The Income Tax Appellate Tribunal (ITAT), Chennai, has recently, in an appeal filed before it, held that advertisement expenses are not allowable without a valid agreement for the transfer of the dealership.
The aforesaid observation was made by the Chennai ITAT when an appeal was preferred before it by the assessee, M/s. Miracle Cars India Pvt Ltd., as against the order passed by the learned Commissioner of Income Tax (Appeals), Chennai, dated 03.01.2022, pertaining to the assessment year 2012-13.
The facts of the case were that the assessee company who was engaged in the business of car spare sales & services, had filed its return of income for the assessment year 2012-13 on 27.09.2012, declaring a total income of Rs. 50,70,660/- under normal provisions, and book profit of Rs. 51,02,519/- u/s. 115JB of the Income-tax Act, 1961.
Subsequently, the assessee’s case was selected for scrutiny, with the assessment being completed u/s. 143(3) of the Income Tax Act, on 30.03.2015, thereby determining the total income of Rs. 5,37,13,270/- by making various additions, including additions towards disallowance of unexplained expenditure being rent paid to M/s. DRS Industries Ltd., and disallowance of advertisement expenses paid to M/s. DRS Industries Ltd.
Aggrieved by the same, the assessee carried the matter in appeal before the first appellant authority and the CIT(A), who, for the reasons stated in their appellant order dated 03.01.2022, sustained additions made towards disallowance of rent paid to M/s. DRS Industries Ltd., however allowing partial relief in respect of the advertisement expenses paid to M/s. DRS Industries Ltd.
Further, out of the disallowance of Rs. 35,79,359/-, the CIT(A) had also allowed relief to the extent of Rs. 22,16,664/, and a balance amount of Rs. 13,62,695/- had been confirmed. And it is by being aggrieved by the same that assessee has preferred the present appeal before the Chennai ITAT.
The issue involved in the assessee’s appeal being the disallowance of advertisement expenses paid to M/s. DRS Industries Ltd, the ITAT Bench consisting of V. Durga Rao, the Judicial Member, and G. Manjulatha, the Accountant Member observed :
“We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Ld. Counsel for the assessee rested his arguments on the basis of agreement between the appellant and M/s. DRS Industries Ltd., and argued that the assessee has incurred advertisement expenses, because it was supposed to takeover dealership business from M/s. DRS Industries Ltd.”
“We find that there is no valid agreement between the appellant and M/s. DRS Industries Ltd., and further the so called agreement is not acted upon, and as claimed by the assessee for various reasons, the dealership of Skoda cars sales & services has not been transferred in the name of the assessee.”
“ Therefore, the assessee is running a dealership business and the incurring of advertisement expenses does not arise.”, they added.
Thus, dismissing the assessee’s appeal, the Chennai ITAT held:
“The Ld. CIT(A) after considering relevant facts has rightly sustained net advertisement expenditure debited into the profit and loss account amounting to Rs. 13,62,695/- and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the grounds taken by the assessee.”
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