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

ITA 5736/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4506 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 22-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUR USHOTTAM ANAND
• Assessee Lawyers: R C D AN DE
• Keywords: Capital expenditure
• Section: 142(1); 154

Judgement Text

1 ITA NO. 5736/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5736/DEL/201 4 ( A.Y 2011-12) DCIT CIRCLE-2(1) NEW DELHI (APPELLANT) VS BHARTI RETAIL LTD. NO. 1, ARAVALI CRESCENT, NELSON MANDELA ROAD, VASANT KUNJ, PHASE-II NEW DELHI AADCB1093N (RESPONDENT) APPELLANT BY SH. PURUSHOTTAM ANAND, ADV RESPONDENT BY SH. R. C. DANDE, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 14/08/2014 PASSED BY CIT(A)-V, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES ON ACCOUNT OF RE AL ESTATE RESEARCH. DUE DILIGENCE EXPENDITURE AND MARKETING RESEARCH EX PENDITURE AS REVENUE IN NATURE AND THEREBY DELETING THE DISALLOW ANCE OF RS.1,60,21,516/- BY IGNORING THE FACT THAT THE ASSE SSEE WOULD BE DATE OF HEARING 26.09.2017 DATE OF PRONOUNCEMENT 28.09.2017 2 ITA NO. 5736/DEL/2014 DERIVING ENDURING BENEFIT FROM THESE EXPENSES. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE, L D.CIT(A) OUGHT TO HAVE CONSIDERED THE EXPENSES IN THE NATURE OF PRELI MINARY EXPENSES AS PER SECTION 35D(2) OF THE ACT AND THEREFORE, ALLOWA BLE ONLY AS PER PROVISION OF SECTION 35D(1) 3. THE COMPANY IS ENGAGED IN THE BUSINESS OF RETAIL ING A VARIETY OF HOUSEHOLD AND CONSUMER PRODUCTS THROUGH DEPARTMENTA L STORES UNDER VARIOUS FORMATS AND IS EXPANDING THE CHAIN WITH MULTIPLE CO NSUMER FRIENDLY FORMAT STORES IN INDIA. IT OFFERS FOOD AND GROCERY CATEGOR IES, FRESH FRUITS AND VEGETABLES, MEAT AND POULTRY, DAIRY PRODUCTS, STAPL ES, FMCG AND PROCESSED FOODS, ELECTRONICS AND APPLIANCES, CLOTHING AND FOO TWEAR, FURNITURE AND FURNISHING, AND OTHER HOUSEHOLD ARTICLES. AT PRESEN T COMPANY HAS THE OPERATION IN NINE STATES INCLUDES STORES IN PUNJAB, RAJASTHAN, HARYANA, AND UTTAR PRADESH, DELHI, UTTARANCHAL, MADHYA PRADESH, CHHATTISGARH. THE RETURN OF INCOME DECLARING AT LOSS OF RS.263,30,37,806/- W AS FILED ON 29/9/2011. THE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S 143 (2) OF THE ACT WAS ISSUED ON 7/9/2012 AND WAS SERVED ON THE ASSESSEE. SUBSEQUEN TLY, NOTICE U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE WAS ISSUED ON 17/0 7/2013. IN COMPLIANCE THERETO, THE ASSESSEES REPRESENTATIVE ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FILED NECESSARY DETAILS AS CA LLED FOR WHICH WERE EXAMINED AND PLACED ON RECORD. DURING THE YEAR, THE ASSESSEE COMPANY INCURRED LOSSES DUE TO THE REASON SUBMITTED THAT SINCE THE ASSESSEE COMPANY IS IN THE BUSINESS OF RETAILING AND IN THE EARLY YEARS OF ITS OPERATIONS/OPENING OF THE STORES, IT TOOK TIME FOR THE CUSTOMERS TO KNOW ABOU T THE STORES AND VISIT THE STORES TO PURCHASE GOODS AND HENCE, THE SALES WERE LOW DURING THE YEAR. FURTHER, BEING IN THE INITIAL STAGES OF BUSINESS AN D INCEPTION, THE COSTS OF THE COMPANY WERE RELATIVELY HIGHER AND THE MARGINS WERE LOWER DUE TO TOUGH MARKET COMPETITIVE ENVIRONMENT. DUE TO THIS REASON, THE REVENUE OF THE COMPANY WAS LESSER THAN THE EXPENSES INCURRED BY IT AND HENCE, THERE WERE LOSSES DURING THE CURRENT YEAR UNDER CONSIDERATION. 3 ITA NO. 5736/DEL/2014 4. THE AO, FOLLOWING ITS OWN ASSESSMENT ORDER FOR THE AY 2010-11, DISALLOWED THE FOLLOWING EXPENSES APPEARING UNDER THE HEAD LE GAL AND PROFESSIONAL CHARGES CLAIMED BY THE APPELLANT AS REVENUE IN NAT URE ALLEGING THAT THE APPELLANT HAS DERIVED BENEFIT OF ENDURING NATURE BY THE INCURRENCE OF THE SAID EXPENSES AND HENCE, THE SAME ARE CAPITAL IN NATURE: S. NO. PARTICULARS OF EXPENDITURE AMOUNT (RS.) 1 DUE DILIGENCE EXPENSES 32,10,983/ - 2 MARKETING RESEARCH EXPENSES 1,28,10,583/ - TOTAL 1,60,21,516 WHILE DISALLOWING THE ABOVE EXPENSES, THE AO HAD IN ADVERTENTLY MADE AN EXCESS DISALLOWANCE OF RS. 11,32,246 THEREBY MAKING A TOTAL DISALLOWANCE OF RS. 1,71,53,762 INSTEAD OF RS 1,60,21,516 AND COMPU TED THE ASSESSED LOSS AT RS. 261,58,84,040. SINCE, THIS WAS A MISTAKE APPARE NT FROM RECORD, THE ASSESSEE FILED A RECTIFICATION APPLICATION UNDER SE CTION 154 OF THE ACT WITH THE AO ON 04 MARCH 2014 FOR RECTIFYING THE SAME. THE AS SESSMENT ORDER WAS RECTIFIED BY THE AO VIDE ITS ORDER DATED 19 MARCH 2 014 AND THE ASSESSED LOSS WAS RECTIFIED AND COMPUTED AT RS. 261,70,16,290. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 6. THE REVENUE IS BEFORE US. 7. THE LD. AR DURING THE COURSE OF HEARING SUBMITTE D THAT THE GROUNDS OF APPEAL CONTESTED IN THE PRESENT APPEAL ARE ALREADY DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 BY THE ITAT DELHI BEING ITA NO.4196/DEL/2014 DATED 12/6/2017. 8. THE LD. DR COULD NOT CONTROVERT THE CONTENTIONS OF THE LD. AR. 4 ITA NO. 5736/DEL/2014 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE I TAT ORDER IN ASSESSEES OWN CASE BEING ITA NO. 4196/DEL/2014 DCIT VS. BHART I RETAIL LTD. DATED 12/6/2017 WHEREIN IT IS HELD IN PARA 7 AS UNDER:- 7. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE ASSESSEE HAS EXPLAINED THAT THESE EXPENDITURE ARE INCURRED IN THE NORMAL COURSE OF RE TAIL BUSINESS OF THE ASSESSEE AND ARE RECURRING AND PERIODICAL IN NATURE AND REQUIRES CONSTANT UPDATING FROM TIME TO TIME. THEREFORE, THESE ARE NO T CAPITAL EXPENDITURE IN NATURE. THE ASSESSEE EXPLAINED THAT THESE EXPENSES HAVE BEEN INCURRED FOR SETTING-UP STORES UNDER THE EXISTING BUSINESS A ND NO NEW LINE OF BUSINESS HAS BEEN ESTABLISHED. THE ASSESSEE ALSO EX PLAINED THAT STORES ARE TAKEN ON LEASE AND ARE NOT OWNED BY THE ASSESSE E. THE MARKET RESEARCH HAS BEEN CONDUCTED FOR THE EXISTING BUSINE SS TO ASSESS THE MARKETING ATTRACTIVENESS AND PREFERENCE OF THE CUST OMERS. IN EARLIER AS WELL AS SUBSEQUENT YEARS SIMILAR EXPENDITURE HAVE B EEN INCURRED BY THE' ASSESSEE WHICH ARE LESSER THAN THE EXPENSES CLAIMED IN THE ASSESSMENT YEAR UNDER APPEAL. THE MARKET AND REAL ESTATE EXPEN DITURE ARE IN THE NATURE OF IDENTIFYING FRESH MARKETS/AREAS FOR THE A SSESSEES EXISTING LINE OF BUSINESS WHICH WOULD CONTRIBUTE TO THE INCREASE IN REVENUE OF THE ASSESSEE AND WAS MEANT FOR THE EFFICIENT EXPANSION OF THE BUSINESS AND THEREFORE, THE SAME COULD NOT BE TREATED AS CAPITAL EXPENDITURE IN NATURE. FURTHER, A.O HAS FAILED TO POINT OUT WHILE INCURRIN G THESE EXPENDITURE WHAT CAPITAL HAS BEEN ACCUMULATED BY THE ASSESSEE. CONS IDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND THAT ASSESSEE HAS BEEN SETTING-UP STORES FOR PROVIDING HOUSEHOLD ITEMS TO THE PUBLIC, WOULD CLEA RLY SUPPORT THE EXPLANATION OF THE ASSESSEE THAT THE AFORESAID EXPE NSES HAVE BEEN INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. CIT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD, CORRECTLY HELD THAT THESE EXPENSES ARE NOT CAPITAL IN NATURE. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF FINDINGS OF THE LD. CIT(A) AND THE DISCUSSION ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) IN DELETING THE ENTIRE ADDITION. THE DEPARTMENTAL APPEAL FAILS AND IS ACCORDINGLY DISMISSED. THUS, THE ISSUES CONTESTED IN THE PRESENT APPEAL A RE SQUARELY COVERED BY THE ORDER OF THE ITAT, HENCE, THE REVENUES APPEAL IS DISMISSED. 5 ITA NO. 5736/DEL/2014 10. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH SEPTEMBE R, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 28/09/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 26/09/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 27/09/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE PS/PS 6 ITA NO. 5736/DEL/2014 SR.PS/PS 2 8 .09.2017 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 8 .09.2017 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.