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2013 (12) TMI 716 - AT - Income TaxProject Development Expenditure - Capital or Revenue - Held that - The assessee-company is expanding its already started line of business by expanding its scale of operation - Following M/s Reliance Footprint Ltd V/s ACIT 2013 (12) TMI 161 - ITAT MUMBAI - The question that whether the Assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the Assessee might take of his own rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter - The said expenditure were incurred towards salary to the employees, travelling and conveyance, telephone expenses, professional fees paid, audit fee and other miscellaneous expenses towards registration as stamp duty charges, license application fees, repair and maintenance etc - Such expenses cannot be said to have generated any capital advantage to the assessee and the same is in the nature of revenue expenditure irrespective of the fact that the assessee has given dual status of such expenditure in its books of account and computation of income claiming it as revenue expenditure - Following Asahi India Safety Glass Limited 2011 (11) TMI 2 - DELHI HIGH COURT - The expenditure which is incurred, which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is an expense in the nature of revenue expenditure - The expenditure under consideration incurred by the appellant for expansion of the existing line of business or for maintenance and operation of the already established stores is an allowable deduction under section 37 - Decided against Revenue.
Issues Involved:
1. Whether the CIT(A) erred in deleting the disallowance of the claim for deduction of Rs.2,88,72,441/- considering it as revenue expenditure allowable under section 37(1) of the Income Tax Act, 1961, as against the AO's consideration of it as capital expenditure. Detailed Analysis: 1. Nature of Expenditure: The primary issue revolves around whether the expenditure of Rs.2,88,72,441/- incurred by the assessee should be classified as revenue expenditure under section 37(1) of the Income Tax Act, 1961, or as capital expenditure. The assessee, engaged in distribution and logistics, claimed this expenditure as revenue, while the AO treated it as capital expenditure. The assessee argued that the expenses, including salary, travelling, conveyance, and professional fees, were related to the expansion of its existing business operations and should be allowable as revenue expenditure. 2. Assessee's Submissions: The assessee maintained that the business activities were centralized and interconnected, with funds sourced and managed at the company level. They contended that the expenses were operational and maintenance costs for expanding the existing business, and thus, should be deductible under section 37(1). The assessee cited several case laws, including Kedarnath Jute Manufacturing Co. Ltd. and Jay Engineering Works Ltd., to support their claim that the treatment of expenses in the books of account should not determine their deductibility for tax purposes. 3. AO's Position: The AO rejected the assessee's claim, stating that the expenses were not incurred for routine operations but were capital in nature as per the assessee's own accounting treatment. The AO argued that the assessee could not claim these expenses as revenue while treating them as capital in their books of account. 4. CIT(A)'s Findings: The CIT(A) sided with the assessee, concluding that the expenses were indeed revenue in nature. The CIT(A) noted that the expenses were incurred for the expansion of the existing business and were essential for maintaining and operating the already established stores. The CIT(A) emphasized that the expenses did not result in the creation of any capital assets or enduring benefits, and thus, should be allowable as revenue expenditure under section 37 of the Act. 5. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, agreeing that the expenses were revenue in nature. The Tribunal referenced a similar case involving the assessee's sister concern, where the ITAT had ruled in favor of treating such expenses as revenue. The Tribunal reiterated that the classification of expenses in the books of account should not dictate their tax treatment. The Tribunal cited the Supreme Court's decision in Kedarnath Jute Manufacturing Co. Ltd., which held that the entitlement to deductions depends on the law, not the assessee's accounting practices. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the expenses incurred by the assessee for the purpose of expanding its business operations were revenue in nature and deductible under section 37(1) of the Income Tax Act, 1961. The Tribunal's decision was consistent with prior judgments and legal principles, emphasizing the importance of the nature and purpose of the expenditure over its accounting treatment.
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