Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 5807 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 5 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-07-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Assessment Year
2009-2010
Appeal Filed On
21-02-2014
Judgement Text
1 ITA 1196/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.1196/MUM/2014 (ASSESSMENT YEAR: 2009-10) RELIANCE HYPERMART LTD (NOW MERGED WITH RELIANCE RETAIL LTD), 5 TH FLOOR, COURT HOUSE LOKMANYA TILAK MARG, DHOBI TALAO, MUMBAI 400 002. PAN : AABCR1718E VS ACIT-7 (2), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI VIJAY MEHTA RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 31 -05-2018 DATE OF PRONOUNCEMENT 27 -07-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF THE CIT(A)-132, MUMBAI DATED 23-12-2013 AND IT PERTAINS TO AY 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. GROUND NO. 1: I) THE LEARNED COMMISSIONER OF INCOME TAX (HERE INAFTER REFERRED TO AS CIT(A)) ERRED IN CONFIRMING THE DISALLOWANCE OF CLA IM FOR DEDUCTION IN RESPECT OF REVENUE EXPENDITURE INCURRED DURING THE YEAR AMOUNTING TO RS. 79,23,44,6107-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND MERCHANDISIN G GOODS AND 2 ITA 1196/MUM/2014 SERVICES, FILED ITS RETURN OF INCOME FOR AY 2009-10 ON 28-09-2009 DECLARING TOTAL LOSS OF RS.1,77,53,82,414. THE CAS E WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE A CT, WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAIL S, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTI CED THAT THE ASSESSEE HAS CLAIMED REVENUE EXPENDITURE OF RS.79,2 3,44,610 IN STATEMENT OF TOTAL INCOME; HOWEVER, SUCH EXPENSES H AS BEEN TREATED AS PRE-OPERATIVE EXPENSES AND CAPITALIZED UNDER THE HE AD WORK-IN- PROGRESS. THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY PRE-OPERATIVE EXPENSES CAPITALIZED IN BOOKS AND CLA IMED AS REVENUE EXPENDITURE SHALL NOT BE DISALLOWED WHILE COMPUTING INCOME FROM BUSINESS OR PROFESSION. IN RESPONSE TO NOTICE, THE ASSESSEE, VIDE ITS LETTER DATED 18-11-2011 SUBMITTED THAT IT HAS INCU RRED VARIOUS REVENUE EXPENDITURE IN CONNECTION WITH ITS BUSINESS AND SUC H EXPENSES ARE REVENUE IN NATURE HAVE BEEN DEBITED IN BOOKS OF ACC OUNT UNDER THE HEAD PROJECT DEVELOPMENT EXPENDITURE AND ARE APPEARING DIRECTLY IN THE BALANCE-SHEET AS PART OF CAPITAL WORK-IN-PROGRESS. SINCE, SUCH EXPENDITURE ARE OF REVENUE IN NATURE AND ARE INCURR ED DURING THE YEAR FOR THE PURPOSE OF BUSINESS AND ALSO THERE IS NO PROVIS ION TO CLAIM REVENUE EXPENDITURE INCURRED DURING A PARTICULAR YEAR IN AN Y OTHER ASSESSMENT 3 ITA 1196/MUM/2014 YEAR AS PER THE PROVISIONS OF THE INCOME-TAX ACT, S UCH EXPENDITURE HAS BEEN CLAIMED AS REVENUE EXPENSES U/S 37(1) IN THE C OMPUTATION OF INCOME. THE ASSESSEE ALSO FILED DETAILED REPLY ON THE ISSUE OF EXPENDITURE AND EXPLAINED HOW SUCH EXPENDITURE IS A LLOWABLE AS REVENUE EXPENDITURE. 3. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS O F THE ASSESSEE REJECTED CLAIM OF THE ASSESSEE TOWARDS PREOPERATIV E EXPENSES CAPITALISED IN BOOKS UNDER THE HEAD, WORK-IN-PROGRE SS AND CLAIMED AS REVENUE IN NATURE U/S 37(1) IN THE STATEMENT OF TOT AL INCOME BY OBSERVING THAT AS PER ASSESSEES OWN VERSION, IT HAS ACQUIRED AND ADDED A NUMBER OF OUTLETS DURING THE YEAR ACROSS THE COUNTRY AND I MPUGNED EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH ACQUISITION AN D ADDITION OF NEW OUTLETS. AS THE EXPENDITURE HAS RESULTED IN CREATI ON OF SUBSTANTIAL TANGIBLE ASSET, THE SAME IS BOUND TO BE TREATED AS CAPITAL EXPENDITURE. THE AO HAS GIVEN VARIOUS REASONS TO DENY THE CLAIM OF THE ASSESSEE TOWARDS REVENUE EXPENDITURE IN THE STATEMENT OF TOT AL INCOME. RELEVANT PORTION OF ORDER OF AO IS EXTRACTED BELOW:- 4. THE ABOVE ARGUMENT OF THE ASSESSEE IS CONS IDERED CAREFULLY AND THE SAME IS NOT ACCEPTABLE FOR THE FOLLOWING REASON S: A. AS PER ASSESSEE'S OWN VERSION IT HAS ACQUIRED AN D ADDED A NUMBER OF OUTLETS DURING THE YEAR ACROSS THE COUNTR Y AND THE IMPUGNED EXPENDITURE HAS BEEN INCURRED IN CONNECTIO N WITH ACQUISITION AND ADDITION OF NEW OUTLETS ONLY. AS TH E EXPENDITURE HAS RESULTED IN CREATION OF SUBSTANTIAL TANGIBLE ASSET, THE SAME IS BOUND 4 ITA 1196/MUM/2014 TO BE TREATED AS CAPITAL EXPENDITURE ONLY IN VIEW O F THE ACCOUNTING PRINCIPLES. B. IN NOTES TO SCHEDULE C (FIXED ASSETS) TO THE BAL ANCE SHEET, THE IMPUGNED AMOUNT IS SHOWN AS PRE-OPERATIVE EXPENSES, WHICH CANNOT BE ALLOWED AS REVENUE EXPENDITURE FOR THE YEAR UNDE R CONSIDERATION. C. AN EXPENDITURE CANNOT ENJOY DUAL STATUS OF BEIN G CAPITAL IN BOOKS OF ACCOUNTS AND REVENUE FOR THE PURPOSES OF INCOME TAX. D. THE ASSESSEE ITSELF IN ITS BOOKS OF ACCOUNTS TRE ATED THE SAME TO J BE CAPITAL IN NATURE AND ACCORDINGLY CAPITALIZED TH E SAME AS 'CAPITAL WIP'. EVEN THE AUDITORS HAVE NOT COME OUT WITH ABSOLUTELY CLEAR REMARK IN THE TAX AUDIT REPORT AT CLAUSE NO.1 7 WHERE IT STATES THAT THE ASSESSEE HAD LAUNCHED A PROJECT AND THE SA ME IS IMPLEMENTED IN A PHASED MANNER. IF THE SAME EXPENDITURE PERTAINS TO A PARTICULAR PROJ ECT, THEN ALL THE EXPENDITURE INCURRED ON THE PROJECT TILL IT IS IMPL EMENTED, NEEDS TO BE CAPITALIZED AND THE SAME CANNOT BE CLAIMED AS REVEN UE. E. THE SAID CAPITAL EXPENDITURE HAS NOT GENERATED A NY INCOME/LOSS TO BE ELIGIBLE TO BE CLAIMED AS REVENUE, F. IT IS ALSO RELEVANT TO NOTE HERE THAT AS PER PRO VISIONS OF SECT 145, THE ASSESSEE HAS TO FOLLOW A CONSISTENT ACCOUNTING POLICY UNLESS THERE IS ANY SPECIFIC NOTIFICATION ISSUED BY THE CE NTRAL GOVERNMENT/WITH REGARD TO ANY SPECIFIC ACCOUNTING S TANDARD TO BE FOLLOWED. IN VIOLATION OF THIS PRINCIPLE THE ASSESS EE HAS FOLLOWED ONE ACCOUNTING POLICY FOR THE PURPOSES OF COMPANIES ACT AND ANOTHER FOR INCOME TAX AS FAR AS 'PROJECT DEVELOPMENT COST' CLAIM IS CONCERNED. G. AS PER ASSESSEE'S OWN VERSION THE IMPUGNED EXPEN DITURE HAS NOT BEEN INCURRED IN CONNECTION WITH RUNNING OF DAY-TO- DAY BUSINESS BUT HAS BEEN INCURRED FOR ACQUISITION OF NEW OUTLETS AN D THE ASSESSEE WAS WELL AWARE OF THIS FACT, THAT IS WHY IT HAS TRE ATED THIS EXPENDITURE AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNTS. WH EN IT IS SO THEN HOW THE SAID EXPENDITURE CAN BE ALLOWED TO BE TREAT ED AS REVENUE EXPENDITURE, THE ASSESSEE HAS NOT BEEN ABLE TO ESTA BLISH. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS, WHICH HAVE BEEN REPRODUCED AT PARA 3 ON PAGES 2 TO 8 OF THE ORDER OF LD.CIT(A). THE ASSESSEE ALSO FILED DETAILS OF VARIOUS EXPENDITURE INCURRED AND DEBITED TO PROJECT DEVELOP MENT EXPENDITURE IN THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO RELIED UPO N CERTAIN JUDICIAL 5 ITA 1196/MUM/2014 PRECEDENTS TO SUPPORT ITS VIEW. THE SUM AND SUBSTA NCE OF THE ARGUMENTS OF THE ASSESSEE BEFORE THE LD.CIT(A) ARE THAT EVEN THOUGH IT HAS TREATED CERTAIN EXPENDITURE IN THE NATURE OF PR E-OPERATIVE EXPENSES TO BE CAPITALIZED UNDER THE HEAD WORK-IN-PROGRESS , BUT FACT REMAINS THAT SUCH EXPENDITURE ARE IN THE NATURE OF REVENUE EXPEN DITURE LIKE RENT, SALARY, TRAVELLING EXPENSES, PROFESSIONAL FEES, ELE CTRICITY, POWER, FUEL, ETC AND OTHER DAY TO DAY EXPENSES WHICH ARE INCURRED TO WARDS EXISTING BUSINESS ACTIVITY FOR THE PURPOSE OF EXPANSION BY S ETTING UP MORE OUTLETS. THEREFORE, THERE IS NO REASON FOR THE AO TO DISALLOW SUCH EXPENDITURE ONLY FOR THE REASON THAT THE ASSESSEE H AS PROVIDED THE SAME IN THE BOOKS OF ACCOUNT AS PRE-OPERATIVE EXPEN SES. 5. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO RELYING UPON CASE LAWS CITED BY T HE ASSESSEE, OBSERVED THAT THE ASSESSEE HAS FAILED TO PROVE THAT THESE EXPENSES WERE PAID BY IT DURING THE PREVIOUS YEAR RELEVANT T O AY 2009-10 IN THE COURSE OF ITS BUSINESS. THOUGH THERE IS NO DISPUTE THAT THESE EXPENSES ARE REVENUE EXPENSES AND ASSESSEE HAS BEEN EXPANDIN G ITS BUSINESS OF TRADING IN VARIOUS PRODUCTS DURING THE YEAR BY A CQUIRING PORTION OF RELIANCE RETAILS LTD, AS IT IS EVIDENT FROM THE DIR ECTORS REPORT AND ALSO THE EXPENSES, IN PRINCIPLE, WERE ADMISSIBLE U/S 37 OF THE ACT, AS IS ALREADY UPHOLD BY THE ITAT, MUMBAI BENCHES. HOWEVER , IN ABSENCE OF 6 ITA 1196/MUM/2014 ANY PROOF THAT THEY WERE INCURRED BY THE ASSESSEE A ND COUPLED WITH THE FACT THAT SUCH EXPENSES WERE INCURRED PRIOR TO THE DATE OF AGREEMENT, THERE IS NO MERIT IN THE ARGUMENT OF THE ASSESSEE T HAT THESE ARE INCURRED IN THE COURSE OF BUSINESS ACTIVITY AND WHICH IS ALL OWABLE U/S 37(1) OF THE ACT. THE RELEVANT PORTION OF THE ORDER OF THE LD.C IT(A) IS EXTRACTED BELOW:- 3.5 1 HAVE LOOKED INTO DETAILS. AS PER THE SLUMP S ALE AGREEMENT DATED 18TH JUNE, 2009 THE EMPLOYEES IN RESPECT OF WHOM WAGES BONUS AND EM PLOYEES BENEFITS WERE CLAIMED BY THE APPELLANT ARE APPEARING IN SCHEDULE 3 OF AGREEM ENT. FOR THE SAME, THE APPELLANT WERE ASKED TO FURNISH A COPY OF THESE PARTIES' LEDG ER ACCOUNT ALONG WITH TDS DETAILS TO SHOW THAT PAYMENTS WERE MADE BY THE APPELLANT DURING THE PREVIOUS YEAR 2008-09 RELEVANT TO AY 2009-10. THE APPELLANT WAS GIVEN 7 D AYS TIME. HOWEVER, EVEN AFTER LAPSE OF SAID PERIOD, IT IS NOTED THAT A COPY OF ACCOUNTS TO SHOW THAT THESE PAYMENTS WERE MADE BY THE APPELLANT HAS YET NOT BEEN FURNISHED. THE AP PELLANT DURING THE APPELLATE PROCEEDINGS HAVE RELIED UPON THE DECISION GIVEN BY THE HON'BLE MUMBAI IN CASE OF THEIR SISTER CONCERNED IN ITA NO 5997/MUM/2011 FOR AY 9 I N THE CASE M/S. RELIANCE FOOTWEAR LTD. VS. ACIT AND STATED THAT THE ISSUE EN DECIDED IN FAVOUR OF APPELLANT. AS THE MATTER IS APPARENTLY ON THE SAME LINE, IN TH E INSTANT APPEAL, AS PER APPELLANT, APPELLANT HAS BEEN ASKED TO FURNISH THE DETAILS OF SALARY AND WAGES PAID AND ISSUE WHICH HAS ALREADY DEALT WITH IN CASE OF RELIANCE FOOTWEAR IN PARA 6.2 AS UNDER: - ' 6.2 SO FAR AS IT RELATES TO THE OBSERVATIONS MADE BY LD. CIT(A) IN HIS ORDER THAT ASSESSEE VIDE LETTER DATED 28.06.201 I HAS MERELY G IVEN THE NAME, DESIGNATION AND AMOUNT PAID WITH REFERENCE TU SALARY PAID WITHOUT G IVING ANY PROOF OF WORK ACTUALLY BEING DONE, WE MAY MENTION THAT WE HAVE CAREFULLY GONE TH ROUGH THE DETAILS FILED BY THE ASSESSEE BEFORE LD.CIT(A). COPY OF THE DOCUMENTS SU BMITTED BEFORE LD. CIT(A), AS MENTIONED EARLIER, WERE FILED BEFORE US. WE FIND TH AT ASSESSEE IN THE DETAILS SO FILED HAS MENTIONED JOB DESCRIPTION OF EACH OF THE EMPLOYEES ALONG WITH AMOUNT PAID TO HIM DESCRIBING ALSO THAT HOW MUCH TDS HAS BEEN DEDUCTED . FOR EXAMPLE JOB DESCRIPTION IS DESCRIBED AS SOURCING PRODUCT DESIGN AND DEVELOPMEN T; SCURCING AND PROCUREMENT; CATEGORY MANAGEMENT; MARKETING COMMUNICATION, MARKE TING CONSUMER BEHAVIORS; DISTRIBUTION AND LOGISTIC; SOURCING AND PROCURING; TALENT ACQUISITION BUYER ETC. IN THE NOTE WHICH HAS BEEN FILED ALONG WITH THE DETAILS IT IS C LEARLY MENTIONED THAT THE ASSESSEE HAS EMPLOYED THESE PERSONS FOR CARRYING OUT MARKET RESE ARCH WORK SUCH AS TO CONTACT VARIOUS MANUFACTURERS AND SUPPLIERS OF THE FOOTWEAR AND OTH ER ACCESSORIES; GETTING BASE PRICE AND DELIVERY SCHEDULES AS WELL AS COMPARING THE PRO DUCTS OF VARIOUS MANUFACTURERS OF UNBRANDED PRODUCTS WITH THE PRICE AND QUALITY OF BR ANDED PRODUCTS, PREPARING VARIOUS REPORTS FOR THIS PURPOSE, PLANNING, DISTRIBUTION AN D LOGISTIC, SOURCING, DESIGNING PRODUCTS, INVENTORY PLANNING DISCUSSING CONSUMER PREFERENCES FOR VARIOUS PRODUCT RANGE ETC. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LTD. CIT(A) MATCHES WITH THE JOB DESCRIPTION OF ALL THE EMPLOYEES, THEREFORE, IT CANNOT BE SAID THA T ASSESSEE DID NOT PROVIDE THE NECESSARY DETAILS, BY FURNISHING THESE DETAILS, THE ASSESSEE HAD PLACED ON RECORD PRIMA FACIE MATERIAL TO SUBSTANTIATE THE QUERY RAISED BY LD. CIT(A). WITHOUT POINTING OUT ANY DEFECT AND WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD, LD. CIT{A) HAS OBSERVED THAT ASSESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE W AS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEEE. THUS, THE RE IS NOT BASIS FOR RECORDING SUCH FINDING. THEREFORE, EVEN FOR THE ADDITIONAL REASONS DESCRIBED BY LD, CU (A), THE DISALLOWANCE CANNOT BE UPHELD.' 3.7 NOW, FURTHER GOING THROUGH THE FACTS AND DETAILS, THESE POINTS EMERGE: 7 ITA 1196/MUM/2014 1. THE PRICE PAID AS CONSIDERATION OF RS.10,62,63,0 0,000/- DOES NOT MATCH WITH TOTAL PROJECT DEVELOPMENT EXPENDITURE DEBITED AT RS.95,14 ,27,44,415/-. OUT OF THIS, ASSESSEE CLAIMED RS.79,23,44,610/- AS 'REVENUE EXPENSES' OUT OF TOTAL 'PROJECT DEVELOPMENT EXPENSES' DURING THE YEAR RELEVANT TO AY 2009-10. 2. THE LEDGER ACCOUNT OF INDIVIDUAL EMPLOYEES OR EV EN CONSOLIDATED SALARY ACCOUNT ALONG WITH SUPPORTING EVIDENCE IN FORM OF DETAILS TDS, TH E PAYMENTS MADE BY THE APPELLANT AS SALARY AND WAGES RS.20,01,66,068/- AND THEN CONTRIB UTION TO PF, GRATUITY AND LEAVE ENCASHMENT OF RS.82,51,105/- HAS NOT BEEN SUBSTANTI ATED. THE APPELLANT HAS ALSO FAILED TO SHOW TDS MADE ON THESE SALARIES APPARENTLY PAID BY THEM AND HOWEVER HAS NOT BEEN ABLE TO SHOW THAT PAYMENT FOR PF AND OTHER STATUTOR Y ALLOWANCES HAVE BEEN PAID BY THEM IN ABSENCE OF ANY SUPPORTING DOCUMENT SHOWING THEM AS PAYER FOR THESE AMOUNTS CLAIMED AS THEIR REVENUE EXPENSES. 3.8 IN VIEW OF THESE FACTS, 1 AM OF THE CONSIDE RED OPINION THAT THE APPELLANT HAS FAILED TO PROVE THAT THESE EXPENSES WERE PAID BY THE DURIN G THE PREVIOUS YEAR RELEVANT TO AY 2009-10. THOUGH THERE IS NO DISPUTE THAT THESE EX PENSES ARE REVENUE EXPENSES AND SINCE APPELLANT HAS EXTENDING ITS BUSINESS OF TRADI NG IN HIGH QUALITY PRODUCTS RANGING OVER 20000 PRODUCTS DURING THE YEAR BY ACQUIRING PORTION OF RELIANCE RETAIL LTD. AS ITS EVIDENT FROM THE DIRECTORS' REPORT ALSO; HENCE THE EXPENSES IN PRINCIPLE WERE ADMISSIBLE U/S.37 OF THE ACT; AS IS ALREADY UPHELD BY HON'BLE ITAT, MUMB AI. HOWEVER, IN ABSENCE OF ANY PROOF THAT THEY WERE INCURRED BY THE APPELLANT AND COUPLE D THE FACT WITH THAT AGREEMENT IS DATED 18.1)6.2009 AND EXPENSES ARE CLAIMED TO BE OF PREVI OUS YEAR 2008-09R EL EVANT TO AY 2009-10 AND TRANSFER DATE IS 31ST MARCH, 2008, THUS , IT IS CLEAR THAT EXPENSES ACTUALLY DID NOT PERTAIN TO BUSINESS OF APPELLANT BUT THAT OF RE LIANCE RETAIL LTD. PERTAINING TO EARLIER YEARS BEFORE THE DATE OF TRANSFER AND HENCE THE CLAIM IS NOT ADMISSIBLE. AS STATED EARLIER ALSO THE AUDIT REPORT OF THE APPELLANT CLEARLY STATES IN POI NT 10 UNDER THE HEAD 'PROJECT DEVELOPMENT EXPENDITUR E', THESE EXPENSES AS 'PRE-OPERATIVE EXPENDITURE' TOTAL ING TO RS.9,005.89 LACS OUT OF WHICH APPELLANT HAS CAPITALIZED 1,589.15 LACS. IT IS NOTEWORTHY THAT AO H AS ALSO OBSERVED IN THE ASSESSMENT ORDER THAT THESE EXPENSES ARE DEBITED AS 'PRE-OPERATIVE EXPENSES' IN NOTES 2 IN THE SCHEDULE 'C' (FIXED ASSETS) OF THE BALANCE SHEET. 3.9 IN VIEW OF THIS THERE WAS NO AMBIGUITY THAT THESE EXPENSES WERE NOT INCURRED DURING THE PY 2008-09 RELEVANT TO AY 2009-10 AND HENCE THEY BEING NOT ADMIS SIBLE U/S, 37 HAVE TO BE DISALLOWED. THE ACTION OF AO IS UPHELD. GROUND NO. 1 IS DISMISSED. 6. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF ITAT, D BENCH IN THE CASE OF M/S RELIANCE FOO TPRINT LTD IN ITA NO.5997/MUM/2011, WHEREIN UNDER SIMILAR SET OF FACT S, THE ITAT BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS KOTHARI AUTO PARTS MANUFACTURING LTD 109 ITR 333 (BOM) AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS ALEMBIC GLASS INDUSTRIES LTD 103 ITR 750 (GUJ), HELD THAT T HE EXPENDITURE INCURRED BY THE ASSESSEE ARE FOR THE PURPOSE OF EXP ANSION OF ITS 8 ITA 1196/MUM/2014 BUSINESS AND THOSE EXPENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE AND DOES NOT CREATE ANY ASSET AND ALSO DID NOT PROV IDE ANY ENDURING BENEFIT TO THE BUSINESS OF THE ASSESSEE SO AS TO SA Y THAT EXPENDITURE WAS CAPITAL IN NATURE. THE FACTS IN THIS CASE ARE IDENTICAL TO THE ISSUE WHICH HAS ALREADY BEEN CONSIDERED BY THE ITAT, THER EFORE, FOR SIMILAR REASONS, THE ADDITION MADE BY THE AO TOWARDS DISALL OWANCE OF REVENUE EXPENDITURE CLAIMED IN THE STATEMENT OF TOTAL INCOM E, BUT TREATED AS PRE- OPERATIVE EXPENSES AND CAPITALISED UNDER THE HEAD CAPITAL WORK-IN- PROGRESS IN THE BOOKS OF ACCOUNT IS DELETED. THE LD.AR FURTHER SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT UPHELD THE FINDINGS OF THE ITAT IN THE CASE OF M/S RELIANCE FOOTPRINT LTD IN I NCOME-TAX APPEAL NO.892 OF 2014 DATED 05-07-2017. THEREFORE, THE IS SUE IS WELL SETTLED BY THE DECISION OF JURISDICTIONAL HIGH COURT AND HE NCE, THE ADDITION MADE BY THE AO CANNOT BE SUSTAINED. 7. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTING THE ORDER OF THE LD.CIT(A) SUBMITTED THAT IT IS EVIDENT FROM THE ASS ESSEES OWN VERSION THAT IT HAS TREATED EXPENDITURE INCURRED TOWARDS EX PANSION OF ITS EXISTING BUSINESS AS PRE-OPERATIVE EXPENSES TO BE CAPITALISE D IN THE BOOKS OF ACCOUNT, BUT CLAIMED AS REVENUE EXPENDITURE IN THE STATEMENT OF TOTAL INCOME. THEREFORE, FROM ASSESSEES OWN CONTENTION IT IS VERY CLEAR THAT AN EXPENDITURE CANNOT ENJOY DUAL STATUS OF BEING CA PITAL IN BOOKS AND 9 ITA 1196/MUM/2014 REVENUE FOR THE PURPOSE OF INCOME-TAX, HENCE, THE A O HAD RIGHTLY DISALLOWED REVENUE EXPENDITURE CLAIMED BY THE ASSES SEE AND SUCH DISALLOWANCE HAS BEEN AFFIRMED BY THE LD.CIT(A) AND , THEREFORE, HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IAL AVAILABLE ON RECORD. THE ASSESSEE HAS INCURRED VARIOUS REVENUE EXPENSES LIKE RENT, SALARY AND OTHER PERQUISITES TO STAFF, TRAVELLING E XPENSES, POWER AND FUEL AND OTHER DAY TO DAY EXPENSES TOWARDS EXPANSION OF ITS EXISTING BUSINESS BY SETTING UP MORE RETAIL SHOPS IN VARIOUS PART OF THE COUNTRY. THE ASSESSEE HAS CAPITALISED SAID EXPENSES IN ITS B OOKS OF ACCOUNT UNDER THE HEAD, WORK-IN-PROGRESS; HOWEVER, CLAIME D IT AS REVENUE EXPENDITURE IN THE STATEMENT OF TOTAL INCOME U/S 37 (1) OF THE INCOME-TAX ACT, 1961. THE AO DISALLOWED REVENUE EXPENSES CLAI MED IN THE STATEMENT OF TOTAL INCOME ON THE GROUND THAT AN EXP ENDITURE CANNOT ENJOY DUAL STATUS OF BEING CAPITAL IN BOOKS OF ACCO UNT AND REVENUE FOR THE PURPOSE OF INCOME-TAX. THE AO FURTHER OBSERVED THAT THE ASSESSEE ITSELF IN ITS BOOKS OF ACCOUNT TREATED THE SAME TO BE CAPITAL IN NATURE AND ACCORDINGLY CAPITALISED UNDER THE HEAD PRE-OPERATI VE EXPENSES. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE INC URRED UNDER THE HEAD PRE-OPERATIVE EXPENSES AND TREATED AS CAPITAL WORK -IN-PROGRESS ARE IN THE NATURE OF REVENUE EXPENDITURE BEING RENT, SALAR Y AND OTHER GENERAL 10 ITA 1196/MUM/2014 OVERHEAD EXPENSES, WHICH ARE INCURRED IN CONNECTION WITH RUNNING OF DAY TO DAY BUSINESS OF EXPANSION OF ITS EXISTING BU SINESS BY ACQUISITION OF NEW OUTLETS, THEREFORE, MERELY FOR THE REASON TH AT THE ASSESSEE HAS GIVEN DIFFERENT TREATMENT FOR THE SAME IN ITS BOOKS OF ACCOUNT AND IN THE STATEMENT OF TOTAL INCOME FOR THE PURPOSE OF COMPUT ATION OF INCOME CANNOT BE A REASON FOR DISALLOWING SAID EXPENSES. 9. HAVING HEARD BOTH THE SIDES, WE FIND THAT EXPENS ES INCURRED UNDER THE HEAD, PRE-OPERATIVE EXPENSES ARE IN THE NATUR E OF REVENUE EXPENSES, WHICH ARE INCURRED IN CONNECTION WITH RUN NING OF DAY TO DAY BUSINESS ACTIVITY OF THE ASSESSEE. ALTHOUGH, THE S AID EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH EXPANSION OF ITS E XISTING BUSINESS TO SET UP MORE RETAIL OUTLETS, BUT THE FACT REMAINS THAT T HE BUSINESS ACTIVITY OF THE ASSESSEE HAS ALREADY BEEN COMMENCED AND ONCE TH E BUSINESS ACTIVITY OF THE ASSESSEE HAS BEEN COMMENCED, WHATEV ER REVENUE EXPENDITURE IS INCURRED, WHETHER SUCH EXPENDITURE H AS BEEN INCURRED IN CONNECTION WITH RUNNING OF DAY TO DAY BUSINESS ACTI VITY OR EXPANSION OF ITS EXISTING BUSINESS, THE SAME NEEDS TO BE ALLOWED AS REVENUE EXPENSES WHILE COMPUTING INCOME FROM BUSINESS OR PR OFESSION. WHAT IS IMPORTANT FOR AN EXPENDITURE TO BE TREATED AS REVEN UE OR CAPITAL IN NATURE IS THE NATURE OF EXPENSE, BUT NOT TREATMENT GIVEN B Y THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF 11 ITA 1196/MUM/2014 HONBLE BOMBAY HIGH COURT IN THE CASE OF OF CIT VS KOTHARI AUTO PARTS MANUFACTURING LTD (SUPRA) AND THE DECISION OF HONB LE GUJARAT HIGH COURT IN THE CASE OF CIT VS ALEMBIC GLASS INDUSTRIE S LTD (SUPRA). THIS PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF CO-ORDINATE BENCH OF ITAT, IN THE CASE OF RELIANCE FOOTPRINT LTD, WHEREI N THE BENCH, AFTER CONSIDERING THE RATIO LAID DOWN BY THE HONBLE SUPR EME COURT IN THE CASE OF KEDARNATH JUTE MFG CO LTD 82 ITR 363 (SC), HELD AS UNDER:- 6. WE HAVE HEARD BOTH PARTIES AND THEIR CON TENTIONS HAVE CAREFULLY BEEN CONSIDERED. THERE IS NO DISPUTE TO THE FACT THAT TH E 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 TH E CASE OF THE ASSESSEE THAT IT IS IN THE PROCESS OF EXPANSION OF ITS BUSINESS AND T HUS THIS EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXPANION OF BUSINESS. IT WAS ALSO SUBMITTED THAT THE EXPENDITURE WHICH ARE IN THE NATURE OF SALARY, EL ECTRICITY, AUDIT FEE ETC. ARE ESSENTIALLY INCURRED FOR EXPARISJON_OF EXISTING LINE OF BUSINE SS THAT IS SETTING UP OF MORE NUMBER OF STORES/SPECIALITY STORES UNDER PLANNED FO RMAT OR FOR MAINTENANCE OF ALREADY ESTABLISHED STORES. THESE SUBMISSIONS WERE MADE BEFORE THE AO AND HAVE NOT BEEN CONTROVERTED BY THE AO AND DISALLOWAN CE IS MADE MAINLY ON THE GROUND THAT THE ASSESSEE CAN NOT GIVE DUAL STATUS T O THESE EXPENDITURES I.E. AS-CAPITAL' IN BOOKS OF ACCOUNT AND AS 'REVENUE' FOR INCOME TAX PURPOSES. HOWEVER, SUCH VIEW OF THE AO CAN NOT BE UPHELD IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG COMPANY LTD, (SUPRA) WHE REIN IT HAS BEEN HELD THAT THE ISSUE WHETHER THE ASSESSEE IS ENTITLED TO A PARTICU LAR DEDUCTION WILL DEPEND UPON THE PROVISIONS OF LAW