2009 (12) TMI 939 - AT - Income Tax

Tribunal allows advertisement expenses as revenue expenditure for assessment years 1999-2000 and 2001-02

The Assistant Commissioner of Income Tax Versus. M/s. Warner Lambert India Ltd.

The Tribunal upheld the CIT(A)'s decision, allowing the expenditure on advertisement and sales promotion as revenue expenditure for the assessment years ... - Issues Involved:1. Whether the assessee is entitled to deduct the expenditure on advertisement and sales promotion in computing the profits of its business.Summary:Issue 1: Deductibility of Advertisement and Sales Promotion ExpenditureThe income-tax department filed appeals for the assessment years 1999-2000 and 2001-02, questioning the deductibility of the assessee's expenditure on advertisement and sales promotion. The Assessing Officer (AO) had disallowed these expenditures, arguing that they were capital in nature and should be capitalized as intangible assets u/s 32(1)(ii) of the Income Tax Act. The AO equated brand value to goodwill, asserting that the expenses conferred an enduring benefit to the assessee.On appeal, the CIT(A) found that the brands Halls and Chiclets were owned by Warner Lambert Pharmaceutical Company (USA), not the assessee. The CIT(A) held that the expenditure was recurring and in the revenue field, not conferring any enduring advantage or resulting in the acquisition of intangible assets. Consequently, the CIT(A) directed the AO to allow the expenditure as revenue expenditure for both assessment years.The Revenue contended that the CIT(A) did not adequately discuss the authorities cited by the AO and failed to appreciate that the sales had declined, indicating that the expenditure was not for promoting products but for brand building. The assessee argued that the expenditure had been accepted as revenue in nature in earlier scrutiny assessments and that no intangible assets were created. The assessee cited several authorities supporting the claim that advertisement and sales promotion expenses are revenue expenditures.The Tribunal, after considering the rival contentions and authorities, upheld the CIT(A)'s decision. It noted that the assessee was not the owner of the brands and that the expenditure was incurred wholly and exclusively for the purpose of the business. The Tribunal referenced various judgments, including those of the Allahabad High Court and Gujarat High Court, which supported the view that advertisement expenses do not result in enduring benefits and are revenue in nature. The Tribunal also dismissed the Revenue's argument that the CIT(A)'s order was not a speaking order, finding that the CIT(A) had examined the facts in detail.Regarding the reasonableness of the expenditure, the Tribunal noted that the percentage of expenditure to sales was not unreasonably high compared to previous years. It concluded that the provisions of section 32(1)(ii) were not applicable as the assessee had not acquired any intangible asset. The expenditure was incurred in the revenue field, and thus, allowable as revenue expenditure.In conclusion, the Tribunal upheld the CIT(A)'s orders, allowing the expenditure on advertisement and sales promotion as revenue expenditure for the assessment years 1999-2000 and 2001-02, and dismissed the appeals filed by the Revenue.Order pronounced on this 31st day of December, 2009.