DY COMMISSIONER OF INCOME TAX, CIRCLE-8, AKURDI, PUNE vs. BAJAJ FINSERV DIRECT LIMITED, PUNE

First we take up ITA No.2181/PUN/2025 and the CO No.4/PUN/2026 for assessment year 2020-21 as the lead case. Facts of the case, in brief, are that the assessee is a company engaged in the distribution of finance service products through its digital platforms. It filed its return of income on 11.02.2021 declaring business loss of Rs.22,17,60,059/-. The case was selected for scrutiny and accordingly statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served on the assessee. Thereafter, notice u/s 142(1) along with a questionnaire was also issued and served on the assessee in response to which the assessee filed the requisite details.

During the course of assessment proceedings the Assessing Officer observed from the Profit and Loss Account that the assessee has debited total expenses of Rs.1,48,89,38,291/- out of which expenses of Rs.54,41,59,585/- has been shown under ‘other expenses’ which includes expenses of Rs.29,75,67,931/- under the item head ‘sales promotion expenses’. From the various details filed by the assessee he noted that the assessee has claimed expenses of Rs.29,75,67,931/-

The Assessing Officer in the show cause notice proposed the disallowance of the same. The assessee objected to the disallowance by submitting as under which has been reproduced by the Assessing Officer which reads as under:

Relying on various decisions including the decision of the Mumbai Bench of the Tribunal in the case of Idea Cellular Ltd it was submitted that the expenses are revenue in nature.

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs.25,02,77,240/- by observing as under:

The Assessing Officer further noted from the Profit and Loss Account and the details furnished by the assessee that the assessee has debited expenses of

In appeal, the Ld. CIT(A) / NFAC deleted both the additions by observing as under:

Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in deleting the disallowance of Rs.25,02,77,240/- under Section 37 of the Income-tax Act, 1961, treating the expenditure under the head "Sales Promotion" as revenue in nature, despite the fact that approximately 95% of these expenses related to market research, strategic planning, development and designing of website and mobile app, and purchase of media space, were incurred for enduring benefits akin to capitalized intangible assets. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to correctly apply the principles distinguishing capital and revenue expenditure erroneously relying solely on ownership and cost recovery as decisive tests ignoring that the platform's tailored design and development by vendors for the assessee's electronic store was intended to yield long- term competitive and brand promotion benefits, thus warranting classification as capital expenditure. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of deduction expenditure in capital nature on Informational Technology ('IT') of Rs.58,59,236/-, as the platform was developed and designed by the vendor in accordance with the assessee's specified design and business strategic market planning, aimed at securing enduring benefits. The expenditure on development and market research for the electronic store platform clearly provided long-term advantages to the assessee, rendering it capital in nature rather than revenue expenditure. 4. The appellant craves leave to add, amend and alter any of the above grounds of appeal.

The Ld. DR strongly challenged the order of the Ld. CIT(A) / NFAC deleting both the additions. So far as the deletion of Rs.25,02,77,240/- is concerned, the Ld. DR submitted that approximately 95% of these expenses related to market research, strategic planning, development and designing of website, mobile app and purchase of media space that were incurred for enduring benefits akin to capitalized intangible assets and therefore, the Ld. CIT(A) / NFAC was not justified in deleting the same by treating the same as revenue expenditure. He submitted that the Ld. CIT(A) / NFAC failed to properly apply the principles distinguishing capital and revenue expenditure relying solely on ownership and cost recovery as decisive tests. Therefore, the order of the Ld. CIT(A) / NFAC deleting the addition of Rs.25,02,77,240/- is not justified.

So far as the deletion of expenses of Rs.58,59,236/- is concerned, he submitted that the platform has been developed and designed by the vendor in accordance with the assessee's specified design and business strategic market planning for getting enduring benefits. He submitted that the expenditure on development and market research for the electronic store has been made by the assessee for enduring benefit rendering it capital in nature, therefore, the Ld. CIT(A) / NFAC should not have deleted the addition. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be set aside and the grounds raised by the Revenue be allowed.

The Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. So far as the order of the Ld. CIT(A) / NFAC deleting the addition of Rs.25,02,77,240/- is concerned, he drew the attention of the Bench to the nature of services received from each of the parties which are given before the Ld. CIT(A) / NFAC and which are as under:

He submitted that this expenditure can be broadly categorized into digital advertising expenses, internet advertising space and media management fees, SMS broadcasting services, search engine optimization (SEO) and campaign specific content generation retainer fees, video production services for marketing and creative retainer fees for defining social media strategy etc. He submitted that for an expenditure to be regarded as on capital account either the incurrence thereof should result in acquisition of an asset or it should result in obtaining an advantage of enduring nature. He submitted that it was nobody's case that by incurring the aforesaid expenditure the assessee has acquired any asset which is used for the purpose of its business. He submitted that the test of the enduring benefit would not apply in all circumstances. Further by incurring the aforesaid expenditure the assessee had not derived any enduring benefit because the expenditure was to be incurred repeatedly having regard to its very nature. He submitted that the expenditure on advertisement can never give any enduring benefit and in fact the consumer has to repeatedly be bombarded with advertisements so that the products being advertised stays in the minds of the consumer.

Referring to the decision of Hon’ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT reported in [1980] 124 ITR 1 (SC), the Ld. Counsel for the assessee drew the attention of the Bench to para 8 of the order which reads a sunder: “8. The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount of conclusive. There is no all-embracing formula which can provide a ready solution to the problem, no touchstone has been devised. Every case has to be decided on its own facts keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave, LC in British Insulated & Helsby Cables Ltd. v. Atherton 10 TC 155 where the learned Law Lord stated: "When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital" This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in CIT v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it would be misleading to suppose that, in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a, commercial since and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be

He submitted that applying the test laid down by Hon’ble Supreme Court in the above decision cited (supra), it is clear that the advantage that the assessee obtains by incurring this expenditure is not in capital field but it merely facilitates the carrying on of the business of the assessee of promoting the sale of the products of its customers more efficiently and profitably. He drew the attention of the Bench to para 12 of his written submission which reads as under:  All the above expenditure incurred by BFSD is recurring in nature and was incurred to increase the sales of BFSD on digital platforms and is similar to placing advertisement in a newspaper and, hence is revenue in nature.  It is merely facilitating the carrying on of the business of the Respondent by increasing the sale of financial products of its customers and, thereby, increasing its commission income.  All these expenses need to be incurred every single time when the Respondent wants to promote its products on social media.  Once the products are promoted and the promotion comes to an end, no benefit accrues to the Respondent.

So far as the order of the Ld. CIT(A) / NFAC deleting the addition of Rs.58,59,236/- is concerned, the Ld. Counsel for the assessee referring to pages 230 and 231 of the paper book submitted that the assessee has given the detailed nature of services received from UNBXD. He submitted that UNBXD has provided services which includes display of its high selling products at the top and also auto correction of the spelling typed in by the customer and continues the search. Another instance of service is for the application to auto-fill / suggest products by limited search by the customer. He submitted that this expenditure is necessary for any digital platform to ease the search process for the customer and generating sales from the same. He submitted that the arguments advanced while arguing grounds of appeal No.1 and 2 of the Revenue will also equally apply to the present issue.

Referring to various pages of the paper book, he drew the attention of the Bench to the nature of the expenditure that was incurred along with the invoices which evidences the nature of the expenditure incurred. He submitted that the expenditure incurred on advertisement can never be regarded as an expenditure in the capital field. For the above proposition, he relied on the following decisions: i) Deputy Commissioner of Income-tax v. Metro Shoes (P) Ltd reported in [2004] 2 SOT 127 (Mumbai) ii) ACIT, Circle 22(2) New Delhi. Vs Snapdeal Ltd. (ITA No 184/Del/2023]

He drew the attention of the Bench to para (C) of his written submission which reads as under: “C. Prayer: Considering the above factual and legal submission, the Respondent wishes to pray as follows:  The expenditure incurred on digital marketing and promotional activities is recurring in nature and aimed at increasing the income through digital platforms. These expenses are akin to routine advertisement costs, as they support the ongoing business operations without creating any enduring benefit. The impact of such campaigns is temporary, with no lasting advantage once they conclude.  Further, these expenses do not lead to the creation of any tangible or intangible asset and must be incurred continuously to maintain market presence in a competitive environment Their primary purpose is to promote products and enhance revenue for the relevant year.  Without prejudice to above in case your Honours consider the above expenditure as capital in nature, the AO may be directed to allow depreciation on the same.”

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.25,02,77,240/- out of sales promotion expenses and Rs.58,59,236/- out of payment made to M/s. UNBXD for content development on website and mobile app treating the same as capital in nature. We find the Ld. CIT(A) / NFAC deleted both the additions, reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the Ld. CIT(A) / NFAC on both the issues.

So far as the deletion of Rs.25,02,77,240/- is concerned, the genuineness of the expenditure is not in dispute but the only dispute is regarding the nature of the expenditure i.e. whether it is capital or revenue. A perusal of the details of expenditure of Rs.25,02,77,240/- shows that these expenses are on account of digital advertising expenses, internet advertising space and media management fees, SMS broadcasting services, search engine optimization (SEO) and campaign specific content generation retainer fees, video production services for marketing, creative retainer fees for defining social media strategy etc. In our opinion, for an expenditure to be regarded as on capital account either the incurrence thereof should result in acquisition of an asset or it should result in obtaining an advantage

So far as the payment to UNBXD amounting to Rs.58,59,236/- which has been disallowed by the Assessing Officer is concerned, we find the assessee has established with evidence that UNBXD has provided services which includes display of its high selling products at the top and also auto correction of the

We find in the following decisions it has been held that the expenditure incurred on advertisement can never be regarded as an expenditure in the capital field: i) Deputy Commissioner of Income-tax v. Metro Shoes (P) Ltd reported in [2004] 2 SOT 127 (Mumbai) ACIT, Circle 22(2) New Delhi. Vs Snapdeal Ltd. (ITA No 184/Del/2023] ii)

In view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A) / NFAC, we uphold the order of the Ld. CIT(A) / NFAC on this issue. The grounds raised by the Revenue on this issue are accordingly dismissed.

The assessee in CO No.4/PUN/2026 has raised the following grounds of objections: 1. That on the facts and in the circumstances of the case and in law, the Respondent humbly submits that the sales promotion expenses of INR 25,02,77,240 are recurring in nature and have been incurred to attract more customers and optimize conversions for the purpose of enhancing its sales and do not provide any enduring benefit as also observed by the CIT(A), NFAC, Delhi in para 4.1 of his order and are therefore revenue in

After hearing both the sides, we find in grounds of appeal No.1 and 2 in the CO the assessee has basically supported the order of the Ld. CIT(A) / NFAC. Since we have already dismissed the grounds raised by the Revenue, therefore, the CO, which is in support of the order of the Ld. CIT(A) / NFAC, becomes infructuous and therefore, the same is dismissed.

Ground of appeal No.3 in the CO is an alternate ground i.e. in case the expenditure is treated as capital, then to allow depreciation. Since the ground raised by the Revenue has already been dismissed, therefore, this ground by the

After hearing both the sides, we find the grounds raised by the Revenue as well as the CO filed by the assessee are identical to the grounds of appeal No.1 and 2 in ITA No.2181/PUN/2025 and the CO No.4/PUN/2026. We have already decided the grounds raised by the Revenue as well as the grounds raised in the CO and have dismissed the appeal of the Revenue and CO of the assessee. Following similar reasonings, we dismiss the appeal of the Revenue as well as the CO filed by the assessee.

In the result, both the appeals filed by the Revenue and both the COs filed by the assessee are dismissed.