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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI ASHWANI TANEJA (ACOUNTANT MEMBER)
Per ASHWANI TANEJA, AM These appeals pertain to different assesses, but involves identical issue; therefore, these were heard together and being disposed of by this common order.
First we shall take up the appeal filed by the assessee namely M/s Reliance Fresh Ltd for A.Y. 2008-09 in filed against the order of Commissioner of Income-tax (Appeals)-9, Mumbai [hereinafter called Ld CIT(A)] dated 09-01-2013 passed against assessment order u/s 143(3) dt 29-12- 2010 on following grounds: “1. Ground no. 1: The learned Commissioner of Income tax (hereinafter (i) referred to as CIT(A)) erred in confirming the disallowance of claim for deduction u/s 37(1) in respect of revenue expenditure incurred during the year amounting to Rs 56,62,56,096/-- The learned CIT(AT failed to appreciate that the expenditure being (ii) incurred for carrying on the business and being of revenue nature is eligible for deduction u/s 37(1). The appellant prays that the deduction of Rs. (iii) 49,06,00,257/- [Rs. 56,62,56,096/- minus Rs. 7,56.55.639/- being disallowance u/s 40A(7)/40A(9) as claimed by it be allowed.”
During the course of hearing, it was contended by the assessee that only ground 1(i) is relevant and, therefore, ground 1(ii) & 1(iii) were not pressed and hence, these are dismissed.
In Ground 1(i), the issue raised by the assessee is with regard to the treatment of revenue expenditure claimed by the assessee in the return of income amounting to Rs.56.62 crores as capital expenditure by the AO in the assessment order. During the course of hearing, it was submitted by the Ld. Counsel that impugned expenses were capitalised in the books of account by the assessee, but in fact, there expenses are purely revenue in nature, and therefore, in the computation sheet, these expenses were claimed as revenue expenses. The claim of the assessee was denied and these expenses were treated as capital expenditure by the lower authorities. It was further submitted that the assessee has never claimed depreciation on the expenses capitalised in its books of account, neither in this year nor in any subsequent years. An undertaking was submitted by the ld. Counsel on behalf of the assessee that depreciation on these expenses shall never be claimed. The Ld. Counsel submitted that identical issue arose in various group companies of the assessee, wherein identical issue has been decided in favour of the assessee by treating these expenses as revenue expenses. He relied upon the following judgements in support of his claim that the impugned expenses should be treated as revenue expenses:
Reliance Gems & Jewels Ltd. v. DCIT in for A.Y. 2008-09 (Mumbai Bench), 2. Reliance Footprint Ltd. v.ACIT ITA No.5997/Mum/2011 for A.Y. 2008-09 (Mumbai Bench) 3. Reliance Footprint Ltd vs ACIT in ITA No.5997/Mum/2011order dt. 27.11.2013 (Mumbai Bench) 4. Reliance Supply Chain Solutions Ltd. in ITA No.5759/Mum/2012 for A.Y. 2008-09 order dt. 27.11.2013 (Mumbai Bench) 5. Reliance Supply Chain Solutions Ltd. ITA 6342/Mum/2013 for A.Y. 2009-10 order dt 25.03.2015 (Mumbai Bench) 6. Reliance Supply Chain Solutions Ltd, order dt 13.08.2015 in ITA 1273/Mum/2014 for A.Y. 2010-11 (Mumbai Bench) 7. Reliance Wellness Ltd. v. DCIT in ITA No. 3444,4273/Mum/2013 for A.Y.2008-09 and A.Y.2009-10 order dt 09.09.2015 (Mumbai Bench) 8. Reliance Home Store Ltd. v. ACIT in ITA No.5996/Mum/2011 order dt 15.10.2015 (Mumbai Bench) 9. Taparia Tools Ltd. v. JCIT 372 ITR 605 (Supreme Court)
4.1. It was further submitted by the Ld. Counsel that in this case, undisputedly, the business of the assessee has already been set up and these expense have also been undisputedly incurred after setting up of the business, thus these expenses are allowable under the law without any debate and discussion. The genuineness of these expenses has nowhere been doubted by the lower authorities.
Per contra, the ld.DR submitted that these expenses have been incurred for opening up new stores and, therefore, these expenses are incurred for new projects, and therefore, these expenses cannot be allowed to the assessee. It was further submitted by him that the Ld. CIT(A) has already given direction for allowing depreciation on the expenses capitalized by the assessee in its books of account and, therefore, assessee cannot be granted benefit of double deduction.
We have gone through the orders of lower authorities and considered the submissions made by both the sides before us. We have also gone through copies of decisions of the Tribunal in other group companies of the assessee.
