Brand Promotion and Trade Incentive Expenses Cannot Be Treated as Capital Expenditure: ITAT Deletes ₹6.66 Cr Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT)Mumbai Bench has deleted a disallowance of ₹6.66 crore made towards trade incentive and brand promotion expenditure and held that such expenses are revenue in nature and allowable as business expenditure.

During assessment proceedings, the Assessing Officer noticed that the assessee had debited ₹42.69 crore under the head trade incentive, substantially higher than the previous year’s expenditure of ₹24.83 crore.

The Revenue alleged that a significant portion of the expenditure was incurred towards brand promotion and conferred enduring benefits upon the assessee. Treating the expenditure as capital in nature, the Assessing Officer disallowed 20% of the claim, resulting in an addition of ₹6.66 crore.

The assessee Procter & Gamble Home Products Private Limited explained that the expenditure primarily related to incentive schemes and reimbursements provided to distributors under various sales promotion campaigns, including price reduction schemes and product promotion initiatives. It was argued that the expenses formed part of the company’s regular business strategy aimed at increasing sales and market penetration.

The assessee also argued that even if third parties or overseas brand owners incidentally derived benefit, the expenditure would still remain deductible if incurred wholly and exclusively for business purposes.

The Tribunal comprising Pawan Singh and Arun Khodpia observed that trade incentives and brand promotion expenses were integral to the assessee’s business model and directly linked to product promotion and sales generation. The bench held that the mere existence of some enduring commercial advantage does not automatically convert such expenditure into capital expenditure.

The Tribunal further noted that the Revenue had adopted an arbitrary ad hoc disallowance without identifying any specific non-business expenditure. Thus, the entire disallowance of ₹6.66 crore was deleted and the assessee’s appeal was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates