2020 (6) TMI 340 - AT - Income Tax

Tribunal Upholds Ad Expenses as Revenue, Not Capital

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the expenditure on advertisement and sales promotion. The Tribunal ... Disallowance of expenditure incurred on advertisement and sales promotion of product, brand promotion, development of market and customer relations - HELD THAT:- The advertisement and sales promotion expenses incurred by the assessee are merely for the purpose of publicity of trade name/brand name which results into enhancement of sales. Therefore, the CIT(A) was right in allowing the appeal of the assessee as the issue is already covered in earlier years. The appeal of the Revenue is dismissed. Issues:Disallowance of expenditure on advertisement and sales promotion as capital in nature.Analysis:1. The appeal was filed by the Revenue against the order passed by CIT(A)-37, New Delhi for Assessment Year 2013-14, regarding the disallowance of expenditure on advertisement and sales promotion of a product. The Assessing Officer considered the expenditure as capital in nature due to being incurred in the initial stage of business and providing enduring benefits to the assessee. Consequently, the AO disallowed the claim of Rs. 11,41,12,337 and held it as non-depreciable.2. The CIT(A) allowed the appeal of the assessee, leading to the Revenue challenging the decision. The Revenue argued that the expenses were capital in nature due to providing long-term benefits to the assessee and not falling under specified intangibles for depreciation. The Ld. AR presented a history of similar expenses in previous years where the Tribunal and High Court ruled in favor of the assessee, supporting the current appeal's dismissal.3. The Tribunal noted that similar issues were decided in favor of the assessee for other assessment years by the Tribunal and High Court. Referring to a previous case, the High Court confirmed that expenses on sales promotion fell under the revenue stream rather than capital. The Court emphasized that the expenses were for publicity of the trade name/brand name, enhancing sales, and not creating an enduring asset. Citing relevant legal precedents, the Tribunal upheld the CIT(A)'s decision to allow the appeal, dismissing the Revenue's appeal.4. Consequently, the Tribunal dismissed the appeal of the Revenue, affirming the CIT(A)'s decision to allow the expenditure on advertisement and sales promotion. The judgment highlighted the consistent treatment of such expenses as revenue expenditure rather than capital, based on the purpose of enhancing sales through publicity.