ACIT, New Delhi V. M/s. Goetze TP (India) Ltd., New Delhi

ITA 2785/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1311 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-01-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 07-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PALLAVI DINODIA
• Assessee Lawyers: SATPAL SINGH
• Keywords: Capital asset; Revenue expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.2785/DEL/2012 2785/DEL/2012 2785/DEL/2012 2785/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2004 2004 2004 2004- -- -05 0505 05 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -12(1), 12(1), 12(1), 12(1), NEW D NEW D NEW D NEW DELHI. ELHI. ELHI. ELHI. VS. VS. VS. VS. M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., A AA A- -- -26/3, MOHAN COOPERATIVE 26/3, MOHAN COOPERATIVE 26/3, MOHAN COOPERATIVE 26/3, MOHAN COOPERATIVE INDUSTRIAL ESTATE, INDUSTRIAL ESTATE, INDUSTRIAL ESTATE, INDUSTRIAL ESTATE, MATHURA ROAD, MATHURA ROAD, MATHURA ROAD, MATHURA ROAD, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 020. 110 020. 110 020. 110 020. PAN : AABCG0749E. PAN : AABCG0749E. PAN : AABCG0749E. PAN : AABCG0749E. (APPELLANT) (RESPONDENT) APPELLANT BY : MS.PALLAVI DINODIA, CA. RESPONDENT BY : SHRI SATPAL SINGH, SR.DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-VIII, NEW DELHI DATED 23 RD MARCH, 2012 FOR THE AY 2004- 05. 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UND ER:- WHETHER LD.CIT(A) WAS CORRECT ON FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS.51,44,958/- MADE BY THE AO ON ACCOUNT OF UPFRONT /LOAN PROCESSING FEE. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 51,44,958/- WHICH WAS THE UPFRONT FEE PAID BY IT ON THE LOAN TA KEN DURING THE YEAR. THE ASSESSING OFFICER MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS PAID TOTAL UPFRONT FEE OF ` 54,16,786/- AND, DURING THE ITA-2785/DEL/2012 2 YEAR UNDER CONSIDERATION, DEBITED ONLY A SUM OF ` 2,71,825/- IN THE PROFIT & LOSS ACCOUNT AND BALANCE AMOUNT WAS TREATE D AS DEFERRED REVENUE EXPENDITURE. HOWEVER, IN THE COMPUTATION O F INCOME, THE ASSESSEE CLAIMED THE WHOLE AMOUNT OF ` 54,16,786/-. THE ASSESSING OFFICER ALLOWED THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT AND BALANCE AMOUNT WHICH IS TREATED AS DEFERRED REVENUE EXPENDITURE WAS DISALLOWED. THE LEARNED CIT(A) DISCUSSED THE ISSUE AT LENGTH AND ALLOWED THE BALANCE OF UPFRONT FEE OF ` 51,44,958/-. THE RELEVANT FINDING OF THE LEARNED CIT(A) READS AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT FINDINGS OF THE AO AND FACTS ON RECORD. A PERUSAL OF THE RECORDS SHOWS THAT THE APPELLANT HAD PAID THE UPFRO NT FEES ON THE LOANS TAKEN BY THE APPELLANT. COPY OF THE AGREEMENT SHOWS THAT THE LOAN WAS TO BE USED FOR GE NERAL CORPORATE PURPOSES. THE INCURRING OF EXPENDITURE W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS NOT IN DISPUTE. THE PAYMENT OF UPFRONT FEES TO THE BANK A ND FINANCIAL INSTITUTIONS IS AS PER AN AGREEMENT. THE FEE IS CHARGED WHENEVER THE BANKS OR INSTITUTIONS GIVE LOA NS TO THE BORROWERS. THE DEFINITION OF INTEREST U/S 2(2 8A) ALSO INCLUDES THEREIN ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF MONEYS BORROWED OR DEBIT INCURRED IN RESPECT OF ANY CREDIT FACILITIES WHICH HAS NOT BEEN UTILIZED. RE ADING OF THE ABOVE SECTION SHOWS THAT THE EXPENDITURE ON UPF RONT FEES IS SIMILAR TO INTEREST. IN FACT FOR THE PURPO SE OF INCOME TAX ACT IT CAN BE TERMED AS INTEREST. IN THE YEAR UNDER CONSIDERATION, THE ABOVE WAS ALLOWABLE AS LONG AS I T WAS PAID IN RESPECT OF BUSINESS OR PROFESSION AND NOT P AID FOR ACQUISITION OF CAPITAL ASSET. THE HONBLE MADRAS H IGH COURT IN THE CASE OF CIT VS. SH. MEENAXI MILLS LTD. 290 I TR 107 HAS HELD THAT THE UPFRONT FEES PAID FOR OBTAINING L OAN IS A REVENUE EXPENDITURE. THE HONBLE SPECIAL BENCH OF ITAT, AHMEDABAD IN THE CASE OF ACIT VS. ASHIMA SINTEX HAS HELD THAT EXPENSES INCURRED FOR OBTAINING FIXED DEPOSITS ARE ALLOWABLE AS REVENUE EXPENDITURE. A PERUSAL OF THE ABOVE SHOW THAT AS LONG AS AN EXPENDITURE IS FOR THE PURP OSE OF BUSINESS THAT IS FOR ARRANGING A LOAN AND IS NOT FO R THE PURPOSE OF SET UP OF BUSINESS OR ACQUISITION ON CAP ITAL ASSET IT IS AN ALLOWABLE EXPENDITURE UNDER THE PROV ISIONS