Adani Retail Ltd, Ahmedabad vs Assessee

सुनवाई क तार ख/ Date of Hea ring : 15/04/2015 घोषणा क तार ख /Date o f Prono unceme nt: 2 4/04/2015 ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd. For A.Y.2004-05 -2-

आदेश /O R D E R

PER: S. S. GODARA, JUDICIAL MEMBER

This Revenue's appeal and assessee's cross objections for A.Y.2004-05, arise from order of CIT(A)-VI, Ahmedabad dated 04.03.2011 in case appeal no.CIT(A)-VI/DCIT.Cir.1/388/09-10 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 short '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 authority 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 aforesaid loss to Rs.1,62,88,490/-.

4. Thereafter, the assessing authority formed reasons to believe that assessee's taxable income liable to be assessed had ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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escaped assessment. It had availed deduction of Rs.1,70,17,652/- relating to deferred revenue expenses. 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 setup expenses originally treated as deferred revenue expenditure, to be written off over a period of years. The assessing officer perceived 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 expenditure 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 the aforesaid loss determine at Rs.1,62,88,490/- (supra). It objected to validity of the reopening and reiterated its deduction claim. The assessing officer finalized re-assessment on 30.12.2009. He observed that the impugned expenditure was of an enduring nature 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 relied on assessee's action in writing off the same to observe that its ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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consequential benefits were long term and not confined to only to year 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 reopening 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 submission. 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. However 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 allowability 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 advertisement, 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 claimed 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 has opted for cross objections. This cross objection is not pressed in the course of hearing. This leaves us ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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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 in succeeding assessment years. It has also claimed the entire sum as revenue expenditure. Its relevant note on accounts 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 retailing 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 opted 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 lower by Rs. 97,47,641/-

However the company 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 commercial 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 loss account and the balancing amount has been deferred for coming 9 years. Due to such 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.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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entire amount as expenditure while filing the income tax returns for the year."

The Revenue does not to dispute these facts. Its only plea is that since enduring benefits are resulted on account of brand building and store setup expenditure involving gross sum of Rs.1,70,17,652/-, the entire sum ought not to have been allowed as revenue expenditure only in the impugned assessment year. More particularly; when the notes extracted hereinabove clarify time spans of 3 and 9 years. We find that the hon'ble jurisdictional High Court in DCIT vs. Core Healthcare Ltd., (2009) 308 ITR 263 (Guj.) holds that an expenditure incurred at the time of installation of machinery in existing line of business resulting in enduring benefits 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 not 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 accounting treatment in its books (supra), we notice that hon'ble apex court in a very recent decision in case of Taparia Tools Ltd. Vs. JCIT, Nasik (Civil Appeal Nos.6366 to 6368 of 2003 dated 23.03.2015) has dealt with an identical situation as under:

18) What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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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 spread 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 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 accounts 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 accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta3, Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras; 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 invoking 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 Statute and the Act enables and ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

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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 ways of giving different accounting treatment to an expenditure in its books and claim the entire sum as revenue expenditure in the relevant assessment year. Therefore, 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. The 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 24/04/2015 Prabhat Kr. Kesarwani, Sr. P.S.s आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आयु त / Concerned CIT

4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

ITA No.1311/Ahd/2011 & CO No.137/Ahd/2011 M/s. Adani Retail Pvt. Ltd.

For A.Y.2004-05 -9- आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad