THE ACIT, Eluru V. M/s Haripriya Marine Exports Pvt Ltd., Eluru

ITA 585/VIZ/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8878 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R S NARAYAN
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HONBLE JUDICIAL MEMBER & SHRI G. MANJUNATHA, HONBLE ACCOUNTANT MEMBER ITA NO. 585/VIZ/2014 (ASST. YEAR : 2010-11) ACIT, CIRCLE-1, ELURU. VS. M/S. HARIPRIYA MARINE EXPORTS PVT. LTD., NOWDURU ROAD, BHUDHARAYUDU CHERUVU, KONTHIWADA, VEERAVASARAM (M), WEST GODAVARI DISTRICT. PAN NO. AABCH 5463 J (APPELLANT) (RESPONDENT) C.O.NO.12/VIZ/2015 (ITA NO. 585/VIZ/2014) (ASST. YEAR : 2010-11) M/S. HARIPRIYA MARINE EXPORTS PVT. LTD., NOWDURU ROAD, BHUDHARAYUDU CHERUVU, KONTHIWADA, VEERAVASARAM (M), WEST GODAVARI DISTRICT. VS. ACIT, CIRCLE-1, ELURU. PAN NO. AABCH 5463 J (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADVOCATE. DEPARTMENT BY : SHRI S.R.S. NARAYAN - SR.DR DATE OF HEARING : 28/04/2017. DATE OF PRONOUNCEMENT : 07/06/2017. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX 2 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) (APPEALS), VISAKHAPATNAM, DATED 19/08/2014 FOR THE ASSESSMENT YEAR 2010-11. ITA NO. 585/VIZ/2014 2. FACTS ARE IN BRIEF THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF PRAWN. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED THAT ASSESSEE HAS TRANSFERRED THE LOAN ACCOUNT FROM UBI TO IDBI BANK AFTER PAYING INTEREST OF 2,47,16,409/- AND BOOKED THE SAME AS EXPENDITURE IN THE COMPUTATION. ON THE SPECIFIC QUERY, ASSESSEE SUBMITTED THAT AT THE TIME OF TAKEOVER OF LOAN BY IDBI FROM UBI, THE UBI HAD CHARGED PRE-CLOSURE INTEREST OF 2,47,16,409/-. SINCE, INTEREST WAS NOT NORMAL INTEREST OF THE CURRENT PERIOD, THE ENTIRE AMOUNT HAS BEEN REDUCED FROM THE ACCUMULATED PROFIT. THE ASSESSING OFFICER, AFTER CONSIDERING THE ABOVE EXPLANATION OF THE ASSESSEE, OBSERVED THAT THE SAID INTEREST EXPENDITURE WAS OF CAPITAL IN NATURE AND THE CLAIM OF THE ASSESSEE WAS DISALLOWED. 3. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). IT WAS SUBMITTED BEFORE THE LD.CIT(A) THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE COURSE OF RUNNING BUSINESS AND THE LOAN IS ALSO TAKEN FOR THE BUSINESS PURPOSE, HENCE, SAME HAS TO BE ALLOWED AS BUSINESS EXPENDITURE. LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER:- 3 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) 4.2.3 I HAVE CONSIDERED THE SUBMISSIONS MADE AND DETAILS FILED. IT IS SEEN THAT AS PER THE TERMS OF THE CONTRACT WITH UNION BANK OF INDIA, THE ASSESSEE IS REQUIRED TO PAY TAKE OVER PENALTY OF 2% ON THE AVERAGE BALANCE OF THE PRECEDING 12 MONTHS. FROM THE PERUSAL OF THE SANCTION LETTER DATED 13 TH JANUARY, 2010 ISSUED BY IDBI BANK, IT IS SEEN THAT THE ASSESSEE WAS GRANTED HIGHER CREDIT LIMITS TO THE TUNE OF RS.8703 1AKH AS AGAINST RS.6511 LAKH GRANTED BY UNION BANK OF INDIA VIDE ITS LETTER DATED 3.3.2009. FROM THE PERUSAL OF THE BANK STATEMENT IT IS SEEN THAT AN AMOUNT OF RS. 2,47,16,409/- WAS CHARGED TOWARDS TAKEOVER PENALTY. THUS, APPARENTLY THE SAID EXPENDITURE IS NOT RELATED TO ACQUISITION OF ANY CAPITAL ASSET. IN THIS REGARD, THE OBSERVATION OF THE HON'BLE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD VS. CIT 60 ITR 52, IS RELEVANT WHEREIN THE COURT TOOK THE VIEW THAT LOAN OBTAINED WAS NOT AN ASSET OR AN ADVANTAGE OF ENDURING NATURE. AS IN