2022 (11) TMI 380 - AT - Income Tax
Disallowance of Advertisement expenses u/s. 37 - primary reason for disallowance of advertisement expenses by the AO is that firstly, the assessee cannot be permitted to change its stand, wherein the original return, the assessee had treated the aforesaid expenses as capital work in progress and secondly, since the advertisement expenses were almost 4 times the turnover of the assessee in the first year of operations, the same are capital in nature - HELD THAT:- Various Courts and tribunals have consistently taken the position that advertisement/brand building expenditures are revenue nature and further there is no concept of deferment of revenue expenditure in the Income Tax Act. In the case of Salora International Limited [2008 (8) TMI 138 - DELHI HIGH COURT] the assessee claimed deduction of advertising expenditure of approximately Rs. 3.08 crores. According to the Assessing Officer, the expenditure was incurred for launching of its products.
AO was of the view that such expenditure was of an enduring nature and, therefore, treated one-third as 'capital expenditure' and only allowed the two-thirds of the said amount as 'expenditure to the assessee'. The Tribunal held that there was a direct nexus between the advertising expenditure and the business of the assessee and that the assessee had to incur such expenditure to meet the competition in the Indian market for selling its products in India. It, therefore, allowed the assessee's claim. The High Court upheld the order of ITAT and held that advertisement expenditure for launching products is revenue expenditure.
We are of the considered view that CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal and holding that the advertisement expenditure claimed by the assessee as revenue expenditure in the revised return of income is, allowable in the instant set of facts. Appeal of the Department is dismissed.