TaxTMI 
TaxTMI 
2025 (10) TMI 1236
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.... us, the assessee has challenged only the disallowance of Customer acquisition cost amounting to INR 169,08,54,302. The customer acquisition cost has been incurred with respect to porting charges, data entry charges with respect to customer details, subsidy on handsets i.e. compensation paid to the distributors for the loss on sale of handset to customers at a price lower than the cost price to make the handsets, etc. The assessee claimed the customer acquisition cost as revenue expenditure as the same were incurred in normal course of business, which did not result any enduring benefit. Whereas the Ld. Assessing Officer ('AO') held the customer acquisition cost as capital expenditure and disallowed the same as under: "6. Customer Acquisition cost: Vide notice u/s 142(1) dated 26/03/2021 the assessee was inter alia, asked to Provide the amount and details of customer acquisition cost for the year and explain the allowability of the same as deduction. In reply dated 03.04.2021 the assessee stated that: "The expense of INR 169,08,54,302 has been recognized as Customer Acquisition costs during the subject year." The assessee has claimed that customer acquisition cost....
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....r of years, are claimed as an allowable revenue expenditure under Section 37(1) of the Act." The assessee has also made the following request, "Without prejudice to the above, where your office still considers such amount to be capitalized, then we request you to kindly provide appropriate allowance/deduction for the amount similarly treated as capital expenditure to be amortized in the preceding years." The reply has been examined. From the explanation offered, it is clearly seen that the expenditure is towards subsidization of mobile handsets which is clearly of capital nature. Also the said amount is expended towards the cost of prospective customers with a view to retain them in future. This itself shows that there is no certainty involved in the expenditure and the assessee is in no position to know in present the future events of continuation of those customers in the subsequent years. The expenditure is not only of capital and prepaid nature but is also incurred in relation to an income which may be earned by the assessee in subsequent years. The claim for allowance of the same in this year is neither as per accounting norms nor in line with the provisions ....
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.... to customer details, subsidy on handsets i.e. compensation paid to the distributors towards loss on sale of handsets to customers etc. amounting to INR 169,08,54,302. The same is reported as 'customer acquisition cost' under the group head of 'Other expenses' and reported in Note 31 of the Profit and Loss A/c for the subject AY. 6.2 The Appellant claimed the aforesaid expense as a revenue expenditure, as the same were incurred in normal course of business and benefit of the same does not bring any enduring benefit to the Appellant. 6.3 The Assessing Officer on consideration of the claim and submissions made during the assessment proceeding came to the conclusion that any expenditure made to increase the customer base of the assessee cannot be claimed to be revenue in nature and by the strength of the order of ITAT Mumbai, in the case of India Capital Markets Pvt. Ltd., held that the nature of expense made for acquisition of client would come within the expression of "any other business or commercial right of a similar nature" as mentioned in section 32 of the Income Tax Act. Therefore, the Assessing Officer disallowed the claim of the assessee of ....
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....(AO also relied on these case laws), held that customer base was an intangible asset eligible for depreciation under section 32(1)(ii) of the Act though these decisions were not applicable in the case in hand as the facts of those cases were different; India Capital Markets (P) Ltd. and SKS Micro Finance Ltd. had acquired the customer base from another entities in slump sales, whereas the appellant assessee had acquired the customer base in its regular business and not on account of acquisition of customers from other entity. The Ld. Counsel, drawing our attention to the decision of the Hon'ble Supreme court in the case of Excel Industries Ltd. [(2013) 38 taxmann.com 100, submitted that the deferment of expenditure by capitalization of the same did not serve any purpose in public interest as the dispute was limited to whether such expenditure could be allowed in one year as revenue expenditure or over the years in form of depreciation after capitalization of such expenditure. It was contended that the Revenue was not a gainer in this whole exercise as rate of tax over the years remained same and the case in hand was of returned and assessed Loss. He drew our attention the decis....