IN HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 594/2014 Date of decision: 29th October, 2014 COMMISSIONER OF INCOME TAX ..... Appellant Through Ms. Suruchi Aggarwal, Sr. Standing Counsel. versus M/S VODAFONE ESSAR SOUTH LTD. ..... Respondent Through Mr. Sachit Jolly, Mr. Rahul Sateeja & Ms. Gargi Bhatt, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J. (ORAL): This appeal by Revenue pertaining to Assessment Year 2003-04, impugns order dated 7th February, 2014 passed by Income Tax Appellate Tribunal (Tribunal, for short) on following issues: i) Whether on fact of case ITAT could have deleted disallowance of provisions for network repair and maintenance and credit verification cost, provision of consultancy charges and provision for car hiring charges amounting to Rs.28,62,275/- and Rs.29,90,064/-? ii) Whether payment towards brand launch expenses can be treated as revenue expenditure? 2. first issue relates to two additions made by Assessing Officer on account of provisions for network repair and maintenance of ITA No. 594/2014 Page 1 of 23 Rs.28,62,275/- and disallowance of Rs.29,90,064/- on account of credit verification cost, provision for consultancy charges and provision for car hiring charges. 3. Tribunal in impugned order on first aspect has recorded as under:- 13. We have heard both counsel and perused records. We find that authorities below have totally erred in treating provision of expenses not allowable. It is only those provisions which are contingent liability which are not allowable. In this case, no case has been made out that provision made by assessee for network repair and maintenance expenses was only contingent liability. fact of matter is that provision was made for repairs in this regard as relevant bills were not received and payment thereof was not made upto close of assessment year. Hence, in accordance with accrual system of accounting, provision in this regard was created. Hence, provision for network repair and maintenance expenses cannot be said to be provision made for contingent expenses. There is no contingency in expenditure to be incurred in this regard. expenditure has to be incurred though exact amount was not ascertained. In such circumstances, in our considered opinion, said disallowance has to be deleted. Accordingly, we set aside orders of authorities below and decide issue in favor of assessee. 4. reading of aforesaid paragraph would indicate that services had actually been rendered and assessee had accepted claim which was due and payable but relevant bills had not been received till end of Assessment Year. aforesaid position is factual finding given by ITA No. 594/2014 Page 2 of 23 Tribunal. 5. On question of disallowance on account of provision for credit verification cost of Rs.11,41,060/-, provision for consultancy charges of Rs.8,63,320/- and provision for car hire charges of Rs.9,85,684/-, i.e., total of Rs.29,90,064/-, Tribunal has held as under:- 20. We have heard both counsel and perused records. We find that issue involved is identical to be one dealt with regard to ground no. 2 as above. Now following same reasoning as in ground no. 2 above we hold that provisions made by assessee cannot be treated as contingent liability when nothing has been brought by Revenue on record that expenditure in this regard was contingent in nature. provision was made as payment in this regard could not be made upto close of year as bills in this regard were received late. Hence, there is no contingency in expenditure to be incurred. Only exact amount has not been ascertained. Hence, following mercantile system of accounting such provision cannot be disallowed. Accordingly, we set aside orders of authorities below and decide issue in favor of assessee. 6. In other words, Tribunal followed reasoning for deleting disallowance of Rs.28,62,275/-, holding that services had actually been rendered but only relevant bills had not been received. In view of fact that respondent-assessee was following mercantile system of accountancy, amount due and payable had accrued and, therefore, allowable as expenditure. ITA No. 594/2014 Page 3 of 23 7. Learned counsel for Revenue submitted that findings recorded by Tribunal are bereft of detailed reasoning why said additions have been deleted. Facts in detail have not been elucidated. In order to examine said contention, we have gone through assessment order on said two aspects and would like to reproduce findings recorded by Assessing Officer for two additions:- 5. It was observed from details filed that assessee has provided of sum of Rs. 28,62,275/-under head network repair and maintenance. Since, provision for expenses cannot be treated as revenue