By Ajay R. Singh
Advocate
5. The Pr. CIT-8 vs. M/s Reliance Fresh Ltd.
[Income tax Appeal No. 985 of 2017] Date of order: 17th
September, 2019 (Bombay High Court)
M/s Reliance Fresh Ltd.
vs. ACIT-7(2); date of order: 13th July, 2016; [ITA. No.
1661/Mum/2013; A.Y.: 2008-09; Mum. ITAT]
Section 37(1) – Business
expenditure – Capital or revenue – Assessee wrongly entered the amount as
capital in nature in the books – But in its return of income, rightly claimed
it as revenue expenditure – Merely because a different treatment was given in
books of accounts could not be a factor which would deprive the assessee from
claiming entire expenditure as a revenue expenditure
The assessee company was
engaged in the business of organised retail. Its main business was sourcing and
selling fruits, vegetables, food articles, groceries, fast-moving goods and
other goods of daily use and provisions of various related services as a
neighbourhood convenience store. However, in order to expand business, the assessee
was setting up new stores. In its return of income, the expenditure incurred
for setting up new stores had been claimed as revenue expenditure to the extent
the expenditure was revenue in nature and where capital expenditure was
incurred, the same was not claimed as revenue expenditure. However, the
assessee in its books of accounts showed the entire expenditure, i.e., even the
expenditure which was claimed in the income tax return as revenue expenditure,
as capital expenditure. The AO disallowed the same on the ground that the
assessee had itself capitalised the same under the head ‘Project Development
Expenditure’.
The CIT(A) held that
since the assessee himself had claimed that these expenses pertained to a
project which had not been implemented, therefore, it could not be allowed as
revenue expenditure and confirmed the order of the AO.
Being aggrieved with
this order, the assessee filed an appeal before the Tribunal. The Tribunal held
that all the expenses were purely revenue in nature. None of the expenses
pertained to acquisition of any capital asset. It was also well settled law
that ‘normally’, the manner of accounting shall not determine the taxability of
income or allowability of any expenditure. The taxability of income and
allowability of an expense shall be determined on the basis of the provisions
of the income-tax law as contained in the Income-tax Act, 1961 and as explained
by various courts from time to time. It was further noticed that nothing had
been brought out by the lower authorities to show that any of these expenses
were capital in nature, except the fact that the assessee had debited the same
under the head ‘Project Development Expenditure’. The assessment of the return
had to be made on the basis of the return filed by the assessee supported with
accounts. While examining the accounts, the return could not be ignored. The
return had to take precedence over the accounts in respect of legal claims. The
accounts had to be seen only to verify the facts. The admissibility of a claim
or otherwise should be primarily and predominantly on the basis of claims made
by the assessee in the return of income, unless the assessee claimed otherwise
subsequently during the course of assessment proceedings.
These expenses were
revenue in nature and should be allowed as such. There was no estoppel
against the statute and the Act enabled and entitled the assessee to claim the
entire expenditure in the manner it could be claimed under the law.
Being
aggrieved with the order of the ITAT, the Revenue filed an appeal before High
Court. The High court relied on the case of Reliance Footprint Ltd.
being Income tax Appeal No. 948/2014. The Court had, vide order dated 5th
July, 2017, dismissed the above appeal filed by the Revenue on an identical question
as framed herein. Revenue agreed with the position that the decision of the
Court in Reliance Footprint Ltd. (Supra) would cover the issue
arising herein. In the above view, the appeal was, therefore, dismissed.
