Project Development Expenditure is Revenue in Nature, Allowable u/s 37(1): ITAT [Read Order]

Expenditure - Reliance Digital - Taxscan

In ACIT vs. M/s. Reliance Digital Retail Ltd., the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that the Project Development Expenditure is revenue in nature and hence is allowable under Section 37(1) of the Income Tax Act, 1961.

The assessee is in the business of organized retail, which is carried out through various retail stores. During the assessment year, the Assessing Officer (A.O.) noted that assessee had added some new stores/outlets in the same line of business and in the books of account he had debited such expenditure under the head ‘Project Development Expenditure ‘which was not debited in the Profit & Loss Account but considered as a part of Capital Work-in-Progress. While filing its return of income, assessee claimed that a part of such expenditure amounting to Rs.60,79,24,773/- debited under the head ‘Project Development Expenditure’ was revenue in nature, and since it has been incurred during the year under consideration for the purposes of a business already in existence, the same was an allowable expenditure within the meaning of Sec. 37(1) of the Income Tax Act.

However, the A.O. disallowed the claim on the ground that in the books of account assessee had shown it as a pre-operative expenditure and, therefore, for that reason also, it could not be treated as a revenue expenditure. As per the Assessing Officer, once the assessee treats an expenditure to be non-revenue or capital in nature in its books of account, the same could not be allowed as revenue expenditure while computing its taxable income. However, the Commissioner of Income Tax (Appeals) allowed the appeal of the assessee. Aggrieved the Revenue appealed to ITAT.

Relying on the decision of Supreme Court in the case of Empire Jute Co. Ltd, the Bench comprising of Judicial Member Amarjit Singh and Accountant Member G.S. Pannu observed “Notably, in the instant case, as we have inferred earlier, the business of retail is already set-up and the impugned expenditure, which is otherwise revenue in nature, relates to expansion of the existing line of business and not for a new line of business. Thus, even if such expenditure was to provide an enduring benefit to the business, the same is in revenue field and thus is liable to be treated as revenue expenditure. Furthermore, it is nobody’s case that the expenditure in question, which we have already enumerated above, results in creation of any fixed or an enduring asset so as to be capitalized. Thus, the objections raised by the Assessing Officer, in our view, have been rightly negated by the CIT(A).”

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