2014 (1) TMI 1881 - AT - Income Tax

ITAT upholds CIT(A) decisions on capitalization of expenses & input service tax disallowance

The ITAT dismissed the department's appeal, upholding the CIT(A)'s decisions on both issues regarding the capitalization of expenses towards the ... Capitalization towards cost of advertisement film library - capitalization of such revenue expenditure in the balance sheet and its consequent amortization over a period - claim of deferred revenue expenditure made by the assessee - HELD THAT:- The assessee in the business of sky teleshopping, it is but natural that it will develop programmes for Television to market its products. The expenses as incurred, therefore, are clearly for the development of marketing products, to be sold through television programmes. The preparation of account as per Companies Act envisages the concept of deferred revenue expenditure but as per IncomeTax Act, expenditure is either in revenue field or in the capital field. The fact, that the assessee offered back the amount amortized in the computation of income in order to claim a total deduction u/s 37(1) of the I T Act 1961 is acceptable as the expenditure is, in respect of an ongoing business and so the decision of Jurisdictional High Court in the case of CIT vs Geoffrey Manner & Company Ltd [2009 (2) TMI 13 - BOMBAY HIGH COURT] is binding. The above judgment, as noted, has held that the expenditure incurred by the assessee, on production of film by way of advertisement for promoting and marketing of products manufactured by it in respect of ongoing business is allowable as revenue expenditure. - Decided against revenue Disallowance towards input Service Tax - as per CIT-A expenditure has been claimed only once and that in the year it has incurred. The addition made by the Assessing Officer is, therefore, deleted - HELD THAT:- CIT(A) appreciated the factual aspect and gave a finding on facts, which in our opinion does not deserve to be disturbed. We, therefore, sustain the view of the CIT(A), thereby, rejecting the ground of appeal, as raised by the department. Issues Involved:1. Capitalization of expenses towards advertisement film library.2. Disallowance of input service tax.Analysis:Issue 1: Capitalization of expenses towards advertisement film library- The department appealed against the CIT(A)'s order deleting the capitalization of expenses towards the advertisement film library.- The AO disallowed the expense, considering it as capital expenditure, as the assessee treated it as part of fixed assets.- The CIT(A) noted that the expenditure was treated as deferred revenue expenditure as per the Companies Act and amortized over time.- The CIT(A) emphasized that the expenditure, though capitalized in the balance sheet, was claimed as revenue expenditure u/s 37(1) for calculating taxable income.- The CIT(A) relied on the decision of the Hon'ble Bombay High Court, stating that such expenses for ongoing business are allowable as revenue expenditure.- The ITAT upheld the CIT(A)'s decision, noting the consistency in treatment over the years and the nature of the expenses for marketing products in the business of sky teleshopping.Issue 2: Disallowance of input service tax- The AO disallowed the claim of service tax as the assessee treated it as a current asset, not an expenditure.- The CIT(A) allowed the claim, stating that the service tax was of revenue nature and not adjustable against any liability or refundable.- The CIT(A) accepted the rectification of the mistake in debiting the amount, allowing it as expenditure following the mercantile system of accounting.- The ITAT upheld the CIT(A)'s decision, considering the factual aspects and sustaining the view that the expenditure was allowable.Conclusion:- The ITAT dismissed the department's appeal, upholding the CIT(A)'s decisions on both issues. The orders were pronounced on 15th January 2014.