TaxTMI 
TaxTMI 
2022 (1) TMI 1398
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....otal 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 assessee company filed detailed submissions vide le....
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....neous 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. (iv) The expenditure must not be capital in nature." The Explanation to sub-section (1) was ins....
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....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 revenue and it is proposed to be revised u/s. 263 of the I.T. Act, 1961. It is settled proposition of Law that failure of the A.O. to carry out relevant and meaningful enquiri....
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....t 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 107,07,17,246 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....
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....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 the Income Tax Act, 1961 ("Act") dated 15 September 2014. 4. During the course of scrutiny assessment proceedings for the subject AY, the learned Assistant Commissioner of Income Tax, Circle 11(1)(2), Mumbai ("AO") issued various notices seeking for details/ information in connection with the ....
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....ith 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 relating to the Advertisement and Publicity expenditure. 11. In response to the show cause notice issued by the learned PCIT, the Appellant vide a submission dated 17 March 2021 filed a detailed objections against the initiation of revisionary proceedings as well as on the merits of the case. (Refer Page No 61-78 of the paperbook for the copy of the letter dated 3 August 2....
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....sed 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 application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understocd in its ordinary meaning it is of wide import and is not confined to loss of tax." ......... "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the i....
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.... 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 Revenue collection. Both the conditions must pre-exist to enable the CIT to exercise the power under Section 263. Having Said that, it will not be necessary to burden this order with any further description or narration. The foundation for the exercise of the power being the formation of an opinion or conclusion, there is no escape from the view that the CIT must record his conclusions in the matter before setting aside an order of assessment in exercise of the power under Section 263. It will again be futile to embark upo....
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....nary 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 agricultural activities, in our view, CIT should not stop merely on finding that the order is erroneous but also has to establish that the order of AO is prejudicial to the interests of revenue. In the given case, the only missing link is the verification of lease agreement with the farmers and activities whether it is similar to the Prabhat Agri Biotech or not. This could also be verified by Id. CIT and established that it is prejudicial to the interests of revenue. Ld. CIT has failed in this aspect. This is in line with the decision of Hon'ble ....
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....n 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) * Tata Motors Ltd. [2019] ITA No.3425 dated 5 March 2021 (Refer Page No 143-174 of the legal paperbook) * IBM India Private Limited (ITA No 598/Bang/2011) dated 5 July 2013 (Refer Page No 175-210 of the legal paperbook) 21. The Appellant humbly submits that there is a distinction between "lack of enquiry" and "inadequate enquiry". If there is an enquiry, even inadequate, that would not by itself give occasion to pass an order under section 263 of the Act merely because the AO has a different opinion in the matter. Such a course of action is open only in cases of lack of enquiry. Revisi....
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....nto 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) are not satisfied to make the order erroneous: Condition Reason Clause (a) The order is passed without making inquiries or verification which should have been made Clause (b) The order is passed allowing any relief without inquiring into the claim During assessment proceedings the AO had issued notice dated 10 November 2015, where the learned AO has enquired into various expenses debited to Profit & Loss account. The Appellant filed the details of advertisement and publicity expenses incurred by the Company and provided break-up of the expenditure debited under the head 'Advertisement and Publicity'. The Assessee has also furnished party wise details of major payments under....
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....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 (Refer Page No 227-232 of the legal paperbook) * CIT v. Ashish Rajpal [2009] 320 ITR 674 (Delhi) (HC) (Refer Page No 233-243 of the legal paperbook) * CIT v. Vikas Polymers 20121 3411 ITR 537 Delhi HC Refer P-. 245 to 252 of Le: al Paperbook) 32. Accordingly, in the instant case, the issue relating to the expenses debited to the profit & loss account in the nature of 'Advertisement and Publicity' was submitted to the learned AO but since the AO was satisfied with the response, this fact was not reproduced in the order passed by the learned AO. Hence, it cannot be held that no proper enquiry was made by the learned AO granting your Honour the jurisdiction under section 263. Without Prejudice to the above no revisionary proceedings can be initiated if assessment order is in pursuance ....
