The Income Tax Appellate Tribunal (ITAT) has deleted a ₹11,003-crore tax disallowance against Reliance Jio Infocomm for assessment year 2019-20, ruling that the way an expense is recorded in company accounts does not by itself determine its tax treatment. The dispute involved expenses that Jio had capitalised as capital work-in-progress (CWIP) in its books but claimed as revenue expenditure while computing taxable income. The expenses covered interconnect charges, employee costs, professional fees, power and fuel, repairs, maintenance and network operating costs. The Assessing Officer had treated the entire amount as capital expenditure linked to telecom network improvement and disallowed it, allowing depreciation under Section 32 of the Income Tax Act. However, the CIT(A) deleted the addition, holding that the expenditure related to assets already installed and operational and did not create a new enduring asset. The Mumbai ITAT bench of Judicial Member Amit Shukla and Accountant Member Arun Khodpia upheld that decision. The tribunal said tax authorities must examine the purpose and nature of expenditure and establish a clear link with the creation or acquisition of a capital asset before treating it as capital expenditure. It also observed that telecom networks require continuous optimisation and maintenance after commercial operations begin. The ruling provides important clarity that network improvement or operational expenditure does not automatically become capital expenditure merely because it is shown under CWIP in company accounts.
Accounting Treatment Alone Cannot Decide Tax Classification, Rules ITAT
