Expense on Technology used to carry on business is Revenue Expenditure: Delhi HC [Read Order]
Expense – Expense on Technology – Technology – business – Revenue – Expenditure – Revenue Expenditure – Delhi HC – taxscan
Expense – Expense on Technology – Technology – business – Revenue – Expenditure – Revenue Expenditure – Delhi HC – taxscan
The Delhi High Court held that the expense of technology used to carry on business is revenue expenditure.
The appellant/revenue challenged the order passed by the Income Tax Appellate Tribunal [“Tribunal”]. The short issue which arose for consideration before the Tribunal was, whether the Assessing Officer (AO) had adopted the correct approach in law and on the facts obtained in the instant appeals, in re-characterizing revenue expenses incurred by Hike Private Limited, the respondent/assessee as capital expenditure.
The respondent/assessee had filed a Return of Income (ROI) in which it had declared a loss amounting to Rs.42,24,57,146/-. After scrutiny assessment, the order was passed under Section 143(3) of the Income Tax Act, 1961 whereby its income was assessed at Rs.76,83,350/-. The AO had disallowed expenses amounting to Rs.43,01,40,500/-.
The AO had noted that the respondent/assessee had not earned any revenue from its business. The only income that it had earned was income from other sources, i.e., interest earned on fixed deposits.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A] sustained the addition made by the AO about expenses that had been disallowed. On appeal, the Tribunal reversed the view taken by the CIT(A) and the AO. The AO had accepted the stand of the respondent/assessee that the expenses incurred by it were on the revenue account and not capital expenditure.
Mr Abhishek Maratha, senior standing counsel, who appeared on behalf of the appellant/revenue, says that the expenditure claimed by the respondent/assessee was disallowed by the AO, as there was nothing to suggest that it had set up its business. It was argued that since the expenditure had been incurred by the respondent/assessee before it had set up its business, it could only be treated as capital expenditure. On the other hand, Mr Chopra has relied upon the order passed by the Tribunal.
It was evident that the AO had in allowing the expenditure claimed by the respondent/assessee that the said amount had been spent in building a brand for future utilization which was, according to him, an intangible asset, as per the Accounting Standard-26 issued by the Institute of Chartered Accountants.
The AO viewed that since there is no income chargeable under Section 28 of the Act, therefore, no expenses could be claimed by an assessee under Sections 30 to 37 of the Act, which was not correct. A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia upheld the order of the Tribunal and dismissed the Writ petition.
To Read the full text of the Order CLICK HERE
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