2020 (5) TMI 599 - HC - Income Tax

High Court scrutinizes website project expenses categorization for tax assessment, emphasizes procedural fairness

The High Court of BOMBAY HIGH COURT reviewed an appeal regarding the treatment of expenses on website projects as revenue or capital expenditure for the ... Nature of expenditure - expenses incurred on projects pertaining to its website 'Rediff.com' - revenue or capital expenditure - HELD THAT:- Order of the Tribunal allowed the respondent assessee's appeal by holding that amounts spent on improvement of website would be in the nature of revenue expenditure, even when the said project was abandoned. The impugned order inter alia also records the fact that the CIT (Appeals) placed reliance upon the decision of Tata Robin Fraser Ltd. [2012 (10) TMI 59 - JHARKHAND HIGH COURT] incorrectly while rejecting the respondent assessee's appeal. No issue of abandonment of a project either in the order of the Assessing Officer or the order of the CIT(A). We also do not find any reference to the decision of the Jharkhand High Court in Tata Robins Fraser Ltd. (supra) mentioned in the order of the CIT(A). Prima facie, it appears that there is some mix up in the impugned order by the Tribunal. We had directed the appellant to serve notice upon the respondent. We are informed that inspite of intimation, the respondents have not entered appearance. - Notice issued for admission. Issues:Challenge to order of Income Tax Appellate Tribunal regarding treatment of expenses on website projects as revenue or capital expenditure.Analysis:The High Court of BOMBAY HIGH COURT heard an appeal under Section 260A of the Income Tax Act, 1961, concerning the Assessment Year 2006-07. The primary issue raised by the Revenue was whether the Tribunal was correct in treating expenses related to the website projects as revenue expenditure instead of capital expenditure. The Revenue argued that if these projects were successful, the expenditure would provide enduring benefits to the business of the assessee. The impugned order of the Tribunal favored the respondent assessee by considering the amounts spent on website improvement as revenue expenditure, even if the project was abandoned. The High Court noted discrepancies in the Tribunal's order, pointing out that there was no mention of project abandonment in the Assessing Officer or CIT(A)'s orders. Additionally, the reference to a decision of the Jharkhand High Court in the CIT v. Tata Robin Fraser Ltd. case, as cited by the CIT(A), was found to be incorrect. The High Court directed the appellant to serve notice to the respondent, who failed to appear despite intimation.In response to the respondent's absence, the High Court directed the Registry to issue a Notice to the respondents and scheduled the matter for admission on a specific date. The Court's decision to issue a notice indicates the importance of ensuring both parties have the opportunity to present their arguments before the Court. The case highlights the significance of proper legal procedures and adherence to the principles of natural justice in tax matters. The High Court's meticulous review of the Tribunal's order and the subsequent actions taken demonstrate the judicial diligence in addressing discrepancies and ensuring a fair hearing for all parties involved in the appeal.