Dcit,Cir-11(1), Kolkata, Kolkata vs M/S Haldia Petrochemicals Ltd., ... on 30 October, 2018
The assessee during the year has claimed deferred revenue expenditure for an
amount of Rs. 15.46 crores under section 37 of the Act. The AO during the assessment
proceedings sought the clarification as to why this expense should be allowed. On
being questioned by the AO about the allowability of deferred revenue expenditure,
the assessee submitted that the deferred revenue expenditures are on account of
amortization of miscellaneous expenses that were incurred prior to the start of the
commercial production. The assessee submitted that the deferred revenue
expenditures were claimed in terms of guidance notes issued by the ICAI. As per the
guidance note the good corporate practice recognizes the need to write off these
expenses to profit & Loss account within a period of 3-5 years after the
commencement of commercial production. In consonance with the above accounting
practice, the assessee has been amortizing the said preliminary cost over five years.
The assessee also relied on the decision of the Supreme Court in CIT vs up State
Industrial Investment Corporation (1997) 225 ITR 703 and Challapalli Sugar Limited
vs CIT (1975) 98 ITR 167.The assessee also submitted that these deferred revenue
expenditure pertains to the assessment years starting from AY 1985-86 to 2001-02.
However, the AO has disregarded the claim of the assessee by considering that the
amount of amortized expenses and its allowability needs to be determined as per the
provisions of the Act. There is no provision under the Act for claiming the deferred
revenue expenditure. All the deferred revenue expenditures are revenue in nature
and should have been claimed in the year of its incurrence. Accordingly, the A.O. has
disallowed the deferred revenue expenditure and added to the total income of the
assessee.