RELATING THERETO AND NOT ON THE V IEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS, NOR CAN THE EXISTENCE OR ABS ENCE 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 ITIS ALSO CLEAR THAT OPENING OF STORES AT VARIOUS PLACES WAS ONE COMPOSITE BUSINESS OF THE ASSESSEE AND IN THAT COURSE THE ASSESSEE HAD STA RTED OPERATION OF ITS STORES AT BANGALORE AND HYDERABAD. IT WAS THE CONT ENTION OF THE ASSESSEE THAT OPERATIONS OF THESE STORES AT VARIOUS LOCATIONS IS ONE COMPOSITE BUSINESS AND ONCE BUSINESS HAD BEEN STARTED THEN THE EXPENDITURE CANN OT BE LINKED ONLY TO THE STORES WHICH BECAME OPERATIONAL DURING THE YEAR UNDER CONSIDERATION. SUCH SUBMISSION OF THE ASSESSEE HAS NOT BEEN CONTROVERTE D BY THE AO. 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 TH E LETTER SUBMITTED BY THE ASSESSEE BEFORE AO IT IS CLEARLY MENTIONED THAT WHEN THE EX PENDITURE IS INCURRED FOR THE PURPOSE OF EXPANSION OF BUSINESS WHICH IS ALREADY I N EXISTENCE AND, WHICH IS IN THE NATURE OF REVENUE, THEN THE SAME IS ALLOWABLE AS RE VENUE EXPENDITURE IRRESPECTIVE OF THE TREATMENT GIVEN BY THE ASSESSEE TO SUCH EXPENDI TURE IN ITS BOOKS OF ACCOUNT. NO 12 ITA 1196/MUM/2014 MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO NE GATE SUCH SUBMISSIONS MADE BY THE ASSESSEE. THESE PROPOSITIONS PUT FORTH BY THE A SSESSEE BEFORE AO ARE SUPPORTED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. KOTHARI AUTO PARTS MANUFACTURERS PVT. LTD. (SUPRA), AND THE DECISION O F HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT I;S. ALEMBIC GLOSS INDUSTRIES LTD. (SUPRA}. THEREFORE, IT HAS TO BE HELD THAT THESE EXPENDITURES INCURRED BY THE ASS ESSEE ARE FOR THE PURPOSE OF EXPANSION OF ITS BUSINESS AND THOSE EXPENDITURE ARE IN THE N ATURE 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 ME CASE OF CIT VS. KOTHAN AUTO PARTS MANUFACTURERS PVT. LTD.(SUPRA) ARID HON'BLE HIGH CO URT OF GUJRAT IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD. (SUPRA). THESE EXPENDITURES DIDL 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 NATUR E. THEREFORE, WE HOLD THAT EXPENDITURE ARE ALLOWABLE IN THE YEAR UNDER CONSIDE RATION IRRESPECTIVE OF THE FACT THAT ASSESSEE HAS GIVEN DUAL STATUS TO SUCH EXPENDITURE IN ITS BOOKS OF ACCOUNT VIS-A-VIS COMPUTATION OF INCOME FILED ALONGWITH RETURN. 6.2 SO FAR AS IT RELATES TO THE OBSERVATIONS M ADE BY LD. CIT(A) IN HIS ORDER THAT ASSESSEE VIDE HIS LETTER DATED 28/6/2011 HAS MERELY GIVEN THE NAME, DESIGNATION AND AMOUNT PAID WITH REFERENCE TO SALARY PAID WITHOUT G IVING ANY PROOF OF WORK ACTUALLY BEING DONE, WE MAY MENTION THAT WE HAVE CAREFULLY GONE THROUGH THE DETAILS FILED BY THE ASSESSEE BEFORE LD. CIT(A) AS MENTIONED EARLIER , WERE FIFED BEFORE US. WE FMD THAT ASSESSEE IN THE DETAILS SO FILED HAS ME NTIONED JOB DESCRIPTION OF EACH OF THE EMPLOYEES ALONGWITH AMOUNT PAID TO HIM DESCRIBING ALSO THAT HOW MUCH TDS HAS BEEN DEDUCTED. FOR EXAMPLE JOB DESCRIPTI ON IS DESCRIBED AS SOURCING PRODUCT DESIGN AND DEVELOPMENT; SOURCING AND PROCUR EMENT; CATEGORY MANAGEMENT, MARKETING COMMUNICATION, MARKETING CONSUMER BEHAVIO RS; DISTRIBUTION AND LOGISTIC, SOURCING AND PROCURING; TALENT AC QUISITION BUYER ETC. ETC. IN THE NOTE WHICH HAS BEEN FILED ALONG WITH THE DETAILS, IT IS CLEARLY MENTIONED THAT THE ASSESSEE HAS EMPLOYED THESE PERSONS FOR CARRYING OUT MARKET RESEARCH WORK SUCH AS TO CONTACT VARIOUS MANUFACTURERS AND SUPPLIERS OF THE FOOTWEAR AND OTHER ACCESSORIES; GETTING BASE PRICE AND DELIVERY SCHEDULES AS WELL AS COMPARING THE PRODUCTS OF VARIOUS MANUFAC TURERS OF UNBRANDED PRODUCTS WITH THE PRICE AND QUALITY OF BRANDED PR ODUCTS, PREPARING VARIOUS REPORTS FOR THIS PURPOSE, PLANNING, DISTRIBUTION AND LOGISTIC, SOURCING, DESIGNING PRODUCTS, INVENTORY PLANNING DISCUSSING CONSUMER PREFERENCES FOR VARIOUS PRODUCT RANGE ETC. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LD. CIT(A) MATCHES; WITH THE JOB DESCRIPTION OF ALL THE EMPLOYEES. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE DID NOT PROVIDE THE NECESSARY DETAILS. BY FURNISHING THES E DETAILS, THE ASSESSEE HAD PLACED ON RECORD PRIRNA FACIE MATERIAL TO SUBSTANTIATE THE QUERY RAISED BY LD CIT(A). WITHOUT POINTING OUT ANY DEFECT AND WITHOUT BRINGIN G ANY ADVERSE MATERIAL ON RECORD, LD C1T(A) HAS OBSERVED THAT ASSESSEE HAS FAILED TO PRO VE THAT THE EXPENDITURE WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THUS THERE IS NO BASIS FOR RECORDING SUCH FINDING. THEREFORE , EVEN FOR THE ADDITIONAL REASONS DESCRIBED BY LD CFT(A$, THE DISALLOWANCE CANNOT NOT BE UPHELD. 10. THE HONBLE BOMBAY HIGH COURT HAS UPHELD THE DE CISION OF ITAT, MUMBAI IN THE CASE OF RELIANCE FOOTPRINT LTD IN INC OME-TAX APPEAL NO.892 OF 2014 VIDE ITS ORDER DATED 05-07-2017. TH E RELEVANT PORTION OF 13 ITA 1196/MUM/2014 THE ORDER OF THE HIGH COURT IS EXTRACTED BELOW:- 6] WE HAVE CONSIDERED THE SUBMISSIONS CANVASSED B Y THE LEARNED COUNSEL FOR THE RESPECTIVE PARTIES. 7] IT IS NOT RELEVANT AS TO HOW THE ASSESSEE SHOWS A PARTICULAR INCOME OR EXPENDITURE IN THE BOOKS OF ACCOUNT. IN T HE PRESENT CASE, THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAS SPE CIFICALLY ON APPRECIATION OF FACTUAL MATRIX ARRIVED AT A CONCLUS ION THAT THE EXPENDITURE ARE DIRECTLY IDENTIFIABLE WITH THE OPER ATIONS AND MAINTENANCE OF THE EXISTING STOCKS I.E. WITH REGARD TO THE PAYMENT OF SALARY, TRAVELLING AND CONVEYANCE ALLOWANCE, TELEPH ONE EXPENSES, PROFESSIONAL FEES PAID, AUDIT FEE AND OTHER MISCELL ANEOUS EXPENSES. 8] IN VIEW OF THE SPECIFIC FINDING OF FACT ARRIVED AT BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL, THE TRIBUN AL HAVE HELD THE EXPENDITURE TO BE REVENUE EXPENDITURE. IN CASE OF KOTHARI AUTO PARTS MANUFACTURERS PVT. LTD. (SUPRA), THIS COURT HAD SPECIFICALLY OBSERVED THAT SEPARATE COMPUTATION OF INCOME AND EX PENDITURE WOULD BE JUSTIFIED ONLY WHEN SEVERAL DISTINCT BUSINESS AR E CARRIED ON, AND NOT WHEN THE SEPARATE BUSINESS ACTIVITIES WERE CARR IED OUT BY SOME PERSON AND WHEN ONE SET OF ACCOUNT IS MAINTAINED FO R ALL SET OF ACTIVITIES. 9] IN THE PRESENT CASE ALSO, ONE SET OF ACCOUNT IS MAI NTAINED FOR THE BUSINESS ACTIVITY BY THE ASSESSEE. THE ASSESSE E HAD INCURRED EXPENDITURE ON ACCOUNT OF EXPANSION OF BUSINESS AND THE ASSESSEE HAD COMMENCED THE BUSINESS AS PER THE FINDINGS OF T HE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE SAID F INDINGS ARE FINDINGS OF THE FACT. 10] IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LAW ARISES. THESE APPEALS, AS SUCH, STAND DISMISSED. NO COSTS. 11. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOL LOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S RELIAN CE FOOTPRINT LTD (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DISALLOWING REVENUE EXPENSES CLAIMED BY THE ASSESSE E IN THE STATEMENT OF TOTAL INCOME, BUT TREATED AS PRE-OPERATIVE EXPEN SES TO BE CAPITALIZED UNDER THE HEAD, CAPITAL WORK-IN-PROGRESS IN BOOKS OF ACCOUNT. 14 ITA 1196/MUM/2014 THEREFORE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS DISALLOWANCE OF EXPENSES. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH JULY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI
