2024 (6) TMI 929 - AT - Income Tax

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

The Assistant Commissioner of Income Tax (Exemption) Raipur (C.G.) Versus M/s. Institute for Technology & Management University and

ITAT Raipur allowed assessee's appeal regarding advertisement expenses, holding that charges by related party agent were reasonable as they matched ... Disallowance of advertisement expenses (newspaper and other media insertions expenses) - HELD THAT:- As M/s. Red Eye Media Pvt. Ltd. (being an agent of M/s. Dainik Bhaskar) had charged the assessee society for the advertisements in the newspaper, viz. Dainik Bhaskar the same rate which was fixed by the newspaper company, therefore, the observation of the A.O that the assessee society was unreasonably charged for the said work is found to be factually incorrect. Discount of 15% that M/s. Red Eye Media Pvt. Ltd. had received from M/s Dainik Bhaskar on the bill amount, we are of the view that as the said discount/incentive was received by M/s. Red Eye Media Pvt. Ltd. in its capacity as that of an agent of the aforesaid newspaper company, thus, the same, cannot have any bearing on determining the reasonableness of the charges that were borne by the assessee society for the advertisements in the newspapers carried out through the aforesaid specified person. 15% discount received by M/s. Red Eye Media Pvt. Ltd. from M/s Dainik Bhaskar was not an incentive/discount that the assessee society could have obtained if it had got the said advertisement work done either directly through the newspaper company or through some other agent. As M/s. Red Eye Media Pvt. Ltd. (supra) had billed the assessee society the same amount that the newspaper company had billed to M/s. Red Eye Media Pvt. Ltd., thus, it can safely be concluded that the related party had not availed any profit from the assessee society - Thus adverse inferences drawn by the A.O as regards unreasonableness of the charges raised by M/s. Red Eye Media Pvt. Ltd. (supra) regarding the advertisement work done for the assessee society through insertions in the newspapers vactaed. Hoarding Expenses - Although the CIT(Appeals) had summarily accepted the aforesaid claim of the assessee society, but in absence of any material, which would substantiate the aforesaid claim of the assessee society, i.e., M/s. Red Eye Media Pvt. Ltd. was providing additional services as stated hereinabove, we are unable to endorse the same. On being specifically queried about the nature of services which were rendered by M/s. Red Eye Media Pvt. Ltd. (supra) and to place on record documentary evidence supporting the said factual position, the Ld. AR submitted that the same were not readily available with him. Considering the aforesaid facts, we are of the view that justification given by the assessee society as regards the additional charges raised by M/s. Red Eye Media Pvt. Ltd. (supra) for carrying out advertisement through M/s. A.S. Advertiser, Raipur (supra) cannot be summarily accepted and would require necessary verification. We, thus, in all fairness, restore the matter to the file of the A.O with a direction to look into the reasonableness of the advertisement expenditure in the backdrop of the claim of the assessee society that M/s. Red Eye Media Pvt. Ltd. (supra) had raised additional charges with respect to the advertisement services rendered through M/s. A.S. Advertiser, Raipur (supra) for certain services which were provided by it, viz. script writing, photoshoots, layout and designing etc. Thus, the Grounds of appeal Nos. 1 & 2 raised by the revenue are partly allowed for statistical purposes. Addition made on account of Commission & brokerage expenses - Considering the fact that the A.O had failed to deal with the aforesaid documentary evidence that is stated to have been filed by the assessee society in the course of the proceedings before him, the matter in all fairness requires to be revisited by him. At the same time, we may herein observe that the assessee society in the course of the set-aside proceedings shall not only substantiate its claim for the aforesaid commission/brokerage expenses, but also shall provide explanation as to on what basis the bills raised in the name of ITM University located at Aurangabad, Nagpur and Mumbai etc. were to be considered in its case. We, thus, in terms of our aforesaid observation restore the matter to the file of the AO Addition on account of depreciation - AO had declined the assessee's claim for depreciation on fixed assets for the reason that once the cost of assets had been allowed as expenditure at one time, no additional benefit of depreciation could thereafter be allowed - HELD THAT:- We are of the view that for both the reasons, viz. (i) that as observed by the CIT(Appeals), the assessee had not claimed the cost of assets as an application; and (ii) that prior to Section 11(6) of the Act made available on the statute w.e.f. A.Y.2015-16, the assessee was entitled to claim depreciation u/s.32 of the Act on assets whose cost has been allowed as application for charitable purposes u/s.11(1)(a) of the Act, there was no justification for the A.O to have disallowed its claim for depreciation. Decided in favour of assesee. 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.