AI Insights
The case involves the Assistant Commissioner of Income Tax, Mumbai, as the appellant, and Reliance Retail Ltd., as the respondent, concerning the assessment year 2018-19. The primary issues revolved around the disallowance under section 14A of the Income-tax Act, 1961, related to the expenses incurred which were claimed as revenue expenditure by the assessee but treated as capital expenditure by the Assessing Officer. The second issue was the denial of the foreign tax credit due to the late filing of Form 67. The Income Tax Appellate Tribunal, Mumbai, examined the applicability of section 14A and the treatment of the expenses under the relevant accounting standards and income tax provisions.
Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 388734 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-05-2025
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
D
Assessment Year
2018-2019
Judgement Text
"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, HON'BLE VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 4251/MUM/2024 Assessment Year: 2018-19 Assistant Commissioner of Income Tax – 8(1)(1), Mumbai Vs. Reliance Retail Ltd., 3rd Floor, Court House, Lokmanya Tilak Marg, Dhobi Talao, Mumbai – 400 002 (PAN : AABCR1718E) (Appellant) (Respondent) CO No.194/Mum/2024 (Arising out of ITA 4251/Mum/2024) Assessment Year: 2018-19 Reliance Retail Ltd., 3rd Floor, Court House, Lokmanya Tilak Marg, Dhobi Talao, Mumbai – 400 002 (PAN : AABCR1718E) Vs. Assistant Commissioner of Income Tax – 8(1)(1), Mumbai (Appellant) (Respondent) Present for: Assessee : Shri Madhur Agarwal, Advocate, Shri Nimesh Vora and Ms. Moksha Mehta, CAs Revenue : Smt. Sanyogita Nagpal, CIT DR Date of Hearing : 25.04.2025 Date of Pronouncement : 28.05.2025 O R D E R 2 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue and Cross Objection by the assessee are against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC) Delhi, vide order no. ITBA/NFAC/S/250/2024- 25/1066202962(1), dated 28.06.2024, passed against the assessment order by National Faceless Assessment Centre u/s. 143(3) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 23.09.2021, for Assessment Year 2018-19. 2. Grounds taken by the revenue in ITA No. 4251/MUM/2024 are reproduced as under: “1. Whether on the facts and circumstances of the case, the Hon’ble CIT(A) is justified in deleting the disallowance under section 14A made by the Assessing Officer although Circular 5/2014 dated 11.02.2014 Rule 8D r.w.s 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income? 2. Whether on the facts and circumstances of the case, the Hon’ble CIT(A) is justified in treating the Capital expenditure incurred by the assessee company as Revenue expenditure although the assessee has incurred the expenses of an intangible asset under development and the same is developed for the enduring benefit of the business of the assessee company?.” 2.1. Grounds taken by the assessee in C.O. No. 194/MUM/2024 are reproduced as under: “Additional claim of foreign tax credit not granted: Rs. 74,92,559 1. Erred in disallowing the additional claim of foreign tax credit of Rs. 74,92,559 on the ground that the Appellant did not file the Form 67 before the due date of filing the Return Of Income ('ROI'); 2. Erred in not entertaining the additional claim made by the Appellant of foreign tax credit, merely due to procedural delay in filing Form 67 by the Appellant and disregarding the fact that the Appellant had duly complied with the conditions prescribed under Rule 128 of the Income-tax Rules, 1962 and as such was eligible for the additional claim.” 2.2. We first take up appeal by the Revenue to deal with the two issues raised therein, seriatim. 3 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 3. For the issue vide ground no. 1, brief facts are that assessee filed its return of income on 29.11.2018, reporting total income at Nil and declared book profit u/s. 115JB of the Act at Rs. 1879,11,56,853/-. From the verification of the details, ld. Assessing Officer noticed that assessee had made huge investments in equity and preference shares of subsidiary companies, joint venture companies etc. to the extent of Rs. 534.41 crores, which are supposed to earn exempt income by way of dividend. However, assessee did not make any suo motto disallowance of any expenses as required u/s. 14A r.w. Rule 8D. Contention of the assessee is that it did not earn any income during the year, exempt from taxation under the Act and therefore provisions of section 14A do not apply. This fact is noted by the ld. Assessing Officer in the impugned order and remains uncontroverted. Despite this, ld. Assessing Officer held that even in case where no expenditure has been incurred, the tax