DCIT (LTU), New Delhi V. M/s. Power Finance Corp. Ltd., New Delhi

ITA 320/DEL/2010

• Counselvise Citation: 32020114 RSA 2010
• Duration Of Justice: 5 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 13-11-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 21-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I.C. SUDHIR , JUDICIAL MEMBER ITA NO. 320 /DEL / 2010 ASSESSMENT YEAR: 2001 - 02 DEPUTY COMMISSIONER OF VS. M/S POWER FINANCE CORP., INCOME TAX (LTU), DELHI NEW DELHI . (PAN: AAACP1570H) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VIKRAM SAHAY, SR. DR RESPONDEN T BY : SH. TARANDEEP SINGH, CA ORDER PER SHRI I.C. SUDHIR, JM : 1. THE REVENUE HAS IMPUGNED FIRST APPELLATE ORDER ON THE SOLE GROUND THAT THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,74,49,000/ - BEING EXPENDITURE INCURRED FOR ISSUE OF BONDS. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS NOTIFIED AS PUBLIC FINANCIAL I NSTITUTIONS UNDER SECTION 4A OF THE COMPANIES ACT. ITS MAIN OBJECT IS TO PROVIDE LONG TERM F UNDS TO POWER PROJECTS SUCH AS THERMAL, H YDEL A ND FOR TRANSMISSION & D ISTRIBUTION, RENOVATION AND M ODERNIZATION OF PROJECT ETC. IT IS ALSO REGISTERED AS NON - BANKING FINANCIAL COMPANY . THUS, THE ASSESSEE 2 ITA NO. 320 /DEL /2010 ASSESSMENT YEAR: 2001 - 02 COMPANY IS REQUIRED TO BORROW FUNDS REGULARLY FROM DOMESTIC MARKETS AS WELL AS FROM OVERSEAS MARKETS INCLUDING MULTINATION AGENCIE S AND THEREAFTER TO LEND IT TO I BID PROJECTS. THE ASSESSEE THUS BORROWS MONEY EVERY YEAR AND LENDS IT TO PROJECT UTILITIES AND THEREFORE, DECLARED IN ACCOUNTING POLICIES THAT E XPENDITURE INCURRED ON RAISING THE FUNDS IS CHARGED TO PROFIT AND LOSS ACCOUNT IN THE YEAR WHICH IT IS INCURRED . IT WAS SUBMITTED THAT THE ABOVE IS BEING CONSISTENTLY FOLLOWED BY THE ASSESSEE SINCE 1986. THE ASSESSEE THUS CLAIMED EXPENSES AMOUNTING TO RS. 274.49 LACS AS REVENUE EXPENDITURE. THE A.O. DID NOT AGREE AND HELD THE CLAIMED EXPENDITURE AS CAPITAL IN NATURE. THE A.O. OBSERVED THAT THE ISSUE EXPENSES DEMONSTRATE THAT THE SAID EXPENDITURE IS NOT AN OPERATIONAL EXPE NDITURE OR NORMAL BUSINESS EXPENDIT URE AND THEREFORE CANNOT BE CATEGORIZED AS REVENUE EXPENDITURE. HE THUS DISALLOWED THE CLAIMED EXPENDITURE. THE LEARNED CIT(A) HAS, HOWEVER, DELETED THE SAME FOLLOWING THE RATIO OF CERTAIN DECISIONS CITED IN HIS ORDER AND TREATED THE CLAIMED EXPENDITURE IN THE NATURE OF REVENUE. AGAINST THIS ACTION OF LEARNED CIT(A) , THE REVENUE IS IN APPEAL. 4. IN SUPPORT OF THE GROUND, THE LEARNED DR HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER, DISCUSSED ABOVE. 5. THE LEARNED AR, ON THE OTHER HAND, TRIED TO JUSTI FY THE FIRST APPELLATE ORDER. HE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND BESIDES PLACING RELIANCE ON THE DECISIONS CITED BEFORE THE AUTHORITIES BELOW, HE RE FERRED THE FOLLOWING DECISIONS: 3 ITA NO. 320 /DEL /2010 ASSESSMENT YEAR: 2001 - 02 I. CIT, LARGE TAXPAYERS UNIT VS. INDIAN RAILWA Y FINANCE CORPORATION LTD., (2014) 362 ITR 548 (DEL.) II. COMMISSIONER OF INCOME - TAX VS THIRANI CHEMICALS LTD., 290 ITR 196 (DEL.) 6. WE FIND THAT THERE IS NO DISPUTE ON THESE MATERIAL FACTS THAT THE MAIN OBJECT OF THE ASSESSEE IS TO PROVIDE LONG TERM F UNDS TO POWER PROJECTS SUCH AS THERMAL, HYDEL, AND FOR T RANSMISSION & DISTRIBUTION, R ENOVATION AND M ODERNIZATION OF PROJECTS ETC. AND THAT IT IS ALSO REGISTERED AS NON - BANKING FINANCIAL C OMPANY . THUS, THE CORPORATION IS REQUIRED TO BORROW FUNDS REGULARLY FROM DOMESTIC MARKETS AS WELL AS FROM OVERSEAS MARKET INCLUDING MULTINATIONAL AGENCIES AND THEREAFTER TO LEND IT TO IBID PROJECT . THE CORPORATION THUS BORROW S MONEY EVE RY YEAR AND LENDS IT TO PROJECT UTILITIES. IN ITS ACCOUNTING POLICIES , IT HAS BEEN MEN TIONED AS EXPENDITURE INCURRED ON RAISING OF FUNDS IS CHARGED TO PROFIT AND LOSS ACCOUNT I N THE YEAR WHICH IT IS INCURRED. THIS POLICY HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE SINCE 1986 , THAT IS THE DATE OF INCORPORATION OF THE COMPANY. THE FINDIN G OF FACT BY THE LEARNED CIT(A) ON PERUSAL OF THE DETAILS OF ISSUE EXPENDITURE , HAS ALSO NOT BEEN REBUTTED BY THE REVENUE BEFORE US , WHEREBY THE LEARNED CIT(A) HAS NOTED THAT THE EXPENDITURE COMPRISES OF ARRANGEMENT/MANAGEMENT FEES , PROCESS AGENT FEES/ MIS CELLANEOUS EXPENSES AND OUT OF P O CKET EXPENSES OF RS. 274.49 LACS WHICH WERE INCURRED BY THE ASSESSEE IN CONNECTION WITH FOREIGN CURRENCY BORROWING OF 100 MILLION DOLLARS FROM DIFFERENT LENDERS. THE LEARNED CIT(A) HAS FOLLOWED THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE INDIA CEMENT LTD. VS. CIT, 60 ITR 52 (SC) 4 ITA NO. 320 /DEL /2010 ASSESSMENT YEAR: 2001 - 02 AND BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN PETROCHEMICALS INDUSTRIES CORP. LTD., 301 ITR 255 (MAD.). THE HON BLE SUPREME COURT IN THE ABOVE - CITED CASE OF INDIA CEMENT LTD. (SUPRA) , HAS BEEN PLEASED TO HOLD THAT THE ACT OF BORROWING THE MONEY WAS INCIDENTAL TO THE CARRYING ON BUSINESS, THE LOAN OBTAINED WAS NOT AS ASSET OR ADVANTAGE OF AN ENDURING NATURE, THE EXPENDITURE WAS MADE FOR SECURING THE USE OF MON EY FOR A CERTAIN PERIOD AND IT IS IRRELEVANT TO CONSIDER THE OBJECT WI TH WHICH THE LOAN WAS OBTAINED AND , THEREFORE, THE AMOUNT SPENT WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE AND WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE FOR THE PURPOSE OF THE ASSE SSEE S BUSINESS AND WAS , THEREFORE , ALLOWABLE AS A DEDUCTION. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OTHER CITED DECISION. FOLLOWING THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF INDIA CEMENT LTD. (SUPRA) AND IN THE OTHER CITED DECISIONS, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT THE CLAIMED EXPENDITURE WAS REVENUE IN NATURE HENCE, IT WAS ALLOWABLE . THUS, THE ORDER OF LEARNED CIT(A) IS UPHELD AND G ROUND IS ACCORDINGLY REJECTED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 29 TH JANUARY, 2015. SD/ - SD/ - (G.D. AGRAWAL) (I.C. SUDHIR) VICE PRESIDENT JUDICIAL MEMBER DATED: 29 TH JANUARY, 2015. RK/ - COPY FORWARDED TO: 5 ITA NO. 320 /DEL /2010 ASSESSMENT YEAR: 2001 - 02 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI