Business expenditure – Section 37 – A. Y. 2009-10 – Business of selling mobile hand sets and other electronic items and accessories – Advertisement expenditure – Expenditure is revenue in nature – AO not justified in treating it as differed revenue expenditure

The assessee
was trading in mobile hand sets, other electronic items and accessories.
For the purpose of business it had incurred expenditure of Rs.11,51,40,004 on advertisement. The Assessing Officer treated the
expenditure as deffered revenue expenditure and allowed 25% thereof
observing that the balance amount would be allowed in the next three
years. The Tribunal allowed the full claim.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)
In the previous assessment year 2008-09 the Tribunal in the case of the
assessee allowed the advertisement expenditure as the expenditure of
revenue in nature. No information was available whether the Revenue has
preferred an appeal against the findings recorded by the Tribunal in the
assessee’s case for the A.Y. 2008-09. The reasoning given by the
Tribunal deserved affirmation.

ii) The Tribunal had rightly held
that the Assessing Officer could not treat the revenue expenditure as
deferred revenue expenditure because the Act itself does not have any
concept of differed revenue expenditure. Even otherwise, 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
customer would diminish and vanish soon thereafter. Advertisement
expense is a day-to-day expense incurred for running the business and
improving sales.

iii) Keeping in view the nature and character
of the assessee’s business, every year expenditure has to be incurred to
make and keep the public informed and remain in the limelight. It is an
expenditure of trading nature. Therefore, the order of the Tribunal did
not call for interference.”