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Facts
The assessee, Moonshine Eservices Pvt. Ltd., an online gifting platform, incurred marketing expenses of Rs.12.68 crore in AY 2015-16. The Assessing Officer found these expenses disproportionate to sales and disallowed 2/3rd (Rs.8.48 crore) as deferred revenue expenditure, to be allowed in subsequent years. The CIT(A) deleted this disallowance, considering it revenue neutral as the assessee had incurred losses in the subsequent assessment years.
Held
The Tribunal upheld the CIT(A)'s decision, ruling that once an expenditure is accepted as genuine and revenue in nature, it must be allowed in the year it is incurred, unless the assessee chooses to defer it. Citing a Supreme Court judgment, the Tribunal stated that disproportionality to sales is not a valid reason for unilateral deferment by the AO. The Tribunal also directed the AO to verify if the disallowed 2/3rd was subsequently allowed in AYs 2016-17 and 2017-18 and, if so, to withdraw it to prevent double benefit.
Key Issues
Whether marketing expenses, accepted as revenue in nature, can be partly disallowed and treated as deferred revenue expenditure by the AO solely due to being disproportionate to sales in the current year, or must they be allowed entirely in the year of incurrence.
Sections Cited
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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI SAKTIJIT DEY, VICE- & SHRI NAVEEN CHANDRA
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI
BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER
ITA No.4553/Del/2018 Assessment Year: 2015-16 DCIT, Vs. Moonshine Eservices Pvt. Circle-2(1), Ltd., Gurgaon 375, Udyog Vihar, Phase-II, Gurgaon, Haryana PAN :AAHCM8476G (Appellant) (Respondent)
Assessee by Sh. Abhishek Mathur, CA Department by Ms. Kamaljot Kaur, Sr. DR
Date of hearing 15.04.2024 Date of pronouncement 18.04.2024
ORDER PER SAKTIJIT DEY, VICE-PRESIDENT
This appeal by the Revenue arises out of order dated
13.04.2018 of learned Commissioner of Income Tax (Appeals)-1,
Gurgaon, for the assessment year 2015-16.
The dispute in the present appeal is confined to deletion of
part disallowance of marketing expenses made by the Assessing
Officer.
ITA No.4553/Del/2018 AY: 2015-16
Briefly the facts are, the assessee is a resident corporate
entity. As stated by the Assessing Officer, the assessee maintains
an online portal for printing solutions and personalized gifting.
The assessee provides an array of classy and sophisticated
personalized products, ranging right from corporate stationery to
the products ideal for gifting like mobile and tech accessories,
kitchenware, embellishing home décor and other fun stuff. For
the assessment year under dispute, the assessee filed its return of
income on 30.09.2015, declaring loss of Rs.15,35,71,690/-.
In course of assessment proceedings, the Assessing Officer
noticed that the assessee has claimed marketing expenses of
Rs.12,68,26,082/-. After verifying the financial statement of the
assessee, the Assessing Officer was of the view that compared to
net profit declared in the earlier year, there is drastic fall in the
impugned assessment year. He further observed that there is
exponential increase in marketing expenses compared to the
earlier year. He further observed that, though, sales have doubled
but marketing expenses have increased more than five times.
Thus, he ultimately concluded that the marketing expenses
claimed by the assessee are not proportionate to sales.
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ITA No.4553/Del/2018 AY: 2015-16
Accordingly, he proceeded to allow 1/3rd of the marketing
expenses claimed, while disallowing the remaining 2/3rd and
treating the same as deferred revenue expenditure to be allowed
in subsequent two assessment years. This resulted in addition of
an amount of Rs.8,48,50,722/-. The assessee contested the
aforesaid disallowance before learned first appellate authority.
Having considered the submissions of the assessee in the
context of facts and materials on record, learned first appellate
authority noticed that in subsequent two assessment years i.e.
AYs 2016-17 and 2017-18, the assessee had incurred losses of
Rs.5,49,07,442/- and Rs.1,14,62,236/- respectively. According to
him, Assessing Officer’s action in disallowing 2/3rd out of the
marketing expenses would only result in decreasing loss in the
impugned assessment year, whereas, increasing them in
subsequent two assessment years. Thus, in any case of the
matter, the addition made by the Assessing Officer in the
impugned assessment year would be revenue neutral. In the
aforesaid premises, he deleted the disallowance made by the
Assessing Officer.
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ITA No.4553/Del/2018 AY: 2015-16
We have considered rival submissions and perused the
materials on record. On analyzing the relevant facts, particularly,
the observations of the Assessing Officer qua the disallowance
made, it is quite evident that there is no dispute to the fact that
the assessee had actually incurred marketing expenses of
Rs.12,68,26,082/- in the year under consideration. In fact, the
Assessing Officer has not only accepted the nature of expenses
incurred by the assessee as revenue but has also accepted its
genuineness. This is so because, he has allowed the entire
expenditure incrementally i.e. 1/3rd in the impugned assessment
year and the remaining 2/3rd in the subsequent two assessment
years.
Therefore, the Assessing Officer had no doubt that
expenditure claimed is allowable. The issue is, whether it is
allowable in one year or has to be allowed as deferred revenue
expenditure spread over three assessment years. The only reason,
why the Assessing Officer has not allowed the entire expense in
the impugned assessment year is, it is disproportionate to the
sales. This, in our view, cannot be a valid reason for not allowing
the entire expenditure in the impugned assessment year. When it
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ITA No.4553/Del/2018 AY: 2015-16
is accepted that the assessee had actually incurred the entire
expenditure in the impugned assessment year, it has to be
allowed in this assessment year only and cannot be deferred to
subsequent assessment years. In case of Taparia Tools Limited
Vs. JCIT, Civil Appeal Nos. 6366-6368 of 2003, Hon’ble Supreme
Court has held that revenue expenditure incurred in a particular
year is to be allowed in that year, unless, the assessee itself wants
to spread the expenditure over a period of ensuing years.
Undoubtedly, in the facts of the present appeal, the assessee has
claimed the entire expenditure in the impugned assessment year.
Therefore, the Assessing Officer unilaterally cannot restrict the
claim to 1/3rd of the expenditure. That being the case, we do not
find any infirmity in the decision of learned first appellate
authority in deleting the disallowance made by the Assessing
Officer.
However, at this stage, we must observe, while deleting the
disallowance, the Assessing Officer is required to verify whether
the remaining 2/3rd of the marketing expenses were allowed as
deferred revenue expenditure in assessment years 2016-17 and
2017-18. In case, it is found to have been allowed, the same has
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ITA No.4553/Del/2018 AY: 2015-16
to be withdrawn. With the aforesaid observations, grounds are
dismissed.
In the result, appeal is dismissed.
Order pronounced in the open court on 18th April, 2024
Sd/- Sd/- (NAVEEN CHANDRA) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 18th April, 2024. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi
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