2024 (5) TMI 843 - AT - Income Tax

Nature of expenses - Business Promotion Expenses Advertisement - revenue or capital expenditure - AO considered 50% of the expenditure claimed as capital in nature - HELD THAT - As decided in M/s. Jasper Infotech Pvt. Ltd. 2021 (12) TMI 443 - ITAT DELHI the impugned expenses claimed by the assessee are purely revenue in nature and disallowance of 50% thereof holding it to be of capital in nature is not justified. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowances made by the Assessing Officer (AO) on account of Business Promotion Expenses & Advertisement being capital in nature.
2. Deletion of disallowances of expenditure towards brand building and marketing intangible.

Summary:

1. Deletion of Disallowances on Business Promotion Expenses & Advertisement:

The Revenue challenged the order dated 31.03.2022 by the CIT(A), NFAC, Delhi, which pertained to AY 2017-18, for deleting disallowances made by the AO amounting to Rs. 3,22,39,50,102/- on account of Business Promotion Expenses & Advertisement. The AO had considered 50% of the expenditure claimed by the assessee as capital in nature, citing that these expenses provided an enduring benefit to the "Snapdeal" brand, thus not incurred wholly and exclusively for the business of the assessee.

However, the CIT(A) deleted the disallowance, noting that similar issues were already covered by decisions in the assessee's own case for AY 2012-13 and AY 2013-14, where such expenses were considered revenue in nature. The Tribunal upheld this view, emphasizing that the nature of the assessee's business in a highly competitive market does not result in enduring benefits. The Tribunal referenced its earlier decision in ITA No. 2605/Del/2017 for AY 2012-13, where it was held that the impugned expenses are purely revenue in nature and disallowance of 50% thereof as capital in nature is not justified.

2. Deletion of Disallowances of Expenditure towards Brand Building and Marketing Intangible:

The AO argued that the expenses on advertisement, marketing, and business promotion led to the creation of intangible assets, providing long-term benefits and thus should be treated as capital expenditure. The AO relied on various judicial decisions to support this view. However, the CIT(A) and subsequently the Tribunal disagreed, stating that the expenses were necessary for the business operations and did not create any intangible asset or provide enduring benefits. The Tribunal noted that the advertisement and publicity expenses were in the nature of promotional activities necessary for the routine business of the assessee and did not result in long-term advantages.

The Tribunal highlighted that the AO's reliance on the enduring benefit test was misplaced in the context of the assessee's business model, which required continuous and substantial promotional activities to remain competitive. The Tribunal concluded that no useful purpose would be served by setting aside the matter to the AO, as suggested by the CIT-DR.

Conclusion:

In conclusion, the Tribunal dismissed the appeal of the Revenue, holding that the grounds taken were not sustainable, and upheld the CIT(A)'s order deleting the disallowances made by the AO.

Order pronounced in the open court on 26th April, 2024.