DCIT CENTRAL CIRCLE- 5(4), MUMBAI V. SHREM INFRAVENTURES PRT. LTD., MUMBAI

ITA 1561/MUM/2025

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The case involves an appeal by the revenue against the order of the ld. CIT(A)-53, Mumbai, which pertained to the assessment year 2018-19. The primary issue was the disallowance of Rs. 3,77,96,688/- under section 37(1) of the Income Tax Act, which the Assessing Officer (AO) had treated as capital expenditure. The assessee, Shrem Infraventures Pvt. Ltd., argued that these expenses were revenue in nature and necessary for the operation of its business, which involves the management, operation, and maintenance of road projects. The CIT(A) agreed with the assessee, leading to the revenue's appeal to the tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 313103 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2018-2019
• Other Referred Cases: Taparia Tools Ltd. [372 ITR 605]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANGEPATIL PUSHKARAJ RAMESH; DR
• Assessee Lawyers: MANI JAIN; AR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

" | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI SANDEEP SINGH KARHAIL, HON’BLE JUDICIAL MEMBER I.T.A. No. 1561/Mum/2025 Assessment Year: 2018-19 DCIT, Central Circle-5(4) Vs Shrem Infraventures Pvt. Ltd. 1101, Viraj Towers Andheri Kurla Road Maharashtra - 400069 [PAN: AAPCS0084E] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Mani Jain, A/R Revenue by : Shri Bhangepatil Pushkaraj Ramesh, Sr. D/R सुनवाई की तारीख/Date of Hearing : 24/04/2025 घोषणा की तारीख /Date of Pronouncement: 28/04/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order of the ld. CIT(A)-53, Mumbai [hereinafter the “ld. CIT(A)”] dated 09/01/2025 pertaining to AY 2018-19. 2. The sum and substance of the grievance of the revenue is that the ld. CIT(A) erred in deleting the disallowance of Rs. 3,77,96,688/- u/s 37(1) of the Act. 3. Briefly stated the facts of the case are that the assessee electronically filed its return of income on 29/10/2018 declaring total income at Rs. (-) 1,53,99,939/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. I.T.A. No. 1561/Mum/2025 2 4. During the course of scrutiny assessment proceedings, the AO noticed that the assessee has charged following expenses in its profit and loss account:- a. Repair and Maintenance Rs. 22,44,403/- b. Stamp Duty and Registration Rs. 99,000/- c. Travelling Expenses Rs. 22,94,246/- d. Commission and brokerage Rs. 3,25,000/- e. Professional Fees Rs. 2,83,00,532/- f. Rates & Taxes Rs. 15,29,095/- g. Reimbursement of Expenses Rs. 3,94,412/- h. Rent paid Rs. 26,10,000/- Total Rs. 3,77,96,688/- 5. The AO found that the assessee has booked management fees of Rs. 24,00,000/- only as revenue from operations and accordingly showcaused the assessee to explain why the expenses should not be disallowed u/s 37(1) of the Act as revenue expenditure and why it should not be capitalized for amortization in subsequent assessment years. The assessee filed a detailed reply as under:- “1. Your honors has asked as to why the expenditures incurred should not be disallowed u/s. 37(1) of the Act as revenue expenditure and to be capitalized for amortization in subsequent assessment years as per revenue recognition. In this respect we would like to explain in brief with respect to each expenditure which is incurred and proposed by your honor to be capitalized. a. Rental Expenses.: Rental Expenses are the expenses which are general expenses and required for operation of the business. They cannot be termed as capital expenditure/ as there are several meetings which are held and executed as part of discussion of business meetings, the guests which visit the sites and for the maintenance of project there are various persons who visit the site and therefore in order to avoid all sorts of unnecessary daily hotel expenditure, a property is taken on rent so that no daily expenditures can be suffered. This expenditure is independent expenditure as it is not dependent upon the success/outcome of any project. This expenditure has to be incurred till the property is occupied or the agreement is terminated. Therefore, the expenditure needs no capitalization and rather should be treated as revenue expenditure and allowed. I.T.A. No. 1561/Mum/2025 3 Without prejudice to the above, we would also like to state the fact that the project has already started yielding and generating revenue income which is duly offered for taxation in the relevant assessment year, the same can be easily verified and checked from the audited financial statements and therefore your honors contention that expenditure cannot be treated as revenue as no revenue is yielded does not hold true and correct. Copy of ledger account alongwith relevant supporting are being enclosed herewith. b. Commission & Brokerage: Commission & Brokerage expenditure is expenditure incurred against the property taken on lease/rent. Expenditure incurred is equal to one month's rental expenditure which is common in this line of industry. Further, this does not have any relation with the DBL projects or investment in SPV's and therefore commission expenditure is common in getting a property on rent and since the rental expenditure is allowable expenditure and any expenses incurred in ancillary to the same would also be allowable and would also qualifies to be in the nature of revenue expenditure and should be allowed. Copy of ledger account alongwith relevant supportings are being enclosed herewith. c. Stamp Duty & Registration Charges: The said expenditure are also incurred in relation to the property taken on lease/rent. The expenditure are incurred in relation to registration of the leave and license agreement from the government officials. The same is statutory expenditure and also does not have any relation with the DBL projects or investment in SPV's. Since the rental expenditure are allowable expenditure and any expenses incurred in ancillary to the same would also be allowable and would also qualifies to be in the nature of revenue expenditure and should be allowed. Copy of ledger account alongwith relevant supportings are being enclosed herewith. d. Repair & Maintenance: The said expenditure are also incurred in relation to the property taken on rent/lease. These are regular type of expenditure which is required by the person who takes the property on rent. Since the property is taken on rent and is used for consistent business purposes any expenditure incurred of the same nature would also be revenue expenditure and should be allowed. Copy of ledger account alongwith relevant supportings are being enclosed herewith. e. Professional Fees: With respect to the said expenditure, your honors has mentioned that since these professionals have helped assessee to get the deal done with DBL and since the projects are under construction and therefore the said expenditure needs to be capitalized. In this respect we would like to state that company had invested in various SPV's and for the same certain business model was presented and for getting it finalized it required some help and legal and technical knowledge of the professionals. These professionals also helped in getting the deal finalized. However, the payments made to them does not restrict their work in just getting the deal finalized. Their work is also to monitor the projects and make sure that assessee company is earning the desired incomes from these projects. Hypothetically if the said expenditure incurred by the company was just to close the deal then your honors contention in capitalizing and amortization of the said expenditure would hold true. However, these payments are required to be made regularly on yearly basis. Therefore, the payment of which are incurred regularly cannot be capitalized. Further, your honors contention that there is no income yielded during the year is I.T.A. No. 1561/Mum/2025 4 also incorrect as the same can be verified that income has duly been offered during the year under consideration. Though the quantum of the same may be less as and when compared with the expenditure incurred. However, it is not necessary that income should always surpass the expenditures incurred. Therefore, your honors whole base for capitalization of the said expenditures and allowing subsequent amortization in the year of revenue recognition is itself incorrect as. revenue is already recognized by the assessee irrespective of quantum offered. The same can be verified from the audited financial statements already submitted before your honors in earlier submissions. Therefore the same is revenue in nature and allowable expenditure. Copy of ledger account alongwith relevant Sample supportings are being enclosed herewith. f. Travelling Expenses: These are expenses incurred as an integral expenditure of any type of business. These expenditures also include expenses incurred by the professionals as covered and duly explained above. Since the professional fees are also a part of revenue expenditure, any expenditure incurred by them are also revenue expenditure. Travelling expenses are always operational in nature and also to be incurred on regular basis for an ease of business operation and therefore the same are to be treated as revenue expenditure and should be allowed. Copy of ledger account alongwith relevant supportings are being enclosed herewith. g. Reimbursement of Expenses: These are the out of pocket expenditures