Law: Income Tax Act, 1961

Section: 271(1)(c)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Advertisement expenses) - Assessment year 2009-10 - Assessee, engaged in service of trading of mobile handsets and its accessories, had incurred certain expenditure on advertisement - Assessing Officer treated said expenditure as deferred revenue expenditure and allowed only 25 per cent of expenses in relevant assessment year - Whether keeping in view nature and character of assessee's business, every year expenditure had to be incurred on advertisement to make and keep public informed, aware and remain in limelight and, hence, expenditure incurred by assessee was allowable as revenue expenditure - Held, yes [Para 4][In favour of assessee] FACTS â–  The assessee, engaged in trading of mobile handsets, its accessories and mobile repairing had incurred certain expenditure on advertisement and claimed same as revenue expenditure. â–  The Assessing Officer treated said expenditure as deferred revenue expenditure and allowed 25 per cent of expenses in current year observing that balance would be allowed in next three years. â–  On appeal, the Commissioner (Appeals) allowed entire expenditure as revenue expenditure. â–  The Tribunal upheld the order of the Commissioner (Appeals). â–  On revenue's appeal to the High Court: HELD â–  The Delhi High Court in CIT v. Pepsico India Cold Drink Ltd. [2012] 207 Taxman 5/21 taxmann.com 165 examined the of the Supreme Court in Madras Industrial Investment Corpn. v. CIT [1997] 225 ITR 802/91 Taxman 340 and observed that the assessee is entitled to claim deferred revenue expenditure but the Assessing Officer cannot treat the revenue expenditure as deferred revenue expenditure. The reason is that the Act itself does not have any concept of deferred revenue expenditure. Even otherwise, there are number of decisions that the advertisement expenditure normally is and should be treated as revenue in nature because advertisements do not have long lasting effect and once the advertisements stop, the effect thereof on the general public and customers diminishes and vanishes soon thereafter. Advertisements do not leave a long…

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