Appeal details
Counselvise Citation
[2015] 134 COUNSELVISE.COM (IT) 1389 (ITAT-PANAJI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-09-2015
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Next Hearing Date
10-09-2015
Assessment Year
2002-2003
Appeal Filed On
31-12-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 444 /PNJ/201 4 (ASST. YEAR : 200 2 - 0 3 ) ACIT, CIRCLE - 1(1), PANAJI. VS. M/S. SESA INDUSTRIES LTD., SESA GHA R, 20 EDC COMPLEX, PATTO, PANAJI GOA. PAN NO. AACCS 7100 A (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. ANITA SUMANTH ADV. BENECIO MENEZES AGM (TAXATION) V. SANTHI KUMAR - CA DEPARTMENT BY : SHRI K.M. MAHESH - DR SHRI RAMESH S. MUTAGAR DR DATE OF HEARING : 10/09/2015. DATE OF PRONOUNCEMENT : 11 /09/2015. O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , PANAJI , DATED 0 8 / 1 0/201 4 . 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF 76,65,000/ - TOWARDS CONSULTING FEES PAID FOR FINANCIAL ADVISORY SERVICES OF CAPITAL RE - STRUCTURE OF THE ASSESSEE - COMPANY BY TREATING IT AS REVENUE EXPENDITURE. 2 ITA NO. 444 /PNJ/201 4 3 . BRIEF FACTS OF THE CASE ARE THAT ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION 76,65,000/ - ON ACCOUNT OF PAYMENT OF CONSULTANCY FEES FOR FINANCIAL ADVISORY SERVICES FOR CAPITAL RESTRUCTURE OF THE ASSESSEE - COMPANY BY TREATING IT AS A REVENUE EXPENDITURE . IN RESPONSE TO THE SHOW - CAUSE NOTICE OF THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE TO ICICI AS FEES FOR THEIR ADVISORY SERVICES IN THE MATTER OF RE STRUCTURING THE LOAN CAPITAL (AND NOT SHARE CAPITAL), BY WHICH PROCESS, THE ASSESSEE WAS ABLE TO REDUCE THE INTEREST RATE ON A LOAN FROM THE M FOR REMAIN I NG PERIOD OF THE CURRENCY OF THE RELEVANT LOAN AGREEMENT. IT WAS FURTHER SUBMITTED THAT THE PAYMENT WAS NOT MADE FOR ANY RESTRUCTURING OF SHARE CAPITAL. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT VIDE LETTER DATED 20/09/2001 BY SHRI S. KHASNO BIS , GENERAL MANAGER, ICICI LTD. TO SESA GOA LTD. , THE REFERENCE HAS BEEN MADE FOR CAPITAL STRUCTURING OF THE SESA GROUP AND REQUEST WAS MADE FOR PAYMENT OF 76,65,000/ - TOWARDS ADVISORY SERVICES P ROVIDED BY ICICI LTD. THE SUBJECT OF THE LATTER IS ADVISORY SERVICES. NOWHERE IN THE SAID LETTER IT WAS SPECIFIED THAT THE PAYMENT TOWARDS ADVISORY SERVICES ARE FOR THE LOAN RE - STRUCTURING OF THE M/S. SESA INDUSTRIES LTD. THE ASSESSEE FAILED TO CORRELATE THE REDUCTION OF INTEREST RATES WITH THE PAYMENTS M ADE TOWARDS ADVISORY SERVICES FOR CAPIT A L STRUCTURING OF SESA GROUP. FURTHER, IN THE LETTER FOR THE REDUCTION OF INTEREST RATES , THERE IS NO REFERENCE FOR PAYMENTS OF 76,65,000/ - TOWARDS ADVISORY SERVICES IS MENTIONED. FURTHER, IN THE LATTER COMMUNICATION BY ICICI LTD. FOR THE PAYMENT TOWARDS ADVISORY SERVICES W AS ADDRESSED TO M/S. SESA GOA LTD. AND NOT TO M/S. SESA INDUSTRIES LTD. IN THE ABSENCES OF MATERIAL EVIDENCE, THE PAYMENT OF 76,65,000/ - IS DISALLOWED AS REVENUE EXPEN DITURE IN THE CASE OF M/S. SESA INDUSTRIES LTD. 4 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - 3 ITA NO. 444 /PNJ/201 4 6. I HAVE GONE THROUGH THE ASSES S MENT ORDER UNDER APPEAL, SUBMISSION OF THE APPELLANT AND THE RELEVANT JUDICIAL PRONOUNCEMENTS RELIED UPON. IN THIS CASE, THE APPELLANT PAID AN AMOUNT OF RS.76,65,000/ - TO THE ICICI BANK. THIS FEES WAS PAID FOR AVAILING ADVISORY SERVICES. BECAUSE OF THE LAN GUAGE OF THE LETTER, THE A.O. CONCLUDED THAT THE FEES HAS BEEN PAID FOR RAISING SHARE CAPITAL AND THEREFORE, THE SAME SHOULD BE CAPITALIZED AND NOT BE ALLOWED AS REVENUE EXPENDITURE. HOWEVER, THE APPELLANT CLAIMED THAT FEES WAS PAID FOR RE - STRUCTURING LOAN CAPITAL AND NOT SHARE - CAPITAL, AS ALLEGED BY THE A.O. IN MY OPINION, THE QUESTION HERE IS PURELY OF FACTS AND NOT OF LAW. THE APPELLANTS HAVE FURNISHED FOLLOWING FACTS TO SUBSTANTIATE THEIR CONTENTION: I) THE BENEFIT OF THE ADVISORY SERVICES IS THAT, T HAT THE INTEREST RATE GOT REDUCED FROM 15.75% TO 13% WITH EFFECT FROM 16.09.2001 ON LOAN OF RS.25 CRORES OF SESA INDUSTRIES LTD. II) THE CO - RELATION BETWEEN ADVISORY SERVICES AND THE REDUCTION IN INTEREST RATES ARE CLEAR FROM THE NOTING OF THE DIRECTOR. FINANCE ON THE MAIN LETTER ITSELF, WHICH THE A.O. FAILED TO APPRECIATE. III) ICICI WROTE THE LETTER TO M/S. SESA GOA IN PLACE OF THE APPELLANT M/S. SESA INDUSTRIES LTD. BECAUSE BOTH OF THEM ARE GROUP COMPANIES AND M/S. SESA GOA WAS MANAGING ADMINISTRATIO N OF ALL THE GROUP COMPANIES. FINANCE DIRECTOR OF SESA GOA IS DIRECTOR OF THE APPELLANT COMPANY ALSO. IV) THERE WAS NO EXPANSION IN THE CAPITAL BASE EITHER IN THE YEAR UNDER CONSIDERATION OR EVEN IN THE SUBSEQUENT YEARS. WHETHER THE COMPANY HAS INCREASE D ITS SHARE CAPITAL OR CAPITAL BASE IS VERY MUCH VERIFIABLE BY THE A.O. FROM BOOKS OF ACCOUNTS OF THE ASSESSEE. THE A.O. HAS NOT MENTIONED ANYWHERE IN THE ASSESSMENT ORDER, AS TO HOW THE ADVICE TAKEN BY THE ASSESSEE FOR WHICH THE ASSESSEE HAS MADE PAYMENT TO ICICI HAS HELPED IN INCREASING THE CAPITAL BASE OR SHARE CAPITAL OF THE APPELLANT COMPANY ON THE OTHER HAND, THE APPELLANT, IN MY OPINION, HAS GIVEN SATISFACTORY EXPLANATION AS TO HOW THIS HELPED THEM (THE APPELLANT COMPANY) IN REDUCTION OF INTEREST LIA BILITY FROM 15 . 75% P . A . TO 13% ON A LOAN OF RS 25 CRORES W . E . F . 16 / 09 / 2001 . I DO NOT ANY NEED TO DISCUSS THE JUDICIAL PRONOUNCEMENTS RELIED UPON, AS THE FACTS ALONE ARE SUFFICIENT, IN MY OPINION, TO PROVE THAT THE EXPENDITURE OF RS. 76,65,000/ - PAID IN TERMS OF ADVISORY FEES, WAS THAT OF REVENUE NATURE. IN VIEW OF THE ABOVE, THE A.O. IS DIRECTED TO DELETE THE ADDITION AMOUNTING TO RS. 76,65,000/ - . 5. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REFERRED TO PAGE NO S . 37 TO 46 OF THE PAPER BOOK , WHICH IS THE RUPEE LOAN FACILITY 4 ITA NO. 444 /PNJ/201 4 AGREEMENT DATED 17/06/1999 BETWEEN SESA INDUSTRIES LTD. AND ICICI LTD. IT WAS ARGUED THAT THE ASSESSEE VIDE THIS AGREEMENT HAD RECEIVED RUPEE TERM LOAN FACILITY OF 250 MILLION . THE RATE OF INTEREST FOR THE SAID TERM LOAN WAS 15.75%. THE LO A N WAS TO MEET PART OF CAPITAL EXPENDITURE , RELINING EXPENDITURE AS WELL AS LONG TERM WORKING CAPITAL REQUIREMENT . 6 . AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED OUT THAT AT PAGE NOS. 49 & 50 OF THE PAPER BOOK , WHICH ARE THE LETTER S OF ICICI LTD. DATED 20/09/2001 & 28/09/2001 ADDRESSED TO SESA GOA LTD. WHICH SHOWS THAT SUBJECT ADVISORY SERVICES - AT YOUR REQUEST FOR FINANCIAL ADVIS O RY SERVICES FROM US FOR CAPITAL STRUCTURING OF THE SESA GROUP WE REQUEST YOU TO ARRANGE A PAYMENT OF 7.3 MILLION PLUS SERVICE TAX @ 5% (AGGREGATING 76,65,000/ - ) TOWARDS ADVISORY SERVICES PROVIDED BY ICICI . THIS SHOWS THAT THE AMOUNT WAS PAID FOR RESTRUCTURING OF THE LOAN , SO THAT THE INTEREST WAS REDUCE D FROM 15.75% TO 13% P.A . 7 . ON THE OTHER HAND DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER . 8 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, WE FIND THAT THE ASSESSING OFFICER DISALLOWED 76,65,000/ - WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE DEDUCTION ON ACCOUNT OF PAYMENT OF ADVISORY FEE TO ICICI LTD., A FINANCIAL INSTITUTION. THE REASONS STATED IN THE IMPUGNED ORDER OF ASSESSMENT ARE AS UNDER: - THE ASSESSEE WAS GIVEN THE OPPORTUNITY TO APPEAR ON 28.12.2007 AND EXPLAIN AS TO WHY THE PAYMENT OF RS.76,65,000/ - MADE BY MERCHANT BANKERS TO ICICI SHOULD NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED THAT THE PAYMENT OF RS.76,65,000/ - TO ICICI WAS NOT MADE AS FOR MERCHANT BANKERS: BUT IT WAS MADE TO THEM AS FEES FOR THEIR ADVISORY SERVICES IN THE 5 ITA NO. 444 /PNJ/201 4 MATTER OF RE - STRUCTURING THE LOAN CAPITAL (AND NOT SHARE CAPITAL), BY WHICH PROCESS WE ARE ABLE TO REDUCE THE INTEREST RATE ON A LOAN FROM THEM FOR THE REMAINING PERIOD OF THE CURRENCY OF THE RELEVANT LOAN AGREEMENT. FURTHER, IN THIS CONNECTION, WE WOULD LIKE TO CLARIFY THAT AS REFERRED IN THE AFORESAID PART OF THE DIRECTOR S REPORT, WE DID PAY FOR ADVISING ON POSSIBLE RE - STRUCTURING OF SHARE CAPITAL AND THE PROPOSED PLAN FOR LISTING THE SHARES IN THE STOCK EXCHANGE, TO M/S. FIRST OVERSEAS CAPITAL LIMITED: BUT PAYMENT MADE THEREOF WAS ONLY RS.70,000/ - . HOWEVER, THE SUBMISSI ON OF THE ASSESSEE ARE NOT ACCEPTABLE BECAUSE IN THE REFERRED LETTER DT . 20.09.2001, ANNEXURE - A BY SHRI S.KHASNOBIS, GENERAL MANAGER, ICICI LIMITED TO SESA GOA LIMITED THE REFERENCE HAS BEEN MADE FOR CAPITAL STRUCTURING OF THE SESA GROUP AN R EQUEST WAS MADE FOR THE PAYMENT OF RS.76,65,000/ - TOWARDS ADVISORY SERVICES PROVIDED BY ICICI LTD. THE SUBJECT OF THE LETTER IS MEN TIONED AS ADVISORY SERVICES. NO WHERE IN THE SAID LETTER IT IS SPECIFIED THAT THE PAYMENT TOWARDS ADVISORY SERVICES ARE FOR TH E LOAN RESTRUCTURING OF THE M/S. SESA INDUSTRIES LTD. THE ASSESSEE - COMPANY HAS FAILED TO CORRELATE THE REDUCTION OF INTEREST RATES WITH THE PAYMENTS MADE TOWARDS ADVISORY SERVICES FOR CAPITAL STRUCTURING OF SESA GROUP. FURTHER, IN THE LETTER ANNEXED, ANNEX URE - B FOR THE REDUCTION OF INTEREST RATES THERE IS NO REFERENCE FOR PAYMENTS OF RS.76,65,000/ - TOWARDS ADVISORY SERVICES IS MENTIONED. FURTHER IN THE LETTER COMMUNICATION BY ICIC LTD. FOR THE PAYMENT TOWARDS ADVISORY SERVICES AS ADDRESSED TO M/S. SESA GOA LTD. AND NOT TO M/S. SESA INDUSTRIES LTD. HENCE, IN THE ABSENCE MATERIAL EVIDENCE THE PAYMENT OF RS.76,65,000/ - IS DISALLOWED AS REVENUE EXPENDITURE IN THE CASE OF M/S. SESA INDUSTRIES LTD. 9 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - THE A.O. HAS NOT MENTIONED ANYWHERE IN THE ASSESSMENT ORDER, AS TO HOW THE ADVICE TAKEN BY THE ASSESSEE FOR WHICH THE ASSESSEE HAS MADE PAYMENT TO ICICI HAS HELPED IN INCREASING THE CAPITAL BASE OR SHARE CAPITAL OF T HE APPELLANT COMPANY ON THE OTHER HAND, THE APPELLANT, IN MY OPINION, HAS GIVEN SATISFACTORY EXPLANATION AS TO HOW THIS HELPED THEM (THE APPELLANT COMPANY) IN REDUCTION OF INTEREST LIABILITY FROM 15 . 75% P . A . TO 13% ON A LOAN OF RS 25 CRORES W . E . F . 16 / 09 / 2001 . 6 ITA NO. 444 /PNJ/201 4 1 0 . BEFORE US, THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 1 1 . WE FIND THAT THE DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT THE ADVISORY FEE WAS PAID TO INCREASE THE CAPITAL BASE OF THE ASSE SSEE. WE FIND THAT THE GENUINENESS OF THE PAYMENT IS NOT IN DOUBT. THOUGH, THE DEPARTMENT IN ITS GROUNDS OF APPEAL HAS RELIED UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BON D LTD. VS. CIT 225 ITR 798 (SC) AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT 225 ITR 792 (SC), HOWEVER , NO SUBMISSIONS IN RESPECT OF THIS WAS MADE DURING THE COURSE OF HEARING. 1 2 . WE FIND THAT THE AMOUNT IN DISPUTE DOES NOT REPRESENT PAYMENT OF FEE TO THE REGISTRAR OF COMPANIES TO INCREASE IN AUTHORIZED CAPITAL OF THE COMPANY. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE FEE IN QUESTION WAS PAID TO INCREASE THE CAPITAL BASE OF THE COMPANY OR BECAUSE OF THE PAYMENT ANY FRESH CAPITAL WAS ACQUIRED BY TH E ASSESSEE. THUS, IN OUR CONSIDERED VIEW THE AFORESAID DECISIONS OF THE HONBLE SUPREME COURT ARE NOT APPLICABLE IN THE INSTANT CASE. 1 3 . WE FIND THAT THE ASSESSING OFFICER DISALLOWED THE EXPENSES IN QUESTION BY TREATING IT AS CAPITAL EXPENDITURE, BUT NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT ANY CAPITAL ASSET WAS ACQUIRED BY THE ASSESSEE BY INCURRING THE EXPENDITURE IN QUESTION OR ANY CAPITAL BASE OF THE ASSESSEE COMPANY WAS INCREASED DUE TO EXPENDITURE IN QUESTION. WE, THUS, DO NOT FI N D ANY MERIT IN THE GROUND OF APPEAL OF THE REVENUE AND ACCORDINGLY THE SAME IS DISMISSED. 7 ITA NO. 444 /PNJ/201 4 1 4 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 1 1 TH DAY OF SEPTEMBER , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 1 TH SEPTEMBER , 201 5 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 8 ITA NO. 444 /PNJ/201 4 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 1 0 & 11 .0 9 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11 .09 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 11 /0 9 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 11 /0 9 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 11 /0 9 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 0 /0 9 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 11 /0 9 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER
