Reliance Supply Chain Solutions Ltd, ... vs Department Of Income Tax

The aforesaid appeal has been filed by the Revenue against order dated 01.08.2013 passed by Ld. CIT(A)-14, Mumbai for the quantum of assessment u/s 143(3), on the following grounds:-

"1.On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance made by the AO of Rs.14,81 ,34,192/- incurred by the assessee on project development expenditure ignoring the facts that the expenditure incurred was capital in nature, was treated by the assessee as capital in its accounts but was claimed as revenue in the computation of income."

2 ITA No. 6342/Mum/2013 Assessment Year: 2009-10

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.78,09,321/- made by the AO and claimed by the assessee on the basis of actual payment of unpaid gratuity and unpaid leave encashment which was included in the total project development expenditure of Rs.7,69,22,617/- ignoring the fact that the entire expenditure of Rs.7,69,22,617/- has been disallowed by the AO and that an appeal against the decision of the CIT(A) deleting the disallowance on this A/c for AY 2008-09 has been filed before the Hon'ble ITAT and which is pending."

2. At the outset, learned counsel submitted that the Ld. CIT(A) has followed the earlier order passed by the Ld. CIT(A) for the A.Y. 2008-09, which has been confirmed by the Tribunal vide order dated 27.11.2013. Even in the grounds, the revenue has stated that the order of the Ld. CIT(A) for A.Y. 2008-09 has not been accepted by the department and matter is subjudice before the ITAT. Hence the Revenue's appeal should be dismissed.

3. On the other hand, Ld. DR strongly relied upon the order of the AO.

4. After considering the aforesaid contention of the parties and also on the perusal of the impugned order, we find that the issue relates to disallowance of claim for deduction u/s 37(1) in respect of revenue expenditure, aggregating to Rs.14,81,34,192/- which has been treated as capital expenditure by the AO. The assessee is engaged in the business of distribution and logistics business and this was the second year of the operation of the company. The assessee had shown expenditure of Rs.14,81,34,192/- which was reflected under the head "Project development expenditure" in the books of account. However, in the computation of the income this expenditure has been claimed as 3 ITA No. 6342/Mum/2013 Assessment Year: 2009-10

revenue expenditure. From the breakup of the details of the expenditure, it is seen that following expenses have been debited:-

Details of revenue Amount (Rs.) expenditure debited to CWIP Salaries & Wages 56,384,211 Contribution to Provident Fund, 3,515,643 superannuation Fund Gratuity, Leave Encashment Others 5,524,445 Rent 12,222,525 Travelling Expenses 10,782,490 Professional Fees 27,764,595 Hire Charges Payment to Auditors 9,226 Electric Power, Fuel and 633,232 Water Others 31,761,824 Total 1,46,598,192

From the submissions made by the before the AO as well as Ld. CIT(A), it is seen that this was the second year of the operation of the company and business had already started. The operations from the revenue had been shown at Rs.14,178 lakhs. Looking to the nature of expenses it can be very well held that these are routine expenses incurred during the course of operation of the business. The similar facts was there in the 4 ITA No. 6342/Mum/2013 Assessment Year: 2009-10

A.Y. 2008-09 also, wherein the Tribunal has held that these expenses cannot be held as capital expenditure but are revenue in nature and accordingly, the same were allowed. Even the Ld. CIT(A) has followed the earlier order of the Ld. CIT(A). Thus, following the earlier years precedence which are based on similar set of facts, we hold that the expenditure claimed by the assessee are revenue in nature and accordingly, ground raised by the Revenue stands dismissed.

5. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on this 25th day of March, 2015.

Sd/- Sd/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 25.03.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "D" Bench //True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.