Expenditure on glow sign boards was revenue in nature as it did not bring into existence any asset or advantage for enduring benefit to the business of the assessee – ITAT
ABCAUS Case Law Citation:
ABCAUS 2628 (2018) (11) ITAT
Important Case Laws Cited/relied upon:
CIT vs. Orient Ceramics and Industries Ltd. (2013) 358 ITR 49
The appellant assessee had challenged the order passed by CIT(A)in upholding the action of the Assessing Officer (AO) in making addition treating it of capital nature.
The assessee was having a proprietorship and derived income through advertising business. The return of the assessee was processed under Section 143(1) of the Income Tax Act, 1961 (the Act).
The case was selected for scrutiny and a notice u/s 143(2) was issued. The AO completed the assessment by making inter alia an addition in respect of steel frames by holding the same as capital expenditure.
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A) who partly allowed the appeal of the assessee.
Before the Tribunal, it was submitted by the assessee that she sold the space for advertisement through hoarding boards wherein the ownership of the said board remained with the assessee. The assessee only charges rent from the customers as per their order/requirement and thus, it was a service rendered to the customers therefore, the assessee charges service tax for the said operation.
It was submitted that for any addition to the hoarding boards, the assessee capitalized the expenses incurred as the boards were their assets and having useful life for more than a year. Hence, the assessee did the capitalization and claimed depreciation as per the Income Tax Act and Rules.
In respect of sale of glow sign and sign boards, these were goods covered under the definition of goods under the Sale of Goods Act for which the assessee charged value added tax (VAT) at rates prevailing at the time of outright sale of the said boards. Thus, the assessee generated revenue from sale of such boards and cost incurred mainly consisted of Iron tubes, Angles, Sheets, Pipes and Flex etc. which were revenue in nature.
It was further submitted that at the time of sale of glow sign boards to customers, the assessee transferred the possession as well as the ownership in the property as the boards after sale was the property of buyer and not that of seller.
Thus, it was explained that as per the accounting principles, the assessee recognized these sales as 100% revenue and all the expenditures were claimed as revenue expenditures.
It was submitted that expenditure falling under the capital nature i.e. expenditure relating to hoarding boards whose useful life was more than a year was properly capitalized in books which was reflected in the schedule of fixed assets forming integral part of audited financial statements of the assessee.
The Tribunal noted that the assessee was having two types of activities relating to the advertising business. First, that of hoarding board which were permanent structure. Secondly glow sign and sign board which were sold to the customers and the ownership was with the customers.
It was observed that the documents produced before the Assessing Officer and the CIT(A) revealed that these two types of activities were present and the same were never disputed by the revenue at any stage.
The Tribunal noted that the Hon’ble High Court in an identical case held that the expenditure by the assessee on these glow sign boards did not bring into existence any asset or advantage for the enduring benefit of the business.
It was held that the assessee had spent the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire asset of enduring nature. Therefore, the said expenditure was of revenue nature and the Tribunal has rightly treated the same as of revenue nature.
Following the Hon’ble High Court, the Tribunal held the expenditure as revenue in nature and rightly claimed by the assessee. Accordingly, the Tribunal set aside the order of the CIT(A) and allowed the appeal of the assessee
