Customer Acquisition Cost Is Revenue Expenditure – Not Capital | ITAT

Case Details: Tata Teleservices Ltd. vs. Assistant Commissioner of Income-tax [2025] 180 taxmann.com 125 (Delhi-Trib.)

Judiciary and Counsel Details

• Satbeer Singh Godara, Judicial Member & Avdhesh Kumar Mishra, Accountant Member
• Ms Ananya Kapoor, Salil Kapoor & Shivam Yadav, Advs. for the Appellant.
• Dayainder Singh Sidhu, CIT-DR for the Respondent.

Facts of the Case

The assessee claimed customer acquisition cost as revenue expenditure. The customer acquisition cost had been incurred for porting charges, data entry charges for customer details, subsidy on handsets (i.e., compensation paid to distributors for the loss on the sale of handsets to customers at a price lower than the cost price of making the handsets), etc.

The Assessing Officer (AO) treated the customer acquisition cost as capital expenditure and disallowed it. On appeal, the CIT(A) upheld the disallowance. The matter reached the Delhi Tribunal.

ITAT Held

The Tribunal held that the customer acquisition cost in the cases relied upon by the Authorities was one-time, whereas in the instant case, it was a routine, regularly incurred year after year. Thus, the case law relied upon by the Authorities became irrelevant here.

Further, the genuineness of this expenditure is not in dispute. The issue in dispute here is the allowability of the customer acquisition cost as revenue/capital expenditure.

Revenue expenditure is allowed in the year of accrual or incurrence. Capital expenditure is allowed as deferred expenditure over the years through depreciation. It is a case of assessed loss.

The nature of the customer acquisition cost was porting charges and data entry charges for customer details, and subsidy/compensation paid to distributors for the loss on the sale of handsets to customers at a price lower than the cost price of making the handsets. The porting and data entry charges are treated as revenue expenditure, as they are not of an enduring nature.

For the handset, there are two components: one recovered from customers and the other subsidised by the assessee. The AO, on the one hand, has treated the subsidy/compensation on handsets as capital expenditure and, on the other hand, has accepted the subsidised sale price of handsets recovered from customers, disclosing it as revenue receipts in the Profit & Loss Account. Such contradictory findings weaken the case for revenue.

Thus, the disallowance of the Customer acquisition cost was not justified, as it was in the nature of revenue expenditure.

List of Cases Reviewed

• SKS Micro Finance Ltd. in ITA No. 1222/Hyd/2011, dated 21.06.2013 [Para 8] Distinguished

List of Cases Referred to

• CIT v. SBI Cards & Payment Services (P.) Ltd. [2014] 52 taxmann.com 439/[2015] 229 Taxman 356 (Delhi) (para 4)
• Empire Jute Co. Ltd. v. CIT [1980] 3 Taxman 69/124 ITR 1 (SC) (para 4)
• CIT v. Indian Visit.com (P.) Ltd [2009] 176 Taxman 164 (Delhi) (para 4)
• CIT v. Excel Industries Ltd [2013] 38 taxmann.com 100/219 Taxman 379/358 ITR 295 (SC) (para 5)
• Tata Teleservices Ltd v. ACIT [IT Appeal Nos. 27 and 28 (Delhi) of 2017, dated 18-6-2025] (para 5)
• Tata Teleservices Ltd v. ACIT [IT Appeal No. 4150 (Delhi) of 2017, dated 26-8-2025] (para 6).