TaxTMI 
TaxTMI 
2013 (10) TMI 694
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....nditure being in the nature of intangible asset was eligible for depreciation at the rate of 25%. 2. The following additional ground has also been taken:- "That the ld. CIT has erred in passing order u/s 263 of the Act despite the fact that the show cause notice issued by him contained a solitary ground/basis relating to deferred revenue expenses, whereas the final revision order completely ignored the said issue relating to deferred revenue expenditure and instead directed the ld. A.O. to inquire whether the advertisement expenses contained any capital expenditure or not." 3. The aforesaid additional ground has been said to be a legal ground, which inadvertently remained to be omitted in the original grounds taken. A request has been made for admission of the said additional ground. 4. Having read the additional ground, we find that indeed, this ground raises a legal issue as to whether the ld. CIT was correct in passing the order u/s 263 of the Act on a ground entirely different from that raised in show cause notice issued. The facts with regard to this ground are undisputedly already on record and no fresh fact is required to be gone into to decide this ground. On th....
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....ad been treated as a revenue expenditure in view of the decision of the Hon'ble Delhi High Court in the case of 'Orient Ceramics & Industries Ltd.'; and that the entire expenditure on account of advertisement was revenue in nature, deserving to be allowed. The assessee also submitted that it had added back as income, a sum of Rs. 1,46,32,527/-, being deduction claimed in earlier year on account of advertisement and renovation; that hence, the assessee had suo motu added back as income the deferred revenue expenditure claimed in the audited Profit & Loss Account in respect of earlier assessment years and had claimed the entire expenses relating to the current year as a revenue expenditure; and that thus, there was no error in the method of accounting for advertisement and all the advertisement expenses incurred during the year had been claimed as business expenditure u/s 37(1) of the IT Act. 9. The ld. CIT, however, passed the impugned order, observing as follows:- "3. I have considered the above submissions of the AR of the assessee company. It is observed that the assessee company has debited a sum of Rs.2,76,79,914/- under the head advertisement expenses. On examination of ....
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....ead, in the impugned order, directed the Assessing Officer to inquire whether the advertisement expenses incurred by the assessee contained any capital expenditure or not; that such a change in the revision order is impermissible in law; that an order passed u/s 263 of the Act cannot be on any other basis but that mentioned in the show cause notice issued u/s 263; and that any such change in the revisional order would amount to making an assessment in the garb of Section 263 of the Act, which is not permitted by the Act. For this proposition, the ld. counsel for the assessee has sought to place reliance on the following case laws:- i) 'Commissioner of Income-tax-XIII vs. Ashish Rajpal', 320 ITR 674 (Del); ii) 'CIT vs. Contimeters Electricals (P) Ltd.', 317 ITR 249 (Del); iii) 'Infosys Technologies Ltd. vs. JCIT', 105 TTJ 802 (Bang.); iv) 'Vesuvius India Ltd. vs. CIT', 54 SOT 172 (Kol); v) 'Star India Ltd. vs. ACIT, Range 11 (1)', 14 ITR (Trib) 106 (Mum); vi) 'Asia Resort Ltd. vs. ACIT', 143 Taxman 8 (Chd) (Mag) 12. The Ld. DR, on the other hand, has placed strong reliance on the impugned order in this regard. Qua this issue, we find that the notice dated 04.02.....
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....the assessment accordingly. In case you have any objections to the proposed remedial action, you may file such objections before me at 11.30 A.M. on 17.02.2011. If no objections are received by the aforesaid date, it shall be presumed that you have nothing to say in this matter and suitable remedial orders u/s 263 will be passed on merits on the basis of material available on record. Sd/- (S.K. RAY) COMMISSIONER OF INCOME TAX DELHI-IV, NEW DELHI." 13. Thus, as per the notice u/s 263 of the Act, one of the issues on which the ld. CIT has sought to revise the assessment order was that the assessee ought to have written off and claimed only 1/5 of its advertisement expenditure, since the assessee had been following the concept of deferred revenue expenditure. However, a perusal of the impugned order (reproduced hereinabove) shows that while passing the said order, the ld. CIT dropped this issue. Instead, he directed the Assessing Officer to inquire as to whether the advertisement expenditure of the assessee contained any capital expenditure or not. Therefore, evidently, there is a change in the impugned order vis-a-vis the show cause notice qua the issue of advertisemen....
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....animous judicial decision on the issue that where the show cause notice issued is on one ground and the revisional order is passed on an entirely different ground, the order cannot be sustained in law. No decision to the contrary has been brought to our notice. 20. Accordingly, the additional ground filed by the assessee is accepted. 21. Concerning the objection in the show cause notice that since the assessee was following the concept of deferred revenue expenditure, it ought to have written off and claimed only 1/5 of the advertisement expenditure, as discussed above, though this issue has been mentioned as the first issue in the show cause notice, it is entirely absent in the revisional order. The assessee has contended that it had been explained before the CIT that the assessee had never followed the deferred revenue expenditure concept for income-tax purposes and had claimed the entire advertisement expenses in the year of incurrence; and that thereupon, the ld. CIT dropped this issue while passing the impugned order. 22. Be that as it may, since the impugned order does not seek to revise the assessment order on the alleged issue of deferred revenue expenditure, this ....
