TaxTMI 
TaxTMI 
2026 (7) TMI 1489
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.... both the parties, ITA No. 885/Mum/2026, being the Revenue's appeal, is treated as the lead case. Accordingly, the decision rendered therein shall apply mutatis mutandis to the connected appeal. ITA No.885/Mum/2026 revenue's appeal: 3. The following grounds are taken by the revenue: "1. That on the facts and in the circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) erred in deleting the disallowance of Rs. 25,81,01,600/- under marketing and advertisement expenditure made by the Assessing Officer by treating the said expenditure as capital in nature, without appreciating that the Assessing Officer had rightly held that such expenditure resulted in enduring benefit to the assessee. 2. That the learned Commissioner of Income tax (Appeals) failed to appreciate that the impugned expenditure of Rs. 32,26,27,487/-for AY 2022- 23, on marketing and advertisement created/strengthened an intangible advantage in the nature of brand, trademark, trade name, and market penetration, resulting in an enduring benefit to the assessee's business, and therefore was liable to be treated as capital expenditure and not allowable as a dedu....
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...., the revenue has preferred the present appeal before us. The assessee has also filed a cross-appeal in support of and to sustain the impugned appellate order. 5. The Ld. DR argued and contended that the assessee had incurred marketing and advertisement expenditure amounting to Rs. 32,26,27,488 and claimed the same as a deduction under Section 37(1) of the Act during the year under consideration. It was submitted that, after duly considering the assessee's submissions, the Ld. AO allowed only 20% of the said expenditure as revenue expenditure and treated the balance amount of Rs. 25,08,17,691 as capital expenditure eligible for amortisation under Section 35D of the Act. The Ld. DR further contended that the assessee had acquired the "Loco Platform" for a consideration of Rs. 19.40 crore, whereas it had simultaneously incurred marketing and advertisement expenditure of more than Rs. 32 crore, which the Ld. AO rightly considered to be excessive and abnormal in the facts and circumstances of the case. The Ld. DR also submitted that the assessee had incurred expenditure of Rs. 1.76 crore towards software services provided by non-resident entities. According to the Ld. DR, such p....
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..... The Ld. AR argued and filed a paper book comprising pages 1 to 158, which has been taken on record. The Ld. AR invited our attention to the valuation report relating to the intellectual property of Pocket S.S. Picture Pvt. Ltd., the transferor of the "Loco Platform" to the assessee. The valuation report demonstrates that the "Loco Platform" was originally developed in the year 2018 and was subsequently transferred by the group company to the assessee for a consideration of Rs. 19.40 crore. The valuation report, dated 31.03.2021, has been placed on record. The Ld. AR contended that the "Loco Platform" was not a newly created business or asset in the hands of the assessee, but an already existing platform that had been operational since 2018. Therefore, the marketing and advertisement expenditure incurred by the assessee could not be regarded as expenditure for creating a new business or enduring asset. The Ld. AR further submitted that the assessee had incurred losses in this venture during the year under consideration. It was also pointed out that similar development, marketing, and advertisement expenditure continued to be incurred in the subsequent assessment years in the ordin....
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....business expediency of the marketing and advertisement expenditure. In the absence of any such finding, there was no justification for arbitrarily allowing only 20% of the expenditure as revenue expenditure and treating the balance as capital expenditure. According to the Ld. AR, the disallowance was made without any legal or factual basis and was therefore wholly unsustainable. The Ld. AR also submitted that the comparative chart placed before the Bench clearly demonstrates that expenditure on marketing and advertisement of a similar magnitude was incurred even in the subsequent years in the ordinary course of business, thereby establishing that the expenditure was recurring in nature and not incurred for the acquisition of any enduring capital asset. Accordingly, the Ld. AR supported the order of the Ld. CIT(A) and submitted that the first appellate authority had duly considered both the additions and passed a well-reasoned and speaking order. The relevant observations of the Ld. CIT(A), contained in the following paragraphs, are reproduced below: "(i) Addition of Rs. 25,08,17,691/-- Treatment of Marketing and Advertisement Expenditure as Capital u/s 35D The ....
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....venue. As held by the Hon'ble Supreme Court in plethora of decisions, an expenditure that facilitates the carrying on of business more efficiently without creating a new asset or advantage in the capital field is revenue in character. The expenditure incurred by the appellant on brand promotion and customer outreach does not result in acquisition of any asset; it is a recurring cost required to maintain business operations in a highly competitive technology market. The benefit, if any, is short-lived and purely incidental to the conduct of business. It is also pertinent that similar expenditure has been accepted as revenue in nature in preceding years, and there is no change in the facts or accounting method. The principle of consistency, as enunciated in RadhasoamiSatsang v. CIT (193 ITR 321 SC), also supports the appellant's case. In view of these settled principles and the binding decisions of the Delhi High Court and ITAT in Salora International Ltd., Casio India Ltd., and SBI Cards and Payments Services Pvt. Ltd., it is held that the expenditure in question is wholly and exclusively laid out for the purposes of business and is allowable u/s 37(1). The....
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....n by the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), the disallowance of Rs. 1,76,83,713/- is deleted, and this ground is allowed." 8. The Ld. AR further contended that the identical issue was duly considered by the Hon'ble Supreme Court in the case of Empire Jute Company vs CIT reported in 124 SCC 1 (SC) the relevant paragraphs are reproduced as below: "This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it would be misleading to suppose that in all cases, securing a benefit for the business would be, prima facie, capital expenditure "so long as the benefit is not so transitory as to have no endurance at all". There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in....
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....ave resulted in enduring benefit to the assessee-company. Therefore, we do not find any justification in the argument of the Revenue that crop development expenses needed to be treated as capital expenditure ineligible for deduction. 4. In respect of the project launching expenses amounting to Rs. 16,41,125 also, we find that the assessee had spent the money mainly for advertisement through visual and print media and also for designing and printing leaflets, brochures, etc., and hence these expenses were also in the nature of business expenditure entitled for deduction in computing the assessee's income." 10. We have heard the rival submissions and carefully considered the material available on record. The short controversy before us relates to (i) the treatment of marketing and advertisement expenditure amounting to Rs. 25,08,17,691 as capital expenditure by invoking Section 35D of the Act, and (ii) the disallowance of Rs. 1,76,83,713 under Section 40(a)(i) of the Act on account of payments made to non-resident entities. On perusal of the record, we find that the "Loco Platform" was originally developed in the year 2018 and was subsequently transferred by the....