expenditure under Income Tax Act, 1961 therefore amount of Rs. 28,62,275/- is disallowed and added back to income of assessee. XXXXXXXX 8. following amounts shown as provisions under various expenses head cannot be treated as actual revenue expenditure therefore same are being disallowed and added back to declared income of assessee. a) Provision for credit verification cost Rs. 11,41,060/- b) Provision for consultancy charges Rs. 8,63,320/- c) Provision for car hire charges Rs. 9,85,684/- Rs. 29,90,064/- (Addition of Rs. 29,90,064/-) 8. Assessing Officer while making additions of Rs 29,90,064, it is apparently clear, did not examine matter meticulously and in depth. Facts and findings were virtually not elucidated. Perfunctory conclusion stands recorded. With regard to expenditure of Rs.28,62,278/-, Assessing Officer simply observed that it was provision and, therefore, ITA No. 594/2014 Page 4 of 23 cannot be allowed and had to be added back. He did not go into question whether or not services were actually rendered as was claimed by assessee and expenditure had been incurred. There is no discussion on aspect of service rendered/performed, basis of computation, incurring of expenses etc. Similarly, with regard to provision for credit verification cost, consultancy charges and car hire charges, there is hardly any reasoning given to add back and disallow expenses. 9. aforesaid additions were confirmed by Commissioner of Income Tax (Appeals), who has recorded following findings:- 3.1 Ld AR stated as below:- appellant follows mercantile system of accounting. appellant has created provision for network and repair expenses for Rs. 28,62,275/-. appellant has incurred expenses as per schedule 16 of balance sheet (Anne. 3 of APB-I). There was no such provision in earlier years and this is first year of commencement and hence provision was created was created and same is allowable as per provision of Section 37 of Act. 3.2 Examined rival submissions. Here appellant in fact had not incurred such expenditure it has just created provision. provision is appropriation of money for non existing liability. In instant case such liability is not quantified. Such provision is similar to liability only contingent in nature, not deductable and hence action of AO is sustained. xxxxx 6.1 Ld. AR stated as below:- appellant relied on Ground No. 2 as already been discussed above. ITA No. 594/2014 Page 5 of 23 6.2 Examined rival submissions. Following my own decision as given in para 3 against ground No. 2, such additions are hereby sustained. 10. first appellate authority has observed that expenditures should not be allowed as it had not been incurred but only provision has been made. He further held that provisions were for non-existing liabilities which had not been quantified. On other hand, finding of Tribunal is to contrary. Before us, Revenue has not filed copy of documents or papers, which were filed by assessee in support of their contentions and to negate and challenge findings of Tribunal that amounts claimed as expenses were not provisions in sense that no services had been rendered and expenditure had not been incurred. finding of Tribunal is clearly that relevant bills had not been received but services had been rendered and tasks performed. expenditure was incurred. In view of aforesaid position, we are not inclined to interfere on first aspect/question raised by Revenue. 11. undisputed position is that assessee follows mercantile system of accountancy. term expenditure donates idea of spending, paying out or away; it is something which is gone irretrievably. (See Indian Molasses Co. (P) Ltd. v. CIT, (1959) 37 ITR 66). In mercantile system term expenditure is not necessarily confined to money actually paid towards liability, but would cover liability accrued or has been ITA No. 594/2014 Page 6 of 23 incurred in praesenti, although discharge could be at future date. liability accrues or is incurred when it is ascertained liability and not contingent liability, i.e. liability which may or may not accrue and is uncertain. liability, which actually exists and is also not disputed by assessee, but merely not paid, is not contingent liability when work or obligation has been actually performed by third party to whom payment is due. When assessee accepts performance of work or obligation and accepts liability to pay, it partake character of actual liability in praesenti and is not dependent upon future happening of event, which would result in creation of liability subsequently. In former cases, liability has incurred or accrued, but actual payment remains unpaid and would be made in next year(s). Off course, assessing officer can examine and go into valuation of liability and decide whether it has been satisfactorily and fairly determined. 