2018 (1) TMI 1242 - HC - Income Tax

Disallowance of sales promotion expenditures - ITAT held this expenditure fell in the revenue stream rather than the capital stream - Held that - This Court is of the opinion that the concurrent findings on the question urged, are justified. As to the nature of advertising expenditure, the pointed decision of the Court in Commissioner of Income Tax vs. Salora International (2008 (8) TMI 138 - DELHI HIGH COURT) was decisive. The advertence to Empire Jute s case (1980 (5) TMI 1 - SUPREME Court), is not apt in the circumstances of the case. The Court further re-collects that later decision in Alembic Chemical Works Co. Ltd vs. CIT, (1989 (3) TMI 5 - SUPREME Court) has cautioned the administrative authorities and the Courts from applying hitherto bright line test to expenditure resulting in a capital advantage based upon traditional notions. No substantial question of law

Summary

Issues Involved:
Interpretation of sales promotion expenditures as revenue or capital stream under the Income Tax Act, 1961.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 raised the question of whether the disallowed sales promotion expenditures of &8377; 9,37,29,000/- by the Assessing Officer fell under the revenue or capital stream. The appellant, engaged in the publication of newspapers and periodicals, claimed the expenses as sales promotion costs justifying them based on various expenditure heads. The AO found the expenditure excessive for a new entrant and disallowed half the amount, suspecting it was meant to create an enduring asset, falling under the capital stream. The CIT(A) disagreed, and the ITAT upheld that decision.

The appellant's counsel cited the judgment in Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, (1980) 124 ITR 1 (SC), suggesting that the high expenditure disallowed by the AO implied the creation of an asset or a capital advantage. However, the High Court opined that the concurrent findings were justified. Referring to the decision in Commissioner of Income Tax vs. Salora International, (2009) 308 ITR 199, the Court clarified the nature of advertising expenditure. It was noted that the application of a bright-line test to expenses resulting in a capital advantage should be cautioned against, as highlighted in Alembic Chemical Works Co. Ltd vs. CIT, (1989) 177 ITR 377.

In conclusion, the High Court found no substantial question of law arising from the case and dismissed the appeal. The Court's decision was based on the nature of the expenditures, previous legal precedents, and the caution against applying traditional tests for expenses leading to capital advantages.