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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M The appeal has been filed by the Revenue. The relevant assessment year 2010-11. The appeal is directed against the order of the learned CIT(A) – 22 at Mumbai and arises out of assessment completed by the Assessing Office (AO) under section 143(3) of the Income Tax Act 1961 (hereinafter ‘the Act’).
The sole ground raised by the Revenue in this appeal is that the learned CIT(A) erred in directing the AO to treat an expenditure of Rs. 5,65,23,676/- as revenue expenditure which was treated by the AO as capital expenditure. Also it is raised that the learned CIT(A) erred in not appreciating the fact that the said expenditure was pre operative in nature and is not covered under section 37(1) of the Act.
The AO made an addition of Rs. 5,65,23,676/- on the reason that (i) in notes to Schedule C (Fixed Assets) to the balance sheet, the said amount is shown as pre operative expenses, which cannot be allowed as revenue expenditure for the year under consideration, (ii) pre commencement period expenditure is required to be treated as Capital Work-In-Progress only, as is done in the books of the assessee, (iii) the assessee itself in its books of account treated the same to be capital in nature and accordingly capitalized the same as ‘Capital WIP’. As per clause no. 17 to the tax audit report, the assessee had launched a project and the same is implemented in a phased manner. If the said expenditure pertains to a particular project, then all the expenditure incurred on the project till it is implemented, needs to be capitalized and the same cannot be claimed as revenue.
The learned CIT(A) deleted the above addition of Rs. 5,65,23,674/- relying on the order dated 23/10/2013 of the ITAT ‘D’ Bench Mumbai in the case of Reliance Footprint Ltd. vs. ACIT- Circle 10(3) in for the AY 2008-09.
The learned DR relied on the order passed by the AO.
The learned counsel of the assessee relied on the following decisions :
Sl.No. Particulars Date 1. Reliance Footprint Ltd. Vs. ACIT for AY 2008-09 in 5997/Mum/2011 2 Reliance Home Store Ltd. Vs. ACIT for AY 2008-09 in ITA No. 15/10/2015 5996/Mum/2011 3 DCIT Vs. Reliance Supply Chain Solutions Ltd. For AY 2008-09 in ITA NO. 27/11/2013 5759/Mum/2012 4. ACIT Vs. Reliance Supply Chain Solutions Ltd. for AY 2009-10 in ITA No. 25/03/2015 6342/Mum/2013 5. ACIT Vs. Reliance Supply Chain Solutions Ltd. for AY 2010-11 in ITA No. 13/08/2015 1273/Mum/2014 6 Reliance Wellness Ltd. Vs. DCIT for AY 2008-09 in ITA No. 09/09/2015 3444/Mum/2013 7 Reliance Gems & Jewels Ltd. Vs. DCIT for AY 2008-09 in ITA No. 28/10/2015 3855/Mum/2013
After considering the rival submissions and perusing the relevant material on record, we find that the issue in the instant appeal is covered by the decisions cited by the learned counsel of the assessee. A similar issue arose before the ITAT ‘D’ Bench Mumbai in the case of the assessee for the AY 2008-09 [ITA No. 5996/Mum/2011]. In that case on similar ground a disallowance of Rs. 4,08,41,533/- was made by the AO. The Tribunal following the order in the case of Reliance Footprint Ltd. (supra) deleted the addition made by the AO. For discussion, we extract below the relevant portion of the order passed by the ITAT in the said case.:
“In the letter submitted by the assesseee before AO it is clearly mentioned that when the expenditure is incurred for the purpose of expansion of business which is already in existence and, which is in the nature of revenue, then the same is allowable as revenue expenditure irrespective of the treatment given by the assesseee to such expenditure in its books of account. No material has been brought on record by the AO to negate such submissions made by the assessee. These propositions put forth by of the assessee before AO are supported by the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Kothari Auto Parts Manufacturers Pvt. Ltd. (supra), and the decision of Hon’ble Gujarat High Court in the case of CIT vs. Alembic Glass Industries Ltd. (supra). Therefore, it has to be held that these expenditures incurred by the assessee are for the purpose of expansion of its business and those expenditure are in the nature of revenue (being mostly paid to employees). These are allowable in the year itself as per ratio of aforementioned decision of the Hon’ble Bombay High Court in the case of CIT Vs. Kothari Auto Parts Manufacturers Pvt. Ltd. (supra) and Hon’ble High Court of Gujarat in the case of CIT Vs. Alembic Glass Industries Ltd. (supra). These expenditures did not create any asset and also did not provide enduring benefit to the business of the assessee so as to say that the expenditure was capital in nature. Therefore, we hold that expenditure are allowable to the year under consideration irrespective of the fact that assessee has given dual status to such expenditure to its books of account vis-à-vis computation of income filed along with return.” 7.1 As the issue in the present appeal is squarely covered by the above order, we uphold the order of the learned CIT(A).
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court 19/08/2016