Brief of the Case
ITAT Delhi held In the case of DCIT vs. M/s. Spice Retail Ltd. that the expenditure incurred by the assessee on advertisement has been treated as revenue in nature. It is not open for the AO to treat an expenditure as party revenue in nature and balance 25% as deferred revenue expenditure. The whole expenditure is allowable in the year in which it was incurred.
Facts of the Case
The assessee is engaged in the business of retail trading of mobile handsets and other electronic items and their accessories and also carrying repair works. For the year under consideration, the assessee declared loss of Rs.38.42 crores whereas AO computed the loss at Rs.38.22 crores by disallowing on account of 25% of advertisement and marketing expenses amounting Rs. 13,60,184 and Training and recruitment charge treated as capital expenditure amounting Rs. 6,60,826.
Contention of the Assessee
The ld counsel of the assessee submitted before CIT (A) that During the year under consideration, it incurred an aggregate expenditure of Rs.52,24,737/- on account of advertisement and marketing expenditure consisting of expenses on customer incentive scheme of Rs.10,41,617/- and display through carry bags of Rs.41,83,120/- and details of expenditure were submitted before the AO. It was contended that it pertains to brand building and it does not give the assessee any enduring benefit. It was therefore, contended that the entire expenditure is allowable as revenue in nature.
With regard to recruitment and training expenditure, the ld counsel of the assessee submitted that the case of the AO is that the assessee gets benefit of enduring nature as it enhances the manpower capital of the assessee. The assessee relied upon several case law, apart from the facts on record, to submit that under no stretch of imagination the expenditure incurred on recruitment and training can be said to have given the assessee benefit of enduring nature.
Alternatively, the ld counsel of the assessee submitted that in the event of treating these expenditure as capital in nature, then assessee should be allowed benefit of depreciation @ 25%.
Contention of the Revenue
The ld counsel of the revenue submitted that the advertisement expenditure and recruitment and training expenditure gives the assessee enduring benefit and hence, these need to be treated the same as capital in nature.
Held by CIT (A)
CIT (A) allowed the assessee’s appeal. CIT (A) observed that the facts in the instant case are identical to the facts in the case of assessee itself for the preceding year i.e. Assessment Year 2008-09 and for the reasons given therein, he concluded that even balance 25% of expenditure is also allowable as revenue in nature in the year under consideration and also recruitment and training expenditure is revenue in character and is allowable as deduction in its entirety in the 1st year.
Held by ITAT
In assessee’s own case for the Assessment Year 2008-09 I.T.A.No.5660/Del/2011 and C.O. No.42/Del/2011 dated 30.08.2013, the identical issue was decided in favour of the assessee. It was held that disallowance of 25% of advertisement expenditure is not in accordance with law and expenditure on recruitment and training deserve to be treated as revenue in nature.
Also under identical facts and circumstances, Hon’ble Delhi High Court in the case of of City Financial Ltd. 20 Taxman.com 462, Spice Communications Lt. 35 SOT 78, Pepsi co India Holdings (P) Ltd. 21 Taxman.com 165 held that the expenditure incurred by the assessee on advertisement having been treated partly as revenue in nature, balance 25% should not have been treated as deferred revenue expenditure and it is allowable in the year in which it was incurred.
Following assessee’s own case and high court judgment, it is clear that the assessee is allowed to claim full advertisement and recruitment & training expenses in the year of expenditure itself.
Accordingly, appeal of the assessee allowed.