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....rket 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 Description Amount (INR) Remarks 1 Sales promotion expenses Brand penetration material such as Tshirts, key chains, calendars, photos, glasses, gift cards provided to the retailers/ wholesalers to have brand penetration and create brand awareness (upon purchase of certain specified quantity) 86,43,33,466 Regular business expenditure incurred wholly and exclusively for the purpose of the business and is outside the purview of the cable TV law 2 Branding activities Expenses incurred for promoting consumer experiences including costs incurred for purchase of glasses, mugs, openers, ice buckets, dispensers, etc 3 Signage and brand awareness in liquor outlets Creating awareness of its brands by incurring expenses on the signboards, display material, glow boards etc. at retail outlets across the country. These are displayed in....
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.... 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 Assessee for organizing private events/press conference, designing advertisement stalls, photographer charges, etc. were not hit by explanation 1 to section 37(1) of the Act as the same are not prohibited by law. 39. Further, the reliance is also placed on the decision of Kolkata Tribunal in the case of Jahangir Biri Factory (P) Ltd Vs DCIT [2009] ITA no. 1173 (Kol) dated 27 March 2009 (Refer Page No 263-267 of the legal paperbook) wherein the expenses incurred by the Assessee under prize coupon scheme for users of its tobacco product was held to be not in infringement of law and the therefore expenses does not fall within the mischief of prohibitory regulation and hence cannot be disallowed. The tribunal further noted that: * the Assessee is entitled to make effort to boost up sale of its products by resorting to any means, provided there is no infringement of law or it involves any obscenity; * The prohibitory regulation has been introduced to curb proliferation of tobacco add....
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....ssee'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 down in the aforesaid judgment, it would be clear that the expenditure referred to hereinbefore is to be regarded as expenditure on sales promotion and, therefore, has to be allowed as a deduction. 43 Further, expenses incurred for market research, census, surveys, etc are undertaken to gain an understanding of the current market trends, consumer preferences, product feasibility and develop knowledge of the industry. Knowing the potential and current customers and their purchasing preferences allows the Company to modify its products to increase sales. Such expenses are also incurred by the Company to understand its customer base and business strategies, which can give the company a competitive edge in the industry. These expenses are not in the nature of advertisement expenses which are prohibited by any law and are purely incidental to the regular business of the Assessee. 44. Given the above, your Honour would appreciate that the expenses to the tune of Rs 86.43,33,466 debited to the advertisement and publicity head....
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....rtised on cable services subject to the following conditions that (i) the story board or visual of the advertisement must depict only the product being advertised and not the prohibited products in any form or manner, (ii) the advertisement must not make any direct or indirect reference to prohibited products; (iii) the advertisement must not contain any nuances or phrases promoting prohibited products; (iv) the advertisement must not use particular colours and layout or presentations associated with prohibited products; (v) the advertisement must not use situations typical for promotion of prohibited products when advertising the other products: Provided further that - (i) ... (ii) all such advertisements found to be genuine brand extensions by the Ministry of Information and Broadcasting shall be previewed and certified by the Central Board of Film Certification as suitable for unrestricted public exhibition and are in accordance with the provisions contained in subclause (i) to (v) of the first proviso, prior to their telecast or transmission or retransmission." 49. Given the above, your Honours would note that advertisement in any media network is hig....
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....s or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee Shall incur it in his capacity as a person carrying on the business. * CIT vs. Walchand & Co. Pvt. Ltd. (1967) 65 ITR 0381 [SC] wherein it was held that In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue; Tribunal is empowered only to find out if an expenditure is not real or it is not incurred by the assessee as a trader, or if it is not wholly and exclusively laid out for business purposes, but it cannot determine the reasonableness of the expenditure or determine what portion of....
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....t, the AO has to demonstrate that by incurring the expenditure the Assessee has violated a law. That has to be demonstrated by establishing that the regulator concerned with regulating the law has found the assessee to be in violation thereof or the assessee has himself admitted that it has incurred an expenditure which is in violation of the law. 58. In this regard, the Appellant also refers to a judgment of the Madras High Court in Cholamandalam MS General Insurance Company Limited vs. Deputy Commissioner of Income-tax 411 ITR 386 (Refer Page No 317-317 of the legal paperbook). In this case the Tribunal had held that the payment of reinsurance premium to a foreign reinsurer was contrary to the provisions of the Insurance Act and, therefore, was to be disallowed having regard to Explanation 1 below section 37(1). The Tribunal held that the provisions of the IRDA Regulations which permitted reinsuring the risk with a foreign reinsurer were inconsistent with the provisions of the Insurance Act and, hence, the payment of the reinsurance premium was prohibited by law and, therefore, was not allowable as a deduction. Dealing with this contention the High Court observed that "the Tri....
