RELIANCE FOOTPRINT LTD, NAVI MUMBAI v. ASST CIT CIR 10(3), MUMBAI

ITA 5997/MUM/2011 | 2008-2009
Pronouncement Date: 23-10-2013 | Result: Allowed

Appeal Details

RSA Number 599719914 RSA 2011
Assessee PAN AAFCM0947E
Bench Mumbai
Appeal Number ITA 5997/MUM/2011
Duration Of Justice 2 year(s) 1 month(s) 27 day(s)
Appellant RELIANCE FOOTPRINT LTD, NAVI MUMBAI
Respondent ASST CIT CIR 10(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 23-10-2013
Date Of Final Hearing 29-01-2013
Next Hearing Date 29-01-2013
Assessment Year 2008-2009
Appeal Filed On 26-08-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH MUMBAI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI RAJENDRA ACCOUNTANT MEMBER ITA NO. 5997/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S. RELIANCE FOOTPRINT LTD. BLDG. NO.4 GROUND FLOOR WING-C RELIANCE CORPORATE PARK THANE BELAPUR RD. NAVI MUMBAI-400 701. VS. ASSTT. COMMISSIONER OF INCOME TAX- CIRCLE 10(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. (APPELLANT) (RESPONDENT) P.A. NUMBER : AAFCM 0947 E ASSESSEE BY : SHRI FARROKH V. IRANI REVENUE BY : SHRI S.K. SINGH DATE OF HEARING : 08/10/2013 DATE OF PRONOUNCEMENT : 23/10/2013 O R D E R PER I.P. BANSAL JM: THIS APPEAL IS FILED BY THE ASSESSEE. IT IS DIRECTE D AGAINST THE ORDER PASSED BY THE LD. CIT(A) DATED 29.06.2011 FOR THE A SSESSMENT YEAR 2008- 09. THE GROUNDS OF APPEAL READ AS UNDER :- GROUND NO.1 (I) THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM FOR DEDUCTION U/S. 37(1) IN RESPECT OF REVENUE EXPENDIT URE INCURRED DURING THE YEAR AMOUNTING TO RS.3 64 49 54 5/-. (II) THE LD. CIT(A) FAILED TO APPRECIATE THAT THE EXPEND ITURE BEING INCURRED FOR CARRYING ON THE BUSINESS AND BEING OF REVENUE NATURE IS ELIGIBLE FOR DEDUCTION U/S. 37(1). 2 ITA NO. 5997/MUM/2011 A.Y. 2008-09 (III) THE APPELLANT PRAYS THAT THE DEDUCTION OF RS.3 13 25 588/- [RS.3 64 49 545/- MINUS RS.51 23 957/- BEING DISALL OWANCE U/S. 40A(7)/ 40A(9)/ 43B] AS CLAIMED BY IT BE ALLOW ED. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG AND MERCHANDISING OF GOODS AND SERVICES. THIS IS THE FI RST 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 B ALANCE SHEET THE ASSESSEE HAS SHOWN CAPITAL WORK-IN-PROGRESS AMOUNTI NG TO RS.9 40 80 983/- . OUT OF THE SAID AMOUNT THE ASSES SEE HAS CLAIMED AN AMOUNT OF RS.3 64 49 545/- AS REVENUE EXPENDITURE A ND HAS CLAIMED THIS AMOUNT IN THE COMPUTATION OF INCOME FILED WIT H THE RETURN OF INCOME. THUS A LOSS OF RS.3 15 16 626/- HAS BEE N CLAIMED AFTER ADDING BACK AN AMOUNT OF RS.51 23 957/- UNDER THE P ROVISIONS OF SECTION 40A(7)/ 40A(9)/ 43B. 2.1 NOTING FROM THE RETURN THAT THE ASSESSEE HAS CL AIMED REVENUE EXPENDITURE OF RS.3 64 49 545/- OUT OF CAPITAL WOR K-IN-PROGRESS THE AO REQUIRED THE ASSESSEE TO EXPLAIN ABOUT THE ALLOWAB ILITY OF THE SAID AMOUNT. VIDE LETTER DATED 9.11.2010 IT WAS SUBMITTE D THAT THESE EXPENDITURES ARE MAINLY SALARY; TRAVELLING; COMMUNI CATION; AND THEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 37( 1) OF THE ACT. ANOTHER REPLY DATED 02.12.2010 WAS ALSO FILED WHICH HAS BEE N REPRODUCED IN THE ASSESSMENT ORDER IN PARA 4.1 AT PAGES 2 TO 5 OF THE ASSESSMENT ORDER. IN SUM AND SUBSTANCE THE CONTENTIONS OF THE ASSESSEE A RE AS UNDER :- I. THE COMPANY HAS ALREADY STARTED ITS OPERATION FR OM TWO OF ITS STORES IN BANGALORE AND HYDERABAD. II. THE COMPANY IS EXPANDING ITS LINE OF BUSINESS B Y ADDING MORE STORES UNDER PLANNED FORMAT. ALL THE OPERATIONS OF THE COMPANY ARE 3 ITA NO. 5997/MUM/2011 A.Y. 2008-09 APPROPRIATELY REFLECTED IN THE BALANCE SHEET AND AL L THESE OPERATIONS ARE ACCOUNTED THROUGH ONE SINGLE P&L ACCOUNT OF THE COM PANY. ALL SOURCING OF FUNDS IS DONE AT THE COMPANY LEVEL. ALL THE OPER ATIONS AND STORES ARE OPENED AND EXPANDED AND OPERATED OUT OF SUCH COMMON POOL OF FUNDS WHICH INCLUDE UNSECURED LOANS AND OTHER SHORT TERM LIABILITIES ALONG WITH SHAREHOLDERS FUND. III. THE BUSINESS CARRIED ON BY THE ASSESSEE CONSTI TUTES ONE INDIVISIBLE BUSINESS. THE ADMINISTRATION OF THE COMPANY IS CENT RALIZED AND MAJOR POLICIES ARE FRAMED AT CENTRAL LEVEL WHICH CAN BE N OTED FROM MODUS OPERANDI OF ALL THE BUSINESS OPERATIONS WHICH IS SAME AND IS SO ARRANGED THAT THE ECONOMIES OF SCALE CAN BE OBTAINED. SUCH A RRANGEMENT HAS RESULTED INTO INTER-CONNECTION INTER-DEPENDENCE OF THE OPERATIONS ON EACH OTHER WHICH CLEARLY SHOWS THAT THERE EXISTS IN TER-CONNECTION INTER- LACING INTER-DEPENDENCE COMMON MANAGEMENT COMMON BUSINESS ORGANIZATION COMMON FUNDS COMMON ADMINISTRATION COMMON CENTRAL PLACE OF BUSINESS. IV. DURING THE YEAR THE ASSESSEE HAS ACQUIRED AND C APITALIZED THE AMOUNT SPENT TOWARDS THE ACQUISITION OF VARIOUS CAP ITAL ASSETS LIKE EQUIPMENTS AND VEHICLES. APART FROM SUCH EXPENDITUR E VARIOUS OPERATING AND MAINTENANCE EXPENSES HAVE BEEN INCURRED WHICH A RE TOWARDS SALARY ELECTRICITY AUDIT FEES ETC. THESE EXPENDITURES HAV E BEEN ESSENTIALLY INCURRED FOR EXPANSION OF EXISTING LINE OF BUSINESS I.E. SETTING UP OF MORE NUMBER OF STORES UNDER THE PLANNED FORMAT OR FOR MA INTENANCE AND OPERATION OF THE ALREADY ESTABLISHED STORES. V. WHERE THESE EXPENDITURES ARE DIRECTLY IDENTIFIAB LE WITH THE OPERATIONS AND MAINTENANCE OF THE EXISTING STORES THE SAME HAVE BEEN SHOWN AS EXPENDITURE DURING THE YEAR. WHERE THE EXP ENSES ARE NOT 4 ITA NO. 5997/MUM/2011 A.Y. 2008-09 DIRECTLY IDENTIFIABLE WITH THE OPERATION AND MAINTE NANCE OF EXISTING STORES AND THE SAME HAVE BEEN TRANSFERRED TO THE PROJECT DEVELOPMENT EXPENDITURE PENDING CAPITALIZATION AND SUCH TREATM ENT IS GIVEN MAINLY TO DEFER CHARGING OF SUCH EXPENDITURE TO P&L ACCOUN T. IN FACT THE EXPENDITURE INCURRED BY THE ASSESSEE IS PROJECT DE VELOPMENT EXPENDITURE AND NOT CAPITALIZATION OF ANY INDIVIDU AL CAPITAL ASSET. VI. ACCORDING TO THE PROVISIONS OF INCOME TAX ACT T HE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR IS ALLOWAB LE IN ITS ENTIRETY AND DEFERMENT OF SUCH EXPENDITURE IN THE COMING YEARS I S NOT PERMISSIBLE. THEREFORE AS BUSINESS OF THE ASSESSEE HAS COMMENC ED THESE EXPENDITURES WERE ALLOWABLE IN THE YEAR OF INCURRIN G EXPENDITURE IRRESPECTIVE OF THE FACT THAT THE BUSINESS PLAN IS IMPLEMENTED IN PHASED MANNER. FOR RAISING SUCH CONTENTIONS RELIANCE IS PL ACED 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 TAXM ANN 115 (DEL.) III) CIT VS. PRIYA VILLAGE ROADSHOWS LTD. (2009) 185 TAX MANN 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 EXP ENSES 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 ACQUISITIO N OF AN ASSET OR ACQUISITION OF ENDURING BENEFIT IN THE CAPITAL FIE LD. THE EXPENDITURE ON GENERAL OVERHEAD NEITHER RESULTS IN BUILDUP OF ANY ASSET NOR IT ENHANCES 5 ITA NO. 5997/MUM/2011 A.Y. 2008-09 ANY SPECIFIC ASSET. WHEN BUSINESS IS SET UP COMMON EXPENDITURE (OTHER THAN EXPENDITURE OF CAPITAL NATURE) RELATED TO BUSI NESS IS FULLY ALLOWABLE. VIII. IN THE ALTERNATIVE IT WAS SUBMITTED THAT IF I T IS CONSIDERED THAT THE SAID AMOUNT OF RS.3 64 49 656/- IS NOT ALLOWABLE U/ S. 37(1) CORRESPONDING DISALLOWANCE OF RS.51 23 957/- MADE I N THE COMPUTATION OF INCOME SHOULD ALSO BE IGNORED. 2.2 FOR COMPLETION OF FACTS AND DETAILS THE REFEREN CE CAN BE MADE TO FOLLOWING TABLES WHICH ARE FILED BY THE ASSESSEE BE FORE LD. CIT(A): DETAILS OF CAPITAL WORK IN PROGRESS: SR. NO PARTICULARS AMOUNT AMOUNT CLAIM OF REVENUE NATURE 1 CAPITAL WORK IN PROGRESS-DIRECT COSTS 54 82 749 NOT CLAIMED 2 CAPITAL GOODS INVENTORY 55 43 004 NOT CLAIMED 3 PRE-OPERATIVE EXPENSES 3 64 49 544 CLAIMED TOTAL (A) 4 74 75 297 1 CAPITAL WIP ON THE ACQUISITION OF BUSINESS FROM RELIANCE RETAIL LIMITED TOTAL (B) 4 66 05 686 NOT CLAIMED CAPITAL WIP (A+B) 9 40 80 983 6 ITA NO. 5997/MUM/2011 A.Y. 2008-09 DETAILS OF PROJECT DEVELOPM ENT EXPENDITURE: PARTICULAR AMOUNT SALARIES WAGES AND BONUS CONTRIBUTION TO PROVIDENT FUND GRATUITY FUND SUPERANNUATION FUND ETC. EMPLOYEES WELFARE AND OTHER AMENITIES (TO TAL A) TRAVELLING AUDIT FEES PROFESSIONAL FEES OTHER PROJECT DEVELOPMENT EXPENDITURE INTEREST RECEIVED-EMPLOYEE LOANS TOTAL PREOPERATIVE EXPENSES (TOTAL B) 2 86 52 421 27 53 990 37 92 724 3 51 99 135 1 80 282 1 20 000 4 91 400 4 85 627 (26 900) --------------------- 36 449 544 --------------------- DISALLOWANCE MADE BY THE ASSESSEE U/S. 40A(7)/40A(9 )/43B IN COMPUTATION: LEAVE ENCASHMENT PROVISION 34 89 000 GRATUITY PROVISION 15 94 957 SUPERANNUATION PROVISION 40 000 TOTAL 51 23 957 2.3 THE AFOREMENTIONED SUBMISSIONS OF THE ASSESSEE HAVE BEEN REJECTED BY AO WITH THE REASONING GIVEN BY HIM IN P ARA 4.2 WHICH READ AS UNDER :- 4.2 THE ARGUMENT OF THE ASSESSEE IS CONSIDERED CAR EFULLY AND THE SAME IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS: A. IF THE SAID EXPENDITURE PERTAINS TO A PROJECT AS PE R PRINCIPLES OF ACCOUNTING THE SAME IS TO BE CAPITALISED WHICH W ILL GIVE RISE TO TANGIBLE/INTANGIBLE ASSET. 7 ITA NO. 5997/MUM/2011 A.Y. 2008-09 B. IN NOTES TO SCHEDULE C (FIXED ASSETS) TO THE BALANC E SHEET THE IMPUGNED AMOUNT IS SHOWN AS PRE-OPERATIVE EXPENSES WHICH CANNOT BE ALLOWED AS REVENUE EXPENDITURE FOR THE YE AR UNDER CONSIDERATION. C. AN EXPENDITURE CANNOT ENJOY DUAL STATUS OF BEING CA PITAL IN BOOKS OF ACCOUNTS AND REVENUE FOR THE PURPOSES OF I NCOME TAX. D. THE ASSESSEE ITSELF IN ITS BOOKS OF ACCOUNTS TREATE D THE SAME TO BE CAPITAL IN NATURE AND ACCORDINGLY CAPITALISED THE SAME AS CAPITAL WIP. EVEN THE AUDITORS HAVE NOT COME O UT WITH ABSOLUTELY CLEAR REMARK IN THE TAX AUDIT REPORT AT CLAUSE NO.17 WHERE IT STATES THAT THE ASSESSEE HAD LAUNCH ED A PROJECT AND THE SAME IS IMPLEMENTED IN A PHASED MAN NER. IF THE SAID EXPENDITURE PERTAINS TO A PARTICULAR PROJE CT THEN ALL THE EXPENDITURE INCURRED ON THE PROJECT TILL IT IS IMPLEMENTED NEEDS TO BE CAPITALISED AND THE SAME CANNOT BE CLAI MED AS REVENUE. E. THE SAID CAPITAL EXPENDITURE HAS NOT GENERATED ANY INCOME/LOSS TO BE ELIGIBLE TO BE CLAIMED AS REVENUE . F. IT IS ALSO RELEVANT TO NOTE HERE THAT AS PER THE PR OVISIONS OF SECTION 145 THE ASSESSEE HAS TO FOLLOW A CONSISTEN T ACCOUNTING POLICY UNLESS THERE IS ANY SPECIFIC NOTI FICATION ISSUED BY THE CENTRAL GOVERNMENT WITH REGARD TO AN Y 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 INCOM E TAX AS FAR AS PROJECT DEVELOPMENT COST CLAIM IS CONCERNE D. 2.4 IT IS IN THE ABOVE MANNER THAT LD. AO HAS DIS ALLOWED RS.3 64 49 545/-. AS THE ENTIRE AMOUNT WAS DISALLOW ED ASSESSING OFFICER HAS ACCEPTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE AND DID NOT MAKE FURTHER DISALLOWANCE OF RS.51 23 957/- WHI CH ALREADY INCLUDED IN THE ADDITION OF RS.3 64 49 545/-. 8 ITA NO. 5997/MUM/2011 A.Y. 2008-09 3. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE T HE CIT(A). THE SUBMISSION MADE BEFORE AO WERE REITERATED . LD. CI T(A) REQUIRED THE ASSESSEE TO FILE THE DETAILS OF OUTLETS THEIR INC OME AND EXPENDITURE APPORTIONMENT OF EXPENDITURE CAPITALIZED AND CLAIME D AS REVENUE NATURE OF WORK DONE ALONG WITH PROOF OF WORK DONE B Y THE EMPLOYEES TO WHOM SALARIES WERE PAID WHICH FORMED MAJOR CHUNK OF EXPENDITURE AND ALSO NATURE AND BREAK-UP OF OTHER EXPENDITURE CLAIM ED VIDE NOTING ON ORDER SHEET DATED 08.06.2011. THE REPLY WAS FILED B Y THE ASSESSEE VIDE LETTER DATED 28/06/2011. LD. CIT(A) AFTER GOING TH ROUGH THE DETAILS SUBMITTED BY ASSESSEE OBSERVED THAT THE ASSESSEE HAS GIVEN MERELY NAMES DESIGNATION AND AMOUNT PAID WITH REFERENCE T O THE SALARY PAID WITHOUT GIVING ANY PROOF OF THE WORK ACTUALLY HAVIN G BEEN DONE. THEREFORE THE LD. CIT(A) HELD THAT THE ASSESSEE HA D FAILED TO PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS. LD. CIT(A) HAS FURTHER OBSERVED THAT THE APPELLANT HAS FAILED TO GIVE DETAILS OF OUTLETS ALONG WITH INCOME ALONG WIT H EXPENDITURE OF THE UNIT WHEREAS THE BASIS FOR APPORTIONMENT OF EXPENDI TURE CAPITALIZED AND CLAIMED AS REVENUE HAS ALSO NOT BEEN GIVEN(SIC). ON THESE FACTS AND THE REASONING GIVEN BY THE AO IN THE ASSESSMENT ORDER THE LD. CIT(A) HAS HELD THAT THE SAID AMOUNT WAS NOT ALLOWABLE AS SAME IS NOT ON REVENUE ACCOUNT. IN THIS MANNER LD. CIT(A) HAS REJECTED THE APPEAL OF ASSESSEE. 4. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY L D. AR THAT DURING THE YEAR UNDER CONSIDERATION BUSINESS WAS STARTED BY OPERATING TWO STORES AT HYDERABAD AND BANGALORE IN PHASED MANNER . THE ASSESSEE HAS ACHIEVED A TURNOVER OF RS.4.75 CRORES FROM THES E TWO STORES. THE ASSESSEE WAS IN THE PROCESS OF OPENING MORE STORES IN THE PHASED MANNER FOR WHICH THE ASSESSEE WAS REQUIRING MANPOWE R AS WELL AS FIXED ASSETS AND EQUIPMENTS ETC. THE EXPENDITURE ON SUC H ITEMS WAS SHOWN AS PROJECT DEVELOPMENT EXPENDITURE. BY THE END OF THE YEAR A TOTAL 9 ITA NO. 5997/MUM/2011 A.Y. 2008-09 SUM OF RS.9.40 CRORES WAS EXPENDED BY THE ASSESSEE. OUT OF THE SAID TOTAL AMOUNT A SUM OF RS..3.64 49 545/- WAS IDENTIF IED BY THE ASSESSEE WHICH MAINLY CONSISTS OF PAYMENTS MADE TO EMPLOYEES . THESE EXPENSES FROM THEIR VERY NATURE ARE REVENUE AS IT CAN BE SE EN FROM THE DETAILS. THEREFORE THE ASSESSEE IN THE COMPUTATION OF INCO ME FILED ALONGWITH RETURN CLAIMED THE SAME AS REVENUE EXPENDITURE. HE SUBMITTED THAT THE UNDISPUTED FACT IS THAT THESE EXPENDITURE ARE INCUR RED FOR THE EXPANSION OF BUSINESS WHICH IS ALREADY IN EXISTENCE. 4.1 HE FURTHER SUBMITTED THAT BUSINESS OF THE ASSESSEE CONSTITUTES ONE INDIVISIBLE BUSINESS WITH CENTRALIZED ADMINISTR ATION. THE MAJOR POLICIES ARE FORMED AT CENTRAL LEVEL. MODUS OPERAND I OF ALL BUSINESS POLICIES IS SAME AND THUS ACCORDING TO FACTS THERE IS INTER-CONNECTION INTER-LACING INTER-DEPENDENCE COMMON MANAGEMENT COMMON BUSINESS ORGANIZATION COMMON FUNDS AND COMMON ADMINISTRATIO N. LD. A.R POINTED OUT THAT THESE SUBMISSIONS OF THE ASSESSE E 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 OB SERVING THAT AN EXPENDITURE CAN NOT ENJOY DUAL STATUS OF BEING CAPI TAL IN BOOKS OF ACCOUNT AND REVENUE FOR THE PURPOSE OF INCOME TAX. HE SUBMITTED THAT SUCH OBSERVATIONS OF ASSESSING OFFICER ARE INCORREC T IN VIEW OF WELL SETTLED POSITION OF LAW DESCRIBED IN THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED (82 IT R 363) (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE QUESTION THAT WH ETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR N OT WILL DEPEND ON THE PROVISIONS OF LAW RELATING THERETO AND NOT ON THE V IEW 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 I N THE MATTER. 10 ITA NO. 5997/MUM/2011 A.Y. 2008-09 4.3 THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMI TTED 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) WHEREIN THEIR LORDSHIPS HAVE HELD T HAT THE ARGUMENT PASSED ON ACCOUNTANCY PRACTICE IS OF LITTLE MERIT IF SUCH PRACTICE CAN NOT BE JUSTIFIED BY ANY PROVISION OF T HE STATUTE OR IS CONTRARY TO IT. 4.4 THE LD. AR FURTHER REFERRED TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHOR INDUSTRIES LTD. (264 ITR 180) WHEREIN IT HAS BEEN HELD THAT THE EXPENDITURE WHICH IS REVENUE IN NATURE SHOULD BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT HAS BEEN INCURRED AND IT CAN NOT BE SPREAD OVER A NUMBER OF YEARS EVEN THOUG H THE ASSESSEE HAD WRITTEN OFF THE SAME IN ITS BOOKS OVER A PERIOD O F YEARS. 4.5 THE LD. AR ALSO REFERRED TO THE DECISION OF HO N'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD. (103 ITR 715) WHEREIN IT HAS BEEN HELD THAT THE EXPENDITURE RELAT ING TO THE UNIT OF THE ASSESSEE AT BANGALORE WERE ALLOWABLE DESPITE THE FA CT THAT UNIT OF THE ASSESSEE AT BANGALORE DID NOT START PRODUCTION AS T HE NEW UNIT AT BANGALORE WAS NOTHING BUT EXPANSION OF THE EXISTING BUSINESS AND THERE WAS COMPLETE INTER-CONNECTION INTER-LACING AND INT ER-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 EXP ENDITURE IN RELATION TO ACTIVITY OF MANUFACTURING OF AUTO PARTS. NOTING FRO M THE MEMORANDUM OF ASSOCIATION IT WAS OBSERVED THAT THE ACTIVITY OF MA NUFACTURING RELATED TO 11 ITA NO. 5997/MUM/2011 A.Y. 2008-09 SAME BUSINESS AND MEMORANDUM OF ASSOCIATION OF THE COMPANY EMPOWERED THE COMPANY TO MANUFACTURE THE ITEMS IN W HICH IT WAS PERMITTED TO DEAL IN AND THUS THESE TWO ACTIVITIES WERE TWO SEPARATE STAGES OF THE SAME BUSINESS AND THE TRIBUNAL WAS JU STIFIED IN ALLOWING THE TOTAL EXPENDITURE AS BUSINESS EXPENDITURE. 4.7 THE LD. AR FURTHER REFERRED TO UNREPORTED DECIS ION OF THE ITAT IN THE CASE OF M/S. L`OREAL INDIA P. LTD. VS. DCIT IN ITA NO.6405.MUM/2008 FOR ASSESSMENT YEAR 2002-03 DATED 11 TH FEB 2010. COPY OF THE ORDER WAS PLACED ON OUR RECORD AND WAS GIVEN TO THE LD. DR. IN THE SAID CASE A SUM OF RS.48 66 712/- CLAIMED BY THE ASSESSEE AS PRE- OPERATIVE EXPENDITURE WAS DISALLOWED. THE SAID EXPE NDITURE RELATED TO CAPITAL PROJECT OF THE COMPANY UNDERTAKEN AT CHAKAN PUNE WHERE THE THEN EXISTING MANUFACTURING FACILITIES OF THE COMPA NY FROM GUJARAT WERE SHIFTED. THE SUM WAS DISALLOWED ON THE GROUND THAT THE SAME IS CAPITAL IN NATURE. THE TRIBUNAL FOLLOWING THE DECISION IN T HE 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 E XPENSES 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 DISA LLOWANCE. 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 EMPLOYE E HIS JOB DESCRIPTION 12 ITA NO. 5997/MUM/2011 A.Y. 2008-09 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 WH ICH IS APPARENT FROM THE TURNOVER ACHIEVED BY THE ASSESSEE DURING THE YEAR AND BUSINESS OF THE ASSESSEE BEING ONE ONLY I.E. RUNNIN G THE STORES AT VARIOUS PLACES OF INDIA AND THERE BEING INTER-CONNECTION INTER-LACING INTER- DEPENDENT COMMON MANAGEMENT COMMON BUSINESS ORGAN IZATION COMMON FUND AND COMMON ADMINISTRATION THE EXPENDIT URE INCURRED FOR EXPANSION OF BUSINESS HAS TO BE ALLOWED IRRESPECTI VE OF THE FACT THAT IN THE BOOKS OF ACCOUNT ASSESSEE HAS TREATED THE SAID EXPENDITURE AS CAPITAL WORK-IN-PROGRESS IN VIEW OF THE DECISION RELIDE UPON BY HIM. 5. ON THE OTHER HAND READING FROM THE ORDER OF THE LD. CIT(A) IT WAS SUBMITTED BY THE LD. DR THAT ASSESSEE HAS FAILED TO SUBMIT THE DETAILS REQUIRED BY LD. CIT(A) AND THEREFORE ASSESSEE COUL D NOT PROVE THAT THESE EXPENDITURES WERE WHOLLY AND EXCLUSIVELY INCURRED B Y THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. THEREFORE THE LD. DR PLEADED THAT THE ORDER OF CIT(A) SHOULD BE UPHELD. 5.1 IN THE REJOINDER THE LD. AR SUBMITTED THAT ALL DETAILS REQUIRED BY THE LD. CIT(A) WERE FURNISHED AND IT IS NOT EVEN T HE CASE OF THE AO THAT ANY EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT GEN UINELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. HE SU BMITTED THAT EXPENDITURE HAS BEEN DISALLOWED ONLY ON THE GROUND THAT IT IS CAPITAL IN NATURE AND GENUINENESS OF THE INCURRENCE OF EXPENDI TURE HAS NEVER BEEN DOUBTED. HE SUBMITTED THAT WHEN JOB DESCRIPTION OF EACH OF THE EMPLOYEES WAS PROVIDED TO THE LD. CIT(A) HE WAS W RONG IN UPHOLDING 13 ITA NO. 5997/MUM/2011 A.Y. 2008-09 THE DISALLOWANCE ON THE GROUND THAT ASSESSEE DID NO T FILE PROOF WITH REGARD TO THE SERVICES RENDERED BY THE EMPLOYEES. LD. AR SUBMITTED THAT THERE IS NO MATERIAL ON RECORD ON THE BASIS OF WHI CH IT CAN BE SAID THAT ASSESSEE DID NOT INCUR THESE EXPENDITURE WHOLLY AN D EXCLUSIVELY FOR ITS BUSINESS. HE SUBMITTED THAT ALL THESE DETAILS WERE ALSO SUBMITTED BEFORE AO AND AO HAS NEVER EXPRESSED ANY DOUBT OVER SUCH EXPENDITURE. 6. WE HAVE HEARD BOTH PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. THERE IS NO DISPUTE TO THE FACT TH AT THE ASSESSEE HAS SHOWN A TURNOVER OF RS.4.75 CRORES IN RELATION TO I TS STORES WHICH WERE MADE OPERATIONAL DURING THE YEAR AT BANGALORE AND H YDERABAD. BEFORE THE AO IT WAS THE CASE OF THE ASSESSEE THAT IT IS I N THE PROCESS OF EXPANSION OF ITS BUSINESS AND THUS THIS EXPENDITUR E HAS BEEN INCURRED IN RELATION TO EXPANSION OF BUSINESS. IT WAS ALSO SUBMITTED THAT THE EXPENDITURE WHICH ARE IN THE NATURE OF SALARY ELE CTRICITY AUDIT FEE ETC. ARE ESSENTIALLY INCURRED FOR EXPANSION OF EXISTING LINE OF BUSINESS THAT IS SETTING UP OF MORE NUMBER OF STORES/SPECIALITY STOR ES UNDER PLANNED FORMAT OR FOR MAINTENANCE OF ALREADY ESTABLISHED ST ORES. 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 EXPENDIT URES 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 T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO MPANY LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT THE ISSUE THAT WHET HER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION WILL DEPEND UPON THE PROVISIONS OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASS ESSEE 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. 14 ITA NO. 5997/MUM/2011 A.Y. 2008-09 6.1 FROM THE SUBMISSIONS MADE BY THE ASSESSEE BEFOR E 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 AS SESSEE HAD STARTED OPERATION OF ITS STORES AT BANGALORE AND HYDERABAD . IT WAS THE CONTENTION OF THE ASSESSEE THAT OPERATIONS OF THESE STORES AT VARIOUS LOCATIONS IS ONE COMPOSITE BUSINESS AND ONCE BUSINE SS HAD BEEN STARTED THEN THE EXPENDITURE CAN NOT BE LINKED ONLY TO THE STORES WHICH BECAME OPERATIONAL DURING THE YEAR UNDER CONSIDERAT ION. SUCH SUBMISSION OF THE ASSESSEE HAS NOT BEEN CONTROVERTE D BY THE AO. ALL THESE DETAILS WERE SUBMITTED BEFORE THE AO AND IT I S 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 I S CLEARLY MENTIONED THAT WHEN THE EXPENDITURE IS INCURRED FOR THE PURPO SE OF EXPANSION OF BUSINESS WHICH IS ALREADY IN EXISTENCE AND WHICH I S IN THE NATURE OF REVENUE THEN THE SAME IS ALLOWABLE AS REVENUE EXPE NDITURE IRRESPECTIVE OF THE TREATMENT GIVEN BY THE ASSESSEE TO SUCH EXPE NDITURE IN ITS BOOKS OF ACCOUNT. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO NEGATE SUCH SUBMISSIONS MADE BY THE ASSESSEE. THESE PROPOS ITIONS PUT FORTH BY OF THE ASSESSEE BEFORE AO ARE SUPPORTED BY THE DE CISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTHARI AU TO PARTS MANUFACTURERS PVT. LTD. (SUPRA) AND THE DECISION O F HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD. (SUPRA). THEREFORE IT HAS TO BE HELD THAT THESE EXPENDITURE S INCURRED BY THE ASSESSEE ARE FOR THE PURPOSE OF EXPANSION OF ITS BUSINESS AND THOSE EXPENDITURE ARE IN THE NATURE OF REVENUE ( BEING MO STLY PAID TO EMPLOYEES). THESE ARE ALLOWABLE IN THE YEAR ITSELF AS PER RAT IO OF AFOREMENTIONED DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . KOTHARI AUTO PARTS MANUFACTURERS PVT. LTD.(SUPRA) AND HONBLE HIGH COURT OF GUJRAT IN THE CASE OF CIT VS. ALEMBIC GLASS INDUSTRIES LTD. (SUPRA). THESE EXPENDITURES 15 ITA NO. 5997/MUM/2011 A.Y. 2008-09 DID NOT CREATE ANY ASSET AND ALSO DID NOT PROVID E ENDURING BENEFIT TO THE BUSINESS OF THE ASSESSEE SO AS TO SAY THAT THE EXPENDITURE WAS CAPITAL IN NATURE. THEREFORE WE HOLD THAT EXPEND ITURE ARE ALLOWABLE IN THE YEAR UNDER CONSIDERATION IRRESPECTIVE OF THE FA CT THAT ASSESSEE HAS GIVEN DUAL STATUS TO SUCH EXPENDITURE IN ITS BOOKS OF ACCOUNT VIS--VIS COMPUTATION OF INCOME FILED ALONGWITH RETURN. 6.2 SO FAR AS IT RELATES TO THE OBSERVATIONS MADE BY LD. CIT(A) IN HIS ORDER THAT ASSESSEE VIDE HIS LETTER DATED 28/6/2011 HAS MERELY GIVEN THE NAME DESIGNATION AND AMOUNT PAID WITH REFERENCE TO SALARY PAID WITHOUT GIVING ANY PROOF OF WORK ACTUALLY BEING DONE WE MA Y MENTION THAT WE HAVE CAREFULLY GONE THROUGH THE DETAILS FILED BY TH E 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 MARKE TING 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 A SSESSEE 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 SCHED ULES AS WELL AS COMPARING THE PRODUCTS OF VARIOUS MANUFACTURERS OF UNBRANDED PRODUCTS WITH THE PRICE AND QUALITY OF BRANDED PRO DUCTS PREPARING VARIOUS REPORTS FOR THIS PURPOSE PLANNING DISTRI BUTION AND LOGISTIC SOURCING DESIGNING PRODUCTS INVENTORY PLANNING DI SCUSSING CONSUMER 16 ITA NO. 5997/MUM/2011 A.Y. 2008-09 PREFERENCES FOR VARIOUS PRODUCT RANGE ETC. THE SUB MISSIONS MADE BY THE ASSESSEE BEFORE LD. CIT(A) MATCHES WITH THE JOB DES CRIPTION OF ALL THE EMPLOYEES. THEREFORE IT CANNOT BE SAID THAT ASSES SEE DID NOT PROVIDE THE NECESSARY DETAILS. BY FURNISHING THESE DETAILS TH E ASSESSEE HAD PLACED ON RECORD PRIMA FACIE MATERIAL TO SUBSTANTIATE THE QUERY RAISED BY LD. CIT(A). WITHOUT POINTING OUT ANY DEFECT AND WITHO UT BRINING ANY ADVERSE MATERIAL ON RECORD LD. CIT(A) HAS OBSERVED THAT ASSESSEE HAS FAILED TO PROVE THAT THE EXPENDITURE WAS MADE WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THUS TH ERE IS NO BASIS FOR RECORDING SUCH FINDING. THEREFORE EVEN FOR THE AD DITIONAL REASONS DESCRIBED BY LD. CIT(A) THE DISALLOWANCE CANNOT NO T BE UPHELD. 6.3 IT IS ALREADY MENTIONED THAT THE ASSESSEE I TSELF HAS DISALLOWED A SUM OF RS. 51 23 957/- OUT OF THE AFOREMENTIONED AM OUNT OF RS.3 64 49 545/- UNDER THE PROVISIONS OF SECTION 40 A(7)/40A(9)/43B OF THE ACT. THE CLAIM OF THE ASSESSEE AS PER GROUNDS OF APPEAL IS LIMITED ONLY TO A SUM OF RS. 3 13 25 588/- ( RS.3 64 49 54 5 (- ) RS. 51 23 957/- ON ACCOUNT OF DISALLOWANCE U/S. 40A(7)/40A(9)/43B) THEREFORE WE HOLD THAT AN AMOUNT OF RS. 3 13 25 588/- SHOULD BE ALLOW ED TO THE ASSESSEE ON ACCOUNT OF REVENUE EXPENDITURE. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD OC TOBER 2013. SD/- SD/- (RAJENDRA) ACCOUNTANT MEMBER (I.P. BANSAL ) JUDICIAL MEMBER MUMBAI DATED: 23/10/2013. VM. 17 ITA NO. 5997/MUM/2011 A.Y. 2008-09 COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.