RELIANCE WELLNESS LTD ( NOW AMALGAMATED WITH RELIANCE COMMERICIAL LAND & INFRASTRUCTURE LTD W.E.F. 01/04/2012), MUMBAI V. DCIT 3(3), MUMBAI

ITA 3444/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100971 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH GAIKWAD; JAYANT KUMAR
• Keywords: Capital asset; Business expenditure; Source of fund; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 3444 / MUM/20 1 3 ( / ASSESSMENT YEA R : 20 0 8 - 0 9 ) RELIANCE WELLNE SS LTD, (NOW MERGED WITH RELIANCE COMMERCIAL LAND AND INFRASTRUCTURE LTD. W.E.F. 1.4.2012), 5 TH FLOOR, COURT HOUSE, LOKMANYA TILAK MARG, DHOBI TALAV, MUMBAI - 4000 0 2 / VS. DY .COMMISSIONER OF INCOME TAX - 3(3), AYAKAR BHAVAN,M.K.ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .4273/ MUM/20 13 ( / ASSESSMENT YEA R : 2009 - 10 ) RELIANCE WELLNESS LTD, (NOW MERGED WITH RELIANCE COMMERCIAL LAND AND INFRASTRUCTURE LTD. W.E.F. 1.4.2012), 5 TH FL OOR,COURT HOUSE, LOKMANYA TILAK MARG, DHOBI TALAV, MUMBAI - 4000 02 / VS. DY. COMMISSIONER OF INCOME TAX - 3(3) , AYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AACCE 06 22 K / APPELLANT S BY SHRI FARROKH IRANI / R EVENUE BY S/ SHRI KAILASH GAIKWAD AND JAYANT KUMAR / DATE OF HEARING : 0 3 .9 . 201 5 / DATE OF PRONOUNC EMENT: 9 . 9. 201 5 ITA NO. 3444/ AND 4273 MUM/20 1 3 2 / O R D E R P ER B ENCH : BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 7, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. SINCE IDENTICAL ISSUE IS URGED IN THE SE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE SOLITARY ISSUE URGED IN THESE APPEALS IS WHETHER THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF PROJECT DEVELOPMEN T EXPENSES CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. 3. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND MERCHANDISING OF GOODS AND SERVICES. IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAD ALREADY STARTED ITS OPERATION FROM NINE OF ITS STORES LOCATED IN VARIOUS STATES. THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENSES BOOKED BY IT UNDER THE HEAD PROJECT DEVELOPMENT EXPENDITURE AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME IN BOTH THE YEARS UNDER CONSIDERATION, EVEN THOUGH THE ASSESSEE HAD SHOWN IT IN THE BALANCE SHEET AS CAPITAL WORK IN PROGRESS. WHEN QUESTIONED, THE ASSESSEE SUBMITTED THAT IT IS IN THE PROCESS OF EXPANSION OF ITS BUS INESS OPERATIONS BY OPENING VARIOUS NEW SHOPS AND THE REVENUE EXPENSES, WHICH COULD NOT BE IDENTIFIED WITH A PARTICULAR SHOP WAS SHOWN UNDER THE HEAD PROJECT DEVELOPMENT EXPENSES AND TAKEN TO BALANCE SHEET. THE EXACT REPLY GIVEN BY THE ASSESSEE IS REPRO DUCED BELOW, FOR THE SAKE OF CONVENIENCE: - ITA NO. 3444/ AND 4273 MUM/20 1 3 3 THE BUSINESS CARRIED ON BY THE ASSESSEE CONSTITUTES ONE INDIVISIBLE BUSINESS AS ALL THE STORES OF THE COMPANY ARE DIRECTLY OPERATED AND MANAGED BY THE BOARD OF DIRECTORS OF THE COMPANY OR THE EMPLOYEES OF THE COMPANY. THE ADMINISTRATION OF THE COMPANY IS CENTRALIZED AND THE MAJOR POLICIES ARE FRAMED AT THE CENTRAL LEVEL. FURTHER IT MAY BE NOTED THAT THE OPERATING MODEL OF ALL THE STORES IS SAME, AND ARE SO