authority has to apply Rule 8D of the Rules for disallowance of expenditure under provisions of section 14A. Accordingly, he proceeded to invoke Rule 8D to compute addition @ 1 % on average of investments of Rs. 508.97 crores which came to Rs. 5.0897 Crores and made a disallowance u/s 14A and added it to the total income. This was also added to the computation of book profit u/s 115JB. 4. On the first ground relating to disallowance made by ld. Assessing Officer u/s 14A by invoking Rule 8D, the uncontroverted factual position is that no income exempt under the Act is earned or received by the assessee during the year under consideration, as noted in the impugned assessment order itself. Further, nothing is brought on record even otherwise in the course of hearing by the revenue on this 4 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 fact. It is also important to note that ld. Assessing Officer has computed the disallowance by taking yearly average of the total investments which is not in accordance with the provisions contained in rule 8D. 4.1. Attention was invited to the amendment brought in section 14A, vide Finance Act, 2022, introducing an Explanation to section 14A. The same is reproduced as under: “Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.” Inserted by Finance Act, 2022, w.e.f. 1-4-2022 21 4.2. The aforesaid Explanation provides that the provisions of section 14A would apply to a case where assessee has not received any exempt income during the concerned financial year. It was submitted that this amendment is made effective only from 01.04.2022, i.e., from Assessment Year 2022-23. Therefore, the same cannot be applied to the assessment year under consideration, i.e., AY 2018-19. 5. The issue contested by revenue is no longer res integra in view of decision of Hon’ble High Court of Delhi in the case of PCIT v. ERA Infrastructure (India) Ltd. [2022] ITA No. 204 of 2022, wherein it is held that amendment to Section14A, which is “for Removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. Relevant extracts from the decision of Hon’ble Delhi High Court in the case of Era Infrastructure (supra) are reproduced hereunder for ease of reference. “3. He submits that the ITAT erred in relying on the decision of this Court in PCIT VS. IL & FS Energy Development Company Ltd., 2017 SCC Online Del 9893 (wherein it has been held that no disallowance under Section 14A of the Act can 5 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 be made if the assessee had not earned any exempt income), as the revenue has not been accepted the said decision and has preferred an SLP against the said decision. 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to Section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, a change in law has been brought about and consequently, the judgments relied upon by the authorities below including PCIT vs. IL & FS Energy Development Company Ltd. (supra) are no longer good law. The amendment to Section 14A of the Act is reproduced hereinbelow:- \"Amendment of section 14A. In section 14A of the Income-tax Act, - (a) in sub-section (l), for the words \"For the purposes of', the words \"Notwithstanding anything to the contrary contained in this Act, for the purposes of' shall be substituted; (b) after the proviso, the following Explanation shall be inserted, namely:- \"[Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]\" 8. Consequently, this Court is of the view that the amendment of Section 14A, which is \"for removal of doubts\" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL & FS Energy Development Company Ltd. (supra) and Cheminvest Limited vs. Commissioner of Income Tax- VI, (2015) 378 ITR 33. 10. Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd (supra).” 6 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 5.1. Further, reliance is also placed on the decision of Coordinate Bench of ITAT, Mumbai in the case of ACIT, Central Circle 4(2), Mumbai vs. K Raheja Corporate Services Pvt Ltd. [2022] ITA No.2527/Mum/2021, which dealt with the amendment brought by the Finance Act 2022 and deleted the disallowance made u/s. 14A r.w. Rule 8D. 5.2. Also, in respect of addition made to the book profit u/s 115JB for the disallowance computed by the ld. Assessing Officer u/s 14A by applying rule 8D, case of the assessee is supported by the decision of Hon'ble Special Bench of Delhi ITAT in the case of ACIT vs Vireet Investment Pvt. Ltd. 165 ITD 27 (Del SB) wherein it is held that \"In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 lo section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.