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.”