TMI Blog2022 (8) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the Revenue is rejected. - I.T.A No. 6295/Del/2018 - - - Dated:- 29-8-2022 - Shri G. S. Pannu, President And Shri Challa Nagendra Prasad, Judicial Member For the Assessee : Shri Mukesh Gupta, C. A.; And Ms. Neha Gupta, C. A.; For the Department : Ms. Garima Sharma, Sr. D. R.; ORDER PER C. N. PRASAD, J. M. : 1. This appeal filed by the Revenue is against the order of the ld. Commissioner of Income Tax (Appeals)-6 [hereinafter referred to as CIT (Appeals)] New Delhi, dated 30.07.2018 for the assessment year 2015-16. 2. The Revenue In its appeal challenged the order of the ld. CIT (Appeals) in deleting the disallowance made by the Assessing Officer in respect of advertisement and business promotion expenses while completing the assessment treating the said expenditure as capital in nature. 3. Brief facts are that the assessee company, which is engaged in the business in connection with development and maintenance of electronic/digital portal dedicated to real estate properties, filed its return of income on 28.09.2015 declaring loss of Rs.15,27,98,527/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Website by itself is not a product or service that assessee is selling or marketing. It is selling various services through or on this website such as advertisement banner, various classified advertisement about the sale of renting of individual properties or projects. With a view to achieve and grow its revenue targets, assessee has to resort to advertisement to disseminate the information about such services rendered by the assessee through the use of its website. Since doing business through online portal is relatively a new concept in business in India, assessee needs to advertise and undertake country wide advertisement campaign to continuously remind the customer and be present first in various searches conducted by the customer online is the pre-requisite of attracting business through the online portal. Contrary to the traditional sale of product, sale of services, in this format of business through web portal requires a 360 degree reach and knock to a customer which was a business compulsion for the assessee company to undertake the media campaigns to disseminate the information about its services. These expenses are revenue in nature as no enduring benefit is derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d publicity becomes capital in nature as it is leading to creation of intangible assets being goodwill, reputation and creditability. Therefore, the Assessing Officer held that the expenses incurred by the assessee under the head Advertisement and Business Promotion are capital in nature. The Assessing Officer, however, treated Rs.10,38,23,660/- being 50% of the expenditure on account of advertisement and business promotion of Rs.20,76,47,319/- as capital by assuming that in only 50% of the cases expenditure on advertisement and business promotion generated business within the relevant assessment year are in the capital field. 6. On appeal the ld. CIT (Appeals) placing reliance on the decision of the Hon ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT (124 ITR 1) and various other decisions of Hon ble Delhi High Court deleted the disallowance holding that the expenditure incurred by the assessee on advertisement and business promotion is fully necessitated for business purposes and it is advantage though enduring in long term cannot be termed as being in the capital field. 7. Before us the ld. DR strongly supported the order of the Assessing Officer. The ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by selling entity wherein RK Swamy BBDO advertising agency to launched a high-pressure Marketing campaign with three TV commercials (Vulture Vision (Giddh ki Aankh) , Local Bond and Mighty Hudumba ) extending to radio, digital and several other mediums. (Source : information openly available on: prnewswire.comf. Further new and noble advertisement by working in tandem and communicating the proposition of Property Sahi, Milegi Yahin and these commercials build on the premise that Magicbricks helps you take the right decision at every stage of the buying cycle. While the first commercial stressed on the need for choice, the second and third ads drive home the point that Magicbricks provides much more than just listings relevant locality information, going rates and price trends give the buyer the power of knowledge that helps him negotiate the best possible deal before agreeing to one s lifetime extremely expensive commitment. Thus catering to the young urban and semi urban customers. 10. The assessee is operating in a highly competitive consumer market, thus to stay ahead of its competition it engaged itself in aggressive advertisement and promotional activities which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advertising in case of online business especially in India. 13. Heard rival submissions perused the orders of the authorities below. The Assessee company was incorporated on 19.08.2013, no business was conducted since incorporation till February, 2015. The Magicbricks portal was founded in 2006 and was hosted by Times Business Solutions Ltd. till 31.03.2013. That w.e.f 01.04.2013, Times Business Solution Ltd. got amalgamated with Times Internet Ltd. In February 2015, running business of a property portal in the name of MagicBricks.com was acquired through slump sale from Times Internet Limited (holding company) as part of the restructure of business. Therefore the instant year was the first year of active operations post slump sales of business. 14. The assessee is hosting a website magicbrick.com . The website mainly sell its webspace for advertisement to various real-estate promotors to showcase their projects and retail properties for sale at the same time making efforts to promote its website amongst the buyers and customers to visit the website for their real estate buying need. Assessee provides web-based platform, brings together various property buyers and sellers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred by the assessee towards advertisement and business promotion are not in the nature of capital, observing as under:- 4.1.2 I have considered the assessment order and the submissions of the appellant. Considering the fact that there is huge competition in the said business, it was entirely necessary on the part of the appellant company to incur expenditure on promoting the brand to be able to not only retain customers, but also to attract more customers and expand its outreach. 4.1.3 The issue is 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 has been discussed by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT [(1980) 124 ITR 1(SC)]. The court held that expenditure, even if incurred for obtaining a benefit for an indefinite future, may still be on revenue account and the test of enduring benefit may not work in all situations. According to the Supreme Court, what is material to consider in such situation is the nature of the advantage in the commercial sense and if the advantage is in the capital field, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which engages in sale of consumer items, and faces continuous competition. Brand promotion enhances the visibility of given products or services, and are often perceived as conferring a competitive advantage on those who adopt those strategies or schemes. Expenditure towards that end is based on pure commercial expediency, which the revenue in this case, ought to have recognised, and allowed. The revenue's arguments on this point too are insubstantial. 4.1.6 Keeping in view the facts of the 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. It is also noted that though it has been held that a benefit of enduring nature has been created by the advertising, the AO has not categorized the category of benefit created and at the same time held that the benefit created is not depreciable. The disallowance made by the AO is thus directed to be deleted. Grounds of appeal Nos. 1, 2 and 2.1 are allowed. 19. We also further notice that almo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in nature and cannot be considered as capital expenditure. The Id. Assessing Officer also did not bring on record any evidence to prove his findings. In view of this, all the grounds raised in appeal by the ld. Assessing Officer are dismissed. 20. In the case of CIT Vs. Citi Financial Consumer Fin. Ltd. (335 ITR 29) the Hon ble Delhi High Court on analyzing various decisions including the decision of the Hon ble Supreme Court in the case of Empire Jute Company Vs. CIT (124 ITR page 1) held as under:- 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 is incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee s trading operations. No fixed capital was created by this expenditure. We may also add here that in the income-tax law, there is no concept of deferred revenue 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 expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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