Bombay High Court
Pr. Commissioner Of Income Tax-8 vs M/S. Rediff.Com India Ltd on 29 September, 2021
Bench: K.R. Sriram, R. I. Chagla
Digitally signed
JITENDRA by JITENDRA
SHANKAR
SHANKAR NIJASURE
NIJASURE Date: 2021.10.01
18:19:34 +0530
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jsn
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 651 OF 2017
Pr. Commissioner of Income Tax - 8 ...Appellant
Versus
M/s. Rediff.com India Ltd. ...Respondents
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Mr. Suresh Kumar for the Appellant.
Mr. Madhur Agrawal with Mr. Fenil Bhatt i/b. Kanga & Co. for the
Respondent.
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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 of
Rs.8,16,67,747/- on account of capital work-in-progress written off
in computation of its income. Respondent had initiated many projects
to enrich its website with an intention to add new features to the
website and to enhance its existing products to keep its website
updated. Respondent had spent substantial amounts on these projects
under the head "capital work-in-progress". However, due to recession
there was fall in revenue and respondent decided to conserve cash
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flow and after reevaluating all on going projects decided to pursue
only those projects which were critical for the purpose of its business
in short run. Respondent identified the projects which were critical
and decided to abandon those projects which were not expected to
pay back. Respondent abandoned some of the projects which were
incomplete at that point of time and claimed expenses pertaining to
such abandoned projects as revenue expenses. The expenditure
incurred were salary, professional fees, etc. which were revenue in
nature and did not bring into existence any new asset. Detailed
explanation was filed with the Assessing Officer.
2. Assessing Officer was not convinced with respondent's
submissions and held that the expenditure was incurred for creation
of new projects and these projects were capital assets of its business
which were to yield enduring benefit. Assessing Officer also held that
by parking such expenditure under the head "capital work-in-
progress", respondent itself has admitted that those expenses were
capital in nature. However the reduction in capital asset on account
of abandoned project for incurring a capital loss cannot be set off or
reduced from the income as revenue loss. Assessing officer, therefore,
disallowed respondent's claim of writing off 'capital work-in-
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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 abandoned
project cannot be allowed as revenue expenditure.
4. Respondent preferred an appeal before the Income Tax
Appellate Tribunal ("ITAT"). The ITAT, by its decision dated 13th April
2016, set aside the order of CIT(A). The ITAT held that the expenses
incurred were in connection with the existing business and
admittedly were of routine nature like salary, professional fees, etc.,
and these expenses are otherwise clearly of revenue in nature. By
observing that CIT(A) misread the judgment of the Jharkhand High
Court in the case of CIT Vs. Tata Robins Fraser Ltd.1, the ITAT held
that such expenses were allowable as revenue expenses. Paragraph
16 of Tata Robins Fraser Ltd. (Supra) reads as under:-
"16......Substantially this is also a question of
facts where an expenditure incurred by the
assessee was of the revenue in nature or it was
capital expenditure. However, in view of the fact
1 (2012) 78 DTR 22.
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that question has been framed and we have
narrated the facts of the case including the break-
up of the expenditure which includes the fee of
Rs.2,57,335/- paid to the Architect and some
expenses of Rs.46,379/- incurred on old capital
work in progress which was abandoned and cost
of damaged cabinets and that too, amounting to
Rs.12,776/-, total expenditure including all three
of the head is Rs.3,16,490/-. It is not in dispute
that the project could not be accomplished
because of the reason that the place where it was
to be undertaken had a poor quality of soil and
all the construction already damaged. The other
articles bought by the assessee also got damaged
and, therefore, in that fact situation, the Tribunal
was fully justified in holding that such
expenditure which may be pre-operational
expenditure for a project can be treated to be a
revenue expenditure actually and not a capital
expenditure......."
5. The ITAT also relied upon the judgment of this Court in
CIT Vs. M/s. Manganese Ore India Ltd., Nagpur2.
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 existing
tower 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.
2 Dated 11th February 2016 in Income Tax Reference No.150 of 1993.
3 (2016) 76 taxmann.com 77 (Bom.)
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Suresh Kumar and observed that the facts in this case are also
identical to the facts of the appeal at hand, Mr. Suresh Kumar as an
officer of the Court, agreed. He also states that an SLP against this
judgment is pending but there is no stay.
7. Therefore, the ITAT's view that if an expenditure is
incurred for doing the business in a more convenient and profitable
manner and has not resulted in bringing any new asset into
existence, then, such expenditure is allowable business expenditure,
is correct.
8. In our view, ITAT has not committed any perversity or
applied incorrect principles to the given facts and when the facts and
circumstances are properly analyzed and correct test is applied to
decide the issue at hand, then, we do not think that question as
pressed raises any substantial question of law.
9. The appeal is devoid of merits and it is dismissed with
no order as to costs.
[R.I. CHAGLA J.] [K.R. SHRIRAM, J.]
