ACIT Vs Snapdeal Ltd. (ITAT Delhi)
This case involves a dispute between the Indian Revenue Department and Snapdeal Ltd., an online marketplace company, regarding the tax treatment of specific expenses incurred by the company during the Assessment Year 2017-18. The key issue revolves around whether certain business promotion, advertisement, and publicity expenses can be considered capital expenditures or should be treated as revenue expenditures.
Facts of the Case
During the assessment proceedings, the Assessing Officer (AO) noted that Snapdeal Ltd. claimed expenses totaling Rs. 64,47,90,020 on account of advertisement and publicity (Rs. 43,05,45,4059) and business promotion (Rs. 21,42,44,6145). The AO questioned the nature of these expenses and whether they should be treated as capital expenditures, similar to the treatment in the company’s past history.
Arguments and Claims
Snapdeal Ltd. argued that these expenses were incurred for routine business operations and did not create any intangible assets or provide enduring benefits. Therefore, they should be treated as revenue expenditures. However, the AO disagreed and made a disallowance of 50% of the claimed expenses, amounting to Rs. 3,22,39,50,102, treating it as capital expenditure. This resulted in a total loss for Snapdeal Ltd. of Rs. 17,86,21,57,510.
Appellate Authorities’ Decisions
The company appealed the AO’s decision to the Commissioner of Income Tax Appeals (CIT A). The CIT A, after reviewing the submissions and findings of the AO, deleted the impugned disallowance. The CIT A agreed with Snapdeal Ltd.’s argument that the expenses were purely revenue in nature and necessary for business operations in a highly competitive market. Additionally, the CIT A followed the precedent set by another tribunal for the Assessment Year 2012-13, where similar disallowances made by the AO were deleted.
