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Income Tax Appellate Tribunal, “B’’ BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the order dated 13-02-2017 passed by LD CIT(A)-3, Bengaluru and it relates to the assessment year 2012-13. The assessee is aggrieved by the decision of Ld CIT(A) in confirming disallowance of deferred revenue expenditure of Rs.93,02,208/- and pre-operative expenses of Rs.29,16,418/- made by the AO.
2 The assessee is engaged in the business of selling home furniture products. It had opened branches in Mumbai and Gurgaon in the earlier years. The expenditure incurred on opening and M/s. Home Studio India Pvt. Ltd., Bangalore
Page 2 of 6 publicity of branches was treated as deferred revenue expenditure and pre-operative expenses in books of accounts. Accordingly, they were amortised over a period of time in the books. In the income tax computation also, the assessee claimed proportionate amount of expenditure, every year. According to Ld A.R, the claim so made was allowed in the past four years. However, he fairly admitted that the assessments of past years have been completed u/s 143(1) of the Act.
During the year under consideration, the assessee claimed proportionate amount of Rs.93,02,208/- as deferred revenue expenses and Rs.29,16,418/- as pre-operative expenses, both aggregating to Rs.1,22,18,625/-. When questioned by the AO, the assessee contended that the above said claim has been made u/s 35D of the Act. The AO examined the details of expenses and also the conditions prescribed in sec.35D of the Act for allowing expenses. He noticed that the provisions of sec.35D are not applicable to the claim made by the assessee. Accordingly, he disallowed the above said claim of Rs.1,22,18,625/-. The Ld CIT(A) also confirmed the same.
Before us, the Ld A.R placed his reliance on the decision rendered by Mumbai bench of Tribunal in the case of JCIT vs. Modi Olivetti Ltd (4 SOT 859) and submitted that the concept of deferred revenue expenses has been explained in this case. He further submitted that, under the Principle of Consistency, the claim of the assessee should be allowed, since proportionate expenses had been allowed in the prior four years. He further submitted that the concept of deferred revenue expenditure has been recognised by Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd (225 ITR 802)(SC). Accordingly, he pleaded that the disallowance made by the AO should be deleted.
M/s. Home Studio India Pvt. Ltd., Bangalore
Page 3 of 6 5. On the contrary, the Ld D.R submitted that the AO has extracted the details of expenditure claimed by the assessee in the assessment order. A perusal of the same would show that they are in the nature of electricity charges, housekeeping & maintenance, security charges, salaries, advertisement, business development expenses, rent expenses, travelling expenses etc. The Ld D.R further submitted that the concept of ‘deferred revenue expenses” is not there under Income tax Act. Further the above said expenses are not capital expenditure eligible for depreciation, but they are in the nature of revenue expenses only. He submitted that it is an admitted fact that these expenses have been incurred by the assessee in an earlier year and not during the year under consideration. Hence these expenses do not pertain to the year under consideration and accordingly not allowable during the year under consideration. He further submitted that the returns of income filed for earlier years have been processed u/s 143(1) of the Act and hence there was no scrutiny of similar claims made in the earlier years by the AO. Hence the principle of consistency will not apply to this claim. Accordingly, he submitted that the Ld CIT(A) was justified in confirming the disallowance.
We heard the parties and perused the record. We notice that the AO has extracted the details of proportionate deferred revenue expenses and pre-operative expenses claimed by the assessee during the year under consideration. As rightly pointed out by Ld D.R, those expenses are in the nature of revenue expenses only. It is an admitted fact that these expenses have been incurred in an earlier year in connection of opening of branches in Mumbai and Gurgaon. In the books of account, the assessee chose to treat these expenses as deferred revenue expenses & pre-operative expenses and was claiming proportionate amount every year. The assessee has chosen to claim proportionate amount under Income tax Act also while computing total income.
M/s. Home Studio India Pvt. Ltd., Bangalore
Page 4 of 6 7. Under the Income tax Act, the “total income” is computed in accordance with the provisions of the Act. The issue relating to allowability of ‘deferred revenue expenses’ has been examined by the Ahmedabad special bench in the case of ACIT v/s Ashima Syntex Ltd. (100 ITD 247), wherein following principles have been laid down in conclusion:-
“14. To conclude, the position emerging from the above discussion can be summed up as follows:- – the nature of the expenditure treated as a “deferred revenue expenditure” in the books needs to be properly analysed before taking a view on its allowability or otherwise under the provisions of the Act; – where such expenditure results in the creation of any capital asset (tangible or intangible), a case can be made out to treat the same as a capital expenditure with corresponding allowability of depreciation in accordance with law; – in cases where the nature of the revenue expenditure is such that the same can be clearly and unambiguously identified over specified future time periods (e.g. discount on issue of debentures) akin to prepaid expenses the same would be allowable over the period to which these relate proportionately, applying the matching principle. In other cases where the same does not result in the creation of any capital asset or where the same is not allocable over defined future time periods there can be no case for amortising the same under the Act over the expected period over which the benefit is likely to arise there from since in such cases the expenditure is essentially revenue in nature and is amortised in the books only on account of some other considerations.”
In the instant case, we have noticed that the nature of expenses claimed by the assessee under “deferred revenue expenses/pre- operative expenses” did not result in creation of any capital asset nor they could be clearly and unambiguously identified over specified future time periods. Admitted the expenses have been incurred in the past year in connection of opening of branches and they are in the nature of revenue expenses. The claim made by the assessee during the year under consideration is part of those expenses, which was claimed as amortisation of those expenses over certain years.
M/s. Home Studio India Pvt. Ltd., Bangalore Page 5 of 6 The principles laid down by the Special bench (show) would show that there is no concept of deferred revenue expenses under the Income tax Act and hence the revenue expenses incurred in an earlier year cannot be allowed as deduction during the year under consideration. The various case laws relied upon by Ld A.R have been rendered in a different context.
The Ld A.R contended that the claim of the assessee should be allowed under the Principle of Consistency, since similar amortisation claim made in the earlier years have been allowed. However, as rightly submitted by Ld D.R, the returns of income filed for earlier years have been processed u/s 143(1) of the Act and hence there was no scrutiny of similar claims made in the earlier years by the AO. Hence the principle of consistency will not apply to this claim.
In view of the foregoing discussions, we do not find any merit in the claim made by the assessee and accordingly confirm the order passed by Ld CIT(A).
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 23rd Sept, 021.