ARRANGED THAT ECONOMIES OF SCALE CAN BE OBTAINED; THI S HAS RESULTED INTO THE INTER - CONNECTION AND INTER - DEPENDENCE OF THE STORES ON EACH OTHER. THIS CLEARLY SHOWS THAT THERE EXISTS INTER - CONNECTION, INTER - LACING, INTER - DEPENDENCE, COMMON MANAGEMENT, COMMON BUSINESS ORGANIZATION, COMMON FUND, COMMON ADMINIST RATION AND COMMON CENTRAL PLACE OF BUSINESS IN THE ASSESSEES CASE. DURING THE YEAR THE COMPANY HAS ACQUIRED AND CAPITALIZED THE AMOUNT SPENT TOWARDS THE ACQUISITION OF VARIOUS CAPITAL ASSETS LIKE MACHINERY, FURNITURE & FIXTURES ETC. APART FROM THIS, VA RIOUS OPERATIONAL & MAINTENANCE EXPENSES HAVE ALSO BEEN INCURRED, THESE EXPENSES ARE INCURRED TOWARDS SALARY, ELECTRICITY, AUDIT FEES AND LIKES. THESE EXPENSES HAVE BEEN ESSENTIALLY INCURRED FOR EXPANSION OF THE EXISTING LINE OF BUSINESS I.E. SETTING UP O F MORE NUMBER OF STORES UNDER THE PLANNED FORMAT OR FOR MAINTENANCE AND OPERATION OF THE ALREADY ESTABLISHED STORES. WHERE THESE EXPENSES ARE DIRECTLY IDENTIFIABLE WITH THE OPERATION AND MAINTENANCE OF THE EXISTING STORES THE SAME HAVE BEEN EXPENSED OUT D URING THE YEAR. WHETHER THE EXPENSES ARE NOT DIRECTLY IDENTIFIABLE WITH THE OPERATION AND MAINTENANCE OF THE EXISTING STORES, THE SAME HAS BEEN TRANSFERRED TO PROJECT DEVELOPMENT EXPENDITURE PENDING CAPITALIZATION. THIS HAS BEEN DONE MAINLY TO DEFER TH E CHARGE OF SUCH EXPENSES TO PROFIT AND LOSS ACCOUNT. IT WOULD BE WORTH MENTIONING HERE THAT WHAT IS BEING REFLECTED BY THE COMPANY IN THE BOOKS OF ACCOUNTS IS PROJECT DEVELOPMENT EXPENDITURE AND NOT CAPITALIZATION OF ANY INDIVIDUAL CAPITAL ASSET THE ASSESSEE, BY PLACING RELIANCE ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED (1971)(82 ITR 363), FURTHER SUBMITTED THAT THE ENTRIES MADE IN THE BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE DEDUCTION ALLOWABLE UNDER THE INCOME TAX ACT. ACCORDINGLY IT WAS SUBMITTED THAT THE EXPENSES INCURRED ITA NO. 3444/ AND 4273 MUM/20 1 3 4 BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION UNDER THE ACT. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAW: - ( A ) JAY ENGINEERING WORKS LTD VS. CIT (2008)(166 TAXMANN 115)(DELHI) ( B ) CIT VS. PRIYA VILLAGE ROADSHOWS LTD (2009)(185 TAXMANN 44)(DEL) ( C ) CIT VS. ASSAM ASBESTOS LTD (2003)(263 ITR 357)(ASSAM) ( D ) MAHARAJA SHRI UMAID MILLS LTD VS. CIT (175 ITR 732)(RAJ) IT WAS FURTHER SUBMITTED THAT TH E EARNING OF INCOME IS NOT ESSENTIAL FOR ALLOWING DEDUCTION UNDER THE ACT AND FOR THIS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519)(SC). THE ASSE SSEE ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF BANSIDHAR (PVT) LTD VS. CIT (127 ITR 65), WHEREIN THE HONBLE HIGH COURT HELD THAT THE EXPENDITURE INCURRED IN RESPECT OF CLOSED UNITS IS ALLOWABLE AS DEDUCTIO N, WHEN A COMMON PROFIT AND LOSS ACCOUNT IS PREPARED. 4. THE ASSESSEE FURTHER CONTENDED BEFORE THE AO THAT THE EXPENDITURE BOOKED UNDER THE HEAD PROJECT DEVELOPMENT EXPENDITURE IS FULLY ALLOWABLE U/S 37(1) OF THE ACT AS ALL THE CONDITIONS PRESCRIBED THEREIN ARE SATISFIED. HOWEVER, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS NOT INCURRED SUCH EXPENSES FOR ROUTINE OPERATIONS AND FURTHER NOTICED THE ASSESSEE ITSELF HAS CONSIDERED THE SAME AS CAPITAL IN NATURE IN THE BOOKS OF ACCOUNT. ACCORDINGLY, HE DIS ALLOWED THE CLAIM OF PROJECT DEVELOPMENT EXPENDITURE MADE BY THE ASSESSEE IN BOTH THE YEARS UNDER CONSIDERATION. IN ASSESSMENT YEAR 2008 - 09, THE ASSESSEE ITSELF HAS DISALLOWED CERTAIN EXPENSES U/S 40A(7), 40A(9) AND 43B OF THE ACT. HENCE THE ASSESSING ITA NO. 3444/ AND 4273 MUM/20 1 3 5 OF FICER DISALLOWED THE EXPENSES IN EXCESS OF THE DISALLOWANCE ALREADY MADE BY THE ASSESSEE IN AY 2008 - 09. 5. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) REFERRED TO THE SETTLED LEGAL PROPOSITION THAT THE EXPENSES INCURRED PRIOR TO SETTING UP OF THE BUSI NESS CANNOT BE ALLOWED AS DEDUCTION. THE LD CIT(A) THEN HELD THAT THERE IS DIFFERENCE BETWEEN EXPANSION OF BUSINESS AND EXTENSION OF BUSINESS. THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEES CASE IS A CASE OF EXTENSION OF BUSINESS ACTIVITY, I.E., SET TING UP A NEW SOURCE OF INCOME. ACCORDINGLY, THE LD CIT(A) HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION OF PROJECT DEVELOPMENT EXPENDITURE, SINCE IT IS A CASE OF EXTENSION OF BUSINESS, I.E., SETTING UP OF NEW SOURCE OF INCOME. ACCORDINGLY, H E CONFIRMED THE ADDITION MADE BY THE AO IN BOTH THE YEARS UNDER CONSIDERATION. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. THE LD A.R SUBMITTED THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE WAS ALREADY OPERATING N INE STORES DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2008 - 09. THIS IS FURTHER FORTIFIED BY THE FACT THAT THE ASSESSEE HAS DISCLOSED SALES REVENUE OF RS.28.44 CRORES AND 246.18 CRORES FOR THE AY 2008 - 09 AND 2009 - 10 RESPECTIVELY. HE SUBMITTED THAT THE EXPENSES INCURRED WITH REGARD TO THE OPENING OF NEW STORES HAVE BEEN TAKEN TO BALANCE SHEET AS CAPITAL WORK IN PROGRESS IN THE BOOKS OF ACCOUNT. HOWEVER, THE SAME HAS BEEN CLAIMED AS REVENUE EXPENDITURE UNDER THE INCOME TAX ACT, SINCE ALL THE CONDITION S RELATING TO DEDUCTION U/S 37(1) OF THE ACT HAVE BEEN SATISFIED. HE SUBMITTED THAT THE ASSESSEE HAS SEGREGATED CAPITAL EXPENSES, IF ANY, OUT OF PROJECT DEVELOPMENT EXPENSES, IF THEY ARE CAPITAL IN NATURE AND CLAIMED ONLY THOSE EXPENSES, WHICH ARE REVENUE IN NATURE. HE SUBMITTED THAT THE ASSESSEE WAS INCURRING EXPENSES ITA NO. 3444/ AND 4273 MUM/20 1 3 6 IN COMMON FOR ALL THE STORES THAT ARE GOING TO BE REOPENED AND HENCE IT WAS CONSTRAINED TO TREAT THE SAME AS CAPITAL WORK IN PROGRESS IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT THE EXPEN SES HAVE BEEN DIRECTLY BOOKED AS REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT, IF IT IS IDENTIFIED WITH A PARTICULAR STORE. 7. THE LD A.R SUBMITTED THAT THE ENTRIES MADE IN THE BOOKS OF ACCOUNT ARE NOT DETERMINATIVE TO DECIDE ABOUT THE DEDUCTION ALLOW ABLE UNDER THE ACT. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD VS. JCIT (2015)(55 TAXMANN.COM 361). IN THE ABOVE SAID CASE, THE ASSESSEE ISSUED DEBENTURES AND OFFERED THE INVESTOR S AN OPTION TO GET ONE TIME UPFRONT DISCOUNTED INTEREST. THE INTEREST SO PAID WAS TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT, BUT IT WAS CLAIMED FULLY FOR INCOME TAX PURPOSES. THE CLAIM OF THE ASSESSEE WAS HELD TO BE ALLOWABLE BY HON BLE SUPREME COURT. HE SUBMITTED THAT THE LD CIT(A) WAS NOT CORRECT IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAS SET UP NEW SOURCE OF INCOME. 8. HE FURTHER SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S RELIANCE FOOTPRINT LTD (ITA NO.5997/MUM/2011 DATED 23.10.2013). THE ASSESSEE THEREIN WAS ALSO ENGAGED IN THE BUSINESS OF TRADING AND MERCHANDISING OF GOODS AND SERVICES. IT HAD ALSO BOOKED PROJECT DEVELOPMENT EXPENDITURE AS CAPITAL WO RK - IN - PROGRESS AND CLAIMED THE SAME AS REVENUE EXPENDITURE WHILE COMPUTING TOTAL INCOME. THE SAID CLAIM WAS REJECTED BY TAX AUTHORITIES, BUT THE TRIBUNAL HAS ALLOWED THE CLAIM BY FOLLOWING THE DECISION RENDERED IN THE FOLLOWING CASES: - (A) KEDARNATH JUT E MFG. COMPANY LTD (SUPRA) ITA NO. 3444/ AND 4273 MUM/20 1 3 7 (B) CIT VS. KOTHARI AUTO PARTS MANUFACTURERS PVT LTD (109 ITR 333) (C) CIT VS. ALEMBIC GLASS INDUSTRIES LTD (103 ITR 715) HE FURTHER SUBMITTED THAT THE DECISION RENDERED IN THE CASE OF RELIANCE FOOT PRINT LTD (SUPRA) WAS FOLLO WED BY ANOTHER CO - ORDINATE BENCH IN THE CASE OF DCIT VS. M/S RELIANCE SUPPLY CHAIN SOLUTIONS LTD (ITA NO.5759/MUM/2012 DATED 27.11.2013). IN THIS CASE, THE LD CIT(A) DELETED THE DISALLOWANCE OF PROJECT DEVELOPMENT EXPENDITURE MADE BY THE AO AND HENCE THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. HOWEVER, THE TRIBUNAL ALLOWED THE CLAIM BY FOLLOWING THE DECISION RENDERED IN THE CASE OF M/S RELIANCE FOOTPRINT LTD (SUPRA). 9. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS TAKEN UP THE VI EW THAT THE ASSESSEE HAS SET UP NEW SOURCE OF BUSINESS BY ESTABLISHING NEW STORES. ACCORDINGLY, THE LD CIT(A) HAS TAKEN THE VIEW THAT THE PROJECT DEVELOPMENT EXPENDITURE IS CAPITAL IN NATURE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS FURNISHED DETAILS R ELATING TO OTHER EXPENSES INCLUDED IN PROJECT DEVELOPMENT EXPENSES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT GENERATED REVENUE FROM NEW STORES AND HENCE UNDER REVENUE COST MATCHING PRINCIPLE, THE EXPENSES CLAIMED BY THE ASSESSEE ARE NOT ALLOWABL E. 10. IN THE REJOINDER, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA) AND CONTENDED THAT THE GENERATION OF REVENUE IS NOT ALWAYS A PRECONDITION FOR ALLOWING THE EXPENSES. 11 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE EARLIER NOTICED THAT THE ASSESSING OFFICER HAS TAKEN THE VIEW THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE, SINCE THE ASSESSEE ITA NO. 3444/ AND 4273 MUM/20 1 3 8 ITSELF HAS TREATED THE SAME AS CAPITAL EX PENDITURE. THE AO HAS ALSO TAKEN THE VIEW THAT THE EXPENDITURE WAS NOT INCURRED SUCH EXPENSES FOR ROUTINE OPERATIONS. HOWEVER, THE VIEW TAKEN BY THE ASSESSING OFFICER IS AGAINST THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARN ATH JUTE MANUFACTURING COMPANY LTD (SUPRA) AND TAPARIA TOOLS LTD (SUPRA), WHEREIN THE HONBLE SUPREME COURT HELD THAT THE TREATMENT GIVEN IN BOOKS OF ACCOUNT ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE CLAIM OF THE ASSESSEE SHOULD BE EXAMINED ON THE