2016 (4) TMI 159 - AT - Income Tax

Brand promotion expenses - expenses considered by the Assessing Officer as expenditure which granted benefits of enduring nature and which called for allowance over a period of five years - Held that - As in the case of assessee itself for the assessment year 2001-02 in the identical facts and circumstances has decided the similar issue in favour of the assessee wherein held the concept of deferred revenue expenditure is not known under the Income-tax Act. The expenditure can be either capital expenditure or revenue expenditure. If the expenditure is revenue in nature and claimed u/s. 37 the same is allowable in whole and cannot be spread over number of years. Admittedly the advertisement and publicity expenses are revenue expenses. Admittedly the advertisement and publicity expenses are revenue expenses. No new asset is created by incurring the expenses. It is also not the case of the AO that the expenses are capital expenditure. The finding of the learned CIT(A) that the expenditure are wholly and exclusively for the purpose of business and which is not challenged in appeal. We therefore confirm the deletion of disallowance - Decided against revenue

Summary

Issues:
- Allowance of brand promotion expenses as revenue expenditure

Analysis:
1. The appeal was filed by the Revenue challenging the order of the CIT(A) regarding the allowance of brand promotion expenses as revenue expenditure.
2. The assessee initially declared income and claimed brand building expenses as revenue expenditure. The Assessing Officer (AO) deferred a portion of the expenses over five years, allowing only 1/5th in the current year.
3. The CIT(A) allowed the appeal based on a precedent from a previous assessment year, where a similar order was made.
4. During the Tribunal proceedings, the Departmental Representative (DR) supported the AO's decision, emphasizing that the expenses were treated as deferred revenue expenditure in the assessee's books.
5. The Authorized Representative (AR) of the assessee argued that the expenses were revenue in nature and covered under section 37(1) of the Income-tax Act. Previous ITAT orders were cited to support the claim that such expenses should be treated as revenue expenditure.
6. The Tribunal referred to a previous order related to the same assessee for the assessment year 2001-02. The Tribunal held that if an expenditure is revenue in nature and claimed under section 37, it should be entirely allowable in the current year without being spread over multiple years.
7. Based on the precedent and legal interpretation, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal as lacking merit.
8. Consequently, the Tribunal pronounced the order in favor of the assessee, dismissing the Revenue's appeal regarding the treatment of brand promotion expenses as revenue expenditure.