2019 (6) TMI 1427 - HC - Income Tax

Court upholds Tribunal decision on project development cost expenses, no substantial question of law

The High Court dismissed the Income Tax Appeal challenging the deletion of disallowance of expenses incurred in the preoperative period towards project ... Nature of expenses - expenses incurred in the preoperative period towards the project development cost - revenue or capital expenditure - whether the Tribunal was justified in allowing the expenses incurred u/s 37(1) - HELD THAT:- Tribunal had relied upon its own judgment in case of this very assessee for the earlier assessment years. The revenue had carried the issue in appeal before the High Court [2017 (7) TMI 611 - BOMBAY HIGH COURT] and [2019 (2) TMI 531 - BOMBAY HIGH COURT] held the expenditure to be revenue expenditure. No question of law therefore arises. Income Tax Appeal is dismissed. Issues:1. Disallowance of expenses incurred in the preoperative period towards project development cost.2. Justification of expenses incurred under section 37(1) of the Act.Issue 1: Disallowance of expenses incurred in the preoperative period towards project development cost:The appeal was filed by the revenue challenging the judgment of the Income Tax Appellate Tribunal regarding the deletion of disallowance of expenses incurred in the preoperative period towards project development cost. The Tribunal had relied on its own judgment in the case of the same assessee for earlier assessment years to delete the disallowance. The revenue had previously appealed to the High Court in two separate cases, both of which were dismissed. Consequently, the High Court found no question of law arising in this appeal and dismissed the Income Tax Appeal.Issue 2: Justification of expenses incurred under section 37(1) of the Act:The second issue raised was whether the Tribunal was justified in allowing the expenses incurred under section 37(1) of the Act. The revenue argued that the expenses were preoperative in nature and hence not admissible as expenditure under section 37(1) of the Act, leading to an undue benefit for the assessee. The Tribunal's decision was based on the dual nature of the claim by the assessee, treating the expenses as both capital expenditure in the books of accounts and revenue expenditure for taxation. The High Court upheld the Tribunal's decision, emphasizing that no substantial question of law arose in this regard. Therefore, the Income Tax Appeal was dismissed.This comprehensive analysis of the judgment provides a detailed overview of the issues involved, the arguments presented, and the final decision rendered by the High Court, preserving the legal terminology and significant details from the original text.