Tribunal dismisses appeal on deferred revenue & pre-operative expenses under Income Tax Act

The tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal, concluding that the claim for deferred revenue expenditure and pre-operative expenses was not meritorious under the Income Tax Act. The expenses were deemed to be revenue expenses without creating any capital asset or identifiable over future periods, thus not meeting the criteria for allowance. The argument for consistency was rejected due to the absence of scrutiny in prior years.

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Issues:
Challenge to disallowance of deferred revenue expenditure and pre-operative expenses.

Analysis:
The assessee appealed against the order confirming the disallowance of deferred revenue expenditure and pre-operative expenses for the assessment year 2012-13. The expenses were related to opening branches in Mumbai and Gurgaon and were treated as deferred revenue expenditure and pre-operative expenses in the books. The AO disallowed the claim of Rs. 1,22,18,625, stating that the provisions of Sec. 35D of the Act were not applicable. The Ld. CIT(A) upheld the disallowance.

The Ld. A.R. argued for the allowance of the claim based on the Principle of Consistency and cited the decision in the case of JCIT vs. Modi Olivetti Ltd. He also referenced the recognition of deferred revenue expenditure by the Hon'ble Supreme Court. On the other hand, the Ld. D.R. contended that the expenses were revenue expenses, not capital expenditure, and were incurred in earlier years, making them not allowable for the current year. The principle of consistency was deemed inapplicable due to lack of scrutiny in prior years.

The tribunal examined the nature of the expenses and found them to be revenue expenses without creating any capital asset or identifiable over future periods. The Ahmedabad special bench's principles were cited, emphasizing the need for proper analysis before allowing deferred revenue expenditure. The claim was denied, as it did not align with the Act's provisions and lacked the necessary criteria for allowance. The argument for consistency was rejected due to the absence of scrutiny in prior years.

Ultimately, the tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal, concluding that the claim for deferred revenue expenditure and pre-operative expenses was not meritorious under the Income Tax Act.

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