ACIT Vs Reliance Jio Infocomm Ltd. (ITAT Mumbai)
Summary: The Revenue challenged the order dated 06/09/2022 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, for Assessment Year 2018-19, whereby the disallowance of ₹14,927.99 crore claimed by Reliance Jio Infocomm Ltd. as revenue expenditure was deleted.
The assessee was engaged in providing telecommunication and wireless telecommunication services in India. It filed its original return under section 139(1) of the Income-tax Act, 1961 on 30/11/2018 declaring a current-year loss of ₹30,077.92 crore and book profit under section 115JB of ₹11,204.18 crore. The return was subsequently revised on 26/03/2019 to claim additional TDS credit.
During scrutiny, the Assessing Officer noticed that ₹14,927.99 crore had been described in the Income Computation and Disclosure Standards statement as “expenses capitalized in books- allowable as revenue for tax purpose”. The assessee explained that the amount represented operating expenses including salaries, rent, professional fees, marketing expenses, power and fuel and travelling expenses. These expenses had not been debited to the Profit and Loss Account because they formed part of “Project Development” expenditure and were accounted for as capital work-in-progress in the books.
The assessee submitted that its telecom assets/network had already been put to use on 01/09/2016 following the launch of digital services. According to the assessee, the expenditure had not resulted in acquisition of assets and had been incurred for business operations. Under its accounting policy, assets were capitalised when they became available for use and operated in accordance with the Quality of Service (QoS) standards intended by management. Until those standards were met, the relevant operational expenses continued to be classified as project development expenditure/capital work-in-progress in accordance with paragraph 55 of Ind-AS 16.