TOUCHS TONE OF PROVISIONS CONTAINED IN THE ACT. THE FOLLOWING OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD (SUPRA) ARE RELEVANT HERE: - 19. IN THE INSTANT CASE, AS NOTICED ABOVE, THE ASSESSEE DID NOT WANT SPREAD OVER O F THIS EXPENDITURE OVER A PERIOD OF FIVE YEARS AS IN THE RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE 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 TH E 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 [SEE - KEDARNATH JUTE MFG. CO. LTD.V/S . CIT [1971] 82 ITR 363 ( SC ) ; TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V/S CIT [1997] 227 ITR 172/93 TAXMAN 502 ( SC ) ; SUTLEJ COTTON MILLS LTD. V/S CIT [1979] 116 ITR 1 ( SC ) AND UNITED COMMERCIAL B ANK V/S CIT [1999] 240 ITR 355/106 TAXMAN 601 ( SC ) . IN VIEW OF THE DECISIONS OF HONBLE SUPREME COURT, REFERRED ABOVE, THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT I S NOT RELEVANT TO EXAMINE THE CLAIM PUT FORTH BY THE ASSESSEE. ITA NO. 3444/ AND 4273 MUM/20 1 3 9 12. THE NEXT REASONING GIVEN BY THE AO IS THAT THE ASSESSEE HAS NOT INCURRED THESE EXPENSES FOR THE ROUTINE OPERATIONS. HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT THESE EXPENSES WERE INC URRED IN THE ROUTINE OPERATIONS. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS ALREADY ESTABLISHED THE BUSINESS AND HAS ALSO DECLARED SALES REVENUE. THE ASSESSEE HAS EXPLAINED THAT IT HAS FOLLOWED THE PRACTICE OF CHARGING EXPENSES EAC H STORE WISE AND HENCE THE EXPENSES WHICH COULD NOT BE IDENTIFIED WITH ANY PARTICULAR STORE (MAY BE OPERATIONAL STORE) WAS BOOKED UNDER THE HEAD PROJECT DEVELOPMENT EXPENDITURE. IT IS ALSO SUBMITTED THAT THE CAPITAL EXPENDITURE, IF ANY, INCURRED IN THE OPENING OF NEW STORES HAVE BEEN CAPITALIZED IN THE BOOKS. THE NATURE OF PROJECT DEVELOPMENT EXPENDITURE INCURRED BY THE ASSESSEE FOR THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2009 - 10 IS GIVEN IN PAGE 33 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE SAME IS EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE: - RELIANCE WELLNESS LIMITED ASSESSMENT YEAR 2009 - 10 ANNEXURE DETAILS OF REVENUE EXPENDITURE DEBITED TO CWIP PARTICULARS AMOUNT(RS.) ELECTRIC POWER, FUEL AND WATER R ENT - SALARI ES AND WAGES - CONTRIBUTION TO PROVIDENT FUND, SUPERANNUATION FUND, GRATUITY, LEAVE ENCASHMENT - OTHERS TRAVELLING EXPENSES PROFESSIONAL FEES PAYMENT TO AUDITORS CONSUMPTION OTHERS TOTAL 4,53,955 1,04,75,325 8,29,20,705 28,42,804 45,46,249 75,00,671 15,26,047 2,569 1,23,245 98,92,271 12,02,83,840 ITA NO. 3444/ AND 4273 MUM/20 1 3 10 A PERUSAL OF THE ABOVE SAID EXPENSES, PRIMA FACIE, SHOW THAT THEY ARE REVENUE IN NATURE. HENCE, AS POINTED OUT BY HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD (SUPRA), WHA T IS REQUIRED TO BE SEEN IS WHETHER THESE EXPENSES COULD BE ALLOWED AS DEDUCTION UNDER THE PROVISIONS OF THE ACT. 13. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE OPENING OF NEW STORES WOULD FALL UNDER THE CATEGORY OF EXTENSION OF BUSINESS AND NOT E XPANSION OF BUSINESS. THE LD CIT(A) HAS TAKEN THE VIEW THAT THE EXPENDITURE INCURRED FOR EXPANSION OF BUSINESS IS ALLOWABLE AS DEDUCTION, BUT THE EXPENDITURE INCURRED ON EXTENSION OF BUSINESS IS AKIN TO SETTING UP OF BUSINESS OR NEW SOURCE OF INCOME. AC CORDINGLY, THE LD CIT(A) HAS TAKEN THE VIEW THAT PROJECT DEVELOPMENT EXPENDITURE IS THE EXPENDITURE INCURRED BEFORE SETTING UP OF BUSINESS AND HENCE NOT ALLOWABLE AS DEDUCTION. 14. WE ARE UNABLE TO UNDERSTAND AS TO HOW THE EXTENSION OF BUSINESS IS DIF FERENT FROM EXPANSION OF BUSINESS. THE LEGAL POSITION WITH REGARD TO THE DEDUCTIBILITY OF EXPENSES INCURRED IN CONNECTION WITH SETTING UP OF NEW UNITS HAS BEEN EXPLAINED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC GLASS INDUSTRIES LTD (SUPRA) AND ALSO BY THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF KOTHARI AUTO PARTS MANUFACTURERS PVT LTD (SUPRA). THE SAID DECISION HAS BEEN DISCUSSED AS UNDER BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S RELIANCE FOOTPRINT LTD (SUPRA) : - 4.5 THE LD A.R ALSO REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD (103 ITR 715) WHEREIN IT HAS BEEN HELD THAT THE EXPENDITURE RELATING TO ITA NO. 3444/ AND 4273 MUM/20 1 3 11 THE UNIT OF THE ASSESSEE AT BANGALORE WERE ALLOWABL E DESPITE THE FACT THAT UNIT OF THE ASSESSEE AT BANGALORE DID NOT START PRODUCTION AS THE NEW UNIT AT BANGALORE WAS NOTHING BUT EXPANSION OF THE EXISTING BUSINESS AND THERE WAS COMPLETE INTER - CONNECTION, INTER - LACING AND INTER - DEPENDENCE OF BOTH THE UNITS. 4.6 THE LD. AR FURTHER REFERRED TO THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. KOTHARI AUTO PARTS MANUFACTURERS PVT LTD (109 ITR 333). IN THE SAID CASE THE ASSESSEE COMPANY HAD STARTED SELLING AUTO PARTS AND INCURRED CERTAI N EXPENDITURE IN RELATION TO ACTIVITY OF MANUFACTURING OF AUTO PARTS. NOTING FROM THE MEMORANDUM OF ASSOCIATION IT WAS OBSERVED THAT THE ACTIVITY OF MANUFACTURING RELATED TO SAME BUSINESS AND MEMORANDUM OF ASSOCIATION OF THE COMPANY EMPOWERED THE COMPANY TO MANUFACTURE THE ITEMS IN WHICH IT WAS PERMITTED TO DEAL IN AND THUS THESE ARE TWO ACTIVITIES WERE TWO SEPARATE STAGES OF THE SAME BUSINESS AND THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE TOTAL EXPENDITURE AS BUSINESS EXPENDITURE. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE NATURE OF BUSINESS ACTIVITIES OF ALL THE STORES, I.E., ALREADY OPENED AND THAT ARE GOING TO BE OPENED, IS IDENTICAL IN NATURE. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ALREADY OPERATING CERTAIN STORES AND IT WAS IN THE P ROCESS OF OPENING MORE NUMBER OF STORES. HENCE, WE ARE OF THE VIEW THAT IT IS A CASE OF EXPANSION OF BUSINESS ACTIVITIES. HENCE, THE VIEW ENTERTAINED BY LD CIT(A) THAT THE OPENING OF NEW STORES GIVE RISE TO NEW SOURCES OF INCOME IS, IN OUR VIEW, NOT JUST IFIED. 15. THE NEXT QUESTION THAT ARISES IS - WHETHER THE EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWABLE UNDER THE ACT. THE VERY SAME QUESTION WAS EXAMINED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S RELIANCE FOOT PRINTS LTD (SUPRA). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNAL IN THE ABOVE SAID CASE: - 6. WE HAVE HEARD BOTH PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HA S SHOWN A TURNOVER OF RS.4.75 CROES IN RELATION TO ITS ITA NO. 3444/ AND 4273 MUM/20 1 3 12 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 EXPE NDITURE HAS BEEN INCURRED IN RELATION TO 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 ET AR E ESSENTIALLY INCURRED FOR EXPANSION OF EXISTING LINE OF BUSINESS THAT IS SETTING UP OF MORE NUMBER OF STORES /SPECIALITY STORES UNDER PLANNED FORMAT OR FOR MAINTENANCE OF ALREADY ESTABLISHED STORES. THESE SUBMISSIONS WERE MADE BEFORE THE AO AND HAVE NOT BEEN COSNTROVERTED BY THE AO AND DISALLOWANCE IS MADE MAINLY ON THE GROUND THAT THE ASSESSEE CANNOT GIVE DUEL STA TUS TO THESE EXPENDITURE I.E. AS CAPITAL IN BOOKS OF ACCOUNTS AND AS REVENUE FOR INCOME TAX PURPOSE. HOWEVER, SUCH VIEW OF THE AO CANNOT BE UPHELD IN VIEW OF THE DECISION OF HONBLE 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 A S SE S SEE MIGHT TAKE OF HIS RIGHTS, NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN HIS BOOKS OF ACCOUNT BE DECISION OR CONCLUSIVE IN THE MA TTER . 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 O IS STORES AT BANGALORE AND HYDERABAD. IT WAS THE CONTENTION OF THE ASSESSEE THAT OPERATIONS OF T HESE 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 B EEN CONTROVER T ED 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 THE LETTER SUBMITTED BY THE ASSESSEE BEFORE AO IT IS CLEARLY MENTIONED THAT WHEN THE EXPENDITURE IS INCURRED FOR THE PURPOSES 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 E XPENDITURE IN I T S BOOKS OF ACCOUNT. NO MATERIAL HAS BEEN BOUGHT ON RECORD BY THE AO TO NEGATE SUCH SUBMISSIONS MADE BY THE ASSESSEE. THESE PROPOSITIONS PUT FORTH BY THE ASSESSEE BEFORE AO ARE SUPPORTED BY THE DECISION ITA NO. 3444/ AND 4273 MUM/20 1 3 13 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S KOTHARI AUTO PARTS MANUFACTURERS PVT LTD (SUPRA), AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S ALEMBIC GLASS INDUSTRIES LTD (SUPRA). THEREFORE , IT HAS TO BE HELD THAT THESE EXPENDITURES INCURRED BY THE ASS ESSEE ARE FO R THE PURPOSES 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 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S KOTHARI AUTO PARTS MANUFACTURES PVT LTD (SUPRA) AND HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT V/S ALEMBIC GLASS INDUSTRIES LTD (SU PRA ). 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 IT S BOOKS OF ACCOUNT VIS - - VIS COMPUTATION OF INCOME FILED ALONG WITH RETURN SINCE THE FACTS ARE IDENTICAL IN NATURE, WE ARE INCLINED FOLLOW THE DECISION RENDERED IN THE CASE OF M/S RELIANCE FOOT PRINTS LTD (SUPRA). 16. IN VIEW OF THE FOREGOING D ISCUSSIONS, WE SET ASIDE THE ORDERS PASSED BY LD CIT(A) IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE ASSESSING OFFICER TO ALLOW THE IMPUGNED EXPENDITURE IN BOTH THE YEARS. 17. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED ACCORDINGLY ON 9TH SEPT, 2015. 9 TH SEPT , 2015 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 9TH SEPT , 2015 . . . ./ SRL , SR. PS ITA NO. 3444/ AND 4273 MUM/20 1 3 14 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2 . / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI