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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 ..... counting 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) - Decided against revenue. - ITA No. 2843/MUM/2022 - - - Dated:- 1-2-2023 - SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) For the Revenue : Mr. Sandeep Raj, CIT-DR For the Assessee : Mr. Madhur Agarwal Ms. Moksha Mehta, ARs ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 06/09/2022 passed by the Ld. Commissioner of Income- Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [in short the Ld. CIT(A) ] for assessment year 2018-19, which arose from the assessment order dated 30/09/2021 passed by the Addl./Joint CIT/DCIT/ACIT/ITO, National Faceless Assessment Centre (in short the Assessing Officer), raising following grounds: 1. (1). Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 01/09/2016 for business purposes pursuant to launch of digital services by the company to its subscribers/customers. These expenses had not resulted in acquisition of the assets and incurred for business operation purpose only. It was further submitted that as per the accounting policy followed by the company while preparing its financial statement, the company capitalises the assets only when they are available for use and are working in accordance with the quality of service (QOS) standard intended by the management. Till the quality of services standards are not met, even if the assets have been put to use, the company continues to classify those expenses, under project development expenditure /capital work in progress in the books of accounts in accordance with para 55 of Indian accounting standard (Ind-As)-16- Property, Plant and Equipment . The company has continued to improve its network connectivity and capitalises the expenditure incurred including the operational expenses to the project development expenditure/work in progress in the books till the quality of services standards intended by the management are achieved. 3. According to the Assessing Officer the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed on record, it is observed that, the appellant capitalizes the assets as and when they are available for use and are working in accordance with the Quality of Service (QoS) standards intended by the management. Consequently, the indirect / operational expenses relating to period prior to the stage of meeting the Quality of Service (QoS) standards as intended by the management, is considered as project development expenditure and disclosed under Capital Work-in-Progress , irrespective of the fact that the asset had already been put to use. This was done in accordance with relevant Paras 20 and 55 of Ind-AS 16 - Property, Plant and Equipment, followed by the appellant, is noted to read as follows: Para 20: Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment. (a) costs incurred while an item capable of operating in the manner intended by management has yet to be brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.2,036 crs: It is noted that these were usage-based charges paid to the other telecom operators in whose network the call / message of the Jio subscribers get terminated. This fee was paid as per the TRAI regulations. It therefore cannot be said to be incurred for creation of new asset or upgradation of asset. 1. Employee cost of Rs.1,380 crores and Professional Fees of Rs.2085 crores - These costs are not to comprises of Salary and related costs of employees, outsourced Manpower cost, legal and other professional cost relating to those installed tower/fibre network infrastructure facilities whose Q0S was yet to be met. It neither resulted in creation of new asset or upgradation of the existing asset. 1. Rent of Rs.2,895 crores and Rates Taxes of Rs. 28 crores - This is noted to comprise of rent towards network towers and facilities (like AG1, AG2, AG3) and annual taxes paid to local authorities/ Government, which are recurring in nature and therefore cannot be said to capital in nature. 1. Power and Fuel of Rs.1,496 crores - It comprises of cost towards Electricity and Fuel for network towers and facilities (like AG1, AG2, AG3) relating to those installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset of enduring nature, but it resulted in improving the efficiency and capability of the already installed and put to use assets. It was in the nature of regular operational expenses incurred in the course and for the purposes of business. On these facts therefore, I am of the view that the findings recorded by the AO that, the operational expenditure were incurred towards upgradation and improvement of assets, is erroneous and unjustified. 11.6 In the assessment order the AO is found to have laid emphasis on the fact that the assessee had debited same items of expenses in Profit Loss Account and the same item of expenses were classified as project development expenditure and disclosed under Capital Work-in-Progress , which according to him showed the contradiction in the approach of the assessee. The AO accordingly held that, when the appellant itself had capitalized these expenses in books of accounts, then it could not be permitted to take a contradictory stand and claim the same expenditure as revenue in nature for income-tax purposes. Having examined the submissions of the assessee, this reasoning given by the AO is found to be untenable. On the given facts, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the parties on the issue in dispute and perused the relevant material on record including the detailed financial statements filed on behalf of the assessee. The issue in dispute is regarding character of the expenses of ₹14927,99,00,396/- which inter alia consist of Interconnect charges (Rs.2,036 Crores); Employee Cost (Rs.1,380 Crores); Professional Fees including call centre expenses (Rs. 2,085 Crores); Rent (Rs. 2,895/- Crores); Power and Fuel (Rs. 1496 Crores); Repair and Maintenance (Rs. 558 Crores); Other network Cost (Rs. 29 Crores); Interest (Rs. 2,967/-) Rs. Selling and Distribution Expenses (Rs. 329 Crores); Other expenses (Rs. 376 Crores); License fee/ spectrum uses charges (Rs. 23 crores); exchange loss (Rs. 465 Crores); Customer Service Expenses (Rs. 59 Crores), Bank Charges (Rs. 81 Crores), Rates and Taxes (Rs. 28 Crores); ILD expenses (Rs. 62 Crores) and Travelling expenses (Rs. 62 Crores). 6.1 We find that Assessing Officer has nowhere denied that expenditure in question has been incurred for the purpose of the business. He has also not denied that those expenses are routine in nature and same would generally be classified as revenue Expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) and the Tribunal, the Tribunal have held the expenditure to be revenue expenditure. In case of Kothari Auto Parts Manufacturers Pvt. Ltd. (supra), this Court had specifically observed that separate computation of income and expenditure would be justified only when several distinct businesses are carried on, and not when the separate business activities were carried out by some person and when one set of account is maintained for all set of activities. 9. In the present case also, one set of account is maintained for the business activity by the Assessee. The Assessee had incurred expenditure on account of expansion of business and the Assessee had commenced the business as per the findings of the Commissioner (Appeals) and the Tribunal. The said findings are findings of the fact. 10. In view of the above, no substantial question of law arises. These Appeals, as such, stand dismissed. No costs. 6.2 The identical question raised in the case of the another company namely Reliance Fresh Ltd (supra) has also been allowed in favour of the assessee by the jurisdictional Bombay High Court in ITA No.985 of 2017, observing as under: 4. In its return of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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