Case Note & Summary
The present appeal was filed by the Revenue (DY CIT - C C - 1 BARODA) against the respondent-assessee (RINKI PETROCHEMICALS & IND LTD) challenging the order of the Income Tax Appellate Tribunal (ITAT). The appeal was admitted on a substantial question of law framed on 02.02.2010: whether the ITAT was correct in holding that advertisement expenses of Rs.5,01,60,994/- were revenue expenses and not capital expenses, despite the assessee having treated them as deferred revenue expenditure in its books of account. The appeal was linked to Tax Appeal No.693 of 2007, which was dismissed on 15.04.2015 for non-prosecution, but the question of law was kept open. At the hearing, the respondent's counsel submitted that the issue was already settled by the Supreme Court in Taparia Tools Ltd. Vs. Joint Commissioner of Income-tax, [2015] 372 ITR 605 (SC) and by the Gujarat High Court in Principal Commissioner of Income-tax-1 Vs. M/s. Adani Retail Ltd. (Tax Appeal No.876 of 2015, decided on 30.11.2015). The Revenue's counsel did not dispute this position. Consequently, the court held that the substantial question of law is answered in favor of the assessee and against the Revenue, and dismissed the appeal.
Headnote
A) Income Tax - Advertisement Expenses - Revenue vs. Capital Expenditure - Classification of Advertisement Expenses - The issue was whether advertisement expenses of Rs.5,01,60,994/- treated as deferred revenue expenditure in books of account should be classified as revenue or capital expenditure - The court held that the issue is covered by the Supreme Court judgment in Taparia Tools Ltd. Vs. Joint Commissioner of Income-tax, [2015] 372 ITR 605 (SC) and the Coordinate Bench decision in Principal Commissioner of Income-tax-1 Vs. M/s. Adani Retail Ltd. - Held that advertisement expenses are revenue expenses (Paras 1-6).
Issue of Consideration
Whether the ITAT was right in law and facts in holding that advertisement expenses are revenue expenses and not capital expenses though the assessee had treated and claimed the said expenditure of Rs.5,01,60,994/- as a deferred revenue expenditure in books of account?
Final Decision
Appeal dismissed. Substantial question of law answered in favor of the assessee and against the Revenue.
Law Points
- Advertisement expenses are revenue expenses
- not capital expenses
- even if treated as deferred revenue expenditure in books of account
