TMI Blog2015 (10) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Hon‟ble Bombay High Court in the case of CIT V/s Kothari Auto Parts Manufactures Pvt Ltd (1975 (12) TMI 28 - BOMBAY High Court) and Hon‟ble High Court of Gujarat in the case of CIT V/s Alembic Glass Industries Ltd (1975 (11) TMI 42 - GUJARAT High Court). These expenditures did 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-à-vis computation of income filed along with return - Decided in favour of assessee. - I.T.A. No.3444/Mum/2013, I.T.A. No.4273/Mum/2013 - - - Dated:- 9-9-2015 - SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM For The Appellant : Shri Farrokh Irani For The Respondent : S/Shri Kailash Gaikwad and Jayant Kumar ORDER Per Bench: Both the appeals filed by the assessee are directed against the orders passed by Ld CIT(A)-7, Mumbai and they relate to the assessment years 2008-09 and 2009-10. Since identical issue is urged in these ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, electricity, Audit fees and likes. These expenses have been essentially incurred for expansion of the existing line of business i.e. setting up of more number of stores under the planned format or for maintenance and operation of the already established stores. Where these expenses are directly identifiable with the operation and maintenance of the existing stores the same have been expensed out during the year. Whether the expenses are not directly identifiable with the operation and maintenance of the existing stores, the same has been transferred to Project development expenditure pending capitalization. This has been done mainly to defer the charge of such expenses to profit and loss account. It would be worth mentioning here that what is being reflected by the company in the books of accounts is project development expenditure and not capitalization of any individual capital asset The assessee, by placing reliance on the decision rendered by the Hon‟ble Supreme Court in the case of Kedarnath jute manufacturing company Limited (1971)(82 ITR 363), further submitted that the entries made in the books of account is not determinative of the deduction allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not entitled to claim deduction of project development expenditure, since it is a case of extension of business, i.e., setting up of new source of income. Accordingly, he confirmed the addition made by the AO in both the years under consideration. Aggrieved, the assessee has filed this appeal before us. 6. The Ld A.R submitted that there is no dispute with regard to the fact that the assessee was already operating nine stores during the year relevant to the assessment year 2008-09. This is further fortified by the fact that the assessee has disclosed sales revenue of ₹ 28.44 crores and 246.18 crores for the AY 2008-09 and 2009-10 respectively. He submitted that the expenses incurred with regard to the opening of new stores have been taken to Balance Sheet as Capital work in progress in the books of account. However, the same has been claimed as revenue expenditure under the Income tax Act, since all the conditions relating to deduction u/s 37(1) of the Act have been satisfied. He submitted that the assessee has segregated capital expenses, if any, out of Project development expenses, if they are capital in nature and claimed only those expenses, which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the claim by following the decision rendered in the case of M/s Reliance Footprint Ltd (supra). 9. On the contrary, the Ld D.R submitted that the Ld CIT(A) has taken up the view that the assessee has set up new source of business by establishing new stores. Accordingly, the Ld CIT(A) has taken the view that the project development expenditure is capital in nature. He further submitted that the assessee has furnished details relating to other expenses included in Project development expenses. He further submitted that the assessee has not generated revenue from new stores and hence under revenue cost matching principle , the expenses claimed by the assessee are not allowable. 10. In the rejoinder, the Ld A.R placed reliance on the decision rendered by Hon‟ble Supreme Court in the case of Rajendra Prasad Moody (supra) and contended that the generation of revenue is not always a precondition for allowing the expenses. 11. We have heard rival contentions and perused the record. We have earlier noticed that the assessing officer has taken the view that the expenditure claimed by the assessee is not allowable, since the assessee itself has treated the same as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has explained that it has followed the practice of charging expenses each store wise and hence the expenses which could not be identified with any particular store (may be operational store) was booked under the head project development expenditure‟. It is also submitted that the capital expenditure, if any, incurred in the opening of new stores have been capitalized in the books. The nature of project development expenditure incurred by the assessee for the year relevant to the assessment year 2009-10 is given in page 33 of the paper book filed by the assessee. The same is extracted below, for the sake of convenience:- RELIANCE WELLNESS LIMITED ASSESSMENT YEAR 2009-10 ANNEXURE Details of revenue expenditure debited to CWIP Particulars Amount(Rs.) Electric Power, Fuel and Water 4,53,955 Rent 1,04,75,325 -Salaries and wages 8,29,20,705 -Contribution to Provident fund, superannuation 28,42,804 fund, Gratuity, Leave Encashment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 permitted to deal in and thus these are two activities were two separate stages of the same business and the Tribunal was justified in allowing the total expenditure as business expenditure. In the instant case, there is no dispute that the nature of business activities of all the stores, i.e., already opened and that are going to be opened, is identical in nature. It is also not in dispute that the assessee is already operating certain stores and it was in the process of opening more number of stores. Hence, we are of the view that it is a case of expansion of business activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee that operations of these stores at various locations is one composite business and once business had been started then the expenditure cannot be linked only to the stores which became operational during the year under consideration. Such submission of the assessee has not been controverted by the AO. All these details were submitted before the AO and it is not the case of the AO 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 purposes 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 bought on record by the AO to negate such submissions made by the assessee. These propositions put forth by the assessee before AO are supported by the decision of the Hon‟ble Bombay High Court in the case of CIT V/s Kothari Auto Parts Manufacturers Pvt Ltd (supra), and the decision of Hon‟ble Gujarat High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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