DCIT 1(3), MUMBAI V. SOMANY EXERGREEN KNITS LTD, MUMBAI

ITA 7661/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8780 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 08-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Assessee Lawyers: VISHWAS V MEHENDALE
• Keywords: Capital asset; Business expenditure; Corroborative evidences; Revenue expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER & SHRI P.M.JAGTAP, ACCOUNTANT MEMBER. I.T.A. NO.7661/MUM/2010 ASSESSMENT YEAR : 2005-06. DY. COMMISSIONER OF INCOME-TAX, SOMANY EVERGREEN KNITS LTD., 1(3), MUMBAI. VS. 6, VASMANI MANSION, 1 ST FLOOR, OPP. K.C. COLLEGE, DINSHAW WACHHA ROAD, BACKBAY RECLAMATION, MUMBAI-20. PAN AAACS7258M. APPELLANT. RESPONDENT. APPELLANT BY : SHRI V. KRISHNAMOORTHY RESPONDENT BY : S HRI VISHWAS V. MEHENDALE. DATE OF HEARING : 17-09-2012 DATE OF PRONOUNCEMENT : 26 -9-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-2, MUMBAI DATED 18-08-2010 AND IN THE SOLITARY GROUND RAISED THEREIN, THE REVENUE HAS CHALLENGED THE ACTION OF T HE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PROFESSIONAL FEES AMOUNTING TO RS.7,71,000/- AND LOAN PROCESSING CHA RGES AMOUNTING TO RS.3,11,809/-. 2 ITA NO.7661/MUM/2010 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF KNITTED FABRICS. THE R ETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29-10-2005 D ECLARING TOTAL INCOME OF RS. NIL. IN THE SAID YEAR, THE SECURED LOANS AVAILED B Y THE ASSESSEE FROM ICICI LTD. AND SBI AMOUNTING TO RS.15.97 CRORES WERE TAKEN OVER BY M/S ASSET RECONSTRUCTION CO. LTD. AT RS.14.04 CRORES. THE ASSESSEE THUS HAD OBTAINED REDUCTION IN THE SECURED LOANS TO THE EXTENT OF RS.1.92 CRORES WHICH WAS TAKEN TO THE CAPITAL RESERVE. IT WAS CLAIMED BY THE ASSESSEE THAT THE SAID AMOUNT REPRESENTING CESSATION OF THE LIABILITY ON ACCOUNT OF LOANS WAS IN THE NATURE OF CAPITAL ITEM AND THE SAME, THEREFORE, WAS NOT CHARGEABLE TO TAX. THE EXPENSES INCURRED IN THIS REGARD ON ACCOUNT OF PROFESSIONAL FEES AMOUNTING TO RS.7,71, 000/- AND LOAN PROCESSING FEES AMOUNTING TO RS.3,11,809/-, HOWEVER, WERE CLAIMED B Y THE ASSESSEE AS DEDUCTION TREATING THE SAME AS REVENUE EXPENDITURE. ACCORDING TO THE AO, THE SAID EXPENSES WERE INCURRED BY THE ASSESSEE FOR OBTAINING AN ENDU RING BENEFIT INCLUDING BENEFIT ON ACCOUNT OF DISCHARGE OF CAPITAL LIABILITY AND T HE SAME, THEREFORE, WERE OF CAPITAL NATURE. ACCORDINGLY, THE DEDUCTION CLAIMED BY THE A SSESSEE FOR THE SAID EXPENSES AGGREGATING TO RS.10,82,809/- WAS DISALLOWED BY HIM IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 24-10-2007. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS). IT WA S CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) THAT THE PROFESSIONAL FEES OF RS.7,71,000/- PAID TO THE CHARTERED ACCOUNTANT AND THE EXPENDITURE INCURRED ON LOAN PROCESSING CHARGES OF RS.3,11,809/- WERE DIREC TLY IN CONNECTION WITH THE FINANCIAL RESTRUCTURING AND THE SAME, THEREFORE, WE RE ALLOWABLE AS DEDUCTION BEING EXPENDITURE OF REVENUE NATURE. IN SUPPORT OF THIS C ONTENTION, RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE ON THE DECISION OF HONBLE P UNJAB & HARYANA HIGH COURT IN 3 ITA NO.7661/MUM/2010 THE CASE OF JCT ELECTRONICS LTD. REPORTED IN 188 T AXMAN 191. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE CONTENTION RAISED O N BEHALF OF THE ASSESSEE. HE HELD THAT THERE WAS NO CAPITAL ASSET CREATED AS A R ESULT OF IMPUGNED EXPENDITURE INCURRED BY THE ASSESSEE ON PROFESSIONAL FEES AND L OAN PROCESSING CHARGES AND THE SAID EXPENDITURE HAVING BEEN INCURRED BY THE ASSESS EE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO ON THI S ISSUE WAS DELETED BY THE LEARNED CIT(APPEALS). AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUN AL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE EXPENDI TURE IN QUESTION ON ACCOUNT OF PROFESSIONAL FEES AND LOAN PROCESSING CHARGES WAS I NCURRED BY THE ASSESSEE IN CONNECTION WITH ITS FINANCIAL RESTRUCTURING AND THI S POSITION CLEARLY EVIDENT FROM THE COPIES OF RELEVANT BILLS/SUPPORTING EVIDENCE HAS NO T BEEN DISPUTED BY THE LEARNED DR. IN THE CASE OF CIT VS. JCT ELECTRONICS LTD. (SU PRA) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, HONBLE PUNJAB & HARYANA HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL TREATING THE EXPENDITURE I NCURRED FOR RESTRUCTURING AND VIABILITY STUDY AND PREPARATION OF RESTRUCTURING PR OPOSAL AS REVENUE EXPENDITURE ALLOWABLE U/S 37 BEING EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE SAID DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR OPINION, IS SEQUARELY APPLICABLE TO THE ISSUE INVOL VED IN THE PRESENT CASE AND SINCE THE LEARNED DR HAS NOT BEEN ABLE TO CITE ANY JUDICI AL PRONOUNCEMENT IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE, WE RESPECTFULLY F OLLOW THE SAID DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSE SSEE FOR DEDUCTION ON ACCOUNT 4 ITA NO.7661/MUM/2010 OF EXPENSES INCURRED IN CONNECTION WITH FINANCIAL R ESTRUCTURING IN THE FORM OF PROFESSIONAL FEES AND LOAN PROCESSING CHARGES. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF SEPT. , 2012. SD/- SD/- (D.K. AGARWAL) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 26 TH SEPT., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE