TaxTMI 
TaxTMI 
2023 (3) TMI 87
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....rom time to time and filed documents pertaining to its case. . 3. On perusing the profit and loss account of the Assessee, the Assessing Officer found that the Assessee has claimed advertising expenses of Rs.26,85,34,669/-, therefore, in order to examine, whether the above expenses were revenue in nature in view of the fact that these expenses would essentially lead to establishment and promotion of "Livpure" brand in India, show caused the Assessee to provide the details of the expenses and to explain why these expenses should not be treated as expenditure towards acquisition of intangible assets being "capital expenditure". 3.1 In response, the Assessee claimed as under: "The assessee has been issued show cause on proposed addition on account of expenditure incurred on advertisement, marketing, sales promotion by treating the same as capital expenditure. The assessee hereby denies that it has incurred any expenditure which is of capital nature. The expenses incurred by the assessee are of revenue nature. No tangible or intangible asset of enduring nature has been created. The expenditure incurred on advertisements as well as sales promotion schemes is to facilitate....
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....he advantage may endure for an indefinite future. The test of enduring benefit, is therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. " 11. Further such a payment has also to be seen from the context of business necessity or expediency also. If the outgoing expenditure is so intricately related to carrying on or the conduct of the business that it may be regarded as integral part of the profit-earning process and not for an acquisition of an asset or a right of the permanent character, the possession of which is condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. 12. Thus, from the facts of the case we do not find that these expenses incurred by the assessee has resulted in any kind of addition or augmentation of any profitmaking asset. Thus the view taken by the Assessing Officer is prima facie correct view and, therefore, we do not find any reason to hold that such an order is erroneous or it is prejudicial to the interests of the Revenue. Thus the conclusion drawn by the learned Commissioner of In....
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....hat how the return attributable to marketing activities can be identified. A marketing intangible may obtain value as a consequence/advertising and other promotional expenditures, which can be important to maintain the value of the trademark. However, it can be difficult to determine what these expenditures have contributed to the success of a product. For instance, it can be difficult to determine what advertising and marketing expenditures have contributed to the production or revenue, and to what degree. It is also possible that a new trademark or one newly introduced into a particular market may have no value or little value in that market and its value change over the years as it makes an impression on the market (or perhaps loses its impact). A dominant market share may to some extent be attributable to marketing efforts of distributors. The value and any changes will depend to an extent on how effectively the trademark is promoted in the particular market. More fundamentally, in many cases higher returns derived from the sale of trademarked products may be due as much to the unique characteristics of the product or its high quality as to the success of advertising and other ....
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....refore, the benefit of advertisement and marketing are of enduring nature available over a much longer period of time the accounting period relevant for A.Y. under consideration alone. In view of this, expenditure on advertisement and publicity becomes capital in nature as it is leading to the creation of the intangible assets being goodwill, reputation and creditability. It has been held by various courts in their decisions that when expenditure is made with a view to bring into an assets or advantage for the enduring benefit of the business, such expenditure is not revenue but a capital expenditure." 4.1 The Assessing Officer while relying upon various decisions rendered by Hon'ble Apex Court and High Courts, as mentioned in the assessment order, ultimately disallowed the expenditure to the tune of Rs.26,85,34,669/- by treating the same as "capital in nature", which was claimed by the Assessee incurred on advertising and publicity as "revenue in nature". 5. The Assessee being aggrieved preferred first appeal before the ld. Commissioner and reiterated its claim as claimed before the Assessing Officer. The ld. Commissioner by the impugned order, though affirmed the said addit....
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....diture. The reasons given by the AO are convincing as it is quite clear that the appellant is incurring expenditure towards building a brand which is of an enduring nature. I find no reasons to interfere with the AO's findings on this issue and I agree that the expenditure cannot be treated as revenue expenses. The submissions filed by the appellant on this issue has been considered and found not to be tenable. The case laws cited are distinguishable in facts. 4.2.3.2. A perusal of the submission reveals that the appellant has made an alternative pleas with is reproduced below : "Without prejudice to above, it is respectfully submitted that the Ld. AO while treating the expenditure incurred towards advertisement, publicity and sales promotion as capital expense, erred in not providing depreciation on such alleged capital expenditure as per the applicable provisions of the Income Tax Rules, 1962. Accordingly, in light of the above, it is hereby submitted that if the alleged addition is sustained, then it is prayed that the Assessee, being eligible for depreciation, be allowed the same in accordance with the Income Tax Rules as per scheme of Law. ....