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TMI Blog2024 (6) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the impugned expenditure will give enduring benefits to the assessee and hence is not of revenue character. We endorse the finding of the Ld. CIT(A) that the expenditure on account of corporate advertisement is to essentially maintain the corporate image and not create a corporate image. These were incurred for enhancing sales, earning profit and facilitating operation of the assessee s business. This is amply demonstrated by the enormous increase in sales during the year as compared to the preceding year. In Pepsico India Holdings (P.) Ltd. [ 2012 (6) TMI 256 - DELHI HIGH COURT] held that the expenditure incurred on neon signs and a glow signs qualifies for deduction u/s 37(1) of the Act. No contrary decision has been brought to our notice. We therefore concur with the findings of the Ld. CIT(A) and consequently reject ground No. 2 of the Revenue. Disallowance on account of Service Centre expenses - case of the assessee has been that warranty is an integral part of the sales price of the value of product - HELD THAT:- As provision for warranty is made in the year in which the goods are sold on the basis of past experience. The moment there is a sale, automatically an obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. In response thereto, details along with supporting evidence were submitted during assessment proceedings which were examined by the Ld. Assessing Officer (AO) on test check basis. 3.1 The Ld. AO found that the assessee had debited provision of warranty of Rs. 1,15,40,748/- to P L account. He disallowed the same u/s 37(1) of the Income Tax Act, 1961 (the Act ) saying that it is a liability which is contingent in nature and added the same to the income of the assessee. 3.2 The Ld. AO further found that the assessee has claimed Advertisement and Sales Promotion expenses of Rs. 61,24,28,282/- in P L account. This included expenditure of Rs. 4,28,37,266/- given to Actor Hritik Roshan and Actor Sonam Kapoor. He disallowed 75% thereof amounting to Rs. 3,21,27,950/- and added the same to the income of the assessee saying that it is capital expenditure incurred towards intangible asset i.e. brand building. He gave the following reasoning: The assessee is in the business of trading in mobile and accessories with the brand name OPPO and very new in India. The assessee has hired Actor Hritik Roshan and Actor Sonam Kapoor for advertisement of its brand. The assessee has been promoting its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and copy of ledger vide letter dated 06.12.2017. 4.5. During the year under consideration, artists promoted products and their features some of the products name are OPPO Mobile- FIND 7, FI, F1S, NI, NI Mini, JOY, YOYO. NEC) 3 and F1S Diwali edition Artists promoted OPPO Mobiles products through Launch event appearance, prints shoots, TVG Shoots and Digital video shoots. 4.6 The AO had taken a view that the assessee has been promoting its brand name only instead of products. The expenditure incurred by the assessee is only for building its brand which will give enduring benefits to assessee and disallowed 75% of Rs 4,28,37,266/- as capital expenditure incurred toward intangible assets i.e. brand building or in nature of deferred expenditure - allowable over a period of time. 4.7 The appellant submitted that the AO is incorrect in holding that assessee has been promoting its brand name only instead of products and the expenditure incurred will be considered as deferred revenue expenditure or capital expenditure because in so far as the Income-tax Act is concerned, there is no provision under the Act to say that the revenue expenditure is deferred revenue expenditure. 4.8 From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integral part of the profit-earning process and not for an acquisition of an asset or a right of the permanent character, the possession of which is condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure 4.11. Thus, from the facts of the case, it is not that these expenses incurred by the assessee has resulted in any kind of addition or augmentation of any profit-making asset. In the result, the ground taken by the appellant is allowed. 4.1 The Ld. CIT(A) considered the issue of disallowance of Rs. 6,69,29,143/- on account of Advertisement and Sales Promotion expenses in para 5 of the appellate order. He ruled in favour of the assessee by recording the following findings: 5.2 I have carefully considered the assessment order and written submission filed by the Ld AR. During the impugned year, the appellant incurred advertisement and business promotion expenses which were incurred for facilitating appellant's operation of providing mobile trading and services. 5.3 The AO held that the assessee has incurred advertisement expenses on big glow sign board displaying the advertisement of OPPO which means the Brand name is being advertised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the principles laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. 5.8. In CIT VS Spice Distribution Ltd (2015) 374 ITR 0030 (Delhi HC) - Business expenditure - Advertisement expenditure Whether deferred revenue expenditure. -- Assessee was engaged in the service of trading of mobile handsets, its accessories and mobile repairing. For the purpose of business, it had incurred expenditure on advertisement. AO treated said expenditure as deferred revenue expenditure and 25% of the said amount was allowed in the year, observing that balance amount would be allowed in next three years. CIT(A) allowed assessee's appeal which was upheld by Tribunal. Held: IT Act does not have any concept of deferred revenue expenditure. There are a number of decisions that advertisement expenditure normally is and should be treated as revenue expenditure. Keeping in view nature and character of assessee's business, every year expenditure has to be incurred to make and keep public informed, aware and remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect nexus with its business, and by putting neon signs and glow signs, no assets of permanent nature was created, it was on allowable business expenditure Held, yes. 5.11. Further, the test of enduring benefit applied by the AO was considered by the Apex Court in Empire Jute Co. Ltd. v. CIT (1980) 124 (TR 1 to hold that it is not a conclusive test in all cases so that such expenditure is always on capital account. The Court observed that what is to be examined is the nature of advantage obtained in the commercial sense by incurring the expenditure. If the expenditure consists of merely facilitating the assessee to carry on business more profitably leaving the fixed capital untouched, it would be on revenue account. The entire expenditure, the Court observed, has to be looked at from a businessman's point of view. In the present facts, the expenditure on account of corporate advertisement is to essentially maintain the corporate image and not create a corporate image. Further, the impugned order holds on facts that the corporate advertisement expenditure, facilitates the business having a direct impact on sales and profitability of the appellant. 4.2 The disallowance of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. 8.7 In subsequent assessment year, actual claim of Rs. 77,77,420/- instead of charging to profit loss A/c is set off against the provision for warranty of Rs. 1,15,40,748/- and excess provision is offered for tax ie. Rs. 37,63,328/-. 8.8 The appellant relied on the case of M/s Rotork Controls India (P) Ltd. v. CIT. [2009] 180 TAXMAN 422 (SC). the apex court held that a provision is a liability which can be measured only by using a substantial degree of estimation. 8.9 In this regard the Hon'ble, Delhi ITAT in the case of M/s. Rohde Schwarz India (P) Ltd. for A. Y. 2007-08 2008-09 has decided the issue in favour of the appellant, the relevant part of the order is extracted as under: Hon'ble Apex Court in judgment cited as Rotork Control India P. Ltd. vs. CIT (2009) 314 ITR 62 settled the issue once for all by holding as under: The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or functioning, unique style etc. and no enduring benefits arose to the assessee. In fact, the expenditure is integral part of the profit earning process and is being incurred on account of commercial expediency. It is of revenue nature. In support, the decision of Hon ble Supreme Court in Empire Jute Co. Ltd. (supra), decision of Calcutta High Court in CIT vs. Berger Paints (India) Ltd. 254 ITR 503 and decision of Delhi Tribunal in Sony India Pvt. Ltd. vs. DCIT 114 ITD 448 (Del) and many more including the decision of Hon ble Delhi High Court in CIT vs. Modi Revlon Private Limited (ITA No. 825/2011) and in CIT vs. Adidas India Marketing (P) Ltd. 195 Taxman 256 (Del) were cited. 7.1 As to the disallowance of Rs. 6,69,29,143/- made by the Ld. AO on account of Advertisement and Sales Promotion expenses, the Ld. AR refuted the argument of the Ld. AO and submitted that audited books of account and details were produced before the Ld. AO. But he could not point out any specific expenditure made for acquiring business assets which could give enduring benefit. The assessee incurred these expenses for enhancing sales, earning profits and facilitating operation of mobile trading and related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of Advertisement and Sales Promotion expenses made by the Ld. AO, we are not inclined to agree with the view of the Ld. AO that the impugned expenditure will give enduring benefits to the assessee and hence is not of revenue character. We endorse the finding of the Ld. CIT(A) that the expenditure on account of corporate advertisement is to essentially maintain the corporate image and not create a corporate image. These were incurred for enhancing sales, earning profit and facilitating operation of the assessee s business. This is amply demonstrated by the enormous increase in sales during the year as compared to the preceding year. In Pepsico India Holdings (P.) Ltd. (supra), the Hon ble Delhi High Court held that the expenditure incurred on neon signs and a glow signs qualifies for deduction u/s 37(1) of the Act. No contrary decision has been brought to our notice. We therefore concur with the findings of the Ld. CIT(A) and consequently reject ground No. 2 of the Revenue. 10. Coming to the disallowance of Rs. 1,15,40,748/- made by the Ld. AO on account of Service Centre expenses, it may be stated that the assessee had charged provision for warranty of the said amount to P L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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