ACIT, New Delhi V. M/s Punjab & Sind Bank, HO, New Delhi

ITA 2561/DEL/2010

• Counselvise Citation: 256120114 RSA 2010
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-10-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 28-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO.2561/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.2561/DEL/2010 ASSESSMENT YEAR : 2002-03 ACIT, CIRCLE 14 (1), ROOM NO.415, CR BUILDING, IP ESTATE, NEW DELHI. VS. PUNJAB & SIND BANK, HO ACCOUNTS & AUDIT DEPTT., BANK HOUSE, 21, RAJENDRA PLACE, NEW DELHI. PAN : AAACP1206G ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI VIVEK GUPTA DEPARTMENT BY : MS Y. KAKKAR, SR. DR ORDER PER A.D. JAIN, JUDICIAL MEMBER: THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2002-03, AGAINST THE ACTION OF THE LD. CIT (A)-XVII, NEW DELHI IN HOLDIN G EXPENDITURE OF ` 43,67,256/- ON ACCOUNT OF BOND ISSUE EXPENSES TO BE A R EVENUE EXPENDITURE VIDE HIS ORDER DATED 24.03.2010. 2. THE ASSESSING OFFICER DISALLOWED THE BOND ISSUE EXPENSES CLAIMED BY THE ASSESSEE, OBSERVING THAT THE EXPENDITURE WAS IN THE N ATURE OF CAPITAL EXPENDITURE. THE ASSESSING OFFICER RELIED ON THE DECISIO N OF THE HONBLE SUPREME COURT IN ASSAM BENGAL CEMENT COMPANY, 27 IT R 34 (SC), TO CONCLUDE THAT THE EXPENDITURE INCURRED ON BOND ISSUE HAD RESULTED INTO AN ENDURING BENEFIT TO THE ASSESSEE AND AS SUCH, IT WAS CAPIT AL EXPENDITURE. THE ITA NO.2561/DEL/2010 2 ASSESSING OFFICER FURTHER OBSERVED THAT THERE WAS NO PROV ISION FOR AMORTIZATION OF BOND ISSUE EXPENSES AND HENCE, EVEN 20% OF THE EXPENSES SPREAD OVER A PERIOD OF FIVE YEARS, AS CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, COULD ALSO NOT BE ALLOWED; AND THAT SINCE NO CAPITAL ASSET, EITHER TANGIBLE OR INTANGIBLE, ELIGIBLE FOR DEPRECIATION H AD BEEN GENERATED ON ACCOUNT OF SUCH EXPENSES, EVEN DEPRECIATION COULD NOT BE ALLOWED ON SUCH CAPITAL EXPENDITURE. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) ALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE, HOLDING IT TO BE A REVENUE EXPENDITURE. IN DOING SO, THE LD. CIT (A) ALSO FOLLOWED THE FIRST A PPELLATE ORDER DATED 17.02.2005, FOR ASSESSMENT YEAR 2000-01 IN THE ASSESSEES O WN CASE. 4. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS CO NTENDED THAT THE LD. CIT (A) HAS ERRED IN HOLDING THE EXPENDITURE ON ACCO UNT OF BOND ISSUE EXPENSES TO BE REVENUE EXPENDITURE IN NATURE; THAT WH ILE DOING SO, THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT THE EXPENDITUR E IN QUESTION WAS INCURRED BY THE ASSESSEE TO RAISE MONEY DURING THE ISSUE OF BONDS AN D TO ESTABLISH A BANK OF SOFTWARE DATA; THAT THE FRUITS THEREOF WOULD BE AVAILABLE TO THE ASSESSEE IN THE YEARS TO COME; THAT AS SUCH, THIS EXPENDITU RE CANNOT BE TREATED TO BE REVENUE EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS IN THE RELEVANT YEAR, AS CORRECTLY HELD BY THE ASSESSING OFFICER; THAT FURTHER, SINCE AMORTIZATION OF SUCH EXPENDITURE HAS NOT BEEN PROVIDED FOR IN THE ACT, THE ASSESSEES POLI CY OF WRITING OFF 20% OF SUCH EXPENDITURE EVERY YEAR, CANNOT BE ACCEPTED; AND THAT IN KEEPING WITH BANCO PRODUCTS (INDIA) LTD. VS. DCIT, 63 ITD 3 70 (AHM.), SINCE THE MONEY RAISED WILL GO TO INCREASE THE CAPITAL BASE/ASSETS OF THE ASSESSEE, THE EXPENDITURE IS A CAPITAL EXPENDITURE RATHER THAN A R EVENUE EXPENDITURE. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS CONTENDED THAT THE BANK IS GENERALLY RAISING CERTAIN FUNDS THROU GH FLOATING OF LONG-TERM UNSECURED, SUBORDINATED AND REDEEMABLE BONDS WHICH ARE INTEREST BEARING ITA NO.2561/DEL/2010 3 AND IN RAISING SUCH BONDS, BANK IS INCURRING CERTAIN EX PENDITURE IN THE NATURE OF RATING FEE, SURVEILLANCE FEE, MISCELLANEOUS EXPENSES LIKE PRINTING, COURIER, PUBLICITY, STATIONERY, STAMP DUTIES AND ARRANGER FEE, ETC. SUCH FUNDS HAVE BEEN RAISED AFTER GETTING THE APPROVAL FROM MINISTRY OF FINANCE, GOVERNMENT OF INDIA AND ARE BEING USED FOR THE BUSINESS PURPOSE OF THE BANK; THAT DURING ASSESSMENT YEAR 2002-03, THE BANK RAISED FUNDS OF ` 45 CR ORE THROUGH ISSUE OF 9% BONDS HAVING A MATURITY PERIOD OF 64 MONTHS WHI CH HAS BEEN SHOWN UNDER SCHEDULE-5-OTHER LIABILITIES AND PROVISIONS OF A UDITED ANNUAL ACCOUNTS; THAT THE ANNUAL ACCOUNTS HAVE BEEN DRAWN UP IN TERMS OF BANKING REGULATION ACT; THAT THIS REPRESENTS THAT FUNDS RAISED T HROUGH SUCH BONDS ARE IN THE NATURE OF LIABILITIES BUT NOT OF CAPITAL NATU RE; THE INTEREST PAID/PAYABLE ON AFORESAID BONDS HAS BEEN CLAIMED AND ALLOWED AS BUS INESS EXPENDITURE AND THAT THE SAME IS NOT AN ISSUE OF DISPUTE; THAT THE I SSUE IN DISPUTE IS THE EXPENSES INCURRED IN ARRANGING THE FUNDS THROUGH FLOAT ING OF BOND ISSUE AND THE LEARNED ASSESSING OFFICER HAS TREATED SUCH EXPENSES AS C APITAL EXPENDITURE; THAT THE LD. CIT (A) DID NOT AGREE WIT H THE CONTENTION OF THE ASSESSING OFFICER AND HE CONCLUDED THAT THE BOND ISSUE EX PENSES ARE OF REVENUE NATURE AND, THEREFORE, HE DELETED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER; THAT THE SIMILAR ISSUE WAS INVOLVED IN E ARLIER ASSESSMENT YEARS 1998-99 (U/S 147/148) AND 2000-01 (U/S 147/148) ; THAT IN BOTH THE ASSESSMENT YEARS, CIT (A) DELETED THE ADDITION MADE BY T HE ASSESSING OFFICER AND HELD THAT BOND ISSUE EXPENSES ARE OF REVEN UE NATURE; THAT A COPY OF THE ORDER OF THE LD. CIT (A) FOR ASSESSMENT YEAR 200 0-01 IS ENCLOSED FOR REFERENCE; THAT DURING ASSESSMENT YEAR 2001-02, THERE HAS BEEN NO DISALLOWANCE OF BOND EXPENDITURE; AND THAT FURTHER, FROM ASSESSMENT YEAR 2003-04, THE DEPARTMENT ITSELF IS ACCEPTING THE BOND ISSUE EXPENSES AS REVENUE EXPENDITURE AND NO ADDITION HAS BEEN MADE ON THIS ISSUE FROM ASSESSMENT YEAR 2003-04 ONWARDS. 6. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MAT ERIAL ON RECORD. UNDISPUTEDLY, DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE BANK RAISED ITA NO.2561/DEL/2010 4 AN AMOUNT OF ` 45 CRORES THROUGH ISSUANCE OF 91 BONDS, HAVING A MATURITY PERIOD OF 64 MONTHS. THESE BONDS WERE SHOWN AS OTHER LI ABILITIES AND PROVISIONS OF AUDITED ANNUAL ACCOUNTS. IT DOES NOT STAN D REFUTED THAT THE ACCOUNTS OF THE ASSESSEE BANK WERE DRAWN UP IN ACCORDANC E WITH THE BANKING REGULATION ACT. ALSO, WITHOUT DISPUTE, THE IN TEREST PAID OR PAYABLE ON THE SAID BONDS STANDS CLAIMED AND ALLOWED AS BUSINESS EX PENDITURE. A SIMILAR ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE CIT (A)S ORDER FOR ASSESSMENT YEAR 2000-01 (SUPRA),AS ALSO FOR ASSESSMENT YEA R 1998-99. FOR ASSESSMENT YEAR 2001-02, THERE WAS NO DISALLOWANCE OF BOND EXPENDITURE. THEN, ASSESSMENT YEAR 2003-04 ONWARDS, THE DEPARTMENT HAS BEEN ITSELF ACCEPTING SUCH EXPENDITURE AS REVENUE EXPE NDITURE, AS IS CLEAR FROM THE ORDERS PLACED ON RECORD. 7. IN INDIA CEMENT LTD. VS. CIT, 60 ITR 52 (SC), I T HAS BEEN HELD THAT A LOAN OBTAINED CANNOT BE TREATED AS AN ASSET OR AN AD VANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS OF THE ASSESSEE; THAT WHE RE THE BORROWAL WAS INCIDENTAL TO THE CARRYING ON OF THE ASSESSEES BUSINE SS, THE EXPENDITURE WAS FOR SECURING THE USE OF THE MONEY FOR A CERTAIN PE RIOD. IN THE CASE OF THE PRESENT ASSESSEE, THE BORROWAL, LIKE IN INDIA CEMENT LT D. (SUPRA) IS INCIDENTAL TO THE BUSINESS OF BANKING. HENCE, THE EXPE NDITURE INCURRED ON SECURING SUCH LOANS IS AN EXPENDITURE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE BOND ISSUED WAS NOT ENTITLED FOR CONVERSION I NTO SHARES AND THAT BEING SO, RAISING OF FUNDS THROUGH SUCH BOND ISSUE C ANNOT BE TERMED AS RAISING OF CAPITAL BY ISSUANCE OF SHARES. 8. IN PREMIER AUTOMOBILE VS. CIT, 80 ITR 415 (BOM) , IT HAS BEEN HELD THAT STAMP DUTY/REGISTRATION/LEGAL FEE INCURRED FOR THE I SSUE OF DEBENTURES IS REVENUE EXPENDITURE. 9. IN CIT VS. SECURE METERS LTD., 221 CTR 405 (RAJ) , IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON ISSUANCE OF DEBENTURES, WHETHE R CONVERTIBLE OR NON- CONVERTIBLE IS ALLOWABLE AS A REVENUE EXPENDITURE. ITA NO.2561/DEL/2010 5 SINCE, IN KEEPING WITH INDIA CEMENT LTD. (SUPRA), THERE IS NO ASSET OR ADVANTAGE OF ENDURING NATURE INVOLVED, BANCO PRODU CTS (SUPRA), IS OF NO AVAIL TO THE DEPARTMENT. MOREOVER, AS NOTED ABOVE, THE HONBLE RAJASTHAN HIGH COURT, IN SECURE METERS LTD. (SUPRA), HAS HELD THAT EXPENDITURE INCURRED ON ISSUANCE OF CONVERTIBLE OR NON-CONVERTIBL E DEBENTURES IS ALLOWABLE AS A REVENUE EXPENDITURE. 10. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED. 11. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.201 3. SD/- SD/- [ G.D. AGRAWAL ] [A.D. JAIN] VICE PRESIDENT JUDICIAL MEMBER DATED, 20 TH DECEMBER, 2013. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.