Are expenses on real estate research, due diligence and marketing research treated as revenue in nature under the IT Act?

IN THE INCOME TAX APPELLATE TRIBUNAL
“F” BENCH, MUMBAI

BEFORE HON’BLE SHRI AMARJIT SINGH, JM AND
HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

(Hearing through Video Conferencing Mode)

I.T.A. No.7014/Mum/2019
Assessment Year: 2014-15) 

ACIT-Circle-9(3)(2)
Room No.418, 4th Floor
Aayakar Bhavan, M.K. Road
Mumbai-400 020
PAN/GIR No. AADCB-1093-N
Appellant 

Vs.

M/s. Future Retail Limited
GF, Knowledge House
Off, Jogeshwari Vikhroli Link Rd.
Shyam Nagar, Jogeshwari (East)
Mumbai-400 064
Respondent

Assessee by : Ms. Dinkle Hariya-Ld. AR
Revenue by : Shri Shanteshwar Swami-Ld. DR

Date of Hearing : 01/07/2021
Date of Pronouncement : 01/07/2021 

O R D E R

Manoj Kumar Aggarwal (Accountant Member)

1. Aforesaid appeal by revenue for Assessment Year (AY) 2014-15contest the order of Ld. Commissioner of Income-Tax (Appeals)-33, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. 507/17-18 dated 27/08/2019 on following grounds: - 

1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the expenses on account of Real Estate, Research, due diligence expenditures and marketing research expenditure as revenue in nature and thereby deleting the disallowance by ignoring the fact that the assessee would be deriving enduring benefit from these expenses and hence the same are capital in nature?

2. Alternatively and without prejudice to the above, the ld.CIT(A) ought to have considered the expenses in the nature of preliminary expenses as per section 35D(2) of the Act and therefore allowable only as per provision of section 35D(1).

2. Having heard rival submissions, the undisputed position that emerges before us is that the issue raised by the revenue is covered in assessee’s favor by the earlier decisions of this Tribunal in assessee’s own case. In fact, Ld. CIT(A) has relied upon the orders of Tribunal for AYs 2010-11 and 2011-12 while adjudicating the appeal. No change in facts could be demonstrated before us and there is nothing on recordwhich would indicate that the earlier decisions of Tribunal are not applicable to the facts of this year. In the above background, our adjudication to the appeal would be as given in succeeding paragraphs.

3.1 The material facts are that the assessee being resident corporate assessee stated to be enagged in retail trading of household / consumer products was assessed for the year u/s 143(3) on 19/12/2016. During the course of assessment proceedings, it transpired that the assessee incurred certain expenses as ‘Due Diligence Expenditure’ & ‘Marketing Research Expenditure’ for Rs.273.93 Lacs. The marketing research expenses were stated to be incurred to conduct survey studies and would include household count and profiling study, catchment area study, door to door interview, store interviews, price perception study etc. These were stated to have been conducted to facilitate identifying appropriate location for expansion of existing business. The due diligence expenditure was stated to be incurred in connection with the proposed properties to be taken up for store site before setting up of new stores / outlet. The assessee would get due diligence of the property from an independent party to check the legality of the property. This would involve identification of legal problems associated with title of property, solutions and site measurement, drawing and design cost etc. Depending on due diligence report, the assessee would decide whether to open store at the new site or not. 

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