DCIT, New Delhi V. M/s. Bharti Retail Ltd., New Delhi

ITA 514/DEL/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2789 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 29-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: SHAILESH KUMAR
• Keywords: Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 514/DEL/2014 (ASSESSMENT YEA R-2009-10) DCIT, CIRCLE 2(1), ROOM NO. 398D, C.R. BUILDING, NEW DELHI (APPELLANT) VS M/S. BHARATI RETAIL PVT. LTD. NO. 1, ARAVALI CRESCENT, NELSON MANDELA ROAD, VASANT KUNJ, PHASE III, NEW DELHI - 110 070 AADCB1093N (RESPONDENT) APPELLANT BY SH. K. K. JAISWAL, DR RESPONDENT BY SHRI NAGESHWAR RAO, ADV AND SHAILESH KUMAR, ADV. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 29/11/ 2013 PASSED BY CIT (A)-V, NEW DELHI. THIS APPEAL IS FIL ED BY THE REVENUE FOR THE ASSESSMENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. DATE OF HEARING 07.01.2016 DATE OF PRONOUNCEMENT 07.01.2016 8,20,90,379/- BEING 10% OF OPERATING EXPENSES DISALLOWED WHEN DESPITE AMPLE OPPORTUNITIES THE ASS ESSEE HAD FAILED TO FURNISH DETAILS CALLED FOR BY THE AO TO ASCERTAIN THE ALLOWABILITY OF EXPENSES U/S. 37(1) O F THE ACT, 1961. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF RETAILING A VARIETY OF HOUSEHOLD AND CONSUMER PRODU CTS THROUGH DEPARTMENTAL STORES UNDER VARIOUS FORMATS AND IS EX PANDING THE CHAIN WITH MULTIPLE CONSUMER FRIENDLY FORMAT STORES IN INDIA. ASSESSEE DEBITED OPERATING EXPENSES OF RS. 82,09, 03,794/- IN COMPARISON TO RS. 22,83,44,955/- IN THE IMMEDIATE P RECEDING ASSESSMENT YEAR IN THE P & L ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT THE COMPANY STARTED COMMERCIAL OPERAT IONS DURING THE PREVIOUS YEAR WHICH WAS INITIAL GESTATION PERIO D WHERE THE COMPANY WAS EXPECTED TO INCUR EXPENSES ON ACCOUNT O F BUILDING INFRASTRUCTURE. THESE EXPENSES INCURRED ON BUILDING INFRASTRUCTURE ARE OF CAPITAL IN NATURE AND NOT REVENUE IN NATURE. THE YEAR UNDER CONSIDERATION WAS THE SECOND YEAR AND IN GENERAL OP ERATIONAL EXPENSES WERE EXPECTED TO BE LESS THAN THE EXPENSES INCURRED IN PREVIOUS YEAR. WHILE EXAMINING BOOKS OF ACCOUNT DUR ING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE COMPANY DID NOT MAINTAIN PROPER RECORDS OF THESE OPERATIONAL EXPENSES AND GENUINENESS OF THESE EXPEN SES COULD NOT BE FULLY EXAMINED. THE ASSESSING OFFICER OBSERVED T HAT THE ASSESSEE COMPANY DEBITED AN AMOUNT OF RS. 38,55,96,277/- ON ACCOUNT OF BUSINESS SUPPORT SERVICES. DURING THE COURSE OF DIS CUSSION, THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED TO FURNISH THE DETAILS OF THESE EXPENSES CLAIMED. THE ASSESSEE COMPANY FAILED TO ADDUCE THE DOCUMENTARY EVIDENCES OR TO FURNISH ANY EXPLANATION IN THIS REGARD. THERE MAY BE SOME ITEMS INCLUDED IN THIS HEAD WHICH MAY BE OF CAPITAL IN NATURE. THE ASSESSING OFFICER OBSERVED T HAT THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY AMOUNTING TO RS. 82 ,09,03,794/- ON ACCOUNT OF OPERATIONAL ACTIVITIES IS EXCESSIVE A ND WAS SUBSTANTIATED 10% OF THOSE EXPENSES I.E. RS. 8,20,9 0,379/-, THEREFORE THE SAME WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFOR E THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY GI VING A FINDING THAT THE DETAILS OF THE OPERATING EXPENSES WERE GIV EN IN SCHEDULE 15 OF THE FINANCIAL STATEMENTS AND FURTHER DETAILS OF THE OPERATING EXPENSES (NATURE, AMOUNT ETC.) WAS SUBMITTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS WHICH WERE ON RECORD. TH US THE CIT(A) HELD THAT THE ASSESSEE MAINTAINED ITS FINANCIAL STA TEMENTS AND RELATED RECORDS IN ACCORDANCE WITH THE REQUIREMENT OF LAW. THE CIT(A) FURTHER HELD THAT THE EXPENDITURE WERE NORMA L OPERATING EXPENSES AND THERE IS NO BASIS FOR TREATING A CERTA IN PERCENTAGE OF THE SAID EXPENSES AS CAPITAL EXPENDITURE IN ABSENCE OF ANY SPECIFIC FINDING OR JUSTIFICATION. THE REASONING OF THE ASSE SSING OFFICER THAT OPERATING EXPENSE CANNOT INCREASE IN SECOND YEAR OF OPERATION IS WITHOUT ANY RATIONALE AND WITHOUT TAKING INTO ACCOU NT THE INCREASE IN BUSINESS OF THE ASSESSEE. THEREFORE, THE CIT(A) HELD THAT THERE IS NO BASIS FOR TREATING 10% OF OPERATING EXPENSES THA T IS AN AMOUNT OF RS. 82,09,03,794/- AS CAPITAL EXPENDITURE AND DI SALLOWING THE SAME ON AN ADHOC BASIS BY THE ASSESSING OFFICER. 5. THE DR RELIED UPON THE ASSESSMENT ORDER. THE DR SUBMITTED THAT THE REASONING OF THE ASSESSING OFFICER THAT OP ERATING EXPENSE CANNOT INCREASE IN SECOND YEAR OF OPERATION IS PROP ER. 6. THE AR SUBMITTED THAT THE DETAILS OF THE OPERATI NG EXPENSES WERE GIVEN IN SCHEDULE 15 OF THE FINANCIAL STATEMEN TS AND FURTHER DETAILS OF THE OPERATING EXPENSES (NATURE, AMOUNT E TC.) WAS SUBMITTED DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS WHICH WERE ON RECORD. THE SAID RECORDS WERE DULY CONSIDER ED BY THE CIT(A) AND CIT(A) HAS RIGHTLY ALLOWED THE APPEAL OF THE AS SESSEE. 7. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. IT IS PERTINENT TO NOTE THAT THE EXPENDITURE WERE NORM AL OPERATING EXPENSES AND THERE IS NO BASIS FOR TREATING A CERTA IN PERCENTAGE OF THE SAID EXPENSES AS CAPITAL EXPENDITURE AS THERE I S NO SPECIFIC FINDING OR JUSTIFICATION GIVEN BY THE ASSESSING OFF ICER TO THAT EFFECT. MERELY ESTIMATING THE SAME IS NOT PROPER ON PART OF THE ASSESSING OFFICER. THE ASSESSEE MAINTAINED ITS FINANCIAL STAT EMENTS AND IT WAS PROPERLY TAKEN COGNIZANCE BY THE CIT(A) AND OVERLOO KED BY THE ASSESSING OFFICER. THEREFORE, THE CIT(A) HAS RIGHTL Y ALLOWED THE APPEAL OF THE ASSESSEE. 8. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 07 TH OF JANUARY 2016. SD/- SD/- (R.S. SYAL) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 07/01/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 07.01.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 07.01.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 07.01.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 07.01.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.