ITAT Delhi allows appeal, business expenditure on publicity deemed revenue; authorities not justified.

Times Publishing House Ltd. Versus The DCIT, Circle-25 (2), New Delhi.

Times Publishing House Ltd. Versus The DCIT, Circle-25 (2), New Delhi. - TMI Issues:
Disallowance of business expenditure on publicity

Analysis:
The appeal was against the disallowance of business expenditure on publicity amounting to Rs. 13,37,691 for the assessment year 2007-2008. The Assessing Officer (A.O.) disallowed the expenses incurred on publicity of Times of India, Kannada edition, stating that the expenses were of capital nature and not incurred wholly and exclusively for the business purpose. The A.O. noted that the expenses were related to the promotion and publicity of Times of India Kannad Edition, which was launched in January 2007. The A.O. held that the expenses were capital in nature as they were incurred to establish and launch a new edition of the newspaper, providing enduring benefit to the assessee. Consequently, an amount of Rs. 13,37,691 was disallowed by the A.O.

Before the Ld. CIT(A), the assessee contended that promoting Bennett Coalman & Co. Ltd.'s publications was an inherent part of the business and that the expenses did not constitute capital expenditure. The assessee submitted additional evidence, including a letter from the company, to support its claim. However, the A.O. opposed the request, stating that the expenses were capital in nature as they were incurred before launching a new product. The Ld. CIT(A) confirmed the addition, holding that the expenses were capital in nature and provided enduring benefit to the assessee, not being wholly and exclusively for business purposes.

The learned counsel for the assessee argued that the expenses were part of business expenditure and no capital asset was created from them. Citing a decision of the Hon'ble Calcutta High Court, the counsel contended that advertisement expenses are typically revenue expenditure and not capital in nature. The counsel urged for the deletion of the addition based on the court's decision.

After considering the submissions and material on record, the ITAT Delhi set aside the orders of the authorities below and deleted the addition. The tribunal found that the expenses were revenue in nature, as they were incurred to earn business income and not to create enduring capital assets. The tribunal emphasized that when income is offered for taxation and expenses are incurred to earn that income, such expenses are revenue in nature. The tribunal concluded that the authorities below were not justified in sustaining the addition, and hence, allowed the appeal of the assessee.

In conclusion, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and deleting the disallowance of the business expenditure on publicity.