Assessee company wins appeal on revenue expenses and deductions

The Tribunal allowed the appeal filed by the assessee company, determining that the mobilization expenses and interest on debentures were revenue in nature and should be considered as deductions in computing taxable income. The alternative plea to adjust additional income declared during a survey was dismissed as infructuous. The decision was pronounced in open court on 11th April 2016, with the appeal being allowed.

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Issues Involved:
1. Classification of expenditure as capital or revenue.
2. Adjustment of additional income declared during a survey against the addition made by the AO.

Issue-wise Detailed Analysis:

1. Classification of Expenditure as Capital or Revenue:

The assessee company, engaged in the business of giving rigs on hire, claimed expenditure of Rs. 3,43,28,180/- incurred on mobilization of rigs and interest paid on debentures as revenue expenditure. The AO disallowed this claim, treating the expenses as capital expenditure since they were capitalized in the books of accounts as per the Companies Act. The CIT(A) upheld this decision, stating that the expenses incurred were for bringing an asset or advantage of enduring nature and therefore should be capitalized. The CIT(A) also noted that the assessee company failed to provide sufficient documentary evidence to prove that the rigs were operational during the assessment year.

Upon appeal, the Tribunal observed that the business of the assessee company was an existing and continuing one, and the acquisition of new rigs was an expansion of this business. The Tribunal held that the mobilization expenses incurred for transporting and installing the rigs at client sites were revenue in nature, as the rigs were available for hire and ready to be put to use upon acquisition. The Tribunal relied on the judgments of the Hon’ble Delhi High Court in CIT v. Triveni Engineering and Industries Limited and CIT v. Relaxo Footwear Limited, which supported the view that expenses incurred in the expansion of an existing business are revenue in nature. Consequently, the Tribunal allowed the mobilization expenses and interest on debentures as revenue expenditure.

2. Adjustment of Additional Income Declared During a Survey Against the Addition Made by the AO:

The assessee company also contended that an additional income of Rs. 1,25,00,000/- declared during a survey should be adjusted against the addition made by the AO. The CIT(A) rejected this plea, stating that the additional income offered during the survey was in the nature of income and could not be adjusted against the capitalized expenditure. The Tribunal, having allowed the mobilization expenses as revenue expenditure, found this issue to be academic and infructuous and dismissed the alternative plea.

Conclusion:

The Tribunal allowed the appeal filed by the assessee company, holding that the mobilization expenses and interest on debentures were revenue in nature and should be allowed as deductions while computing the income chargeable to tax. The alternative plea regarding the adjustment of additional income declared during the survey was dismissed as infructuous. The order pronounced in the open court on 11th April 2016 concluded that the appeal was allowed.

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