12. Assessing Officer and Appellate Authority in their orders had primarily relied upon terminology or nomenclature of provision to disallow claim of expenditure of Rs 29,90,064/- and Rs 28,62,275/- and opine that provisions made should not be treated as expenditure incurred. This is not correct and true test, which is to be applied. provision can be made in respect of amounts which have become due and payable in relevant previous year and therefore could be debited to profit and loss account, once they represent ascertained liability. We do not ITA No. 594/2014 Page 7 of 23 find any negative elucidation on relevant aspects in orders passed by Assessing Officer and C.I.T (Appeals). Albeit, there is elucidation and finding recorded by tribunal that services had actually been performed and liability was accepted by respondent assessee. amounts therefore represented ascertained liabilities. These were shown as provisions as services were rendered close to assessment years and relevant bills had not been received. This would not make provisions contingent liability. 13. Appropriate would be to refer to decision of Supreme Court in Calcutta Company Ltd. Vs. Commissioner of Income Tax, West Bengal, (1959) 37 ITR 1, wherein it was held that if liability has been definitely incurred in form of unconditional contractual liability, it would not become contingent because payment has to be paid in future. However, liability should have been fairly and accurately estimated. following passage from said decision is relevant:- Turning now to facts of present case, we find that sum of Rs. 24,809 represented estimated expenditure which had to be incurred by appellant in discharging liability which it had already undertaken under terms of deeds of sale of lands in question and was accrued liability which according to mercantile system of accounting appellant was entitled to debit in its books of account for accounting year as against receipts of Rs. 43,692-11-9 which represented sale proceeds of said lands. Even under s. 10(2) of Income-tax Act, it might possibly be urged that word "expended" was capable of being interpreted as "expendable" or "to be expended" at least in case where ITA No. 594/2014 Page 8 of 23 liability to incur said expenses had been actually incurred by assessee who adopted mercantile system of accounting and debit of Rs. 24,809 was thus proper debit in present case. We need not however base our decision on any such consideration. We are definitely of opinion that sum of Rs. 24,809 represented estimated amount which would have to be expended by appellant in course of carrying on its business and was incidental to same and having regard to accepted commercial practice and trading principles was deduction which, if there was no specific provision for it under section 10(2) of Act was certainly allowable deduction, in arriving at profits and gains of business of appellant under section 10(1) of Act, there being no prohibition against it, express or implied in Act. It is to be noted that appellant had led evidence before Income-tax authorities in regard to this estimated expenditure of Rs. 24,809 and no exception was taken to same in regard to quantum, though permissibility of such deduction was questioned by them relying upon provisions of s. 10(2) of Act. It therefore follows that conclusion reached by High Court in regard to disallowance of Rs. 24,809 was wrong and it should have answered referred question in affirmative. 14. aforesaid principles were applied to allow deduction of provision for gratuity, in case of serving employees and to whom gratuity was payable only on retirement/termination, subject to condition that amount so estimated was sufficiently certain to be capable of being valued. Gratuity payable in future, it has been held, was obligation arising out of present engagement and estimated liability was ascertainable. As present obligation, it could be allowed as deduction in ITA No. 594/2014 Page 9 of 23 profit and loss account. Subsequently, Section 40A(7) of Act was enacted to specify and stipulate that provision for gratuity would be allowed in profit and loss account when additional conditions stated therein were also satisfied. [See decision of Supreme Court in Shree Sajjan Mills Ltd. v. CIT, (1985) 156 ITR 585 (SC)] 15. Again in Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC), it has been observed:- law is settled: If business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at future date. What should be certain is incurring of liability. It should also be capable of being estimated with reasonable certainty though actual quantification may not be possible. If these requirements are satisfied liability is not contingent one. liability is in present though it will be discharged at future date. It does not make any difference if future date on which liability shall have to be discharged is not certain. few principles were laid down by this court, relevant of which for our purpose are extracted and reproduced as under: (i) For assessee maintaining his accounts on mercantile system, liability already accrued, though to be discharged at future date, would be proper deduction while working out profits and gains of his business, regard being had to accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid ; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out profits and gains of business; (iii) condition subsequent, fulfilment of which may ITA No. 594/2014 Page 10 of 23 result in reduction or even extinction of liability, would not have effect of converting that liability into contingent liability ; (iv) trader computing his taxable profits for particular year may properly deduct not only payments actually made to his employees but also present value of any payments in respect of their services in that year to be made in subsequent year if it can be satisfactorily estimated. 16. second issue raised by Revenue relates to brand launch expenses . finding of Assessing Officer to disallow said expenses of Rs.8,45,45,104/- is to be found in one paragraph only, i.e., paragraph 10, which reads:- 10. It is further observed from perusal of computation of income that assessee has claimed amount of Rs. 10,56,81,379/- as brand launch expenses as revenue expenditure. Keeping in view nature of expenses same are treated as deferred revenue expenditure and t s" of same amounting to Rs. 2,11,36,275/- is allowed in current year and balance of Rs. 8,45,45,104/- can be amortised in next four years. (Addition of Rs. 8,45,45,104/-) 17. There is no other discussion or elucidation in assessment order passed by for making said substantial addition. It is noticeable that Assessing Officer himself had held that expenses were of revenue nature but he had treated them as deferred revenue expenditure by allowing 1/5th i.e. Rs.2,11,36,275/- in current year and balance amount of Rs.8,45,45,104/- was directed to be amortised in next four years. 18. Commissioner of Income Tax (Appeals) has held as under:- ITA No. 594/2014 Page 11 of 23 8.2 Examined rival submissions. accounting approach in this regard made by appellant is colourable mode to circumvent provisions of law. doctrine of colourable legislation is based on maxim that what cannot be done directly, cannot also be done indirectly. short question whether such accounting treatment to circumvent provision of law can be treated as permissible accounting approach from IT point of view. underline idea is that, although apparently present accounting practice has been made which purports to Act within limits of accounting principle in substance, in reality on other hand it has transgressed limits on its power as conferred by IT law by taking resort to such pretence or disguise. decision of Hon'ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers Ltd.:- "It is true that this Court has very often referred to accounting practice for ascertainment of profit made by company or value of assets of company. But when question IS whether receipt of money is taxable or not or whether certain deductions from receipt are permissible in law or not, question is to be decided according to principles of law and not in accordance with accountancy practice. Accounting practice cannot override Sec.56 or any other provision of Act. As pointed out by Lord Russel in case of B.S.C. Footwear Ltd (1970) 77 ITR 857, Income tax Law does not march step by step in footprints of accountancy profession". 8.3 appellant is not entitled for provision and that is why it has resorted to colourable device to represent same so that it can circumvent provisions of Act as invoked by Ld AG. essence of matter is that appellant has tried to do something which it cannot accomplish directly within scope of IT law. Regarding question of taxability as per principle of law vis-a-vis accountancy practice ITA No. 594/2014 Page 12 of 23 has been already discussed in earlier paragraphs Tuticorin Alkali Chemicals (Supra). There is no dispute about aforesaid principle of law laid down by Hon'ble Supreme Court accounting practice for ascertainment of profits adopted by company cannot override specific provisions contained in IT Act relating to taxability of any income. appellant has claimed entire brand registration expenses as revenue expenditure and debited same in accounts for relevant period. 8.4 In instant case appellant has spent Rs. 10,56,81,379/as brand launch expenses and claimed same as revenue expenditure. essential question of law in present case is whether payment towards brand launch expenses can be treated as revenue expenditure. four judge bench of Supreme Court in Assam Bengal Cement Company Ltd V CIT AIR 1955 Supreme Court 89 indicated that line of demarcation between capital expenditure and revenue expenditure is very thin. Several English decisions were referred to and Court approved opinion of Full Bench of Lahore High Court in Benarsidas Jaggannath, In re (15 ITR 185). Court clearly observed in that case :- Such expenditure can be looked at either from point of view of what is acquired or from point of view of what is source from which expenditure is incurred. If expenditure is made for acquiring or bringing into existence asset or advantage for enduring benefit of business, it is properly attributable to capital and is of nature of capital expenditure. If on other hand it is made not for purpose of bringing into existence any such asset or advantage but for running business or working it with view to produce profits, it is revenue expenditure. If any such asset or advantage for enduring nature of business is thus acquired or brought into existence it would be immaterial whether source of payment was capital or income of concern ITA No. 594/2014 Page 13 of 23 or whether payment was made once and for all or was made periodically. aim and object of expenditure would determine character of expenditure whether it is capital expenditure or revenue expenditure. source or manner of payment would then be of no consequence. 8.5 Ld. AO has discussed at length and established that this is such expenditure which has got enduring benefit. Irrespective of fact frequency of payment of said amount, appellant would derive benefit which would spread over not only for period of expenditure but on subsequent years to come. facts and circumstances of present case justifies that appellant although incurred expenditure in particular year but fruits of such benefit would continue to be received over period of ensuing years. In fact allowing entire expenditure in one year would give much distorted picture of profit of particular year. Reliance is placed on Madras Industrial Investment Corporation Ltd v CIT (Supreme Court), Hindustan Aluminum Corporation Ltd v CIT (1983) 144 ITR 474 (Cal). facts and circumstances of case justifies that appellant should have debited only 1/5th of amount of expenditure in P&L alc for year under consideration and balance should have been spread over for four succeeding years with view to avoid presentation of distorted picture of profit. Such spreading over of said expenditure over period of 5 years would have been in accordance with expected accounting practice which is in no way contrary to any specific provisions contained in IT Act. At same time such spreading over of expenditure resulting in enduring benefit is in conformity with aforesaid principle as laid down by Hon'ble Supreme Court in case of Madras Industrial Investment Corporation (Supra). 8.6 On similar issue Ld ITAT, Ahmedabad in case of ACIT v Amtrex Appliance Ltd 9 TTJ 339 has held such expenses should be spread over period 5 years. That such expenditure should be spread over 5 years has ITA No. 594/2014 Page 14 of 23 already been discussed in my earlier paragraphs and argument that it is desirable for spreading over for successive years need not be rehearsed once again. In view of aforesaid facts and discussion and also in view of judgement of various Courts including Apex Court. I am of opinion that 1/5th of expenditure i.e. Rs. 2,11,36,275/- should be allowed for period under consideration and balance of Rs. 8,45,45,104/- should be disallowed and appellant could spread same for four successive years subject to other provisions of Act. Hence addition to extent of Rs. 8,45,45,104/- is sustained. 19. first appellate authority has referred to distinction between capital and revenue expenditure but did not disturb final finding of Assessing Officer that expense was revenue in nature. Therefore, discussion distinguishing capital and revenue expenditure was superfluous and inconsequential. When expenditure is revenue in nature and not capital, then provisions of Section 37(1) of Income Tax Act, 1961 (Act, for short) would come into play and expenditure which qualifies and meets requirements of said Section has to be allowed as deduction. It is in these circumstances that Tribunal has allowed appeal of assessee, observing as under:- 24. We have heard both counsel and perused records. Ld. Counsel of assessee submitted that AO has himself treated same expenditure as deferred revenue expenditure. AO had allowed 20% during year and rest is to be spread over in succeeding 4 years. Ld. Counsel of assessee in this regard submitted that there is ITA No. 594/2014 Page 15 of 23 no concept of deferred revenue expenditure in taxation laws and expenditure has either to be capitalised or revenue. He has submitted that in this case AO has not made out case that expenditure involved is capital in nature. Ld. Counsel of assessee submitted that brand launch expenses incurred in pre- operative period has been added to pre- operative expenses. He further submitted that Hon'ble Apex Court decision in case of Madras Industrial Investment Corporation vs. CIT. (Supra) is not applicable on facts of case. In this regard, Ld. Counsel of assessee referred to decision of this tribunal in ACIT vs. Global Healthline P Ltd. passed in ITA NO. 3319/Del/2012 vide order dated 7.9.2012. In this case, tribunal has held as under:- "6.We have heard rival contentions and perused records. We find that case law relied_upon by Assessing Officer in case of Madras Industrial Corporation Ltd, vs.CIT,225 ITR 802 is not applicableon facts of present case. In aforesaid case said Corporation issued debentures in December, 1966 at discount. total discount on issue of 1.5 crores amounted to 3,00,000/- for assessment year 1968-69. company wrote off 12,500/- out of total discount of 3,00,000/-being proportionate amount of discount for period of six months ending 30.6.1967 taking into account period of 12 years which was period of redemption and discount for 3,00,000/- over period of 12 years. In these circumstances,the expenditure was held to be deferred revenue expenditure. Hence, we agree with Ld. Commissioner of Income Tax (A) that Hon'ble Apex Court's decision in case of Madras Industrial Corporation Ltd. vs. CIT. (Supra) does not help case of Revenue. In our considered opinion, there is no concept of 'deferred revenue ITA No. 594/2014 Page 16 of 23 expenditure' in Income Tax Act. expenditure is either 'revenue' in nature or 'capital'. If expenditure is of revenue nature and is incurred wholly or exclusively for purpose of business and has been incurred during year, same is allowable expenses subject to condition laid down in Section 30 to Section 37 of Act. Accordingly, we hold that impugned expenditure was allowable as Revenue expenditure and hence, we do not find illegality in order of Ld. Commissioner of Income Tax (A). Accordingly, we uphold same." 25. We have carefully considered submissions. We find that assessee in this regard has incurred expenditure which are in nature of brand launch expenses. We note that said expenditure incurred upto pre operative period has been capitalised and expenditure incurred after operation has started have been debited to revenue. AO in this regard, has allowed 20% thereof by treating same as deferred revenue expenditure. We agree with contention of assessee's counsel that there is no concept of deferred revenue expenditure in taxation laws. In matter of taxation, expenditure is either to be capitalized or is revenue in nature. In this case expenditure involved is revenue in nature and has been incurred wholly and exclusively for purpose of business. amount has actually been incurred by assessee as such same is allowable in entirely. case law of Hon'ble Apex Court by Ld. CIT(A) was in different context and hence is not applicable, as has been brought out in tribunal order as above. In background of aforesaid discussion and precedent, we set aside orders of authorities below and decide issue in favor of assessee. 20. aforesaid reasoning of Tribunal is in consonance and as per ITA No. 594/2014 Page 17 of 23 ratio in Commissioner of Income Tax, Delhi-IV versus Industrial Finance Corporation of India Limited, (2009) 185 Taxman 296 (Delhi) wherein it has been held:- 22. judgments on which reliance is placed by learned Counsel for Revenue would be of no avail in instant case. learned Counsel for Revenue had strongly argued that matching concept is to be applied, as per which part of expenditure had to be deferred and claimed in subsequent years and, therefore, approach of AO was correct. However, this argument overlooks that even in Madras Industrial Investment Corporation (supra), on which reliance was placed by Ms. Bansal, general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for purpose of business can be allowed in year in which it is incurred. Some exceptional cases can justify spreading expenditure and claiming it over period of ensuing years. It is important to note that in that judgment, it was assessee who wanted spreading expenditure over period of time as was justifying such spread. It was case of issuing debentures at discount; whereas assessee had actually incurred liability to pay discount in year of issue of debentures itself. Court found that assessee could still be allowed to spread said expenditure over entire period of five years, at end of which debentures were to be redeemed. By raising money collected under said debentures, assessee could utilize said amount and secure benefit over number of years. This is discernible from following passage in that judgment on which reliance was placed by learned Counsel for Revenue herself: Tribunal, however, held that since entire liability to pay discount had been incurred in accounting year in question, assessee was entitled to deduct entire ITA No. 594/2014 Page 18 of 23 amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to nature of liability. It is true that liability has been incurred in accounting year. But liability is continuing liability which stretches over period of 12 years. It is, therefore, liability spread over period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for purpose of business must be allowed in its entirely in year in which it is incurred. It cannot be spread over number of years even if assessee has written it off in his books over period of years. However, facts may justify assessee who has incurred expenditure in particular year to spread and claim it over period of ensuing years. In fact, allowing entire expenditure in one year might give very distorted picture of profits of particular year. Thus in case of Hindustan Aluminium Corporation Ltd. v. Commissioner of Income Tax, Calcutta-I : (1983) 144 ITR 474, Calcutta High Court upheld claim of assessee to spread out lump sum payment to secure technical assistance and training over number of years and allowed proportionate deduction in accounting year in question. Issuing debentures at discount is another such instance where, although assessee has incurred liability to pay discount in year of issue of debentures, payment is to secure benefit over number of years. There is continuing benefit to business of company over entire period. liability should, therefore, be spread over period of debentures. 23. XXXXX ITA No. 594/2014 Page 19 of 23 24. What follows from above is that normally ordinary rule is to be applied, namely, revenue expenditure incurred in particular year is to be allowed in that year. Thus, if assessee claims that expenditure in that year, Income Tax department cannot deny same. However, in those cases where assessee himself wants to spread expenditure over period of ensuing years, it can be allowed only if principle of matching concept is satisfied, which upto now has been restricted to cases of debentures. 21. Similarly, this Court in ITA No. 597/2014, Commissioner of Income Tax-III versus M/s Spice Distribution Limited has held as under:- 4. Tribunal has rightly noticed and referred to decision of Delhi High Court in Commissioner of Income Tax Vs. Pepsico India Cold Drink Ltd. in ITA No. 319/2010, decided on 30.03.2011 wherein, judgment of Supreme Court in Madras Industrial Investment Corporation Vs. Commissioner of Income Tax, 225 ITR 802 (SC) was examined and it was observed that assessee is entitled to claim deferred revenue expenditure but Assessing Officer cannot treat revenue expenditure as deferred revenue expenditure. reason is that Act itself does not have any concept of deferred revenue expenditure. Even otherwise, there are number of decisions that advertisement expenditure normally is and should be treated as revenue in nature because advertisements do not have long lasting effect and once advertisements stop, effect thereof on general public and customer diminishes and vanishes soon thereafter. Advertisements do not leave long lasting and permanent effect in sense that product or service has to be repeatedly advertised. Even otherwise advertisement expense is day to day expense incurred for running business and improving sales. It is noticeable that every year, respondent-assessee has been incurring substantial expenditure on advertisements. Assessing Officer, in assessment ITA No. 594/2014 Page 20 of 23 order, had referred to fact that similar additions were also made in Assessment Year 2008-09. Keeping in view nature and character of respondent- assessee s business, very year expenditure has to be incurred to make and keep public informed, aware and remain in limelight. This requires continuous and repeated publicity and advertisements to remain in public eye, to do business by attracting customers. It is expenditure of trading nature. aforesaid aspect has been highlighted by Delhi High Court in Commissioner of Income Tax Vs. Salora International Ltd., [2009] 308 ITR 199 (Delhi) and Commissioner of Income Tax Vs. Casio India Ltd., [2011] 335 ITR 196. 22. Referring to said legal position, this Court recently, in CIT Vs. SBI Cards & Payment Services Private Limited, ITA No. 603/2014 decided on 29.09.2014, observed :- 16. Section 145 postulates that accounts should give true and fair picture of financial position or income of assessee. It is further noticeable that Act i.e. Income Tax Act, 1961 only refers to capital or revenue expenditure. There is no provision in Act which postulates or refers to deferred revenue expenditure. Deferred revenue expenditure is, therefore, not as such recognised in Act. Act to this extent is at variance and does not accept deferred revenue expenditure as plausible and acceptable method. Accounting principles or standards have to be applied and adopted and they must disclose fair and true financial position and income, but they cannot be contrary to provisions or mandate of Act. Act would then override accountancy principles. There are several provisions in Act like Section 43B which provide for different treatment than required under provisions of Companies Act or accounting principles or standards. Reference can be made to Kedarnath Jute Mfg. Co. Ltd. Versus CIT, (1971) 82 ITR 363 where it was held, We are wholly unable to appreciate suggestion that if assessee under some misapprehension or mistake fails to make entry in books of account and although under law, ITA No. 594/2014 Page 21 of 23 deduction must be allowed by Income Tax Officer, assessee will lose right of claiming or will be debarred from being allowed that deduction. Whether assessee is entitled to particular deduction or not will depend on provision of law relating thereto and not on view which assessee might take of his rights nor can existence or absence of entries in books of account be decisive or conclusive in matter. In Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT, (1997) 227 ITR 172 at page 184, it was observed, It is true that this Court has very often referred to accounting practice for ascertainment of profit made by company or value of assets of company. But when question is whether receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, question has to be decided according to principles of law and not in accordance with accountancy practice. Accounting practice cannot override Section 56 or any other provision of Act. As was pointed out by Lord Russell in case of B.S.C. Footwear Ltd. [(1970) 77 ITR 857, 860], Income Tax law does not march step by step in footprints of accountancy profession. It was held by Bombay High Court in Commissioner of Income-Tax versus Bhor Industries Limited (2003) 264 ITR 180, If (sic, It) is well settled that, ordinarily, revenue expenditure, which is incurred wholly and exclusively for purposes of business, must be allowed in its entirety in year in which it is incurred and it cannot be spread over number of years even though assessee has written it off in its books over period of years. It is only in cases of special type of assets that spread over is warranted. Judgment of Supreme Court in Madras Industrial Investment Corp. (supra) was considered and distinguished in CIT vs. Panacea Biotech Ltd., ITA No. 22 & 24/2012 and CIT vs. Citi Financial Consumer Fin Ltd. (2011) 335 ITR 29 (Del.), holding that assessee s claim to spread over expenditure over period of time is tenable provided it is justified as in case of issue of bonds at discount. However, same principle would not apply if assessee treats same as revenue expenditure and in fact ITA No. 594/2014 Page 22 of 23 per Section 37(1) of Act, expenditure is revenue in nature and has been incurred or has accrued. This right to claim deferred revenue expenditure is given to assessee and not to revenue. In facts of present case, as already noticed, expenditure as per Commissioner of Income Tax (Appeals) should be partly spread over two years, instead of year in which it was incurred. But it is accepted and admitted that expenditure in question was revenue in nature. It had accrued and was paid. Nothing and no acts had to be performed and undertaken in future. It is not shown how and why, if said expenditure was allowed in current year, it would not reflect true and correct financial position or income of assessee in current assessment year. 23. In view of aforesaid discussion, we do not find any merit in present appeal and same is dismissed. SANJIV KHANNA, J. V. KAMESWAR RAO, J. OCTOBER 29, 2014 VKR/NA ITA No. 594/2014 Page 23 of 23 Commissioner of Income-tax v. M/s. Vodafone Essar South Ltd