DCIT, Hyderabad V. M/s M/s Rame Diecast Ltd., Medak

ITA 651/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59363 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JDUICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.651/HYD/2009 : ASSESSMENT YEAR 2005-2006 DY. COMMISSIONER OF INCOME- TAX, HYDERABAD V/S M/S. RANE DIECAST LTD., BOLLARAM IDA, MEDAK DISTRICT. (PAN - AACCF 8509 F ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V.PRASAD REDDY RESPONDENT BY : SHRI V.SIVA KUMAR DATE OF HEARING 8 3.2012 DATE OF PRONOUNCEMENT 14.3.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE DEPARTMENT IS DIRECTED A GAINST THE ORDER OF THE CIT(A) IV, HYDERABAD DATED 13.3.2009, FOR THE ASSESSMENT YEAR 2005-06. 2. GROUNDS OF THE REVENUE IN THIS APPEAL ARE AS FO LLOWS- 1. THE CIT(A) ERRED ON FACTS AND IN LAW. 2. THE CIT(A) OUGHT TO HAVE CONFIRM ED THE ACTION OF THE ASSESSING OFFICER. 3. THE CIT(A) ERRED IN HOLDING THAT THE FEES OF RS. 3,00,000 AS REVENUE EXPENDITURE 4. THE CIT(A) ERRED IN HOLDING THAT THE PREMIUM PAI D IN ADVANCE OF RS.60,27,760 AS REVENUE EXPENDITURE. 5. THE CIT(A) OUGHT TO HAVE HELD THAT THE EXPENDIT URE SHOULD BE SPREAD FOR THE TOTAL PERIOD OF LOAN REPAYMENT IN VIEW OF THE DECISION OF THE APEX COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V/S CIT(225 ITR 802). ITA NO.651/HYD/09 M/S. RANE DIECAS T LTD., IDA BOLLARAM, MEDAK DIST. 2 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE DREW OUR ATTENTION TO THE ORDERS OF THE REVENUE AUTHORITIES, AND SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URE OF AUTOMOBILE COMPONENTS . LEARNED COUNSEL MENTIONED THAT THE ISSUE RAISED IN GROUND NO.3 IS ALREADY DECIDED IN FAVOUR OF THE AS SESSEE BY THE CIT(A) AND RELEID ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V/S. CROMPTON ENGINEERING CO. LTD. (242 ITR 317) AN D ALSO OF THE MYSORE HIGH COURT JUDGMENT IN THE CASE OF CIT V/S. SANDHUR MANGANESE AND IRON ORE PVT. LTD. (63 ITR 120), WHEREIN IT WAS HELD THA T PROFESSIONAL FEES PAID TO A MANAGEMENT CONSULTANT FOR COMPREHENSIVE C APITAL RESTRUCTURING OF A BUSINESS CANNOT BE TREATED AS A CAPITAL EXPEND ITURE, AS THE SAME WAS NOT FOR THE PURPOSE OF ANY NEW BUSINESS BUT WAS MEA NT FOR THE MORE EFFICIENT CONDUCT OF THE EXISTING BUSINESS. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR TH E REVENUE MENTIONED THAT ALLOWANCE OF ENTIRE DEDUCTION IN ONE YEAR MAY LEAD TO DISTORTED PICTURE OF THE PROFITS AND THE FINANCIAL STATEMENTS OF THE ASSESSEE FOR VARIOUS YEARS. 5. WE HEARD BOTH THE PARTIES ON THE ISSUE AND FIND THAT THE CIT(A) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSE SSEE FOR THE REASONS DISCUSSED IN PARA 6 OF HIS ORDER, WHICH READS AS UN DER- 6.1 THE FEES PAID FOR RESTRUCTURING OF THE EXIST ING LOAN WAS INDEED NOT FOR THE PURPOSE OF ANY NEW BUSINESS BUT FOR A MORE COST EFFECTIVE AND PRUDENT CARRYING ON OF THE EXIST ING BUSINESS ITSELF. HONBLE MADRAS HIGH COURT IN THE CASE OF CI T V/S. CROMPTON ENGINEERING CO. LTD.(242 ITR 317) HAD OPINED THAT P ROFESSIONAL FEES PAID TO A MANAGEMENT CONSULTANT FOR COMPREHENS IVE CAPITAL RESTRUCTURING OF A BUSINESS CANNOT BE TREATED AS A CAPITAL EXPENDITURE AS THE SAME WAS NOT FOR THE PURPOSE OF ANY NEW BUSINESS BUT WAS M EANT FOR THE MORE EFFICIENT CARRYING ON OF THE EXISTING BUSINESS. A SIMILAR VIEW WAS TAKEN IN THE CASE OF CIT VS. SANDHUR MANGANESE AND IRON ORE PVT. LTD. (63 ITR 12 0)(MYS) ALSO. APPLYING THE SAME PRINCIPLES, IT CAN BE SAID THAT THE ITA NO.651/HYD/09 M/S. RANE DIECAS T LTD., IDA BOLLARAM, MEDAK DIST. 3 RESTRUCTURING OF THE EXISTING LOAN COULD NOT BE SAI D AS HAVING BEEN DONE FOR A DIFFERENT OR NEW BUSINESS. SINCE THE SAM E WAS FOR THE BETTERMENT AND COST EFFICIENCY OF THE EXISTING BUSI NESS, THE LOAN RESTRUCTURING FEE OF RS.3 LAKH IS HELD AS AN ALLOWA BLE EXPENDITURE. CONSIDERING THE ABOVE REASONING GIVEN BY THE CIT(A) , WE ARE OF THE OPINION THAT THE ABOVE DECISION OF THE CIT(A) IS ON E POSSIBLE ONE AND THEREFORE, IT DOES NOT CALL FOR ANY INTERFERENCE. WE ACCORDINGLY UPHOLD THE SAME, REJECTING THE GROUND OF THE REVENUE ON THIS I SSUE. 6. SECOND ISSUE MENTIONED IN GROUNDS NO.4 AND 5 OF THIS APPEAL RELATES TO THE ISSUE OF ALLOWING THE ADVANCE PREMIA OF RS.60,27,760 AS REVENUE EXPENDITURE. THE REVENUE IS OF THE OPINION THAT THE SAID AMOUNT SHOULD HAVE BEEN ALLOWED AS DEFERRED REVENUE EXPEND ITURE ONLY, CONSIDERED OVER THE PERIOD OF LOAN SCHEDULED FOR RE PAYMENT. THE REVENUE RELIED ON THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. V/S. CI T(225 ITR 802). 7. LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , CONTENDED STATING THAT THE PREMIUM PAID WAS ALLOWABLE AS DEDU CTION IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. HE RELIED ON THE DECISION OF THE ITAT CHENNAI BENCH IN THE CASE OF OVERSEAS SANMAR FINANC IAL LTD. (86 ITD 602). 8. WE HEARD BOTH THE PARTIES AND PERUSED PARA 9 OF THE IMPUGNED ORDER OF THE CIT(A), WHICH IS REPRODUCED B ELOW- 9. ..DISTINGUISHING THE DECISION OF THE HONBLE A PEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD., HONBLE ITAT HELD THEREIN THAT THE FORECLOSURE PREMIUM WAS PAID BY THE ASSESSEE AFTER A WELL JUDGED BUSINESS DECISION AS I T WANTED THE BENEFIT OF AVAILING LOAN AT LOWER RATES. SINCE THE EXPENDITURE WAS LAID OUT ONLY FOR THE PURPOSE OF BUSINESS, THE CLAI M OF THE ASSESSEE WAS HELD ALLOWABLE. FOR ARRIVING AT SUCH CONCLUSION THEY ALSO DISCUSSED THE DECISION IN THE CASES OF SIVAKAMI MIL LS LTD. AND MADRAS AUTO SERVICE PVT. LTD. ON A CONSIDERATION O F THE FACTS OF THE APPELLANTS CASE, IT IS SEEN THAT THE REASONING GIVEN BY THE ITA NO.651/HYD/09 M/S. RANE DIECAS T LTD., IDA BOLLARAM, MEDAK DIST. 4 HONBLE ITAT CHENNAI BENCH IN THE CASE OF OVERSEAS SANMAR FINANCIAL LTD. VS. JCIT(SUPRA) IS SQUARELY APPLICA BLE TO THE CASE OF THE APPELLANT. THE APPELLANT ALSO AGREED TO PAY THE PREMIUM OF RS.60,27,760/- AS IT TOOK A BUSINESS DECISION IN TH IS REGARD DULY CALCULATING THAT AVAILING LOANS AT 11% IN THE LONG TERM WILL BE BENEFICIAL FOR IT AS COMPARED TO THE EXISTING LOANS ON WHICH INTEREST @ 17% WAS BEING PAID. .,. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) DISTI NGUISHED THE ABOVE CITED DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. (SUPRA). FU RTHER, IT IS ALSO EVIDENT THAT THE CIT(A) HAS PASSED A SPEAKING ORDER, AFTER CONSIDERING THE DECISIONS OF IN THE CASES OF SIVAKAMI MILLS LTD. AN D MADRAS AUTO SERVICES PVT. LTD. HE CONCLUDED THAT THE DECISION OF THE CH ENNAI BENCH IN THE CASE OF OVERSEAS SANMAR FINANCIAL LTD. (SUPRA) IS SQUARE LY APPLICABLE TO THE FACTS OF THE PRESENT CASE WITH WHICH WE AGREE. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IT IS ACCO RDINGLY UPHELD, AND THE GROUNDS OF THE REVENUE ON THIS ISSUE ARE REJECTED. GROUND NO. 1 AND 2 ARE GENERAL AND THEY DO NOT CALL FOR ANY SEPARATE A DJUDICATION. HENCE THEY ARE DISMISSED AS GENERAL ONES. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 14.3.2012 SD/- SD/- ( ASHA VIJAYARAGHAV AN) (D.KARUNAKARA R AO ) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- MARCH, 2012 COPY FORWARDED TO: 1. M/S. RANE DIECAST LTD., 143/A, SV CO - OPERATIVE INDUSTRIAL ESTATE, IDA BOLLARUM, MEDAK DISTRICT. 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(1), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) IV HYDERABAD COMMISSIONER OF INCOME - TAX AP III, HYDERABAD 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT HYDERABAD B.V.S.