TMI Blog1999 (11) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year ended on 31-3-1993. In the relevant accounting year, the assessee was involved in the following activities : (a) Construction project at Tungwa, (b) Income from Hotel Resort at Mud Island, (c) Income from consultancy division, (d) Income from partnership firms, (e) Sale of unit and parking at Raheja Arcade in Bangalore, (f) Income from lease rent, etc. The assessee debited loan processing charges to HDFC of ₹ 7,50,000 for processing of term loan of ₹ 5.75 crores for a construction project at Raheja Vihar, Mumbai. The assessee had paid processing and administrative fees of ₹ 6.00 lakhs to HDFC and similar payment of ₹ 1.50 lakhs to Citibank. The Assessing Officer refused to consider the loan processing charges as of revenue nature on the ground that these charges are to be spread over the entire period on the term loan as per the terms and conditions of the loan agreement. As no loan is repaid during the previous year relevant to the assessment year under consideration, the above expenses of ₹ 7,50,000 cannot be considered for the assessment year under appeal. The Assessing Officer observed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial institutions. Thus, the learned CIT(A) found that the facts and circumstances of the assessee s case were similar to the case of India Cements Ltd. (supra). Relying upon the ratio of the above Supreme Court decision, the CIT(A) held that the Assessing Officer was not justified in disallowing the claim of ₹ 7.50 lakhs made by the assessee representing expenditure incurred towards charges paid for processing of loan and administrative fees paid to HDFC and Citibank, and the repayment of loan has no bearing on the allowability of the claim. Therefore, he directed the Assessing Officer to allow deduction of ₹ 7,50,000. 5. Before me, the assessee cited the decision of the Hon ble Supreme Court in Sivakami Mills Ltd. s case (supra). In that case, purchase of machinery by the assessee was made on deferred payment terms. Guarantee was executed by the Bank for assuring due payment of instalment by the assessee. Whether the guarantee fee is allowable as revenue expenditure under section 37 was one of the questions which arose for consideration before the Hon ble Supreme Court. The second question was whether interest on deferred payment was a revenue expenditure allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the asset acquired with those funds. It is for this reason that as per the clear guidelines issued by the Institute of Chartered Accountants of India, the interest money which are specifically borrowed for the purchase of a fixed asset may be capitalised only relating to the period prior to the asset coming into production, that is relating to the erection stage of the asset. However, once the production starts, no interest on borrowings for the purchase of such assets in relation to the post production period should be capitalised. It was contended before the CIT(A) that there is no phase-II of the hotel which is under construction. The Assessing Officer, argued the learned counsel for the assessee, appeared to have been mis-led by the fact that the loan of ₹ 3 crores and ₹ 2 crores were respectively sanctioned by the HDFC towards construction of phase-I and phase-II of Tungwa projection which is no way related to Hotel activity. The addition made to the block of assets is on the existing hotel activity and not to a new project. The hotel business had commenced its activity in the earlier year. As such, it is a running concern and any interest paid on borrowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in this year. Admittedly, the assessee had raised loans from HDFC and other financial institutions for all its business activities and was partly invested in additions and alterations to the hotel division. The cost of additions and alterations were capitalised and shown as work-in-progress for the block of assets. As such, there is no new business or new unit of hotel set up by the assessee. Considering the submissions made by the learned counsel for the assessee and relying upon the decisions of the various courts, the CIT(A) held that assessee has merely been making additions/alterations to its existing hotel business activity and in the facts and circumstances of the assessee s case, interest paid on borrowings was held to be a permissible deduction as they were incurred by a running concern. He further held that the processing charges of ₹ 4 lakhs paid by the assessee on raising loan of ₹ 2 crores from HDFC was allowable as a revenue expenditure. He accordingly held that the Assessing Officer was not justified in disallowing interest of ₹ 19,19,683 alongwith loan processing charges of ₹ 4.00 lakhs claimed by the assessee on revenue expenditure and h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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