Partial Relief to Vodafone: Delhi HC Orders Reassessment of ₹5.10 Crore Asset Restoration Cost u/s 37 of Income Tax [Read Order]
Delhi HC grants partial relief to Vodafone, orders reassessment of Rs. 5.10 crore Asset Restoration Cost under Section 37 for possible business deduction
![Partial Relief to Vodafone: Delhi HC Orders Reassessment of ₹5.10 Crore Asset Restoration Cost u/s 37 of Income Tax [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/Partial-Relief-to-Vodafone-Vodafone-Vodafone-Reassessment-Delhi-HC-Orders-Reassessment-Asset-Restoration-Cost-Income-Tax-taxscan.jpg "Partial Relief to Vodafone: Delhi HC Orders Reassessment of ₹5.10 Crore Asset Restoration Cost u/s 37 of Income Tax [Read Order]")
In a recent ruling, the Delhi High Court granted partial relief to Vodafone by directing the reassessment of Rs. 5.10 crore claimed as Asset Restoration Cost (ARC) under Section 37 of the Income Tax Act. Vodafone Mobile Services Ltd. had challenged the disallowance of Rs. 5.10 crore, which it had provisioned for restoring telecom tower sites to their original condition at the end of...
In a recent ruling, the Delhi High Court granted partial relief to Vodafone by directing the reassessment of Rs. 5.10 crore claimed as Asset Restoration Cost (ARC) under Section 37 of the Income Tax Act.
Vodafone Mobile Services Ltd. had challenged the disallowance of Rs. 5.10 crore, which it had provisioned for restoring telecom tower sites to their original condition at the end of lease agreements. The company initially sought depreciation on the amount under Section 32 of the Income Tax Act, arguing that it was an ascertained liability. The Assessing Officer (AO) and ITAT rejected this claim, ruling that depreciation could only be applied to actual costs incurred and not to estimated future expenses.
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During the hearing, Vodafone’s counsel argued that even if depreciation was not allowed, the provisioned ARC should be deductible as a business expense under Section 37 of the Income Tax Act. The company argued that the liability was a necessary expenditure for its business operations and complied with Accounting Standard (AS-29), which permits provisioning for obligations that are probable and measurable.
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The tax department opposed Vodafone’s claim and argued that the ARC provision was a contingent liability and did not meet the conditions for deduction under either Section 32 or Section 37. The department argued that the lease agreements only required restoration “if any damage occurred,” making the liability uncertain and not an immediate business expense.
The bench comprising Justice Yashwant Varma and Justice Harish Vaidyanathan ruled that the ITAT was correct in disallowing depreciation under Section 32 of the Income Tax Act. The court also found merit in Vodafone’s alternative argument and held that the possibility of deduction under Section 37 needed further examination.
The court directed the tax authorities to reassess the claim under Section 37 to determine whether the provisioned amount qualifies as a business expense. The company did not receive outright relief but secured a chance to justify its claim under Section 37, potentially allowing the deduction in future proceedings. The case now returns to the tax authorities for reassessment.
To Read the full text of the Order CLICK HERE
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