The DCIT, Circle-1,, Ahmedabad v. Adani Retail Ltd, Ahmedabad

ITA 1311/AHD/2011 | 2004-2005
Pronouncement Date: 24-04-2015 | Result: Dismissed

Appeal Details

RSA Number 131120514 RSA 2011
Assessee PAN AABCB5212H
Bench Ahmedabad
Appeal Number ITA 1311/AHD/2011
Duration Of Justice 3 year(s) 11 month(s) 22 day(s)
Appellant The DCIT, Circle-1,, Ahmedabad
Respondent Adani Retail Ltd, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 24-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 24-04-2015
Date Of Final Hearing 15-04-2015
Next Hearing Date 15-04-2015
Assessment Year 2004-2005
Appeal Filed On 02-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI G. D. AGARWAL VICE PRESIDENT AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO . 1 311 /AHD/20 11 A. Y . 200 4 - 0 5 DCIT AHMEDABAD. VS M/S. ADANI RETAIL LTD . (ERSTWHILE KNOWN AS B2 C INDIA LTD.) ADANI HOUSE SHRIMALI SOCIETY NR. MITHAKHALI SIX ROADS NAVRANGPURA AHMEDABAD. PAN: AABCB 5212H (APPELLANT) (RESPONDENT) CO NO.137/AHD/2011 A.Y .2004 - 05 M/S. ADANI RETAIL LTD. (ERSTWHILE KNOWN AS B2C INDIA LTD.) ADANI HOUSE SH RIMALI SOCIETY NR. MITHAKHALI SIX ROADS NAVRANGPURA AHMEDABAD. PAN: AABCB 5212H VS DCIT AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI DINESH SINGH SR.D.R. ASSESSEE(S) BY : SHRI VIJAY RANJAN A.R. / DATE OF HEARING : 15 / 0 4 /201 5 / DATE OF PRONOUNCEMENT: 24/ 04 /201 5 ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 2 - / O R D E R PER: S. S. GODARA JUDICIAL MEMBER THIS REVENUE S A PPEAL AND ASSESSEE S CROSS OBJECTIONS FOR A.Y.200 4 - 0 5 ARIS E FROM ORDER OF CIT (A) - V I AHMEDABAD DATED 04 .0 3 .20 11 IN CASE APPEAL NO. CIT(A) - VI/D CIT.CIR.1/ 388 /0 9 - 1 0 DELETING DISALLOWANCE OF RS.1 70 17 652/ - ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE IN PROCEEDINGS U/S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT IN SHOR T THE ACT . 2. THE REVENUE S GROUND SEEKS RESTORATION OF THE AFORESAID DISALLOWANCE/ADDITION MADE IN THE COURSE OF RE - ASSESSMENT FRAMED ON 30.12.2009. THE ASSESSEE S PLEADINGS CHALLENGE VALIDITY OF THE REOPENING TAKEN RECOURSE TO BY THE ASSESSING AUTHORI TY AND AFFIRMED IN THE CIT(A) S ORDER. 3. THE ASSESSEE - COMPANY RUNS A SUPER MARKET CHAIN OF FOOD AND GROCERY ITEMS. IT FILED ITS RETURN ON 30.10.2004 ADMITTING LOSS OF RS.1 63 54 790/ - . THE ASSESSING OFFICER FRAMED A REGULAR ASSESSMENT COMPUTING THE AF ORESAID LOSS TO RS.1 62 88 490/ - . 4. T HEREAFTER T HE ASSESSING AUTHORITY FORMED REASONS TO BELIEVE THAT ASSESSEE S TAXABLE INCOME LIABLE TO BE ASSESSED HAD ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 3 - ESCAPED ASSESSMENT. IT HAD AVAILED DEDUCTION OF RS.1 70 17 652/ - RELATING TO DEFERRED REVENUE EXPE NSES. THIS SUM REPRESENTED RESIDUAL BALANCE OF RS.1 46 21 461/ - AND RS.23 96 185/ - REMAINED TO BE WRITTEN OFF OUT OF THE TOTAL EXPENDITURE INCURRED ON SALES PROMOTION PUBLICITY AND STORE SET UP EXPENSES ORIGINALLY TREATED AS DEFERRED REVENUE EXPENDITURE TO BE WRITTEN OFF OVER A PERIOD OF YEARS. THE ASSESSING OFFICER PERCEIVE D IT TO BE GRANTING BENEFITS OF ENDURING NATURE WRONGLY TREATED AS DEFERRED REVENUE EXPENDITURE IN FIRST ROUND OF REGULAR ASSESSMENT . HE WOULD HOLD THE ASSESSEE S ACTION OF TREATING IT AS REVENUE EXPEN DITURE AND AVAILING THE ENTIRE DEDUCTION IN 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 TH E AFORESAID LOSS DETERM INE AT RS.1 62 88 490/ - ( SUPRA ). I T OBJECTED TO VALIDITY OF THE REOPENING AND REITERATE D ITS DEDUCTION CLAIM . THE ASSESSING OFFICER FINALIZED RE - ASSESSMENT ON 30.12.2009. HE OBSERVED THAT THE IMPUGNED EXPENDITURE WAS OF AN ENDURING N ATURE ALLOWABLE FOR A PERIOD OF TIME INSTEAD OF THE ENTIRE CLAIM BEING ENTERTAINED IN THE IMPUGNED ASSESSMENT YEAR SINCE IT WOULD CAUSE DECLARATION OF INCORRECT PROFITS. HE REL IED ON ASSESSEE S ACTION IN WRITING OF F THE SAME TO OBSERVE THAT ITS ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 4 - CONSEQUENTI AL BENEFITS WERE LONG TERM AND NOT CONFINED TO ONLY TO Y EAR OF PAYMENT I.E. THE IMPUGNED ASSESSMENT YEAR. THIS RESULTED IN THE IMPUGNED DISALLOWANCE/ADDITION OF RS.1 70 17 652/ - . 