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TMI Blog2009 (12) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,31,000 2,70,19,000 Total 10,77,32,000 8,73,19,000 In making the assessment for the assessment year 1999-2000, the Assessing Officer noticed that the total sales for the year were ₹ 58.91 crores against which the expenses incurred on advertisement and sales promotion aggregated to ₹ 10,77,32,000/- and for the immediately preceding year the expenditure amounted to ₹ 17.28 crores for sales of ₹ 61.16 crores. Based on these figures he took the view that the expenses were not incurred for promotion of sales only for the year, but they were incurred for building up the brands and hence have to be capitalized as intangible assets. He referred to the provisions of section 32(1)(ii) of the Income Tax Act as amended by the Finance (No.2) Act, 1998 with effect from 1.4.1999. According to the Assessing Officer such heavy expenditure on advertisement and sales promotion was incurred to propagate and build the brands owned by the assessee company and building up of brand identity and brand popularity was very important for a company to sustain its products in the market and to increase its market share. He equated brand value to goodwill and held that the tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sales promotion were considered and allowed by the Assessing Officer as revenue expenditure. In this view of the matter, the CIT(A) directed the Assessing Officer to allow the expenditure on advertisement and sales promotion as revenue expenditure. This order of the CIT(A) for the assessment year 1999-2000 was followed by him in the appeal for the assessment year 2001-02 also and thus the issue was decided in favour of the assessee in both the years. 5. It is against the aforesaid decision of the CIT(A) that the Revenue has preferred appeals to the Tribunal. The contention of the Revenue before us is that firstly the CIT(A) has not discussed the authorities cited by the Assessing Officer in the assessment order and thus the impugned orders are nonspeaking orders, and secondly, that the CIT(A) has failed to appreciate that for the years under consideration the sales have shown decline compared to the earlier years which indicates that the object of the assessee in incurring the expenditure was not to advertise or promote its products. Lastly, it is contended that the assessee was actually creating a brand in India and it was with this end in view that the expenditure was incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore there was no need for incurring any expenditure in building the above brands in India. These findings have not been disputed before us by the revenue. If that is so, the expenditure on advertisement and sales promotion must be held to have been incurred wholly and exclusively for the purpose of the assessee's business. Long years back, the Allahabad High Court considered the question of allowability of advertisement expenses in the case of Hindustan Commercial Bank Ltd., In Re (1952) 21 ITR 853. In this case, the expenditure on advertisement was incurred at the time when new branches of the bank were opened and inaugurated. There was thus a special advertisement campaign which was viewed by the revenue authorities as conferring an enduring benefit upon the assessee. This view was disapproved by the Allahabad High Court and repelling the contention of the revenue that the opening of new branches was an advantage for the enduring benefit of the bank and was in the nature of capital expenditure, the High Court held (page 363-364 of the report) that; "Every expenditure incurred by a business concern for the purpose of its business is bound to result in some benefits to its busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent expenses incurred by the assessee on a special advertisement campaign at the time of installation of additional machinery in the existing line of business did not result in any enduring benefit. It needs to be clarified that the aforesaid judgement of the Gujarat High Court was rendered after the matter was remanded to them by the Supreme Court in DCIT Vs. Core Healthcare Ltd. , (2008) 298 ITR 194. In CIT Vs. Berger Paints (supra) the Calcutta High Court held that "advertisement expenses are normally to be treated as revenue expenditure since the memory of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year". In CIT Vs. Geoffrey Manners & Co. Ltd.(supra), the assessee produced an advertisement film to promote its products. The expenditure was incurred for promotion of films, slides, advertisement etc. and was claimed as a deduction in computing its profits. The income tax authorities negatived the assessee's claim, but the Tribunal allowed the same. Approving the view taken by the Tribunal, the Hon'ble Bombay High court held that "the correct test to be applied in such a case would be, that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the facts of the present case. We find that in substance and effect the essence of the authorities cited in the assessment orders has been adverted to by the CIT(A). His orders cannot therefore be vulnerable to the charge that they are not speaking orders. With respect, we reject the contention of the learned CIT DR. 10. With regard to the question of reasonableness of the expenditure, the same is not in dispute before us. No argument was advanced on behalf of the department that even if the expenses are allowable as revenue expenditure, a part thereof should be disallowed as excessive or unreasonable. Nevertheless, we may refer to the chart filed on behalf of the assessee before us during the hearing from which we find that the assessee has been incurring the advertisement and sales promotion expenses since the assessment year 1996-97. In the three years commencing from this year, the percentage of the expenditure to the sales amounted to 28.07%, 26.70% and 27.93% and the expenditure have been allowed in the assessments made under section 143(3) of the Act as stated before us on behalf of the assessee. For the years under appeal before us, the percentage of the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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