Saturday, July 28, 2012

Whether expenses incurred on corporate film-making is revenue in nature?

Income tax - Whether expenses incurred on corporate film-making is revenue in nature - YES, rules ITAT

MUMBAI, NOV 24, 2011: THE issues before the Bench are - Whether corporate film making charges are akin to sales promotion and hence the same are allowable as revenue expenses - Whether, for claiming an amount as bad debt, it is necessary to establish that such an amount is of revenue character. And the verdict partly goes in favour of the assessee.

Facts of the case

Assessee is a company engaged in the business of manufacturing and repairs of specialized motors. It claimed the deduction of corporate film making expenses and claimed write-off of certain bad debts. During the course of assessment proceedings the AO observed that the expenses of corporate film-making provided enduring benefits to the assessee and hence the same were capital in nature. The AO also denied the claim of right of bad debts on the ground that the advances made by the assessee were capital in nature and hence the write-off of the same was not permissible. CIT (A) allowed the appeal of the assessee. Before the ITAT, the DR pointed out that the advances made by the assessee company were inter-corporate deposits and hence the same activity cannot be regarded as regular activity of business.

After hearing the parties ITAT held that,

++ we find that the categorical finding of the CIT(A) is that "it has been held in various decisions that the expenditure incurred in making of advertisement film is an expenditure of revenue in nature." Therefore, we find no infirmity in the order of CIT(A) deleting the disallowance of Rs. 1,25,000/- made by the AO on account of corporate film making charges treating the same as revenue expenditure. Accordingly, this ground of appeal of the revenue is dismissed;

++ the AO has observed in the assessment order that interest accrued on inter-corporate deposits in the past also not shown as business income. Whereas the learned CIT(A) has observed that income on inter-corporate deposits was duly offered for taxation by the assessee in the preceding years. He gave a finding that the placement of inter-corporate deposits was in the normal course of business. In view of the above contradictory findings given by the authorities below, we set aside the order of the CIT(A) and remit the matter back to the file of the AO to examine the issue whether interest received on inter-corporate deposits offered for taxation as business income or not, whether placement of inter-corporate deposits was the normal course of business or not and decide, the entire issue pertaining to addition of Rs. 58,03,193/- consisting of advance made to suppliers at Rs 70,367/- and inter corporate deposit placed with Alpic Finance Ltd. Rs. 48,00,000/-, amount not recovered from debtors Rs. 72,552/- and accrued interest on inter-corporate deposits Rs. 8,60,274/-, de-novo after providing reasonable opportunity of being heard to the assessee in the matter.

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