2015 (3) TMI 1202 - AT - Income Tax

Project development expenditure - Disallowance of claim for deduction u/s 37(1) in respect of revenue expenditure - Held that - From the submissions made by the before the AO as well as Ld. CIT(A), it is seen that this was the second year of the operation of the company and business had already started. The operations from the revenue had been shown at ₹ 14,178 lakhs. Looking to the nature of expenses it can be very well held that these are routine expenses incurred during the course of operation of the business. The similar facts was there in the A.Y. 2008-09 also, wherein the Tribunal has held that these expenses cannot be held as capital expenditure but are revenue in nature and accordingly, the same were allowed. Even the Ld. CIT(A) has followed the earlier order of the Ld. CIT(A). Thus, following the earlier years precedence which are based on similar set of facts, we hold that the expenditure claimed by the assessee are revenue in nature and accordingly, ground raised by the Revenue stands dismissed. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of project development expenditure claimed as revenue.
2. Disallowance of unpaid gratuity and unpaid leave encashment claimed as revenue.

Issue 1: Disallowance of project development expenditure claimed as revenue:
The appeal was filed by the Revenue against the order passed by Ld. CIT(A)-14, Mumbai, challenging the deletion of disallowance of &8377; 14,81,34,192 incurred by the assessee on project development expenditure. The Revenue contended that the expenditure was capital in nature but claimed as revenue in the computation of income. The Tribunal considered the nature of the expenses, which were routine operational expenses incurred during the business operations. The assessee, engaged in distribution and logistics business, had shown the expenditure under "Project development expenditure" in the books of account but claimed it as revenue in the income computation. The Tribunal noted that similar facts were present in the A.Y. 2008-09, where the expenses were held to be revenue in nature. Relying on precedents and consistent facts, the Tribunal dismissed the Revenue's appeal, holding that the claimed expenditure was revenue in nature.

Issue 2: Disallowance of unpaid gratuity and unpaid leave encashment claimed as revenue:
The second ground of appeal involved the disallowance of &8377; 78,09,321 claimed by the assessee for unpaid gratuity and unpaid leave encashment included in the total project development expenditure. The AO disallowed the entire expenditure of &8377; 7,69,22,617, and an appeal was pending before the ITAT for the A.Y. 2008-09. The Tribunal noted that the Ld. CIT(A) had followed the earlier order for A.Y. 2008-09, which was confirmed by the Tribunal. The Revenue's appeal was based on the non-acceptance of the A.Y. 2008-09 order, which was sub judice. The Tribunal considered the arguments presented and ultimately dismissed the Revenue's appeal, upholding the deletion of the disallowance related to unpaid gratuity and unpaid leave encashment.

In conclusion, the ITAT Mumbai, comprising SHRI B.R. BASKARAN and SHRI AMIT SHUKLA JJ, dismissed the Revenue's appeal against the Ld. CIT(A)'s order regarding the disallowance of project development expenditure and unpaid gratuity/unpaid leave encashment claimed as revenue. The Tribunal based its decision on the nature of the expenses, previous precedents, and the operational context of the business, ultimately affirming that the claimed expenditures were revenue in nature.