9911796707
TMI Blog2018 (7) TMI 1813X X X X Extracts X X X X X X X X Extracts X X X X ..... ponse to notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings AO noticed that the assessee has claimed revenue expenditure of Rs. 79,23,44,610 in statement of total income; however, such expenses has been treated as pre-operative expenses and capitalized under the head 'work-inprogress'. Therefore, called upon the assessee to explain as to why pre-operative expenses capitalized in books and claimed as revenue expenditure shall not be disallowed while computing income from business or profession. In response to notice, the assessee, vide its letter dated 18-11-2011 submitted that it has incurred various revenue expenditure in connection with its business and such expenses are revenue in nature have been debited in books of account under the head 'project development expenditure' and are appearing directly in the balance-sheet as part of capital work-in-progress. Since, such expenditure are of revenue in nature and are incurred during the year for the purpose of business and also there is no provision to claim revenue expenditure incurred during a particular year in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred on the project till it is implemented, needs to be capitalized and the same cannot be claimed as revenue. e. The said capital expenditure has not generated any income/loss to be eligible to be claimed as revenue, f. It is also relevant to note here that as per provisions of sect 145, the assessee has to follow a consistent accounting policy unless there is any specific notification issued by the Central Government/with regard to any specific accounting standard to be followed. In violation of this principle the assessee has followed one accounting policy for the purposes of Companies Act and another for Income Tax as far as "Project Development Cost" claim is concerned. g. As per assessee's own version the impugned expenditure has not been incurred in connection with running of day-to-day business but has been incurred for acquisition of new outlets and the assessee was well aware of this fact, that is why it has treated this expenditure as capital expenditure in its books of accounts. When it is so then how the said expenditure can be allowed to be treated as revenue expenditure, the assessee has not been able to establish." 4. Aggrieved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in Schedule 3 of agreement. For the same, the appellant were asked to furnish a copy of these parties' ledger account along with TDS details to show that payments were made by the appellant during the previous year 2008-09 relevant to AY 2009-10. The appellant was given 7 days time. However, even after lapse of said period, it is noted that a copy of accounts to show that these payments were made by the appellant has yet not been furnished. The appellant during the appellate proceedings have relied upon the decision given by the Hon'ble Mumbai in case of their sister concerned in ITA No 5997/Mum/2011 for AY 9 in the case M/s. Reliance Footwear Ltd. Vs. ACIT and stated that the issue en decided in favour of appellant. As the matter is apparently on the same line, in the instant appeal, as per appellant, appellant has been asked to furnish the details of salary and wages paid and issue which has already dealt with in case of Reliance Footwear in para 6.2 as under: - " 6.2 So far as it relates to the observations made by Ld. CIT(A) in his order that assessee vide letter dated 28.06.201 I has merely given the name, designation and amount paid with reference tu salary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Expenses' during the year relevant to AY 2009-10. 2. The ledger account of individual employees or even consolidated salary account along with supporting evidence in form of details TDS, the payments made by the appellant as salary and wages Rs. 20,01,66,068/- and then contribution* to PF, gratuity and leave encashment of Rs. 82,51,105/- has not been substantiated. The appellant has also failed to show TDS made on these salaries apparently paid by them and however has not been able to show that payment for PF and other statutory allowances have been paid by them in absence of any supporting document showing them as payer for these amounts claimed as their revenue expenses. 3.8 In view of these facts, 1 am of the considered opinion that the appellant has failed to prove that these expenses were paid by the during the previous year relevant to AY 2009-10. Though there is no dispute that these expenses are revenue expenses and since appellant has extending its business of trading in high quality products ranging over 20000 products during the year by acquiring portion of Reliance Retail Ltd. as its evident from the Directors' report also; hence the expenses in princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s preoperative expenses and capitalised under the head 'capital work-inprogress' in the books of account is deleted. The Ld.AR further submitted that the Hon'ble Bombay High Court upheld the findings of the ITAT in the case of M/s Reliance Footprint Ltd in Income-tax Appeal No.892 of 2014 dated 05-07-2017. Therefore, the issue is well settled by the decision of jurisdictional High Court and hence, the addition made by the AO cannot be sustained. 7. On the other hand, the Ld.DR strongly supporting the order of the Ld.CIT(A) submitted that it is evident from the assessee's own version that it has treated expenditure incurred towards expansion of its existing business as pre-operative expenses to be capitalised in the books of account, but claimed as revenue expenditure in the statement of total income. Therefore, from assessee's own contention it is very clear that an expenditure cannot enjoy dual status of being capital in books and revenue for the purpose of income-tax, hence, the AO had rightly disallowed revenue expenditure claimed by the assessee and such disallowance has been affirmed by the Ld.CIT(A) and, therefore, his order should be upheld. 8. We have heard both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure to be treated as revenue or capital in nature is the nature of expense, but not treatment given by the assessee in its books of account. This proposition is supported by the decision of Hon'ble Bombay High Court in the case of of CIT vs Kothari Auto Parts Manufacturing Ltd (supra) and the decision of Hon'ble Gujarat High Court in the case of CIT vs Alembic Glass Industries Ltd (supra). This proposition is further supported by the decision of co-ordinate bench of ITAT, in the case of Reliance Footprint Ltd, wherein the Bench, after considering the ratio laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg Co Ltd 82 ITR 363 (SC), held as under:- "6. We have heard both parties and their contentions have carefully been considered. There is no dispute to the fact that the assessee has shown a turnover of Rs. 4.75 crores in relation to its stores which were made operational during the year at Bangalore and Hyderabad. Before the AO it was the case of the assessee that it is in the process of expansion of its business and thus this expenditure has been incurred in relation to expanion of business. It was also submitted that the expenditure which are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. (supra), and the decision of Hon'ble Gujarat High Court in the case of CIT i;s. Alembic Gloss Industries Ltd. (supra}. Therefore, it has to be held that these expenditures incurred by the assessee are for the purpose of expansion of its business and those expenditure are in the nature of revenue ( being mostly paid to employees). These are allowable in the year itself as per ratio of aforementioned decision of the Hon'ble Bombay High Court in me case of CIT vs. Kothan Auto Parts Manufacturers Pvt. Ltd.(supra) arid Hon'ble High Court of Gujrat in the case of CIT vs. Alembic Glass Industries Ltd. (supra). These expenditures didl not create, any asset and also did not provide enduring benefit to the business of the assessee so as to say that the expenditure was capital in nature. Therefore, we hold that expenditure are allowable in the year under consideration irrespective of the fact that assessee has given dual status to such expenditure in its books of account vis-a-vis computation of income filed alongwith return. 6.2 So far as it relates to the observations made by Ld. CIT(A) in his order that assessee vide his letter dated 28/6/2011 has merely given the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective parties. 7] It is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. In the present case, the Commissioner (Appeals) and the Tribunal has specifically on appreciation of factual matrix arrived at a conclusion that the expenditure are directly identifiable with the operations and maintenance of the existing stocks i.e. with regard to the payment of salary, travelling and conveyance allowance, telephone expenses, professional fees paid, audit fee and other miscellaneous expenses. 8] In view of the specific finding of fact arrived at by the Commissioner (Appeals) and the Tribunal, the Tribunal have held the expenditure to be revenue expenditure. In case of Kothari Auto Parts Manufacturers Pvt. Ltd. (supra), this Court had specifically observed that separate computation of income and expenditure would be justified only when several distinct business are carried on, and not when the separate business activities were carried out by some person and when one set of account is maintained for all set of activities. 9] In the present case also, one set of account is maintained for the business activity by the Assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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