Tata Teleservices Limited Vs ACIT (ITAT Delhi)
ITAT Delhi: ₹169 Cr Customer Acquisition Cost Allowed as Revenue Expenditure – No Enduring Benefit in Routine Telecom Business
Facts in Brief
Tata Teleservices Ltd. filed its return declaring a loss of ₹324.29 crore. The AO, while completing assessment u/s 143(3), disallowed Customer Acquisition Cost (CAC) of ₹169.09 crore, treating it as capital expenditure incurred for creating an enduring benefit by enlarging the customer base. The expenditure included porting charges, data entry costs, & handset subsidies paid to distributors for selling handsets below cost.
CIT(A) upheld the disallowance, holding the customer base to be an intangible asset eligible for depreciation u/s 32(1)(ii), following ITAT Hyderabad’s decision in SKS Micro Finance Ltd.
Assessee’s Arguments
- CAC was incurred in the ordinary course of business & did not create any enduring benefit.
- The expenditure was recurring, unlike one-time acquisitions in India Capital Markets (P) Ltd. or SKS Micro Finance Ltd., where customer bases were acquired via slump sales.
- Relied on Empire Jute Co. Ltd. (SC), SBI Cards & Payments (P) Ltd. (Del HC), & IndianVisit.com (P) Ltd. (Del HC), holding that such expenses are revenue in nature.
- Even if capitalized, it was a loss year—so no revenue loss would result, citing Excel Industries Ltd. (SC).
Tribunal’s Findings/ Decision
- The CAC was recurring & routine, not a one-time purchase of a customer base; therefore, precedents relied on by AO/CIT(A) were inapplicable.
- The genuineness of expenditure was never questioned.
- AO’s view was contradictory—he treated handset subsidies as capital but simultaneously taxed handset sales as revenue receipts.
- Applying the principle of “enduring benefit” pragmatically (Empire Jute Co. Ltd., SBI Cards), ITAT held that the CAC provided only short-term business advantage, not acquisition of an asset or right.
- The disallowance of ₹169.09 crore was deleted. The CAC was held to be revenue expenditure allowable u/s 37(1).
Key Takeaway