6. THE ASSESSEE PREFERRED AN APPEAL. IT WOULD CHALLENGE VALIDITY OF REOPEN ING AS WELL AS THE IMPUGNED DISALLOWANCE 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 S UBMISSION. 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. HOWEV ER SINCE THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENSE UNDER INCOME TAX ACT THE SAID EXPENSES WERE CLAIMED AS REVENUE BY THE APPELLANT. APPELLANT SUBMITTED THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF ALLO W ABILITY UNDER INCOME TAX ACT. SIMILARLY THE NATURE OF EXPENSES WAS ALSO CLAIMED TO BE REVENUE EVEN WHEN THE BENEFIT OF THESE EXPENSES WILL BE AVAILABLE IN FUTURE YEARS. APPELLANT RELIED UPON SEVERAL DECISIONS OF ITAT AND OF GUJARAT HIGH COURT IN WHICH EXPENSES IN THE NATURE OF ADVERTI SEMENT 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 CLAIM ED 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 ASSESSEE H AS OPTED FOR CROSS OBJECTIONS. T H IS CROSS OBJECTION IS NOT PRESSED IN THE COURSE OF HEARING . THIS LEAVES US ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 5 - WITH REVENUE S SUBSTANTIVE GROUND PRAYING FOR RESTORATION OF THE IMPUGNED DISALLOWANCE/ADDITIONS OF DEFERRED REVENUE EXPENDITURE. 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE CASE FILE. THERE IS NO DISPUTE ABOUT THE FACTUAL POSITION NARRATED IN THE PRECEDING PARAGRAPHS. THE ASSESSEE S BOOKS HAVE TREATED A PART OF THE IMPUGNED DEFERRED EXPENDITURE IN THE RELEVANT PREVIOUS YEAR AND THE BALANCE AMOUNT I N SUCCEEDING ASSESSMENT YEARS. IT HAS ALSO CLAIMED THE ENTIRE SUM A S REVENUE EXPENDITURE . ITS RELEVANT NOTE ON ACCOUNT S 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 RETAI LING 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 ADVERTISING CAMPAIGN IN NEWSPAPER HANDBILLS INSERTS HOARDING AND VARIOUS OTHER MEDIAS AVAILABLE IN THE MARKET. DURING THE PROCESS OF SUCH BRANCH BUILDING EXERCISE THE COMPANY HAS SPENT A SUM OF RS. 146 21 461 / - ON ADVERTISING AND SALES PROMOTIONS DURING THE YEARS ALSO THE COMPANY HAS OP TED FOR CHARGING ONE THIRD OF SUCH EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCING AMOUNT HAS BEEN DEFERRED FOR COMING TWO YEARS. DUE TO SUCH POLICY ADOPTION THE BOOK RESULTS FOR THE YEAR UNDER REVIEW ARE L OWER BY RS. 97 47 641 / - HOWEVER THE C OMPANY 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 RS.23 96 185 / - BEFORE THE START OF COMM ERCIAL 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 L O SS ACC OUNT AND THE BALANCING AMOUNT HAS BEEN DEFERRED FOR COMING 9 YEARS. DUE TO SU CH POLICY ADOPTION THE BOOK RESULTS FOR THE YEAR UNDER REVIEW ARE LOWER BY RS. 21 56 567 / - . HOWEVER THE COMPANY PROPOSES TO CLAIM THE ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 6 - ENTIRE AMOUNT AS EXPENDITURE WHILE FILING THE INCOME TAX RETURNS FOR THE YEAR. THE REVENUE DOES NOT TO DISPUTE THESE FA CTS . ITS ONLY PLEA IS THAT SINCE ENDURING BENEFIT S ARE RESULTED ON ACCOUNT OF BRAND BUILDING AND STORE SETUP EXPENDITURE INVOLVING GROSS SUM OF RS.1 70 17 652/ - THE ENTIRE SUM OU GH T NOT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE ONLY IN THE IMPUGNED ASSE SSMENT YEAR . M ORE PARTICULARLY ; WHEN THE NOT ES EXTRACTED HEREINABOVE CLARIFY TIME SPAN S OF 3 AND 9 YEARS . WE FIND THAT THE HON BLE JURISDICTIONAL HIGH COURT IN DCIT VS. CORE H EALTH C ARE LTD. (2009) 308 ITR 26 3 (GUJ.) HOLDS THAT AN EXPENDITURE INCURRED AT T HE TIME OF INSTALLATION OF MACHINERY IN EXISTING LINE OF BUSINESS RESULTING IN ENDURING BENEFIT S CANNOT BE HELD TO BE CAPITAL EXPENDITURE MERELY BECAUSE SOME DIRECT OR INDIRECT BENEFITS; IMMEDIATE OR A PERIOD OF TIME FLOW FROM THE SAME . THE REVENUE DOES N OT QUOTE ANY CASE LAW TO THE CONTRARY. WE TAKE CUE THEREFROM AND TREAT THE ENTIRE EXPENSES AS REVENUE EXPENDITURE. COMING TO THE REVENUE S ARGUMENT RELYING ON ASSESSEE S ACCOUNT ING TREAT MENT IN ITS BOOKS ( SUPRA ) WE NOTICE THAT HON BLE APEX C OURT IN A VERY REC ENT DECISION IN CASE OF TAPARIA TOOLS LTD. VS. JCIT NASIK (CIVIL APPEAL NOS.6366 TO 6368 OF 2003 DATED 23.03.2015 ) H AS DEALT WITH AN IDENTICAL S ITUATION AS UNDER: 18) WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY THE ORDINARY RULE IS TO BE APPLIED NAME LY REVENUE EXPENDITURE INCURRED IN A ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 7 - 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 NOW HAS BEEN RESTRICTED TO THE CASES OF DEBENTURES. 19) IN THE INSTANT CASE AS NOTICED ABOVE THE ASSESSEE DID NOT WANT S PREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FIVE YEARS AS IN THE RETURN FIFED BY IT IT HAD CLAIMED THE ENTIRE INTEREST PAID UPFRONT AS DEDUCTIBLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION WHEN THIS COURSE OF ACTION WAS PERMISSIBLE IN LAW TO T HE ASSESSEE AS IT WAS IN CONSONANCE WITH THE PROVISIONS OF THE ACT WHICH PERMIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WHICH IT WAS INCURRED MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOKS OF ACCOUNTS CANNOT BE A FACTOR WHICH WOU LD 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 PROVISION S CONTAINED IN THE ACT [ SEE - KEDARNATH JUTE MANUFACTURING CO. LTD. V. COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA 3 TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. MADRAS V. COMMISSIONER OF INCOME TAX MADRA S ; SUTLEJ COTTON MILLS LTD. V. COMMISSIONER OF INCOME TAX CALCUTTA AND UNITED COMMERCIAL BANK CALCUTTA V. COMMISSIONER OF INCOME TAX WB - III CALCUTTA]. 20) AT THE MOST AN INFERENCE CAN BE DRAWN THAT BY SHOWING THIS EXPENDITURE IN A SPREAD OVER MANNER IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAD INITIALLY INTENDED TO MAKE SUCH AN OPTION. HOWEVER IT ABANDONED THE SAME BEFORE REACHING THE CRUCIAL STAGE INASMUCH AS IN THE INCOME TAX RETURN FILED BY THE ASSESSEE IT CHOSE TO CLAIM THE ENTIRE EXPENDITURE IN THE YEAR IN WHICH IT WAS SPENT/PAID BY INV OKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. ONCE A RETURN IN THAT MANNER WAS FILED THE AO WAS BOUND TO CARRY OUT THE ASSESSMENT BY APPLYING THE PROVISION OF THAT ACT AND NOT TO GO BEYOND THE SAID RETURN. THERE IS NO ESTOPPELS AGAINST THE STATUT E AND THE ACT ENABLES AND ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 8 - ENTITLES THE ASSESSEE TO CLAIM THE ENTIRE EXPENDITURE IN THE MANNER IT IS CLAIMED.' THEIR LORDSHIPS HOLD IN VERY CLEAR TERMS THAT AN ASSESSEE CAN ADOPT THE TWO WAY S OF GIVING DIFFERENT ACCOUNTING TREATMENT TO AN EXPENDITURE IN I TS BOOKS AND CLAIM THE ENTIRE SUM AS REVENUE EXPENDITURE IN THE RELEVANT ASSESSMENT YEAR. T HEREFORE WE UPHOLD THE CIT(A) S ORDER DELETING THE IMPUGNED DISALLOWANCE/ADDITION OF DEFERRED REVENUE EXPENDITURE. THE REVENUE S GROUND FAILS. THE ASSESSEE S CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. 5. T HE REVENUE S APPEAL IS DISMISSED AND ASSESSEE S CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE COURT ON THIS DAY THE 24 APRIL 2015 AT AHMEDABAD. SD/ - SD/ - ( G. D. AGARWAL ) ( S.S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 24 / 0 4 / 20 1 5 PRABHAT KR. KESARWANI SR. P . S . S / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III AHMEDABAD 5. / DR ITAT AHMEDABAD 6. / GUARD FILE . ITA NO. 1 311 /AHD /20 11 & CO NO.137/AHD/2011 M/S. ADANI RETAIL PVT. LTD . FOR A.Y. 20 0 4 - 0 5 - 9 - / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD