DCIT 2(2), MUMBAI V. ULTRATECH CEMENT LTD ( ERESTWHILE NARMADA CEMENT CO.LTD), MUMBAI

ITA 2281/MUM/2013

• Counselvise Citation: 228119914 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2003-2004
• Appeal Filed On: 21-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMBIR MISHRA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA (ACCOUNTANT MEMBER) I.T.A. NO.2281/MUM/2013 (ASSESSMENT YEAR : 2003-04) DY. COMMISSIONER OF INCOME TAX-2(2) ROOM NO.545 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. ULTRATECH CEMENT LIMITED AHURA CENTRE, B-WING, 2 ND FLOOR, MAHAKALI CAVES ROAD, ANDHERI (E) MUMBAI-400 093. PAN/GIR NO . AAACN 1655 K ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI ARVIND SONDE DEPARTMENT BY : SHR I SAMBIR MISHRA DATE OF HEARING : 2 5 . 0 6.2014 DATE OF PRONOUNCEMENT : 25 . 0 6.2014 O R D E R PER D. MANMOHAN, VP :- THIS APPEAL IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 14/12/2012, AT INSTANCE OF THE REVENUE, FOR THE ASSESSMENT YEAR 20 03-04. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LEARNED CIT(A) HAS ERRED AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT LO SS ON ACCOUNT OF EXTINGUISHMENT OF DEBT IS REVENUE IN NATURE; WITHOU T APPRECIATING THE FACT THAT DEBENTURES WERE BORROWED CAPITAL AS SUCH, ANY LOSS DERIVED THEREFROM IS CAPITAL IN NATURE/ 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LEARNED CIT(A) HAS ERRED IN ALLOWING THE ENTIR E EXPENDITURE OF RS.1,31,46,245/- ON ACCOUNT OF CANCELLATION OF DEBE NTURES ON THE GROUND THAT A PAYMENT WHICH FREES AN ASSESSEE FROM THE LIABILITY OF MAKING RECURRING REVENUE PAYMENTS IS REVENUE IN NAT URE; WITHOUT APPRECIATING THE FACT THAT IT IS RECURRING IN NAT URE, THEREFORE, SHOULD HAVE BEEN ALLOWED OVER A PERIOD OF TIME. ITA NO.2281/M/13 AY:2003-04 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LEARNED CIT(A) HAS ERRED IN ALLOWING THE ENTIR E EXPENDITURE OF RS.15,12,136/- ON ACCOUNT OF PREPAYMENT OF FUTURE I NTEREST ON THE GROUND THAT A PAYMENT WHICH FREES AN ASSESSEE FROM THE LIABILITY TO MAKE RECURRING REVENUE PAYMENTS IS REVENUE IN NATUR E; WITHOUT APPRECIATING THE FACT THAT IT IS RECURRING IN NAT URE, THEREFORE, SHOULD HAVE BEEN ALLOWED OVER A PERIOD OF TIME. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET A SIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 2. FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL A RE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN PRODUCTION AND SALE OF CLINKER AND CEMENT. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT DECL ARED TOTAL LOSS OF RS.47,84,87,850/- UNDER NORMAL PROVISIONS AND LOSS OF RS.47.2 CRORES U/S.115JB OF THE ACT. THE RETURN WAS PROCESSED ACCO RDINGLY AND THEREAFTER TAKEN UP FOR SCRUTINY. DURING THE COURSE OF PROCEED INGS THE ASSESSING OFFICER NOTICED THAT THE COMPANY HAD CLAIMED CERTAIN EXPEND ITURE WHICH DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION OR NOT ALLO WABLE AS DEDUCTION. BY MAKING CERTAIN ADJUSTMENTS TO THE RETURNED INCOME T HE ASSESSMENT WAS COMPLETED BY DETERMINING THE LOSS AT RS.17.84 CRORE S; THE SAME WAS ALLOWED TO BE CARRIED FORWARD. SUBSEQUENTLY, THE ASSESSMENT WA S RE-OPENED BY ISSUING NOTICE U/S. 148 OF THE ACT DATED 11.03.2008 AND ULT IMATELY COMPLETED THE RE- ASSESSMENT PROCEEDINGS WHEREIN THE ASSESSING OFFICE R DISALLOWED THE CLAIM OF RS.1,31,46,245/- REFERABLE TO THE AMOUNT PAID BY TH E ASSESSEE DURING PREVIOUS YEAR TO THE DEBENTURE HOLDERS ON CANCELLATION OF DE BENTURES PRIOR TO THE DATE OF MATURITY. THE ASSESSING OFFICER HAS ALSO NOT ALLOWE D A SUM OF RS.15,42,136/-, PAID TO ICICI BANK FOR THEIR AGREEING TO ACCEPT PRE -PAYMENT/FORECLOSURE OF LOAN. 3. THE CASE OF THE AO IS THAT THE COMPANY HAD ISSUE D PRIVATELY PLACED DEBENTURES TO RAISE FUNDS FOR GENERAL CORPORATE PUR POSE WITH A COUPON RATE OF 11.6%. WITH A VIEW TO SAVE RECURRING INTEREST EXPEN DITURE ON INTEREST THE COMPANY CANCELLED 25 DEBENTURES BY PAYING IN AGGREG ATE RS.1,31,46,245/- ITA NO.2281/M/13 AY:2003-04 3 OVER THE FACE VALUE. THIS WAS DEBITED UNDER LOSS O N EXTINGUISHMENT OF DEBTS IN THE ACCOUNTS. SIMILARLY, THE COMPANY HAD TAKEN A TERM LOAN FOR ACQUIRING CERTAIN ASSETS IN THE EARLIER YEARS. WITH A VIEW TO SAVE FUTURE RECURRING INTEREST, THE COMPANY PRE-PAID THE LOAN. FOR MAKING SUCH PRE- PAYMENT THE COMPANY HAD TO PAY LENDER RS.15,42,136/- IN LIEU OF FUTURE INTEREST. THIS WAS ALSO DEBITED UNDER LOSS ON EXTINGUISHMENT OF DEBTS. AC CORDING TO THE AO THIS GIVES ENDURING BENEFIT TO THE ASSESSEE AND HENCE CA PITAL IN NATURE. 4. ON THE OTHER HAND THE CASE OF THE ASSESSEE IS TH AT INTEREST PAYMENT IS OTHERWISE ALLOWABLE AS REVENUE EXPENDITURE AND HENC E LUMP SUM PAYMENT MADE FOR SAVING PERIODIC PAYMENT OF INTEREST ON LO AN SHOULD ALSO BE TREATED AS REVENUE EXPENDITURE AND ALLOWABLE IN THE YEAR OF PA YMENT. RELIANCE WAS PLACED UPON THE FOLLOWING DECISIONS IN SUPPORT OF ITS CONT ENTION THAT THE NATURE OF EXPENDITURE IS IMPORTANT AND THE NOMENCLATURE OF TH E ACCOUNT HEAD IS IMMATERIAL FOR CONSIDERING NATURE OF EXPENDITURE; S O LONG AS THE EXPENDITURE FALLS IN REVENUE NATURE, IT HAS TO BE ALLOWED AS DE DUCTION IN THE YEAR OF PAYMENT. 1. OVERSEAS SANMAR FINANCIAL LTD. VS. 86 ITD 602(CHENN AI) 2. CIT VS. SIWAKAMI MILLS LTD. (227 ITR 465)(SC) AND 3. CIT VS. TUNGABHADRA INDUSTRIES LTD.( 207 ITR 553) ( CAL.) 4.1 THE LD. CIT(A) CONSIDERED THE ISSUE IN THE BACK DROP OF FACTS PLACED BEFORE HIM, AND OBSERVED THAT BY PAYING THESE AMOUNTS THE COMPANY IS SAVED FROM MAKING PERIODIC PAYMENT OF INTEREST AND HENCE THE P AYMENT HAS TO BE CONSIDERED AS REVENUE IN NATURE AND ALLOWABLE AS DE DUCTION. HE ACCORDINGLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. ITA NO.2281/M/13 AY:2003-04 4 5. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LD. D R SUBMITTED THAT THE AMOUNT BORROWED FROM ICICI BANK WAS UTILISED FOR MA KING INVESTMENT WHICH IS CAPITAL IN NATURE. SIMILARLY DEBENTURES WERE ISSUED FOR UTILIZATION OF FUNDS FOR MAKING INVESTMENT IN THE COMPANY BY FORECLOSING THE DEBENTURES AND LOAN ACCOUNT. THE ASSESSEE GETS AN ENDURING/RECURRING BE NEFIT IN THE FORM OF NON- PAYMENT OF INTEREST IN FUTURE AND THEREFORE, IT HAS TO BE TREATED AS CAPITAL IN NATURE. HE FURTHER SUBMITTED THAT THE CASE LAW RELI ED UPON BY THE ASSESSEE AND REFERRED TO BY CIT(A) ARE DISTINGUISHABLE ON FA CTS. IN RESPECT OF AN ASSESSEE CARRYING ON FINANCE BUSINESS, BY VIRTUE OF FORECLOSURE OF LOANS THE ASSESSEE IS GETTING ADVANTAGE OF NON-PAYMENT OF INT EREST AND ASSESSEES MAIN INCOME IS INTEREST I.E. FINANCE, THERE IS IMPLIED B ENEFIT IN THE NORMAL COURSE OF BUSINESS OF EARNING HIGHER INCOME WHEREAS IN THE IN STANT CASE THE ASSESSEE CARRIED ON BUSINESS OF PRODUCTION OF CLINKER AND CE MENT AND LOAN TAKEN BY ASSESSEE AS WELL AS DEBENTURE AMOUNT WAS UTILIZED F OR MAKING INVESTMENT. THUS THE CASE LAW REFERRED TO BY ASSESSEE ARE DISTI NGUISHABLE. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESS EE ADVERTED OUR ATTENTION TO THE CASE LAW PAPER BOOK. HE REFERRED T O PAGE-9 @12 OF THE PAPER BOOK ( CIT VS. ASSOCIATED CEMENT COMPANIES LTD. (17 2 ITR 257)(SC) TO HIGHLIGHT THAT IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND C ONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFECTIVELY AND PROF ITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE O N REVENUE ACCOUNT, EVEN THOUGH ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTUR E. IN THE AFORE-CITED CASE THE ASSESSEE INCURRED EXPENDITURE FOR LAYING WATER PIPELINES FOR LOCALITY AROUND FACTORY OF THE ASSESSEE . IN THE NORMAL COURSE IT H AS TO BE TREATED AS CAPITAL EXPENDITURE. HOWEVER, THE AGREEMENT WITH THE ASSESS EE AND MUNICIPAL CORPORATION WAS THAT UPON INCURRING SUCH EXPENDITUR E THE ASSESSEE WOULD BE ABSOLVED FROM PAYMENT OF MUNICIPAL TAX FOR A DEFINI TE PERIOD PROVIDED THE PIPELINES LAID ARE CONSIDERED AS PROPERTY OF MUNICI PALITY. UNDER THIS FACTUAL ITA NO.2281/M/13 AY:2003-04 5 MATRIX THE APEX COURT OBSERVED THAT THOUGH THE ASSE SSEE HAS TAKEN ADVANTAGE OF NON-PAYMENT OF MUNICIPAL TAXES FOR A PERIOD OF 1 5 YEARS THE EXPENDITURE INCURRED ON LAYING PIPELINES IN THE YEAR OF INCURR ING SUCH EXPENDITURE, SHOULD BE CONSIDERED ON REVENUE ACCOUNT AND ALLOWED ACCORD INGLY. SIMILARLY HE REFERRED TO THE DECISION OF THE APEX COURT IN THE C ASE OF ASSAM BENGAL CEMENT CO. LTD. VS. CIT(SC) (27 ITR 34 @ 35) WHEREIN THE C OURT OBSERVED THAT EVEN IF THE PAYMENT IS PAID IN LUMP SUM WHAT HAS TO BE LOO KED TO IS CHARACTER OF PAYMENT. IN THE INSTANT CASE IN THE SUBSEQUENT YEAR S, THE EXPENDITURE WOULD HAVE BEEN ALLOWED AS REVENUE IN NATURE AND, HENCE, MERELY BECAUSE LUMP SUM PAYMENT HAS BEEN