TMI Blog2022 (5) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... ts is created by this expenditure. We may also add here that in the Income Tax laws, there is no concept of deferred revenue expenditure, therefore once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and expenditure if fulfils the test laid down u/s. 37 of the Act, it has to be allowed. The only in exceptional cases, the nature mentioned in Madras Industrial Corporation [ 1997 (4) TMI 5 - SUPREME COURT] the expenditure can be allowed to be spread over, that too, when the assessee chooses to do so. Ergo, we hold that both the tax authorities below erred in disallowing the revenue expenditure incurred by the appellant, and is hereby overturned the same for the aforestated reasons. - Decided in favour of assessee. - ITA No. 101/PAN/2018 - - - Dated:- 20-4-2022 - SHRI RAVISH SOOD , JUDICIAL MEMBER AND SHRI JAMLAPPA D BATTULL , ACCOUNTANT MEMBER For the Appellant : Sandeep Bhandare For the Respondents : Sourabh Nayak ORDER Per Jamlappa D. Battull , AM The present appeal of the assessee is assailed against the order of Commissioner of Income Tax-(Appeals), Panaji-1 [for short CIT(A) ] vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 51,06,161/- u/s. 115JB of the Act. The return was subjected to scrutiny under computer assisted scrutiny scheme [for short CASS ] by issue of statutory notice dt. 25/08/2011 u/s. 143(2) of the Act and on account of disallowance of certain expenditure the total income of by an order u/s. 143(3) was determined at Rs. 56,84,937/- and after allowing the set-off of brought forward losses income was finally assessed to Rs. NIL under regular/normal taxation and the assessee is charged to tax on deemed total income of Rs. 51,06,161/- u/s. 115JB of the Act, thus had an effect of reducing the losses to be carried forward to future years to Rs. 1,09,44,583/- as against the claim of Rs. 1,66,29,520/- made in ROI filed. 4.2 During the assessment year under consideration, the appellant company entered into an agreement/contract to implement Multiprotocol Label Switching/Virtual private network [for short MPLS/VPN ] with M/s. Tulip Telecom Limited for a term of three years commencing from 01/01/2010 and terminating on 31/12/2012 on a onetime contact price of Rs. 14,51,649/-. The appellant company placing reliance on the decision of Hon'ble Supreme Court in CIT Vs Gujarat Mineral De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of enduring benefit occurring to the appellant over a period of three years, following matching principle and having regards to mercantile system of accounting deployed by the assessee, same cannot qualify to be an eligible revenue expenditure u/s. 37(1) of the Act. 6. After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue. 7. The vexed question to be answered under this adjudication is whether the nature of expenditure falls within the realm of provision of section 37(1) of the Act, and hence it is of paramount importance to quote relevant text of the provision to arrive at the applicability in the instant case before us; 7.1 Section 37 : General (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n qualify to be an advantage of an enduring nature. Moreover, even if an advantage brings about an enduring benefit that per se would not be determinative in every case, because in certain cases even a revenue expenditure may bring about an advantage of an enduring nature to the assessee. As observed by Hon'ble Supreme Court in Empire Jute Company Ltd. Vs CIT reported in 124 ITR 1, what is important to see is as to whether the advantage which occurred to the assessee, was in the capital field or in the field of revenue. The whole matter has to be examined from the point of view of a prudent businessman, applying a commercial sense and taking business necessity and expediency into consideration, if the expenditure incurred by the assessee is so intrinsically connected to the conduct of his business as to become an essential component of his profit making process and is not incurred for acquisition of an asset or right of a permanent nature, the expenditure should ordinarily be regarded as revenue expenditure. 8.2 The Hon'ble Supreme Court in the case of Empire Jute Company Ltd. Vs CIT (Supra) referred to the following test laid down by Lord Cave (LC) in Atherton Vs B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. (Emphasis Supplied) 8.5 On a similar occasion the Hon'ble Apex Court while adjudicating the matter of enduring benefit in the case of CIT Vs Madras Auto Service (P) Ltd reported 233 ITR 468 at summarised the law laid in Assam Bengal Cement Co Ltd. Vs CIT (relevant para 2) 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. (Emphasis Supplied) 8.6 Nota bene, in the instant case, although onetime payment for a right to connectivit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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