DCIT Vs Mail Today Newspapers Pvt. Ltd (ITAT Delhi)
The issue under consideration is whether the CIT is correct in allowing expenditure on advertisement and sales promotion of product and brand promotion by considering it as Revenue in nature?
In the present case, the assessee company publishes ‘Mail Today’, an English Daily newspaper, and further displays its publication on ‘mailtoday.in’. It derives revenue from the sale of the said publications and advertisements published. The Assessing Officer rejected the claim of the on account of advertisement and sales promotions observing that the amount of advertisement and sales promotion incurred in the initial stage of business, (this being the fifth year of operations) by the assessee, is considered as capital in nature due to two reasons. He further held that the nature of these expenses is not depreciable and thus, disallowed the depreciation claim on this expense.
ITAT states that, the High Court, in the case of the assessee, already held that such claim is allowable under section 32 of the Income Tax Act. Thus, the issue involved in the present case is also identical. The advertisement and sales promotion expenses incurred by the assessee are merely for the purpose of publicity of trade name/brand name which results into enhancement of sales. Therefore, the CIT(A) was right in allowing the appeal of the assessee as the issue is already covered in earlier years. Hence, the appeal of the Revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the Revenue against the order dated 13/6/2017 passed by CIT(A)-37, New Delhi for Assessment Year 2013-14.
2. The grounds of appeal are as under:-
“1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of expenditure of Rs. 11,41,12,337/- incurred on advertisement and sales promotion of product, brand promotion, development of market and customer relations made by the Assessing Officer (the AO) being capital in nature, by ignoring a fact that the expenditure was incurred on development of various intangibles as defined under sub-clause (a), (f) and (I) of clause (ii) of Explanation below sub-section(2) of Section 92B of the Income Tax Act, 1961 (the Act)?
2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the disallowance of expenditure of Rs.11,41,12,337/- incurred on development of intangibles by overlooking provisions of Clause (II) of Explanation below sub-section (2) of Section 92B of the Act r.w.s 32(1)(ii) of the Act?”
3. The assessee company was incorporated on 09.05.2007. It publishes ‘Mail Today’, an English Daily newspaper and further displays its publication on ‘mailtoday.in’. It derives revenue from the sale of the said publications and advertisements published therein. Return declaring loss of Rs. 28,33,36,161/-was e-filed on 28.11.2013 by the assessee. The assessee claimed expenses of Rs. 11,41,12,337/- on account of advertisement and sales promotions. The Assessing Officer observed that the amount of advertisement and sales promotion incurred in the initial stage of business, (this being fifth year of operations) by the assessee, is considered as capital in nature due to two reasons. First it has been incurred in the initial stage of the commencement of the business of the assessee and secondly it is going to give enduring and long term benefits to the assessee. Therefore, the Assessing Officer held that the claim of Rs. 11,41,12,337/- on account of advertising and sales promotion expenses is treated as capital in nature. The Assessing Officer further held that the nature of these expenses is not depreciable and thus, disallowed the depreciation claim on this expense.
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.
5. The Ld. DR relied upon the Assessment Order and submitted that the Assessing Officer rightly disallowed the claim of the assessee as these expenses incurred in the initial stage of the commencement of the business of the assessee and it is going to give enduring and long term benefits to the assessee. Thus, it is capital in nature. The Ld. DR further submitted that the depreciation cannot be allowed in the present case as the same is not coming under the purview of specified intangibles. Thus, the Ld. DR submitted that the CIT(A) was not right in allowing the appeal of the assessee and the assessment order be upheld.
6. The Ld. AR submitted the chart showing brief history of advertisement and sales promotion expenses as claimed by the assessee and treatment accorded by Revenue as under:-
