Promotional expenses incurred by cosmetic company on Testers, and merchant display which were supplied free of cost to the retailers are revenue in nature

ITO Vs. M/s Elka Cosmetic Pvt. Ltd. (ITAT Delhi)- The issue is whether the promotional expenses incurred by a company engaged in business of cosmetics on ‘Testers’, and ‘merchant display’ which were supplied free of cost to the retailers are capital in nature merely because it also promotes goodwill of the company. It was held that  nature of expenditure incurred in the assessee’s line of business is absolutely essential for the day to day conduct of the business of the assessee-company and the same is allowable as revenue expenditure.

DELHI INCOME TAX APPELLATE TRIBUNAL

I.T.A. No. 4704 /Del/2010

Assessment year: 2006- 07

ITO Vs. M/s Elka Cosmetic Pvt. Ltd.,

ORDER

PER A.K. GARODIA, AM:

This is revenue’s appeal directed against the order of Ld CIT(a)- XIII, New Delhi dated 20.8.2010 for assessment year 2006-07.

2. Ground No.1 is general. Ground No.2 of the appeal is as under:-

“2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the dis allowance of expenses on account of cost of testers & merchant displays amounting to Rs. 7,28,699/- & Rs.15,216,720/- respectively.

a) ignoring that the facts of the case law of CIT v. Salora International Ltd. 308 ITR  199 as relied upon by CIT(A) are different as in the said case the payments of professional fee tothe consultants were in the picture, which is not at all in this case.