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....before the revision of the assessment order by the CIT on this score. In keeping with 'Ashish Rajpal' (supra), to accord such an opportunity to the assessee after setting aside the assessment order would not meet the mandate of Section 263 of the Act. Therefore, the CIT's order needs to be held to be not legally sustainable for this reason also. However, it has been contended on behalf of the assessee that complete details of the expenditure of Rs. 2,76,79,914/- had been furnished before the ld. CIT. Attention in this regard has been drawn to APB 184-192, which is a copy of the assessee's letter dated 03.06.2011. In this letter, qua the issue at hand, the assessee submitted before the ld. CIT that the expenditure on advertisement was purely revenue expenditure, having been incurred during the year for the advancement of the assessee's business. Also, in the assessee's reply dated 06.09.2011 (APB 193- 196) to the Commissioner, the assessee furnished details of advertisement expenses incurred by the assessee in excess of Rs. 1 lac each, as desired by the Commissioner. It was explained that the entire advertisement expenditure was revenue in nature. 26. Hence, the assessee did get ....
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....reft of any finding by the ld. CIT as to why he thought the expenditure to be capital expenditure; that the ld. CIT had himself asked for details of expenses exceeding Rs. 1 lac each, which details were duly furnished and were perused by the CIT; that still, the ld. CIT did not give any basis to arrive at the finding that since the expenditure had brought enduring benefit to the assessee, there was reason enough to disallow some of the expenses as capital in nature; and that the ld. CIT erred in merely issuing a vague direction based on an illegal proposition of law. For the proposition that enduring benefit test is not the sole test for deciding the nature of an expenditure , the following judgements have been relied on:- i) 'Empire Jute Company Ltd. vs. CIT', 124 ITR 1 (SC); ii) 'ACIT vs. Medicamen Biotech Ltd.', 99 TTJ 873 (Del); and iii) 'Bharat Gears Ltd. vs. CIT', 337 ITR 368 (Del). 30. The ld. Counsel for the assessee has then contended that the expression "it appears" used by the ld. CIT before the words "that the AO has not caused any inquiry to ascertain the nature of such expenses being either revenue or capital" shows that the ld. CIT was himself not sure th....
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....ment order erroneous, causing prejudice to the interests of the revenue; that as such, error as well as prejudice are writ large in the assessment order; that so, there was due ground to revise the assessment order by invoking the provisions of Section 263 of the Act; and that the ld. CIT cannot at all be said to have issued vague directions to the AO in this regard. 35. On considering the rival contentions on this issue with reference to the material on record, it is seen that in this case, admittedly, the AO had put a specific query to the assessee regarding the expenses incurred. Question No.11 at APB 197 states as follows:- "11. Detail of following expenses:- Gratuity, PF,Leave encashment, staff welfare, advertisement & Royalty, party wise commission & TDS thereon. 36. The assessee, in its reply dated 09.11.2009 (APB 198-199), stated as follows (relevant portion):- "Kindly refer to your notice u/s 142 (2) of Income-tax Act, 1961 requiring certain information/documents. The required information as per the questionnaire is as detailed hereunder:- .................................................................................................. Advertisement as o....
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.... the assessment order, that would not, by itself, lead to the conclusion that the order of the AO called for interference and revision. This, particularly so, when in the present case, as has been considered in the preceding discussion, details were asked for of the assessee by the AO by putting a specific query, all possible details were duly furnished by the assessee in response, and no further question was asked by the AO. This conduct shows that the AO had duly considered the details called for by him and supplied by the assessee and that the AO stood satisfied from such details. Therefore, the ld. CIT, evidently, is not justified in observing that no inquiry was carried out by the AO. In this regard, the assessee is correct in contending that the ld. CIT was himself not sure that the AO had not carried out any inquiry. It is as such, that the CIT observed in the impugned order that it appeared that the AO had not caused any inquiry to ascertain the nature of the expenses. The CIT, as available from the order, had no basis for such finding of no inquiry into the nature of the expenses by the AO. Rather, instead of relying on anything in the assessment order to perceive such lac....
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....sue. For this reason also, it was incumbent on the ld. CIT to specifically show an item of expenditure to be capital, which has not been done here. 44. So far as regards the direction issued by the ld. CIT, we have considered hereinabove that the direction issued by the ld. CIT is but a vague direction, inasmuch as the CIT did not point out any item to hold that the expense was capital expenditure. He merely stated that a large part of the expenses had rendered enduring benefit to the assessee. The observation of the CIT (A) was, therefore, a result of mere guess work, conjectures and surmises, without any specific finding of error of claim. It goes without saying that merely observing that there is reason to disallow some of the expenses as capital, without pointing out specifically as to which of the expenses were found by the ld. CIT to be of capital nature, cannot and does not comprise a finding u/s 263 of the Act. The direction issued by the ld. CIT is, therefore, a vague direction unsustainable in law. 45. The other issue taken up by the ld. CIT was that according to him, during F.Y. 2006-07, relevant to the year under consideration, it had been held that royalty claime....