In ITA No.4975/Del./2018-ITAT-Part of expenditure incurred during year under consideration which are identical to earlier year and have been written off by assessee as abandoned, cannot be allowed as revenue expenditure: ITAT
Judicial Member-Astha Chandra & Accountant Member-Shamim Yahya [23-01-2023]

Read Order: Fiitjee Edusoft Ltd v. ACIT, Central Circle 6, New Delhi 

LE Correspondent

New Delhi, January 25, 2023: While remitting the matter to the AO where the assessee wanted to adopt two system of accounting in the the same year, the Income Tax Appellate Tribunal has reaffirmed that any party cannot be allowed to approbate and reprobate i.e. accept and reject part of the same nature.

The Judicial Member- Astha Chandra and Accountant Member- Shamim Yahya was considering the cross appeals by the assessee and Revenue arising out of the CIT (Appeals)-XXV, New Delhi pertaining to the Assessment Year 2013-14.

In the assessment order, the AO noted that the assessee company is engaged in the business of conducting coaching classes, test preparation classes, mock tests and providing course material for engineering examination and during the year, assessee company incurred various expenses but no income was earned from the business activities. 

Further, AO considered that the balance sheet revealed that the assessee had written off the entire component/expenditure incurred in the earlier years from capital work-in-progress which is forming part of fixed assets during the year under consideration. 

It was held by the AO that the assessee company had not done any business and there was no nexus between earning of the income and expenditure.  Hence expenditure relating to audit fees, insurance and other administrative & office expenses totaling Rs 4,68,907 was allowed by the AO and rest of the expenditure of Rs 2,61,76,161 was disallowed.

Against this order, assessee appeal before CIT (A) whereby the action of AO not disallowing the same as revenue expenditure was upheld and it was opined that the project abandoned by the assessee had provided intellectual property right as know-how and held that the earlier expenditure written off should be allowed as capital expenditure and depreciation should be allowed.

As per the facts and assessee’s own admission, the assessee was capitalizing the expenditure in the assessee’s line of business and put in the balance sheet as capital work-in-progress. The management found that the project was not commercially viable and had to be abandoned. 

In this view of the matter, the opening balance was written off as prior period expenses and not claimed as expenses in the computation of income. However, the part of the same expenses incurred during the year had been treated by the assessee as relating to the same business and the assessee wanted this expenditure to be allowed as revenue expenditure. 

The Bench observed that the assessee had taken a contradictory stand. As per assessee’s own admission, similar expenses incurred in earlier year were written off as abandoned project and similar expenditure in the current year assessee wanted to be treated as revenue expenditure. 

“In our considered opinion, those part of the expenditure incurred during the year which are identical to the earlier year, which have been written off by the assessee as abandoned cannot be allowed as revenue expenditure during the year. Hence, we deem it appropriate to remit the issue to the file of AO”, the Bench held.

The Bench ordered the AO to examine the nature of expenditure during the year and those of the expenditure which are of similar nature which have been written off as abandoned for earlier period cannot be allowed as revenue expenditure. 

Hence, the appeal filed by the assessee was partly allowed for statistical purposes and the Revenue’s appeal was dismissed as infructuous.