GUJARAT PIPAVAV PORTS LTD., MUMBAI V. ITO -14(1)(1), MUMBAI

MA 257/MUM/2022

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The case revolves around the eligibility of loan processing fees amounting to Rs.34.58 Crores, paid to the International Finance Corporation (IFC), for deduction while computing book profit under section 115JB of the Income Tax Act. The fees were related to External Commercial Borrowing (ECB) for port expansion but were charged off as revenue upon the cancellation of the loan agreement. The Assessing Officer (AO) added this amount back to the book profit, treating it as capital expenditure, which is not deductible under section 115JB. The Tribunal's decision was influenced by precedents that capital expenditures, even if debited to the profit and loss account, do not qualify for deduction under section 115JB.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302449 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 12-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 21-09-2022
• Other Referred Cases: JSW Steel Ltd vs. ACIT, Duke Offshore Ltd vs DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 115JB; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘G‘ BENCH MUMBAI BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI KULDIP SINGH, JUDICIAL MEMBER MA No.257/Mum/2022 (Arising out of ITA No.3361/Mum/2019) (Asse ssment Year :2015-16) M/s. Gujarat Pipavav Port Ltd. 301, Trade Centre Bandra Kurla Complex Bandra (E) Mumbai Maharashtra – 400 051 Vs. ITO-14(1)(1) Mumbai 4 th Floor, R.No.431 Aayakar Bhavan M.K.Road, Mumbai – 400 020 PAN/GIR No.AAACC6975B (Applicant) .. (Respondent) Assessee by Shri Manish Kant Revenue by Smt. Vranda Matkari Date of Hearing 13/01/2023 Date of Pronouncement 20/02/2023 आदेश / O R D E R PER M. BALAGANESH (A.M): By virtue of this Miscellaneous Application, the assessee seeks to recall the order passed by this Tribunal in ITA No.3361/Mum/2019 for A.Y.2015-16 dated 31/03/2022. 2. We have heard rival submissions and perused the materials available on record. The issue in dispute in the main appeal was that whether loan processing fees of Rs.34.58 Crores paid to IFC by the MA No. 257/Mum/2022 M/s. Gujarat Pipavav Port Ltd. 2 assessee which has been categorised as an exceptional item in the financial statements of the assessee company would be eligible for deduction while computing book profit u/s.115JB of the Act. The said sum represent one time syndicate fees, structuring fees, commitment fees, legal and administrative fees paid to IFC in connection with External Commercial Borrowing (ECB) of USD 152 million sanctioned by IFC for port expansion. However, subsequently on 31/03/2015 in view of cancellation of the loan agreement, the fees already paid to IFC was charged off as Revenue by the assessee company. This was done by reflecting the same as an exceptional item in the profit and loss account. This sum of Rs.34.58 Crores was voluntarily added back by the assessee while computing its income under normal provisions of the Act. However, the sum was claimed as deduction while computing the book profit u/s.115JB of the Act. The ld. AO while computing the book profit u/s.115JB of the Act added back this sum of Rs.34.58 Crores. As the said expenditure was incurred in connection with ECB which was meant for port expansion and hence, the said expenditure would be capital in nature. Since the capital expenditure debited to profit and loss account cannot be allowed as a deduction while computing book profit u/s.115JB of the Act, the same was added back by the ld. AO. The ld. AO placed reliance on the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of JSW Steel Ltd vs. ACIT in ITA No.923 & 930/BANG/2009 for A.Y.2004-05 dated 13/01/2017, wherein the question of capital receipt (waiver of principal amount of term loan) which was credited to profit and loss account and which was reduced from book profit u/s.115JB of the Act was subject matter of adjudication and Tribunal held that the same would have to be reduced while computing book profits u/s.115JB of the Act. Drawing analogy from the said decision, the ld. AO treated the capital expenditure debited to profit and loss account as not an allowable item while computing book profit u/s.115JB of the Act. MA No. 257/Mum/2022 M/s. Gujarat Pipavav Port Ltd. 3 3. The hearing before this tribunal got concluded on 24/2/2022 with liberty being given to ld. AR to file written rebuttal to the reliance placed by the ld. DR on the aforesaid decision in the case of JSW Steel Ltd. But the written note was stated to be submitted by the assessee on 16/3/2022 in email after a gap of close to a month. 4. We find that no Hon’ble Jurisdictional High Court decision was relied upon by the ld AR in the written note, as stated by the assessee in the miscellaneous application. Infact the decision of Mumbai Tribunal in the case of Duke Offshore Ltd vs DCIT reported in 45 SOT 399 relied upon by the ld.AR at the time of hearing in Miscellaneous Application proceedings, strongly supports the case of the revenue. The proposition laid down by the Tribunal in the case of Duke Offshore Ltd was that extraordinary item need not be considered while computing book profits u/s 115JB of the Act. The same was the proposition laid down by Mumbai Tribunal in the case of JSW Steel Ltd which has been relied upon by the ld.AO in the assessment order. Whether an item is an exceptional item or an extraordinary item is of no relevance for the purpose of computation of book profits u/s 115JB of the Act. The nomenclature does not matter. The nature of expenditure is relevant. Nowhere in the written note or in the arguments advanced by the ld.AR either at the time of original appeal hearing or in the MA hearing, it was even remotely pointed out that the said expenditure in the form of loan processing fees paid to IFC was not capital in nature. Hence once it is accepted that the loan processing fees paid to IFC in the sum of Rs 34.58 crores is capital in nature, merely because the said expenditure is being debited in the profit and loss account , would not make an assessee eligible for deduction while computing book profits u/s 115JB of the Act. Hence it is an admitted fact that capital expenditure in the form of loan processing fees of Rs 34.58 MA No. 257/Mum/2022 M/s. Gujarat Pipavav Port Ltd. 4 crores was indeed debited in the profit and loss account. When capital expenditure is debited to revenue account, then obviously the financial statements were not prepared in accordance with Part II and Part III of Schedule VI of Companies Act, 1956, in which event, the ld. AO is entitled to disturb the audited accounts and recompute the book profits u/s 115JB of the Act. Hence the written note filed by the ld.AR by email on 16/3/2022 does not advance the case of the assessee in any manner. 5. In view of the aforesaid observations, we hold that the MA filed by the assessee is devoid of merits. Eventhough non-consideration of written note of the ld.AR may constitute a mistake, but as stated supra, the said written note does not advance the case of the assessee in any manner. The ultimate decision in the appeal remains unaltered even after consideration of the written note. Hence we hold that there is no mistake apparent from record in the order passed by this tribunal warranting any rectification u/s 254(2) of the Act. 6. In the result, the Miscellaneous Application preferred by the assessee is dismissed. Order pronounced on 20/02/2023 by way of proper mentioning in the notice board. Sd/- (KULDIP SINGH) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 20/02/2023 KARUNA, sr.ps MA No. 257/Mum/2022 M/s. Gujarat Pipavav Port Ltd. 5 Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//