TaxTMI 
TaxTMI 
2022 (1) TMI 1398
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....ting to Rs..48,10,85,765/- and assessing the total income at Rs..(-) 33,16,59,867/-. Ld. Pr.CIT perused the assessment records and observed that the Assessing Officer while completing assessment has allowed the 'advertisement and publicity expenses amounting to Rs..107,07,17,247/-. He observed that Advertising alcoholic beverages has been banned in India as per the Cable Television Network (Regulation) Amendment Bill which came into effect on 8th September 2000. The law is very clear that if the expenditure is an offence or prohibited by law, then it shall not be allowed as an expenditure u/s. 37(1) of the Act by virtue of insertion of explanation to Section 37 of the Act by Finance Act, 1998 w.e.f. 01-04-1962. He observed that the Assessing Officer without appreciating the legal position allowed the 'advertisement and publicity expenses' amounting to Rs..107,07,17,247/-. Accordingly, he came to the conclusion that Assessment Order passed on 30.10.2017, u/s. 143(3) r.w.s. 144C(13) of the Act for A.Y. 2013-14 is erroneous but also prejudicial to the interests of the Revenue. Hence he issued show cause notice u/s. 263 of the Act dated 05.03.2021 to the assessee. 4. In response ass....
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....ficer failed to do so, making the assessment order under consideration erroneous and prejudicial to the interest of revenue. 5.4 In addition to the above, it can be observed that the assessee being in the business of mainly alcohol beverage has incurred such advertisement expenses, which are not permissible as per law and hence cannot be allowed u/s. 37 of the Income Tax Act, 1961 in light of judicial pronouncement in the case of Liva Healthcare Ltd, Mumbai on 12 September, 2016 held vide I.T.A. No. 904/Mum/ 2013. Section 37 is a residuary provision. An assessee is entitled to deduction of all expenditure which is wholly and exclusively laid out or expended for the purposes of the business which has not been expressly covered by any other specific provision of the Act. In order to be eligible for an allowance under this residuary provision, the following conditions are required to be fulfilled: "(i) The expenditure must not be governed by the provisions of sections 30 to 36. (ii) The expenditure must have been laid out wholly and exclusively for the purposes of the business of the assessee. (iii) The expenditure must not be personal in nature. ....
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....ure if it is an offence or prohibited by law shall not be allowed as an expenditure u/s. 37(1) of the Act by virtue of insertion of expenditure to Sec.37 of the Income tax Act, 1961 by Finance Act, 1988 w.e.f. 01.04.1962. 8. Considering the facts of this case and the submission made by the assessee, it is apparent that the assessment, made by the Assessing officer on the issues raised in the Show Cause Notice and replied by the assessee, needed examination and verification. As per explanation 2 to section 263 of the I.T. Act-For the purpose of this section , it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or commissioner - a) the order is passed without making inquiries or verification which should have been made; b) The order is passed allowing any relief without inquiring into the claim. 9. In view of the above observations the assessment order passed on 30.10.2017 under section 143(3) r.w.s. 144C(13) of I.T. Act for A.Y. 2013-14 is found to be prejudicial to the interest of the reve....
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.... 3. erred in initiating revisionary assessment proceedings under 263 of the Act, without appreciating that section 263 cannot be invoked in case where the view taken by the learned PCIT is based on a presumption that no enquiry or verification was made at the time of regular assessment proceedings, whereas the learned AO had made sufficient enquires, verification of the facts and submissions made by the Appellant; 4. erred in setting-aside the issue with directions to the learned AO for reframing the assessment afresh after considering prevailing law and submissions of the Appellant, without appreciating the fact that the learned AO has considered the submissions of the Assessee in the original assessment and cannot be said to be erroneous/ prejudicial to the interest of the revenue; On merits of allowability of Advertisement and Publicity expenses: 5. erred in holding that the entire advertisement and publicity expenses incurred by the Appellant are not permissible under The Cable Television Networks (Amendment) Rules, 2009 ("Cable TV Rules"), without appreciating the fact that out of the total advertisement and publicity expenditure of Rs 107,07,17,24....
