TaxTMI 
TaxTMI 
2010 (12) TMI 580
X X X X Extracts X X X X
X X X X Extracts X X X X
....lved in both the appeals, they are heard together and are disposed of by this common order for the sake of convenience. 2. The relevant material facts for the asst. yr. 2003-04 are like this. During the course of scrutiny assessment proceedings, the AO noted that the assessee has claimed deferred revenue expenditure amounting to Rs.16,19,87,818 but reduced the same from total income in computation of income. The AO further noted that by way of note in the computation of income, the assessee has clarified that during the year, the assessee has incurred expenses on promotion of new products and brands amounting to Rs.13,27,81,649 (KL) and Rs.2,92,06,169 (KPL), which had been treated as deferred revenue expenditure in the books of ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st. yr. 2002-03. The AO was thus of the view that the stand taken by the assessee is self-contradictory and would result distribution of profits and distortion for liability for tax. It was in this background, the AO disallowed the expenditure claimed by the assessee. Aggrieved by the stand so taken by the AO, the assessee carried the matter in appeal before the CIT(A). 3. The CIT(A) was of the view that whether the revenue expenditure is to be allocated over more than one year and if so in what circumstances, has been duly considered by the Hon'ble Bombay High Court in the case of CIT vs. Bhor Industries Ltd. (2003) 180 CTR (Bom) 508, wherein their Lordships have held that the revenue expenditure can be spread over a period for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted fact is that the expenditure is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. The Hon'ble Supreme Court in the case of Madras High Court in Madras Industrial Investment Corpn. (supra) held as follows: '..Sec. 37(1) further requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee has written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred, if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business. The Hon'ble Supreme Court observed that in certain cases, the facts may justify the assessee to spread over and claim the expenditure over a period of ensuing years.' 11. In this case, the assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to tak....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd. (supra) is distinguishable on facts. Coming to the Supreme Court decision in the case of Madras Industrial Investment Corpn. Ltd. (supra), it was a case where the assessee had paid up front discount for the debentures issued. The lump sum payment of discount which is an up front, one time payment, secured benefit to that assessee over a number of years. In fact the up front payment is calculated by discounting the future instalments of interest payable and it is like prepaid interest. The period for which the assessee secured benefit is specified. That assessee by making one time payment had avoided paying interest on debentures in each of the next five years. The annual compulsorily incurable expenditure on interest has been discount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticular facts of that case. The decisions relied (upon) by Revenue have limited application and can be invoked when expenditure is incurred in lump sum, essentially to get rid of future annual expenditure which is necessarily to be incurred to carry on the business. This is not a case where annual future mandatory expenditure is done away with by a lump sum up front expenditure. 12. As far as the entries in the books of account are concerned, it is well-settled that they do not clinch the issue either way, and they do not determine the allowability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedamath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and in the case of CIT us. India Di....