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TMI Blog2021 (12) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... nd business promotion incurred on brand building of E-commerce portal "Snapdeal" without appreciating the fact that the assessee is not directly engaged in trading of goods on Snapdeal e-portal and only facilitates the vendors and customers to trade on e-portal on percentage service fee only. 3. Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 29,45,50,223/- on account of disallowance of expenses on advertisement, publicity and business promotion without appreciating the fact that such expenses have been incurred solely on brand building of "Snapdeal" having enduring benefits for E-commerce business of the assessee company as the E-commerce business model is totally different from normal business model of trading / manufacturing concerns, having fast changing strategies and competition with ever growing e-commerce portals and surviving only with strong brand. " 2. Brief facts of the case shows that assessee is a company engaged in the business of marketing services under the brand name of 'Snapdeal' in India. It filed its return of income declaring a loss of Rs. 72,78,21,169/- on 28.09.2012. This return was picked up for the scrutiny. 3. During the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in maintaining and creating 'Snapdeal' brand. 8. On appeal before the ld. CIT (Appeals) he held that the above expenditure cannot be said to be a capital expenditure. He decided the whole issue in para Nos. 3.4.3 to 3.4.7 as under:- "3.4.3 I have perused the nature of expense claimed vis-a-vis the business model of the appellant. The appellant functions in the ecommerce space which is a new- online platform, breaking away from the brick and mortar model of business of sale of goods. The web based platform of Snapdeal brings together the vendors (in electronics, apparent, personal care and various other categories) and customer who prefer to purchase products at the convenience of their homes. The appellant is not a trader and the way the system works is that a service fee is charged from the sellers of the merchandise at an agreed percentage. Since this a completely revolutionary model vis-a-vis the earlier business models of merchandising, a very high degree of yisibility is required in order to attract more and more customers to this platform. During the year the appellant has incurred Rs. 53.51 crores by way of advertisement and publicity, the major chunk (Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is no one's case that an online platform does not demand a very high degree of visibility, (almost to the point of harassing a customer!) so that he or she is induced to enter the area of online shopping. The business model also demands that customers be induced to shop online through inducements offered by way of free merchandise, cash discounts, freebies etc. In the fast emerging but competitive market such as the appellant's, it is also true that advertising expenses have no enduring nature/value. 3.4.5 The jurisdictional Delhi High Court has taken a view in many decisions that advertisement, publicity and business promotion expenditure should normally be treated as revenue expenditure unless there are special circumstances to hold that said expenditure was capital in nature. The gist of these decisions are discussed as under: (i) Citi Financial Consumer Finance Ltd. (335 ITR 29) (in this case SLP filed by the department also stands dismissed) "14. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customer diminishes and vanished soon thereafter. Advertisements do not leave a long lasting and permanent effect in the sense that the product or service has to be repeatedly advertised. Even otherwise advertisement expense is a day to day expense incurred for running the business and improving sales. It is noticeable that every year, the respondent-assessee has been incurring substantial expenditure on advertisements. The Assessing Officer, in the assessment order, had referred to the fact that similar additions were also made in the Assessment Year 2008-09. Keeping in view the nature and character of the respondent- assessee's business, every year expenditure has to be incurred to make and keep public informed, aware and remain in limelight. This requires continuous and repeated publicity and advertisements to remain in public eye, to do business by attracting customers. It is an expenditure of trading nature. The aforesaid aspect has been highlighted by the Delhi High Court in CIT v. Salora International Ltd. [2009] 308 ITR 199 (Delhi) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been taken by the Jurisdictional High Court in the case of Modi Revlon Pvt.ltd. (210 Taxman 161) wherein similar disallowance @50% of advertising expenses had been made by the AO. The Court held that so long as the expenditure was inextricably linked to business purposes, and the AO has not denied the same, the expenditure was in the revenue field. The relevant portion of the High Court order is extracted as under: "23. In the present case, the AO was conscious of the fact that brand promotion expenses are a necessary ingredient in marketing strategies. Therefore, he allowed about 50 per cent of those expenses. However, the reasoning for disallowance of the rest, i.e. that the assessee could claim only a proportion of such expenses, since advertising expenses 'were to be borne by the sister concern dealer, and that the proportion was in respect of its territory, was not upheld. This Court does not see any fallacy in the Tribunal's approach or reasoning, on this aspect. One is not unmindful of the concerns of a business which engages in sale of consumer items, and faces continuous competition. Brand promotion enhances the visibility of given products or services, and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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