2024 (2) TMI 156 - AT - Income Tax

Advertisement expenses allowed as revenue expenditure for Section 80IB deduction computation despite tax authority's capital treatment challenge

Blue Star Ltd. Versus ACIT -1 (1), Mumbai.

ITAT Mumbai allowed assessee's appeal on multiple grounds. Court upheld allocation of advertisement expenses for Section 80IB deduction computation, ... Deduction u/s 80IB - allocation of advertisement expenses - HELD THAT:- We find that identical issue has been considered by the coordinate Bench in the appeal of the assessee for A.Y. 2006-07 [2023 (12) TMI 969 - ITAT MUMBAI], wherein the coordinate Bench has considered and allowed this ground as held the allocation in respect of Head Office corporate expenses and advertisement expenses made by the assessee are required to be accepted. The Assessing Officer is directed to accept the allocation of the expenses as per the allocation of the expenses by the assessee. The Assessing Officer need not make any further allocation in this regard for computation of deduction u/s. 80IB. Nature of expenses - treatment of advertisement expenses in the nature of brand building expenses and consequently, considered the same capital expenditure - HELD THAT:- As in the appeal of the assessee for A.Y. 2006-07 [2023 (12) TMI 969 - ITAT MUMBAI] such advertisement expenditure are revenue expenditure and not capital expenditure, allowed the claim of the assessee. Accordingly, respectfully following the decision of the co-ordinate Bench, we also hold that amount of ₹853.85 lacs of advertisement expenditure is revenue expenditure. The learned Assessing Officer is directed for deletion/ disallowance after taking into consideration if any depreciation is allowed on that, accordingly, ground no.2 of the appeal is allowed. Allocation of sales commission expenditure while computing eligible income for deduction u/s 80IB - The commission allocated to Section 80IB unit, has been upheld by the learned CIT (A). However, if that amounts to double disallowance, it requires to be deleted. In view of this, we restore the ground of the appeal to the file of the AO to verify the claim of double disallowance. Non-granting of credit on dividend income received from foreign company - CIT (A) has directed AO to verify the provisions of law and also the Double Taxation Avoidance Agreement between India and Malaysia and if the credit claim is allowable to the assessee, same may be considered - HELD THAT:- We do not find any infirmity in the order of the learned CIT (A) in giving the above direction. Accordingly, we restore this ground back to the file of the learned Assessing Officer and direct him to verify the claim of the credit along with quantification of the above sum in accordance with the provisions of Double Taxation Avoidance Agreement between India and Malaysia. Accordingly, ground of the appeal are allowed with above direction. Incorrect computation u/s 145A - claim of the assessee is that it is following exclusive method of accounting for Cenvat credit in the books of account and hence opening inventory, purchases and closing inventory are recorded net of cenvat credit - HELD THAT:- We find that the additional ground is arising out of the facts available on record, no fresh facts are required to be investigated and it is merely a correction of the correct treatment to be given under section 145A of the act. Therefore, we restore this ground of appeal back to the file of the learned assessing officer to examine computation in accordance with the provisions of section 145A. If the claim of the assessee is found to be correct, the necessary adjustment/allowance may be granted. If, it is not available in accordance with the law, the assessee may be granted opportunity of hearing before deciding the issue. Additional depreciation on eligible assets - asset put to use for less than 180 days - additional depreciation has been claimed on the eligible assets installed and put by the assessee during the previous year 2006 – 07 additional depreciation is allowed to the extent of 10 % as those assets are put to use for less than 180 days in that previous year - HELD THAT:- We find that the assessee is eligible for additional depreciation under section 32 (1) (iia) on the assets purchased and put to use for less than 180 days in the previous year, however as assets are used for less than 180 days only 10 % of additional depreciation is allowed. The balance 10% of the additional depreciation is allowable to the assessee in the next year - no infirmity in the claim of the assessee. The claim of the assessee is also supported by several judicial precedents. Accordingly additional ground number 3 of the appeal is allowed and AO is directed to grant the additional depreciation to the assessee at the rate of 10% on the assets purchased in earlier financial year which was put to use for less than 180 days in that year. Accordingly additional ground number 3 of the appeal is allowed. Accrual of income - exclusion of the amount of retention money included in sales since the same is not accrued during the year, in computing the total income under the normal provisions of the act - HELD THAT:- The identical issue arose in case of the assessee for assessment year 2006 – 07 [2023 (12) TMI 969 - ITAT MUMBAI] wherein this ground is decided in favour of the assessee. Therefore we also direct the learned assessing officer, respectfully following the decision of the coordinate bench in assessee's own case for the earlier year, to examine the sum of retention money offered for taxation in the sale for this year and if the claim is found to be correct, to reduce the same from the income for this year and to include the same as income in the year in which the retention price reaches finality. Accordingly ground raised additional ground of appeal is allowed. Nature of expenses - payment made to clubs - AO held that the entrance fee paid to clubs is a capital expenditure not allowable as business expenditure and disallowed the aggregate sum - CIT – A deleted the addition - HELD THAT:- We find that the assessee has paid the club membership expenditure for the employees of the assessee. Therefore now the issue is squarely covered by the decision of the honourable Supreme Court in case of CIT versus United Glass manufacturing Co Ltd [2012 (9) TMI 914 - SUPREME COURT] and therefore no infirmity can be found in the deletion of the disallowance made by the learned CIT – A. Disallowance u/s 14A r.w.r.8D - CIT- A held that the rule 8D does not apply to the impugned assessment year and therefore directed the learned assessing officer to make disallowance on reasonable basis - HELD THAT:- No infirmity in the direction of CIT – A that rule 8D cannot apply to the impugned assessment year and the assessing officer has to make disallowance on reasonable basis. Identical issue arose in case of the assessee for assessment year 2006 – 07 wherein the coordinate bench has also upheld such direction of the learned CIT – A. There is no change in the facts and circumstances of the case and therefore respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2006 – 07 we find no infirmity in the direction of the learned CIT – A. Accordingly ground of revenue dismissed. Deduction u/s 80 IB - allocation of 50% of the head office expenses and then to allocate the same in the ratio of total turnover to the turnover of the eligible units confirmed. Allocation of travelling expenses while computing the profits eligible for deduction u/s 80 IB - Allocation of travelling expenses made by the assessee of the head office which were allocated to the eligible unit in the ratio of turnover of those units to the total turnover of the company. Allocation of 50% of the head office expenses as against hundred percent allocated by the AO to the eligible units for which deduction is claimed under section 80 IC - CIT- A has given similar reasoning. DR could not show us any reason to deviate for computing the profits of eligible unit either under section 80 IB or under section 80 IC of the act. Therefore, the similar reasons given by us while accepting the order of the learned CIT- A on identical computation mechanism under section 80 IB of the act, we also confirm the order of the learned CIT-A for computation mechanism under section 80 IC of the act. Accordingly, ground of the appeal of the learned assessing officer are dismissed. Issues Involved:1. Allocation of Advertisement Expenses2. Treatment of Advertisement Expenses as Capital Expenditure3. Allocation of Sales Commission Expenditure4. Credit for Dividend Income from Foreign Company5. Levy of Interest under Section 234B and 234C6. Deduction for Provision for Leave Encashment7. Incorrect Computation under Section 145A8. Additional Depreciation on Eligible Assets9. Deduction of Education Cess10. Exclusion of Retention Money from Sales11. Exclusion of Sales Tax Incentive as Capital in Nature12. Disallowance on Account of Payment to Clubs13. Disallowance under Section 14A14. Allocation of Head Office Expenses and Depreciation15. Allocation of Travelling ExpensesSummary:1. Allocation of Advertisement Expenses:The Tribunal allowed the allocation of 50% of head office expenses, including advertisement expenses, to the eligible units, following the decision in the assessee's own case for A.Y. 2006-07.2. Treatment of Advertisement Expenses as Capital Expenditure:The Tribunal held that advertisement expenses of Rs. 853.85 lacs are revenue in nature, following the decision of the Hon'ble Bombay High Court and the Tribunal's earlier decision for A.Y. 2006-07.3. Allocation of Sales Commission Expenditure:The Tribunal restored the issue to the Assessing Officer for verification of double disallowance of sales commission expenditure and directed rectification if found correct.4. Credit for Dividend Income from Foreign Company:The Tribunal directed the Assessing Officer to verify the provisions of the Double Taxation Avoidance Agreement between India and Malaysia and grant credit if allowable.5. Levy of Interest under Section 234B and 234C:The Tribunal dismissed the grounds related to the levy of interest under Section 234B and 234C as consequential in nature.6. Deduction for Provision for Leave Encashment:The Tribunal did not admit the additional ground for deduction in respect of provision for leave encashment in view of the Hon'ble Supreme Court's decision in Union of India vs. Exide Industries Ltd.7. Incorrect Computation under Section 145A:The Tribunal restored the issue to the Assessing Officer to examine the computation in accordance with Section 145A and make necessary adjustments if the claim is found correct.8. Additional Depreciation on Eligible Assets:The Tribunal allowed the additional depreciation of 10% on assets purchased in the previous year and directed the Assessing Officer to grant the same.9. Deduction of Education Cess:The Tribunal dismissed the additional ground for deduction of education cess as it was not pressed during the hearing.10. Exclusion of Retention Money from Sales:The Tribunal directed the Assessing Officer to examine the retention money offered for taxation and reduce it from the income for the year if the claim is found correct.11. Exclusion of Sales Tax Incentive as Capital in Nature:The Tribunal restored the issue to the Assessing Officer to examine the sales tax incentive and exclude it from income if found to be capital in nature.12. Disallowance on Account of Payment to Clubs:The Tribunal upheld the deletion of disallowance for club membership fees, following the Hon'ble Supreme Court's decision in CIT vs. United Glass Manufacturing Co Ltd.13. Disallowance under Section 14A:The Tribunal upheld the direction to make disallowance on a reasonable basis as Rule 8D does not apply to the impugned assessment year.14. Allocation of Head Office Expenses and Depreciation:The Tribunal upheld the allocation of 50% of head office expenses and depreciation to the eligible units, following the decision in the assessee's own case for earlier years.15. Allocation of Travelling Expenses:The Tribunal upheld the allocation of travelling expenses made by the assessee and directed no further allocation by the Assessing Officer.Conclusion:The appeal filed by the Assessing Officer was dismissed, and the appeal of the assessee was partly allowed with specific directions for verification and necessary adjustments.