TMI Blog2013 (12) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure was capital in nature - Assessee has filed the details mentioning job description of each of the employees alongwith amount paid to him describing also that how much TDS has been deducted. Without pointing out any defect and without bringing any adverse material on record, Ld. CIT(A) has observed that assessee has failed to prove that the expenditure was made wholly and exclusively for the purpose of business of the assessee - The observation of CIT(A) cannot be upheld - The assessee itself has disallowed a sum of ₹ 51,23,957/- out of the aforementioned amount of ₹ 3,64,49,545/- under the provisions of section 40A(7)/40A(9)/43B of the Act - An amount of ₹ 3,13,25,588/- should be allowed to the assessee on account of revenue expenditure - Decided in favour of assessee. - ITA No. 5997/Mum/2011 - - - Dated:- 23-10-2013 - Shri I. P. Bansal And Shri Rajendra,JJ. For the Petitioner : Shri Farrokh V. Irani For the Respondent : Shri S. K. Singh ORDER Per I. P. Bansal, JM:- This appeal is filed by the Assessee. It is directed against the order passed by the ld. CIT(A) dated 29.06.2011 for the assessment year 2008- 09. The grounds of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include unsecured loans and other short term liabilities along with shareholders fund. iii. The business carried on by the assessee constitutes one indivisible business. The administration of the company is centralized and major policies are framed at central level which can be noted from modus operandi of all the business operations, which is same and is so arranged that the economies of scale can be obtained. Such arrangement has resulted into inter-connection, inter-dependence of the operations on each other which clearly shows that there exists inter-connection, interlacing, inter-dependence, common management, common business organization, common funds, common administration, common central place of business. iv. During the year the Assessee has acquired and capitalized the amount spent towards the acquisition of various capital assets like equipments and vehicles. Apart from such expenditure, various operating and maintenance expenses have been incurred which are towards salary, electricity, audit fees etc. These expenditures have been essentially incurred for expansion of existing line of business i.e. setting up of more number of stores under the planned format or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to following tables which are filed by the assessee before Ld. CIT(A): Details of Capital Work in Progress:- Disallowance made by the assessee u/s. 40A(7)/40A(9)/43B in computation: Leave encashment provision 34,89,000 Gratuity provision 15,94,957 Superannuation provision 40,000 Total 51,23,957 2.3 The aforementioned submissions of the Assessee have been rejected by AO with the reasoning given by him in para 4.2 which read as under :- 4.2 The argument of the assessee is considered carefully and the same is not acceptable for the following reasons: a. If the said expenditure pertains to a project as per principles of accounting the same is to be capitalised which will give rise to tangible/intangible asset. b. In notes to Schedule C (fixed assets) to the balance sheet, the impugned amount is shown as pre-operative expenses, which cannot be allowed as revenue expenditure for the year under consideration. c. An Expenditure cannot enjoy dual status of being capital in Books of Accounts and revenue for the purposes of Income Tax. d. The assessee itself in its books of accounts treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has failed to give details of outlets along with income along with expenditure of the unit whereas the basis for apportionment of expenditure capitalized and claimed as revenue has also not been given(sic). On these facts and the reasoning given by the AO in the assessment order, the ld. CIT(A) has held that the said amount was not allowable as same is not on revenue account. In this manner ld. CIT(A) has rejected the appeal of assessee. 4. After narrating the facts it was submitted by Ld. AR that during the year under consideration business was started by operating two stores at Hyderabad and Bangalore in phased manner. The assessee has achieved a turnover of Rs.4.75 crores from these two stores. The assessee was in the process of opening more stores in the phased manner for which the assessee was requiring manpower as well as fixed assets and equipments etc. The expenditure on such items was shown as Project Development Expenditure . By the end of the year a total sum of Rs.9.40 crores was expended by the assessee. Out of the said total amount a sum of Rs..3.64,49,545/- was identified by the assessee which mainly consists of payments made to employees. These expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it can not be spread over a number of years even though the assessee had written off the same in its books over a period of years. 4.5 The ld. AR also referred to the decision of Hon'ble Gujarat High Court in the case of CIT vs. Alembic Glass Industries Ltd. (103 ITR 715) wherein it has been held that the expenditure relating to the unit of the assessee at Bangalore were allowable despite the fact that unit of the assessee at Bangalore did not start production as the new unit at Bangalore was nothing but expansion of the existing business and there was complete inter-connection, inter-lacing and inter-dependence of both the units. 4.6 The ld. AR further referred to the decision of the Hon'ble High Court of Bombay in the case of CIT vs. Kothari Auto Parts Manufacturers Pvt. Ltd. (109 ITR 333) . In the said case the assessee company had started selling auto parts and incurred certain expenditure in relation to activity of manufacturing of auto parts. Noting from the Memorandum of Association it was observed that the activity of manufacturing related to same business and Memorandum of Association of the company empowered the company to manufacture the items in which it was permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision relide upon by him. 5. On the other hand reading from the order of the ld. CIT(A) it was submitted by the ld. DR that assessee has failed to submit the details required by ld. CIT(A) and therefore, assessee could not prove that these expenditures were wholly and exclusively incurred by the assessee for the purpose of its business. Therefore, the ld. DR pleaded that the order of CIT(A) should be upheld. 5.1 In the rejoinder the ld. AR submitted that all details required by the ld. CIT(A) were furnished and it is not even the case of the AO that any expenditure claimed by the assessee was not genuinely incurred by the assessee for the purpose of its business. He submitted that expenditure has been disallowed only on the ground that it is capital in nature and genuineness of the incurrence of expenditure has never been doubted. He submitted that when job description of each of the employees was provided to the Ld. CIT(A), he was wrong in upholding the disallowance on the ground that assessee did not file proof with regard to the services rendered by the employees. Ld. AR submitted that there is no material on record on the basis of which it can be said that assessee di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee had not incurred such expenditure for its business. In the letter submitted by the assessee before AO it is clearly mentioned that when the expenditure is incurred for the purpose of expansion of business which is already in existence and, which is in the nature of revenue, then the same is allowable as revenue expenditure irrespective of the treatment given by the assessee to such expenditure in its books of account. No material has been brought on record by the AO to negate such submissions made by the assessee. These propositions put forth by of the assessee before AO are supported by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kothari Auto Parts Manufacturers Pvt. Ltd. (supra), and the decision of Hon'ble Gujarat High Court in the case of CIT vs. Alembic Glass 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 the case of CIT vs. Kothari Auto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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