New Delhi: Indian subsidiary of consumer electronics major Sony has been allowed by income tax tribunal to claim deductions on its expenses on advertisement and sales promotion for calculating its tax liability.
The ruling by the Income Tax Appellate Tribunal (ITAT) pertains to financial year 2001-02, for an expenditure of over Rs19.63 crore towards advertisement and sales promotion by Sony India Private Ltd.
Sony India claimed deduction at the rate of 10% for the expenditure incurred on advertisement and sales promotion.
However, assessing officer (AO) disallowed the deduction on the ground that the expenditure was going to strengthen the brand image of Sony worldwide and the benefit was going to flow to the parent company, Sony Corporation, Japan.
The tribunal, however, rejected the disallowance made by the AO holding that the expenditure on advertisement and sales promotion was incurred by Sony India within India, no benefit had accrued to its parent company in Japan.
The AO had also disallowed further 10% deductions on the ground that the expenses are capital in nature and not revenue.
However, the tribunal turned down this stand also, saying “as the memory of the customers is short and advertisement is required to be done on year-on-year basis, the expenditure incurred on advertisement and sales promotion could not be said to have resulted in accrual of any benefit of enduring nature to the taxpayer company (Sony India)”.
The tribunal, therefore, held that the expenditure was of revenue nature and the disallowance made by the AO was not justified.