Vodafone Mobile Services Ltd. Vs DCIT (Delhi High Court)
Delhi High Court held that the provisioning for Asset Reconstruction Cost qualified the prescriptions of AS 29 and the assessee was thus justified in accounting for the same. Thus, that question is answered in favour of assessee.
Facts- Appellant vide the present appeal has mainly contested that the ITAT erred in upholding the disallowance of depreciation to the tune of Rs.5,10,79,752/- claimed on account of Asset Reconstruction Cost [“ARC‟] being an ascertained liability, or alternatively allowing deduction for such expenditure in the year of execution of lease agreements or over the period of the lease.
It is also contested that the ITAT erred in holding that installation of cell site towers amounted to ‘extension of existing business’ as stipulated in proviso to Section 36(1)(iii) of the Income Tax Act, 1961 and, thereby warranting proportionate disallowance of interest under that provision.
Conclusion- Held that the provisioning for ARC qualified the prescriptions of AS 29 and the assessee was thus justified in accounting for the same. The ARC obligation clearly met the test of a positive obligation flowing from a past event, being a conceivable probability as well as being measurable. In any event, both the AO as well as the Tribunal appear to have proceeded on the basis that only an ascertained liability could have been provisioned for. That view is not only erroneous but also unsustainable in law.
