High Court Of Rajasthan
Bajaj Sevasharam Ltd. vs. DCIT
Sections 37(1), 254(1)
Asst. Year 1995-96
Rajesh Balia & R.S. Chauhan, JJ.
IT Appeal No. 39 of 2003
13th September, 2005
Counsel Appeared
Sanjay Jhanwar, for the Appellant : K.K. Bissa, for the Respondent
JUDGMENT
By the court :
This appeal raises a simple issue which is arising as a result of certain incongruity arising from the Tribunal’s own order which is principally not under challenge.
2. The questions which have been framed at the time of admission of the appeal are as under :
Whether, while considering allowance of revenue expenditure incurred for advertisement during any assessment year can be spread over by an assessee on principle of deferred revenue expenses on the ground that the benefit of such expense would flow for subsequent years also ?
Whether, in the facts and circumstances, the AO having accepted the principle of spreading over of expenses incurred in one assessment year by treating the same to be deferred revenue expense for earlier years and did not allow the deduction of full amount of expense was right in refusing to allow the deduction of unadjusted expense during the assessment year in question on the ground that the principle of spreading over of allowable revenue expenditure is not permissible in law ?
The factual matrix on which these questions have arisen relates to the claim of the assessee for deduction under s. 37(1) for the expenses incurred by him on advertisement through audio visual media which in turn creates certain rights in audio-visual clippings which are published and advertised through the medium of audio-visual films whether by telecasting or through the clippings shown on the screen in the cinema halls. Since the assessee was deriving the benefit of expenditure of advertisement through video-clippings spreading over certain period, it has adopted a policy of spreading over the expenses for number of years depending upon the period during which the clippings are likely to be used instead of claiming entire expenses for one year in which the amount has been paid to the producer of the clippings.
Actual expenses are incurred and it is spread over from 1991 to 1994-95 as has been noticed by the Tribunal in its order dt. 28th Jan., 2002 while disposing of the appeal for number of assessment years from 1993-94 to 1995-96. The AO has accepted the claim of the assessee for deduction of advertisement expenses as a business expenditure allowable under s. 37 on its spread over value for asst. yrs. 1990-91, 199192 and 1993-94. However, while making assessment under s. 143(3) from 1994-95 onwards, the AO did not accept in principle, the allowances of expenditure incurred on advertisement on deferred value basis spread over for a number of years. The AO was of the opinion that there is no categorisation of deferred revenue expenditure. As envisaged under s. 37 if it is a revenue expenditure it has to be allowed in the year of its occurrence and in case it is not a revenue expenditure, it is not to be allowed at all. Considering it to be a revenue expenditure for the asst. yrs. 1993-94, 1994-95, the AO only allowed the expenses actually incurred during those assessment years and disallowed the claim for deduction in those assessment years which he has claimed that incurred in earlier years but claimed deduction on the basis of estimated benefits arrived at by the assessee during that year on deferred basis. The CIT(A), had agreed with the opinion expressed by the AO and dismissed the claim of the assessee for pensionery revenue expenditure accounted for in the books of account. However, the Tribunal in principle accepted the contention of the assessee that the expenses being already incurred on the advertisement through video-clippings was given benefit to the assessee for little prolonged period, the assessee was entitled to spread over the claim proportionately over a period of ensuing years. On this premise, it allowed the full expenses incurred for 1990-91, 1991-92, 1992-93 and 1993-94 as according to it, the entire expenses being incurred and spread over for 4 years, it is to be allowed as a whole upto the asst. yr. 1993-94. However, while coming to the asst. yr. 1994-95, it was of the opinion that on principle enunciated by it earlier in Hindustan Zinc Ltd.’s case, the spreading over of such expenditure had to be allowed for a period of three years instead of period of two years as claimed by the assessee, and therefore, it directed the deduction of proportionate part of expenditure in a particular year spread over for three years. Following this principle, it allowed 1/3 of the expenditure incurred in 1993-94 during the year 1993-94 and 1/3 of the expenditure so allowed for the asst. yr. 1994-95 and disallowed the excess claim. However, as per Tribunal’s own finding, the remaining expenditure which remained disallowed should be spread over for 1995-96.
9. Once the Tribunal accepted the spreading over of the expenses to be allowed for three years notwithstanding the assessee having already claimed the entire expenditure spread over for two years, it ought to have spread over the same for 1995-96.
10. The present claim arises on account of the finding given by the Tribunal that for the expenditure on advertisement, it is to be allowed as a whole not in the years in which it is incurred but spread over for three years. The principle enunciated by the Tribunal in terms amounts to acceptance of principle of spreading over the advertisement expenditure of the nature in question over a number of assessment period estimates return value period. While the assessee had spread over the expenses over two assessment years, the Tribunal has decided to give a larger period of three years for spreading over of expenses than what has been claimed by the assessee himself.
11. Since the assessee had already claimed the deduction under s. 37(1) for last practice followed by him and accepted by the Department, he had claimed the expenses in question upto asst. yr. 1994-95 only. But as a result of Tribunal’s opinion to spread over it over three years part of allowable expenses as per findings of the Tribunal spread over to subsequent year 1995-96 for which the assessee has not claimed deduction. This has led to the incongruity inasmuch as the Tribunal having accepted the principle of spreading over of expenses for allowance as deduction in giving effect to it has not kept in view the fact situation and not made any appropriate orders in pursuance of its own finding.
12. The Tribunal was also deciding the appeal against assessee for asst. yr. 1995-96 along with it. Either it should have given same treatment to the expenses by extending the spreading over of expenditure incurred on advertisement through video-clippings over three years in accordance with such amount as its conclusion in deducting it in proportionate part as deduction for the asst. yr. 1995-96 as it had the jurisdiction to (make) such orders as it thinks fit in view of its own findings that it was deciding all the appeals simultaneously or it could have allowed the current claim of deductions as per claim and directing the principle of spreading the expenses over three years in future. This incongruity is apparent while one reads para No. 43 of the judgment of the Tribunal.
13. As a result, we are of the opinion that the Tribunal ought to have given appropriate direction when it was deciding the appeals not for asst. yrs. 1993-94, 1995-96 only but was also hearing the appeals of later assessment years together and in not doing so, it has resulted in an apparent error of application of principle enumerated by it.
14. Therefore, we allow this appeal and direct the Tribunal to pass necessary orders for giving legitimate consequential effect to its own findings contained in para 43 of its order. No order as to costs.
[Citation : 280 ITR 480]
