Tribunal rules in favor of assessee on advertisement expenditure and exempt income expenses.

The Tribunal dismissed the Revenue's appeal on the disallowance of advertisement expenditure, confirming it as revenue in nature. The Tribunal allowed the assessee's appeals on the disallowance of expenses related to exempt income, except for the revised suo moto disallowance for AY 2008-09.

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Issues Involved:
1. Disallowance of advertisement expenditure.
2. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Disallowance of Advertisement Expenditure:

The Revenue appealed against the CIT(A)'s decision to delete the disallowance of Rs. 40,65,668/- incurred by the assessee towards advertisement in media/magazine, arguing that the benefit to the assessee is of an enduring nature over a long period. The assessee had debited Rs. 68,23,934/- in its P&L Account for advertisement expenses, with significant payments to NDTV Ltd. and Mudra Communication Ltd. The AO allowed only 1/3rd of the expenses, disallowing the remaining Rs. 40,65,668/-, claiming it was not revenue in nature.

The CIT(A) deleted the disallowance, stating that the expenses were recurring and did not provide an enduring benefit, following the rule of consistency from previous and subsequent years where no disallowance was made. The Tribunal upheld this view, noting that the expenses were for ongoing business activities and were revenue in nature, referencing the Bombay High Court's decision in CIT vs. Asian Paints India Limited, which held that corporate advertisement expenses facilitating business and increasing sales are revenue expenses. Consequently, the Tribunal dismissed the Revenue's appeal.

2. Disallowance of Expenses Related to Exempt Income:

The assessee's appeals concerned the disallowance of expenses related to exempt income under Section 14A read with Rule 8D. The AO applied Rule 8D to disallow various amounts for different assessment years, which the CIT(A) confirmed. The assessee argued that the AO did not record any satisfaction regarding the disallowance, as required by law.

The Tribunal noted that the AO had not provided reasons for dissatisfaction with the assessee's claim, referencing the Supreme Court's decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which mandates that the AO must record satisfaction before applying Rule 8D. The Tribunal found that the AO failed to establish a nexus between the expenditure and exempt income. Consequently, the Tribunal allowed the assessee's appeals, except for the suo moto disallowance revised by the assessee for AY 2008-09.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding the disallowance of advertisement expenditure, confirming it as revenue in nature. It allowed the assessee's appeals on the disallowance of expenses related to exempt income, except for the revised suo moto disallowance for AY 2008-09. The order was pronounced in the open court on 16-11-2017.

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