- (1.) This appeal has been filed by the Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') relating to the assessment year 1991-92. The appeal was admitted vide order dated 24.9.2007 on the following substantial questions of law : - "(1) Whether, on the facts and in the circumstances of the case the Tribunal have erred in law in deleting the disallowance of Rs.77,16,120/- under the head advertisement expenses, following the judgements of the Hon'ble Apex Court which did not at all apply to the instant case ? (2) Whether, on the facts and in the circumstances of the case the Tribunal have erred in law in deleting the disallowance's of Rs.33,77,573/- under the head provisions for warranties ? (3) Whether, on the facts and in the circumstances of the case the Tribunal have erred in law in deleting the ddisallowance's of Rs.49,37,042/- on account of provisions for royalty, ignoring the provisions of Section 40(a)(i) of the Income Tax Act, 1961 ? (4) Whether, on the facts and in the circumstances of the case the Tribunal have erred in law in confirming the order of the CIT (A) in deletion of Rs.82,352/- out of entertainment expenses ? Question No.1
(2.) The respondent-assessee is a company engaged in the business of manufacturing of Mini Computers / Micro Processor based systems etc. and filed the return of income for Assessment Year-1991-92 declaring a loss of Rs.4,73,69,920/-. During the previous year the Assessee had spent a sum of Rs.77,16,120/- towards advertisements with respect to launching of a new product. In the books of accounts he had capitalized the entire amount and out of that debited a sum of Rs. 29,51,909/- to the profit and loss account claiming the same as deduction. In the computation of income the assessee added back Rs.29,51,909/- to the profit as per profit and loss account and claimed deduction of the entire sum of Rs.77,16,120/- as advertisement expenses. The Assessing Officer rejected the claim on the ground that since the assessee has admittedly capatalized Rs.77,16,120/- in the balance sheet and therefore there is no justification for claiming it as a revenue expenditure. The Assessee preferred an appeal before the Commissioner of Income Tax(A) contending that expenditure of advertisement was revenue expenditure and was to be allowed as a deduction. It was submitted that under the Income Tax Act, there is no concept of deferred revenue expenditure and what is contemplated is that an expenditure is either capital or revenue expenditure, and that even the Assessing Officer accepted that this expenditure was a deferred revenue expenditure. The CIT(A) upheld disallowance of Rs.77,16,120/- and further held that Rs. 29,51,909/- is also not allowable as deduction as it has been voluntarily offered for taxation in the computation of income by the Assessee. Aggrieved with the order of the Commissioner of Income Tax(A), the Assessee preferred an appeal before the Income Tax Appellate Tribunal Delhi Bench 'E', New Delhi which allowed the appeal recording the finding of fact that the advertisement expenses incurred by the Assessee is revenue expenditure. The Income Tax Appellate Tribunal held as under : "The Honourable Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT, 1980 124 ITR 1 has observed as under: ' There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future.' From the perusal of the aforesaid observations of the Apex Court, it is evident that the test of enduring benefit alone is not conclusive for treating any expenditure as capital expenditure and it is relevant to find out or ascertain as to whether such expenditure results into an advantage of enduring nature to the assessee in the capital filed or revenue filed so as to decide the exact nature of the said expenditure and allowability of the same under the Income-tax Act. As regards the relevance of accounting method followed by the assessee, we have already observed that the treatment given by the assessee to the impugned expenditure as deferred revenue expenditure cannot be considered as different from the one followed for the purpose of computing the total income under the Income Tax Act. In any case, as held by the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. V. CIT, 1971 82 ITR 363, the allowability of a particular deduction depends on the provisions of law relating thereto and not on the basis of entires made in the books of account, which are not decisive or conclusive in this regard. The expenditure in question was incurred towards advertisements in launching of a new product and was revenue in nature. The action of the revenue authorities in treating the same as capital expenditure and disallowing the claim for deduction was not proper. We direct the AO to delete the addition of Rs.77,16,120/- made to the total income. Thus grounds 1.1, 1.2 and 1.4 are allowed while ground No. 1.3 does not require any adjudication in view of the decision on grounds 1.1, 1.2 and 1.4."
(3.) We have heard Sri Dhanajnay Awasthi, learned counsel for the appellant. No one appear for the respondent-assessee despite notices sent by registered post. We have perused the office report dated 18.1.2013 and 22.3.2013, and find the service of notice on the respondent to be sufficient.;