2017 (11) TMI 1754 - AT - Income Tax

Tribunal remands ad expenses issue, deletes excise duty payment addition for 2011-12.

The Tribunal partially allowed the appeal, remanding the advertisement expenses issue for further examination and directing the deletion of the excise ... Allowability of advertisement expenses - nature of expenses - revenue or capital expenditure - argument of AR that no opportunity whatsoever was given by the AO while making addition - Held that:-Order of the Ld.CIT(A) also reads that it is the contention of the assessee that without affording an opportunity to the assessee to explain the stand in respect of the brand advertisement expense in the light of Franchise Agreement dated 02.04.2010, the AO decided the issue making the addition. Having regard to the facts and circumstances of the case, we are of the considered opinion that it is a fit case to remand the matter to the file of the AO to verify the stand of the assessee Addition treating the fully allowable expense as not accrued and crystallized during extant period deduction u/s 43B claimed - Held that:- As against the provision, the assessee made payment of ₹ 95,90,000/- and the tax rates are uniform for the relevant and subsequent assessment years, as such in a tax neutral scenario, it is fair to allow the expenditure for this assessment year. We, therefore, allow this ground of appeal and direct the AO to delete the addition on this count. Appeal of the assessee is allowed in part for statistical purposes. Issues:1. Treatment of advertisement expenses as capital in nature under section 37 of the Income Tax Act.2. Allowability of excise duty payment as an expenditure for the Assessment Year 2011-12.Analysis:Issue 1: Treatment of Advertisement ExpensesThe appellant challenged the addition of &8377; 8,48,358 as advertisement expenses treated as capital in nature by the Assessing Officer (AO). The AO disallowed the expenses under section 37(1) of the Income Tax Act, stating they were not wholly and exclusively for business purposes. The Commissioner of Income Tax (Appeal) [CIT(A)] confirmed the addition without providing the appellant an opportunity to explain their contentions. The Tribunal remanded the matter to the AO to verify the nature and genuineness of the expenses based on the Franchise Agreement dated 02.04.2010.Issue 2: Allowability of Excise Duty PaymentThe appellant contested the disallowance of &8377; 95,90,000 excise duty payment, claiming it was a crystallized liability before the due date for filing returns. The AO held the liability was not crystallized by the end of the financial year 2010-11. The Tribunal found that the provision for the liability was created during the relevant financial year, and the payment was made before the due date. Citing the decision in CIT vs Triveni Engineering & Industries Ltd., the Tribunal concluded that in a tax-neutral scenario with uniform tax rates, the excise duty payment should be allowed as an expenditure for the Assessment Year 2011-12. Consequently, the Tribunal directed the AO to delete the addition on this count.In conclusion, the Tribunal partially allowed the appeal for statistical purposes, remanding the advertisement expenses issue to the AO for further examination and directing the deletion of the excise duty payment addition for the Assessment Year 2011-12.