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....d. Pr.CIT cannot initiate the revisionary proceedings on the possibility of making further enquiry. Further he stated that assessee has not incurred any advertisement and publicity expenditure for any purpose which is prohibited by law. He submitted that in Para No 5.1 of the 263 order, Ld. Pr.CIT observed that the expenditure under the head advertisement and publicity needed verification in the light of the Cable Television Network (Regulation) Amendment Bill and he relied on his brief submissions filed before us for the sake of brevity, we reproduce the same. "Brief background 1. Anheuser Busch InBev India Limited (formerly known as SABMiller India Limited) was incorporated as a public limited company under the Companies Act, 1956 on 18 November 1988 and is primarily engaged in the business of brewing, packaging, distribution, marketing and sale of beer. Assessment proceedings 2. For the year under consideration, the Appellant filed its original return of income on 29 November 2013 declaring a loss of Rs 81,27,45,632. 3. The said return was subsequently selected for complete scrutiny by issue of a notice under section 142(1)7143(2) of ....
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....O/CIT on the ground that the Appellant is prohibited from advertising its products as per the Cable Television Network (Regulation) Amendment Bill. 8. Thereafter, the Assessee obtained directions from the Hon'ble Dispute Resolution Panel vide an order dated 5 September 2017 and the assessment proceedings were completed under section 143(3) read with section 144C(13) of the Act by the learned AO vide a final assessment order dated 30 October 2017 assessing the total loss of the Appellant at Rs 33,16,59,867. Proceedings under section 263 of the Act: 9. The Principal Commissioner of Income Tax -1, Mumbai ("PCIT") vide notice dated 5 March 2021 initiated revisionary proceedings under section 263 of the Act, asking to show cause regarding the allowability of advertisement and publicity expenditure incurred by the Appellant. 10. The PCIT was of the view that since the Appellant is engaged in the business of brewing, and sale of alcoholic beer, it is prohibited from advertising its products as per the Cable Television Network (Regulation) Amendment Bill and the learned AO has completed the original assessment without making any verification of facts....
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....Ltd vs Commissioner of Income Tax [2000] (243 ITR 83) (SC) (Refer Page No 95-99 of the legal paperbook) 5......... "A bare reading of provisions of s. 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or ff it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without ap....
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....ioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo-motu revision because the first requirement, viz., that the order is erroneous, is absent." (Emphasis supplied) * Smt. Lila Choudhury v. CIT [2008] 289 ITR 226 (Gau)(HC) (Refer Page No 107-113 of the legal paperbook "An erroneous order does not mean a wrong order; it does not mean an order with which the Commissioner is unable to agree. An erroneous order would be an order which suffers from a patent lack of jurisdiction; the error must be with reference to jurisdiction. Prejudicial to the interest of the Revenue would mean an erroneous order which goes against the interest of Reven....
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....red opinion that firstly the A.O. has made the examination and in his opinion these expenditures were allowable. Hence, he has not made any disallowance. This is a legally permissible view. In any case, as held by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) and CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) if there are two views possible and the A.O. has adopted one view, with which the ld. CIT ts not in agreement, the order cannot be said to be liable to be visited with the revisionary order by the Id. CIT. Accordingly, the order under 263 passed by the Ld. CIT is hereby quashed. Accordingly, we decide the issue in favour of the assessee. * PRAVARDHAN SEEDS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX (2019) ITA No. 667/Hyd/2017 dated 30 January 2019 (Refer Page No 127-134 of the legal paperbook) 9.10 Further, in our view, no doubt, AO has not applied his mind, but, the CIT has not established how the order of AO is prejudicial to the interests of revenue. Looking at the facts submitted before us and the findings of Hon'ble Jurisdictional High Court that the seeds cannot be produced without basic agr....
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....arned AO at the time of the assessment proceedings and it was well within the knowledge of the learned AO that the Company was claiming deduction for such expenditure. Accordingly, post analyzing the case, and after due application of mind, the learned AO concluded that the disallowance is to be made on certain other issues and not towards the issue of advertisement and publicity expenditure under section 37 of the Act. 19. Therefore, the order passed by the learned AO was correct and in accordance with the provisions of law. 20. Reliance in this regard is placed on the decision of the Hon'ble Bombay High Court in case of Moil Limited vs. Commissioner of Incometax (396 ITR 244) (Refer Page No 135139 of the legal paperbook) wherein it is held that the provisions under section 263 cannot be invoked where the Assessee has submitted the relevant details and the AO is satisfied about the admissibility of the claim based on the details submitted. Further reliance is also placed on the following judicial precedents: * Nirav Modi (2017) (SC) approving Bombay High Court decision reported as 390 ITR 292 (Bom) (Refer Page No 135-139 of the legal paperbook) ....
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....e interest of the Revenue only because CIT disagrees to the view, unless the view taken by the AO is unsustainable in law. Reliance is also placed on the decision in the case of CIT vs. Max India Ltd (295 ITR 282) (SC). Applicability of Explanation 2 to Section 263 of the Act 26. As per Explanation 2 to section 263(1) of the Act, an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Commissioner: a) the order is passed without making inquiries or verification which should have been made; b) the order is passed allowing any relief without inquiring into the claim, c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or d) the order has not been passed in accordance with any decision which is prejudicial to the Assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the Assessee or any other person. 27. The Appellant submits that based on the following reasons tabulated below, conditions as set out in Explanation 2 to Section 263(1....
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....d under Section 263 of the Act, merely because the Commissioner felt that inadequate enquiry has been made and further enquiry could have been made by the AO while making an assessment. 30. Reliance in this regard is also placed on the following decisions: * Vikas Polymers (2012) (341 ITR 537) (Delhi HC) (Refer Pq. 245 to 252 of Legal Paperbook): * Sunbeam Auto Ltd. (2011) (332 ITR 167) (Delhi HC): * Indus Best Hospitality & Realtors Pvt. Ltd. (ITA No. 3125/Mum/2017) dated 19 January 2018: * Instant Holdina Ltd. (ITA No. 2345/Mum/2015) (Mum Trib.) No mention in the assessment order of the aspects examined cannot be a ground for initiating revisionary proceedings: 31. Where the AO has raised a query, which was answered to his satisfaction and not reflected in his order, a conclusion cannot be drawn by the Commissioner that no enquiry for that issue was made by the AO. Reliance in this regard is placed on the following decisions: * CIT vs. Gabriel India Ltd (1993) (203 ITR 108) (SC) (Refer Page No 101-106 of the legal paperbook) * Anil Shah vs ACIT (2007) ITA no. 2020 (Mumbai ITAT) dated 21 April 2006 (R....
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....enses (Rs.107,07,17,246) 1. At the outset, the Appellant submits that it has not incurred any advertisement and publicity expenditure for any purpose which is prohibited by law. No advertisement expenses are incurred for sale of alcoholic liquor by the company at platforms which is prohibited by law. 2. The learned PCIT has held entire advertisement and publicity expenses incurred by the Appellant are not permissible under The Cable Television Networks (Amendment) Rules, 2009 ("Cable TV Rules"). However, during the course of the revisionary proceedings, it was submitted that out of the total advertisement and publicity expenditure of Rs 107,07,17,246 debited to the profit and loss account, only Rs 20,63,83,780 is governed and permitted under the Cable TV Rules and the balance expenditure of Rs 86,43,33,466 is in the nature of sales promotion, market research, brand promotion etc. which are not regulated nor prohibited under the Cable TV Rules. 3. The expenditure incurred under the head Advertisement and Publicity expenses of the profit and loss account broadly comprises of expenditure under the following broad categories: Sl No. Nature of Expense ....
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....er of DRP is non appealable order): * Sales Promotion Expenses amounting to Rs. 40,02,26,449 by concluding that the promotional activities (such as beer samples, gifts, etc) were given only to existing consumers and are not open advertisements and allow the claim accordingly. * Signage and brand awareness in liquor outlets amounting to 22,08,39,422 * Market research, census and survey expenses and Other Expenses amounting to 16,54,16,090. 37. The activities such as organizing private events, contests, press conferences, gifting and giveaways to distributors and wholesalers, etc. are undertaken with a view to push the sales to retailers and consumers. Such expenditure incurred by the Company are purely in the nature of sales promotion and brand extension activities and are not advertisements which are prohibited by any law. 38. In this regard, the Appellant wishes to place reliance on the ruling of the jurisdictional Mumbai Tribunal in the case of Cobra Indian Beer Private Limited vs DIT (ITA No 2761/Mum/2012) dated 12 June 2015 (Refer Page No 253-262 of the legal paperbook) wherein the tribunal held that expenditure incurred by the Asses....
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....statute book in the 1980. 42. Reliance is also placed on the judgment of the jurisdictional Hon'ble Bombay High Court in Brihan Maharashtra Sugar Syndicate Limited vs. Deputy CIT 320 ITR 658 (Refer Page No 311-315 of the legal paperbook) where the Court had to consider whether expenditure incurred by the assessee therein for sales promotion was allowable under section 37 of the Act The assessee therein was a liquor manufacturer and was banned from direct media and television advertising of its products. Its major customer viz., the Canteen Stores Department was debarred from directly accepting free samples from a liquor manufacturer. The assessee found it commercially expedient to offer sample of its products at various military functions so that the military personnel develop a taste for it and the assessee thereafter would secure larger orders from the Canteen Stores Department. In such circumstances, the Court found that the amount has been spent by way of commercial expediency for promoting the sale of the assessee's product and was m the nature of sales promotion expenditure and was not against public policy and, therefore, was allowable. Applying the principle laid d....
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....advertisement unless such advertisement is in conformity with the prescribed advertisement code. Sections 16, 17 and 18 of the CTN Act make provisions for punishment of offences and contravention of the provisions of the Act. The CTN Rules are framed pursuant to the CTN Act, 1985. Rule 7 of the CTN Rules deals with the advertising code. 48. In this regard, we wish to invite your Honour's kind attention to the following provisions under the Cable TV Rules as under: "7. Advertising Code. - (1) Advertising carried in the cable service shall be so designed as to conform to the laws of the country and should not offend morality, decency and religious susceptibilities of the subscribers. (2) No advertisement shall be permitted which (i)... (viii) promotes directly or indirectly production, sale or consumption of(A) cigarettes, tobacco products, wine, alcohol, liquor or other intoxicants; Provided that a product that uses a brand name or logo, which is also used for cigarettes, tobacco products, wine, alcohol, liquor, or other intoxicants, may be advertised on cable services subject to the following conditions that (i) the story board ....
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.... law and our humble submission that the revenue authorities cannot sit in the armchair of the business to decide the necessity, quantum of the expenditure to be incurred or the price of the product at which it is to be solid. If the expenditure is incurred wholly and exclusively for the purpose of the business and there is commercial expediency for incurrence of the expenditure, then the same is allowable expenditure under section 37 of the Act. What is commercial expediency in a given facts and circumstances of a case is the sole discretion of the Assessee and not of the revenue authorities. Reliance in this regard can be placed on the following rulings: * CIT vs. Malayalam Plantation Ltd (53 ITR 140) [SC] wherein it was held that The expression 'or the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide; it may take in not only the day to day running of a business but also the rationalization of its administration and modernizaton of &s machinery, it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or ....
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....der the Cable Tv Rules is outside the purview of powers and functions of the learned PCIT/AO under the provisions of the Act 55. The appellant submits that it is not within the powers and functions of the Income tax authorities to interpret the provisions of the Cable TV Law to form an opinion that the Appellant has contravened and make an assessment under the Act in the absence of any adverse findings/order against the Appellant by any authorized authority under the Cable TV Law. It is not under the powers and functions of the Income tax authorities to adjudicate whether the Appellant has violated any provisions/ regulations of any Act or Law other than Income tax Act, 1961. 56. Only in case there is a clear finding of any contravention of the provisions of any law by the concerned regulatory authority, the AO is within his power to disallow the corresponding expenditure incurred by the Assessee. However, the income tax authorities are not competent authority to adjudicate the legality or legitimacy of any expenditure incurred by the Assessee under other laws which is outside their jurisdiction and subject matter expertise. 57. The Appellant submits that....
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....elied upon explanation but in view of the observations made by the AO where he has allowed the part expenses of the hospital, in that view of the matter, we are of the opinion that the CIT(A) observations which are made by the CIT are required to be accepted. The explanation cannot come into play on appeal which was filed at this stage. Even otherwise in income tax proceedings the medical ethics will not be taken into consideration. At the most even if it is a «professional misconduct it is to be dealt with b Medical Council of India. The income tax authority cannot decide the medical ethics when the original authority has partly allowed the expenses. * Gestetner Duplicators Private Limited vs. CIT (117 ITR 1) [SC] (Refer Page No 329337 of the legal paperbook) wherein it was held that The Court had to consider whether the assessee was entitled to a deduction made by way of a contribution to an approved provident fund under Section 36(1)(iv) of the Act. The Court held that It was not open to the taxing authorities to question the recognition granted by the Commissioner to the provident fund maintained by the assessee in any of the relevant years on t....
