Advertisement expense towards creation of brand image is revenue in nature

ACIT Vs Rosebys Interiors India Ltd (ITAT Ahmedabad)

ITAT Ahmedabad held that advertisement expenses incurred at the time of installation of additional machinery in the existing line of business resulted in any enduring benefit is revenue expenditure. Further, advertisement expenses incurred to create brand image is revenue expenditure.

Facts- The assessee revised its return of income claiming advertising expenses to the tune of Rs. 21,28,55,537/-. During the course of assessment, AO observed that the said advertisement expenses were not debited to the profit and loss account by the assessee. Instead, as per the balance sheet of the assessee, the said advertising expenses have been accounted as “capital work in progress (brand building expenditure)”.

In response to show cause notice issued by AO, the assessee submitted that the assessee had capitalised the above expenditure in the books of account, but since the expenditure was purely in the nature of revenue, the assessee claimed these expenses in the (revised) return of income as revenue expenditure. However, AO did not accept the assessee’s contention and disallowed the above advertisement expenses claimed by the assessee by way of filing revised return of income.

CIT(A) allowed the assessee’s appeal. Being aggrieved, revenue has preferred the present appeal.

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