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ITAT allows Deduction of Advertising Expenses though Brand is owned by Its Affiliates

In a major relief to Good Year India, the Income Tax Appellate Tribunal (ITAT), Delhi has allowed the Company’s plea to allow advertisement expenses incurred for the brand promotion.

Facts of the case:-

The assessee company is engaged in the manufacturing/trading of tyres and related products. Earlier, the expenses were disallowed by the income tax department by holding that the brand name is originally owned by its affiliates and the same should not be disallowed being in nature of brand building activity. Accordingly, the addition of Rs.3,52,33,953/- being 30% of the entire expenditure incurred on advertisement and publicity was made by the Assessing Officer.

Interpretation of law:-

The assessee contended that the assessee company is engaged in the manufacturing/trading of tyres and related products. It had incurred these expenses for promoting its sale and to beat its competitor companies as its competitors were also expending on advertisements of their products. It was stated that the benefit of such expenditure was derived entirely by the assessee company and not by an affiliate company. It was contended on behalf of the department that the AE of the assessee company would certainly be benefitted from the expenditure incurred on advertisement and publicity of the products of the AE in India since the advertisement and the publicity would certainly have an impact.

Conclusion:-

ITAT bench comprising Accountant Member Dr B R R Kumar and Judicial Member Kul Bharat relied on its previous orders where a similar issue was held in favour of the assessee and held that “We have already held that the advertisement expenditure incurred by the assessee is incurred wholly for the purpose of its business and profession and ought to be allowed the deduction in entirety. Further, the assessing officer has clearly made an ad-hoc disallowance of advertisement expenditure incurred by the assessee, which is not permissible under the law.”

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