HARPARSHAD AND COMPANY PVT. LTD.,NEW DELHI vs. ADDL. CIT, SPECIAL BENCH-4, NEW DELHI

The present appeal has been filed by the assessee against the order of the ld CIT(A)-35, New Delhi dated 01.09.2017.

The assessee has raised the following grounds of appeal:- “1.1 That the learned CIT(A) has erred in law and on facts of the case in sustaining the action of the Assessing Officer in treating brand promotion expenses as capital expenditure in spite of the fact that the expenditure incurred on brand promotion is clearly in the revenue field being in the nature of advertisement and publicity. 1.2 That the learned CIT(A) erred in not appreciating the fact that an expenditure of revenue nature cannot be treated as a capital expenditure unless the same is incurred for acquiring a capital asset. In this case, the appellant incurred revenue expenses in order to advertise and publicize its brand with a view to enhance its visibility and exploitation for the purpose of earning higher royalty income.

The assessee is the owner of Brand “Escorts” since 1954. The assessee company has allowed M/s Escorts Ltd. to use this brand name for the purpose of marketing their products and in turn ‘royalty’ is received from M/s Escorts Ltd. The gross royalty income earned during the year is Rs.21.32 crores. During the year under consideration, the assessee has incurred the brand promotion expenses of Rs.1.92 crores to stimulate the awareness of the brand name to boost value as the same was a source of income for the assessee. The expenditure incurred for the brand promotion is directly attributable to the source of income of the assessee. The expenditure is incurred for the commercial expediency and is allowable under the provisions of Section 37 of the Income Tax Act, 1961. We find that the assessee earned the amount continuously for the last few years and spending of 1% of the royalty amount for brand promotion cannot be said to be excessive or volitional.

The issue of allowability of the brand expenses has been examined in detail by this Tribunal in the case of the assessee for the A.Ys. 2011-12 and 2012-13 in & 1129/Del/2017 vide order dated 14.10.2019 and allowed the expenses incurred by the assessee. In the absence of any change in the material facts and legal proposition, we decline to interfere with the order of the ld. CIT(A).

During the year, the assessee received an amount of Rs.1.1 crore from the investments made in shares of M/s Escorts Ltd. and one dividend warrant has been issued which has been encashed in the Axis Bank. The assessee has not incurred any interest income nor made any fresh investments nor sold any existing investments. The assessee suo moto disallowed an amount of Rs.50,000/- on this account. Since, it is encashment of only one dividend warrant, we, without any hesitation, hold that the disallowance made by the assessee of Rs.50,000/- would suffice for disallowance u/s 14A.

In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 14/02/2023.