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....cial discipline and maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfied all the conditions under rule 4 of Part A of the Fourth Schedule and should not sit in judgment over it. * ACIT vs. A.K. Menon & Ors. (215 ITR 364) [SC] (Refer Page No 339-342 of the legal paperbook) wherein it was held that Special Court has no jurisdiction to sit in appeal over the assessment of the tax liability of a notified person by the authority or Tribunal or Court authorised to perform that function by the statute under which the tax is levied. The Special Court has, therefore, has no jurisdiction to determine whether or not any assessment of the tax liability of a notified person by the appropriate authority is bona fide or reasonable or justified or enforceable. * K.N. Narayana lyer vs. CIT (202 ITR 774) [Karnataka HC] (Refer Page No 343-346 of the legal paperbook) wherein it was held that When the liquidator himself does not choose or find it necessary to avoid a particular transfer, or to recove....
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.... it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. Since the MCI had no jurisdiction to go into the infrastructure facilities, need not also go into the aspect that in the year 2011, the facilities available in the hospital were inspected and were found to be in order. Prayer: 60. Given all of the above, after considering the factual details/ documents and legal submissions, the Appellant wishes to humbly submit that the expenditure incurred by the Appellant is wholly and exclusively for the purpose of the business and in accordance with principles of business expediency and allowable under section 37 of the Act. 61. Accordingly, the Appellant wishes to humbly submit that as none of the conditions required to invoke proceedings under section 263 of the Act are satisfied, we request your Honour's to quash the order dated 31 March 2021 passed by the learned PCIT under section 263 of the Act." 8. On the other hand, Ld. DR submitted that no information on nature of expenses filed before the Assessing Officer or Ld. Pr.CIT and from the records of assessment Ld. Pr.CIT clearly observed that Assessing Officer has not made....
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....es not fall under the category of advertisement in television. Therefore, these expenses are the sales promotion expenditure to the extent of Rs..86,43,33,466/-. Therefore, these expenses are not the expenditure which Ld. Pr.CIT has raised the issue of the expenditure which is spent on activities which is unlawful and in the nature of contravening any other laws. Therefore, the issue to be addressed on the issue of illegal expenses only to the extent of Rs..20,63,83,780/-. We observe from the record that Ld. Pr.CIT initiated the revision proceedings with the view that the advertisement and publicity expenses incurred by the assessee in the television are not admissible due to the fact that these are illegal and contravenes the Cable Television Networks (Regulation) Act, 1995. On a careful consideration we observe that assessee is advertising in the same mode of advertisement in earlier years as well as continued to advertise in subsequent years, we also observe that no authority who approves the advertising in the television has initiated any proceedings under the Cable Television Networks (Regulation) Act, 1995 as per which assessee has contravened any of the Act of the Cable Tele....
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....has not pointed out any omission or defect or infirmity in the certificate submitted by the Chartered Accountant during the course of assessment proceedings. In respect of expenditure on discount, commission and incentives, the learned CIT has not able to state anything specifically except that according to him, business promotion expenses included entertainment expenditure of Rs. 10,46,913. There is no further finding in the order of the learned CIT that the assessment order resulted into underassessment on that score. It is pointed by the learned counsel for the assessee that in the order passed by the assessing officer in pursuance to the impugned order under section 263, no such disallowance has been made. In respect of MODVAT accounting and its impact on valuation of goods, the learned CIT has held that the assessing officer should have consulted an expert. We find that no such expert was consulted while completion of the assessment order for the earlier assessment years as well as the assessment orders made subsequent to impugned order under section 263. It is noteworthy that learned CIT did not feel it necessary to do so himself before making the impugned order. The observat....