THE INSTANT CASE, THE SUBJECT EXPENDITURE WAS INCURRED FOR SHIFTING OF LOAN FROM ONE BANK TO ANOTHER, TO GET HIGHER WORKING CAPITAL LIMITS, THE SUBJECT EXPENDITURE INCURRED IN RELATION THERETO CANNOT BE SAID TO BE TOWARDS OBTAINING ADVANTAGE OF AN ENDURING NATURE. THE EXPENDITURE THOUGH CANNOT BE SAID TO BE INTEREST INCURRED FOR THE CURRENT YEAR, IT CANNOT BE DENIED THAT IT WAS INCURRED DURING THE YEAR IN THE NORMAL COURSE OF RUNNING THE BUSINESS FOR BUSINESS PURPOSE. AS IT IS INCURRED DURING THE YEAR DURING THE COURSE OF NORMAL USINESSACI1VITY THE ASSESSEE IS JUSTIFIED IN CLAIMING IT AS DEDUCTION OR THIS YEAR. THUS, AS THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS NOT CAPITAL IN NATURE, I AM OF THE VIEW THAT THE IMPUGNED AMOUNT IS ALLOWABLE AS DEDUCTION U/S 37 OF THE I.T.ACT, EVEN THOUGH IT WAS NOT SPECIFICALLY CLAIMED IN THE P & L A/C. THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN DOT VS. GUJARAT VALLEY FETRILIZERS CO., LTD 356 FIR 460 AND THE DECISION OF HON'BLE ITAT IN WINDERMERE PROPERTIES PVT. LTD VS. DOT 2013 1JOL-368-ITAT-MUM ARE RELEVANT WHEREIN IT WAS HELD THAT PRE- CLOSURE EXPENSES ARE ALLOWABLE AS REVENUE EXPENDITURE. HENCE, THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION AND THE SAME MAY BE ALLOWED U/S.37 OF THE I.T.ACT. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 4. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE VERY SAME ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL VISAKHAPATNAM IN THE CASE OF ACIT VS. M/S. RVR MARINE 4 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) PRODUCTS LTD . IN ITA NO. 223/VIZAG/2014, BY ORDER DATED 30/09/2016, WHEREIN THE TRIBUNAL HAS ALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE AS BUSINESS EXPENDITURE AND SUBMITTED THAT THE SAME MAY BE FOLLOWED. 6 . ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 7 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 8 . THE ASSESSEE INITIALLY HAS TAKEN A LOAN FROM UBI AND SUBSEQUENTLY CLOSED THE ACCOUNT BY TAKING A LOAN FROM IDBI BANK. WHILE CLOSING THE BANK ACCOUNT, THE UBI HAS CHARGED PRE-CLOSURE INTEREST, SO THE SAME IS CLAIMED AS BUSINESS EXPENDITURE BY THE ASSESSEE. THE ASSESSING OFFICER IS OF THE OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE AS CAPITAL IN NATURE. WE FIND THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON AS TO HOW IT IS A CAPITAL IN NATURE. THE ASSESSING OFFICER HAS ALSO NOT DOUBTED ABOUT THE EXPENDITURE INCURRED BY THE ASSESSEE. THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO BY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS FOR THE PURPOSE OF BUSINESS AND THE SAME HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT POINTED OUT ANY MISTAKE IN THE ORDER OF THE LD. CIT(A). UNDER SIMILAR CIRCUMSTANCES, THE COORDINATE 5 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) BENCH OF THE TRIBUNAL HAS CONSIDERED THE ISSUE IN THE CASE OF M/S. RVR MARINE PRODUCTS LTD. (SUPRA) AND HELD AS UNDER:- 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE FOR CONSIDERATION IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED IN THE YEAR UNDER CONSIDERATION OR IN SUBSEQUENT YEARS. THE LD. CIT(A) HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT RELATED TO ANY ACQUISITION OF CAPITAL ASSET. THEREFORE, BY FOLLOWING THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF INDIA