INCOME TAX APPELLATE TRIBUNAL
facts, in brief, as per relevant orders are that return declaring nil income, after set off of business loss of ``568,87,510/- , filed on 31.10.2005 by the assessee, engaged in the business of publishing of telephone directory with yellow pages, was selected for scrutiny with the service of a notice issued u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) on 19.09.2006. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed a sum of ``37,03,788/- towards deferred revenue expenses. To a query by the AO, the assessee replied that it incurred expenditure in the FY 2002-03 on advertisement and brand building to build its brand ’GETIT’ and the expenditure was amortised and treated as deferred revenue expenditure. However, the AO did not accept the submissions of the assessee on the ground that these expenses did not fall within the ambit of provisions of section 35D nor resulted in any intangible asset .Accordingly, the AO disallowed the amount.
A.C. I .T. , Circle-12(1), New Delhi (Appellant) V/s.M/s Get it Informediary Ltd. ,8-B, Bahadur Shah Zafar Marg, New Delhi [PAN:AABCG 7022 L] (Respondent)
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘C’ BENCH
BEFORE SHRI I.C. SUDHIR, JM & SHRI A.N. PAHUJA, AM
Assessment year: 2005-06
A.C. I .T. ,
M/s Get it Informediary Ltd. ,
8-B, Bahadur Shah Zafar
Marg, New Delhi
[PAN:AABCG 7022 L]
Assessee by None
Revenue by Shri Neeraj Kumar, DR
Date of hearing 01-08-2012
Date of pronouncement 08-08-2012
O R D E R
This appeal filed on 30th January, 2012 by the Revenue against an order dated 08.11.2011 of the ld. CIT(A)-VIII, New Delhi, raises the following grounds of appeal:-
1) “Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``37,03,788/- made by the AO on account of deferred revenue expenses written off.
2) Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of ``80,48,309/- made by the AO on account of bad debts written off.
3) The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
2. At the outset, none appeared before us on behalf of the assessee nor submitted any request for adjournment. Accordingly, considering the nature of issue and the findings of the ld. CIT(A), the Bench proceeded to dispose of the appeal after hearing the ld. DR.
3. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring nil income, after set off of business loss of ``568,87,510/- , filed on 31.10.2005 by the assessee, engaged in the business of publishing of telephone directory with yellow pages, was selected for scrutiny with the service of a notice issued u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) on 19.09.2006. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed a sum of ``37,03,788/- towards deferred revenue expenses. To a query by the AO, the assessee replied that it incurred expenditure in the FY 2002-03 on advertisement and brand building to build its brand ’GETIT’ and the expenditure was amortised and treated as deferred revenue expenditure. However, the AO did not accept the submissions of the assessee on the ground that these expenses did not fall within the ambit of provisions of section 35D nor resulted in any intangible asset .Accordingly, the AO disallowed the amount.
4. On appeal, the ld. CIT(A) allowed the claim of the assessee in the following terms:-
“5.2 A perusal of the records reveals that the assessee company is engaged in the business of printing and publishing of official Telephone Directories for Telecom Departments in various cities in India alongwith yellow pages. The main source of revenue generated by the appellant company is advertisements sponsored by the customers for printing in yellow pages. During the FY 2002-03 relevant to the A Y 2003-04, the appellant company had spent Rs.44734823/- on advertisement and brand building expenses. Out of the aforesaid amount, a sum of Rs.14815115/- was classified as having been spent on brand building. During the FY 2002-03 25% of the aggregate amount of Rs.14815115/- i.e. RS.3703787 was claimed as expenditure and balance 75% i.e. Rs. 11111363/- was carried forward and charged over a period of 3 years.
Thus, during the A Y 2003-04, 2004-05, 2005-06 and 2006-07,the appellant company has claimed an equal sum of Rs. 3703788/-. In the AY 2003-04 itself the claim of the appellant company was disallowed by the Id. AO holding that in the IT Act, there is no provision for claiming any expenditure as deferred revenue expenditure except expenses specifically provided for in section 35D of the Act. Therefore, neither the claim of the assessee was allowed as revenue expenses nor the same was allowed to be capitalized. Following the previous/past history of the case during the year under consideration also, the claim of the appellant company has been disallowed.
5.3 In the course of appellate proceedings, the Id. counsel for the appellant has submitted that the issue in question has been examined by the Hon'ble ITAT and also the Hon'ble Jurisdictional! High-Court for the A Y 2003-04 in the assessee's own case. After due consideration of full facts and position of law the claim of the appellant company has been allowed as revenue expenditure by both the aforesaid courts. It is therefore, requested that the matter being covered by the orders of the Hon'ble ITAT and the Hon'ble High court the disallowance made by the Id. AO may be deleted.
5.4 I have carefully considered the submissions made on behalf of the appellant company and the findings recorded by the Id. AO. On consideration, I find that the issue of deferred revenue expenditure on account of advertisement and brand building has come up before the Hon'ble IT AT, Delhi for the A Y 2003-04 in the assessee's own case. In the order dated 15.03.2011, the Hon'ble ITAT has allowed the claim of the appellant company with the following observations:-
"6. We have carefully considered the rival submissions in the light of the material placed before us. The details of expenditure incurred by the assessee are filed at pages 14-28 of the paper book. As per para 5.2 of Schedule 21, the following note relevant to the impugned issue was filed by the assessee:-
"5.2 During the year company has spent Rs.44,734,823/- on advertisement & brand building expenses to build its brand "GETIT" in the yellow pages segment of the business. Out of the above a sum of Rs.14,815, 150/- is spent on brand building expenses, of which a sum of Rs.3, 703, 787/- has been charged during the year and the balance of Rs.11,111,363/- has been carried as miscellaneous expenditure to be charged over a period of next three years. "
7. As it can be seen from the above note, the total expenses of the assessee on advertisement and brand building were incurred at Rs.4,47,34,823/- and out of the said total amount, a sum of Rs.1,48,15,150/- was segregated by the assessee on account of expenses incurred for brand building. The nature of these expenditure as was seen from the details was almost like advertisement expenditures. The other expenditures have been treated by the Assessing Officer on advertisement as no disallowance has been made in this regard. It has not been brought on record as to how these expenditures can be said to be giving enduring benefit to the assessee and how they are different from the other expenses claimed by the assessee under the head "Advertisement" which have been treated by the department being in the nature of revenue. It also has not been brought on record that by incurring such expenditure, the assessee had acquired any fixed capital asset. If it is so, then, it cannot be said that such expenditure was incurred by the assessee on account of capital which has given any enduring benefit to the assessee. The assessee in its prudence may have claimed those expenditures in four years, but the nature of these expenditures is not in the capital field. The ratio of the decision relied upon by the learned AR in the case of ITO vs. Spice Communications Ltd. (supra) is applicable to the
present case. The relevant observations from the said decision of the Tribunal are reproduced below:-
"It is not in dispute that the assessee is in the business of providing cellular mobile services under its own self-generated brand "Spice" since 1997. The assessee's business of providing cellular mobile services is undoubtedly a highly competitive business, and assessee has to provide services in a competent environment. This is also not in dispute that the assessee has incurred expenditure towards advertisement and promotion in course of carrying on its business activities. The Assessing Officer has allowed 90 percent of the expenses as revenue expenditure and allocated 10 percent towards capital by observing that 10 percent of expenses have been incurred towards brand building, The Assessing Officer has not been able to justify as to how the 10 percent of the total advertisement and sales promotion expenses can be allocated towards capital
expenditure when the assessee has not acquired any brand from any outside party. The expenditure on advertisement and sales promotion constituted expenditure incurred on press advertisement, hoardings, neon signs, brochures, etc. The press advertisements could not be considered as capital asset acquired by the assessee. Similarly, putting hoardings and neon signs could not also be considered on capital field. The expenditures do not lead to create any capital asset to the assessee. Even there is no benefit of enduring nature so to treat the expenses as capital expenditure. Since by incurring expenditure on advertisement and sales promotion, the assessee has not acquired any fixed capital asset, but these expenditures were incurred for earning better profits, and for facilitating assessee's operation of providing cellular mobile services, there exist direct nexus between the advertisement and sales promotion expenses and the carrying out of the business activity of the assessee. We, therefore, do not find any justification in interfering with the order of the CIT(A) in deleting the disallowance of 10 percent of expenses towards advertisements and sales promotion incurred by the assessee for smooth functioning and carrying on assessee's business effectively, proficiently and profitability. The order of the CIT (A) is, thus, upheld on this issue. "
8. It is observed from the order of the CIT (A) that he has upheld the addition on the ground that these expenditures being in the nature of brand building will result in enduring benefit to the assessee and, therefore, he is in agreement with the views of the Assessing Officer. If the ratio of the aforementioned decision is seen, in that case also brand building expenditures were considered to be revenue expenditure. It will depend upon the nature of expenditure incurred by the assessee and not the nomenclature given by the assessee. The nature of these expenditures are not capital ns they are expenditures incurred by the assessee on advertisement which is an allowable expenditure.
9. In view of the above discussion, we find no justification in the addition of the aforementioned amount to the income of the assessee which is hereby deleted."
5.4.1 The aforesaid finding of the Hon'ble ITAT have been upheld by the Hon'ble Delhi High Court in terms of their order dated 08.09.2011 as under:-
"The question which is raised in this appeal is as to whether the expenditure on advertisement was to be treated a capital or revenue in nature. The ITAT has held it to be revenue expenditure. In Hindustan Coca Cola, this court has already held that such an expenditure would be revenue expenditure.
We, therefore, do not find any merit in the appeal. No question of law arises. The appeal is hereby dismissed."
5.5 In view of the aforesaid fact-situation and respectfully following the judgments of the Hon'ble ITAT and the Hon'ble High court, I hold that the AD was not justified in disallowing the claim of deferred revenue expenses of Rs.3703788/-. It is directed that the claim of the appellant company may be allowed as revenue expenditure and consequential relief may be granted. “
5 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR merely supported the order of the AO
6. We have heard the ld. DR and gone through the facts of the case. As is apparent f rom the aforecited facts, the assessee dist ributed the advert isement expenses towards brand building over a period of four years viz. FYs 2002-03 to 2005-06 and claimed the same as revenue expenditure. There is nothing to suggest that the expenditure is of capital nature. In ACIT vs. Ashima Syntex Ltd. ,310 ITRSP 1(SB,Ahmedbad) in ident ical ci rcumstances, it was observed that the concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act. The relevant provisions of the Act recognise only capital or revenue expenditure. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g., expenditure on advertisement, sales promotion etc. Though the nature of such expenditure is revenue, keeping in view the fact that the benefits arising therefrom are expected to be derived over a period of time, stretching sometimes over several accounting years, the assessees have been amortising the same over the expected time period over which the benefits are likely to accrue therefrom. Accordingly, only a proportion of such expenditure is amortised in the Profit and Loss Account but an appropriate adjustment is made in the computation of income, claiming the entire as allowable revenue expenditure in terms of provisions of section 37 (1) of the Act. The expenditure which is treated as deferred revenue in the books, almost in all cases comprises of items, the benefits derived wherefrom are ephemeral and transitory in nature in as much as these are incurred as a part of a continuous process and need to be expended in order to generate and increase the brand recall and sustain it in the minds of customers. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. In the instant case, even in the preceding year, similar claim of expenses has been allowed by the ITAT and upheld by the Hon’ble jurisdictional High Court. In a number of judgments viz. Amar Raja Batteries Ltd. v. Asstt. CIT  91 ITD 280 (Hyd.), Jt. CIT v. Modi Olivetti Ltd.  4 SOT 859 (Delhi), Asstt. CIT v. Medicamen Biotech Ltd.  1 SOT 347 (Delhi), Hero Honda Motors Ltd. v. Jt. CIT  3 SOT 572 (Delhi) and Charak Pharmaceuticals v. Jt. CIT  4 SOT 393 (Mum.), it has been affirmed that where any expenditure is treated as a deferred revenue expenditure, it presupposes that the concerned expenditure, creating benefit is in the revenue field and is a revenue expenditure, but considering its enduring benefits as well as the fact that it does not result in the creation of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. However, where any identifiable capital asset, tangible or intangible comes into existence as a result of the amount expended, the same will have to be treated as a capital expenditure and depreciation allowable thereon as per the prescribed rules and procedures under the Income-tax Act. In the instant case, indisputably, advertisement expenses towards brand building are revenue in nature nor any material has been placed before us by the Revenue, suggesting that any tangible or intangible asset has been created by the assessee. In the light of view taken by the Hon’ble jurisdictionl High Court in their decision dated 8.9.2011 in the assessee’s own case as also by the Special Bench in the aforesaid decision in Ashima Syntex Ltd.(supra), we do not find any merit in the ground raised by the Revenue. Therefore, ground no. 1 in the appeal of the Revenue is dismissed.
7. Next ground no.2 related to disallowance of claim for bad debt. The AO noticed that the assessee claimed an amount of ``80,48,309/- towards bad debts. To a query by the AO, the assessee submitted that bad debts were on account of share of unrealized white pages revenue receivable from various BSNL stations and had been written off .As per contract with BSNL, the
assessee was entitled to a share in white pages revenue for additional bold and super bold entries with or without logo. The assessee also pointed out that the amount was billed and realized by concerned BSNL stations from its subscriber and in-turn BSNL paid to the assessee its share of the white pages revenue. At the time of delivering the directories to BSNL, the share of the assessee’s revenue was estimated on the basis of entries printed therein. Since this amount was not realized, it was written off as irrecoverable. However, the AO did not accept the submissions of the assessee in the absence of any reply as to when the amount was offered as income and also it had not furnished any evidence to show as to whether this amount had been actually written off in the books of account. Moreover, the assessee did not fulfill the conditions stipulated u/s 36(1)(vii) read with Section 36 (2) of the Act. Accordingly, the AO disallowed the claim. Inter alia, the AO relied upon the decision in 49 ITR 874 (Madras); 20 ITR 792 (Bombay); 22 ITR 94 (Bombay); 141 ITR 297 (MP) and 197 ITR 528 (Kerala).
8. On appeal, the ld. CIT(A) allowed the claim, after admitting additional evidence tendered before him in terms of Rule 46A of the IT Rules,1962.,in the following terms:
“6.3 I have carefully considered the submissions made on behalf of the appellant company and the findings recorded by the Id. AO. On consideration, I find that in the course of assessment proceedings a reply dated 24.12.2007 was filed by the appellant company narrating the nature and circumstances in which the bad debts had been written off. Further, the appellant company has also filed necessary evidence i.e. company wise/client wise details of revenue generated and bad debts written off. As stated earlier, the company is engaged in the business of printing and distributing telecom directories and revenue generated on account of advertisements, yellow pages and bold letters etc. is shared between the BSNL and the assessee company. In some cases, the BSNL itself is not in a position to recover the dues from the clients and in such situation both the BSNL and the appellant company incur losses on account of write off of outstanding debtors. Considering the nature of business of the appellant company, possibility of certain amounts being written off cannot be ruled out. Therefore, to disallow the claim on the ground that the factum of debtors actually becoming bad is not established is not justified. I find that this is a recurring issue in the case of the appellant and similar disallowances have been made in previous years also. However, on appeal, the same have been allowed by the ITAT and the Hon'ble High Court. For instance, the disallowance of bad debts was allowed by the Hon'ble ITAT in the assessee's own case for AY 2003-04 in terms of order dated 22.06.2007 as under:-
"4. We have heard the arguments of both the sides and also perused the relevant material on record. Before us, the Id. Counsel for the assessee has relied on various judicial pronouncements of the Tribunal as well as High Courts including (lie recent decision Hon'ble Delhi High Court in the case of CIT vs. Autometres Ltd. (ITA 466/2006 dated 2-3-2007) to contend that as a result of amendment made to section 36(1)(vii) w.e.f. 1-4-89, the assessee is not required to establish that debt has become bad in the relevant previous year mid it is sufficient for claiming deduction on account of bad debt that the concerned debt has been written oil as irrecoverable in the books of accounts of the assessee. The Id. DR on the other hand has strongly supported the impugned order of the Id. CIT(A) relying mainly on the 3rd Member decision of Demi Bench of ITAT in the case of Pashupati Nowtcch Ltd. (Supra).
5. After considering the rival submissions and perusing the relevant material on record, we find that the issue involved in the present appeal is squarely covered in favour of the assessee by the decision of jurisdictional High Court in the case of M/s. Autometres Ltd. (Supra) cited by the Id. Counsel for the assessee. In the said decision, Hon'ble Delhi High Court has considered the effects of amendment made in section 36(I)(vii) w.e.f. 1-4-89 and held that there is a significant difference between the provision as it stood prior to 1-4-89 and the provision as amended w.e.f. 1-4-89 inasmuch as it was necessary for the assessee prior to 1-4-89 to establish that debt had become bad whereas now for the debt to be classified as bad, the assessee has only to write it off as irrecoverable in its accounts. Their Lordships of Delhi High Court also referred to a circular no. 551 dated 23-1-90 issued by the CBDT explaining the legislative Niitention behind making the amendment in section 36 (I)(vii) as to overcome considerable amount of litigation generated on the issue whether the Assessee is able to establish that debt had become bad before clarifying that as a result of the amendment, a bad debt can be straightaway allowed in the year of write-off. It was held by the Hon'ble Delhi High Court that the amendment made to section 36(1)(vii) tints was a conscious decision taken to eliminate litigation will regard to establishing what is bad debt. It is pertinent to note here that the stand taken by (lie id. CM (A) in his impugned order passed in the present case as further supported by the Id. DR at the lime of hearing before us relying on (the 3rd Member decision of Delhi ITATT In the case of Pashuputi Ncwlcch Ltd. (supra) on the amendment made in section 36(I)(vii) w.e.f. 1-4-89 incorporates only the year of allowability but it does not dispense with the requirement of the assessee to prove that the debt has become: bad debt was also taken on behalf of the Revenue before the Hon'ble Delhi High Court in the case of Automatres Ltd. (Supra). The same however was rejected by their Lordships observing that such an interpretation of the amendment made in section 36(]}(vii) made 1-4-89 would take the situation nto what was prevailing prior to 1-4-1989.
6. In the present case, the debts due from Government departments as well as private parties were fully written off by the assessee company as irrecoverable in its books of accounts and this being the undisputed position, we hold, respectfully following (he decision of Hon'ble Delhi High Court in the case of M/s. Autometres Ltd. (Supra), (hat the deduction claimed by the assessee on account of the said debts was fully allowable as per the amended provisions of section 36(I)(vii) read with section 36(2). We, therefore, set aside the impugned order of the Id. CIT (A) sustaining the disallowance made by the AO on this issue to the ITA 10 no.450/Del./2012 extent of Rs.28,35,1641- and direct (lie AD 10 allow the deduction as claimed by the assessee on this count."
\6.3.1 The aforesaid finding of the Hon'ble ITAT were upheld by the Hon'ble High Court vide order dated 25.08.2008 as under:-
"2. The Tribunal, after examining the amendment brought about in Section 36 (1) (vii) of the Income Tax Act, t% 1 (hereinafter referred to as the 'said Act') with effect from (11.04.1989, arrived at a conclusion that the deduction claimed by the assessee on account of bad debts, part of which went from government departments and the remaining part from private parties, was fully allowable as bad debts written off under the provisions of Section 36 (1) (vii) read with Section 36 (2) of the said Act.
