M/s Home Studio India Pt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-3(1)(1), Bangalore

ITA 754/BANG/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5394 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-09-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHINI MISHRA
• Assessee Lawyers: L BHASKAR
• Keywords: Capital asset; Depreciation; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 143(1)

Judgement Text

ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.754/BANG/2017 ASSESSMENT YEAR : 2012-13 M/S. HOME STUDIO (INDIA) PVT. LTD. #1,SJR PRIMUS 1 ST FLOOR INDUSTRIAL LAYOUT, KORAMANGALA BANGALORE 560 095 PAN NO : AABCH6832R VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 3(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI L. BHASKAR, A.R. RESPONDENT BY : SHRI PRIYA DARSHINI MISHRA, D.R. DATE OF HEARING : 21.09.2021 DATE OF PRONOUNCEMENT : 23.09.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 13-02-2017 PASSED BY LD CIT(A)-3, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2012-13. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING DISALLOWANCE OF DEFERRED REVENUE EXPENDITURE OF RS.93,02,208/- AND PRE-OPERATIVE EXP ENSES OF RS.29,16,418/- MADE BY THE AO. 2 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SE LLING HOME FURNITURE PRODUCTS. IT HAD OPENED BRANCHES IN MUMB AI AND GURGAON IN THE EARLIER YEARS. THE EXPENDITURE INCURRED ON OPENING AND ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE PAGE 2 OF 6 PUBLICITY OF BRANCHES WAS TREATED AS DEFERRED REVEN UE EXPENDITURE AND PRE-OPERATIVE EXPENSES IN BOOKS OF ACCOUNTS. AC CORDINGLY, THEY WERE AMORTISED OVER A PERIOD OF TIME IN THE BOOKS. IN THE INCOME TAX COMPUTATION ALSO, THE ASSESSEE CLAIMED PROPORTIONAT E AMOUNT OF EXPENDITURE, EVERY YEAR. ACCORDING TO LD A.R, THE C LAIM SO MADE WAS ALLOWED IN THE PAST FOUR YEARS. HOWEVER, HE FAIRLY ADMITTED THAT THE ASSESSMENTS OF PAST YEARS HAVE BEEN COMPLETED U/S 1 43(1) OF THE ACT. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE CLAIMED PROPORTIONATE AMOUNT OF RS.93,02,208/- AS DEFERRED REVENUE EXPENSES AND RS.29,16,418/- AS PRE-OPERATIVE EXPENS ES, BOTH AGGREGATING TO RS.1,22,18,625/-. WHEN QUESTIONED B Y THE AO, THE ASSESSEE CONTENDED THAT THE ABOVE SAID CLAIM HAS BE EN MADE U/S 35D OF THE ACT. THE AO EXAMINED THE DETAILS OF EXP ENSES AND ALSO THE CONDITIONS PRESCRIBED IN SEC.35D OF THE ACT FOR ALLOWING EXPENSES. HE NOTICED THAT THE PROVISIONS OF SEC.35D ARE NOT A PPLICABLE TO THE CLAIM MADE BY THE ASSESSEE. ACCORDINGLY, HE DISALL OWED THE ABOVE SAID CLAIM OF RS.1,22,18,625/-. THE LD CIT(A) ALSO CONFIRMED THE SAME. 4. BEFORE US, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY MUMBAI BENCH OF TRIBUNAL IN THE CASE OF JCIT VS. MODI OLIVETTI LTD (4 SOT 859) AND SUBMITTED THAT THE CON CEPT OF DEFERRED REVENUE EXPENSES HAS BEEN EXPLAINED IN THIS CASE. HE FURTHER SUBMITTED THAT, UNDER THE PRINCIPLE OF CONSISTENCY, THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED, SINCE PROPORTIONATE