Nuziveedu Swathi Coastal Consortium Vs ACIT (ITAT Hyderabad)
Tunnel Project Infrastructure Is Revenue Expenditure — ITAT Hyderabad Allows Full Deduction
The Hyderabad Bench of the ITAT allowed the assessee’s appeals for AYs 2013-14 to 2015-16, 2017-18 & 2018-19, holding that expenditure incurred on temporary railway tracks, rollers & structures, conveyor belts, and ventilation ducting used in tunnel construction is revenue in nature and not capital expenditure.
Key rulings and reasoning:
- Nature of advantage test applied: The Tribunal held that the decisive test is whether the expenditure creates an enduring asset forming part of the profit-earning apparatus. The items in question were temporary, site-specific tools of the trade, integral to executing a single tunnelling contract and not permanent assets.
- No enduring benefit to the assessee: Railway tracks laid inside the tunnel, conveyor belts for muck removal, and ventilation ducting for air supply lose utility after project completion, cannot be reused elsewhere (except as scrap), and do not expand the assessee’s business capacity.
- Commercial reality over form: Even if some items lasted beyond one year, longevity alone does not make them capital. They merely facilitated efficient execution of the contract.
- Supreme Court precedents followed: Reliance placed on Empire Jute, Madras Auto Service, and Associated Cement Companies—expenditure creating business advantage without ownership of a capital asset remains revenue.
- AO & CIT(A) erred: Capitalisation with depreciation was unjustified; the Tribunal directed deletion of additions (₹6.55 crore for AY 2013-14) and corresponding relief for other years.
Accordingly, the ITAT set aside the CIT(A)’s orders and allowed full revenue deduction of the impugned expenditures across all years.
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