Income Tax Appellate Tribunal - Delhi
Gopal Retail (P) Ltd., New Delhi vs Department Of Income Tax on 12 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' : NEW DELHI)
BEFORE SHRI I.C. SUDHRI, JUDICIAL MEMBER
and
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA Nos.4061 & 4062/Del./2012
(ASSESSMENT YEARS : 2008-09 & 2009-10)
ACIT, Central Circle 2, vs. M/s. Gopal Retail (P) Ltd.,
New Delhi. 240, Okhla Industrial Estate Phase III,
New Delhi.
(PAN : AACCG6940Q)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Adesh Jain, CA and
Shri Akshit Jain, CA
REVENUE BY : Shri Sunil Bajpai, CIT DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
Both these appeals filed by the revenue emanate from the two orders of the CIT (Appeals)-III, New Delhi both dated 02.05.2012 for the Assessment Years 2008-09 & 2009-10. Since the issue is common in both the appeals, they are being disposed off by this common order. The grounds taken by the revenue read as under :-
"1. On the facts and in the circumstances of the case, the CIT (A) has erred in law and on facts in deleting the disallowance (Rs.2,29,91,652/- for Assessment Year 2008-09 and Rs.2,73,36,280/- for Assessment Year 2009-10) made by the Assessing Officer on account of expenditure being capitalized. "2 ITA Nos.4061 & 4062/Del./2012
2. The order of the CIT (A) is erroneous and is not tenable on facts and in law.
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
2. The assessee is a private limited company engaged in the wholesale and retail business of chewing tobacco, Pan Masala, Dhoop Aggarbatti, Chutney, etc. etc. A search and seizure operation was cairred out u/s 132 of the Income-tax Act, 1961 on 15.01.2009. Consequently, notices u/s 153A of the Act were issued and the assessments were finalized. In both these years, the addition has been made by treating 50% of the expenditure debited in the profit & loss account as capital.
2.1 The returns of income were filed declaring loss of Rs.2,99,39,303/- and Rs.3,39,71,098/- for the Assessment Years 2008-09 and 2009-10 respectively. The Assessing Officer treated 50% expenditure debited in the profit and loss account as capital and disallowed the same. The Assessing Officer made this addition in Assessment Year 2008-09 by holding as under :-
"3.1 The assessee company has declared income of Rs.3,62,81,800/- against which expenditure has been incurred amounting to Rs.6,68,46,014/- and declared loss of Rs.3,05,64,214/-. The assessee was asked to justify expenses. The assessee has filed explanation that this being the initial year of the business, therefore the amount of expenditure was justified. I have examined the explanation of the assessee; the assessee company is in the process of setting up of a retail chain for distribution and sale of products manufactured by Gopal Group. The business was mainly done through CSA in the earlier years and bulk of the sale was made through them. As a policy decision the company has divested the business from CSA's and carried out retail business by a 3 ITA Nos.4061 & 4062/Del./2012 company controlled by same people as the entire share holding vests with Shri Sri Gopal Gupta and Smt. Vineeta Gupta who are major share holders in company M/s Gopal Corporation Ltd and M/s Flakes-N- Flavourz for which the assessee company has carried out selling activities. Under the circumstances, the entire expenditure could not be termed as of revenue nature and is of enduring nature as a capital asset i.e. retail chain for earning profit in future by cutting out middle mans is being created. The company has been established and expenditure has been incurred with a motive to bring in profits today or tomorrow. In view or the same 50% of the expenditure incurred (on employee cost, administrative expenses, selling and distribution expenses, depreciation and financial charges) Rs,2,29,91,652/- is treated to be of capital nature and added back."
The CIT (A) has granted the relief in the Assessment Year 2008-09 by holding as under :-
"On a careful perusal of the finding of the A.O. and the submissions of the appellant, as summarized above and also taking into account the ratio of the decisions relied upon by the A.O., I am of the considered view that there is no basis before the A.O. for holding that 50% of the expenses are capital in nature. In the facts and circumstances of the case of the appellant's case it has incurred the expenses debited in the profit and loss account for efficient and even more profitable running of it's business and has not incurred these expenses for creating any capital asset of enduring nature. The question of capital and revenue expenditure has to be viewed in today's fast paced and ever changing business models in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a pre-condition of the carrying on of the business, the expenditure has to be regarded as revenue expenditure.
It is also pertinent to note that the said employee cost, administrative expenses, selling and distribution expenses, depreciation and financial charges are also incurred in the succeeding years. And if such expenses were to result in any enduring benefit the same would not be required to be incurred in the next financial year. For this reason too the said expenses being of recurring nature and not only related to the financial year under consideration, are revenue in nature. It is also noted that the employee cost consists expenses on salary, Bonus, EPF / ESI Charges, Gratuity and Shifting allowance, the Administrative expenses mainly consists Books & Periodicals, Brokerage, Conveyance, General Insurance, Telephone expenses, internet expenses, Electricity expenses, Refreshment expenses, Rent, Repair & Renewals, vehicle expenses, Printing & Stationery, audit fee, Fringe Benefit tax etc. the selling and distribution expenses mainly 4 ITA Nos.4061 & 4062/Del./2012 consists Commission, Damage allowance, Extra discount, Freight, Dealers meeting expenses, sale promotion, sales distribution, sampling, travelling etc. and Financial expenses consists Interest and bank charges. Thus even on an analysis of the nature of the expenses it is quite evident that all the expenses incurred are in the nature of revenue expenses.
Thus keeping in view of the facts and circumstances of the case of the appellant and the decisions cited above, I am of the considered view assessing officer erred both in fact and law in arbitrarily treating 50% of the revenue expenditure as capital in nature only on the basis of conjecture and surmise without bringing in any material on record as to why 50% of the said expenditure are capital in nature and not revenue in nature as claimed by the appellant. Accordingly, the estimated addition of Rs.2,29,91,652/- (i.e. 50% of the expenditure incurred on employee cost, administrative expenses, selling and distribution expenses, depreciation and financial charges aggregating to Rs.4,59,83,305/-) is held as bad in law and the addition of Rs.2,29,91,652/- is directed to be deleted."
In the Assessment Year 2009-10, the CIT (A) has also granted the relief on the same facts and circumstances.
3. We have heard both the sides on the issue. After hearing, we find that the Assessing Officer has made the addition just by estimating 50% of the expenses as capital in nature. There is no specific finding of the Assessing Officer where any expenditure related to the capital nature was debited in the profit and loss account. The Assessing Officer simply estimated this amount on the basis that the assessee has declared income lesser than the expenditure for the year under consideration. The assessee has tried to explain the loss incurred by giving the reason that the assessee has made a policy decision according to which the business through consignment sale agent was divested and it was setting up a retail chain of distribution and sale by itself. The Assessing Officer has not negated this submission of the assessee with regard 5 ITA Nos.4061 & 4062/Del./2012 to the change of the policy of the company. Assessing Officer has not specified which expenditure debited in profit & loss account was not of revenue in nature. Further, simply on the basis of apprehension, no expenditure can be held to be capital and disallowable. The assessee's accounts are audited. The audited report prepared under section 44AB of the Act in Form 3CD clearly states that there was no expenditure of capital in nature. As per this report, no such expenditure has been debited to the profit and loss account. This is evident from page 16 of the paper book. In the column with regard to the expenditure of the capital in nature, it has reported as 'Nil'. It is also pertinent to mention that the perusal of nature of expenditure debited in the profit and loss account prima facie shows that none of the expenditure was in the nature of capital. None of the expenditure was identifiable as giving benefit of enduring nature. Considering all these aspects, we find no merits in both the appeals of revenue and the same are dismissed.
4. In the result, both the appeals filed by the revenue stand dismissed.
Order pronounced in open court on this 12TH day of September, 2014.
SD/- SD/-
(I.C. SUDHIR) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 12TH day of September, 2013
TS
6 ITA Nos.4061 & 4062/Del./2012
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-III, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.