OF SECTION 37(1) READ WITH SECTION 36(1)(III). THE SA ME VIEW HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE C ASE OF ITA-2785/DEL/2012 3 INDIA CEMENTS LTD. VS. CIT 60 ITR 52 (SC). THE APP ELLANT HAS ALSO SUBMITTED A COPY OF APPELLATE ORDER IN THE CASE OF A GROUP COMPANY OF THE APPELLANT NAMELY M/S GOETZ ( INDIA) LTD. FOR THE AY 2003-04 WHERE ON SIMILAR FACTS THE DISALLOWANCE WAS DELETED BY THE CIT(A). IN VIEW OF THE FINDINGS ABOVE AND RESPECTFULLY FOLLOWING THE DECIS ION OF HON'BLE SUPREME COURT AND THE HONBLE MADRAS HIGH C OURT DISCUSSED ABOVE IT IS HELD THAT THE EXPENDITURE IS IN THE NATURE OF REVENUE EXPENDITURE AND THEREFORE THE ADD ITION OF RS.51,44,958/- IS DELETED. THIS GROUND OF APPEA L IS ALLOWED. 4. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). THE UPFRONT FEE PAID BY THE ASSESSEE FOR PROCESSING OF LOAN IS A REVENUE EX PENDITURE. THIS ISSUE HAS ALREADY BEEN SETTLED BY THE HONBLE SUPRE ME COURT IN ITS DECISION IN THE CASE OF DCIT VS. GUJARAT ALKALIES AND CHEMICALS LTD. 299 ITR 85 WHEREIN THEIR LORDSHIPS HELD AS UNDER:- HELD, AFFIRMING THE DECISION OF THE HIGH COURT, TH AT THE COMMITMENT CHARGES WERE AN ADMISSIBLE DEDUCTION UNDER SECTION 37 AND THERE WAS NO INFIRMITY ON THE PART OF THE APPELLATE TRIBUNAL IN ALLOWING THE DEDUCTION. 5. MOREOVER, IN THIS CASE, THE ASSESSING OFFICER HI MSELF HAS NOT DISPUTED THAT THE PAYMENT OF UPFRONT FEE IS A REVEN UE EXPENDITURE. HE HIMSELF HAS ALLOWED THE UPFRONT FEE AS REVENUE EXPE NDITURE TO THE EXTENT DEBITED TO THE PROFIT & LOSS ACCOUNT. HOWEV ER, MERELY BECAUSE PART OF UPFRONT FEE IS TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNT WOULD NOT BE A GROUND FOR DISALLOW ING THE SAME. WHILE CONSIDERING THE ALLOWABILITY OF THE EXPENDITU RE, THE NATURE OF THE EXPENDITURE IS TO BE CONSIDERED AND NOT THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. IT HAS BEEN HELD BY THE HONBLE APEX C OURT IN THE CASE OF KEDARNATH JUTE MFG.CO.LTD. VS. CIT 82 ITR 363 AS UNDER:- WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR D EDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO ITA-2785/DEL/2012 4 AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE O F HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE M ATTER. 6. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LEA RNED CIT(A) IN THIS REGARD AND REJECT GROUND NO.1 OF THE REVENUES APPEAL. 7. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- WHETHER LD.CIT(A) WAS CORRECT ON FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS.18,37,520/- MADE BY THE AO ON ACCOUNT OF ROYALTY . 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE DATE D 30 TH SEPTEMBER, 2011 FOR AY 2006-07 & 2007-08 IN ITA NOS.1360 & 136 1/DEL/2011 AND ORDER DATED 21 ST SEPTEMBER, 2012 FOR AY 2008-09 IN ITA NO.284/DEL/2012. IT WAS ALSO POINTED OUT BY THE LE ARNED COUNSEL THAT THE APPEAL FILED BY THE REVENUE AGAINST THE DECISIO N OF ITAT HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT VIDE ORDE R DATED 24 TH JULY, 2012 IN ITA NO.398/2012. SINCE THE ISSUE IS SETTLE D IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF ITAT AS WELL AS HONBL E JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THI S POINT AND REJECT GROUND NO.2 OF THE REVENUES APPEAL. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 4 TH JANUARY, 2013. SD/- SD/- ( (( (RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV) )) ) (G.D.A (G.D.A (G.D.A (G.D.AGRAWAL) GRAWAL) GRAWAL) GRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 04.01.2013 VK. ITA-2785/DEL/2012 5 COPY FORWARDED TO: - 1. APPELLANT : ASSISTANT COMMISSIONER OF INCOME TAX , ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -12(1), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 12(1), NEW DELHI. 2. RESPONDENT : M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., M/S GOETZE TP(INDIA) LTD., A AA A- -- -26/3, MOHAN COOPERATIVE INDUSTRIAL ESTATE, 26/3, MOHAN COOPERATIVE INDUSTRIAL ESTATE, 26/3, MOHAN COOPERATIVE INDUSTRIAL ESTATE, 26/3, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MA MAMA MATHURA ROAD, NEW DELHI THURA ROAD, NEW DELHI THURA ROAD, NEW DELHI THURA ROAD, NEW DELHI 110 020. 110 020. 110 020. 110 020. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR