DCIT, New Delhi V. M/s Alcobex Metals Ltd., New Delhi

ITA 5344/DEL/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7403 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-12-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL SENIOR
• Keywords: Business expenditure; Date of conversion; Revenue expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI A.T.VARKEY, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO.5344/DEL./2010 ASSESSMENT YEAR : 2003-04 DCIT, CIRCLE -1(1), VS. M/S. ALCOBEX METALS LTD., NEW DELHI. 4223/1, ANASRI ROAD, DARYA GANJ, NEW DELHI. (PAN : AAACA3098H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAUTAM JAIN, ADVOCATE REVENUE BY : SHRI K.K. JAISWAL, SENIOR DR DATE OF HEARING : 09.12.2015 DATE OF PRONOUNCEMENT : 12.01.2016 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE ARISES FROM THE OR DER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV, DELHI DATE D 22.09.2010 AND RELATES TO ASSESSMENT YEAR 2003-04. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ S AS UNDER :- 1 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION RS.28,42,760/- ON ACCOUNT OF PROCESSING AND CONSORT IUM FEE PAID TO PNB WITHOUT APPRECIATING THAT THE AO WAS RIGHT IN CONSI DERING THE ABOVE EXPENSES CAPITAL IN NATURE. AS THE EXPENSES WERE IN CURRED AND PAID TO BANK 2 FOR PROCESSING OF VARIOUS LOANS AND CDR PACKAGE HEN CE THE SAME WERE CAPITAL IN NATURE. 2 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF RS. 15,75,045/- ON ACCOUNT OF STAMP DUTY CHARGES PAID FOR ISSUE OF DEBENTURE CERTIFICATES WHILE FAILING TO DISTINGUISH IN PARTLY CONVERTIBLE DEBENTURE AND FULLY CONVERTIBLE DEBENTURES. THE AO WAS CORRECT IN CONSIDERING THE STAMP DUTY CHARGES FOR ISSUE OF DEB ENTURES CERTIFICATES AS CAPITAL IN NATURE. 3. GROUND 1 RELATES TO DELETION OF ADDITION OF RS.2 8,42,760/- BEING PROCESSING AND CONSORTIUM FEE PAID TO PNB BY THE AS SESSEE COMPANY. THE ASSESSING OFFICER HELD THAT THE AFORESAID EXPENDITU RE IS NOT A REVENUE EXPENDITURE BUT A CAPITAL EXPENDITURE AS THE CHARGE S HAVE BEEN PAID TO THE BANK FOR PROCESSING OF VARIOUS LOANS AND CDR PACKAG ES. HE FURTHER HELD THAT THESE CHARGES WERE NOT PAID DURING THE YEAR AND INF ACT, THE ASSESSEE HAS DEPOSITED THE PAYMENT IN THESE CHARGES AND CREDITED THE SUM TO THE SUSPENSE ACCOUNT AND THEREFORE, IT IS NOT LIABILITY DURING T HE INSTANT YEAR. THE CIT(A) HOWEVER HAS HELD THAT SUCH AN EXPENDITURE INCURRED IS A REVENUE EXPENDITURE. AS SUCH, THE REVENUE IS IN APPEAL. 4. THE LEARNED DR CONTENDED THAT THE EXPENSES INCUR RED FOR PROCESSING OF LOANS AND CDR PACKAGES ARE CAPITAL EXPENDITURE, MORE PARTICULARLY WHEN THESE HAVE BEEN DISPUTED BY THE APPELLANT COMPANY A ND THEREFORE, ARE NOT ELIGIBLE FOR DEDUCTION IN THE INSTANT YEAR. THE LEA RNED AR HOWEVER SUPPORTED THE FINDING OF THE CIT(A) BY RELYING UPON THE JUDGM ENT OF THE APEX COURT IN 3 THE CASE OF INDIA CEMENTS LTD. VS. CIT 60 ITR 52 AN D ALSO IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT - 82 ITR 363. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE TAKE NOTE THAT CIT(A) HAS DELETED THE DI SALLOWANCE OF RS.28,42,760/- BY HOLDING AS UNDER: IT CANNOT BE APPRECIATED THAT HOW THE LD. AO HAS T AKEN THE EXPENDITURE AS CAPITAL OR AS A CONTINGENT LIABILITY. THE SAID EXPE NDITURE WAS PAID TO THE BANK FOR TAKING OF LOAN AND CDR PACKAGE. IT IS WELL SETTLED THAT PROCESSING OF LOAN PER-SE CAN NEVER BE CAPITAL IN NATURE AND I S A PART OF THE ROUTINE JOB OF THE BUSINESS. IN THIS REGARD THE DECISION OF THE DELHI HIGH COURT IN CIT VS. MONNET INDUSTRIES LTD. [2008] 16 DTR (DEL) 307 IS RELIED UPON. FURTHER, THE LOAN CANNOT BE CONSTRUED AS A CONTINGE NT LIABILITY IN AS MUCH AS THE BANK HAD RAISED THE SAID AMOUNT ON THE ASSES SEE. ONCE THE AMOUNT HAD BEEN RAISED, THE SAME HAD BEEN ACKNOWLEDGE BUT HAD BEEN DISPUTED. BECAUSE OF THE DISPUTE, THE ASSESSEE PREFERRED TO K EEP THE SAME IN THE SUSPENSE ACCOUNT. ONCE THE ACCOUNT HAD BEEN CREDITE D, IT CANNOT BE CALLED A CONTINGENT LIABILITY. DECISION OF THE APEX COURT IN KEDARNATH JUTE MFG. LTD. VS. CIT (1971) 82 ITR 363 (SC) IS A GUIDING DE CISION. AS SUCH, THEREFORE, THE ADDITION OF RS. 28,42,760/- IS DELET ED. THE ASSESEE SUCCEEDS IN GROUND OF APPEAL NO. 1. 6. ON CAREFUL CONSIDERATION OF THE ABOVE FINDINGS, WE NOTICE THAT THERE IS NO BASIS FOR THE REVENUE TO CONTEND THAT ANY EXPEND ITURE INCURRED TOWARDS LOAN IS NOT AN ELIGIBLE BUSINESS EXPENDITURE. SUCH AN EXPENDITURE IS REVENUE EXPENDITURE AS HAS ALSO BEEN HELD BY THE APEX COURT IN THE CASE OF INDIA CEMENTS LTD. VS. CIT (SUPRA) WHEREBY THEIR LORDSHIP S HAVE CONCLUDED AS UNDER: WE ARE OF THE OPINION THAT: (A) THE LOAN OBTAINED IS NOT AN ASSET OR ADVANTAGE OF AN ENDURING NATURE; (B) THAT THE EXPEN DITURE WAS MADE FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD; AND (C) THAT IT IS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTA INED. CONSEQUENTLY, IN 4 THE CIRCUMSTANCES OF THE CASE, THE EXPENDITURE WAS REVENUE EXPENDITURE WITHIN SECTION 10(2)(XV) 7. SO FAR AS THE FACT THAT THE APPELLANT HAS DISPUT ED LIABILITY BY KEEPING THE SAME IN SUSPENSE ACCOUNT, IT IS NOTICED THAT IT IS NOT IN DISPUTE THAT LIABILITY HAD BEEN ACKNOWLEDGED AND THE SUM PAID HA S BEEN CREDITED TO THE SUSPENSE ACCOUNT AND THEREFORE, THE CIT(A) CORRECTL Y HELD THAT THE AMOUNT CANNOT BE TREATED AS CONTINGENT LIABILITY BY FOLLOW ING THE DICTA OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT (SUPRA) WHEREIN IT HAS B EEN HELD AS UNDER: IT IS NOT POSSIBLE TO COMPREHEND HOW THE LIABILITY WOULD CEASE TO BE ONE BECAUSE THE ASSESSEE HAD TAKEN PROCEEDINGS BEFORE H IGHER AUTHORITIES FOR GETTING IT REDUCED OR WIPED OUT SO LONG AS THE CONT ENTION OF THE ASSESSEE DID NOT PREVAIL WITH REGARD TO THE QUANTUM OF LIABI LITY ETC. AN ASSESSEE WHO FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING IS ENTITLED TO DEDUCT FROM THE PROFITS AND GAINS OF THE BUSINESS SUCH LIABILIT Y WHICH HAD ACCRUED DURING THE PERIOD FOR WHICH THE PROFITS AND GAINS W ERE BEING COMPUTED. 8. RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOU NCEMENTS, WE HOLD THAT THE FINDING OF THE CIT(A) IS IN ORDER AND AS S UCH, THE GROUND RAISED BY THE REVENUE IS REJECTED. 9. GROUND 2 PERTAINS TO DELETION OF ADDITION OF RS. 15,75,045/- ON ACCOUNT OF STAMP DUTY CHARGES PAID FOR ISSUE OF DEBENTURE C ERTIFICATES. WE NOTICE THAT THE ASSESSING OFFICER HAD MADE DISALLOWANCE BY RELY ING UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF PUNJAB STATE INDUS TRIAL DEVELOPMENT CORPORATION 225 ITR 792 AND M/S. BROOK BOND INDIA L TD. 225 ITR 798 AND 5 CIT(A) ON APPEAL, FURTHER ALLOWED THE CLAIM OF DEDU CTION AND AS SUCH THIS APPEAL BY THE REVENUE. 10. THE LEARNED DR CONTENDED THAT THE CIT(A) HAS FA ILED TO DISTINGUISH PARTLY CONVERTIBLE DEBENTURES AND FULLY CONVERTIBLE DEBENTURES FURNISHED AND THEREFORE, ANY EXPENDITURE INCURRED CONSIDERING THE STAMP DUTY CHARGES FOR ISSUE OF DEBENTURES ARE FULLY CONVERTIBLE DEBENTURE S AND REVENUE IN NATURE. THE AR HOWEVER, SUPPORTED THE ORDER OF THE CIT(A) A ND CONTENDED THAT DEBENTURES ARE LOANS AND THEREFORE, ANY EXPENDITURE INCURRED FOR RAISING LOAN IS ELIGIBLE EXPENDITURE. 11. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE NOT ICE THAT THE CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: 9. IT MAY NOT BE REITERATED THAT THERE IS NO SUBMI SSION FROM THE ASSESSEE. IT NEEDS TO BE MENTIONED THAT DEBENTURE O R EXPENSES THEREOF IS NOT AN EXPANSION OF CAPITAL BASE OF THE ASSESSEE. IT IS A LOAN WHICH IS TO BE RETURNED AND THEREFORE THE DECISION IN PUNJAB STAT E INDL. DEVELOPMENT CORPN. LTD. (SUPRA) AND BROOK BOND INDIA LTD. CANNO T COME TO THE HELP OF THE REVENUE. THE STAMP DUTY TOWARDS DEBENTURE IS NO THING BUT DONE WITH THE INTENTION OF FURTHERING OF BUSINESS OF THE ASSE SSEE. AS SUCH, THEREFORE, THE SAID EXPENDITURE WOULD HAVE TO BE CONSIDERED AS REVENUE IN NATURE. THIS WOULD BE IN ACCORDANCE WITH THE DECISION OF TH E DELHI HIGH COURT IN CIT VS. J.K. SYNTHETICS LTD. (2009) 222 CTR (DEL) 3 39. THE ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO. 2. 12. WE FIND MERIT IN THE AFORESAID FINDING THAT THE DEBENTURES ARE LOANS RAISED BY THE ASSESSEE, THEREFORE, ANY EXPENDITURE INCLUDING STAMP DUTY FOR SUCH DEBENTURES IS ELIGIBLE FOR DEDUCTION FOR COMPU TING INCOME OF THE APPELLANT. A COORDINATE BENCH OF TRIBUNAL IN THE CA SE OF DCIT VS. UAG 6 BUILDERS (P) LTD. 53 SOT 370 (DEL) WHILE CONSIDERIN G THE ISSUE OF FULLY CONVERTIBLE DEBENTURES HAS DELETED THE ADDITION BY OBSERVING AS UNDER :- 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND OURSELV ES IN AGREEMENT WITH THE LD. COMMISSIONER OF INCOME TAX (A)'S FINDING TH AT THERE WAS NO CONTINGENCY INVOLVED IN THE ACCRUAL OF LIABILITY WI TH REFERENCE TO THE INTEREST ON THE DEBENTURES. LD. COMMISSIONER OF INC OME TAX (A) RIGHTLY OBSERVED THAT DEBENTURES, WHETHER FULLY OR PARTLY O R OPTIONALLY CONVERTIBLE, ARE NOTHING BUT DEBT TILL THE DATE OF CONVERSION AN D ANY INTEREST PAID ON THESE DEBENTURES IS ALLOWABLE AS NORMAL BUSINESS EX PENDITURE. THE ONLY UNCERTAINTY IN THE OPTIONALLY CONVERTIBLE DEBENTURE S ISSUED BY THE ASSESSEE IS WHETHER THE DEBENTURE HOLDER WILL GO FOR CONVERS ION INTO SHARES OR WILL CONTINUE TO HOLD THEM AS DEBENTURES. LD. COMMISSION ER OF INCOME TAX (A) RIGHTLY HELD THAT THIS UNCERTAINTY IN NO WAY IM PACTS THE ASSESSEE COMPANY'S LIABILITY TO PAY INTEREST TILL THE DATE O F CONVERSION. LD. COMMISSIONER OF INCOME TAX (A) HAS RIGHTLY HELD THA T THE CASE LAWS REFERRED BY THE ASSESSING OFFICER WERE NOT APPLICAB LE ON THE FACTS OF THE PRESENT CASE. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (A) AND ACCORDINGLY, WE UPHOLD THE SAME. ACCORDINGLY, RESPECTFULLY FOLLOWING THE AFORESAID D ECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, GROUND 2 RAISED BY THE REVEN UE IS THUS REJECTED. 24. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS DAY OF 1 2 TH JANUARY, 2016. SD/- SD/- (L.P. SAHU) (A.T.VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 12 TH DAY OF JANUARY, 2016 TS 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IV, DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.