Expenditure incurred on ad, sales promotion by e-commerce cos is revenue expense: ITAT

Shishir Sinha | | Updated on: Dec 16, 2021

Experts claim this ruling in the Snapdeal case benefits many e-com cos facing litigation.

Expenditure incurred on promotion for brand 'Snapdeal' is purely revenue in nature, Delhi Bench of Income Tax Appellate Tribunal (ITAT) has said. Experts say the ruling will be a huge relief to e-commerce operators facing litigation on the same issue by treating advertisement expenses as revenue.

The assessee is a web-based platform of ‘Snapdeal’, which treats vendors and customers for online purchase of goods. The assessee has incurred expenditure on advertising, sales promotion and publicity, claiming it to be revenue expenditure. In contrast, the Assessing Officer held that half of such spending is capital expenditure as it has helped the assessee maintain and create a ‘Snapdeal’ brand.

However, on appeal before the Commissioner of Income Tax (Appeals), he held that the above expenditure could not be said to be a capital expenditure. He relied upon the several judicial precedents had that the incurring of advertisement, publicity and sales promotion expenditure is wholly necessitated for business purpose, though enduring in the long term cannot be held to be of capital expenditure. Therefore, he deleted the above addition. Aggrieved by this, Income Tax Department moved to ITAT.

After hearing all the arguments and going through the facts placed on record, ITAT said that there was nothing in the Income-tax Act; nor was there any material on record suggestive of the fact that the assessee could not claim these expenses as revenue expenditure. “The fact remained that as assessee is operating in online marketing business as aggregator which is a highly competent consumer market the assessee had to stay ahead of its competition and thus engage itself in brand promotional activities and has necessarily to incur these expenses,” it said.

The bench noted that no evidence was placed on record to show that the assessee has created any intangible asset, and even after the details of expenses are placed before the Assessing Officer, he held that ad-hoc percentage of certain expenditures are capital expenditure without pointing out that which nature of cost has resulted into creating an intangible asset. Accordingly, “we find that the expenditure incurred by the assessee are purely revenue in nature and cannot be considered as capital expenditure,” the bench said while dismissing all the grounds in appeal by the Assessing Officer

Om Rajpurohit, Director (Corporate & International Tax) with AMRG & Associates, feels the ruling will be a huge relief to Snapdeal and other e-commerce operators who are facing litigation on the same issue by treating advertisement expenses as revenue in nature. These companies are holding that, given the competitiveness of the market, it is necessary to incur advertisement expenses and that, because no intangible assets are being created, they cannot be treated as capital expenditure.

Published on December 16, 2021
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