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2015 (6) TMI 900 - ITAT AHMEDABAD

2015 (6) TMI 900 - ITAT AHMEDABAD - TMI - Reopening of assessment - disallowance on account of deferred revenue expenditure - CIT|(A) deleted the disallowance - Held that:- The hon’ble jurisdictional High Court in DCIT vs. Core Healthcare Ltd., (2008 (10) TMI 74 - GUJARAT HIGH COURT) holds that an expenditure incurred at the time of installation of machinery in existing line of business resulting in enduring benefits cannot be held to be capital expenditure merely because some direct or indirect .....

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penditure. The Revenue’s ground fails. - Decided in favour of assessee. - ITA No.1311/Ahd/2011, CO No.137/Ahd/2011 - Dated:- 24-4-2015 - Shri G. D. Agarwal And Shri S.S. Godara JJ. For the Appellant : Shri Dinesh Singh, Sr.D.R. For the Respondent : Shri Vijay Ranjan, A.R. Per: S. S. Godara, JUDICIAL MEMBER This Revenue s appeal and assessee s cross objections for A.Y.2004-05, arise from order of CIT(A)-VI, Ahmedabad dated 04.03.2011 in case appeal no.CIT(A)-VI/DCIT.Cir.1/388/09-10 deleting disal .....

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rocery items. It filed its return on 30.10.2004 admitting loss of ₹ 1,63,54,790/-. The Assessing Officer framed a regular assessment computing the aforesaid loss to ₹ 1,62,88,490/-. 4. Thereafter, the assessing authority formed reasons to believe that assessee s taxable income liable to be assessed had escaped assessment. It had availed deduction of ₹ 1,70,17,652/- relating to deferred revenue expenses. This sum represented residual balance of ₹ 1,46,21,461/- and ₹ .....

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the impugned assessment year as irregular. This made him to reopen the assessment. Section 148 notice stood issued on 27.03.2009. 5. The assessee responded by filing a fresh return admitting the aforesaid loss determine at ₹ 1,62,88,490/- (supra). It objected to validity of the reopening and reiterated its deduction claim. The assessing officer finalized re-assessment on 30.12.2009. He observed that the impugned expenditure was of an enduring nature allowable for a period of time instead o .....

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sallowance on merits. The CIT(A) has turned down the former plea and accepted the latter one. The lower appellate order on merits reads as under: 3.3 I have considered the facts of the case, assessment order and appellant's submission. Assessing officer treated deferred revenue expenses incurred on advertisement and sales promotion etc as capital in nature. In the books of accounts, appellant claimed part of the expense and the remaining part were claimed in other years. However since there .....

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ent, and brand promotion were treated as revenue and allowable in the first year itself. Considering these decisions and the nature of these expenses as revenue, I do not find any basis for disallowing these expenses just because appellant has not claimed the total expenses in the books of accounts treating the same as deferred revenue expense. Considering this, the disallowance made by the assessing officer is deleted. In this backdrop of facts, the Revenue has filed the instant appeal and asse .....

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balance amount in succeeding assessment years. It has also claimed the entire sum as revenue expenditure. Its relevant note on accounts at page 33 of the paper book throws light on the sum in question as under: a) As a policy of brand building exercise in the FMCG retailing market, to invite new customers and to retain the existing customers the company designs various schemes and promotions viz. free bees, discounts, gift articles etc and market such offerings through a very aggressive advertis .....

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are lower by ₹ 97,47,641/- However the company proposes to claim the entire amount as expenditure while filing the income tax returns for the year. b) The Company has set up 15 stores during the year under review. The company has incurred an expenditure of ₹ 23,96,185/- before the start of commercial operations of the outlets. Since most of the outlets are under lease arrangement for 9 years, one tenth of such start up expenditure has been charged to profit and loss account and the b .....

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m ought not to have been allowed as revenue expenditure only in the impugned assessment year. More particularly; when the notes extracted hereinabove clarify time spans of 3 and 9 years. We find that the hon ble jurisdictional High Court in DCIT vs. Core Healthcare Ltd., (2009) 308 ITR 263 (Guj.) holds that an expenditure incurred at the time of installation of machinery in existing line of business resulting in enduring benefits cannot be held to be capital expenditure merely because some direc .....

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uation as under: 18) What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto .....

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the year in which it was incurred, merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), .....

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