2012 (3) TMI 458

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....ish the details of such expenses and also to explain as to why they should not be disallowed as they appeared to be confer a benefit of enduring nature. The assessee's reply dated 29.12.2010 extracted in the assessment order is reproduced hereunder. "In this connection, it is respectfully submitted that the word 'Spice' has been substituted in place of the word 'Hotspots' in the name of the assessee company w.e.f. 9.4.2009. As per copy of fresh certificate of Incorporation issued by the ROC, submitted to your goodself with our letter dt. 20.10.2010. In view of the same no such expenses can be said to be related to brand building exercise of 'Spice' brand. During the P.Y. under consideration, the assessee company was carrying on its business under the brand name 'Hotspots' as earlier". Not convinced with the explanation offered the A.O. decided the issue against the assessee holding as under: "As per the 'Fresh Certificate of Incorporation consequent upon change of name, submitted by the assessee the Hotsport Distribution Ltd. was originally incorporated 20th day of March, 2007 i.e. the fag end of F.Y. 2006-07. This fact itself goes to show that the expenses incurred during....

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....essee contended that the word 'spice' has been substituted for 'hot spot' as the name of the company w.e.f. 9.4.2009. The said assertion was supported by Certificate of Incorporation of Registrar of Companies. Considering the fact that the A.O. not convinced with the reason for incurring the expenses on advertising and brand building on account of various sales promotion schemes, advertisement of its products in newspaper, electronic media, neon signs and banners etc. amounting to Rs. 6,31,93,412/- 25% of the expenses worked out to Rs. 1,57,98,353/-. However A.O. has disallowed Rs. 1,92,76,191/- i.e. the 25% of Rs. 7,71,04,765/-. He also records the alternate plea of the assessee namely that if 25% of expenses incurred on advertisement and marketing pertain to brand building which have led to an enduring benefit and creation of an intangible asset then depreciation thereon @ 25% should be allowed. 5.2. Addressing the provisions of the Act namely section 37 it was argued the expenditure has been incurred by the assessee wholly and exclusively for the purpose of its business or profession, as such it is allowable as deduction as admittedly it is not a capital expenditure nor a per....

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....res, etc. The press advertisements could not be considered as capital asset acquired by the assessee. Similarly, putting hoardings and neon signs could not also be considered on capital field. These ;expenditures do not lead to create any capital asset to the assessee. Even there is no benefit of enduring nature so to treat the expenses as capital expenditure. Since by incurring expenditure on advertisement and sales promotion, the assessee has not acquired any fixed capital asset, but these expenditures were incurred for earning better profits, and for facilitating assessee's operation of providing cellular mobile services, there exist direct nexus between the advertisement and sales promotion expenses and the carrying out of the business activity of the assessee. We, therefore, do not find any justification in interfering with the order of the CIT(A) in deleting the disallowance of 10 per cent of expenses towards advertisements and sales promotion incurred by the assessee for smooth functioning and carrying on assessee's buiness effectively, proficiently and profitability. The order of CIT(A), is thus, upheld on this issue." 6. The CIT(A) considering the submissions of assesse....

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....wherein w.e.f. 9.4.2009 the assessee substituted the word 'hot spot' for the word 'spice'. As such the assessee undertook schemes of sales promotion and advertisement in printing and electronic media the assessee was in the business of selling mobile hand sets and other electronic items and accessories admittedly operates in a highly competitive market wherein the specific brand was necessarily to be advertised and made known to the public at large the factum of incurring the expenditure of sales promotion schemes advertisement of its products in newspapers, electronic media, neon signs and banners etc. have not been dated. In these facts it is an admitted position that the expenses are incurred wholly and exclusively for the business of the assessee and is not a capital expenditure nor a personal expense. No reasoning or basis has been given by the A.O. to disallow 25% of the expenses claimed as if the expenditure is capital in nature then depreciation should have been allowed and if the expense is being treated as deferred revenue expenditure then it is contrary to the settled legal position. In the facts as they stand the expenses incurred for brand building exercise of Spice br....