2015 (12) TMI 908 - HC - Income Tax

Expenditure incurred for sales promotion and publicity and setting up of various stores - revenue v/s capital expenditure - CIT(A) deleted the addition confirmed by ITAT - Held that - This Court in case of Core Healthcare Ltd.(2008 (10) TMI 74 - GUJARAT HIGH COURT ) held that advertisement expenses to create brand image is revenue in nature The treatment accorded to a certain expenditure in the books of account of the assessee would not be conclusive of its true nature and on valid grounds, it would be open for the assessee before the Income Tax authority to claim a different treatment. This was perviously stated in case of Kedarnath Jute Manufacturing Co. Ltd.(1971 (8) TMI 10 - SUPREME Court) which was reiterated in case of Taparia Tools Ltd. (2015 (3) TMI 853 - SUPREME COURT ) as well. - Decided against revenue

Summary

Issues:
1. Challenge to the judgment of the Income Tax Appellate Tribunal regarding the deletion of disallowance/additions of revenue expenditure.

Analysis:
1. The appellant challenged the judgment of the Income Tax Appellate Tribunal, questioning the deletion of disallowance/additions of revenue expenditure. The respondent assessee had claimed a deduction of &8377; 1.70 crores for sales promotion, publicity, and setting up stores in the assessment year 2004-2005. The Assessing Officer contended that the expenditure was not revenue in nature as it provided enduring benefits, and hence should not be allowed in its entirety for the year incurred. The Assessing Officer disallowed the claim, stating that the benefits from the expenses were enduring and should be spread over multiple years. The CIT(A) reversed this decision, emphasizing the classification between capital and revenue expenditure under the Income Tax Act and rejecting the concept of deferred revenue expenditure.

2. The Revenue appealed against the CIT(A)'s decision, arguing that the expenditure was revenue in nature based on the treatment in the books of account. The Tribunal, following precedents, held that the expenditure was revenue in nature, emphasizing that the treatment in the books of account does not conclusively determine the nature of the expenditure. The Tribunal referred to relevant case laws to support its decision, including the distinction between capital and revenue expenditure.

3. The High Court dismissed the tax appeal, stating that the nature of advertisement expenses creating a brand image is revenue in nature. The Court reiterated that the treatment of expenditure in the books of account does not solely determine its nature, and the assessee can claim a different treatment based on valid grounds. The Court upheld the Tribunal's decision, emphasizing the commercial sense in determining the nature of advantages and enduring benefits in the context of expenditure.

In conclusion, the High Court upheld the Tribunal's decision regarding the revenue expenditure, emphasizing the distinction between capital and revenue expenditure under the Income Tax Act and rejecting the concept of deferred revenue expenditure. The Court reiterated the importance of considering the commercial sense and enduring benefits in determining the nature of expenditure, regardless of its treatment in the books of account.