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TMI Blog2013 (12) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... f trading and merchandising of goods and services. This is the first year of operation. The company has turnover of Rs.4.74 crores on which net loss of Rs.1,87,507/- is shown in the P&L Account. In the Balance Sheet the assessee has shown capital work-in-progress amounting to Rs.9,40,80,983/- . Out of the said amount the assessee has claimed an amount of Rs.3,64,49,545/- as revenue expenditure and has claimed this amount in the computation of income filed with the return of income. Thus, a loss of Rs.3,15,16,626/- has been claimed after adding back an amount of Rs.51,23,957/- under the provisions of Section 40A(7)/ 40A(9)/ 43B. 2.1 Noting from the return that the assessee has claimed revenue expenditure of Rs.3,64,49,545/- out of capital work-in-progress, the AO required the assessee to explain about the allowability of the said amount. Vide letter dated 9.11.2010 it was submitted that these expenditures are mainly salary; travelling; communication; and, therefore, eligible for deduction under section 37(1) of the Act. Another reply dated 02.12.2010 was also filed which has been reproduced in the assessment order in para 4.1 at pages 2 to 5 of the assessment order. In sum and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation of any individual capital asset. vi. According to the provisions of Income tax Act the expenditure incurred by the assessee during the year is allowable in its entirety and deferment of such expenditure in the coming years is not permissible. Therefore, as business of the assessee has commenced, these expenditures were allowable in the year of incurring expenditure irrespective of the fact that the business plan is implemented in phased manner. For raising such contentions reliance is placed on the following decisions:- i) Kedarnath Jute Manufacturing Company Limited (1971) 82 ITR 363(Supreme Court) ii) Jay engineering Works ltd. vs. CIT (92008) 166 Taxmann 115 (Del.) iii) CIT vs. Priya Village Roadshows Ltd. (2009) 185 Taxmann 44 (Del.) iv) CIT vs. Rajendra Prasad Moody (115 ITR 519) v) Bansidhar (pvt. Ltd.) vs. CIT (127 ITR 65)(Guj.) vi) CIT vs. Ethurajan (273 ITR 95) vii. Eventhough the maintenance and operational expenses did not yield corresponding income in the current year the expenditure will be allowable as revenue expenditure as an expenditure can be treated as capital in nature, only if it results in acquisition of an asset or acquisition of enduring benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low 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." 2.4 It is in the above manner that Ld. AO has disallowed Rs.3,64,49,545/-. As the entire amount was disallowed, Assessing Officer has accepted the alternative contention of the Assessee and did not make further disallowance of Rs.51,23,957/- which already included in the addition of Rs.3,64,49,545/-. 3. Aggrieved, the Assessee filed an appeal before the CIT(A). The submission made before AO were reiterated . Ld. CIT(A) required the Assessee to file the details of outlets, their income and expenditure apportionment of expenditure capitalized and claimed as revenue, nature of work done along with proof of work done by the employees to whom salaries were paid which formed major chunk of expenditure and also nature and break-up of other expenditure claimed vide noting on order sheet dated 08.06.2011. The reply was fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistration. Ld. A.R pointed out that these submissions of the assessee have been recorded in the assessment order itself. 4.2 Adverting to the reasoning recorded by AO, the ld. Authorized Representative submitted that AO is incorrect in observing that an expenditure can not enjoy dual status of being capital in books of account and revenue for the purpose of Income tax. He submitted that such observations of Assessing Officer are incorrect in view of well settled position of law described in the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Limited (82 ITR 363) (supra), wherein it has been held that 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 on his own rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. 4.3 The ld. Authorized Representative further submitted that the aforementioned position has also been reiterated in the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. ( 227 ITR 172) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at were shifted. The sum was disallowed on the ground that the same is capital in nature. The Tribunal following the decision in the case of Prithvi Insurance Co. Ltd. in 63 ITR 632(SC) and decision in the case of CIT vs. Rane (Madras) Ltd. (293 ITR 459)(Mad.) and other decisions has held that the same was allowable expenditure as the same was incurred for shifting of old unit from Gujarat to Pune and the expenses incurred on plant and machinery was capitalized. 4.8. The ld. AR further submitted that the ld. CIT(A) for the reasons entirely different from the AO has upheld the disallowance. He produced before copy of the documents submitted before the ld. CIT(A) in response to his queries . It was submitted that all queries raised by the ld. CIT(A) were properly replied. He submitted that the details submitted before the ld. CIT(A) would clearly reveal that the assessee has given all the details which consisted of name of the employee, his job description, TDS deducted out of the amount and payment made to the said employee. 4.9 To sum up his arguments, he submitted that when once business of the assessee has already commenced, which is apparent from the turnover achieved by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, electricity, audit fee etc. are essentially incurred for expansion of existing line of business that is setting up of more number of stores/speciality stores under planned format or for maintenance of already established stores. These submissions were made before the AO and have not been controverted by the AO and disallowance is made mainly on the ground that the assessee can not give dual status to these expenditures i.e. as "capital" in books of account and as "revenue" for Income tax purposes. However, such view of the AO can not be upheld in view of the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Company Ltd. (supra) wherein it has been held that the issue that whether the assessee is entitled to a particular deduction will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. 6.1 From the submissions made by the assessee before the AO it is also clear that opening of stores at various places was one composite business of the assessee and in that course the assessee had started ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt paid with reference to salary paid without giving any proof of work actually being done, we may mention that we have carefully gone through the details filed by the assessee before Ld. CIT(A). Copy of the documents submitted before Ld. CIT(A), as mentioned earlier, were filed before us. We find that assessee in the details so filed has mentioned job description of each of the employees alongwith amount paid to him describing also that how much TDS has been deducted. For example job description is described as sourcing product design and development; sourcing and procurement; category management; marketing communication, marketing consumer behaviors; distribution and logistic; sourcing and procuring; talent acquisition buyer etc. etc. In the note which has been filed along with the details it is clearly mentioned that the assessee has employed these persons for carrying out market research work such as to contact various manufacturers and suppliers of the footwear and other accessories; getting base price and delivery schedules as well as comparing the products of various manufacturers of unbranded products with the price and quality of branded products, preparing various report ..... 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