2013 (8) TMI 931 - AT - Income Tax

Disallowance of Advertisement Expenses - Held that - The Tribunal held that by incurring expenditure on advertisement and sales promotion, assessee had not acquired any fixed capital asset but these expenditures were incurred for earning better profits for facilitating assessee s operation of providing cellular mobile services. The action of the Ld. CIT (A) has been upheld with this finding that the Ld. CIT(A) had rightly allowed assessee s claim in respect of expenditure so incurred. Addition on account of Recruitment & Training Expenses - Held that - Identical issue was raised before the Delhi Bench of the Tribunal in the case of Sapient Corporation Ltd Vs. DCIT (2011 (5) TMI 499 - ITAT, DELHI ), wherein after discussing the case in detail, the Tribunal has held that the expenditure incurred on account of recruitment and training expenses cannot be said to be capital expenditure. The issue is thus covered in favour of the assessee.

Summary

Issues:
1. Disallowance of Advertisement Expenses
2. Disallowance of Recruitment & Training Expenses

Analysis:

Issue 1 - Disallowance of Advertisement Expenses:
The revenue challenged the deletion of an addition of Rs. 1,92,76,191 made by the Assessing Officer (A.O) on account of disallowance of Advertisement Expenses. The A.O disallowed 25% of the total expenditure claimed by the assessee on the grounds that it was related to brand building and of capital nature. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, finding merit in the assessee's explanation. The Tribunal upheld the CIT(A)'s decision, citing similar precedents where expenditure on advertisement and sales promotion was considered revenue expenditure. The Tribunal also referenced decisions of the Delhi High Court supporting the CIT(A)'s decision. Therefore, the Tribunal rejected Ground No-1 raised by the revenue.

Issue 2 - Disallowance of Recruitment & Training Expenses:
The A.O disallowed Rs. 67,00,746 incurred by the assessee on recruitment and training expenses, considering them to be of enduring nature and capital in nature. The CIT(A), however, deleted the disallowance, accepting the assessee's contention that these expenses were incurred for the normal course of business operations and did not provide enduring benefits. The CIT(A) referenced Accounting Standard 26 and Supreme Court decisions to support the deletion of the disallowance. The Tribunal, in a similar case, held that recruitment and training expenses are revenue expenditure, not capital in nature. Therefore, the Tribunal upheld the CIT(A)'s decision on this issue as well, rejecting Ground No-2 raised by the revenue.

In conclusion, the Tribunal dismissed the appeal, stating that both the appeals and Cross Objection (C.O) were rejected. The objections raised by the assessee regarding depreciation on intangible assets creation were deemed infructuous due to the dismissal of the revenue's appeal against the main addition deletion by the CIT(A).