The DCIT, Circle-4, Surat V. Shakti Yarn Pvt.Ltd., Surat

ITA 436/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60253 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Capital asset; Business expenditure; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI D K TYAGI - JM AND SHRI A MOHAN ALANKAMONY - AM ITA NO.436/AHD/2012 (ASSESSMENT YEAR:-2008-09) THE DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-4, ROOM NO.223, AAYAKAR BHAVAN, SURAT V/S M/S SHAKTI YARN PVT. LTD., BLOCK NO.126/4, TATHITHAIYA, BARDOLI ROAD, SURAT-395014 PAN: AABCR 1276 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI B L YADAV, SR. DR ASSESSEE BY:- NONE DATE OF HEARING:- 17-04-2012 DATE OF PRONOUNCEMENT:- 20-04-2012 O R D E R PER D K TYAGI (JM) :- THIS IS AN APPEAL FILED BY REVENUE AGAINST AN ORDER DATED 21-10-2011 PASSED BY LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-IV, [HEREINAFT ER REFERRED TO AS THE LEARNED CIT(A)] SURAT FOR ASSESSMENT YE AR (AY) 2008-09. THE ONLY EFFECTIVE GROUND OF APPEAL RAISED BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.13,67,466/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF LOAN P ROCESSING FEES. 2 2 2 AT THE TIME OF HEARING BEFORE US, NONE APPEARED O N BEHALF OF THE ASSESSEE. WE, THEREFORE, DECIDED TO DISPOSE OF APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3 THE BRIEF FACTS OF THE CASE ARE THAT DURING THE A SSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD D EDUCTED AN AMOUNT OF RS.13,67,466/- IN THE COMPUTATION OF TOTA L INCOME AS LOAN PROCESSING FEES DEFERRED. IT WAS EXPLAINED B Y THE ASSESSEE THAT IT HAD TRANSFERRED ITS CASH CREDIT AC COUNT FROM ING VYSYA BANK TO STATE BANK OF INDIA AS ING VYSYA BANK PROVIDED CREDIT LIMIT ABOVE RS.10 CRORES TO SINGLE CUSTOMER. IT WAS ALSO SUBMITTED THAT THEIR LIMIT HAD BEEN ENHANCED TO RS. 17.20 CRORES. IT WAS FURTHER EXPLAINED THAT THE AMOUNT PROPOSED F OR DISALLOWANCE WAS INCURRED TOWARDS LOAN PROCESSING FEES. THIS EXPENDITURE CANNOT BE CONSIDERED AS CAPITAL EXPENDI TURE AS THE ASSESSEE DID NOT ACQUIRE ANY ADVANTAGE IN THE CAPIT AL FIELD I.E. NEW ASSET OR NEW SOURCE OF INCOME. THE ASSESSEE CA SE WAS THAT THE LOAN PROCESSING FEES HAD BEEN INCURRED FOR AVAI LING AND INCREASING THE CASH CREDIT LIMIT FOR EFFICIENT WORK ING. IN THE BOOKS, THE EXPENSES HAD BEEN CLAIMED OVER FIVE YEAR S BUT AS THE EXPENSES WERE REVENUE IN NATURE, THE WHOLE AMOUNT W AS CLAIMED AS DEDUCTION IN THE COMPUTATION OF INCOME. THIS EXP LANATION WAS NOT ACCEPTABLE TO THE AO WHO HELD THAT THE ASSESSEE HAD NOT INCURRED THE EXPENSES IN THE CURRENT FINANCIAL YEAR AS THIS AMOUNT WAS PAID AS ADVANCE FOR LOAN PROCESSING FEES AND TH EREFORE WAS INADMISSIBLE AS PER THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD. VS. CIT (1997) 225 ITR 802 (SC). 3 3 4 AGGRIEVED BY THIS ORDER OF AO, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND FILED THE FOLLOWING WRITTEN SUBMISSIONS:- 'REGARDING DISALLOWANCE OF CLAIM OF. DEFERRED LOAN PROCUREMENT CHARGES, WE WOULD LIKE TO STATE THAT THE ASSESSEE H AS AVAILED CASH CREDIT LIMIT FORE STALE BANK OF INDIA IN TUNE OF RS .17.20 CRORES DURING THE YEAR UNDER CONSIDERATION AND AT THE TIME OF SAN CTION, THE STALE BANK OF INDIA HAS CHARGED RS.1707932/- AS LOAN PROCUREME NT CHARGES BUT OF WHICH RS.1132384/- HAD BEEN DIRECTLY DEBITED BY BAN K IN OUR CLIENT'S ACCOUNT AND BALANCE AMOUNT OF RS.575548/- WAS PAID AS STAMPING CHARGES FOR CREATION OF NECESSARY CHARGE AND EXECUT ION OF LEGAL DOCUMENT. IN BOOKS OF ACCOUNT, THE SAID EXPENDITURE HAD BEEN TREATED HAD BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND TO BE W RITTEN OFF IN FIVE EQUAL INSTALLMENTS IN THE BOOKS OF ACCOUNTS. HENCE RS.341866/- HAD BEEN CHARGES TO PROFIT &LOSS ACCOUNT AND BALANCING AMOUNT OF RS.13.67466/- HAS BEEN SHOWN AS DEFERRED REVENUE EX PENDITURE UNDER THE HEAD LOANS & ADVANCES. WHILE IN COMPUTATION OF INCOME, ENTIRE LOAN PROCUREMENT CHARGES HAS BEEN CLAIMED AS EXPEND ITURE FOR THE YEAR UNDER CONSIDERATION IRRESPECTIVE OF ACCOUNTING TREA TMENT GIVEN IN THE HOOKS OF ACCOUNT U/S.37(L) OF THE INCOME TAX ACT 19 61 WHICH IS ALSO SUPPORTED IN THE JUDGMENT GIVEN BY THE MUMBAI TRIBU NAL IN THE CASE OF ACIT V/S. RAJ OIL MILLS LTD. (ITA NO 5781/M/2007) W HERE IT WAS HELD THAT THE EXPENDITURE HAD TO BE TREATED AS REVENUE E XPENDITURE, IRRESPECTIVE OF THE ACCOUNTING TREATMENT GIVE IN TH E BOOKS AS THE ACCOUNT TREATMENT IS NOT CONCLUSIVE IN UNDERSTANDIN G THE TRUE NATURE OF EXPENDITURE. THE RELIANCE MAY ALSO BE PLACED ON THE FOLLOWING JU DGMENTS ENTIRE AMOUNT WAS CLAIMED OR ALLOWED IN COMPUTATION OF INC OME IRRESPECTIVE OF DEFERRED TREATMENT GIVEN IN THE BOOKS OF ACCOUNT S: - ACIT V. MEDICAMEN BLOTECH LTD (2005) 1 SOT 347(DEL- ITAT) - JCIT V. MODI OILEVTTI LTD (2004) 4 SOT 589 (DEL ITA T) - CHARAK PHARMACEUTICAL V. JCIT (2004) 4 SOT 393 (MUM -ITAT) 4 4 - DCIT V. GODREJ TEA LTD. 2009 43 SOT 25 (MUM -ITA T) - ACIT VS. ASHIMA SYNTAX LTD. 2009 117 ITD 1 (AHD- SB ITAT) - CIT V. SAMBANDHAM SPINNING MILLS LTD. 2008 298 ITR 306 (MAD) - A CIT V. CORE HEALTHCARE LID 2010 3 7 SOT 383 (AHD- SB ITAT) FURTHER, IT SHOULD BE NOTED THAT THERE IS NO DISPUT ED OH NATURE OF EXPENDITURE AS REVENUE EXPENDITURE BECAUSE AS PER T HE ARGUMENT GIVEN BY THE LEARNED AO LEARNED AO IN THE ASSESSMENT ORDE R FOR DISALLOWANCE OF LOAN PROCESSING FEES WAS AS FOLLOWS : 'THE ASSESSEE HAS NOT INCURRED THE EXPENSES IN CURR ENT FINANCIAL YEAR AS THIS AMOUNT IS PAID AS ADVANCE FOR LOAN PROCESSI NG FEES. AS PER THE SUPREME COURT IN (LIE CASE OF MADRAS INDUSTRIAL INV ESTMENT CORPORATION LTD. V/S CIT [1997] 225 ITR 802. ASSESSEE'S ACT OF DEDICATION OF DEFERRED LOAN PROCESSING FEES IS NOT TENABLE AND HE NCE IS DISALLOWED.' FORM THE ABOVE CITATION OF ASSESSMENT ORDER, IF CLE ARLY SHOWS THAT THE LEARNED AO HAS MISCONCEPTION ABOUT THE EXPENDITURE WERE REALLY INCURRED DURING THE YEAR UNDER CONSIDERATION AND DI SALLOWED THE EXPENDITURE WITHOUT VERIFYING ALL THE DETAILS OF EX PENDITURE AND WITHOUT PROPER APPRECIATION OF APPARENT FACTS BECAU SE SUCH EXPENDITURE WAS INCURRED WHOLLY & EXCLUSIVELY IN TH E YEAR CONSIDERATION. IT WAS INCURRED FOR THE PURPOSE OF B USINESS AND CONTENTION OF LEARNED AO THAT THE AMOUNT IS PAID AS ADVANCE FOR LOAN PROCESSING FEES IS NOT CORRECT AS THE INCREASED CAS H CREDIT LIMIT HAD ALREADY BEEN SANCTION AND DISBURSED DURING THE YEAR UNDER CONSIDERATION. IN THIS CONNECTION THE COPY OF LEDGE R ACCOUNT AND BANK STATEMENT IS BEING ENCLOSED FOR YOUR KIND REFERENCE . MOREOVER IN THIS CONNECTION WE WOULD LIKE TO DRAW' YOUR KIND ATTENTION TOWARD THE JUDGMENT GIVEN BY THE MUMBAI T RIBUNAL IN THE CASE BOROSIL GLASS WORKS LTD K ADDL. COMMISSIONER O F INCOME TAX (2004) 3 SOT 940 WHERE IT WAS HELD THAT FROM END FE ES INCLUDING LOAN PROCESSING CHARGES PAID FOR OBTAINING LOAN AMOUNT F OR MET OUT WORKING CAPITAL IS REVENUE EXPENDITURE. FURTHER, THE ASSESSEE HAS NOT CLAMED DEFERRED LOAN PROCUREMENT CHARGES IN ANY OF THE SUBSEQUENT YEAR'S COMPUTATION , THE COPY OF 5 5 COMPUTATION OF INCOME OF SUBSEQUENT YEAR IS ALSO BE ING ENCLOSED FOR YOUR KIND REFERENCE. ON THE ABOVE GROUND, IT IS AMPLE CLEAR THAT ANY EXP ENDITURE WHICH WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SHOULD BE 'LOVABLE AS BUSINESS EXPENDITURE IN THE YEAR IN WHI CH IT WAS INCURRED HENCE ENTIRE LOAN PROCUREMENT CHARGES SHOULD BE ALL OWABLE S EXPENDITURE FOR-YEAR UNDER CONSIDERATION. HENCE IT IS HUMBLE REQUEST TO YOUR HONOR TO ALLOW THE CLAIM OF DEFERRED LOAN P ROCUREMENT CHARTS IN THE FINANCIAL YOUR 2007-08.' AFTER TAKING INTO CONSIDERATION THE ABOVE SUBMISSIO NS OF THE ASSESSEE, THE LEARNED CIT(A) DELETED THE ADDITION. 5 AGGRIEVED BY THIS ORDER OF LEARNED CIT(A), NOW TH E REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEAR ING, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO BY SUBMITTING THAT THE AO HAD MADE THE ADDITION AS THE ASSESSEE HAS NOT INCURRED THESE EXPENSES IN THE CURRENT FINANCIA L YEAR AND THEREFORE WAS NOT ADMISSIBLE DEDUCTION AS PER THE D ECISION OF THE HON'BLE SUPREME COURT RELIED UPON BY THE AO. 6 AFTER HEARING THE LEARNED DR AND PERUSING THE REC ORD AND THE SUBMISSIONS OF THE ASSESSEE BEFORE THE LEARNED CIT(A), WE FIND THAT THE ASSESSEE COMPANY HAS BEEN INCORPORATE D ON 18 TH JANUARY, 1995 AS RAMAYAN RAYONS PVT. LTD. WHICH WAS SUBSEQUENTLY CHANGED TO SHAKTI YARN PVT. LTD. IN 20 05. THE BANK HAS SANCTIONED THE CREDIT FACILITIES ON OCTOBER 17, 2007. THE LOAN WAS THEREFORE TAKEN AFTER THE COMMENCEMENT OF THE B USINESS. THE ASSESSEE HAD INCURRED LOAN PROCESSING FEES OF RS.17 ,09,332/-. THOUGH IN ITS BOOKS OF ACCOUNT THE ASSESSEE CLAIMED 1/5 TH OF THE EXPENSES INCURRED I.E. RS.3,41,866/- DURING THE YEA R AND DEFERRED 6 6 THE REMAINING AMOUNT OF RS.13,67,466/-, HOWEVER, IN THE COMPUTATION OF INCOME IT CLAIMED FURTHER AMOUNT OF RS.13,67,466/- TREATING THE TOTAL EXPENSES INCURRED OF RS.17,09,332/- AS REVENUE EXPENSES. THIS CLAIM OF T HE ASSESSEE WAS DISALLOWED BY THE AO HOLDING THAT THE EXPENSES WERE NOT INCURRED DURING THE YEAR. THIS FINDING OF THE AO WA S FOUND INCORRECT BY THE LEARNED CIT(A). AT THE TIME OF HEA RING BEFORE US, THE LEARNED DR COULD NOT ESTABLISH THAT THESE EXPEN SES WERE NOT INCURRED DURING THE YEAR UNDER APPEAL. THE EXPENSES HAVE BEEN INCURRED DURING THE YEAR AS THEY ARE RECOVERED AT T HE TIME OF DISBURSEMENT BY THE BANK OR INCURRED ON STAMP DUTY FOR OBTAINING THE LOAN. SO FAR AS THE ADMISSIBILITY OF CLAIM MADE IN THE COMPUTATION OF INCOME IS CONCERNED, WE FIND THAT TH E EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AS T HE LOAN HAS ADMITTEDLY BEEN TAKEN FOR THE PURPOSE OF BUSINESS. NO CAPITAL ASSET HAS BEEN CREATED NOR ANY NEW SOURCE FOR INCOM E HAS BEEN BROUGHT INTO EXISTENCE BY OBTAINING THIS LOAN. HENC E, THE EXPENSES INCURRED ARE OF REVENUE NATURE AND REQUIRE D TO BE ALLOWED IN FULL IN THE YEAR IN WHICH THEY WERE INCU RRED I.E. DURING THE YEAR UNDER APPEAL, IRRESPECTIVE OF THE TREATMEN T GIVEN IN THE BOOKS OF ACCOUNT. THE ASSESSEE WAS ENTITLED TO CLAI M DEDUCTION FOR THE FULL AMOUNT OF EXPENSES INCURRED IN TAKING THE LOAN AND THEREFORE THE DISALLOWANCE MADE BY THE AO FOR THAT PART WHICH WAS CLAIMED ONLY IN THE COMPUTATION OF INCOME, HAS RIGHTLY BEEN DELETED BY THE LEARNED CIT(A). THEREFORE, THE ORDER PASSED BY HIM IS HEREBY UPHELD. 7 7 7 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 20-04-2012 SD/- SD/- (A MOHAN ALANKAMONY) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 20-04-2012 COPY OF THE ORDER FORWARDED TO: 1. M/S SHAKTI YARN PVT. LTD., BLOCK NO.126/4, TATHI THAIYA, BARDOLI ROAD, SURAT-395014 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4, ROOM NO.223, AAYAKAR BHAVAN, SURAT 3. CIT CONCERNED 4. CIT(A)-IV, SURAT 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD