Oral Judgment

A.S. Supehia, J.

1. While admitting the present appeal vide order dated 02.02.2010 passed by the Coordinate Bench of this Court, the following substantial question of law was framed.

          "Whether the ITAT was right in law and facts in holding that advertisement expenses are revenue expenses and not capital expenses though the assessee had treated and claimed the said expenditure of Rs.5,01,60,994/- as a deferred revenue expenditure in books of account?"

2. It is interesting to note that the present appeal was admitted on the question of law, as framed in view of Tax Appeal No.693 of 2007, which was admitted earlier. The said appeal being Tax Appeal No.693 of 2007 was dismissed along with a group of appeals vide order dated 15.04.2015, as the appellant-department did not take any steps to serve the unserved respondents, however, the question of law was kept open.

3. No attempts were made by the appellant to restore the said Tax Appeal No.693 of 2007, which was dismissed by this Court on 15.04.2015.

4. Be that as it may, today we have heard the present appeal on the substantial question of law.

5. At the outset, learned advocate Mr.Manish J. Shah, appearing for the respondent, has submitted that the issue and the substantial question of law, as framed and mentioned hereinabove, has already been answered by the Supreme Court in the case of Taparia Tools Ltd. Vs. Joint Commissioner of Income-tax, [2015] 372 ITR 605 (SC), and by the order dated 30.11.2015 passed by the Coordinate Bench of this Court in Tax Appeal No.876 of 2015 in the case of the Principal Commissioner of Income-tax-1 Vs. M/s. Adani Retail Ltd., as well as in the case of Deputy Commissioner of Income-tax v. Core Healthcare Ltd., [2009] 308 ITR 263 (Guj.). He has also placed reliance on the decision in the case of Commissioner of Income-tax v. Gujarat State Fertilizers and Chemicals Limited, (2013) 358 ITR 323 (Guj.). Thus, it is urged that the substantial question of law raised in the present tax appeal would not survive.

6. However, learned Senior Standing Counsel Mr.Rutvij Patel, appearing for the appellant-Department, has tried to distinguish the proposition of law laid down in the aforesaid judgments while referring to the assessment order dated 19.03.1998 passed by the Assistant Commissioner of Income- tax. It is submitted that, in the present case, the assessee has claimed an amount of Rs.5,01,60,994/- as revenue expenditure in the computation of total income. It is contended that on the scrutiny of the Profit and Loss Account, it was noticed that the assessee itself treated the same as deferred revenue expenditure, and an amount of Rs.50,18,099/- was debited in the Profit and Loss Account, as deferred expenditure, however, in the computation of income filed along with the return of income, the amount of Rs.50,18,099/- was added back, and instead an amount of Rs.5,01,60,994/- was claimed, stating that the corporate image advertisement expenses were treated as deferred revenue in the books of account. It is submitted that hence, the assessee was asked to explain as to why these expenses claimed, which included corporate image (advertisement) building expenses, should not be disallowed, vide letter dated 16.02.1998. It is also submitted that the ratio of the judgment of the Supreme Court in the case of Taparia Tools Ltd. (supra) would not apply in view of the provisions of Section 37(1) of the Income-tax Act, 1961 (for short, "the Act"), as the language of Section 36(1)(iii) of the Act does not permit the spreading over of expenditure over a period of years. Thus, it is urged that the present appeal may be allowed.

7. We have heard the learned advocates appearing for the respective parties.

8. Before reverting to the contentions raised before this Court, we would like to incorporate the findings of the impugned judgment and order of the Tribunal dated 29.02.2008, which are as under:-

          "5. We have heard the parties, and perused the material on record. No doubt, there is some merit in the A.O's contention that the assessee cannot, without substantial reason, make contradictory claims through its accounts and its return(s) of income; the former having evidentiary value, even as held by the Apex Court in the case of Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala & Others, 91 ITR 18 (SC); even as held by the Tribunal in the case of JCT Ltd. Vs. ACIT, 65 ITD 169. However, in the present case there is no inconsistency between the characterization of the amount by the assessee in its accounts as well as the return of income; adopting a uniform view of the same being a revenue expenditure, even as it choose to, a matter of accounting policy, spread the claim of the said revenue expenditure over an extended period of time in view of the inadequacy of the profits, as also perceived benefit over a longer duration. However, that by itself would not make the said expenditure to be in the nature of capital field, and neither we find it as the Revenue's case of it being so. As such, we find no infirmity in the Order of the Ld. CIT(A) in deleting the said disallowance. The question of examining the applicability or otherwise of the provision of section 35D; the assessee's claim being admissible u/s. 37(1), would not, therefore, arise. We decide accordingly."

9. At this stage, we may mention that the Assessing Officer in his order dated 19.03.1998, after examination of the expenditure, has treated the same as deferred revenue expenditure, which had also been held so in the last assessment order.

10. In light of the aforesaid observations, at this stage, we may incorporate the relevant observations of the Supreme Court in the case of Taparia Tools Ltd. (supra). The relevant observations are as under:

          "17. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the Income-tax Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of "matching concept" is satisfied, which up to now has been restricted to the cases of debentures.

