2014 (4) TMI 270 - AT - Income Tax

Deletion of addition of advertisement expenses Assessee engaged in trading of computers and electronic products - Held that - The assessee had claimed expenditure on account of advertisement and marketing - the assessee furnished ledger account supported by vouchers - Relying upon CIT Vs. Citi Financial Consumer Fin. Ltd. (Delhi) 2011 (3) TMI 622 - Delhi High Court - expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year it was incurred - the ingredients of section 37 of the Act stand satisfied - normally the expenditure is to be allowed as business expenditure in the year in question in which the same is incurred - there is no advantage which has accrued to the assessee in the capital field - The expenditure was incurred to facilitate the assessee s trading operations - No fixed capital was created by this expenditure - in the income-tax law, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for the whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfils the test laid down u/s 37 of the Act, it has to be allowed - The AO erred in holding that the advertisement expenses as deferred revenue expenses is not valid in the eyes of law and therefore the CIT(A) has rightly set aside the same thus, there is no infirmity in the findings of the CIT(A) Decided against Revenue.

Summary

Issues:
- Deletion of addition of advertisement expenses as capital expenditure

Analysis:
1. The appeal was against the order of the ld CIT(A) for the Assessment Year 2009-10 regarding the deletion of additions of advertisement expenses being capital in nature.
2. The Assessing Officer held that the advertisement expenses for brand building in the computer retail sector would yield enduring benefits and treated it as capital expenditure, allowing only 20% in the relevant year and the rest in subsequent years.
3. The assessee contended that the advertisement expenses were for promoting its own business, allowable under section 37(1) of the Act, supported by ledger accounts and relevant bills and vouchers.
4. The Tribunal reviewed the case laws, including the decision of the Hon'ble Delhi High Court in CIT Vs. Citi Financial Consumer Fin. Ltd., where it was held that advertisement and publicity expenses are revenue in nature and allowable fully in the year incurred if for business purposes.
5. The Tribunal found that the advertisement expenses were incurred for the business of retail trading, not for brand building, and that no fault was found in the ledger accounts and bills submitted by the assessee.
6. The Tribunal agreed with the ld CIT(A) that there is no concept of Deferred Revenue Expenditure in the Income Tax Act, and the Assessing Officer erred in treating the advertisement expenses as deferred expenditure.
7. Citing the decision in CIT Vs. Casio Industrial Ltd, where advertisement and sale promotion expenses were allowed as revenue expenditure, the Tribunal dismissed the revenue's appeal, confirming the order of the ld CIT(A) to delete the addition of advertisement expenses as capital expenditure.