2014 (7) TMI 96 - HC - Income Tax

Tribunal decision on product development & advertisement expenses upheld for Assessee in Assessment Year 2004-2005

The High Court upheld the Tribunal's decision to allow product development expenses and advertisement expenses for the Assessee in the Assessment Year ... Deduction of product development expenses u/s 37(1) - revenue or capital in nature – Held that:- The Assessee is in the business of manufacturing ready to eat cereals that these expenses of product development were claimed - The details of expenses have been set out - The CIT(A) had directed deletion of the addition - the Tribunal followed its own order for the prior Assessment Year – thus, no substantial question of law arises for consideration – Decided against Revenue. Expenditure on purchase of pallets and advertising expenses – Held that:- The Tribunal was satisfied with regard to the claim to the extent of Rs.45.29 lakhs - the details of the expenses for advertisement which were aired on behalf of the Assessee are produced on record - advertisements were aired on various dates prior to 31st March 2004 - the Tribunal directed the AO to consider as to whether the deductions can be granted - even this question cannot be said to be a substantial question of law, the entities who had advertised the product on behalf of the Assessee were identified, the bills raised and invoices which have been produced demonstrate that the expenses have been incurred during the subject AY – Decided against Revenue. Issues:1. Disallowance of product development expenses under Section 37(1) of the Income Tax Act, 1961.2. Allowance of advertisement expenses by the Tribunal.Issue 1: Disallowance of product development expenses under Section 37(1):The High Court reviewed the order passed by the Income Tax Appellate Tribunal, which dismissed the Revenue's appeal and partly allowed the Assessee's appeal. The primary issue raised was the claim of the Assessee regarding product development expenses of Rs.50,79,976 under Section 37(1) of the Income Tax Act, 1961. The Assessing Officer disallowed these expenses along with other expenditures after the Assessee filed a return declaring a total loss. The Commissioner of Income Tax (Appeals) partly confirmed the order, leading both parties to approach the Tribunal. The Tribunal, considering the Assessee's business of manufacturing ready-to-eat cereals, upheld the deletion of the addition of product development expenses for the Assessment Year in question, 2004-2005. The High Court found no substantial question of law in this regard as the Tribunal's decision was in line with the facts presented.Issue 2: Allowance of advertisement expenses by the Tribunal:Regarding the second issue, the Tribunal ordered a remand and granted a deduction of Rs.45.29 lakhs for advertisement expenses after reviewing the details provided by the Assessee. The Tribunal identified that advertisements were aired before 31st March 2004 and set aside the Commissioner's order to allow the deduction. However, for the remaining sum of Rs.79.91 lakhs without detailed evidence, the Tribunal directed the Assessing Officer to consider granting the deductions and passed an order of remand. The High Court concluded that this issue also did not raise any substantial question of law as the Tribunal's decision to partially allow the deductions was justified based on the evidence presented, including bills and invoices demonstrating the expenses were incurred during the relevant Assessment Year.In conclusion, the High Court dismissed the appeal, finding no substantial questions of law in either issue raised by the parties.