April 2022

Business expenditure — Capital or revenue expenditure — Capital work-in-progress written off — Salary and professional fees expenditure incurred in respect of projects abandoned to conserve cash flow — Revenue expenditure

K. B. Bhujle, Advocate

1 Principal CIT vs. Rediff.Com India Ltd.

[2022] 441 ITR 195 (Bom)
Date of order: 29th September, 2021
S. 37 of ITA, 1961


Business expenditure — Capital or revenue expenditure — Capital work-in-progress written off — Salary and professional fees expenditure incurred in respect of projects abandoned to conserve cash flow — Revenue expenditure

The assessee abandoned some of its incomplete website projects, which were not expected to pay back. The assessee wrote off expenses on account of capital work-in-progress pertaining to such abandoned projects and claimed deduction thereof as revenue expenditure u/s 37 of the Income-tax Act, 1961. The Assessing Officer held that the expenditure was incurred for creating new projects and represented capital assets of its business that were to yield enduring benefit and that by claiming such expenditure under the head ‘capital work-in-progress’, the assessee itself had admitted that those expenses were capital in nature and disallowed the assessee’s claim of writing off ‘capital work-in-progress’.

The Tribunal held that the expenses incurred were in connection with the existing business and were of routine nature, such as salary and professional fees, and that the expenses were revenue in nature and allowed the assessee’s claim.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“The Tribunal’s view that if an expenditure was incurred for doing the business in a more convenient and profitable manner and had not resulted in bringing any new asset into existence, such expenditure was allowable business expenditure u/s. 37 was correct. The expenditure incurred was on salary and professional fees which was revenue in nature and did not bring into existence any new asset. There was no perversity or application of incorrect principles in its order. No question of law arose.”

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