EXP ENSES HAD BEEN ALLOWED IN THE PRIOR FOUR YEARS. HE FURTHER SUBMI TTED THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE HAS BEEN RE COGNISED BY HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD (225 ITR 802)(SC). ACCORDINGLY, HE PLEADED THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE PAGE 3 OF 6 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE AO HAS EXTRACTED THE DETAILS OF EXPENDITURE CLAIMED BY THE ASSESSEE IN THE ASSESSMENT ORDER. A PERUSAL OF THE SAME WOULD SHOW THAT THEY ARE IN THE NATURE OF ELECTRICITY CHARGES, HOUSEKEEPING & MAINTENANCE, SECURITY CHARGES, SALARIES, ADVERTISEMENT, BUSINESS DEVELOPM ENT EXPENSES, RENT EXPENSES, TRAVELLING EXPENSES ETC. THE LD D.R FURTHER SUBMITTED THAT THE CONCEPT OF DEFERRED REVENUE EXPENSES IS NOT THERE UNDER INCOME TAX ACT. FURTHER THE ABOVE SAID EXPENSES AR E NOT CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION, BUT THEY ARE IN THE NATURE OF REVENUE EXPENSES ONLY. HE SUBMITTED THAT IT IS AN ADMITTED FACT THAT THESE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE I N AN EARLIER YEAR AND NOT DURING THE YEAR UNDER CONSIDERATION. HENCE THESE EXPENSES DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND ACCORDINGLY NOT ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THE RETURNS OF INCOME FILED FOR EARLIER YEARS HAVE BEEN PROCESSED U/S 143(1) OF THE ACT AND HENCE THERE WAS NO SCRUTI NY OF SIMILAR CLAIMS MADE IN THE EARLIER YEARS BY THE AO. HENCE THE PRINCIPLE OF CONSISTENCY WILL NOT APPLY TO THIS CLAIM. ACCORDING LY, HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD . WE NOTICE THAT THE AO HAS EXTRACTED THE DETAILS OF PROPORTIONATE D EFERRED REVENUE EXPENSES AND PRE-OPERATIVE EXPENSES CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. AS RIGHTLY POINTED O UT BY LD D.R, THOSE EXPENSES ARE IN THE NATURE OF REVENUE EXPENSES ONLY . IT IS AN ADMITTED FACT THAT THESE EXPENSES HAVE BEEN INCURRE D IN AN EARLIER YEAR IN CONNECTION OF OPENING OF BRANCHES IN MUMBAI AND GURGAON. IN THE BOOKS OF ACCOUNT, THE ASSESSEE CHOSE TO TREA T THESE EXPENSES AS DEFERRED REVENUE EXPENSES & PRE-OPERATIVE EXPENS ES AND WAS CLAIMING PROPORTIONATE AMOUNT EVERY YEAR. THE ASSE SSEE HAS CHOSEN TO CLAIM PROPORTIONATE AMOUNT UNDER INCOME TAX ACT ALSO WHILE COMPUTING TOTAL INCOME. ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE PAGE 4 OF 6 7. UNDER THE INCOME TAX ACT, THE TOTAL INCOME IS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ISS UE RELATING TO ALLOWABILITY OF DEFERRED REVENUE EXPENSES HAS BEE N EXAMINED BY THE AHMEDABAD SPECIAL BENCH IN THE CASE OF ACIT V/S A SHIMA SYNTEX LTD. (100 ITD 247), WHEREIN FOLLOWING PRINCIPLES HA VE BEEN LAID DOWN IN CONCLUSION:- 14. TO CONCLUDE, THE POSITION EMERGING FROM THE AB OVE DISCUSSION CAN BE SUMMED UP AS FOLLOWS:- THE NATURE OF THE EXPENDITURE TREATED AS A DEFER RED REVENUE EXPENDITURE IN THE BOOKS NEEDS TO BE PROPERLY ANALYSED BEFORE T AKING A VIEW ON ITS ALLOWABILITY OR OTHERWISE UNDER THE PROVISIONS OF T HE ACT; WHERE SUCH EXPENDITURE RESULTS IN THE CREATION OF ANY CAPITAL ASSET (TANGIBLE OR INTANGIBLE), A CASE CAN BE MADE OUT TO TREAT THE SAME AS A CAPITAL EXPENDITURE WITH CORRESPONDING ALLOWABILITY OF DEPR ECIATION IN ACCORDANCE WITH LAW; IN CASES WHERE THE NATURE OF THE REVENUE EXPENDIT URE IS SUCH THAT THE SAME CAN BE CLEARLY AND UNAMBIGUOUSLY IDENTIFIED OVER SP ECIFIED FUTURE TIME PERIODS (E.G. DISCOUNT ON ISSUE OF DEBENTURES) AKIN TO PREPAID EXPENSES THE SAME WOULD BE ALLOWABLE OVER THE PERIOD TO WHICH TH ESE RELATE PROPORTIONATELY, APPLYING THE MATCHING PRINCIPLE. IN OTHER CASES WHERE THE SAME DOES NOT RESULT IN TH E CREATION OF ANY CAPITAL ASSET OR WHERE THE SAME IS NOT ALLOCABLE OVER DEFIN ED FUTURE TIME PERIODS THERE CAN BE NO CASE FOR AMORTISING THE SAME UNDER THE ACT OVER THE EXPECTED PERIOD OVER WHICH THE BENEFIT IS LIKELY TO ARISE TH ERE FROM SINCE IN SUCH CASES THE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE AN D IS AMORTISED IN THE BOOKS ONLY ON ACCOUNT OF SOME OTHER CONSIDERATIONS. 8. IN THE INSTANT CASE, WE HAVE NOTICED THAT THE NATURE OF EXPENSES CLAIMED BY THE ASSESSEE UNDER DEFERRED REVENUE EXP ENSES/PRE- OPERATIVE EXPENSES DID NOT RESULT IN CREATION OF A NY CAPITAL ASSET NOR THEY COULD BE CLEARLY AND UNAMBIGUOUSLY IDENTIFIED OVER SPECIFIED FUTURE TIME PERIODS. ADMITTED THE EXPENSES HAVE BE EN INCURRED IN THE PAST YEAR IN CONNECTION OF OPENING OF BRANCHES AND THEY ARE IN THE NATURE OF REVENUE EXPENSES. THE CLAIM MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IS PART OF THOS E EXPENSES, WHICH WAS CLAIMED AS AMORTISATION OF THOSE EXPENSES OVER CERTAIN YEARS. ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE PAGE 5 OF 6 THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH (SHOW ) WOULD SHOW THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENS ES UNDER THE INCOME TAX ACT AND HENCE THE REVENUE EXPENSES INCUR RED IN AN EARLIER YEAR CANNOT BE ALLOWED AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION. THE VARIOUS CASE LAWS RELIED UPON B Y LD A.R HAVE BEEN RENDERED IN A DIFFERENT CONTEXT. 9. THE LD A.R CONTENDED THAT THE CLAIM OF THE AS SESSEE SHOULD BE ALLOWED UNDER THE PRINCIPLE OF CONSISTENCY, SINCE S IMILAR AMORTISATION CLAIM MADE IN THE EARLIER YEARS HAVE B EEN ALLOWED. HOWEVER, AS RIGHTLY SUBMITTED BY LD D.R, THE RETURN S OF INCOME FILED FOR EARLIER YEARS HAVE BEEN PROCESSED U/S 143(1) OF THE ACT AND HENCE THERE WAS NO SCRUTINY OF SIMILAR CLAIMS MADE IN THE EARLIER YEARS BY THE AO. HENCE THE PRINCIPLE OF CONSISTENCY WILL NO T APPLY TO THIS CLAIM. 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE D O NOT FIND ANY MERIT IN THE CLAIM MADE BY THE ASSESSEE AND ACCORDINGLY C ONFIRM THE ORDER PASSED BY LD CIT(A). 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPT, 021. SD/- (N.V. VASUDEVAN ) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 23 RD SEPT, 2021. VG/SPS ITA NO.754/BANG/2017 M/S. HOME STUDIO INDIA PVT. LTD., BANGALORE PAGE 6 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.