TaxTMI 
TaxTMI 
2015 (10) TMI 1276
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.... its stores located in various states. The AO noticed that the assessee had claimed expenses booked by it under the head "Project Development Expenditure" as deduction in the computation of total income in both the years under consideration, even though the assessee had shown it in the Balance Sheet as "Capital work in progress". When questioned, the assessee submitted that it is in the process of expansion of its business operations by opening various new shops and the revenue expenses, which could not be identified with a particular shop was shown under the head "Project Development Expenses" and taken to Balance sheet. The exact reply given by the assessee is reproduced below, for the sake of convenience:- "......The business carried on by the assessee constitutes one indivisible business as all the stores of the company are directly operated and managed by the board of directors of the company or the employees of the company. The administration of the company is centralized and the major policies are framed at the central level. Further it may be noted that the operating model of all the stores is same, and are so arranged that economies of scale can be obtained; this has resu....
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....is proposition, the assessee placed reliance on the decision rendered by the Hon‟ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody (115 ITR 519)(SC). The assessee also placed reliance on the decision rendered by Hon‟ble Gujarat High Court in the case of Bansidhar (Pvt) Ltd Vs. CIT (127 ITR 65), wherein the Hon‟ble High Court held that the expenditure incurred in respect of closed units is allowable as deduction, when a common profit and loss account is prepared. 4. The assessee further contended before the AO that the expenditure booked under the head "Project development expenditure" is fully allowable u/s 37(1) of the Act as all the conditions prescribed therein are satisfied. However, the AO took the view that the assessee has not incurred such expenses for routine operations and further noticed the assessee itself has considered the same as capital in nature in the books of account. Accordingly, he disallowed the claim of project development expenditure made by the assessee in both the years under consideration. In assessment year 2008-09, the assessee itself has disallowed certain expenses u/s 40A(7), 40A(9) and 43B of the Act. Hence the assessi....
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....rendered by Hon‟ble Supreme Court in the case of Taparia Tools Ltd Vs. JCIT (2015)(55 taxmann.com 361). In the above said case, the assessee issued debentures and offered the investors an option to get one time upfront discounted interest. The interest so paid was treated as deferred revenue expenditure in the books of account, but it was claimed fully for income tax purposes. The claim of the assessee was held to be allowable by Hon‟ble Supreme Court. He submitted that the Ld CIT(A) was not correct in law and on facts in holding that the assessee has set up new source of income. 8. He further submitted that an identical issue was considered by the co-ordinate bench of Tribunal in the case of M/s Reliance Footprint Ltd (ITA No.5997/Mum/2011 dated 23.10.2013). The assessee therein was also engaged in the business of trading and merchandising of goods and services. It had also booked project development expenditure as „Capital work-in-progress‟ and claimed the same as revenue expenditure while computing total income. The said claim was rejected by tax authorities, but the Tribunal has allowed the claim by following the decision rendered in the following cases....
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....e Hon‟ble Supreme Court in the case of Taparia Tools Ltd (supra) are relevant here:- "19. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed 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 the 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 account cannot be a factor which would 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 account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co.Ltd.V/s. CIT [1971] 82 ITR 363 (SC);Tuticorin Alkali Chemicals & Fertilizers Ltd. V/s CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. V/s CIT [1979] 116 ITR 1 (SC) and United Commercial Bank V/s CIT....
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....up of business or new source of income. Accordingly, the Ld CIT(A) has taken the view that project development expenditure is the expenditure incurred before setting up of business and hence not allowable as deduction. 14. We are unable to understand as to how the extension of business is different from expansion of business. The legal position with regard to the deductibility of expenses incurred in connection with setting up of new units has been explained by the Hon‟ble Gujarat High Court in the case of Alembic glass Industries Ltd (supra) and also by the Hon‟ble jurisdictional Bombay High Court in the case of Kothari Auto Parts Manufacturers Pvt Ltd (supra). The said decision has been discussed as under by the Co-ordinate bench of Tribunal in the case of M/s Reliance footprint Ltd (supra):- "4.5 The Ld A.R also referred to the decision of Hon‟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 relating to the unit of the assessee at Bangalore were allowable despite the fact that unit of the assessee at Bangalore did not start production as the new unit at Bangalore was nothing....
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....ctricity, audit fee et are essentially incurred for expansion of existing line of business that is setting up of more number of stores /speciality stores under planned format or for maintenance of already established stores. These submissions were made before the AO and have not been cosntroverted by the AO and disallowance is made mainly on the ground that the assessee cannot give duel status to these expenditure i.e. as "capital" in books of accounts and as "revenue" for Income tax purpose. However, such view 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 decision or conclusive in the matter. 6.1 From the submissions made by the assessee before 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 assessee had started operat....