2019 (9) TMI 1119 - HC - Income Tax

Expenses incurred for the preoperative period towards the project development cost - capital expenditure OR revenue expenditure - HELD THAT - Expenditure incurred for setting up new stores has been claimed as revenue expenditure to the extent the expenditure was revenue in nature and where capital expenditure was incurred, the same was not claimed as revenue expenditure. However, the Respondent in its books of accounts showed the entire expenditure i.e. even the expenditure which is claimed in the income tax return as revenue expenditure as capital expenditure. It was only on the above basis, AO and the CIT (Appeals) held that the revenue expenditure claimed by the Respondent in its return of income could not be allowed. Tribunal allowed the Respondent s appeal, inter alia, pointing out that the treatment given in the books of account by the assessee would not be conclusive in income tax proceedings to decide whether the expenditure was revenue or capital. In support of its view, the Tribunal relied upon the decision of the Supreme Court in the case of Taparia Tools Ltd. v. JCIT 2015 (3) TMI 853 - SUPREME COURT The Tribunal also relied upon upon the judgment of its Coordinate Bench in the case of Reliance Footprint Ltd. v. ACIT 2013 (12) TMI 161 - ITAT MUMBAI for the assessment year 2008-09, on identical facts, holding that the revenue expenditure as claimed is allowable.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal regarding expenses incurred for the preoperative period towards project development cost.
2. Determination of revenue versus capital expenditure for setting up new stores by the assessee.
3. Interpretation of the treatment of expenditure in books of accounts for income tax proceedings.
4. Applicability of previous judgments in similar cases to the current scenario.

Analysis:
1. The appeal challenges the Tribunal's order regarding the deletion of a disallowance of expenses amounting to ?56.62 crore incurred for the preoperative period towards project development cost for the assessment year 2008-09.
2. The respondent, engaged in organized retail, was setting up new stores to expand its business. The expenditure for setting up new stores was claimed as revenue expenditure in the income tax return, but shown as capital expenditure in the books of accounts. This led to a dispute with the Assessing Officer and the Commissioner of Income Tax (Appeals) regarding the allowability of the claimed revenue expenditure.
3. The Tribunal, in its decision, emphasized that the treatment of expenditure in the books of accounts is not conclusive in income tax proceedings to determine whether the expenditure should be classified as revenue or capital. Citing the Supreme Court's decision in Taparia Tools Ltd. v. JCIT, the Tribunal held in favor of the respondent. Additionally, the Tribunal referred to a previous judgment involving similar facts in the case of Reliance Footprint Ltd. v. ACIT, where the revenue expenditure was allowed.
4. It was noted that a previous appeal by the Revenue against a similar Tribunal decision had been dismissed by the High Court, establishing a precedent that covered the issue at hand. Consequently, the court found that the question raised did not give rise to any substantial question of law, leading to the dismissal of the appeal.

This comprehensive analysis of the judgment highlights the key issues raised, the arguments presented, and the legal principles applied by the court in reaching its decision.