CEMENTS LIMITED VS. CIT 60 ITR 52, HE HAS HELD THAT THE CLAIM MADE BY THE ASSESSEE IS ALLOWABLE. THE RELEVANT PORTION OF THE ORDER IS AS UNDER: 4.4 I HAVE CONSIDERED THE SUBMISSIONS MADE. IT COULD BE SEEN THAT THE ASSESSING OFFICER HAD TAKEN THE VIEW THAT IMPUGNED AMOUNT REPRESENT CAPITAL EXPENDITURE FOR THE REASON THAT THE SAID EXPENDITURE IS NOT ENTIRELY RELATABLE TO THE CURRENT YEAR AND ITS BENEFIT IS OF ENDURING NATURE. APPARENTLY THE SAID EXPENDITURE IS-NOT RELATED TO ANY ACQUISITION OF ANY CAPITAL ASSET. IN THIS REGARD, THE OBSERVATION OF THE HON'BLE COURT IN THE CASE OF INDIA CEMENTS LTD VS. CIT 60 ITR 52, IS RELEVANT WHEREIN THE COURT TOOK THE VIEW THAT LOAN OBTAINED WAS NOT A5 ASSET OR AN ADVANTAGE OF ENDURING NATURE. AS IN THE INSTANT CASE, THE SUBJECT EXPENDITURE WAS INCURRED FOR SHIFTING OF LOAN FROM ONE BANK TO ANOTHER, TO GET HIGHER WORKING CAPITAL LIMITS, THE SUBJECT EXPENDITURE INCURRED IN RELATION THERETO CANNOT BE SAID TO BE TOWARDS OBTAINING ADVANTAGE OF AN ENDURING NATURE. THE EXPENDITURE THOUGH CANNOT BE SAID TO BE INTEREST INCURRED FOR THE CURRENT YEAR, IT CANNOT BE DENIED THAT IT IS INCURRED DURING THE YEAR IN THE NORMAL COURSE OF RUNNING THE BUSINESS FOR BUSINESS PURPOSE. AS IT IS INCURRED DURING THE YEAR DURING THE COURSE OF NORMAL BUSINESS ACTIVITY THE ASSESSEE IS JUSTIFIED IN CLAIMING IT AS DEDUCTION FOR THIS YEAR. THUS, AS THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS NOT CAPITAL IN NATURE, I AM OF THE VIEW THAT THE IMPUGNED AMOUNT IS ALLOWABLE AS DEDUCTION U/S.37 OF THE I.T. ACT, EVEN THOUGH IT WAS NOT SPECIFICALLY CLAIMED IN THE P&L A/C. THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN DOT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO., LTD 356 ITR 460 AND THE DECISION OF HONBLE ITAT IN WINDERMERE PROPERTIES PVT. LTD VS. DOT 2013 TJOL- 368-ITAT-MUM ARE RELEVANT WHEREIN IT WAS HELD THAT PRE-CLOSURE EXPENSES ARE ALLOWABLE AS REVENUE EXPENDITURE. HENCE, THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION AND THE SAME MAY BE ALLOWED U/S.37 OF THE I.T. ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 6 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) 6. WE FIND THAT THE LD. COMMISSIONER BY TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE DECIDED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE TO RUN THE BUSINESS AND ACCORDINGLY, CONSIDERED THE EXPENSES INCURRED BY THE ASSESSEE AS A REVENUE EXPENDITURE. WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL IS DISMISSED. 9 . KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S.RVR MARINE PRODUCTS LTD. (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. C.O.NO.12/VIZ/2015 10 . THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE LD. CIT(A), HENCE, IN VIEW OF THE OUR DECISION ABOVE, THE SAME IS DISMISSED. 11 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 07 TH DAY OF JUNE, 2017. SD/- SD/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 07 TH JUNE, 2017. VR/- 7 ITA NO. 585/VIZ/2014 & C.O.NO. 12/VIZ/2015 (M/S. HARIPRIYA MARINE EXPORTS PVT. LTD.) COPY TO: 1. THE ASSESSEE - M/S. HARIPRIYA MARINE EXPORTS PVT. LTD., NOWDURU ROAD, BHUDHARAYUDU CHERUVU, KONTHIWADA, VEERAVASARAM (M), WEST GODAVARI DISTRICT. 2. THE REVENUE - ACIT, CIRCLE-1, ELURU. 3. THE CIT, RAJAHMUNDRY. 4. THE CIT(A), VISAKHAPATNAM. 5. THE D.R., VISAKHAPATNAM. 6. GUARD FILE. BY ORDER