1.  CIT Vs. Discovery Communication India, I.T.A. No. 1297/2010, Date of Decision: 24.11.2014, High Court of Delhi

Whether the act of the AO of disallowing advertisement expenses as claimed by assessee u/s 37(1) of the Act by contented that such expenses were exorbitant and not related to the revenue generating activity of the assessee?

Held_No

In brief, the assessee is a subsidiary of a foreign company engaged in the business of distribution & marketing of satellite television channels and entered into an agreement with the foreign associate company to publicize & promote the channels and in return retain some portion of the subscription receipts. In order to develop & expand the viewership of the channels, the assessee incurred advertisement expenses. However, the Ld. AO disallowed these expenditures contending that it related only to the advertisement sales commission or receipt and was not incurred to increase subscription fee by promoting the channels.

However, the ITAT held that the provisions of Section 37(1) does not curtail or prevent an assessee from incurring an expenditure which he feels and wants to incur for the purpose of business. As long as the expenditure incurred is “wholly and exclusively” for the purpose of business, the AO cannot by applying of his own mind, disallow whole or a part of the expenditure. The AO cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee [subject to the provisions of Section 40A(2)]. The Hon’ble High court upheld the decision of the ITAT and allowed the alleged expenses to the assessee.

Case Referred: Sree Meenakshi Mills Ltd. vs. CIT (1967) 63 ITR 207 (SC) & CIT vs. Birla Spinning and Weavings Ltd. (1971) 82 ITR 166 (SC).

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2.  M/s Images Credit and Portfolio (P) Ltd. (amalgamated with Sainath Associates Pvt. Ltd.) Vs.  ACIT, I.T.A. No. 5301 to 5305/Del/13, Date of Order: 19.12.2014, ITAT - Delhi

Whether the notice issue u/s 153C of the Income Tax Act, 1961, in the name of amalgamating company and assessment order passes in consequence of such notice in the name of amalgamated company is valid.

Held_No

In the instant case, the assessee contented that the notice issued in the name of non existing company i.e. amalgamating company is a nullity. Whereas, the revenue contented that the assessment order passed is validly as the fact that M/s Image Credit and Portfolio Pvt. Ltd. has amalgamated with M/s Sainath Associates Pvt. Ltd is duly mentioned.

It is pertinent to note that the assessee had already intimated the fact to the AO and at that time he could have issued the notice u/s 153C in the name of the transferor company. However, the AO instead of issuing notice in the name of transferor Company chose to complete the assessment in the name of the assessee by simply mentioning in the Cause Title of the assessment order the fact of amalgamation. On perusal of the facts and the decision of Hon’ble High Court, the ITAT has held that the notice issued u/s 153C in the name of M/s Image Credit and Portfolio Pvt. Ltd. on after amalgamation is void and accordingly the same is quashed. Once the notice issued u/s 153C has been quashed the assessment completed in pursuance to such notice also cannot survive and the same is also quashed.

Case referred: PD Associates Pvt.Ltd., ITA nos. 5811/Del/2013 to 5816/Del/2013 & Spice Entertainment Ltd., ITA nos. 475 and 476 of 2011. 

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