PCIT Vs Rediff.Com India Ltd. (Bombay High Court)
Bombay High Court has upheld the Income Tax Appellate Tribunal’s (ITAT) decision in favor of Rediff.Com India Ltd., allowing the company to claim a deduction for capital work-in-progress written off from abandoned projects. The ruling, delivered in the case of PCIT Vs Rediff.Com India Ltd., dismisses the appeal filed by the Principal Commissioner of Income Tax, affirming that expenses incurred on such projects, being revenue in nature, are allowable as business expenditure.
Rediff.Com had initiated several projects to enhance its website and existing products, investing substantial amounts under the “capital work-in-progress” head. However, due to an economic recession and a need to conserve cash flow, the company reevaluated its ongoing projects. It decided to abandon those deemed non-critical and claimed the expenditure incurred on these incomplete projects as revenue expenses. These expenses primarily included salaries and professional fees.
The Assessing Officer (AO) initially disallowed this claim, contending that the expenditure was for creating new capital assets expected to yield enduring benefits. The AO also noted that by categorizing these expenses under “capital work-in-progress,” Rediff.Com itself had acknowledged their capital nature. The AO argued that a reduction in a capital asset due to an abandoned project constituted a capital loss, which could not be offset against revenue income.