          18. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account that cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of the provisions contained in the Act (See Kedarnath Jute Manufacturing Co. Ltd. v. CIT Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT** Sutlej Cotton Mills Ltd. v. CIT*** and United Commercial Bank v. CIT.

          19. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage inasmuch as in the Income-tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of section 36(1)(iii) of the Act. Once a return in that manner was filed, the Assessing Officer was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it is claimed."

11. Thus, on a perusal of the observations of the Supreme Court, as mentioned hereinabove, it is manifest that there is no estoppel against the statute and the Act, which enables the assessee to claim the entire expenditure in the manner in which it is claimed.

12. A similar view has been taken by the Coordinate Bench of this Court in the order dated 30.11.2015 passed in Tax Appeal No.876 of 2015 by placing reliance on the judgment of the Supreme Court in the case of Taparia Tools Ltd. (supra).

          "6. Regarding the second contention of Revenue it is by now well settled by series of decisions of the Supreme Court and this Court that the treatment accorded to a certain expenditure in the books of account of the assessee would not be conclusive of its true nature and on valid grounds, it would be open for the assessee before the Income Tax authority to claim a different treatment. This was perviously stated in case of Kedarnath Jute Manufacturing Co. Ltd. (supra) which was reiterated in case of Taparia Tools Ltd. (supra) as well."

13. We may also incorporate the relevant paragraph from the decision in the case of Gujarat State Fertilizers and Chemicals Limited (supra), wherein the Coordinate Bench has held that :

          "4.3 In the present case also, the CDR expenses to the tune of Rs. 2.57 crores have been rightly held by both the Commissioner of Income-tax (Appeals) and the Tribunal as revenue in nature and the same has rightly not been held to be capital in nature. For the waiver of the loan, the pay-ment has been made to the financial consultants. This was for the purpose of business and the same was held to be allowable under section 37(1) of the Act. Having held the said amount to be revenue in nature applying the decision of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra), when the amount has been spread over a period of six years, no error is committed by both the authorities. Once the expenditure is held to be revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. However, considering the decision in the case of Madras Industrial Investment Corporation Ltd. (supra), when the spread-ing is done for over a period of six years and as the assessee-respondent has no objection to such revenue expenditure being spread out, though it could have insisted for this amount allowed in the year under considera-tion, with no such objection having been raised, the Revenue would not succeed in this issue as the expenditure is held to be revenue in nature. Thus, the second question also does not merit any consideration."

14. We may also refer to the observations made by the Division Bench in the case of Core Healthcare Ltd., (supra), which is as under:-

          "14. In relation to the first item, namely, advertisement expenses, it is not in dispute that the expenditure of Rs.70 lakhs and odd was incurred on a special advertisement campaign. However, that by itself would not be sufficient to determine as to whether the expenditure in question is on revenue account or capital account. The approach of Commissioner (Appeals) that the expenditure in question was treated as "deferred revenue expenditure" and hence was capital in nature, cannot be termed to be a correct approach because insofar as the Income Tax Act is concerned, there is no such category of "deferred revenue expenditure". Similarly, making of an entry or absence of an entry does not determine the allowability or otherwise of the item of expenditure and the same cannot be considered to be a factor adverse, if the expenditure is otherwise of allowable nature. Every expenditure incurred by a business concern, if incurred for the purposes of business, is bound to result in some benefit, direct or indirect, immediate or after some time, but the benefit to the business cannot be termed "capital" or "revenue" only on the basis of the period for which the benefit is derived by the business. Any benefit resulting to a business need not be confined to the year of expenditure and this is an ordinary incident of a running business. In the case before Allahabad High Court in Hindustan Commercial Bank Ltd., In re Hindustan Commercial Bank Ltd., [1952] 21 ITR 353, the expenditure on advertisement had been incurred at the point of time when new branches of the Bank had to be opened and inaugurated. It has been held by Allahabad High Court that there is no proposition that the amount spent in a special campaign of advertisement must necessarily be capital expenditure.

15. The Apex Court decisions on which reliance has been placed by the Tribunal, namely, Empire Jute Co.Ltd. [1980] 124 ITR 1(SC) and Alembic Chemical Works Co.Ltd. [1989] 177 ITR 377 (SC) specifically lay down that the nature of advantage has to be considered in a commercial sense and the test of enduring benefit is not a certain or conclusive test and cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The expression "asset or advantage of an enduring nature" has been evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The idea of "once for all" payment and "enduring benefit" are not to be treated as something akin to statutory conditions.

16. Applying the aforesaid settled legal position to the facts of the case, it is not possible to agree with appellant-Revenue that the advertisement expenses incurred by respondent - assessee at the time of installation of additional machinery in existing line of business resulted in any enduring benefit, so as to be treated as capital in nature."

15. Thus, in view of the settled legal precedents and in light of the observations of the Division Bench of this Court in the case of Core Healthcare Ltd.(supra), the advertisement expenses incurred by the assessee cannot be treated as capital in nature. The substantial question of law raised and formulated by the Coordinate Bench of this Court in the order dated 02.02.2010 is answered in favour of the assessee.

16. Accordingly, the Appeal stands dismissed.