INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Assessee was granted project by National Highways Authority of India (NHAI) to develop and operate toll - Assessee designated special purpose vehicle (SPV), which was rejected by NHAI - Claim of write off of investments in SPV

Assessee was a public limited company engaged in developing infrastructure projects. It was awarded a project by National Highways Authority of India (NHAI) to operate and collect toll on national highway. Project was to be executed through a special purpose vehicle (SPV) and a company (JSHL) was selected as an SPV. However, NHAI rejected application to designate JSHL as SPV. As a result, SPV was wound up and entire investment in JSHL was written off. AO disallowed investment written off by assessee. Held: Since NHAI rejected application to designate JSHL as SPV, it was wound up and because no consideration was received by assessee on account of winding up of SPV, entire investment in JSHL was written off. In instant case, write off was nothing but write off of an expenditure on an abandoned project. Project in question had inextricable link with the assessee's existing business and thus, expenditure was allowable as revenue expenditure under section 37(1).