\" 5.3. Accordingly, considering the facts on record and the jurisprudence discussed above, no disallowance is called for u/s 14A r.w.r. 8D when assessee has not earned any exempt income during the year to make addition to the normal computation of total income under the Act nor to make adjustment to the book profit for the same u/s 115JB. Thus, we do not find any reason to interfere with the findings arrived at by the ld. CIT(A) on this issue. Accordingly, ground no. 1 taken by the revenue is dismissed. 6. For the second issue, relevant facts from the record are that assessee is in the business of trading and merchandising of goods and 7 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 providing services. Assessee commenced its business in Assessment Year 2000-01. Assessee is into trading of grocery, household items through ‘Reliance Fresh’, ‘Reliance Smart’ and ‘Reliance Market’ which run stores, supermarkets, smart stores, wholesale cash-and-carry and specialty stores serving customers across diverse shopping needs. It also operates consumer electronics stores’ chain in the name of ‘Reliance Digital’ and Digital Express Mini Stores. It is also into trading in lifestyle products and merchandises through ‘Reliance Trends’, ‘Reliance Footprints’, ‘Reliance Jewels’. 6.1. During Assessment Year 2016-17, assessee started developing and launched a website in the name of ‘Ajio’ to facilitate its consumers to make purchase of merchandises and lifestyle products through online channel instead of visiting stores physically. AJIO became operational during the AY 2017-18 when the first online sale was made on 03.04.2016 through the AJIO.com website. 6.2. From the verification of the details, ld. Assessing Officer noticed that assessee had incurred expenses of Rs. 351 Crores in connection with the development of e-commerce platform by the name, Ajio.com. In its books of accounts, which were prepared as per provisions of the Companies Act, 2013, assessee treated the same as ‘intangible assets under development’ and capitalized the same in the books of accounts in compliance with the Accounting Standards, viz. Ind AS – 16 and Ind AS – 38, issued by the Institute of Chartered Accountants of India (ICAI) which are mandatorily applicable from 01.04.2016 and onwards. However, for the purpose of computation of business income under the provisions of the Act, assessee treated the same expenditure as revenue to claim its deduction as these were in the nature of expenses incurred 8 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 for the purpose of promotion and marketing. Ld. Assessing Officer after examining the contentions of the assessee held this expenditure as an integral part of development of e-commerce platform i.e., Ajio.com, therefore, treated it as capital expenditure. Ld. Assessing Officer disallowed the marketing expenses for the year on the ground that the same were required to be capitalized as per the Accounting Standards and that the same are rightly accounted under “Intangible Assets under development”. Accordingly, after allowing depreciation @ 25% on the same, he arrived at disallowance of Rs. 263.40 crores to make the addition. This addition was made also for the purpose of arriving at book profits u/s 115JB. 6.3. Ld. Assessing Officer held that the said marketing expenses were capital in nature on the following grounds: i) Details of sales made by Ajio platform were not given. ii) Accounting Standard 16 referred by assessee relates to borrowing cost. More relevant Accounting Standard is AS 26, according to which all direct expenses attributable to project has to be capitalized. Amortisation of the same commences from the date when the asset was put to use. iii) Even as per new Indian Accounting Standard, Ind AS 38, expenses incurred on internally generated intangible assets need to be accounted as cost of intangible assets till it reaches the condition necessary for it to be capable of operating. Nowhere in the IndAS, it is specified that the cost can be split into marketing and other than marketing cost. iv) In the break-up of marketing expenses, assessee itself admitted that Rs. 351.2 crores were incurred as “marketing expenses” of 9 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 an intangible asset under development but claimed as revenue expenditure. v) Assessee has not developed any other software, hence, it cannot be said that the marketing expenses were not directly relatable to the online portal of Ajio. vi) Assessee is into the business of retailing. Portal AJIO.com is developed for the enduring benefit of business of the assessee. It is clear that assessee by itself is not in to the business of any software development or any IT enabled services. Its core business is retailing of its products. Ld. Assessing Officer also observed, “it is understandable that any marketing expenditure incurred in connection with its merchandise, would go on revenue account. Whereas the amount of Rs.351.28 Cr. was incurred for popularizing its merchandize online portal.” vii) Expenditure incurred on marketing of the said online portal has been claimed as revenue expenditure whereas the same should have been capitalized along with development cost as done in the books of account. 7. Submissions made by the assessee states that it was already in the business of retail trading of fashion and lifestyle products and was functioning through retail stores across India. During Assessment Year 2017-18, it launched an online platform to sell its products under e- commerce, for the consumers who had switched from traditional mode of shopping by way of visiting stores to online shopping. Hence, launch of Ajio was nothing but merely an extension of existing business. It is akin to opening of a new store in a new location which would facilitate consumers of that vicinity. In the given case, it was opened in a virtual space as an online platform. 10 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 7.1. For the year under consideration, the books of account of assessee had been drawn up in compliance with the Companies (Indian Accounting Standards) Rules, 2015 according to which, entire cost incurred on development of ‘Ajio’ was accounted and reflected under the head ‘Intangible Assets under development’ in the audited financial statements. During the year under consideration, amount of Rs. 1847.93 crores were incurred which has been classified / reflected under the head ‘Intangible Assets under development’. In the aforesaid classification in the books of account, under the head ‘Intangible Assets under development’, also included accumulated marketing expenses incurred for its products on Ajio. Marketing Expenses incurred for the year under consideration was Rs. 351,20,69,547/-. However, since assessee was already in the business of retail of fashion and lifestyle products, it treated the aforesaid marketing expenses incurred for products on AJIO as revenue in nature and claimed deduction under section 37(1) of the Act, while computing income under the provisions of the Act. As far as other cost relating to AJIO are concerned, the same were capitalized in Assessment Year 2017-18 for the purpose of computing income under the Act. Depreciation was claimed u/s. 32(1) of the Act on the capitalized component from Assessment Year 2017-18 and onwards. 7.2. Break-up of marketing expenses claimed as deduction by the assessee is reproduced below: Head-wise Expenses A.Y. 2018-19 Advertisement Expenses 350,28,55,221 Business Promotion & Marketing Research Expenses 3,92,840 Product Samples 68,63,586 11 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 Sales Promotion Expenses 19,57,900 Grand Total 351,20,69,547 7.3. Vendor-wise details furnished by the assessee before the ld. Assessing Officer explaining the nature along with relevant supporting documents of the expenditure incurred in respect of marketing expenditure on AJIO platform during the Assessment Year 2018-19 is tabulated as under: Sr. No. PAN of the vendor Name of the vendor Address of the vendor Amount (in Rs.) Nature of expense Supporting Document 1 AAACV7737Q V i b r a n t Advertising Private Ltd 3rd Floor Court House, Lokmanya Tilak Marg, Mumbai, 400002, MH, India 335,05,14,275 Advertising / Marketing and sales promotion expenses such as online advertisement campaign on TV channels / digital platforms like Facebook, Google / YouTube / Print media / Outdoor radio / Cinema / cable and other digital platforms Sample Video links for advertising done on Facebook / TV Campaign / YouTube etc. enclosed at Annexure 2; Further, sample invoice copy enclosed at Annexure 3a AEKPD1178E F us io n F i 1 m s B -1 01 ,VastuRidhi Enclave, Pump House, Andheri (E) Mumbai, 400093, MH, India 2,81,48,965 Advertisement expenses - Production cost of shooting for Commercials and advertisements Sample invoice copy enclosed at Annexure 3b AAGCP5413M P h a n t o m Ideas Private Limited No 57, 2Nd Cross, D'Costa Layout, Wheeler Road Extn Bangalore, 560084, KAR, India 1,22,78,980 Advertisement expenses - Fees towards ideation, concept creation, script writing and coordination with production house for Commercial and Advertisements Sample invoice copy enclosed at Annexure 3c Multiple PANs Multiple vendors – Others Multiple addresses 12,11,27,326 Marketing and advertisement expenses (viz. Sample invoice copy 12 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 mass mail, SMS, cashback campaign etc.) Sales promotion expenses (viz. digital banners, catalogue shoot etc.), Product Samples etc. enclosed at Annexure 3d Grand Total 351,20,69,547 7.4. Assessee demonstrated from the sample copies of the content of the advertisements which run as a sales / marketing campaign on various media platforms viz. Facebook, YouTube, Print TV etc. that these sales / marketing campaigns which provided discounts on various product price (listed on the AJIO.com platform) have been done to solicit the prospective customers to buy the products on AJIO.com platform. It was also asserted that marketing expenditure was not directly related to the development of online portal AJIO.com and was incurred for the promotion and scaling up of the sales on the online platform / website operations, after the asset were put to use. From the nature of the above expenses, it was established that these are routine marketing and advertisement of the products displayed on the platform, i.e., related to sales, which are generally incurred on a year-to-year basis. Thus, these expenditures are in the nature of revenue and do not give any enduring benefit in the capital field, nor asset or intangible is being created. 7.5. Assessee substantiated its claim also by placing factual data on record to submit that approx. 4.5 lakhs customers purchased goods of Rs. 51.23 crores on Ajio.com platform. During Assessment Year 2018- 19 also, approx. 15.15 lakhs customers purchased goods of Rs. 250.36 crores on this AJIO.com platform. Month-wise and party-wise details of sales made on AJIO.com platform to various retail customers during the 13 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 impugned assessment year were duly provided during the course of the assessment proceedings. Assessee also provided before the ld. Assessing Officer, month-wise count of customers during Assessment Year 2017-18 and 2018-19. On the observation of ld. AO that assessee did not furnish the required information, assessee placed on record e- Proceedings Response Acknowledgement vide its number 501557931130921 to evidently demonstrate that all the information with corroborating evidence was provided which placed in the paper book. 7.6. Assessee claimed that ld. AO has nowhere in its order denied that the expenditure in question had not been incurred for the purpose of business. Merely because these expenses are recognised as capital expenditure/ shown under Intangible assets under development' in the books of account, ld. AO has treated the same as capital expenditure. Hence, merely because the expenditure in question is treated differently in the books of account, the same cannot be denied deduction as revenue expenditure. In other words, 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 the Act and as explained by various Courts from time-to- time. Income-tax return must take precedence over the accounts in respect of the claims by any Assessee. 7.7. Furthermore, it was pointed out that in para 3.11 of the impugned assessment order, ld. AO himself admits that marketing expenditure in connection with merchandise would go on revenue account and also admitted that the expenditure was incurred for popularising its 14 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 merchandize on its online portal. Ld. AO also admitted that assessee was not in the business of any software development or any IT enabled services. It is admitted that assessee is in the business of retailing. 7.8. The reasons explained by the assessee for the treatment given in the books of the account Ajio.com is that it did not reach its condition necessary for it to be capable of operating in the manner intended by management as required by Indian Accounting Standard (Ind AS) 16 - Property Plant and Equipment and /or Ind AS 38- Intangible Assets. The relevant paras of these Ind AS are hereby reproduced as below:- i. Ind AS 38, Para 30- \"Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. ii. Ind As 38 Para 66 - \"The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management.\" iii. Ind As 16, property, Plant and Equipment para 16\" The cost of an item of property, plant and equipment comprises: (a)... (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. (c). 7.9. From the above extracted paras of the relevant IndAS accounting standards, it is clear that expenses incurred on internally generated intangible assets need to be accounted as cost of intangible assets till 15 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 the intangible asset reaches the condition necessary for it to be capable of operating in the manner intended by management. As per submissions of the assessee, it is understood that Ajio.com platform has not reached to an operation stage as intended by the management (in spite of the fact that some transactions of sales have started on this platform since FY 2016-17). Therefore, based on the mandatory applicable Ind AS mentioned above, expenses incurred on Ajio.com platform has been accounted as intangible asset under development in the books of accounts/financial statement. 