2025 (4) TMI 602 - AT - Income Tax

Revenue appeal dismissed as sale promotion expenses including publicity and IT costs ruled deductible business expenditures

Dy. Commissioner of Income Tax, New Delhi Versus Jade E-Services Private Limited

ITAT Delhi dismissed Revenue's appeal challenging CIT(A)'s decision to allow deduction of sale promotion expenses including publicity, photoshoot ... Disallowance of expenses on sale promotion including publicity, photoshoot expenses and Information and Technology Cost (ERP Maintenance) - HELD THAT:- CIT(A) has taken a correct view in the matter, the items involved cannot be said to be enduring benefits being capital in nature. The case laws referred by the ld. CIT(A) MAGIC BRICKS REALITY SERVICES LIMITED [2022 (8) TMI 1288 - ITAT DELHI] is also germane and supports the case of the assessee. Appeal filed by the Revenue stands dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the CIT(A) erred in deleting the addition of Rs. 18,34,46,739/- made by the Assessing Officer (AO) on account of disallowance of expenses related to sales promotion, publicity, photoshoot expenses, and Information and Technology Costs (ERP Maintenance), which the AO treated as capital expenditure instead of revenue expenditure.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The core legal question revolves around the classification of certain business expenses as either capital or revenue in nature. The legal framework involves the interpretation of the Income Tax Act provisions that distinguish between capital and revenue expenditures. The precedents considered include judgments from the High Court of Gujarat and the Supreme Court, which have addressed similar issues regarding the nature of business expenses.Court's interpretation and reasoning:The Tribunal examined the nature of the expenses incurred by the assessee, which included sales promotion, publicity, photoshoot expenses, and information technology costs. The CIT(A) had previously determined that these expenses were revenue in nature, as they were recurring and essential for the day-to-day running of the business. The Tribunal agreed with this interpretation, emphasizing that the expenses did not confer an enduring benefit that would classify them as capital expenditures.Key evidence and findings:The CIT(A) found that the AO had made an ad hoc disallowance of 50% of the expenses without identifying specific items that qualified as capital assets. The assessee provided detailed descriptions of each expense category, demonstrating their recurring nature and necessity for business operations. The CIT(A) and the Tribunal noted that the AO failed to substantiate the classification of these expenses as capital in nature.Application of law to facts:The Tribunal applied the legal principles established in previous cases, such as the Supreme Court's decision in Empire Jute Company, which held that advertisement and business promotion expenses are not capital in nature. The Tribunal also referenced the ITAT Delhi's decision in DCIT vs. Magic Bricks Reality Services Limited, which supported the classification of similar expenses as revenue expenditures.Treatment of competing arguments:The Revenue argued that the expenses provided an enduring benefit and should be treated as capital expenditures. However, the Tribunal found that the CIT(A)'s reliance on case law and the factual analysis of the expenses supported the conclusion that they were revenue in nature. The Tribunal dismissed the Revenue's arguments, emphasizing that the expenses were necessary for the ongoing operations of the business and did not result in the acquisition of a capital asset.Conclusions:The Tribunal concluded that the CIT(A) correctly deleted the addition made by the AO, as the expenses in question were revenue in nature. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order.3. SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include the affirmation that expenses related to sales promotion, publicity, photoshoot, and information technology costs, when recurring and integral to business operations, should be classified as revenue expenditures. The Tribunal reiterated the principle that the mere potential for enduring benefit does not automatically classify an expense as capital in nature. The Tribunal's final determination was to dismiss the Revenue's appeal, thereby upholding the CIT(A)'s order to delete the addition of Rs. 18,34,46,739/-.