MADE IT CANNOT BE CONSIDERED AS CA PITAL IN NATURE. HE ALSO REFERRED TO PAGE-40 @ 42 OF THE PAPER BOOK (CIT VS. GUJARAT GUARDIAN LTD. 177 TAXMAN 434) WHEREIN THE COURT OBSERVED AS UNDER :- PRE-PAYMENT OF PREMIUM PAID IN LUMP SUM BY ASSESS EE IN LIEU OF REDUCED RATE OF INTEREST AS A RESULT OF RESTRUCTURI NG OF RUPEE TERM LOAN BY IDBI-SAME REPRESENTED INTEREST PAID TO A PUBLIC F INANCIAL INSTITUTION I.E. IDBI-CLAIM FOR DEDUCTION THEREOF HAS TO BE ALLOWED IN LUMP SUM IN THE RELEVANT YEAR IN VIEW OF THE PROVISIONS OF SECTION 43B(D)-THERE IS NO SCOPE FOR SPREADING OVER THE LIABILITY OVER A PERIO D OF 10 YEARS AS DONE BY THE ASSESSING OFFICER. THE SAME VIEW WAS ECHOED BY VARIOUS BENCHES OF THE TRIBUNAL, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK SUBMITTED AND ARE AS B ELOW: I) OVERSEAS SANMAR FINANCIAL LTD. VS. JCIT [86 ITD 60 2] (CHENNAI BENCH); II) GKN SINTER METAL PVT. LTD. IN ITA NO.879/PN/2010 AN D ITA NO.3465/M/2010 ORDER DATED 06/05/2013 (PUNE BENCH); AND III) LAFARGE INDIA P. LTD.MA NO.209 TO 211/M/2012 AND MA NO.620 TO 622/M/2012 ARISING OUT OF ITA NO.1657, 3504 & 7311/ M/2008 ORDER DATED 12/10/2012 THUS, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUP PORTED THE ORDER PASSED BY LD. CIT(A). ITA NO.2281/M/13 AY:2003-04 6 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION THE ORDER PASSED BY LD. CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. AS RIGHTLY OBSERVED BY THE AP EX COURT, IN THE CASE OF ASSOCIATED CEMENT CO. (SUPRA), EVEN THOUGH A BENEFI T MAY ENDURE FOR AN INDEFINITE PERIOD, SO LONG AS THE EXPENDITURE, IF I NCURRED IN THE SUBSEQUENT YEAR, IS ALLOWABLE AS REVENUE IN NATURE, THE PRE-PA YMENT WOULD ALSO NEED TO BE CONSIDERED ON THE SAME PLANE. IN THE AFORECITED DEC ISION THE ASSESSEE INCURRED EXPENDITURE FOR LAYING WATER PIPELINES WHICH WOULD HAVE OTHERWISE BEEN CONSIDERED AS CAPITAL EXPENDITURE BUT THE FACT REM AINS THAT THE EXPENDITURE WAS IN LIEU OF SAVING MUNICIPAL TAX AND FEES PAYABL E IN FUTURE FOR A PERIOD OF 15 YEARS; HAVING REGARD TO CIRCUMSTANCES OF THE CASE T HE APEX COURT OBSERVED THAT EXPENDITURE INCURRED ON LAYING PIPELINES SHOUL D BE CONSIDERED ON REVENUE ACCOUNT. IN THE INSTANT CASE ALSO THE ASSES SEE FORECLOSED THE LOAN ACCOUNT BY PAYING SOME ADDITIONAL AMOUNT WHICH WOUL D SAVE THE ASSESSEE FROM MAKING PERIODIC PAYMENT OF INTEREST AND, IN SU CH AN EVENT, IT HAS TO BE TREATED AS REVENUE EXPENDITURE. HAVING REGARD TO CI RCUMSTANCES OF THE CASE WE AFFIRM THE ORDER OF CITA) AND DISMISS THE APPEAL FI LED BY REVENUE. PRONOUNCED ACCORDINGLY IN THE OPEN COURT. ORDER PRONOUNCED ON 25 TH DAY OF JUNE, 2014 . SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (D. MANMOHAN) VICE PRESIDENT MUMBAI; DATED : 25/06/2014 JV. ITA NO.2281/M/13 AY:2003-04 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( (( ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI