Commissioner of Income Tax v. Citi Financial Consumer Finance Ltd.

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The Tax Publishers2012 TaxPub(DT) 0100 (Del-HC) : (2011) 335 ITR 0029 INCOME TAX ACT, 1961 --Business expenditure--Advertisement and publicity expensesRevenue treated deferred expenses--In the assessment year 2001-02, the assessee-company claimed an expenditure of Rs. 3.93 crores on account of advertisement and publicity expenditure as revenue expenditure and the same had been debited to the profit and loss account. The Assessing officer was of the view that this expenditure cannot be termed as expenditure relevant exclusively for the period of 12 months under consideration during the said assessment year. Such advertisement and publicity expenses had bearing on the period which spreads over a period of five years and, therefore, the assessee could not claim the benefit in the year in which the expenditure was incurred. Thus, opining that the benefit was of enduring nature, he was of the view that it is to be spread over a period of five years and, thus, allowed 1/5th of the aforesaid amount in the year in question. In the next year, the total expenditure incurred on publicity and advertisement was Rs. 6.35 crores and giving identical reason, the assessing officer allowed 1/5th thereof in that year. Before the Commissioner (Appeals), the assessee argued that the calculation made by the assessing officer was based on his surmises and conjectures and without asking the assessee to respond with the factual information. According to the assessee, this infringed its right of natural justice. CIT dismissed this ground taken by the assessee in its appeal. In further appeal to the Tribunal, the assessee has succeeded. *Held:* Applying the principles enunciated in Empire Jute Company Ltd. v. CIT (1980) 124 iTR 1 (SC) : 1980 TaxPub(DT) 1083 (SC) to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC) (Larger Bench), the expenditure can be allowed to be spread over, and that too, when the assessee chooses to do so. (a) The expenditure in question is incurred by the assessee in the relevant assessment years in which the assessee is claiming deduction thereof under section 37. Thus, there is no dispute that the expenditure is, in fact, incurred. (b) It is also not in dispute that the expenditure in question is business expenditure incurred wholly for the purpose of the business of the assessee. (c) The expenditure incurred in the nature of advertisement and publicity is incurred for ever and in no manner any portion thereof reverts back to the assessee. [Para 8] The aforesaid facts would demonstrate that the ingredients of section 37 stand satisfied. Therefore, normally the expenditure is to be allowed as business expenditure in the year in question in which the same is incurred. [Para 9] Applying the principle enunciated in Empire Jute Company Ltd. v. CIT (1980) 124 iTR 1 (SC) : 1980 TaxPub(DT) 1083 (SC) to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee's trading operations. No fixed capital was created by this expenditure. In the Income Tax Laws, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the test laid down under section 37, it has to be allowed. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC), the expenditure can be allowed to be spread over, (sic-and) that too, when the assessee chooses to do so. [Para 13] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0100 (Del-HC) : (2011) 335 ITR 0029

INCOME TAX ACT, 1961

--Business expenditure--Advertisement and publicity expensesRevenue treated deferred expenses--In the assessment year 2001-02, the assessee-company claimed an expenditure of Rs. 3.93 crores on account of advertisement and publicity expenditure as revenue expenditure and the same had been debited to the profit and loss account. The Assessing officer was of the view that this expenditure cannot be termed as expenditure relevant exclusively for the period of 12 months under consideration during the said assessment year. Such advertisement and publicity expenses had bearing on the period which spreads over a period of five years and, therefore, the assessee could not claim the benefit in the year in which the expenditure was incurred. Thus, opining that the benefit was of enduring nature, he was of the view that it is to be spread over a period of five years and, thus, allowed 1/5th of the aforesaid amount in the year in question. In the next year, the total expenditure incurred on publicity and advertisement was Rs. 6.35 crores and giving identical reason, the assessing officer allowed 1/5th thereof in that year. Before the Commissioner (Appeals), the assessee argued that the calculation made by the assessing officer was based on his surmises and conjectures and without asking the assessee to respond with the factual information. According to the assessee, this infringed its right of natural justice. CIT dismissed this ground taken by the assessee in its appeal. In further appeal to the Tribunal, the assessee has succeeded. Held: Applying the principles enunciated in Empire Jute Company Ltd. v. CIT (1980) 124 iTR 1 (SC) : 1980 TaxPub(DT) 1083 (SC) to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC) (Larger Bench), the expenditure can be allowed to be spread over, and that too, when the assessee chooses to do so.

(a) The expenditure in question is incurred by the assessee in the relevant assessment years in which the assessee is claiming deduction thereof under section 37. Thus, there is no dispute that the expenditure is, in fact, incurred. (b) It is also not in dispute that the expenditure in question is business expenditure incurred wholly for the purpose of the business of the assessee. (c) The expenditure incurred in the nature of advertisement and publicity is incurred for ever and in no manner any portion thereof reverts back to the assessee. [Para 8] The aforesaid facts would demonstrate that the ingredients of section 37 stand satisfied. Therefore, normally the expenditure is to be allowed as business expenditure in the year in question in which the same is incurred. [Para 9] Applying the principle enunciated in Empire Jute Company Ltd. v. CIT (1980) 124 iTR 1 (SC) : 1980 TaxPub(DT) 1083 (SC) to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee's trading operations. No fixed capital was created by this expenditure. In the Income Tax Laws, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the test laid down under section 37, it has to be allowed. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC), the expenditure can be allowed to be spread over, (sic-and) that too, when the assessee chooses to do so. [Para 13]