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TMI Blog2023 (6) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... diture". 2. (2). Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee in respect to expenses treating it as revenue in nature, which were incurred towards upgradation of assets and are therefore, capital in nature and therefore not allowable as expenses us 37 of the IT. Act". 3. (3). Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee ignoring the fact that the expenses incurred towards expansion of business with enduring benefit and thus capital in nature and therefore not allowable as expense u/s 37 of the IT. Act". 2. Briefly stated facts of the case are that the assessee company is engaged in the business of providing telecommunication and wireless telecommunication services within India. For the year under consideration, the assessee filed its original return of income under section 139(1) of the Income-tax Act, 1961 (in short 'the Act') on 30/11/2018 declaring current year loss at Rs.30077,92,19,721/-and book profit under section 115JB of the Act at Rs.1120,41,83,998/-. The return of income was subsequently re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or capital in nature and it cannot be same time be capital as far as books are concerned and revenue as far as claim of the admissibility of the same for income tax purposes. There has to be uniformity of treatment of the expenditure in the books as well as for the income tax purpose. Further, the Ld. Assessing Officer held that those expenses are towards upgradation of the assets and therefore, capital in nature. The relevant finding of the Assessing Officer is reproduced as under: "14.7.2 Thus the distinguishing factor between expenses claimed in P&L a/c under the same heads-employee cost,rent, professional expenses, forex loss, interest, etc and these expenses which are not claimed in P&L alc but capitalised in books and yet claimed as revenue expenses in Income Computation is that these are expenses incurred in connection with tower/fibre network infrastructure facilities, which are not yet meeting with the Quality of Service (QoS) standards. Thus these are expenses towards upgradation of assets and are therefore capital in nature, and also treated as such in the books and as per applicable accounting policies. In this case, the treatment in books and as per accounting poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's operations. 55. Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production". 11.4 Having regard to the nature of business of the appellant, I find merit in the submission of the appellant that, the company was required to undertake continuous efforts to improve its network / connectivity, as its subscribers were not able to get adequate experience of seamless connectivity across networks due to congestion in Point of interconnect (POl) and Mobile number portability (MP) issue. From the facts on record, it is noted that since the Quality-of-Service Standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Maintenance cost for Tower Infrastructure, Fibre Infrastructure, and other Facilities (like AG1, AG2, AG3) which did not result in creation of any new asset. 1. Other Network Cost of Rs.29 crores - This comprises of Bandwidth Charges, GSAT charges, network co-location expenses. By its nature, it is not in capital field. 1. Foreign Exchange Difference Loss of Rs.465 crores - This loss pertains to foreign currency borrowings for acquisition of indigenous assets and it pertains to the period after the assets are put to use. Accordingly, the said loss in noted to be revenue in nature. 1. Interest of Rs.2,967 crores and Bank Charges of Rs.81 crores: The comprises of interest in respect of capital borrowed for acquisition of assets and relating to the period after the assets are put to use. It is therefore evidently revenue in nature. 1. Selling & Distribution Expenses of Rs.329 crores - It comprises of marketing expenses as well as commission charges paid to the distributors against the new activations and recharge vouchers, which has been apportioned to these installed assets as well whose QOS parameters are yet to be met. 1. Licence Fee / Spectrum Usage Charges of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued to be incurred in relation to the installed tower/fibre network infrastructure facilities, which have already met the quality of service parameters as intended by the management, the same was debited to the Profit & Loss Alc in the books of account, but (b) where the operational expenses were incurred in relation to those installed tower/fibre network infrastructure facilities, which were yet to achieve the Quality of Service (QoS) standards as intended by the management, the same were classified as project development expenditure and disclosed under Capital Work-in-Progress. It is thus noted that the appellant had indeed explained the reasons for difference in classification in the books, which according to me, was not correctly appreciated by the AO." 4.1 In support of the finding, the Ld. CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd Vs CIT (124 ITR 1); Kedarnath Jute Mfg Co. Ltd Vs CIT (82 ITR 363) and Taparia Tools Limited Vs JCIT (55 taxmann.com 361). The Ld. CIT(A) further relied on the decisions of the Tribunal Mumbai Bench in the case of (i) Reliance Footprint Limited Vs ACIT (41 taxmann.com 553), which has been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are incurred for running the business are revenue expenditure for the purpose of income tax irrespective of the treatment of the same by the assessee in its books of accounts. Before us the Ld. Departmental Representative could not substantiate as how the expenses incurred for day-to-day business are for upgradation of the asset and of enduring benefit. Though the assessee has treated those expenses in its books of accounts as capital expenditure following the Indian accounting standard, but these expenses, list of which has been reproduced above have been incurred in relation to services provided to existing customers, and therefore same being incurred wholly and exclusively for the purpose of the business, deserve to be allowed in terms of section 37(1) of the Act. We find that identical nature of expenses have been allowed by the Tribunal in the case of another two companies namely Reliance Footprint Limited (supra) and Reliance Fresh Ltd (supra), which have been further upheld by the Hon'ble Bombay High Court. The finding up the Tribunal in the case of Reliance Footprint Limited (supra) has already been reproduced by the Ld. CIT(A) in para 11.2 of the impugned order and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. even the expenditure which is claimed in the income tax return as revenue expenditure as capital expenditure. It was only on the above basis, the Assessing Officer and the Commissioner of Income Tax (Appeals) held that the revenue expenditure claimed by the Respondent in its return of income could not be allowed. 5. On further appeal, the Tribunal allowed the Respondent's appeal, inter alia, pointing out that the treatment given in the books of account by the assessee would not be conclusive in income tax proceedings to decide whether the expenditure was revenue or capital. In support of its view, the Tribunal relied upon the decision of the Supreme Court in the case of Taparia Tools Ltd. v. JCIT'. The Tribunal also relied upon upon the judgment of its Coordinate Bench in the case of Reliance Footprint Ltd. v. ACIT in ITA No.5997/Mum/2011 decided on 23 October 2013 for the assessment year 2008-09, on identical facts, holding that the revenue expenditure as claimed is allowable. 6. Mr. Suresh Kumar very fairly points out that the Revenue being aggrieved by the above order dated 23 October 2013 of the Tribunal in the case of Reliance Footprint Ltd. (supra) filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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