The brief facts, as brought out before us, are that during the year, the assessee company was engaged in the business of organized retail. The main business of the assessee company was sourcing and selling fruits, vegetables, food articles, groceries, fast moving goods and other goods of daily use and provisions of various related services as a neighborhood convenience store. It was noted by the Assessing Officer that as per Schedule K of annual report of the assessee for A.Y.|2007-08 following expenses were capitalized under the head ‘project development expenditure: “ PROJECT DEVELOPMENT EXPENDITURE The Company has launched new project for carrying on retail business. The project is in the process of under implementation. The expenditure incurred during the implementation period for bringing the project in the condition of its intended use, is treated as "Project Development Expenditure", pending capitalization included in Capital Work-in- Progress. The mounts of "Project Development Expenditure" for the current year carried forward are as under:
Project Development Expenditure 2007-O8 (Rs in Lakhs) Employee Related Cost Salaries & Wages 3,499.45 Contribution to Provident Fund, Superannuation Fund, Gratuity and Leave Encashment 911.23 Employee Welfare and other amenities 472.12 Travelling Expenses 110.36 Professional Fees 90.57 Communication Expenses 49.71 Printing and Stationery 26.21 Hire Charges 112.21 Other Project Development Expenditures Others 397.89 5,669.76 Less: Miscellaneous Income (7.39) Pre-Operative Expenses 5,662.37
But in the return of income filed by the assessee, the assessee deducted these expenses from the net profit by claiming the same as revenue expenditure. The AO disallowed the same on the ground that the assessee has itself capitalised the same under the head ‘Project Development Expenditure’. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) and exhaustively submitted that actually these expenses are revenue expenses. The Ld. CIT(A) held that since the assessee himself has claimed that these expenses pertaining to a project which has not been implemented , therefore, it could not be allowed as revenue expenditure, and therefore, he confirmed the order of the AO.
We find force in the arguments of Ld. Counsel of the assessee. It was submitted by him that fairly speaking, the assessee had wrongly capitalised these expenses under some misconception and misunderstanding of accounting standards. The candid claim of the Ld. Counsel was that these expenses were wrongly capitalised in the books. It was also brought to our notice that though the assessee was already showing income from its retail stores, but the assessee was coming up with new stores as the assessee has been constantly in the expansion mode. But, the business of the assessee has always been as ‘one’, the management is same and there is complete mixing and interlacing of funds, as has been re-emphasised. Under the income-tax law, the profit of a particular store cannot be separately computed. Thus, the profits of the retail business have to be computed by taking the entire business as ‘one’. Since the assessee is already having incomes from its retail business, the admitted fact would be that the business of the assessee is already ‘set up’ as per facts and well settled legal position. It is well settled position of law that all the expenses incurred subsequent to the setting up of the business shall be allowable to the assessee.
9.1. It is further noted that all these expenses are otherwise purely revenue in nature. None of these expenses pertain to acquisition of any capital asset. It is also well settled law that ‘normally’, the manner of accounting shall not determine the taxability of income or allowability of any expenditure. The taxability of income and allowability of an expense shall be determined on the basis of provisions of income-tax law as contained in Income Tax Act, 1961 and as explained by various courts from time to time. It is further noticed by us that nothing has been brought out by the lower authorities to show that if any of these expenses were capital in nature except the fact that the assessee has debited the same under the head ‘Project Development Expenditure’. The assessment of the return has to be made on the basis of return filed by the assessee supported with the accounts of the assessee. While examining the accounts, the return cannot be ignored. The return must take precedence over the accounts in respect of legal claims. The accounts have to be seen only to verify the facts. The admissibility of a claim or otherwise should be primarily and predominantly on the basis of claims made by the assessee in the return of income, unless the assessee claims otherwise subsequently during the course of assessment proceedings. From the discussion made above and the facts before us, following position emerges: (1) The impugned expenses are revenue in nature; (2) The assessee has wrongly capitalised the same in its books of account; (3) In the return filed by the assessee, the assessee claimed the same as 8 & 1662/Mum/2013 revenue expenses; (4) The expenses have been incurred after the setting- up of the business; (5) The expenses pertained to the same business, income of which has been shown in the return and assessed as such by the AO; and (6) The genuineness of the expenses has not been doubted by the lower authorities 9.2. Thus, from the above discussion, we can conclude that these expenses are revenue in nature and should be allowed as such. Ld. CIT(A) has wrongly directed the AO to grant benefit of depreciation upon the same. The direction of the Ld. CIT(A) is therefore reversed. These expenses shall be allowable as revenue expenditure in full and consequently, no benefit of depreciation shall be allowed either in the year under consideration or in any subsequent assessment year. The assessee has given an undertaking to this effect which reads as follows:- “We confirm and undertake that the company would not claim any double benefit under the Act (i.e. claim deduction as 'revenue expenditure' as well as later claim deduction on account of depreciation) in respect of the impugned "Project Development Expenditure" for any of the assessment year.”
9.3. The AO shall make requisite verification of the returns of all the subsequent years to ensure this aspect for which the assessee shall submit requisite details and documentary evidences. After verifying these primary facts only, the AO shall pass the appeal effect order granting benefit of these expenses as revenue expenditure.
9.4. Our view is supported by the decisions of the Tribunal in various group concerns of the assessee, whose names have been mentioned above. For the sake of ready reference we reproduce relevant portion of the observations given by the co-ordinate bench in the case of Reliance Footprint Ltd vs ACIT in for A.Y. 2008-09 order dt 23-10-2013:- “We have heard both parties and their contentions have carefully been considered. There is no dispute to the fact that the assessee has shown a turnover of Rs.4.75 crores in relation to its stores which were made operational during the year at Bangalore and Hyderabad. Before the AO it was the case of the assessee that it is in the process of expansion of its business and thus this expenditure has been incurred in relation to expansion of business. It was also submitted that the expenditure which are in the nature of salary, electricity, audit fee etc. are essentially incurred for expansion of existing line of business that is setting up of more number of stores/ specialty stores under planned format or for maintenance of already established stores. These submissions were made before the AO and have not been controverted by the AO and disallowance is made mainly on the ground that the assessee cannot give dual status to these expenditures i.e. as "capital" in books of account and as "revenue" for Income tax purposes. However, such view of the AO cannot be upheld in view of the decision of Hon’ble supreme Court in the case of Kedarnath Jute Mfg. Company Ltd. (supra) wherein it has been held that the issue that whether the assessee is entitled to a particular deduction will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. 6.1 From the submissions made by the assessee before the AO it is also clear that opening of stores at various places was one composite business of the assessee and in that course the assessee had started operation of its stores at Bangalore and Hyderabad. It was the contention of the assessee that operations of these stores at various locations is one composite business and once business had been started operation of its stores at Bangalore and Hyderabad. It was the contention of the assessee that operations of these stores at various locations is one composite business and once business had been started then the expenditure cannot be linked only to the stores which became operational during the year under consideration. Such submission of the assessee has not been controverted by the AU. All these details were submitted before the AO and it is not the case of the AO that assessee had not incurred such expenditure for its business. In the letter submitted by the assessee 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 assessee 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 Gujrat 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 in the year under consideration irrespective of the fact that assessee has given dual status to such expenditure in its books of account vis-à-vis computation of income filed along with return.”
9.5. It is further noted by us that in another case also similar decision has been taken by the Tribunal which are not being reproduced here to avoid duplication. We also find it appropriate to refer at this stage, for the sake of completeness, the judgement of Hon’ble Supreme Court in the case of Taparia Tools Ltd vs JCIT 372 ITR 605 (SC) wherein it has been observed by Hon’ble Supreme Court that the fact that a different treatment was given in the books of account by an assessee could not be a factor which would bar the assessee from claiming the entire expenditure as a deduction. Once a return is filed in a particular manner, the AO is bound to carry out the assessment applying the provisions of the Act and not to go beyond the return. There is no estoppel against the statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it can be claimed under the law. It has been further clarified by the Hon’ble Supreme Court that under the income-tax, there is no concept of deferred revenue expenditure in the Act, except under specific section, i.e. where amortisation is specifically provided for such as in section 35D of the Act. In the case before us, no such law has been applied by the AO. The assessee has claimed the entire expenditure as revenue expenditure. Keeping in view the nature of these expenses and business of the assessee, we find no reason and justification to deny the claim of the assessee in view of the discussion made above. Thus, this ground of the assessee is allowed subject to the directions as given above.
As a result, appeal of the assessee is allowed as per directions as indicated above.
Now we shall take up the appeal filed by the assessee in the case of Reliance Digital Retail Ltd in Ld.CIT(A) dt 21-12-2012 passed against the assessment order u/s 143(3) dt 25- 12-2011 for A.Y. 2009-10.
In this appeal also grounds 1(ii) and 1(iii) were not pressed, therefore, they are dismissed.
Regarding ground 1(i), it is noted that the assessee has made an identical claim on account of revenue expenditure amounting to Rs.26.56 crores. It is noted by us that the disallowance has been made under identical facts and circumstances. The claim of the assessee was made in identical facts and circumstances as in the case of Reliance Fresh Ltd (supra). Therefore, consistent with our own order in the case of Reliance Fresh Ltd (supra), this ground is allowed subject to our directions given in the case of Reliance Fresh Ltd (supra).
In the result, both the appeals of the assessee are allowed in terms of our directions contained in our order.
Order pronounced in the court on this day of 13th July, 2016.