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Reliance Fresh Ltd., Reliance Digital Retail Ltd Versus ACIT 7 (2) , Mumbai

2016 (7) TMI 696 - ITAT MUMBAI

Project development expenditure - Treatment of expenditure in the return of income - disallowance of claim for deduction u/s 37(1) - Held that:- Under the income-tax law, the profit of a particular store cannot be separately computed. Thus, the profits of the retail business have to be computed by taking the entire business as ‘one’. Since the assessee is already having incomes from its retail business, the admitted fact would be that the business of the assessee is already ‘set up’ as per facts .....

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by an assessee could not be a factor which would bar the assessee from claiming the entire expenditure as a deduction. Once a return is filed in a particular manner, the AO is bound to carry out the assessment applying the provisions of the Act and not to go beyond the return. There is no estoppel against the statute and the Act enables and entitles the assessee to claim the entire expenditure in the manner it can be claimed under the law. It has been further clarified by the Hon’ble Supreme Cou .....

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ed in favour of assessee - I.T.A. No. 1661/Mum/2013, I.T.A. No.1662/Mum/2013 - Dated:- 13-7-2016 - Shri Joginder Singh ( Judicial Member ) And Shri Ashwani Taneja ( Acountant Member ) For the Appellants : Shri Vijay Mehta (AR) For the Respondent : Shri B.B. Rajendra Prasad (DR) ORDER Per Ashwani Taneja, AM These appeals pertain to different assesses, but involves identical issue; therefore, these were heard together and being disposed of by this common order. 2. First we shall take up the appeal .....

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rred during the year amounting to ₹ 56,62,56,096/- (ii) The learned CIT(AT failed to appreciate that the expenditure being incurred for carrying on the business and being of revenue nature is eligible for deduction u/s 37(1). (iii) The appellant prays that the deduction of ₹ 49,06,00,257/- [Rs. 56,62,56,096/- minus ₹ 7,56.55.639/- being disallowance u/s 40A(7)/40A(9) as claimed by it be allowed. 3. During the course of hearing, it was contended by the assessee that only ground .....

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, but in fact, there expenses are purely revenue in nature, and therefore, in the computation sheet, these expenses were claimed as revenue expenses. The claim of the assessee was denied and these expenses were treated as capital expenditure by the lower authorities. It was further submitted that the assessee has never claimed depreciation on the expenses capitalised in its books of account, neither in this year nor in any subsequent years. An undertaking was submitted by the ld. Counsel on beha .....

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08-09 (Mumbai Bench), 2. Reliance Footpr int L td. v .ACIT I TA No. 5997/Mum/2011 for A.Y. 2008-09 (Mumbai Bench) 3. Reliance Footprint Ltd vs ACIT in ITA No.5997/Mum/2011order dt. 27.11.2013 (Mumbai Bench) 4. Reliance Supply Chain Solutions Ltd. in ITA No.5759/Mum/2012 for A.Y. 2008-09 order dt. 27.11.2013 (Mumbai Bench) 5. Reliance Supply Chain Solutions Ltd. ITA 6342/Mum/2013 for A.Y. 2009-10 order dt 25.03.2015 (Mumbai Bench) 6. Reliance Supply Chain Solutions Ltd, order dt 13.08.2015 in ITA .....

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ndisputedly incurred after setting up of the business, thus these expenses are allowable under the law without any debate and discussion. The genuineness of these expenses has nowhere been doubted by the lower authorities. 5. Per contra, the ld.DR submitted that these expenses have been incurred for opening up new stores and, therefore, these expenses are incurred for new projects, and therefore, these expenses cannot be allowed to the assessee. It was further submitted by him that the Ld. CIT(A .....

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essee company was engaged in the business of organized retail. The main business of the assessee company was sourcing and selling fruits, vegetables, food articles, groceries, fast moving goods and other goods of daily use and provisions of various related services as a neighborhood convenience store. It was noted by the Assessing Officer that as per Schedule K of annual report of the assessee for A.Y.|2007-08 following expenses were capitalized under the head project development expenditure: PR .....

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nder: Project Development Expenditure 2007-08 (Rs in Lakhs) Employee Related Cost Salaries & Wages 3,499.45 Contribution to Provident Fund, Superannuation Fund, Gratuity and Leave Encashment 911.23 Employee Welfare and other amenities 472.12 Travelling Expenses 110.36 Professional Fees 90.57 Communication Expenses 49.71 Printing and Stationery 26.21 Hire Charges 112.21 Other Project Development Expenditures Others 397.89 5,669.76 Less: Miscellaneous Income (7.39) Pre-Operative Expenses 5,662 .....

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laimed that these expenses pertaining to a project which has not been implemented , therefore, it could not be allowed as revenue expenditure, and therefore, he confirmed the order of the AO. 9. We find force in the arguments of Ld. Counsel of the assessee. It was submitted by him that fairly speaking, the assessee had wrongly capitalised these expenses under some misconception and misunderstanding of accounting standards. The candid claim of the Ld. Counsel was that these expenses were wrongly .....

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, the profits of the retail business have to be computed by taking the entire business as one . Since the assessee is already having incomes from its retail business, the admitted fact would be that the business of the assessee is already set up as per facts and well settled legal position. It is well settled position of law that all the expenses incurred subsequent to the setting up of the business shall be allowable to the assessee. 9.1. It is further noted that all these expenses are otherwis .....

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as been brought out by the lower authorities to show that if any of these expenses were capital in nature except the fact that the assessee has debited the same under the head Project Development Expenditure . The assessment of the return has to be made on the basis of return filed by the assessee supported with the accounts of the assessee. While examining the accounts, the return cannot be ignored. The return must take precedence over the accounts in respect of legal claims. The accounts have .....

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return filed by the assessee, the assessee claimed the same as revenue expenses; (4) The expenses have been incurred after the setting- up of the business; (5) The expenses pertained to the same business, income of which has been shown in the return and assessed as such by the AO; and (6) The genuineness of the expenses has not been doubted by the lower authorities 9.2. Thus, from the above discussion, we can conclude that these expenses are revenue in nature and should be allowed as such. Ld. C .....

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r the Act (i.e. claim deduction as 'revenue expenditure' as well as later claim deduction on account of depreciation) in respect of the impugned "Project Development Expenditure" for any of the assessment year. 9.3. The AO shall make requisite verification of the returns of all the subsequent years to ensure this aspect for which the assessee shall submit requisite details and documentary evidences. After verifying these primary facts only, the AO shall pass the appeal effect o .....

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sidered. There is no dispute to the fact that the assessee has shown a turnover of ₹ 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 expansion of business. It was also submitted that the expenditure which are in the nature of salary, electricity, audit fee etc. are essent .....

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ew of the AO cannot 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 b .....

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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 AU. 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 .....

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gh 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&# .....

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en dual status to such expenditure in its books of account vis-à-vis computation of income filed along with return. 9.5. It is further noted by us that in another case also similar decision has been taken by the Tribunal which are not being reproduced here to avoid duplication. We also find it appropriate to refer at this stage, for the sake of completeness, the judgement of Hon ble Supreme Court in the case of Taparia Tools Ltd vs JCIT 372 ITR 605 (SC) wherein it has been observed by Hon .....

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