3. It may be relevant to note that in the return of income filed by the assessee a deduction of Rs1,67,33,202/- was claimed by the assessee on account of bad debts written off. Out of this sum an amount of Rs.1,13,40,6551- was in respect of the government telephone department and the remaining amount was in respect of private parties. The Assessing Officer had disallowed the claim of the assessee for deduction of the said amount claimed as bad debts to the extent of 25% relating to the government telephone department and 15% relating to the other private parties. This resulted in an addition of Rs.36,44,0467/-.
4. It is obvious that the Assessing Officer, while allowing 25% of the bad debts written off relating to the government telephone department, was of the view that to that extent the debts were irrecoverable from the said department and / or the said department was insolvent to that extent. The logic employed by the Assessing Officer is rather curious. We are not impressed by it. In any event, we need not dwell upon this issue any further inasmuch as the Tribunal has followed the decision of this Court in the case of Ltd; 292 ITR 345 and has observed that the assessee is not required to establish that the debt has become bad in the relevant previous year and it is sufficient for the purposes of claiming deduction on account of bad debts that the concerned debt had been written off as irrecoverable in the books of the assessee. The fact that the assessee had written off the said bad debts in its books is not controverted.
5. Consequently, we find that there is no cause for interference with the impugned order."
6.4 In view of the aforesaid fact-situation, I do not find any justification in the action of the AO and the disallowance of Rs.8048309/- is being deleted.”
9. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while contending that the assessee did not furnish any evidence of writing off the amount in its accounts nor explained as to in which year the amount was shown as income.
10. We have heard the learned DR and gone through the facts of the case. As is apparent from the aforesaid facts, the AO disallowed the claim of bad debts in the absence of any evidence as to when the amount was offered as income and there was nothing to show as to whether this amount had been actually written off in the books of account. On appeal, the ld. CIT(A) admitted the additional evidence in this regard while observing that though the basic information and requisite details regarding bad debts/advances written off were filed before the AO vide letter dated 24.12.2007 ,further branch wise details of outstanding dues were submitted by way of additional evidence to establish that outstanding debts/advances written off during the year under consideration pertained to the revenue recognized by the assessee. The ld. CIT(A) granted sufficient time of more than two years to the AO to examine the additional evidence and submit his report. It appears that the AO did not care to submit any report. In these circumstances, the ld. CIT(A) admitted the additional evidence and allowed the claim of the assessee, after examining the material on record and considering the additional evidence admitted by him ,in the light of decision of the ITAT and the Hon’ble jurisdictional High Court in the assessee’s own case for the AY 2003-04. We find that the Hon'ble Supreme Court in the case of TRF Limited vs. CIT 323 ITR 397 (SC) while adjudicating a similar claim concluded as under:
“This position in law is well-settled. After 1st April,1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee……...”
11. In the light of view taken by the Hon’ble Apex Court in their aforesaid decision in TRF Ltd. (supra) and Hon’ble jur isdict ional High Court in the assessee’s own case in the AY 2003-04 and the Revenue having not placed before us any material, controverting the aforesaid findings of the ld. CIT(A) nor brought to our notice any contrary decision, so as to enable us to take a different view in the matter, we are not inclined to interfere. In view thereof , ground no.2 in the appeal is also dismissed.
12. No additional ground having been raised before us in terms of residuary ground no.3 in the appeal, accordingly, this ground is dismissed.
13. No other plea or argument was made before us.
14. In the result, appeal is dismissed.
Order pronounced in open Court
(I.C. SUDHIR) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
Copy of the Order forwarded to:-
2. A.C. I .T. ,Ci rcle-12(1), New Delhi
3. CIT concerned
4. CIT(A)-VIII, New Delhi.
5. DR, ITAT,’C’ Bench, New Delhi
6. Guard File.