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TMI Blog2024 (5) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the Ld. CIT(A) erred in deleting the disallowances made by the Assessing Officer of Rs. 3,22,39,50,102/- on account of Business Promotion Expenses Advertisement being capital in nature. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the above disallowances of expenditure which is towards brand building and thus a marketing intangible without considering the facts and circumstances of the case. 3. The appeal is late by 242 days. The Revenue has sought condonation of the delay vide application bearing F. No. ACIT/ Cir 22(2)/ Condonation/ 2022-23/ 1293 dated 10.02.2023. After hearing the Ld. Representative of the parties, we hereby condone the delay and proceed to decide the appeal of the Revenue. 4. Briefly stated, the assessee company is engaged in the business of working on market place model wherein the company owns and operates an online market place website namely, www.snapdeal.com ( website ) which brings together vendors (primarily for electronics, apparel, personal care and various other categories) and customers who want to avail these services or purchase these products. For AY 2017-18, it e-filed its return on 31.11.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value or little value in that market and its value change over the years as it makes an impression on the market (or perhaps loses its impact). A dominant market share may to some extent be attributable to marketing efforts of distributors. The value and any changes will depend to an extent on how effectively the trademark is promoted in the particular market. More fundamentally, in many cases higher returns derived from the sale of trademarked products may be due as much to the unique characteristics of the product or its high quality as to the success of advertising and other promotional expenditures. 4.3 The assessee spends money on advertisement and marketing Therefore, it is the efforts of assessee which has built a formidable marketing network in India. It has an assured Quality Control mechanism in place to ensure strict adherence to its laid down norms on products quality. This in brief itself, indicates the kind of efforts involved in creating Marketing Intangible without which the Company would not have been a market competitor in the segment. 3.5. The expenses incurred by the assessee are of Rs. 430,54,54,059/- (on account of advertisement marketing and business promoti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aparia Tools Ltd. vs. JCIT 126 Taxman 544 (Bom) (iii) Dalmia Jain Co. 81 ITR 754 (SC) (iv) Avery India Ltd. vs. CIT 199 ITR 745 (Cal) (v) M.K. Bros Pvt. Ltd. vs. CIT 86 ITR 38 (SC) Travancore Sugar and Chemical Ltd. vs. CIT 62 ITR 566 (SC) (vi) D.F. Woodrofe and Company Ltd. vs. CIT 102 ITR 665 (Mad) (vii) CIT vs. J.K. Synthetic Ltd. 309 ITR 371 (Del) 8. The Ld. AO considered 50% of the expenditure claimed as capital in nature. This resulted in disallowance of Rs. 322,39,50,102/-. The total loss was thus determined at Rs. 1786,21,57,510/- vide order dated 30.12.2019 under section 143(3) of the Income Tax Act, 1961 (the Act ) . 9. On appeal filed by the assessee, the Ld. CIT(A) deleted the impugned disallowance, after appreciating the submissions made by the assessee before the Ld. AO and recording his observation and finding in para 5.1.2 as under:- 5.1.2 In this regard, out of entire submission of the appellant reproduced in para no. 4 supra of this order, following points being relevant for adjudication of addition of Rs. 322,39,50,102 [as 50% of Total claim of Rs. 644,79,00,204] on account of disallowance of 50% of total claim of Business Promotion expenses (of Rs. 214,24,46,145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otion expenses are in the nature of various promotions run on assessee s website in the form of cash back and the other discount schemes offered to the customers to promote the product of seller. No adverse comments have been made by the Revenue on the above contentions. On the contrary, the Ld. AO himself observes in para 5.3 of his order that there is no dispute or doubt that advertising, marketing and business promotion expenses increases the awareness, popularity and visibility of Snapdeal brand and therefore, increased profit and revenues for the assessee. His only objection is that this benefit will flow to the assessee in long run and thus gave an enduring benefit. We do not agree. The nature of assessee s business involves operation in a highly competitive market. There is no likelihood of the advantages being enduring in nature. We are aware of the distinction between the emerging online market industry business and traditional businesses. In our humble opinion, no useful purpose will be served in setting aside the matter to the file of the Ld. AO as suggested by the Ld. CIT DR. 15. We have gone through the order of the Tribunal rendered on 10.11.2021 in Addl. CIT Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Flipkart, Amazon India etc. (these two companies along with the appellant are estimated to control 80% of the market) and many other players in limited fields of merchandising such as Big Basket, Grofers, etc. (in the area of groceries), Myntra, Jabong, Limeroad, Koovs, 99 labels etc. (clothing and accessories), lmg, Netmeds, Medplusmart etc (medicines). Hence, it is entirely necessary on the part of the appellant company to incur expenditure on promoting the business model and even the brands to be able to not only retain customers but also to attract more customers and expand its outreach. It is understood that the appellant has also hired Sh. Aamir Khan as its brand ambassador in the year 2015. In the past, Aamir Khan has been associated with brands like Coca Cola, Samsung, Godrej, Tata Sky and Titan watches. 3.4.4 Having discussed the nature of expenses, it is also necessary to now examine whether these expenses could be said to provide an enduring benefit to the appellant or whether these expenses create an intangible asset. The concept of enduring benefit was explained many years ago by Hon ble Supreme Court in Empire Jute Co. Ltd. (125 ITR 1). The court held that expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue 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 under section 37 of the Act it has to be allowed. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. [1997] 225 ITR 802 (SC), the expenditure can be allowed to be spread over, that too, when the assessee chooses to do so. (ii) Casio India Ltd. (335 ITR 196) 4. Challenging this order, the instant appeal is preferred by the, Revenue under section 260A of the Act. Having regard to the facts narrated above, we are of the opinion that no question of law arises in this case. According to the Revenue, the expenditure on account of advertisement and sales promotion is capital and not revenue in nature. Such an expenditure on account of advertisement and sales promotion is held by this court to be revenue in nature by answering this question in a batch of appeals with the lead case being I. T. A. No. 1820 of 2010 entitled CIT v. Citi Financial Consumer Fin. Ltd. [2011] 335 ITR 29 (Delhi) (decided on March 30, 2011). It was held that the expenditure on advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and reasons to hold that the expenditure was capital in nature. The reason is that the advertisements do not have a lasting and long term effect and the memory of the customers or targeted audience is short lived. The advertisements fade away and do not have an enduring impact. If there is a lack of advertisement by one, the vacuum and space is taken over by others with benefit and advantage to the detriment of the first. Reference can be made to CIT i/. Salora International Ltd. [2009] 308 ITR 199 (Delhi) and the subsequent decision in ITA No.597/2014 titled CIT v. Spice Distribution Ltd. decided on 19th September, 2014. 3.4.6 As discussed in para 3.4.4 it may also be noted that the presumption drawn by the AO regarding the building of a brand image has also not been approved by the courts, which have held that in a competitive environment, it would be difficult to assess the period of benefit derived from such advertisement and to ascertain whether any 'brand name' was created. I may in this regard cite the decisions of the Punjab and Haryana High Court in the case of Liberty group marketing division (315 ITR 125), the Bombay High Court in the case of Geoffrey Manner a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and the judicial precedents narrated above, the conclusion is that the benefit resulting from the advertisement, publicity and sales promotion is wholly necessitated for business purposes and its advantage, though enduring in the long term, cannot be termed as being in the capital field. The disallowance made by the AO is thus directed to be deleted. Ground no. 2 is allowed. 9. We also find that the ld. CIT (Appeals) considered in allowing the claim of the assessee on 4 decisions of the Hon ble High Courts. Further the ld. CIT (Appeals) followed the decision of the Hon ble jurisdictional High Court in the case of Modi Revlon Pvt. Ltd. 210 Taxman 161 [2012] 26 taxmann.com 133 (Delhi). There was nothing in the Income-tax Act; nor was there any material on record suggestive of the fact that the assessee could not claim these expenses as revenue expenditure. The fact remained that as assessee is operating in online marketing business as aggregator which is a highly competent consumer market the assessee had to stay ahead of its competition and thus engage itself in brand promotional activities and has necessarily to incur these expenses. The ld AO Having accepted the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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