Kerala H.C : The expenditure carried over for the head office and the other branch, the remaining unabsorbed expenditure for the closed branch also should be spread over equally to be allowed in succeeding years

High Court Of Kerala

Victoria Gold Gallery vs. CIT

Section 37

Asst. Year 2003-04

C.N. Ramachandran Nair & K. Surendra Mohan, JJ.

IT Appeal No. 164 of 2008

24th February, 2009

Counsel Appeared :

T.M. Sreedharan & V.P. Narayanan, for the Appellant : P.K.R. Menon & Jose Joseph, for the Respondent

JUDGMENT

Ramachandran Nair, J. :

Heard counsel for the appellant and standing counsel for the respondent. Appellant-assessee, a jeweller, started business at Mettupalayam and in the course of time they opened two branches, one at Pollachi and another at area code. The initial expenditure for commencement of business in the branches and head office was spread over to be adjusted against income of the ten succeeding years. In other words, the eligible expenditure was to be amortized in ten equal instalments. Even though the AO allowed deduction in terms of the claim during the previous year relevant for 200304, the assessee closed one branch and claimed the entire unabsorbed expenditure spent for setting up of that branch in that year. When this was disallowed, matter was taken up in appeal to the Tribunal and the Tribunal held that along with the expenditure carried over for the head office and the other branch, the remaining unabsorbed expenditure for the closed branch also should be spread over equally to be allowed in succeeding years. It is against this order appeal is filed.

2. Counsel for the appellant submitted that when the branch is closed, the unabsorbed expenditure carried over should be allowed in the year of closure. Standing counsel opposed this stating that Tribunal’s order is to allow expenditure in terms of the accounting practice followed by the assessee. We are unable to accept the claim of the assessee because there is no provision in the Act to claim the entire expenditure incurred for setting up of a branch in the year of closure of the branch. In fact, assessee rightly followed the system of writing off the expenditure in a phased manner and we see no reason why closure of one branch should interfere with the practice followed by the assessee and accepted by the Department. So long as business continues, the balance unabsorbed expenditure of the closed branch also should be apportioned equally for the remaining years along with carried forward liability of the head office and the other branch. We therefore, uphold the order of the Tribunal passed in the above lines. The appeal is consequently dismissed.

[Citation : 330 ITR 330]

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