2016 (10) TMI 181 - HC - Income Tax

Allowability of revenue expenditure being the amount written off by the assessee in respect of expenses incurred on projects originally set up to put up cell sites, but later abandoned - expenses were disallowed by the assessing officer as that was spent by the assessee on sites to bring into existence a new asset and new source of income and therefore, such expenditure was in the nature of capital expenditure. Held that - A cellular tower can be a new independent source of income, if it is erected exclusively for leasing out to the other operators. However, on facts, this was not the position and the tribunal, therefore, rightly concluded that in series of decisions, the High Courts and the Hon ble Supreme Court of India has laid down the principle 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. In the present case, no new business was set up, but towers in addition to which were already set up were proposed at site, which project was later on abandoned.

Summary

Issues:
Challenge to the order passed by the Income Tax Appellate Tribunal dated 13th May, 2014 for Income Tax Appeal Nos. 3260 and 3493 of 2008 for the assessment years 2001-02.

Analysis:
The appeal by the Revenue challenges the tribunal's order disallowing a sum claimed as revenue expenditure by the assessee for expenses incurred on projects originally set up for cell sites but later abandoned. The assessing officer disallowed the expenses as capital expenditure, which was upheld by the first appellate authority. The tribunal reversed these views, leading to the current appeal. The Revenue argued that the tribunal's finding was perverse and erroneous, as the expenditure did not result in a new asset. On the other hand, the assessee contended that the expenditure was for the existing business, as the project was abandoned due to unsuitability. The tribunal found in favor of the assessee, stating that the expenditure aimed to make the cellular services more efficient and profitable, not to create a new source of income. The High Court agreed with the tribunal's reasoning, emphasizing that the towers were for the assessee's own business, not for leasing out, and thus, the expenditure was allowable as business expenditure. The court found no error in the tribunal's decision and dismissed the appeal, stating that the questions raised were not substantial questions of law.

In conclusion, the High Court upheld the tribunal's decision, emphasizing that the expenditure incurred for the cell towers was for the assessee's existing business, not to create a new source of income. The court found that the tribunal applied the correct test in analyzing the facts and circumstances, leading to the allowance of the expenditure as business expenditure. The court dismissed the appeal by the Revenue, stating that the questions raised did not amount to substantial questions of law.