Advertisement expenses through related party agent held reasonable despite 15% discount under Section 32

ITAT Raipur allowed assessee's appeal regarding advertisement expenses, holding that charges by related party agent were reasonable as they matched newspaper company rates, and 15% discount received by agent did not affect reasonableness determination. However, hoarding expenses matter was remanded to AO for verification of additional services claimed. Commission/brokerage expenses addition was also remanded due to AO's failure to consider documentary evidence. ITAT ruled in favor of assessee on depreciation claim, rejecting AO's contention that depreciation cannot be allowed when asset cost was already permitted as expenditure, noting assessee had not claimed asset cost as application and was entitled to depreciation under Section 32.

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Issues Involved:
1. Deletion of addition related to excessive payment made to a specified person under Section 13(3) of the Income-tax Act.
2. Non-appreciation of the fact that the appellant failed to prove additional services rendered by specified persons covered under Section 13(3).
3. Deletion of addition made on account of commission and brokerage without supporting evidence.
4. Deletion of addition made on account of depreciation without furnishing details.

Detailed Analysis:

A. Disallowance of Advertisement Expenses (Newspaper and Other Media Insertions Expenses): Rs. 1,70,41,267/-

Findings:
- The assessee society incurred advertisement expenses totaling Rs. 2,44,16,151/-, with Rs. 1,94,37,596/- paid to Red Eye Media Pvt. Ltd., a related party under Section 13(3) of the Act.
- The Assessing Officer (A.O.) observed that Red Eye Media Pvt. Ltd. charged the same rates as the newspaper company, thus no unreasonable profit was made.
- The CIT(A) vacated the adverse inferences drawn by the A.O. regarding the unreasonableness of charges raised by Red Eye Media Pvt. Ltd.

Conclusion:
- The Tribunal agreed with the CIT(A) that the related party had not availed any profit from the assessee society, thus confirming the deletion of the addition.

B. Hoarding Expenses: Rs. 23,96,329/-

Findings:
- The A.O. observed discrepancies between the bills submitted by M/s. A.S. Advertisers and those submitted by Red Eye Media Pvt. Ltd.
- The A.O. noted that Red Eye Media Pvt. Ltd. charged higher amounts than M/s. A.S. Advertisers.
- The CIT(A) accepted the assessee's claim that Red Eye Media Pvt. Ltd. provided additional services, but the Tribunal found no documentary evidence supporting this claim.

Conclusion:
- The Tribunal restored the matter to the A.O. for verification of the reasonableness of the advertisement expenditure, allowing the assessee to substantiate its claim with supporting evidence.

C. Addition Made on Account of Commission & Brokerage Expenses: Rs. 38,26,608/-

Findings:
- The A.O. disallowed the entire amount as the assessee failed to provide supporting evidence.
- The CIT(A) found that the assessee had provided substantial documentary evidence supporting its claim.
- The Tribunal noted that the A.O. failed to consider this evidence and that some bills were raised in the name of ITM University at other locations.

Conclusion:
- The Tribunal restored the matter to the A.O. for re-adjudication, allowing the assessee to substantiate its claim and explain the bills raised in the name of other ITM University locations.

D. Addition on Account of Depreciation: Rs. 2,34,92,053/-

Findings:
- The A.O. disallowed the depreciation claim, stating that once the cost of assets is allowed as expenditure, no additional benefit of depreciation can be claimed, citing the Kerala High Court judgment in Lissie Medical Institutes Vs. CIT.
- The CIT(A) vacated the disallowance, noting that Section 11(6) of the Act, which restricts depreciation claims, was effective from A.Y. 2015-16 onwards and did not apply to the assessee for A.Y. 2013-14.

Conclusion:
- The Tribunal agreed with the CIT(A) that the assessee had not claimed the cost of assets as an application and that the restriction on depreciation claims was not applicable for the relevant assessment year.
- The Tribunal confirmed the deletion of the addition.

Summary for A.Y. 2015-16 (ITA No. 237/RPR/2019):

Findings and Conclusion:
- The issues and findings for A.Y. 2015-16 were similar to those for A.Y. 2013-14.
- The Tribunal's decision for A.Y. 2013-14 was applied mutatis mutandis to A.Y. 2015-16.
- The Tribunal restored the matters related to advertisement expenses and commission & brokerage expenses to the A.O. for re-adjudication, confirming the deletion of the depreciation addition.

Final Order:
- The appeals of the revenue for both A.Y. 2013-14 and A.Y. 2015-16 are partly allowed for statistical purposes, with specific matters restored to the A.O. for re-adjudication.

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