2015 (8) TMI 1306 - AT - Income Tax

Project development expenditure - Disallowance of claim for deduction u/s 37(1) in respect of revenue expenditure - Held that - Identical issue in assessee s own case was decided in favour of the assessee in the two earlier AY.s. that similar issue had arisen in the matter of one of the sister concerns namely Reliance Footprint Ltd. 2013 (12) TMI 161 - ITAT MUMBAI that the Tribunal had allowed the claim made by the assessee. 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. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of Development Expenditure claimed as revenue expenditure.
2. Disallowance of leave encashment and gratuity expenses claimed under Project Development Expenses.

Issue 1: Disallowance of Development Expenditure:
The Assessing Officer (AO) disallowed a total of Rs. 3.73 Crores (Rs. 39.79 lakhs + Rs. 2.97 Crores) claimed by the assessee under Project Development Expenditure. The AO found that the expenses were considered capital in nature by the assessee in its books of account and were not eligible for deduction as revenue expenditure. The First Appellate Authority (FAA) referred to a Tribunal order for AY.2008-09 favoring the assessee's treatment of similar expenses as revenue expenditure. The FAA deleted the addition of Rs. 39.79 lakhs and directed the AO to allow the expenditure under section 37(1) of the Income Tax Act for the expenses amounting to Rs. 2.97 crores incurred under leave encashment and gratuity heads.

Issue 2: Disallowance of leave encashment and gratuity expenses:
The AO disallowed Rs. 2.97 crores claimed by the assessee under leave encashment and gratuity expenses under Project Development Expenses, stating they were not allowable under section 37(1) of the Act. The Tribunal considered the assessee's submissions and previous Tribunal orders in similar cases, emphasizing that when expenses are incurred for the expansion of an existing business and are of revenue nature, they are allowable as revenue expenses. The Tribunal cited relevant case laws and upheld the assessee's treatment of the expenses as revenue expenditure. The Tribunal dismissed the AO's appeal, noting that the facts of the case were identical to previous years where similar claims were allowed.

In conclusion, the Tribunal upheld the assessee's treatment of the expenses as revenue expenditure, following previous Tribunal orders and relevant legal principles. The appeal filed by the AO was dismissed, affirming the allowance of the claimed expenses under Project Development Expenditure.