8. According to the assessee, treatment as per Accounting Standards would only be relevant for the purpose of drawing books of account as per Companies Act, 2013. It has no relevance in computing income under the Act. Further, to buttress its submissions that revenue expenditure which is incurred wholly and exclusively for the purposes of business, must be allowed in its entirety in the year in which it is incurred and cannot be classified as having been incurred towards acquisition of any asset, it relied on the decision of Hon'ble Mumbai ITAT in case of Reliance Footprint Limited v. ACIT [2014] 41 taxmann.com 553 (Mum Trib.) (now merged with the Appellant), wherein Assessee had launched new project for carrying on retail business from which it was showing income and was coming up with new stores for its expansion. During the year, assessee claimed deduction of project development expenditure such as - (i) Employees' Salaries & Wages (ii) Contribution to Provident Fund, Superannuation Fund, Gratuity and Leave Encashment, (iii) Employees Welfare and other amenities (iv) Travelling Expenses, (v) Professional Fees, (vi) Communication Expenses, (vii) Printing and Stationery (viii) Hire Charges and (ix) Other Project Development Expenditures. Ld. AO 16 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 treated the expenses as capital in nature merely because it was capitalized in the books of account. Coordinate Bench observed that \"Since the Assessee is already having income 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 that all the expenses incurred subsequent to the setting up of the business shall be allowable to the assesse.\" It further observed that the expenses are purely revenue in nature and they do not pertain to acquisition of any capital asset. As regards, AO's action in treating the expenses as capital in nature merely because it was capitalized in the books of account, it held that “It is a well-settled law that normally, the manner of accounting shall not determine the taxability of income or allowability of any expenditure.” 8.1. The aforesaid decision has been upheld by the Hon'ble Jurisdictional High Court of Bombay in case of CIT v. Reliance Footprint Limited [2017] ITA No. 948 of 2014 (now merged with the assessee) by appreciating the revenue nature of the expenses and that the same were incurred on account of expansion of business. It was also held that it is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. 8.2. Assessee also relied on the decision of Coordinate Bench of ITAT, Mumbai in an identical case of Reliance Fresh Ltd vs. ACIT [2016] 72 taxmann.com 170 (Mum) (now renamed as Reliance Retail Limited), wherein assessee was in the business of organized retail. It had launched new projects and incurred routine business expenses such as employee's cost, travelling expenses, professional fees, communication expenses, printing and stationary expenses, hire charges, etc. These expenses were held as deductible revenue item even though the same 17 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 were capitalized in the books of account. This decision of Coordinate Bench of ITAT, Mumbai was upheld by the Hon'ble Jurisdictional High Court of Bombay in the case of PCIT vs. Reliance Fresh Ltd. [2019] ITA No. 985 OF 2017 (now renamed as Reliance Retail Limited), by following its own decision in the case of Reliance Footprints Ltd. vs. ACIT (supra). 8.3. Hon'ble High Court has ruled in favour of the respective assessees holding that even though the assessee capitalized expenditure for the purpose of accounting standards and to comply with the provisions of Companies Act, the nature of expenses are relatable to operational & maintenance of day to day businesses, in such circumstances the expenses which were incurred for running the business would be revenue expenditure for the purpose of income-tax irrespective of treatment of the same by the assessee in its books of accounts. The said judgments are: a. PCIT v. Reliance Fresh Ltd. [2019] IT A No. 985 OF 2017 (now renamed as Reliance Retail Limited) b. CIT v. Reliance Footprint Limited [2017] |TA No. 948 of 2014 (now merged with the Appellant) 8.4. Out of several judicial precedents cited, reference is made the following to buttress the contention that treatment as per Accounting Standards would only be relevant for the purpose of drawing books of account as per Companies Act, 2013 and it has no relevance in computing income under the Act: i. Taparia Tools Limited v. JCIT [2015] 55 taxmann.com 361 (SC) \"19. In the instant case, as noticed above, the Assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire 18 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the Assessee as it was in consonance with the provisions of the Act which permit the Assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. ii. Kedarnath Jute Mfg. Co. Ltd. v. CIT[1971] 82ITR 363 (SC) Whether the Assessee is entitled to a particular deduction or not will depend on the provision 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 the books of account be decisive or conclusive in the matter. \" iii. CIT v. India Discount Co. Ltd. [1970] 75|TR 191 (SC) It is well established that a receipt which in law cannot be regarded as income cannot become so merely b.ecause the Assessee erroneously credited it to the profit and loss account. The appeal having no merit was accordingly dismissed. iv. Tutikorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) It is true that the Supreme Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the 19 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. 9. Findings of ld. Assessing Officer for making the disallowance and submissions made by the assessee to counter the same are summarily tabulated below for ease of reference: Sr. No. Assessing Officer’s Findings Assessee’s Submissions i) Details of sales made by Ajio platform were not given. Details were given, vide letter dated 13 September 2022. ii) Accounting Standard 16 referred by Appellant relates to borrowing cost. More relevant Accounting Standard is AS 26, according to which all direct expenses attributable to project has to be capitalized. Amortisation of the same commences from the date when the asset was put to use. Reference to old accounting standards are irrelevant and hence, this need not be countered. iii) Even as per new Indian Accounting Standard, Ind AS 38, expenses incurred on internally generated intangible assets need to be accounted as cost of intangible assets till it reaches the condition necessary for it to be capable of operating. Nowhere in the IndAS, it is specified that the cost can be split into marketing and other than marketing cost. As per IndAS 38, it is not even a requirement that the marketing expenses are necessarily to be capitalized. In any case, mandate of Ind AS does not determine deductibility of a particular expenditure under the provisions of the Act. iv) In the break-up of marketing expenses, Assessee itself Assessee did not admit that the marketing expenses were 20 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 admitted that Rs. 351.2 crs was incurred as “marketing expenses” of an intangible asset under development but claimed as revenue expenditure. incurred for intangible asset. It stated that \"Details of Expenses incurred which were accounted / reflected in financial statement as intangible asset under development but claimed as allowable expenses for income tax purposes\" v) Assessee has not developed any other software, hence, it cannot be said that the marketing expenses were not directly relatable to the online portal of Ajio. Assessee was indeed into development of 2 more projects, viz. Supply Chain Management platform and Loyalty platform. vi) Assessee is into the business of retailing. The portal AJIO.com is developed for the enduring benefit of assessee’s business. It is clear that the assessee by itself, is not in to the business of any software development or any IT enabled services. Its core business is retailing of its products. It is understandable that any marketing expenditure incurred in connection with its merchandise, would go on revenue account. Whereas the amount of Rs.351.28 Cr. was incurred for popularizing its merchandize online portal. Assessee incurred marketing expenses to advertise its products for sale on AJIO platform. AO himself admits that marketing expenditure in connection with merchandise would go on revenue account and also admitted that the expenditure was incurred for popularizing its merchandize on its online portal. AO also admitted that the Assessee was not in the business of any software development or any IT enabled services. He admits that the Assessee is in the business of retailing. Accordingly, it is inconceivable that the Assessee incurred expenditure to advertise its portal and not merchandise. vii) The expenditure incurred on marketing of the said online portal has been claimed as revenue expenditure whereas the same should have been capitalized along with Entries in books of account is irrelevant for the purpose of computing income under the provisions of Income-tax Act 21 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 development cost (in the books of account). Therefore, the said marketing expenses of Rs.351.2 Cr being on capital account is disallowed. 