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....nnot be cured, the whole project cannot be approved by the approving authorities, as the same is subject matter of public safety. The penalty can be classified as two types; one charged for violation of law in the nature of offence, which cannot be pardoned by compounding and the second is charged for violation of certain rules which are not in the nature of offences and can be cured by compounding. In the case of housing/commercial projects, the corporation aware that there will be certain deviations at the time of approval and no project can be completed without any deviation, The question is, the extent of deviation In case it is within the permissible limits, the approving authorities, allow with compounding the deviation by levying compounding fees, In the given case, the project was completed and the deviations are within the limits, for which the Bangalore Mahanagar Palike has approved the project by compounding fees, which is not in the nature of offence nor prohibition of any law. Henco, it is allowable u/s 37(1) of the Act." * Max Hospital, Pitampura vs. Medical Council of India (W.P. No. 1334/2013) (Delhi HC) (Refer Page No 357-364 of the legal paperbook) dated ....
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....ility of expenses rather non verification of the expenses by the Assessing Officer as per the facts on record. Assessing Officer has made exhaustive verification. 10. Considered the rival submissions and material placed on record, we observed that Ld. Pr.CIT while verifying the assessment records observed that assessee has incurred advertisement and publicity expenses amounting to Rs..1,07,07,17,247/- and Assessing Officer allowed the expenses without appreciating the legal position. He observed that assessee manufactures and markets alcoholic beverages which is banned in India for advertisement as per Cable Television Network (Regulation) Amendment Bill which came into effect on 08th September, 2000. He is of the view that the advertisement made by the assessee in Cable Television in order to promote the alcoholic drinks manufactured by the assessee but it advertises nonalcoholic beverages in order to promote the alcoholic beverages which is against the regulations of the cable television laws. However, Ld. AR submitted before Ld. Pr.CIT as well as before us that the expenditure claimed by the assessee under the head "advertisement and publicity expenses" which includes sales p....
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.... consideration of the records we observe that in the absence of any adverse remark or penalties levied by the broadcasting authorities the Assessing Officer need not go into verification of regular expenditure which assessee was regularly claiming over the years. We observe that Assessing Officer has also collected several information before allowing the expenses claimed by the assessee. Therefore Ld. Pr.CIT cannot invoke the provisions of section 263 of the Act to reassess the completed assessment merely on the basis of presumption or with the view that assessee may have contravened the Cable Television Networks (Regulation) Act, 1995. Therefore, in this case Assessing Officer has allowed the expenditure in the absence of any adverse actions against the assessee. Ld. Pr.CIT cannot initiate revisionary proceedings in order to initiate another possible enquiry. ITAT Benches of Delhi and Chandigarh has held that Ld. Pr.CIT cannot initiate such actions, for the sake of brevity we, reproduce the decision of the ITAT Delhi bench in the case of Solara International Ltd., v. Addl. CIT in ITA.No. 1999/Del/2004 dated 14.01.2005. "19. As to the specific issues raised by the learned ....
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....of revenue merely because the superior officer takes a different view of the matter. We find considerable substance in the contention of the learned counsel for the assessee that the impugned order under section 263 has been made without finding any prima facie error in the assessment order, except the unsubstantiated finding that royalty payments represented capital expenditure. As to the bad debts here again the claim of the assessee was supported by a certificate of the Chartered Accountant. The learned CIT has not pointed out as to in what manner or in what respect the Chartered Accountant had gone wrong. In short, we find that the learned CIT has cancelled the assessment in question more or less on the allegation that the assessment was completed routinely without proper enquiry. For the purpose of holding an assessment order to be erroneous and prejudicial to the interests of revenue on that ground, there should be omission or failure to make such enquiry as was essential on the facts and circumstances of the case. Merely because from a perfectionist point of view it is felt that some more enquiries and verifications could have been made by the assessing officer, the order ca....