2015 (11) TMI 1193 - AT - Income Tax

Addition made on account of advertisement expenses - revenue v/s capital expenditure - CIT(A) deleted the addition - Held that - Facts in the instant case are identical to the facts in the case of assessee itself for the preceding year i.e. Assessment Year 2008-09 and for the reasons given therein, he concluded that even balance 25% of expenditure is also allowable as revenue in nature in the year under consideration. Since the impugned expenditure was treated as revenue in nature, the alternative condition does not survive and accordingly, the claim of depreciation thereon was rejected. Addition made on account of recruitment and training expense - revenue v/s capital expenditure - CIT(A) delted the addition - Held that - The expenditure incurred by the assessee on advertisement having been treated partly as revenue in nature balance 25% should not have been treated as deferred revenue expenditure and it is allowable in the year in which it was incurred. In the light of decision of ITAT in assessee s own case we have no alternative except to hold that the order passed by Ld. CIT(A) is in accordance with law being in consonance with the view taken by ITAT in assessee s own case for the earlier year. We, therefore, dismiss the appeal filed by revenue.

Summary

Issues involved:
1. Treatment of advertisement expenses as capital in nature
2. Treatment of recruitment and training expenses as capital in nature

Issue 1: Treatment of advertisement expenses as capital in nature

The appeal pertains to the order passed by Ld. CIT(A) XII, New Delhi for Assessment Year 2010-11. The Revenue raised concerns regarding the deletion of additions made on account of advertisement expenses amounting to &8377; 13,06,184. The assessee, engaged in retail trading of mobile handsets, argued that the advertisement and marketing expenses were for brand building and did not result in any enduring benefit, thus should be treated as revenue expenditure. The contention was supported by citing various case laws. The Ld. CIT(A) observed that the expenditure was revenue in nature based on similar facts from the preceding year, thus disallowance was not permissible. The alternative claim for depreciation was rejected. The Revenue appealed, arguing that the expenditure provided an enduring benefit. However, the Tribunal dismissed the appeal, citing previous decisions favoring the assessee and holding that the order passed by Ld. CIT(A) was in accordance with the law.

Issue 2: Treatment of recruitment and training expenses as capital in nature

Regarding the recruitment and training expenses of &8377; 6,60,826, the AO contended that it enhanced the manpower capital of the assessee, thus should be treated as capital expenditure. The assessee argued that the expenditure did not provide an enduring benefit and should be considered revenue expenditure. Ld. CIT(A) followed the decision from the preceding year, treating the expenditure as revenue in character and disallowing depreciation. The Revenue appealed, claiming enduring benefits from the expenditure. However, the Tribunal upheld the decision of Ld. CIT(A) based on previous favorable decisions and dismissed the appeal.

In conclusion, the Tribunal upheld the order of Ld. CIT(A) in both issues, treating the advertisement and recruitment/training expenses as revenue in nature and rejecting the claims for capital treatment or depreciation benefits.