TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1288
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.....15,27,98,527/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (the Act) on 25.12.2017 determining the loss at Rs.4,89,74,870/-. The Assessing Officer in the course of assessment proceedings noticed that assessee claimed expenses of Rs.20,76,47,319/- on account of advertisement and business promotion. As the Assessing Officer was of the view that these expenses have been essentially incurred for the purpose of brand building, maintenance, customer base and enhancing the revenue, required the assessee to explain as to why these expenses should not be capitalized. The assessee vide letter dated 15.12.2017 made the following submissions:- "Assessee Company was incorporated on 19/08/2013. No business was conducted by the company during the period since incorporation till February, 2015. In the month of February 2015 running business of a property portal in the name of MagicBricks.com was acquired through slump sale from its holding company as part of the restructure of business. The holding company is hosting various websites such as indiatimes.com, simplymarry.com, timesjob.com,:toi,in,et.in etc. The real estate listing portal magicbrick.com was also ....
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....mation about its services. These expenses are revenue in nature as no enduring benefit is derived by the assessee and assessee has not just incurred the expenses on advertisement in the subsequent year but in fact had the business compulsion to incur much more amount in the subsequent year i.e. 85.40 cores in FY 2015-16 and 50.08 in FY 2016-17, it can thus be seen had there been any enduring benefit out of the sum incurred during FY 2014-15 there should not have been any need to incur any further amount in the subsequent years, which is not the case. Further that no asset got created out of this expenses incurred by the assessee. The assessee company has continued the advertisement and promotion campaign in the next year as well. A tabulation of the similar expenses in the next two years is given below: Particulars AY 15-16 AY 16-17 AY 17-18 Total Turnover 9.03 125.60 144.13 Total Expense 31.33 203.53 108.36 Advertisement Exp 20.76 85.40 50.08 Advt. Percentage of Total Exp. 66% 42% 28% 4. The assessee in its submissions stated that the expenses incurred towards advertisement and business promotion are revenue in nature and no enduring benefit is derived by ....
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....nditure is in the nature of capital expenditure and the Assessing Officer has rightly treated 50% of the advertisement and business promotion expenses as incurred in capital field. 8. On the other hand, the ld. Counsel for the assessee strongly placed reliance on the order of the ld. CIT (Appeals). The ld. Counsel for the assessee further submits that the co-ordinate bench of the Tribunal by order dated 10.11.2021 in ITA. No. 2605/Del/2017 in the case of Addl. CIT Vs. M/s. Jasper Infotech Pvt. Ltd., another e-commerce platform operator, having similar facts and operating conditions in e-commerce segment in respect of website, namely, "Snapdeal" deleted the disallowance made by the Assessing Officer towards advertisement and business promotion expenses who treated them as capital in nature. The ld. Counsel submits that the facts are identical to the facts of the assessee's case where the Assessing Officer disallowed 50% of the advertisement expenses incurred by the assessee just on the footing expenses incurred were providing enduring benefit to the assessee and the ld. CIT (Appeals) deleted the addition holding that the expenses were pivotal to the online industry in which the ass....
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....ector was already struggling to keep its business afloat. 11. Advertisements such as these to attract both sellers and buyer itself has a very short life span forcing each of such online player to continue to incur such advertisement and promotional expenses even at a higher scale on year-on-year basis, accordingly, assessee also had to incur similar advertisement and promotional expenditure in succeeding years also. Sr No Particulars AY 2015-16 AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 i) Advertisement expenses 20.76 85.40 50.08 43.01 61.51 ii) Total turnover 9.03 125.60 144.13 152.49 209.39 iii) Total expenses 31.33 203.53 180.36 197.89 221.13 iv) Loss (22.30) (77.92) (35.60) (45.40) (11.74) 12. Further it was contended that the fact of business compulsion to advertise year on year basis in this kind of business is proved with analysis by a Florida-based content marketing agency which analyzed the marketing spend of Amazon, Amazon's total ad spent was $2.6 billion on U.S. advertising and promotions in 2016, up 30% than previous year 2015, according to Ad Age's 200 Leading National Advertisers 2017 report. Indian players such as Flipk....
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....g the year under consideration incurred expenditure of Rs.20.76 crores under the head 'Advertisement and Business Promotion'. Out of these expenses 50% amounting to Rs.10.38 crores was disallowed by the Assessing Officer treating the expenditure as incurred towards capital in nature as according to the Assessing Officer these expenses provided assessee company the enduring benefit and, therefore, these expenses were capital in nature. 17. It was contended that, reference to "enduring benefit" commonly refers to advantage in a commercial sense. If the advantage consists merely in facilitating assessee business operations or enabling business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, expenditure will be on revenue account, even though the advantage may endure for an indefinite future. It is submitted that; such advertisement provides a stimulus to the potential customer to buy services offered by assessee, no other enduring benefit in capital field as perceived by AO are derived by assessee. Hon'ble Apex Court in the case of Alembic Chemical Works Co Ltd vs. CIT reported in 177 ITR 377, has held an expenditure would be treated as....
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....fit derived from such advertisement and to ascertain whether any 'brand name' was created. Reliance is also placed on the decisions of the Punjab and Haryana High Court in the case of Liberty Group Marketing Division (315 ITR 125) and the Bombay High Court in the case of Geoffrey Manner and Co. Ltd. (315 ITR 134). The judgment of Delhi High Court in CIT v. Adidas India Marketing (P.) Ltd. [2010] 195 Taxman 256 (Delhi) recognized that brand promotion exercises undertaken through media campaigns, schemes, programmes etc are essential for propagation of the brand. Similar view has been taken by the Jurisdictional High Court in the case of Modi Revlon Pvt.ltd. (210 Taxman 161) wherein disallowance @50% of advertising expenses had been made by the AO. The Court held that so long as the expenditure was inextricably linked to business purposes, the expenditure was in the revenue field. The relevant portion of the High Court order is extracted as under: "23. In the present case, the AO was conscious of the fact that brand promotion expenses are a necessary ingredient in marketing strategies. Therefore, he allowed about 50 per cent of those expenses. However, the reasoning for dis....
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....T (Appeals) considered in allowing the claim of the assessee on 4 decisions of the Hon'ble High Courts. Further the Id. CIT (Appeals) followed the decision of the Hon'ble jurisdictional High Court in the case of Modi Revlon Pvt. Ltd. 210 Taxman 161 [2012] 26 taxmann.com 133 (Delhi). There was nothing in the Income-tax Act; nor was there any material on record suggestive of Page | 6 the fact that the assessee could not claim these expenses as revenue expenditure. The fact remained that as assessee is operating in online marketing business as aggregator which is a highly competent consumer market the assessee had to stay ahead of its competition and thus engage itself in brand promotional activities and has necessarily to incur these expenses. The ld. AO having accepted the fact that the assessee could spend amounts for these activities to the extent of 50 % as revenue expenditure the Id AO could not have held that 50 % of such expenses are capital in nature, in absence of any contrary evidence. In view of this, we do not find any infirmity in the order of the Id. CIT (Appeals) in deleting the above disallowance. Further before us no evidence was placed on record to show that assesse....