Amount Incurred towards Optic Fibre Cables is Revenue Expenditure since it was incurred on a recurring basis and there is no enduring Value Benefit: ITAT [Read Order]

The Income Tax Appellate Tribunal recently held that the amount incurred towards optic fiber cables is revenue expenditure under the Income Tax Act since it was incurred on a recurring basis and there is no enduring value benefit.

The bench comprising of Judicial Member N.V.Vasudevan and Accountant Member M. Balaganesh were ruled so while dismissing the appeal of revenue against the order of the Learned Commissioner of Income Tax (Appeals) -I, Kolkata.

The assessee is engaged in the business of providing broadband and cable services filed a return of income for the assessment year 2010-11. During the assessment the AO found that the assessee had debited ‘Optic Fibre expenses’ and ‘Fiber Optic Laying expenses’ in its Profit and Loss Account under the head Selling, Distribution and Administrative Expenses and the assessee was asked as to why the same should not be treated as capital expenditure.

The AO wasn’t well satisfied with the explanation had given by assessee and disallowed the same.

 The sole issue to be decided in this appeal is as to whether the CIT (A) was justified in deleting the addition of Rs 48,40,728/- made by the AO treating optical fibre expenses as capital expenditure in the facts and circumstances of the case.

The assessee submitted before the lower appellate authority that among other ingredient, Optical Fiber Cable is the main ingredient for transmitting the speed and its span of life is too short and may cause damages. The assessee also added that it may not be correct to say that the assessee get an enduring benefit by replacing the damage portion of optic fiber. Such expenses were incurred not only for replacing damage portion optic fiber but also for other recurring purposes and also in the nature of post-operative expenses.

The CIT (A) deleted the disallowance and aggrieved revenue is went appeal before the tribunal and argued that the amount incurred towards optic fibre cables are very huge and assessee gets enduring benefit out of the same and hence the same has to be treated as capital expenditure which had been rightly treated by the  AO.

The tribunal bench observed the decision of Hyderabad Tribunal in the case of DCIT vs. Akash Cable TV Network (P) Ltd for assessment year 2006-07 wherein held that his enduring benefit is only in the revenue field to the assessee and accordingly held the replacement of optical fibre cables as revenue expenditure.

Further the tribunal bench observed that assessee had incurred a sum of Rs 14,56,604/- in the previous year relevant to AY 2009-10 , in which assessee stated that the same was allowed by the AO as revenue expenditure. This was not controverted by the revenue before the bench.

Finally the tribunal held that the facts produced by Hyderabad Tribunal was right for the instant case hence the ratio laid down therein could be very much be applicable herein and the decision of  CIT (A) do not find any infirmity in the order.