10. After going through the submissions made by assessee and considering the facts and circumstances of the case and also the judicial precedents relied upon by the assessee, ld. CIT(A) concluded that even though assessee capitalized expenditure for the purpose of accounting standards and to comply with the provisions of Companies Act, 2013, the nature of expenses is relatable to operational and maintenance of day-to-day businesses. In such circumstances, expenses which were incurred for running the business would be revenue expenditure for the purpose of income-tax irrespective of treatment of the same by the assessee in its books of accounts. Thus, after verification of the assessee’s submissions and details of expenses, it was held that the expenses incurred were mainly towards marketing and sales promotion which are nothing but fall under the category of sales promotion and marketing in expansion of the existing business. Therefore, by following the judicial pronouncements and ratios as laid down by the Coordinate Bench of ITAT Mumbai and Hon'ble jurisdictional High Court in assessee’s own case, ld. CIT(A) treated the marketing expenses incurred for expansion of e-commerce platform ‘Ajio.com’ as revenue expenses and reversed the addition made by the ld. Assessing Officer. 11. Considering the factual matrix of the case as elaborately discussed in the above paragraphs, detailed analysis and deliberation made by ld. CIT(A) on the stance taken by both the parties, jurisprudence of the Co-ordinate Bench and those of the Hon'ble jurisdictional High Court of Bombay referred above, we do find any 22 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 reason to interfere with the findings arrived at by the ld. CIT(A) deleting the addition made by the ld. Assessing Officer. Further, ld. AO also proceeded to make the same addition even for the purposes of computing books profits as per provisions of section 115JB of the IT Act. From the verification of P & L account and balance sheets and other relevant details, it is noticed that the assessee has not debited the above marketing expenses in the P & L a/c which was prepared as per Schedule Ill of the Companies Act, 2013. Since assessee did not debit the above expenditure in the P & L a/c, addition of the same would amount to taxing it twice and therefore the same is not warranted. Accordingly, on this aspect also, we upheld the finding arrived by the ld. CIT(A) who directed the ld. AO to delete the addition made for the purpose of computation of book profits u/s. 115JB of the Act. Accordingly, ground no. 2 raised by the revenue is dismissed. 12. In respect of claim of foreign tax credit of Rs. 74,92,559/-, the authorities below observed that for the claiming of foreign tax credit, the assessee is supposed to comply with the conditions as laid down in Rule 128 of the IT Rules. As per Rule 128(9), assessee has to file Form 67 claiming foreign tax credit within the due date of filing of return of income u/s. 139(1). From the perusal of details, it is seen that the assessee filed Form 67 through e-filing on 28.04.2022 which is beyond the due date as required under Rule 128. The due date for filing the return was 30.09.2018. Accordingly, authorities below did not allow the claim of foreign tax credit to the assessee for which assessee is in cross objection before the Tribunal. 12.1. Claim of the assessee is that merely on account of procedural reasons of delay in filing of Form 67, the legitimate claim cannot be 23 ITA No. 4251/Mum/2024 and CO No. 194/Mum/2024 Reliance Retail Ltd., AY 2018-19 denied. It is an undisputed fact that Form 67 is on record. We find that this issue is no longer res integra as held in favour of the assessee by the Hon’ble High Court of Madras in the case of Duraiswamy Kumaraswamy v. PCIT [2024] 460 ITR 615 (Mad) where in it held that where assessee claimed foreign tax credit (FTC) and filed Form-67 after due date specified for furnishing return under section 139(1) but before completion of assessment proceedings, rejection of assessee's FTC claim was not proper. Respectfully following the aforesaid jurisprudence, in the given set of facts, we remit the matter back to the file of ld. Jurisdictional Assessing Office (JAO) for the limited purpose of verification of the records to allow the claim of the assessee. Accordingly, grounds raised by the assessee in its cross objection are allowed for statistical purposes. 13. In the result, appeal by the revenue is dismissed and cross objection by the assessee is allowed for statistical purposes. Order is pronounced in the open court on 28 May, 2025 Sd/- Sd/- (Saktijit Dey) (Girish Agrawal) Vice President Accountant Member Dated: 28 May, 2025 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "
