2015 (7) TMI 440 - AT - Income Tax

Disallowance of advertisement expenses - whether the CIT(Appeals) is justified in confirming the disallowance of ₹ 8,07,123/- in respect of advertisement expenses - Held that - genuineness and the quantum of the advertisement expenses incurred by the Assessee is not doubted. On perusal of the details of the expenses, we notice that these were expenses incurred in the normal course of business and does not partake the character of the capital expenditure. Primarily the Income tax authorities have disallowed 75% of the total advertisement expenses for the reason that the benefit of these expenses would have spilled over to the next year. These advertisement expenses are recurring expenses incurred for sales promotion. There is no enduring benefit by incurring these expenses. Hence we hold that the disallowance of ₹ 8,07,123/- is not justified on the facts of the case - Decided in favour of assessee.

Summary

Issues:
Disallowance of advertisement expenses by CIT(A) - Justification of disallowance

Analysis:
The appeal pertains to the Assessment Year 2010-11, where the sole issue raised is the confirmation of the disallowance of Rs. 8,07,123 in respect of advertisement expenses by the CIT(A). The Assessing Officer disallowed 75% of the total advertisement expenses incurred by the assessee, amounting to Rs. 8,07,123, considering it as capital in nature. The CIT(A) upheld this disallowance, stating that the impact of the advertisement was spilling over to the next financial year and was of enduring nature, thus justifying the disallowance. The CIT(A) dismissed the appeal of the assessee based on these grounds.

Upon hearing the appeal, the ITAT Delhi found that the genuineness and quantum of the advertisement expenses were not in question. The tribunal observed that the expenses were incurred in the normal course of business and did not have the character of capital expenditure. It was noted that the advertisement expenses were recurring and aimed at sales promotion, with no enduring benefit. Consequently, the ITAT held that the disallowance of Rs. 8,07,123 was unjustified in this case. The tribunal directed the Assessing Officer to allow the amount as a business deduction, overturning the decision of the CIT(A) and allowing the appeal filed by the assessee.

In conclusion, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to permit the advertisement expenses of Rs. 8,07,123 as a business deduction for the Assessment Year 2010-11.