which are incurred by the professionals as mentioned above. These are routine expenditures which are incurred by them on behalf of the assessee company and then they are being duly reimbursed. The same are revenue in nature and therefore there should be no disallowance or capitalization called for in this respect. Copy of ledger account alongwith relevant supportings are being enclosed herewith. h. Rates & Taxes: These expenditure are majorly incurred in connection with the payments made to Competition Commission of India. This is a compulsory payment which are required to be made in the normal business operations. The same are to be incurred irrespective of income to be earned by the assessee and therefore the same is revenue in nature and should be allowed. Copy of ledger account alongwith relevant supportings are being enclosed herewith.” 6. The aforementioned reply of the assessee did not find any favour with the AO. The AO was of the opinion that the assessee has not followed the matching principles of accounting which requires that the expenses incurred during the period be recorded in the same period in which the related revenue are earned. The AO completed the assessment by disallowing Rs. 3,77,96,688/-. 7. The assessee carried the matter before the ld. CIT(A) and reiterated its claim of expenditure. The assessee explained that it is a I.T.A. No. 1561/Mum/2025 5 private limited company and is in the business of management, operation and maintenance of road projects. It was further explained that it entered into a binding agreement with M/s. Dilip Buildcon Ltd. for acquiring 24 road projects on Commercial Operational Date (COD) basis. It was explained that COD is the point at which the project starts generating revenue. It was strongly contended that the expenses shall be allowable u/s 37(1) of the Act once the same is incurred wholly and exclusively for the purpose of business except expenses incurred on capital account. Strong reliance was placed on the decision of the Hon’ble Supreme Court in the case of Taparia Tools Ltd. [372 ITR 605], wherein it has been categorically held that there is no concept of deferred revenue expenditure in the Income-tax Act except under specified Section where amortization is specifically provided such as in Section 35D of the Act. 8. After considering the facts and the submissions and drawing support from various judicial decisions, the ld. CIT(A) was of the opinion that rent expenses, commission, stamp duty charges and repair & maintenance expenses have been incurred on the office premises from which the assessee operates and such expenses being administrative expenses in nature would be incurred irrespective of the income earned. 9. In respect of other expenses on account of professional payments, travelling, and reimbursement of expense, the ld. CIT(A) observed that all these expenses have been incurred in furtherance of the business of the assessee. Referring to various judicial decisions, the ld. CIT(A) deleted the entire disallowance made by the AO. I.T.A. No. 1561/Mum/2025 6 10. Before us, the ld. D/R strongly supported the findings of the AO and read the operative part. It is the say of the ld. D/R that the expenses should have been capitalized by the assessee. Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. 11. We have given a thoughtful consideration to the orders of the authorities below. At the very outset, we have to say that the expenses have to be incurred for the purposes of the business and not for earning profit. Therefore, the allegation of the AO that the revenue of the assessee does not match with the expenditure incurred does not hold any water. All that has to be seen is that whether the expenses have been incurred for the purpose of business and whether expenses are of revenue in nature. If the answer to both is yes, the same has to be allowed irrespective of the quantum of revenue. We find that that the ld. CIT(A) has discussed each and every aspect of the expenditure incurred and has given a categorical finding of fact which are not disputed by the revenue. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). 12. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 28thApril, 2025 at Mumbai. Sd/- Sd/- (SANDEEP SINGH KARHAIL) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 28/04/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 1561/Mum/2025 7 आदेश की \u0014ितिलिप अ\u0019ेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001b / The Appellant 2. \u0014 थ\u001b / The Respondent 3. संबंिधत आयकर आयु! / Concerned Pr. CIT 4. आयकर आयु! ) अपील ( / The CIT(A)- 5. िवभागीय \u0014ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड% फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "