Soma Textiles & Industries Ltd., Ahmedabad V. The Addl.CIT, Circle-8, Ahmedabad

ITA 2227/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6837 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R R PATHAK
• Assessee Lawyers: G C PIPARA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND D.K. TYAGI, JUDICIAL MEMBER) ITA NO.2227/AHD/2009 [ASSTT. YEAR : 2006-2007] SOMA TEXTILES & INDUSTRIES LTD. RAKHIAL ROAD AHMEDABAD 380 001. PAN : AADCS 0405 R VS. ACIT, RANGE-8 AHMEDABAD. ITA NO.2501/AHD/2009 [ASSTT. YEAR : 2006-2007] ACIT, RANGE-8 AHMEDABAD. VS. SOMA TEXTILES & INDUSTRIES LTD. RAKHIAL ROAD AHMEDABAD 380 001. PAN : AADCS 0405 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. PIPARA REVENUE BY : SHRI R.R. PATHAK O R D E R PER G.D. AGARWAL, VICE-PRESIDENT: THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) THE INCOME TAX ACT, 1961. 2. THE ONLY GROUND RAISED IN THE REVENUES APPEAL R EADS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE OF RS.8353185/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES TOWARDS LOAN PROCESSING CHARGES . THE LD.CIT(A) HELD THAT LOAN PROCESSING CHARGES TO BE T REATED AS REVENUE EXPENDITURE WHICH IS NOT ACCEPTABLE BY THE ASSESSING ITA NO.2227 AND 2501/AHD/2009 -2- OFFICER AND THE ASSESSING OFFICER HAS SUGGESTED TO FILE AN APPEAL BEFORE THE ITAT, AHMEDABAD. WHILE FIRST GROUND OF THE ASSESSEES APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION ON ACCOUNT OF DISALLOWANCE OF LOAN PROCESSING CHARGES TO THE EXTENT OF RS.2,97,540/- WHILE TREATING IT AS CAPITAL EXPENDIT URE WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CSE. IN VIEW OF FACTS AND SUBMISSIONS FILED AS WELL AS LEGA L POSITION, THE IMPUGNED ADDITION OF RS.2,97,540/- ALSO REQUIRES TO BE DELETED. 3. THE FACTS OF THE CASE ARE THAT DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF RS.86,50, 725/- TOWARDS LOAN PROCESSING CHARGES FOR LOAN TAKEN FROM THE BANK AND FINANCIAL INSTITUTIONS. THE ASSESSING OFFICER DISALLOWED THE SAME HOLDING T O BE CAPITAL EXPENDITURE. ON APPEAL, THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) DISALLOWED ONLY A SUM OF RS.2,97,540/- PA ID TO GITCO FOR PREPARATION OF APPRAISAL REPORT OF THE PROJECT HOLD ING THE SAME TO BE CAPITAL EXPENDITURE. HE ALLOWED THE REMAINING AMOU NT AS REVENUE EXPENDITURE I.E. RS.83,53,185/-. THE REVENUE IS IN APPEAL AGAINST THE RELIEF ALLOWED WHILE THE ASSESSEE IS IN APPEAL AGAI NST THE ADDITION SUSTAINED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED PART RELIEF BY FOLLOWING THE DECI SION OF THE HONBLE APEX COURT IN THE CASE OF DCIT VS. GUJARAT ALKALIES & CHEMICALS LTD., 299 ITR 85 (SC) AND CIT VS. AKKAMAMBA TEXTILES LTD. , 227 ITR 464. THAT IN THE CASE OF GUJARAT ALKALIES (SUPRA), THE F ACTS WERE THAT THE ASSESSEE HAD ESTABLISHED A PHOSPHORIC ACID PROJECT AS AN EXTENSION TO ITS EXISTING BUSINESS ACTIVITIES. FOR THAT PURPOSE IT O BTAINED FOREIGN CURRENCY LOAN FROM THE IDBI WHICH IN TURN WAS REFINANCED BY COFACE SUBJECT TO ITA NO.2227 AND 2501/AHD/2009 -3- THE ASSESSEE PAYING COMMITMENT CHARGES TO COFACE. THE DEPARTMENT DISALLOWED DEDUCTION OF COMMITMENT CHARGES ON THE GROUND THAT THE PAYMENT WAS NOT IN THE NATURE OF INTEREST. THE TRIB UNAL, HOWEVER, ALLOWED THE DEDUCTION UNDER SECTION 37 OF THE INCOME-TAX AC T, 1961, AND THE HIGH COURT ON APPEAL AFFIRMED THE ORDER OF THE TRIBUNAL. ON THE ABOVE FACTS, THE HONBLE APEX COURT HELD AS UNDER: A FFIRMING THE DECISION OF THE HIGH COURT, THAT THE COMMITMENT CHARGES WERE AN ADMISSIBLE DEDUCTION UNDER SECTION 37 AND THERE WAS NO INFIRMITY ON THE PART OF THE APPELLATE TRIBU NAL IN ALLOWING THE DEDUCTION. SIMILARLY, IN THE CASE OF AKKAMAMBA TEXTILES LTD. ( SUPRA), THEIR LORDSHIPS OF THE APEX COURT ALLOWED DEDUCTION FOR G UARANTEE COMMISSION PAID TO BANKER AND INSURANCE COMPANY AS REVENUE EXPENDITURE. 5. THE ASSESSEE CLAIMED THE EXPENDITURE OF RS.85,50 ,725/- TOWARDS LOAN PROCESSING CHARGES. THE DETAILS OF WHICH IS A S UNDER: SBI TERM LOAN : RS.4,02,500 IDBI TERM LOAN : RS.38,83,004 EXIM BANK TERM LOAN : RS.17,08,100 GITCO : RS. 2,97,540 DENA BANK TERM LOAN : RS.23,59,581 RS.86,50,725/- ========= THE CIT(A) EXAMINED THE FACTS IN DETAILS AND HE FOU ND THAT EXCEPT THE PAYMENT OF RS.2,97,540/- OTHER PAYMENT WAS TOWARDS LOAN PROCESSING CHARGES AND THEREFORE THE SAME WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF GUJARAT ALKAL IES (SUPRA) AS WELL AS AKKAMAMBA TEXTILES LTD. (SUPRA). HE ALSO NOTED T HAT PAYMENT OF ITA NO.2227 AND 2501/AHD/2009 -4- RS.2,97,540/- TO GITCO WAS NOT FOR LOAN PROCESSING BUT IT WAS CONSULTANCY FEE FOR PREPARATION OF APPRAISAL REPORT OF THE PROJECT. THEREFORE HE HELD THE SAME TO BE CAPITAL EXPENDITUR E. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND FACTS OF THE CA SE, WE DO NOT ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN THIS REGARD . WE THEREFORE REJECT REVENUES APPEAL AS WELL AS GROUND NO.1 OF THE ASSE SSEES APPEAL. 6. BY WAY OF GROUND NO.2 THE ASSESSEE MADE ALTERNAT IVE CLAIM THAT IF THE SUM OF RS.2,97,540/- IS TREATED AS CAPITAL EXPE NDITURE, DEPRECIATION SHOULD BE ALLOWED THEREON. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE IS NOT EXAMINED BY T HE AO OR BY THE CIT(A). WE THEREFORE SET ASIDE THE ORDER OF THE AU THORITIES BELOW ON THIS POINT AND RESTORE BACK TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE ASSESSEES ALTERNA TE CONTENTION THAT THE DEPRECIATION SHOULD BE ALLOWED IN RESPECT OF SUM OF RS.2,97,540/-, WHICH IS TREATED AS CAPITAL EXPENDITURE. WE ALSO DIRECT THE ASSESSING OFFICER TO ALLOW ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD WHILE ADJUDICATING THIS ISSUE. 8. GROUND NO.3 AND 4 OF THE ASSESSEES APPEAL READS AS UNDER: 3. THE LEARNED C!T(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.48,77,944/- MADE BY THE A.O. ON ACCOUNT OF FOREI GN EXCHANGE RATE DIFFERENCE WHILE TREATING IT AS CAPITAL EXPEND ITURE WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE FACTS OF THE CASE. IN VIEW OF FACTS AND SUBMISSIONS FILED AS WELL AS LEGA L POSITION, THE IMPUGNED ADDITION OF RS.48,77,944/- REQUIRES TO BE DELETED. ITA NO.2227 AND 2501/AHD/2009 -5- 4. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ABOV E GROUND OF APPEAL, IT IS SUBMITTED THAT THE LEARNED CIT(A) FAI LED TO CONSIDER THE ALTERNATIVE GROUND OF APPEAL. THE LEARNED CIT(A) WH ILE TREATING THE SAID AMOUNT AS CAPITAL EXPENDITURE OUGHT TO HAVE DI RECTED THE A.O. TO GRANT DEPREDATION ON THE SAID AMOUNT OF RS.48,77 ,944/- TREATED AS CAPITAL EXPENDITURE. 9. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THE ASSESSING OFFICER HAS DISALLOWED FOREIGN E XCHANGE RATE DIFFERENCE HOLDING THE SAME TO BE CAPITAL EXPENDITU RE. THE AO RECORDED THE FINDING THAT THE FOREIGN EXCHANGE FLUCTUATION W AS ON ACCOUNT OF SETTLEMENT OF TRANSACTION WHICH WAS DIRECTLY RELATE D TO THE PLANT & MACHINERY. THE CIT(A) SUSTAINED THE DISALLOWANCE F OLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. WIPRO FINANCE LTD., 218 CTR 105. AT THE TIME OF HEARING BEFORE US IT IS STATED BY THE LEARNED COUNSEL THAT THE FINDING OF THE AO T HAT THE ENTIRE FOREIGN EXCHANGE FLUCTUATION WAS IN RESPECT OF TRANSACTION FOR ACQUISITION OF CAPITAL ASSETS IS FACTUALLY INCORRECT. HE POINTED OUT THAT ONLY IDBI TERM LOAN WAS FOR ACQUISITION OF PLANT & MACHINERY. ALL OTHER LOANS FROM TRANSWORLD CORPORATION, DENA BANK, STATE BANK OF IN DIA ETC. WERE FOR WORKING CAPITAL REQUIREMENT AND NOT FOR ACQUISITION OF PLANT AND MACHINERY. HE ALSO STATED THAT THE CIT(A) WHILE CO NFIRMING THE DISALLOWANCE RELIED UPON THE DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF WIPRO FINANCE LTD. (SUPRA) WHE REIN THEIR LORDSHIPS HAVE APPLIED SECTION 43A OF THE IT ACT. HE HAS STA TED THAT SECTION 43A WOULD BE APPLICABLE ONLY WHEN THE ASSESSEE ACQUIRED CAPITAL ASSETS FROM A COUNTRY OUTSIDE INDIA. HE HAS STATED THAT IN THE C ASE OF THE ASSESSEE ALL THE ASSETS WERE ACQUIRED IN INDIA. THEREFORE, SECTION 43A WOULD NOT BE ITA NO.2227 AND 2501/AHD/2009 -6- APPLICABLE AND CONSEQUENTLY THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF WIPRO FINANCE LTD. (SUPRA) WOU LD ALSO NOT BE APPLICABLE. HE FURTHER SUBMITTED THAT THE ASSESSEE S CASE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE APEX COURT I N THE CASE OF OIL & NATURAL GAS CORPORATION LTD. CIT, 322 ITR 180 AND T HE DELHI HIGH COURT DECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX VS INDIAN TONERS AND DEVELOPERS LTD., 326 ITR 435. 10. THE LEARNED DR ON THE OTHER HAND STATED THAT TH E CONTENTION OF THE LEARNED COUNSEL WOULD REQUIRE VERIFICATION AT THE E ND OF THE AO, BECAUSE THE ASSESSEE HAS CLAIMED THAT ONLY ONE LOAN WAS FOR ACQUISITION OF PLANT & MACHINERY AND OTHER LOAN WAS FOR WORKING CAPITAL RE QUIREMENT. ON THE OTHER HAND, THE AO HAS RECORDED A FINDING THAT THE LOANS WERE FOR ACQUISITION OF PLANT & MACHINERY. WHETHER THE ASSE SSEES CONTENTION BEFORE THE ITAT IS FACTUALLY CORRECT OR NOT WOULD R EQUIRE VERIFICATION WITH REFERENCE TO THE BOOKS OF ACCOUNTS AND OTHER EVIDEN CES. THIS CAN BE DONE ONLY AT THE END OF THE AO. SIMILARLY, WHETHER SECT ION 43A IS APPLICABLE OR NOT IN THE CASE OF THE ASSESSEE ALSO REQUIRES CE RTAIN FACTUAL VERIFICATION WHICH ALSO CAN BE DONE AT THE END OF THE AO. HE T HEREFORE SUGGESTED THAT THIS ISSUE CAN BE SET ASIDE TO THE FILE OF THE AO FOR RE-EXAMINATION. 11. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE A SSESSEE HAD NO OBJECTION IF THE ISSUE RELATING TO THE ALLOWABILITY OF FOREIGN EXCHANGE RATE DIFFERENCE IS SET ASIDE TO THE FILE OF THE AO. 12. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND AFTER CONSIDERING FACTS AND CIRCUMSTANCES OF THE CA SE AND ARGUMENTS OF BOTH THE SIDES, WE ARE OF THE OPINION THAT THIS MAT TER REQUIRES FURTHER EXAMINATION AT THE END OF THE AO. WE THEREFORE SET ASIDE THE ORDER OF THE ITA NO.2227 AND 2501/AHD/2009 -7- AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MAT TER BACK TO THE FILE OF THE AO. WE DIRECT HIM TO GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEREAFTER READJUDICATING THE ISSUE IN ACCORDANCE WITH LAW. 13. IN RESULT, REVENUES APPEAL IS DISMISSED AND AS SESSEES APPEAL IS DEEMED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN OPEN COURT ON 15 TH APRIL, 2011 SD/- SD/- (D.K. TYAGI) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 15-04-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD