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Deferred advertisement expenditure

CA.kaya (Chartered accountant) (3990 Points)

25 May 2013

hi, A Pvt Ltd company made a huge advertisement exp to promote its new branch. it treated it as deferred revenue expenditure in books of accounts for a period of three years. but for the purpose of Income Tax it treated it as revenue exp in one year.. is this allowable in INCOME TAX ACT as we as COMPANY ACT Do reply

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13 Replies

Ishan kewlani (Article) (172 Points)
Replied 26 May 2013

In income tax there are only two types of expense either revenue or capital. As such there is no concept of deferred revenue in income tax. The entire advt. expense would be allowable if it is incurred for business purpose & incurred during the year.

(Guest)

Companies act provisions and income tax provisions are different in many ways.

In this specific query Ishan made a right answer.

1 Like

CA.kaya (Chartered accountant) (3990 Points)
Replied 26 May 2013

thank you ashish andashan. my doubt is in INCOME TAX company is getting benefit by claiming whole expense and shows less profit. but as per books profit is more. so wont IT OFFICER disallow this whole expenditure and cliam more tax ???

Ishan kewlani (Article) (172 Points)
Replied 26 May 2013

No Ao won't disallow any such expenditure, there are judgements in such cases favouring assessee.

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 26 May 2013

If income tax act undisputedly allows den how can ao disallow???????

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(Guest)

if book profits are more it's ok, nothing wrong in it.

But then company will be liable to pay tax At book profit u/s 115JB , as per MAT provisions

CA.kaya (Chartered accountant) (3990 Points)
Replied 26 May 2013

can u specify the case law

(Guest)

no need of case law in it, the law is very clear

Ishan kewlani (Article) (172 Points)
Replied 26 May 2013

Judgement given in case of Global Healthline Pvt. Ltd. ITA NO. 3319/Del/2012

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CA Siddharth Mehra (Chartered Accountant) (145 Points)
Replied 27 May 2013

Since the expenditure is related to extension of business undertaking, such expenditure can be claimed under section 35D of Income Tax Act.

Such Expenditure may be disallowed by the AO is claimed as revenue expenditure.

CA Siddharth Mehra (Chartered Accountant) (145 Points)
Replied 27 May 2013

Since the expenditure is related to extension of business undertaking, such expenditure can be claimed under section 35D of Income Tax Act.

Such Expenditure may be disallowed by the AO if claimed as revenue expenditure.

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Karthik (student) (147 Points)
Replied 27 May 2013

First of all in Financial statements advertisement expenses cannot be deferred as it does not meet the criteria of AS 26. It has to be charged to profit in the year of expenditure. It can be rightly claimed as revenue expenses in Income tax although there is a possibility that AO might dissallow the same. However, on an appeal there is a fair chance that the judgement will b in favour of the assessee.

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Anshul Mittal (Freelancing) (741 Points)
Replied 27 May 2013

Mr. Kartik has perfectly answered the query,,,,

AS-26 has specified that any expense in nature of Deferred Benefits should be written off in the very first year of expenses incurred, no matter how bug the amount is,, Co. should disclose the fact in notes to accounts,,,,,,,,

Thou AS-26 is prevalling since 2006, the Course books still shows the treatment of Deferred Revenue Expenditure,,, Only Discount on issue and premium on redemption are written off over a period....

1 Like