DCIT, New Delhi V. M/s. Vodafone Mobile Services Ltd., New Delhi

ITA 4723/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2972 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-06-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 07-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH CHAND DUBEY; NAVEEN CHANDRA
• Assessee Lawyers: ASEEM MOW
• Keywords: Capital asset; Depreciation; Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 147; 37; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D , NEW DELHI BEFORE SH. O.P. KANT , ACCOUNTANT M EMBER AND SH. KULDIP SINGH , JUDICIAL MEMBER SL. NO. ITA NOS. ASSESSMENT YEARS 1. 4723/DEL/2013 2001 - 02 2. 4724/DEL/2013 2003 - 04 3. 4725/DEL/2013 2003 - 04 4. 4726/DEL/2013 2004 - 05 5. 4727/DEL/2013 2005 - 06 6. 4728/DEL/2013 2006 - 07 7. 4729/DEL/2013 2007 - 08 DCIT, CIRCLE - 17(1), NEW DELHI VS. VODAFONE MOBILE SERVICES LTD. (FORMERLY KNOWN AS HUTCHISON ESSAR TELECOM LTD. ), C 48, OKHLA INDUSTRIAL AREA, PHASE II, NEW DELHI PAN : AAACS4457Q (APPELLANT) (RESPONDENT) DEPARTMENT BY SH. NAVEEN CHANDRA, CIT(DR) & SH. UMESH CHAND DUBEY, SR.DR ASSESSEE BY SH. TARUN GULATI, MS. ISHITA FARSAIYA, ADV. & SH. ASEEM MOWAR, CA DATE OF HEARING 01.06.2017 DATE OF PRONOUNCEMENT 09.06.2017 ORDER PER BENCH : THESE SEVEN APPEALS BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF LEARNED CIT(A) - 19, NEW DELHI , DATED 13.05.2013 FOR ASSESSMENT YEARS 2001 - 02, 2003 - 04 AND 2004 - 05 TO 2007 - 08 RESPECTIVELY. SINCE THE APPEALS ARE RELATED TO THE SAME ASSESSEE AND 2 THE ISSUES INVOLVED IN THE APPEALS ARE ALMOST SIMILAR , SAME ARE BEING HEARD TOGETHER AND DECIDED BY TH IS CONSOLIDATED ORDER. ITA NOS. 4723, 4724 & 4726/DEL/2013 2. FIRST WE TAKE UP THE APPEALS IN ITA NO S . 4723, 4724 & 4726/DEL/2013 FOR ASSESSMENT YEAR S 2001 - 02, 2003 - 04 AND 2004 - 05 RESPECTIVELY EMANATED FROM THE FIRST APPELLATE ORDERS AGAINST THE ORDERS U/S 143(3) PASSED BY THE ASSESSING OFFICER . AS IN ALL THE THREE APPEALS COMMON ISSUE S, EXCEPT DIFFERENCE IN AMOUNT, HAVE BEEN RAISED , THE GROUNDS RAISED IN ITA NO. 4723/DEL/2013 ARE REPRODUCE AS UNDER: 1. LD. CIT(A) ERRED IN LAW BY ALLOWING RELIEF RS.3,54,62,055/ - AGAINST ADDITION MADE BY THE AO BY DISALLOWING THE COMMISSION EXPENSES . 2. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE FACTS OF THE CASE WITH RESPECT TO THE ISSUE IS THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING CELLULAR MOBILE TELEPHONE SERVICES IN DELHI REGION AND TRADING IN CELLULAR HANDSETS AND ACCESSORIES. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 29.10.01 DECLARING LOSS AT RS.5,08,95,22103/ - WHICH WAS PROCESSED A ND THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.17,73,10,275/ - IN THE PROFIT AND LOSS ACCOUNT . BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE UPFRONT AMOUNT PAYABLE ON PREPAID ACTIVATION AND POST - PAID ACTIVA TION AND RECHARGE COUPON REPRESENTED THE AMOUNT PAID TO THE DEALERS AT THE TIME OF INVOICING UNDER RESPECTIVE HEADS AND MONTH END AMOUNT PAYABLE TO DEALERS WAS BASED ON SCHEME LAUNCHED BY THE COMPANY. CONSIDERING 3 THE SUBMISSIONS OF THE ASSESSEE COMPANY, T H E ASSESSING OFFICER HELD THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO PROVE ALL ITS COMMISSION EXPENSES, THEREFORE HE DISALLOWED 20% OF ASSESSEE S CLAIM AS NON - GENUINE. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A), WHO DELETED THE DI SALLOWANCE. AGGRIEVED, THE REVENUE IS BEFORE US. 4. LEARNED CIT(DR) RELIED ON THE ORDER OF THE ORDER OF AO. 5. AT THE TIME OF HEARING, L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SOLE GROUND REGARDING THE DISALLOWANCE OF THE COMMISSION EXPENSES HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEE S OWN CASE, HAVING ITA NO. 4722/DEL/2013 FOR AY: 2008 - 09, DATED 30.12.2015 . 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS A VAILABLE ON RECORD, ESPECIALLY THE ORDER OF ITAT ( SUPRA). WE FIND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD WHICH COULD PROVE THAT THE COMMISSION EXPENDITURE WAS BOGUS AND WAS NOT AN ALLOWABLE DEDUCTION. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ITA NO. 4722/DEL/2013 (SUPRA) . THE RELEVANT PORTION OF THE ORDER IS REPRODUCED AS UNDER: 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE HAVE REPRODUC ED THE OBSERVATIONS OF ASSESSING OFFICER EARLIER FROM WHICH IT IS EVIDENT THAT THERE WAS NO BASIS FOR MAKING ANY DISALLOWANCE AND THE SAME WAS SOLELY ON AD - HOC BASIS. WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LD. CIT(A) THAT THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE COMMISSION EXPENDITURE WAS EITHER BOGUS OR WAS NOT AN ALLOWABLE DEDUCTION. IT IS WELL SETTLED LAW THAT NO AD - HOC DISALLOWANCE CAN BE MADE UNLESS THE ASSES SING OFFICER BRINGS ANY SPECIFIC DETAIL ON RECORD WHICH MAY CALL FOR ANY DISALLOWANCE. ACCORDIN GLY, THIS GROUND IS DISMISSED. 4 7. RESPECTFULLY FOLLOWING THE ABOVE FINDINGS, WE DISMISS THE GROUND OF THE REVENUE ACCORDINGLY. 8. GROUND NO. 2 IS GENERAL I N NATURE, NOT REQUIRED TO ADJUDICATE UPON. 9 . THUS, ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED. ITA NOS. 4728 & 4729 /DEL/2013 10 . NOW, WE TAKE UP THE APPEAL S IN ITA NOS. 4728 & 4 7 29 /DEL/2013 FOR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 RESPECTIVELY . SINCE IN BOTH THE APPEALS COMMON ISSUES , EXCEPT DIFFERENCE IN AMOUNT, HA VE BEEN RAISED , T HE GROUNDS RAISED IN ITA NO. 4728/DEL/2013 ARE REPRODUCED AS UNDER : 1. LEARNED CIT(A) ERRED IN LAW BY ALLOWING RELIEF RS.14,11,30,484/ - AGAINST ADDITION MADE BY THE AO BY DISALLOWING THE COMMISSION EXPENSES. 2. LEARNED CIT(A)ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.29,34,71,890/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING ROYALTY WPC EXPENSES. 3. LEARNED CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.8,04,60,730/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING ADVERTISEMENT EXPENSES. 4. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 11. IN GROUND NO. 1, THE REVENUE HAS RAISED THE ISSUE REGARDING DISALLOWANCE OF THE COMMISSION EXPENSES. 