TaxTMI 
TaxTMI 
2026 (8) TMI 1039
X X X X Extracts X X X X
X X X X Extracts X X X X
....atforms. It filed its return of income on 11.02.2021 declaring business loss of Rs. 22,17,60,059/-. The case was selected for scrutiny and accordingly statutory notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') was issued and served on the assessee. Thereafter, notice u/s. 142(1) along with a questionnaire was also issued and served on the assessee in response to which the assessee filed the requisite details. 3. During the course of assessment proceedings the Assessing Officer observed from the Profit and Loss Account that the assessee has debited total expenses of Rs. 1,48,89,38,291/- out of which expenses of Rs. 54,41,59,585/- has been shown under 'other expenses' which includes expenses of Rs. 29,75,67,931/- under the item head 'sales promotion expenses'. From the various details filed by the assessee he noted that the assessee has claimed expenses of Rs. 29,75,67,931/- which is more than the double of the expenses of Rs. 13,50,22,313/- shown in assessment year 2019-20. He, therefore, asked the assessee to furnish complete details of the expenses and justify the claim of sales promotion expenses with supporting evidence. The assessee in re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same has accordingly been explained in the Exhibit 7A for such parties which account almost 95% of the total value of sales and promotion expenses. Further, sample invoice copies are enclosed as Exhibit 7B. Further, the claim of your good-self with respect to such expense being capital expenditure, we wish to state that such expenses are incurred by the company for promoting the sales of the company. The company has to continuously incur such expense on a yearly basis. Therefore, there is no benefit of enduring nature derived by incurring such expenditure and in the absence of the same, the said expenses cannot be treated to be capital in nature." 5. Relying on various decisions including the decision of the Mumbai Bench of the Tribunal in the case of Idea Cellular Ltd it was submitted that the expenses are revenue in nature. 6. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs. 25,02,77,240/- by observing as under: 4.1.6 In view of the above, it is apparent from the basic nature of the expenses that the expenses bring benefit to the assessee for the years to come. It is pertinent to mention here th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnal varieties but must need be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasis the element of a sufficient degree of durability appropriate to the context. There is no single criterion, which, by itself, is determinative as to whether a particular outlay is capital or revenue. The 'once for all' payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a common sense way having regard to the business realities". 4.1.7 From the above, it is evident that the assessee has claimed deduction of capital nature expenditure which is not allowable. The assessee has under reported income by claiming deduction of capital nature expenditure by misrepresenting the facts as referred to in clause (a) of Sub-Section (9) read with Sub-Section (8) of Section 270A of the Act. Considering the facts & circumstances of the case, the reply of the assessee has not been found to be satisfactorily & reasonable and the expenses of Rs. 25,02,77,240/- being capital nature expenditure is liable to be disallowed. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee for getting enduring benefits. It is evident that the expenditure on the development & market research for the platform of electronic store has been made by the assessee for enduring benefits which is a capital nature expenditure. The assessee has under reported income by claiming deduction of above capital nature expenditure by misrepresenting the facts as referred to in clause (a) of Sub-Section (9) read with Sub-Section (8) of Section 270A of the Act. The capital nature expenditure is not allowable as deduction and thus, the reply of the assessee is not found to be satisfactory. Therefore, the claim of deduction for expenditure of Rs. 58,59,236/- is disallowed and the same added back to the total income of the assessee. [Addition Rs. 58,59,236/-] 9. In appeal, the Ld. CIT(A) / NFAC deleted both the additions by observing as under: 4. Analysis of the facts and adjudication of the grounds: 4.1 In response to notice u/s. 250 of the Act, the appellant has furnished a paper book consisting of several hundred pages, a written submission of 22 pages and several other pages and documents. Submissions made by the appellant have been gone through carefull....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... above, payment of Rs. 58,59,236 to M/s UNBXD Software (P) Ltd is also held to be of revenue nature and the disallowances/addition of Rs. 58,59,236 hereby DELETED. 10. Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of Rs. 25,02,77,240/- under Section 37 of the Income-tax Act, 1961, treating the expenditure under the head "Sales Promotion" as revenue in nature, despite the fact that approximately 95% of these expenses related to market research, strategic planning, development and designing of website and mobile app, and purchase of media space, were incurred for enduring benefits akin to capitalized intangible assets. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to correctly apply the principles distinguishing capital and revenue expenditure erroneously relying solely on ownership and cost recovery as decisive tests ignoring that the platform's tailored design and development by vendors for the assessee's elect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. So far as the order of the Ld. CIT(A) / NFAC deleting the addition of Rs. 25,02,77,240/- is concerned, he drew the attention of the Bench to the nature of services received from each of the parties which are given before the Ld. CIT(A) / NFAC and which are as under: Sr. No. Name of party Nature of expenses Amount (Rs.) 1 ARM DIGITAL MEDIA PVT LTD Payment made for acquiring media space on social media platforms like Google, Facebook, etc for promotions of financial products of its customers 1,40,33501 2 CONVONIX SYSTEMS PRIVATE LTD Payment made for ensuring higher SEO ranking and content generation on website to generate more customer traffic SEO is crucial as its directly impacts online visibility and search rankings influencing the visibility of products 2,00,63,020 3 GRAPES DIGITAL PRIVATE LIMITED management fees Payment made for acquisition of Internet advertising space and media 9,53,00,451 4 GRAPES DIGITAL PRIVATE LIMITED Payment made for writing up creative posts which are hosted on the BFSD website and social media platforms 64,63,800 5 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sunder: "8. The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount of conclusive. There is no all-embracing formula which can provide a ready solution to the problem, no touchstone has been devised. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, LC in British Insulated & Helsby Cables Ltd. v. Atherton 10 TC 155 where the learned Law Lord stated: "When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital" This test, as the parenthetical clause shows, must yield where t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue." 16. He submitted that applying the test laid down by Hon'ble Supreme Court in the above decision cited (supra), it is clear that the advantage that the assessee obtains by incurring this expenditure is not in capital field but it merely facilitates the carrying on of the business of the assessee of promoting the sale of the products of its customers more efficiently and profitably. He drew the attention of the Bench to para 12 of his written submission which reads as under: • All the above expenditure incurred by BFSD is recurring in nature and was incurred to increase the sales of BFSD on digital platforms and is similar to placing advertisement in a newspaper and, hence is revenue in nature. • It is merely facilitating the carrying on of the business of the Respondent by increasing the sale of financial products of its customers and, thereby, increasing its commission income. • All these expenses need to be incurred every single time when the Respondent wants to promote its products on social media. • Once the products are promoted and the promotion comes to an end, no benefit accrues to the Respondent. â€....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is recurring in nature and aimed at increasing the income through digital platforms. These expenses are akin to routine advertisement costs, as they support the ongoing business operations without creating any enduring benefit. The impact of such campaigns is temporary, with no lasting advantage once they conclude. • Further, these expenses do not lead to the creation of any tangible or intangible asset and must be incurred continuously to maintain market presence in a competitive environment Their primary purpose is to promote products and enhance revenue for the relevant year. • Without prejudice to above in case your Honours consider the above expenditure as capital in nature, the AO may be directed to allow depreciation on the same." 20. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs. 25,02,77,240/- out of sales promotion expenses and Rs. 58,59,236/- out of payment made to M/s. UNBXD for con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amounting to Rs. 58,59,236/- which has been disallowed by the Assessing Officer is concerned, we find the assessee has established with evidence that UNBXD has provided services which includes display of its high selling products at the top and also auto correction of the spelling typed in by the customer and continues the search. We find merit in the argument of the Ld. Counsel for the assessee that this expenditure is necessary for any digital platform to ease the search process for the customer and generating sales from the same. 23. We find in the following decisions it has been held that the expenditure incurred on advertisement can never be regarded as an expenditure in the capital field: i) Deputy Commissioner of Income-tax v. Metro Shoes (P) Ltd reported in [2004] 2 SOT 127 (Mumbai) ii) ACIT, Circle 22(2) New Delhi. Vs Snapdeal Ltd. (ITA No 184/Del/2023] 24. In view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A) / NFAC, we uphold the order of the Ld. CIT(A) / NFAC on this issue. The grounds raised by the Revenue on this issue are accordingly dismissed. 25. The assessee in CO No.4/PUN/2026 has raised the foll....