the Act should be restricted to ₹ 9,46,325/- and contended that the learned CIT(A) should entertain and allow the assessee s claim, if permissible in law, even though that claim was not made in the return of income, but was made in the course of assessment proceedings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (7) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not firm part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/ income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of total income under the Act . It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction, though of the nature specified in sections 15 to 59 but related to the income not forming part of total income, could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditure between taxable and nontaxable has, in principle, been now widened under section 14A. 2.3.3 The Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss in the disallowances offered by the appellant in its computation. Further, as pointed out by the appellant said computation' suffers from the taking the figures of investment and attributing the cost of interest expenses. The appellant has pointed out that the money borrowed on interest has been actually utilized for earning the income which is taxable and the interest income so earned has been also offered to tax by it. Further, the investment in share application money debentures and share warrants are not exempt from the levy of income tax should not have been part of the disallowances. In view of the foregoing, I am of the confirmed view that the provisions of section 14A are not rightly invoked by the Ld. AO and the computation made by the Ld.AO suffers from factual inaccuracies. Therefore the Ld. AO is directed to restrict the disallowances to the extent offered by the appellant i.e. ₹ 1,05,54,142/- only. .This ground of addition is thus allowed in. favour of the appellant. 4.3.3 In view of the fact that the learned CIT(A) has not addressed the assessee s claim made before him that the disallowance under section 14A r.w. rule 8D ought to be not more than & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter as emanate from the record are that in the course of assessment proceedings the AO observed that the assessee had debited an amount of ₹ 70,50,500/- paid to Bappaditya Roy Pictures towards making a short commercial advertisement film to be shown on television, claiming the same to be revenue in nature. The assessee s explanation did not find favour with the AO, who was of the view that such expenses on advertisement/ business promotion is very crucial and the copy of the advertisement film becomes capital asset in the hands of the assessee; is bound to be used repeatedly by the assessee over a long period of time to promote its business, thereby resulting in enduring benefit to the assessee. In that view of the matter, the AO disallowed the assessee s claim and held the expenditure to be capital in nature and allowed depreciation thereon. On appeal, the learned CIT(A) allowed the assessee s claim following the decision of the Hon'ble Bombay High Court in the case of CIT vs. Geoffrey Manners Co. Ltd. (2009) 315 ITR 134 (Bom). 5.3.2 According to the assessee the above expenditure of ₹ 70,50,500/- incurred towards making a short commercial advertisement film i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect of promoting ongoing products of the assessee herein. 5.3.4 In the aforesaid decision (supra), the Hon'ble Bombay High Court has also distinguished the decision in the case of Patel International Film Ltd. (supra) relied on by the AO. We concur with the observations of the learned CIT(A) that in today s world where business processes and products change rapidly, it cannot be said that any advertisement expenditure incurred by the assessee will be long lasting as most advertisement films have a short life. Most leading brands in different business keep on changing their advertisements from time to time based on the popularity of their brand ambassadors. In this factual matrix of the case on hand as discussed from para 5.1 to 5.3.3 of this order (supra), and respectfully following the decision of the Hon'ble Bombay High Court in the case of Geoffrey Manners Co. Ltd. (supra) which applies squarely to the facts of the assessee in the case on hand, we uphold the order of the learned CIT(A) in holding that the said expenditure incurred by the assessee on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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