11.1 WE ARE OF THE VIEW THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE ITAT IN THE ASSESEE S OWN CASE PASSED FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). ACCORDINGLY , GROUND NO. 1 OF THE REVENUE IS DISMISSED. . 5 1 2. IN GROUND NO. 2, THE REVENUE HAS RAISED THE ISSUED REGARDING THE DISALLOWANCE OF RS.29,34,71,890/ - AS ROYALTY - WPC EXPENSES . THE ASSESSEE CLAIMED RS.39,12,95,853/ - AS ROYALTY WPC EXPENSES AND SUBMITTED THAT IN TERMS OF THE LICENCE AGREEMENT WITH THE DOT, THE ASSESSEE COMPANY HAD TO OBTAIN THE FREQUENCY/SPECTRUM FROM THE WIRELESS PLANNING COMMISSION (WPC) AND IN CONSIDERATION OF TH E ALLOTMENT OF THE SPECTRUM/FREQUENCY THE ASSESSEE WAS UNDER OBLIGATION TO PAY THESE CHARGES. THE ASSESSING OFFICER, HOWEVER, REJECTED THE SUBMISSION OF THE ASSESSEE COMPANY AND HELD THAT THE ROYALTY WAS BEING PAID IN ORDER TO GET THE RIGHT TO USE THE SPEC TRUM AND WAS, THEREFORE, CLEARLY AN EXPENDITURE OF A CAPITAL NATURE. THE ASSESSING OFFICER AFTER ALLOWING DEPRECIATION @25% AMOUNTING TO RS.97823963/ - , DISALLOWED THE REMAINING AMOUNT OF RS.293471890/ - . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE L D. CIT(A), WHO DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS BEFORE US. 1 2 .1 LEARNED SR. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 1 2 .2 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEE S OWN CASE IN ITA NO. 4722/DEL/2013 FOR AY: 2008 - 09, DATED 30.12.2015. 1 2 .3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN QUESTION HAS ALREADY BEEN DECIDED BY THE ITAT IN THE ASSESSEE S O WN CASE FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). THE RELEVANT PORTION OF THE DECISION IS REPRODUCED AS UNDER: 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED. THE DECISION RELIED UPON BY THE AO IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. WAS RENDERED IN ENTIRELY DIFFERENT FACTUAL MATRIX. THE IMPUGNED AMOUNT WAS PAID AS A PROTECTION FEE AND WAS NOT A PAYMENT WHICH WAS NECESSARY FOR RUNNING THE BUSINESS, AS IS IN THE PRESENT CASE. THE ASSESSEE COULD NOT RUN THE BUSINESS WITHOUT MAKING THESE PAYMENTS ON QUARTERLY BASIS AND, THEREFORE, BY NO STRETCH OF 6 RE ASONING THIS COULD BE HELD AS CAPITAL IN NATURE. THE ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF FASCEL LTD. 221 CTR 305 (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER: WPC - ROYALTY EXPENSE CANNOT BE SAID TO BE IN THE NATURE OF A CAPITAL EXPENDITURE SINCE NO ENDURING BENEFIT ACCRUES TO THE APPELLANT ON THIS ACCOUNT. THIS PAYMENT IS IN THE FORM OF A RECURRING CHARGE INCURRED BY THE APPELLANT ON A QUARTERLY BASIS TOWARDS USAGE OF SPECTRUM ALLOCATED TO THE APPELL ANT FOR PROVISION OF TELECOM SERVICES. THE SAID CHARGE THEREFORE DOES NOT RESULT IN ACQUISITION OF ANY RIGHT AND THEREFORE, ACQUIRES THE CHARACTER OF 'REVENUE' EXPENDITURE. THE SAID EXPENSE BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE APPELLANT IS FULLY DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. RELIIANCE WAS PLACE ON THE DECISION OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. FASCEL LIMITED (017 DTR 306) 2009. 19. ACCORDINGLY, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF LEARNED CIT(A). GROUND IS DISMISSED. 12.4 THUS, RESPECTFULLY FOLLOWING THE A BOVE FINDING, WE DISMISS GROUND NO. 2. 13. IN GROUND NO 3 , REVENUE RAISED THE ISSUE REGARDING THE DISALLOWANCE OF ADVERTISEMENT EXPENSES. THE ASSESSEE CLAIMED RS. 7 , 00 , 78 , 884/ - INCURRED ON PRODUCT LAU NCHES AND RS. 3 , 72 , 02 , 089/ - AS THE EX PENDITURE INCURRED ON GRANTY SI GNS, TOTALING RS. 10 , 72 , 80 , 973/ - . BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT AS REGARDS THE EXPENDITURE ON PRODUCT LAUNCHES, THE PRODUCTS OF THE ASSESSEE SO LAUNCHED HAD A VERY SHORT SHELF LIFE AND DID NOT YIELD ANY ENDURING BENEFIT. AS REGARDS THE EXPENDITURE OF GRAN TY SIGNS, THE ASSESSEE SUBMITTED THAT THIS EXPENDITUR E REPRESENTED THE BOARDS DISPLAY ED AT THE DEALER SHOPS AND DID NOT BRING INTO EXISTENCE ANY TANGIBLE ASSETS. THE ASSESSING OFFICER REJECTED THE SUBMISSION OF THE ASSESSEE AND HELD THAT THE EXPENDITURE IS AMORTIZED OVER PERIOD OF 4 YEARS. THEREFORE, HE 7 ALLOWED DEDUCTION OF RS.26820243/ - AND DISALLOWED REMAINING AMOUNT OF RS. 8 , 04 , 60 , 730/ - . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A), WHO DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS BEFORE US. 13.1 LEARNED SR. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 1 3.2 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE ITAT IN FAVOUR OF THE ASSESSEE IN THE ASSESSEE S OWN CASE PASSED FOR ASSESSMENT YEAR 2008 - 09. 13.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN THE ASSESSEE S CASE FOR THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED AS UNDER: 11. . 7.3 THE APPELLANT HAS RELIED ON SEVERAL JUDICIAL DECISIONS INCLUDING THE FOLLOWING: (I) CIT V CITI FINANCIAL CONSUMER FIN. LTD. [2012] 335 1TR 29 (DELHI) SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF - ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 - EXPENDITURE ON PUBLICITY AND ADVERTISEMENT IS TO BE TREATED AS REVENUE IN NATURE ALLOWABLE FULLY IN YEAR IN WHICH IT IS INCURRED [IN FAVOUR OF ASSESSEE] (II) CIT V SAL ORA INTEMATIONAL LTD . [2009] 308 ITR 199 (DELHI) ADVERTISEMENT EXPENDITURE FOR LAUNCHING PRODUCTS IS REVENUE EXPENDITURE (III) CIT V PEPSICO INDIA HOLDINGS (P.) UD.[2012] 207 TAXMAN 5 (DELHI) SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITUR E - ALLOWABILITY OF - ASSESSEE INCURRED CERTAIN EXPENDITURE ON ADVERTISING AND MARKETING OF ITS PRODUCTS AND CLAIMED IT AS BUSINESS EXPENDITURE ', ASSESSING OFFICER DISALLOWED EXPENDITURE INCURRED ON GLOW SIGNS AND NEON SIGNS HOLDING THAT SAME WAS OF CAPIT AL NATURE - WHETHER SINCE EXPENDITURE IN QUESTION WAS IN FACT IN FURTHERANCE OF BUSINESS OF 8 ASSESSEE AND, THUS, HAD DIRECT NEXUS WITH ITS BUSINESS, AND BY PUTTING NEON SIGNS AND GLOW SIGNS, NO ASSETS OF PERMANENT NATURE WAS CREATED, IT WAS AN ALLOWABLE BUS INESS EXPENDITURE HELD, YES [IN FAVOUR OF ASSESSEE] 12. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LEARNED CIT(A), BECAUSE THE ISSUE IS SQUARELY COVERED BY VARIOUS DECISION NOTED BY THE LEARNED CIT(A) IN THI S ORDER, PARTICULARLY THE DECISION IN THE CASE OF PEPSICO INDIA HOLDINGS (P) LTD. 14. ACCORDINGLY, GROUND NO. 3 OF APPEAL OF THE REVENUE IS DISMISS ED. 15. GROUND NO. 4 IS GENERAL IN NATURE, NOT REQUIRED TO ADJUDICATE UPON. 16. THUS, BOTH THE APPEAL S OF THE REVENUE ARE DISMISSED. ITA NO. 4725 /DEL/2013 17. NOW, WE TAKE UP THE APPEAL IN ITA NO. 4725/DEL/2013 FOR ASSESSMENT YEAR 2003 - 04 EMANATED FROM THE FIRST APPELLATE ORDER AGAINST ASSESSMENT ORDER U/S 147 READ WITH 143(3) OF THE ACT . THE GROUNDS RAISED THE APPEAL, READ AS UNDER: 1. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.40,10,764/ - MADE BY THE AO BY DISALLOWING LOAN PREPAYMENT PREMIUM. 2. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CA SE IN DELETING THE ADDITION OF RS.4,44,89,264/ - MADE BY THE AO BY DISALLOWING ADVERTISEMENT EXPENSES. 9 3. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.2,04,75,000/ - MADE BY THE AO BY DISALLOWING UPFRONT FEES. 4. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 18. IN GROUND NO. 1, THE REVENUE HAS RAISED THE ISSUE REGARDING DISALLOWANCE OF LOAN PREPAYMENT PREMIUM, AMOUNTING TO RS.40,10,764/ - . 18.1 LEARNED SR. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT LD. CIT - A HAS NOT GIVEN ANY REASONING FOR HIS DECISION AND THUS ORDER BEING A NONSPEAKING, MATTER MAY BE RESTORED BACK TO THE LD. CIT - A . 18.2 ON THE OTHER HAND , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SUBMITTED DETAILED FACTS SUPPORTED WITH THE JUDICIAL DE CISIONS ON THE ISSUE IN DISPUTE , AND THE LD. CIT - (A) AFTER APPRECIATION OF FACTS AND DECISIONS DELETED THE ADDITION. 18.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. DURING THE FINANCIAL YEAR CONCERNED, THE ASSESSEE INCURRED EXPENDITURE OF RS.40,10 ,764/ - ON LOAN PREPAYMENT PREMIUM, WHICH WAS PAID TOWARDS PREPAYMENT OF LOAN TO ICICI BANK. IT IS CONTENDED BY THE LD. COUNSEL T H A T T H E LOAN PREPAYMENT PREMIUM WAS PAID ON ACCOUNT OF HIGHER RATE OF INTEREST CHARGED BY THE BANK A N D IT WAS IN THE NATURE OF INTEREST WIT HIN THE MEANING OF SECTION 36(1)(III) READ WITH SECTION 2(28A) OF THE AC T. IN SUPPORT OF THE CONTENTION , THE LD. COUNSEL RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GUJARAT GUARDIAN LIMITED (177 TAXMANN 434 ), WHEREIN THE HON BLE HIGH COURT HELD AS UNDER: 10 THE PREPAYMENT PREMIUM PAID BY THE ASSESSEE TO IDBI IS IN LIEU OF IDBI AGREEING TO REDUCE THE RATE OF INTEREST ON THE RUPEE LOAN AGGREGATING TO RS.170.76 CRORES . THE SAME, IN OTHER WORDS, REPRESENTS UPFRONT PAYMENT (PRESENT VALUE) OF DIFFERENTIAL RATE OF INTEREST THAT WOULD HAVE BEEN DUE ON THE LOAN IF NO RESTRUCTURING OF THE DEBT HAD TAKEN PLACE. IN TERMS OF S. 36(1)(II) READ WITH S. 2(28A) OF THE ACT PREPAYMENT CHARGES BEING INTEREST PAID ON MONEYS BORROWED FOR PURPOSES OF BUSINESS, IS TO BE ALLOWED DEDUCTION AS REVENUE EXPENDITURE. THE PREPAYMENT PREMIUM BEING REVENUE EXPENDITURE , IS TO BE ALLOWED DEDUCTION IN THE YEAR OF ACCRUAL THEREFORE, SINCE THE ACT DOES NOT RECOGNIZE THE CONCEPT OF DEFERRED REVENUE EXPENDITURE. 18.4 FURTHER , IT WAS SUBMITTED THAT LOAN PREPAYMENT PREMIUM BE A RS THE SAME CHARACTER AS THAT OF INTEREST AND INC URRED OUT OF COMMERCIAL EXPEDIENCY, HENCE , ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT. IN SUPPORT OF THE CONTENTION, THE LD. COUNSEL RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. DELHI SAFE DEPOSIT COMPANY L IM ITED (1982) 133 ITR 261 (SC) , WHEREIN THE HON BLE COURT HELD AS UNDER: A SUM OF MONEY EXPENDED, NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON GROUND OF COMMERCIAL EXPEDIENCY, AND IN ORDER DIRECTLY TO FACILITATE THE CARRYING ON OF THE BUSINESS, MAY YET BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADE. THE EXPENDITURE INCURRED ON THE PRESERVATION OF A PROFIT EARNING ASSET OF A BUSINESS HAS ALWAYS BEEN HELD TO BE DEDUCTIBLE EXPENDITURE BY COURTS. IN THE CIRCUMSTANCES, IT IS DIFFICULT TO HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS EITHER GRATUIT OUS OR ONE INCURRED OUTSIDE THE TRADING ACTIVITIES OF THE ASSESSEE. THE EXPENDITURE WAS, THEREFORE, RIGHTLY HELD TO BE DEDUCTIBLE UNDER S. 37. 11 WE, THEREFORE, REJECT THE CONTENTION OF THE REVENUE THAT THE AMOUNT IN QUESTION COULD NOT BE CLAIMED AS DEDUCTION UNDER S. 37 OF THE ACT. 18.5 THE RATIO OF DECISION S ABOVE SQUARELY APPLIES OVER THE FACTS OF THE CASE. ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT KEEPING IN VIEW THE FACTS OF THE CASE , LD. CIT - A HAS FOLLOWED THE JUDICIAL DECISIONS CITED ABOVE . IN O UR OPINION, THE FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE IS JUSTIFIED, ACCORDINGLY WE UPHOLD THE SAME. THE GROUND NO. 1 OF THE APPEAL IS ACCORDINGLY DISMISSED. 19. AS REGARDS GROUND NO. 2, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE I SSUE IN DISPUTE HAS ALREADY BEEN DE CIDED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEE S CASE PASSED FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). 13.3 WE HAVE HEARD THE RIVAL SUBMISSION S AND PERUSED T HE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ISSUE HAS BEEN DEC IDED IN FAVOUR OF THE ASSESSEE BY THE ITAT ORDER PASSED FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). ACCORDINGLY , THIS GROUND OF THE REVENUE IS DISMISSED. 14. GRO U ND NO. 3, THE R EVENUE HAS CHALLENGED ADDITION OF RS.2,04, 75,000/ - DELETED BY THE LD. CIT - A, WHICH WAS MADE BY THE AO BY DISALLOWING UPFRONT FEES. 14.1 THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT LOAN ARRANGEMENT FEE WAS PAID FOR THE PURPOSE OF ARRANGING LOANS FOR VARIOUS BUSINESS EXIGENCIES AND IN VIEW OF TH E DECISION OF THE HON BLE SUPREME COURT IN INDIA C EMENTS VS. CIT , 60 ITR 52, THE EXPENDITURE INCURRED FOR RAISING A LOAN IS REVENUE EXPENDITURE, IRRESPECTIVE OF THE PURPOSE OR MOTIVE FOR WHICH LOAN IS OBTAINED. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VI EW , RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ASSAM BEN GAL C EMENT CO . VS. CIT (1955) 27 ITR 34 (SC) THAT IF EXPENDITURE IS MADE FOR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR 12 ENDURING BENEFIT OF THE BUSINESS, IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IN THE NATURE OF CAPITAL EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS INCURRED EXPENDITURE TO GET SECURED LOANS, WHICH ARE AN ASSET TO THE COMPANY AND THEREF ORE UPFRONT FEE PAID FOR ARRANGING LOAN SHOULD HAVE BEEN CAPITALIZED. 14.2 THE LD. CIT - ( A ) OBSERVED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE ASSESSEE S CLAIM THAT ISSUE IN DISPUTE WAS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF INDIA C EMENTS (SUPRA), ACCORDINGLY, HE DELETED THE ADDITION . 14.3 BEFORE US, LD. S ENIOR DR RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHEREAS ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE, RELIED ON THE ORDER OF THE LD. CIT - A. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE HON BLE SUPREME COURT IN THE CASE OF INDIA C EMENTS LTD . (SUPRA) HAS OBSERVED AS UNDER: IN S. F. ENGINEER V. COMMISSIONER OF INCOME TAX (2) THE BOMBAY HIGH COURT HELD THAT THE EXPENDITURE INCURRED FOR RAISING LOAN FOR THE CARRYING ON OF A BUSINESS CANNOT IN ALL CASES BE REGARDED AS AN EXPEND ITURE OF A CAPITAL NATURE. ON THE FACTS OF THE CASE THEY HELD THAT AS CONSTRUCTION AND SALE OF THE BUILDING WAS THE SOLE BUSINESS OF THE FIRM AND THE BUILDING WAS ITS STOCK - IN - TRADE, AND THE LOAN WAS RAISED AND USED WHOLLY FOR THE PURPOSE OF ACQUIRING THIS STOCK - IN - TRADE AND NOT FOR OBTAINING ANY FIXED ASSETS OR RAISING ANY INITIAL CAPITAL OR FOR EXPANSION OF THE ASSESSEE'S BUSINESS, THE EXPENDITURE INCURRED FOR THE RAISING OF LOAN WAS NOT AN EXPENDITURE OF CAPITAL NATURE BUT REVENUE EXPENDITURE. ALTHOUGH THE CONCLUSION OF THE HIGH COURT WAS CORRECT, WE ARE NOT ABLE TO AGREE WITH THE PRINCIPLE THAT THE NATURE OF THE EXPENDITURE INCURRED IN RAISING A LOAN WOULD DEPEND UPON THE NATURE AND PURPOSE OF (1) 54 I.T.R. 592. (2) 57 I.T.R. 455. THE LOAN. A LOAN MAY B E INTENDED TO BE USED FOR THE PURCHASE OF RAW - MATERIAL WHEN IT IS NEGOTIATED, BUT THE COMPANY MAY AFTER RAISING THE LOAN CHANGE ITS MIND AND SPEND IT ON SECURING 13 CAPITAL ASSETS. IS THE PURPOSE AT THE TIME THE LOAN IS NEGOTIATED TO BE TAKEN INTO CONSIDERATI ON OR THE PURPOSE FOR WHICH IT IS ACTUALLY USED ? FURTHER SUPPOSE THAT IN THE ACCOUNTING YEAR THE PURPOSE IS TO BORROW AND BUY RAW - MATERIAL BUT IN THE ASSESSMENT YEAR THE COMPANY FINDS IT UNNECESSARY TO BUY RAW - MATERIAL AND SPENDS IT ON CAPITAL ASSETS. WI LL THE INCOME TAX OFFICER DECIDE THE CASE WITH REFERENCE TO WHAT HAPPENED IN THE ACCOUNTING YEAR OR WHAT HAPPENED IN THE ASSESSMENT YEAR ? IN OUR OPINION, IT WAS RIGHTLY HELD BY THE NAGPUR JUDICIAL COMMISSIONER IN NAGPUR ELECTRIC LIGHT AND POWER CO. V. COMM ISSIONER OF INCOME TAX(1) THAT THE PURPOSE FOR WHICH THE NEW LOAN WAS REQUIRED WAS IRRELEVANT TO THE CONSIDERATION OF THE QUESTION WHETHER THE EXPENDITURE FOR OBTAINING THE LOAN WAS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. TO SUMMARISE THIS PART OF THE CASE, WE ARE OF THE OPINION THAT (A) THE LOAN OBTAINED IS NOT AN ASSET OR ADVANTAGE OF AN ENDURING NATURE; (B) THAT THE EXPENDITURE WAS MADE FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD - , AND (C) THAT IT IS IRRELEVANT TO CONSIDER THE OBJECT WITH WHIC H THE LOAN WAS OBTAINED. CONSEQUENTLY, IN THE CIRCUMSTANCES OF THE CASE, THE EXPENDITURE WAS REVENUE EXPENDITURE WITHIN S. 10(2)(XV) . 14.5 I N VIEW OF THE CLEAR FINDING OF THE HON BLE SUPREME COURT THAT PURPOSE OR MOTIVE FOR WHICH LOAN IS OBTAINED IS NOT RELEVANT , AND THE EXPENDITURE RAISING A NEW LOAN IS IN THE NATURE OF REVENUE EXPENDITURE, WE UPHOLD THE FINDING OF THE LD. CIT - (A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY , THE GROUND OF THE APPEAL IS DISMISSED. ITA NO. 4727/DEL/2013 15. NOW, WE TAKE THE APPEAL IN ITA NO. 4727/DEL/2013 FOR ASSESSMENT YEAR 2005 - 06. THE GROUNDS RAISED IN THE APPEAL, READ AS UNDER: 1. LD. CIT(A) ERRED IN LAW BY ALLOWING RELIEF RS.19,12,37 ,206/ - AGAINST ADDITION MADE BY THE AO BY DISALLOWING THE COMMISSION EXPENSES. 14 2. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.8,83,62,868/ - MADE BY THE AO BY DISALLOWING ADVERTISEMENT EXPENSES. 3. LD. CIT(A) ERRE D IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,18,05,528/ - MADE BY THE AO BY DISALLOWING ROYALTY - WPC EXPENSES. 4. LD CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,05,789/ - MADE BY THE AO BY DISA LLOWING UPFRONT FEES. 5. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. AS REGARDS THE GROUND NO. 1, RELATING TO THE DISALLOWANCE OF RS.19,12,37,306/ - AS COMMISSION EXPENSES, WE FIND THAT THE ISSUE HAS BEEN DECIDED BY THE ITAT IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 0 9 (SUPRA). ACCORDINGLY , FOLLOWING THE DECISION , WE DISMISS GROUND NO. 1. 3. AS REGARDS THE GROUND NO. 2, RELATING TO THE DISALLOWANCE OF RS.8,83,62,868/ - FOR ADVERTISEMENT EXPENSES, WE FIND THAT THE ISSUE IN DISPUTE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ORDER FOR ASSESSMENT YEAR 2008 - 09 (SUPRA). ACCORDINGLY , WE DISMISS THE GROUND. 4. IN GROUND NO. 3, THE REVENUE HAS RAISED THE ISSUE RELATING TO THE DISALLOWANCE OF RS.1,18,05,528/ - FOR ROYALTY - WPC EXPENSES. WE FIND THAT THIS ISSUE HAS ALSO BEEN DECIDED BY THE ITAT IN THE ASSESSE S OWN CASE FOR AS SESSMENT YEAR 2008 - 09. ACCORDINGLY, THIS GROUND OF APPEAL IS ALSO DISMISSED. 5. GROUND NO. 4, THE R EVENUE HAS RAISED THE ISSUE RELATING TO ADDITION OF UPFRONT FEE OF RS.1,05, 789 / - . WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY US IN FOREGOI NG P ARAS I.E. PARA 14 TO 14.5 IN ITA NO. 4725/DEL / 2013, THUS FOLLOWING OUR OWN DECISION, WE DISMISS THIS GROUND OF APPEAL . 15 5.1 THUS, THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, ALL THE SEVEN APPEALS OF THE REVENUE ARE DISMISSED. THE DECISION IS PRONOU N CED IN THE OPEN COURT ON 9 T H J U N E , 201 7 . S D / - S D / - ( KULDIP SINGH ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9 T H J U N E , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI