2010 (3) TMI 1099 - AT - Income Tax

Court limits business promotion expenses to Rs. 2.5 crores, allows Rs. 14.27 crores as business expenditure

Chaitanya Properties Pvt. Ltd., Bangalore Versus Deputy Commissioner of Income-Tax, Circle 11 (2), Bangalore and Vice-Versa

The court dismissed the assessee's appeal regarding the disallowance of business promotion expenses, upholding that only Rs. 2.5 crores out of the claimed ... - Issues Involved:1. Disallowance of business promotion expenses.2. Treatment of Rs. 14.27 crores as 'business expenditure' u/s 37(1) of the Act.Summary:Disallowance of Business Promotion Expenses:The assessee company claimed Rs. 5 crores as business promotion expenses for publicizing its project 'Shantiniketan' in two films. The AO disallowed 50% of this expenditure, noting that publicity was given in only one film. The CIT(A) upheld this disallowance, stating that only Rs. 2.5 crores was allowable u/s 37(1) as the other film was released in the subsequent year. The Tribunal agreed with the CIT(A), concluding that the expenditure was not wholly and exclusively for the purposes of business for the relevant year.Treatment of Rs. 14.27 Crores as 'Business Expenditure' u/s 37(1):The AO disallowed Rs. 14.27 crores paid to Unitech Ltd. for regaining land possession, treating it as an expenditure enhancing the value of the project and deferring its allowance to the year in which income from the project materializes. The CIT(A) allowed this expenditure, considering it as a business expense incurred to have unencumbered stock-in-trade. However, the Tribunal found that the CIT(A) misinterpreted the remand report and upheld the AO's view that the expenditure should be added to the work-in-progress and recognized in the year the revenue is realized from the project.Conclusion:1. The assessee's appeal regarding the disallowance of business promotion expenses is dismissed.2. The Revenue's appeal regarding the treatment of Rs. 14.27 crores as 'business expenditure' u/s 37(1) is allowed.