Itxa-651-2017.Doc v. R.i. Chagla, Jj

jsn 916-itxa-651-2017.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 651 OF 2017 Pr. Commissioner of Income Tax - 8…Appellant Versus M/s. Rediff.com India Ltd. …Respondents ---------- Mr. Suresh Kumar for the Appellant.Mr. Madhur Agrawal with Mr. Fenil Bhatt i/b. Kanga & Co. for theRespondent. ---------- CORAM :K.R. SHRIRAM & R.I. CHAGLA, JJ. DATE : 29 SEPTEMBER, 2021. (THROUGH VIDEO CONFERENCING) ORDER : 1.In this case, the respondent had claimed a deduction ofRs.8,16,67,747/- on account of capital work-in-progress written offin computation of its income. Respondent had initiated many projectsto enrich its website with an intention to add new features to thewebsite and to enhance its existing products to keep its websiteupdated. Respondent had spent substantial amounts on these projectsunder the head “capital work-in-progress”. However, due to recessionthere was fall in revenue and respondent decided to conserve cash 916-itxa-651-2017.doc flow and after reevaluating all on going projects decided to pursueonly those projects which were critical for the purpose of its businessin short run. Respondent identified the projects which were criticaland decided to abandon those projects which were not expected topay back. Respondent abandoned some of the projects which wereincomplete at that point of time and claimed expenses pertaining tosuch abandoned projects as revenue expenses. The expenditureincurred were salary, professional fees, etc. which were revenue innature and did not bring into existence any new asset. Detailedexplanation was filed with the Assessing Officer. 2.Assessing Officer was not convinced with respondent’ssubmissions and held that the expenditure was incurred for creationof new projects and these projects were capital assets of its businesswhich were to yield enduring benefit. Assessing Officer also held thatby parking such expenditure under the head “capital work-in-progress”, respondent itself has admitted that those expenses werecapital in nature. However the reduction in capital asset on accountof abandoned project for incurring a capital loss cannot be set off orreduced from the income as revenue loss. Assessing officer, therefore,disallowed respondent’s claim of writing off ‘capital work-in- 916-itxa-651-2017.doc progress’. . 3.Unhappy with these findings of the Assessing Officer,respondent preferred an appeal before Commissioner of Income Tax(Appeals) [“CIT(A)”] who held that the expenditure on abandonedproject cannot be allowed as revenue expenditure. 4.Respondent preferred an appeal before the Income TaxAppellate Tribunal (“ITAT”). The ITAT, by its decision dated 13th April2016, set aside the order of CIT(A). The ITAT held that the expensesincurred were in connection with the existing business andadmittedly were of routine nature like salary, professional fees, etc.,and these expenses are otherwise clearly of revenue in nature. Byobserving that CIT(A) misread the judgment of the Jharkhand HighCourt in the case of CIT Vs. Tata Robins Fraser Ltd.1, the ITAT heldthat such expenses were allowable as revenue expenses. Paragraph16 of Tata Robins Fraser Ltd. (Supra) reads as under:- “16......Substantially this is also a question offacts where an expenditure incurred by theassessee was of the revenue in nature or it wascapital expenditure. However, in view of the fact “16......Substantially this is also a question offacts where an expenditure incurred by theassessee was of the revenue in nature or it wascapital expenditure. However, in view of the fact that question has been framed and we havenarrated the facts of the case including the break-up of the expenditure which includes the fee ofRs.2,57,335/- paid to the Architect and someexpenses of Rs.46,379/- incurred on old capitalwork in progress which was abandoned and costof damaged cabinets and that too, amounting toRs.12,776/-, total expenditure including all threeof the head is Rs.3,16,490/-. It is not in disputethat the project could not be accomplishedbecause of the reason that the place where it wasto be undertaken had a poor quality of soil andall the construction already damaged. The otherarticles bought by the assessee also got damagedand, therefore, in that fact situation, the Tribunalwas fully justified in holding that suchexpenditure which may be pre-operationalexpenditure for a project can be treated to be arevenue expenditure actually and not a capitalexpenditure…….” 5.The ITAT also relied upon the judgment of this Court in 2CIT Vs. M/s. Manganese Ore India Ltd., Nagpur. 6.We have, before us, a judgment of this Court in CIT-3 Vs.Idea Cellular Ltd.3, where the Court held that where new cellular towers were constructed by cellular operator in addition to existingtower and no new business was set up, if project was abandoned,expenditure so far incurred would be allowed as business expenditure. When we brought this judgment to the notice of Mr. 2Dated 11th February 2016 in Income Tax Reference No.150 of 1993. 3(2016) 76 taxmann.com 77 (Bom.) 916-itxa-651-2017.doc Suresh Kumar and observed that the facts in this case are alsoidentical to the facts of the appeal at hand, Mr. Suresh Kumar as anofficer of the Court, agreed. He also states that an SLP against thisjudgment is pending but there is no stay. 7.Therefore, the ITAT’s view that if an expenditure isincurred for doing the business in a more convenient and profitablemanner and has not resulted in bringing any new asset intoexistence, then, such expenditure is allowable business expenditure,is correct. 8.In our view, ITAT has not committed any perversity orapplied incorrect principles to the given facts and when the facts andcircumstances are properly analyzed and correct test is applied todecide the issue at hand, then, we do not think that question aspressed raises any substantial question of law. 9.The appeal is devoid of merits and it is dismissed withno order as to costs. [R.I. CHAGLA J.] [K.R. SHRIRAM, J.]