2022 (9) TMI 1434 - AT - Income Tax

Nature of expenses - re-characterizing the business expenses as capital expenditure on the ground that it is a brand building exercise and is capital in nature - assessee is engaged in brand building and does not presented any revenue model before the learned AO and the learned CIT(A) - as argued Income Tax law does not provide for any type of self-generated brand as asset u/s 32 - HELD THAT - As relying on case FLIPKART INDIA PRIVATE LIMITED 2018 (5) TMI 337 - ITAT BANGALORE CORE HEALTHCARE LTD. 2008 (10) TMI 74 - GUJARAT HIGH COURT POLYGEL INDUSTRIES PVT. LTD. 2015 (9) TMI 4 - ITAT MUMBAI ADIDAS INDIA MARKETING (P.) LTD. 2009 (9) TMI 918 - DELHI HIGH COURT BERGER PAINTS (INDIA) LTD. (NO. 2). 2002 (2) TMI 97 - CALCUTTA HIGH COURT assessee cannot be disallowed the expenditure on the ground that it is a brand building exercise and is capital in nature. Accordingly we set aside the orders of the authorities below and decide the issue in favour of the assessee.

Summary

Issues:
Re-characterization of business expenses as capital expenditure for brand building.

Analysis:
The appellant filed appeals against the orders of the Ld. CIT(A) for two assessment years. The AO re-characterized business expenses as capital expenditure for brand building, disallowing and capitalizing expenses of Rs. 21,02,30,236. The Ld. CIT(A) upheld the AO's action, stating that the expenses had enduring benefits for the appellant and were not revenue in nature. The appellant contended that the expenses were revenue in nature and related to a tech start-up with a long gestation period. The ITAT noted that similar expenses were allowed in previous years and referred to a High Court decision supporting the allowance of such expenses. The ITAT also cited a case where expenses between setting up and commencement of business were allowed as business expenditure.

The ITAT further referenced a case involving a company claiming expenses for brand building, where the ITAT allowed the expenses as no capital asset had been created. The appellant cited various case laws where courts rejected treating advertisement expenses as enduring brand building expenses. Relying on these precedents, the ITAT held that the expenses were not capital in nature for brand building and set aside the lower authorities' orders, deciding in favor of the appellant for both years.

Therefore, the appeals were allowed, and the orders of the lower authorities were set aside, concluding that the expenses were not capital in nature for brand building.