Yamaha Motor India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 2488/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7464 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 15-12-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 23-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR SENIOR
• Assessee Lawyers: RANO JAIN CAS; V MOHAN
• Keywords: Business expenditure; Question of law; Revenue expenditure
• Section: 43B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.2488/DEL./2012 (ASSESSMENT YEAR : 2003-04) M/S. YAMAHA MOTOR INDIA PVT. LTD., VS. ACIT, CIRCL E 18 (1), 1 ST FLOOR, THE GREAT EASTERN CENTRE, NEW DELHI. 70, NEHRU PLACE, BEHIND IFCI TOWER, NEW DELHI 110 019. (PAN : AAACE1647C) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN & MS. RANO JAIN, CAS AND SHRI V. MOHAN, CA REVENUE BY : SHRI J.P. CHANDRAKAR, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE CIT (APPEALS)-XXI, NEW DELHI DATED 27.03.2012 FOR THE A SSESSMENT YEAR 2003-04. 2. IN THIS CASE, THE ASSESSMENT U/S 143 (3) OF THE INCOME-TAX ACT, 1961 WAS COMPLETED ON 17.03.2006 AT A LOSS OF RS.67,20,2 4,620/-. THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 148 O N 31.03.2010 AND THE AO COMPLETED THE ASSESSMENT AT AN INCOME OF RS.90,1 7,17,470/-. ITA NO.2488/DEL./2012 2 3. IN THIS APPEAL OF THE ASSESSEE, THE ONLY GROUND IS WITH REGARD TO THE CONFIRMING OF DISALLOWANCE OF RS.2,10,53,109/- ON A CCOUNT OF LOAN PREPAYMENT CHARGE. 4. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS DEBITED RS.2,10,53,109/- IN THE PROFIT AND LOSS ACCOUNT AS LOAN PREPAYMENT CHARGES. THE AO DISALLOWED THE SAME AND THE CIT (A) CONFIRME D THE AOS ACTION. 5. IN THE MARCH 2002, THE ASSESSEE COMPANY PREPAID LOANS AMOUNTING TO RS.87,73,42,500/- TO IDBI. DUE TO PREPAYMENT, I DBI CHARGED INTEREST THEREON AT APPLICABLE RATE OF 15.55% UPTO 26 TH MARCH, 2002 AND RECOVERED INTEREST (PREPAYMENT CHARGES) FOR THE UNEXPIRED PAY MENT OF LOAN OF THE ASSESSEE AND THE AMOUNT WAS RS.2,10,53,109/-. LD. AR SUBMITTED THAT SIMILAR ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GU JARAT GUARDIAN LIMITED 2009 (1) TMI 13 HIGH COURT DELHI WHEREIN THE HO NBLE HIGH COURT HAS ALLOWED SUCH CLAIM. LD. AR HAS DRAWN OUR ATTEN TION TO PARAS 14 TO 18 OF THE ORDER OF HONBLE DELHI HIGH COURT. LD. AR A LSO PLACED RELIANCE ON THE DECISION OF ITAT, PUNE BENCH IN THE CASE OF CIT VS. GKN SINTER METAL PVT. LTD. IN ITA NO.3499/PN/2010 DATED 06.05.2013. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE FACTS WERE DIFFERENT IN T HOSE CASES AND PLEADED TO CONFIRM THE ADDITION. 6. WE HAVE HEARD BOTH THE SIDES. HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT GUARDIAN LIMITED, CITED SUPRA, HAS CONSIDERED ITA NO.2488/DEL./2012 3 THE SIMILAR ISSUE AND HAS FOUND THE PREPAYMENT CHAR GES DEBITED IN THE PROFIT & LOSS ACCOUNT ALLOWABLE AS REVENUE EXPENDIT URE. THE RELEVANT PARAS READ AS UNDER :- 14. BRIEFLY, THE ASSESSEE IN ITS PROFIT AND LOSS A CCOUNT HAS DEBITED A SUM OF RS 8 CRORES AS PRE-PAYMENT PREMIUM WHICH IS CLASSIFIED AS AN EXTRAORDINARY ITEM. THE ASSESSING OFFICER SOUGHT JUSTIFICATION FROM THE ASSESSEE FOR CLAIMING THE EN TIRE AMOUNT AS DEDUCTION IN THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER CONSIDERATION IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION LTD VS CIT; (1997) 225 ITR 802. THE ASSESSEE RESPONDED TO THE QUERY OF THE ASSESSING OFFICER BY SUBMITTING THAT IT HAD MAD E A PROPOSAL TO IDBI FOR RESTRUCTURING ITS DEBT WITH RESPECT TO RUP EE TERM LOAN AGGREGATING TO RS 170.76 CRORES. THE IDBI VIDE LETT ER DATED 19.03.1995 AGREED TO THE PROPOSAL AND INTER ALIA RE DUCED THE RATE OF INTEREST ON THE RUPEE TERM LOAN TO 15% P.A. EFFECTI VE FROM 01.04.1995 UPON THE ASSESSEE PAYING IDBI A LUMP SUM PRE- PAYMENT PREMIUM OF RS 8CRORES. 15. IT IS NOT DISPUTED THAT THE SAID PRE-PAYMENT PR EMIUM OF RS 8 CRORES HAS BEEN PAID BY THE ASSESSEE DURING THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ACCORDINGLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSE E, THUS, CLAIMED THE AFOREMENTIONED PREPAYMENT PREMIUM AS A BUSINESS EXPENDITURE. THE ASSESSEE HAS JUSTIFIED THE SAME ON THE GROUND T HAT IT REPRESENTED NOTHING BUT UP-FRONT PAYMENT, THAT IS, PRESENT VALU E OF THE DIFFERENTIAL RATE OF INTEREST THAT WOULD HAVE BEEN DUE ON LOAN IF NO RESTRUCTURING OF LOAN HAD TAKEN PLACE. THE ASSESSEE ALSO JUSTIFIED THE CLAIM ON THE BASIS OF THE PROVISIONS OF SECTION 43B (D) OF THE ACT WHICH, INTER ALIA, PROVIDES FOR DEDUCTION OF INTERE ST PAYABLE TO PUBLIC FINANCIAL INSTITUTIONS ONLY IN THE YEAR IN W HICH THE SAME IS PAID, AS AGAINST THE YEAR, IN WHICH, THE LIABILITY TO PAY THE SAME WAS INCURRED ACCORDING TO THE METHOD OF ACCOUNTING FOLL OWED BY THE ASSESSEE. IT WAS, THUS, SUBMITTED THAT SINCE THE AS SESSEE HAD MADE THE PAYMENT DURING THE PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR 1996-97, THAT IS, THE ASSESSMENT YEAR UNDER CO NSIDERATION, THE SAME WAS ADMISSIBLE AS DEDUCTION IN TERMS OF SECTIO N 43B(D) OF THE ACT. 15.1 THE ASSESSING OFFICER RELIED UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION (SUPRA) AND DIRECTED THAT THE PRE-PAYME NT PREMIUM OF RS 8 CRORES BE AMORTIZED OVER A PERIOD OF 10 YEARS. ACCORDINGLY, ITA NO.2488/DEL./2012 4 THE ASSESSING OFFICER ALLOWED THE DEDUCTION OF RS 8 0 LAKHS IN THE YEAR UNDER CONSIDERATION. 15.2 THE ASSESSEE BEING AGGRIEVED HAD CARRIED THE M ATTER IN APPEAL TO THE CIT(A). THE CIT(A) VERY CURIOUSLY, WH ILE NOTING THAT THE FACTS IN MADRAS INDUSTRIAL CORPORATION (SUPRA) WERE NOT IDENTICAL TO THE ONES THAT OBTAINED IN THE PRESENT CASE HELD THAT, THE PRINCIPLE OF LAW LAID DOWN IN MADRAS INDUSTRIAL COR PORATION (SUPRA) IS APPLICABLE TO THE PRESENT CASE AND HENCE, DID NO T FIND ANY ERROR IN THE APPROACH OF THE ASSESSING OFFICER IN RELYING UP ON THE SAID DECISION. THE ASSESSEE CARRIED THE MATTER FURTHER, IN APPEAL, TO THE TRIBUNAL. THE TRIBUNAL IN PARAGRAPH 31 OF THE IMPUG NED JUDGMENT HAS RETURNED A FINDING OF FACT THAT THE PRE-PAYMENT PREMIUM PAID BY THE ASSESSEE, IN LIEU OF WHICH IDBI REDUCED THE RAT E OF INTEREST ON THE RUPEE TERM LOAN, REPRESENTED PRESENT VALUE OF T HE DIFFERENTIAL RATE OF INTEREST THAT WOULD HAVE BEEN DUE HAD NO RE STRUCTURING OF THE LOAN HAD TAKEN PLACE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREINBELOW:- THE PREPAYMENT PREMIUM PAID BY THE ASSESSEE TO IDB I IS IN LIEU OF IDBI AGREEING TO REDUCE THE RATE OF INTEREST ON THE RUPEE LOAN AGGREGATING TO RS 170.76 CRORES. THE SAME, IN OTHER WORDS, REPRESENTS UPFRONT PAYMENT (PRESENT VALUE) OF DIFFE RENTIAL RATE OF INTEREST THAT WOULD HAVE BEEN DUE ON THE LOAN IF NO RESTRUCTURING OF THE DEBT HAD TAKEN PLACE. IN TERMS OF S.36(1)(II) R EAD WITH S. 2(28A) OF THE ACT PRE PAYMENT CHARGES BEING INTEREST PAID ON MONEYS BORROWED FOR PURPOSES OF BUSINESS, IS TO BE ALLOWED DEDUCTION AS REVENUE EXPENDITURE. THE PREPAYMENT PREMIUM BEING R EVENUE EXPENDITURE, IS TO BE ALLOWED DEDUCTION IN THE YEAR OF ACCRUAL THEREOF, SINCE THE ACT DOES NOT RECOGNIZE THE CONCE PT OF DEFERRED REVENUE EXPENDITURE. 16. FURTHERMORE, THE TRIBUNAL ALSO ACCEPTED THE PLE A OF THE ASSESSEE THAT IT WAS ENTITLED TO CLAIM DEDUCTION UN DER SECTION 43B(D) OF THE ACT AND BASED ITS DECISION ON THE JUD GMENT DELIVERED BY ITS CHENNAI BENCH IN THE CASE OVERSEAS SANMAR FI NANCIAL LTD VS JCIT; (2003) 86 ITD 602. 17. IN VIEW OF THE FACT THAT THE TRIBUNAL HAS RETUR NED A FINDING THAT THE LUMP SUM PRE-PAYMENT PREMIUM OF RS 8 CRORE S REPRESENTED THE PRESENT VALUE OF THE DIFFERENTIAL RATE OF INTER EST THAT WOULD HAVE BEEN PAYABLE BY THE ASSESSEE IF NO RE-STRUCTURING O F LOAN HAD TAKEN PLACE, THEN IN TERMS OF SECTION 36(1)(II) READ WITH SECTION 2(28A) OF THE ACT THE ASSESSEES CLAIM FOR DEDUCTION HAD T O BE ALLOWED. THE QUESTION THEN IS WHETHER THE DEDUCTION TOWARDS INTE REST BE ALLOWED ITA NO.2488/DEL./2012 5 IN ONE LUMP SUM AS CLAIMED BY THE ASSESSEE OR DEFER RED OVER A PERIOD OF TIME AS SOUGHT TO BE DONE BY THE REVENUE. 17.1 ACCORDING TO US, AS CORRECTLY HELD BY THE TRIB UNAL, THE ASSESSEES CLAIM FOR DEDUCTION HAD TO BE ALLOWED, I N ONE LUMP SUM, KEEPING IN VIEW THE PROVISIONS OF SECTION 43B(D) WH ICH PROVIDES THAT ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY FINANCIAL INSTITUTION SHALL BE A LLOWED TO THE ASSESSEE IN THE YEAR IN WHICH THE SAME IS PAID IRRE SPECTIVE OF THE PROVISIONS IN WHICH THE LIABILITY TO PAY SUCH SUM I S INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGU LARLY APPLIED BY THE ASSESSEE. SINCE THE AUTHORITIES BELOW HAVE N OT DISPUTED THAT PRE-PAYMENT PREMIUM PAID TO IDBI, IN THE INSTANT CA SE, IS NOTHING BUT INTEREST OR THAT IT WAS PAID TO A PUBLIC FINA NCIAL INSTITUTION I.E., IDBI THEN, IN TERMS OF, SECTION 43B(D) THE ASSESSEE S CLAIM FOR DEDUCTION COULD ONLY HAVE BEEN ALLOWED IN THE YEAR IN WHICH THE PAYMENT HAD ACTUALLY BEEN MADE. IT IS NOT DISPUTED THAT PAYMENT HAS BEEN MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E., ASSESSMENT YEAR 1996-97. THEREFORE, THERE IS NO SCOPE FOR SPREADING OVER THE LIABILITY OVER A PERIOD OF 10 YEARS AS WAS SOUGHT TO BE DONE BY THE ASSESSING OFFICER W HICH WAS, ACCORDING TO US, ERRONEOUSLY SUSTAINED BY THE CIT(A ). THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MA DRAS INDUSTRIAL CORPORATION (SUPRA) IS NOT APPLICABLE TO THE PRESEN T CASE. THE FACTS OF THE INSTANT CASE ARE DIFFERENT. MADRAS INDUSTRIA L CORPORATION (SUPRA) PERTAINS TO TREATMENT OF DISCOUNT ON DEBENT URE ISSUED BY THE ASSESSEE. THE SUPREME COURTS OBSERVATIONS THAT A C LAIM FOR DEDUCTION BY AN ASSESSEE BE SPREAD OVER AS DEDUCTIO N IN ONE YEAR WOULD DISTORT THE PICTURE OF PROFITS, CANNOT BE APP LIED TO THE INSTANT CASE, AS THE MECHANISM FOR CLAIMING DEDUCTION ON AC COUNT OF INTEREST PAID ON LOANS OBTAINED BY THE ASSESSEE F ROM A PUBLIC FINANCIAL INSTITUTION, IS SPECIFICALLY PROVIDED FOR IN THE STATUTE UNDER SECTION 43B(D) OF THE ACT. THEREFORE, IN TERMS OF S ECTION 43B(D) ONCE IT IS ASCERTAINED THAT THE PAYMENT IS IN THE N ATURE OF INTEREST IN TERMS OF SECTION 36(1)(III) READ WITH SECTION 2( 28A) OF THE ACT, AND THE ASSESSEE FULFILLS THE CONDITIONS PROVIDED I N SECTION 43B(D), THAT IS, IT IS THE INTEREST PAID IN RESPECT OF LOAN S OBTAINED FROM PUBLIC INSTITUTIONS, IT FOLLOWS THAT, THE INTEREST WILL HA VE TO BE ALLOWED AS A DEDUCTION ONLY IN THE YEAR OF PAYMENT, NOTWITHSTAND ING THE FACT THAT, THE LIABILITY TO PAY SUCH SUM WAS INCURRED IN AN EARLIER YEAR BASED ON THE METHOD OF ACCOUNTING REGULARLY EMPLOYE D BY THE ASSESSEE. IN THESE CIRCUMSTANCES, IN OUR OPINION TH E ASSESSING OFFICER FAILED TO APPRECIATE THE RATIO OF THE JUDGM ENT OF THE SUPREME COURT IN MADRAS INDUSTRIAL CORPORATION (SUP RA), WHICH IS, REALLY AN APPLICATION OF THE PRINCIPLE OF ACCOUNTAN CY OF MATCHING INCOME WITH EXPENDITURE, WHERE THE ACT MAKES NO SPE CIFIC ITA NO.2488/DEL./2012 6 PROVISION FOR CLAIM OF DEDUCTION. THE SAID PRINCIPL E ENUNCIATED BY THE SUPREME COURT WAS NOT CONTEMPLATED TO APPLY TO SITUATIONS WHERE THE ACT MAKES A DISTINCT AND SPECIFIC PROVISI ON. SEE OBSERVATIONS MADE BY THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS V. CIT; (1997) 227 ITR 172 AT PAGES 183-1 84. IN THE RESULT, NO FAULT CAN BE FOUND WITH THE APPROACH OF THE TRIBUNAL IN RESPECT OF THIS ISSUE. 18. THE TRIBUNAL HAS RETURNED PURE FINDINGS OF FACT WHICH ARE NOT PERVERSE. AS DISCUSSED ABOVE NONE OF THE ISSUES RAISE A SUBSTANTIAL QUESTION OF LAW. IN THE RESULT, THE APP EAL IS DISMISSED. THE PARTIES TO BEAR THEIR OWN COSTS. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE ITAT, PUNE BENCH IN THE CASE OF ACIT VS. GKN SINTER METAL PVT. LTD. IN ITA NO.879 & 3469/PN/2010 DATED 6 TH MAY, 2013. INCIDENTALLY, IN THIS CASE, THE BANK I NVOLVED IS ALSO IDBI WHICH WAS IN THE CASE OF CIT VS. GUJARAT GUARD IAN LTD. THUS, FACTS OF THIS CASE ARE SIMILAR TO THE FACTS IN THE CASE O F CIT VS. GUJARAT GUARDIAN LTD. KEEPING THESE FACTS IN VIEW, WE HOLD THAT SUC H EXPENDITURE ARE ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 43B (D) OF THE ACT. IN VIEW OF THE ABOVE, FOLLOWING THE AFORESAID ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT AND ITAT, PUNE BENCH, WE ALLOW THE GROUN D TAKEN BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 19 TH DAY OF DECEMBER, 2014. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 19 TH DAY OF DECEMBER, 2014 TS ITA NO.2488/DEL./2012 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.