TaxTMI 
TaxTMI 
2025 (8) TMI 1264
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Whether on the facts and circumstances of the case, the Hon'ble CIT(A) is justified in deleting the disallowance under section 14A made by the Assessing Officer although Circular 5/2014 dated 11.02.2014 Rule 8D r.w.s 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income? 2. Whether on the facts and circumstances of the case, the Hon'ble CIT(A) is justified in treating the Capital expenditure incurred by the assessee company as Revenue expenditure although the assessee has incurred the expenses of an intangible asset under development and the same is developed for the enduring benefit of the business of the assessee company?." 2.1. Grounds taken by the assessee in C.O. No. 194/MUM/2024 are reproduced as under: "Additional claim of foreign tax credit not granted: Rs. 74,92,559 1. Erred in disallowing the additional claim of foreign tax credit of Rs. 74,92,559 on the ground that the Appellant did not file the Form 67 before the due date of filing the Return Of Income ('ROI'); 2. Erred in not entertaining the additional claim made by the Appellant of foreign ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he amendment brought in section 14A, vide Finance Act, 2022, introducing an Explanation to section 14A. The same is reproduced as under: "Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income." Inserted by Finance Act, 2022, w.e.f. 1-4-2022 21 4.2. The aforesaid Explanation provides that the provisions of section 14A would apply to a case where assessee has not received any exempt income during the concerned financial year. It was submitted that this amendment is made effective only from 01.04.2022, i.e., from Assessment Year 2022-23. Therefore, the same cannot be applied to the assessment year under consideration, i.e., AY 2018-19. 5. The issue contested by revenue is no longer res ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL & FS Energy Development Company Ltd. (supra) and Cheminvest Limited vs. Commissioner of Income Tax- VI, (2015) 378 ITR 33. 10. Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd (supra)." 5.1. Further, reliance is also placed on the decision of Coordina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sically. AJIO became operational during the AY 2017-18 when the first online sale was made on 03.04.2016 through the AJIO.com website. 6.2. From the verification of the details, ld. Assessing Officer noticed that assessee had incurred expenses of Rs. 351 Crores in connection with the development of e-commerce platform by the name, Ajio.com. In its books of accounts, which were prepared as per provisions of the Companies Act, 2013, assessee treated the same as 'intangible assets under development' and capitalized the same in the books of accounts in compliance with the Accounting Standards, viz. Ind AS - 16 and Ind AS - 38, issued by the Institute of Chartered Accountants of India (ICAI) which are mandatorily applicable from 01.04.2016 and onwards. However, for the purpose of computation of business income under the provisions of the Act, assessee treated the same expenditure as revenue to claim its deduction as these were in the nature of expenses incurred for the purpose of promotion and marketing. Ld. Assessing Officer after examining the contentions of the assessee held this expenditure as an integral part of development of e-commerce platform i.e., Ajio.com, therefore, treat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hereas the same should have been capitalized along with development cost as done in the books of account. 7. Submissions made by the assessee states that it was already in the business of retail trading of fashion and lifestyle products and was functioning through retail stores across India. During Assessment Year 2017-18, it launched an online platform to sell its products under e- commerce, for the consumers who had switched from traditional mode of shopping by way of visiting stores to online shopping. Hence, launch of Ajio was nothing but merely an extension of existing business. It is akin to opening of a new store in a new location which would facilitate consumers of that vicinity. In the given case, it was opened in a virtual space as an online platform. 7.1. For the year under consideration, the books of account of assessee had been drawn up in compliance with the Companies (Indian Accounting Standards) Rules, 2015 according to which, entire cost incurred on development of 'Ajio' was accounted and reflected under the head 'Intangible Assets under development' in the audited financial statements. During the year under consideration, amount of Rs. 1847.93 crores were in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1,48,965 Advertisement expenses - Production cost of shooting for Commercials and advertisements Sample invoice copy enclosed at Annexure 3b AAGCP5413M Phantom Ideas Private Limited No 57, 2Nd Cross, D'Costa Layout, Wheeler Road Extn Bangalore, 560084, KAR, India 1,22,78,980 Advertisement expenses - Fees towards ideation, concept creation, script writing and coordination with production house for Commercial and Advertisements Sample invoice copy enclosed at Annexure 3c Multiple PANs Multiple vendors - Others Multiple addresses 12,11,27,326 Marketing and advertisement expenses (viz. mass mail, SMS, cashback campaign etc.) Sales promotion expenses (viz. digital banners, catalogue shoot etc.), Product Samples etc. Sample invoice copy enclosed at Annexure 3d Grand Total 351,20,69,547 7.4. Assessee demonstrated from the sample copies of the content of the advertisements which run as a sales / marketing campaign on various media platforms viz. Facebook, YouTube, Print TV etc. that these sales / marketing campaigns which provided discounts on various product price (listed on the AJIO.com platfor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the basis of provisions of income-tax law as contained in the Act and as explained by various Courts from time-to- time. Income-tax return must take precedence over the accounts in respect of the claims by any Assessee. 7.7. Furthermore, it was pointed out that in para 3.11 of the impugned assessment order, ld. AO himself admits that marketing expenditure in connection with merchandise would go on revenue account and also admitted that the expenditure was incurred for popularising its merchandize on its online portal. Ld. AO also admitted that assessee was not in the business of any software development or any IT enabled services. It is admitted that assessee is in the business of retailing. 7.8. The reasons explained by the assessee for the treatment given in the books of the account Ajio.com is that it did not reach its condition necessary for it to be capable of operating in the manner intended by management as required by Indian Accounting Standard (Ind AS) 16 - Property Plant and Equipment and /or Ind AS 38- Intangible Assets. The relevant paras of these Ind AS are hereby reproduced as below:- i. Ind AS 38, Para 30- "Recognition of costs in the carrying amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction of project development expenditure such as - (i) Employees' Salaries & Wages (ii) Contribution to Provident Fund, Superannuation Fund, Gratuity and Leave Encashment, (iii) Employees Welfare and other amenities (iv) Travelling Expenses, (v) Professional Fees, (vi) Communication Expenses, (vii) Printing and Stationery (viii) Hire Charges and (ix) Other Project Development Expenditures. Ld. AO treated the expenses as capital in nature merely because it was capitalized in the books of account. Coordinate Bench observed that "Since the Assessee is already having income 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 that all the expenses incurred subsequent to the setting up of the business shall be allowable to the assessee." It further observed that the expenses are purely revenue in nature and they do not pertain to acquisition of any capital asset. As regards, AO's action in treating the expenses as capital in nature merely because it was capitalized in the books of account, it held that "It is a well-settled law that normally, the manner of accountin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....levant for the purpose of drawing books of account as per Companies Act, 2013 and it has no relevance in computing income under the Act: i. Taparia Tools Limited v. JCIT [2015] 55 taxmann.com 361 (SC) "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. ii. Kedarnath Jute Mfg. Co. Ltd. v. CIT[1971] 82ITR 363 (SC) Whether the Assessee is entitled to a par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ized. In any case, mandate of Ind AS does not determine deductibility of a particular expenditure under the provisions of the Act. iv) In the break-up of marketing expenses, Assessee itself admitted that Rs. 351.2 crs was incurred as "marketing expenses" of an intangible asset under development but claimed as revenue expenditure. Assessee did not admit that the marketing expenses were incurred for intangible asset. It stated that "Details of Expenses incurred which were accounted / reflected in financial statement as intangible asset under development but claimed as allowable expenses for income tax purposes" v) Assessee has not developed any other software, hence, it cannot be said that the marketing expenses were not directly relatable to the online portal of Ajio. Assessee was indeed into development of 2 more projects, viz. Supply Chain Management platform and Loyalty platform. vi) Assessee is into the business of retailing. The portal AJIO.com is developed for the enduring benefit of assessee's business. It is clear that the assessee by itself, is not in to the business of any software development or any IT enabled services. Its core business is retaili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A) treated the marketing expenses incurred for expansion of e-commerce platform 'Ajio.com' as revenue expenses and reversed the addition made by the ld. Assessing Officer. 11. Considering the factual matrix of the case as elaborately discussed in the above paragraphs, detailed analysis and deliberation made by ld. CIT(A) on the stance taken by both the parties, jurisprudence of the Co-ordinate Bench and those of the Hon'ble jurisdictional High Court of Bombay referred above, we do find any reason to interfere with the findings arrived at by the ld. CIT(A) deleting the addition made by the ld. Assessing Officer. Further, ld. AO also proceeded to make the same addition even for the purposes of computing books profits as per provisions of section 115JB of the IT Act. From the verification of P & L account and balance sheets and other relevant details, it is noticed that the assessee has not debited the above marketing expenses in the P & L a/c which was prepared as per Schedule Ill of the Companies Act, 2013. Since assessee did not debit the above expenditure in the P & L a/c, addition of the same would amount to taxing it twice and therefore the same is not warranted. Accord....