DCIT, CIRCLE- 2(1), GURGAON vs. MOONSHINE ESERVICES PVT. LTD., GURGAON

The dispute in the present appeal is confined to deletion of part disallowance of marketing expenses made by the Assessing Officer.

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.

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.

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.

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 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.

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 to be withdrawn. With the aforesaid observations, grounds are dismissed.

In the result, appeal is dismissed.