TMI Blog2011 (5) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... owed - Appeal is dismissed - IT APPEAL NOS. 639, 642AND 699/PN/2007 AND 786 AND 1509/PN/2008 - - - Dated:- 23-5-2011 - I.C. SUDHIR, AND D.KARUNAKARA RAO, JJ. S.P. Joshi for the Appellant. A.S. Singh for the Respondent. ORDER D. Karunakara Rao, Accountant Member. ‑ From the above, it is obvious that there are five appeals under consideration and they include two by the assessee and others by the revenue. Since common issues are involved in all the above cited appeals of the assessee as well as Revenue, they are heard together and are being disposed off by this consolidated order for the sake of convenience. 2. The gist of the issues are depicted in the table form. ITA/AY/Appellant Assessee's Issue Revenue's issues 639/P/07 - AY2001-02/Assessee Interest reset premium Nil 642/P/07 - AY 2003-04/Assessee Interest reset premium ( i ) Melting loss issue ( ii ) Interest reset premium 699/P/07-AY AY 2003-04/Revenue 786/P/07 AY 2004-05/Revenue Nil Interest reset premium 1509/P/07 AY 2005-06/Revenue Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, showed it as a current asset under the caption misc. expenditure in its balance sheet as on 31-3-2001. However, as this interest re-set premium of Rs. 75 lakhs was actually paid to ICICI on 27-12-2000 and as the payment in the nature of interest was made to the Financial Institute ICICI, a claim was made for the entire amount of Rs. 75 lakh in the return of income for its deduction as a business expenditure on actual payment basis. 5. About re-structuring fees of Rs. 2,80,00,000 (AYs 2003-04 2004-05): In the FY 2001-02, the assessee found itself in a very bad financial condition due to recession in automobile industry and mounting losses year after year. It found that it was not possible to pay the existing loan instalments as also interest thereon. In an effort to get the loans restructured and to also reduction in the rate of interest payable thereon, the assessee by its letter dt. 8-3-2002 addressed to ICICI Ltd. requested the Financial Institute to restructure the loans and also reduce the rate of interest payable thereon. Further efforts and negotiations were made in various meetings with the officials of the ICICI Bank Ltd. These efforts resulted into the ICICI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee considered the entire amount of the remaining amount of Rs. 2,15,73,165 as pertaining to the FY 2004-05 and accordingly debited this entire amount to the P L account, thereby showing deferred revenue expenditure under miscellaneous expenditure at NIl on the asset side of the balance sheet as on 31-3-2005. However, in the return of income for AY 2004-05, it claimed Rs. 70,00,002 being re-structuring fees actually paid (out of Rs. 280 lakh) in the FY 2003-04 as admissible business expenditure in the nature of interest paid to the ICICI Bank Ltd. on actual payment basis. 6. AO's action: For AY 2001-02 regarding the claim of Rs. 75 lakhs, the AO did not accept the claim of amount of interest re-set premium paid as interest paid on the loans borrowed. AO considered that the assessee's claim under section 37 of the Act and held that it is not admissible as business expenditure even under section 37 of the Act for the reasons that the (1) impugned claim is not debited to P L account and hence it is not incurred wholly and exclusively for the purposes of business and (2) the assessee has acquired enduring benefits by incurring this expenditure and hence it is a capital ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject-matter of appeal by the Revenue vide ITA No. 699/PN/07 and in the assessee's appeal at ITA No. 642/PN/07. In paras 3 to 13, the CIT (A) held that the re-structuring fees of Rs. 2,80,00,000 paid to ICICI Bank was in the nature of interest in view of the definition of interest laid down in section 2(28A) of the I.T. Act, 1961. For this, he relied on the ITAT, Pune's decision in Chintamani Hatcheries (P.) Ltd. v. Dy. CIT [2000] 75 ITD 117 in which, the ITAT had held that bank evaluation fees paid in respect of loan by a bank is in the nature of interest in view of the definition given in section 2(28A) of the Act. On having held that the payment was allowable as interest under section 36(1)(iii) of the Act, he rejected the AO's claim that it is a capital expenditure. However, he held that the deduction will be allowable as deferred revenue expenditure, as actually debited to the P L account. For this treatment, he relied on the SC decision in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 and the Bombay High Court decision in Taparia Tools Ltd. v. Jt. CIT [2003] 260 ITR 102/126 Taxman 544. C. Regarding the same claim for the AY 2005-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gujarat Guardian Ltd. 19 DTR 785 (Delhi) (pages 23 to 29A of the compilation of case law). The entire amount of Rs. 2,80,00,000 was incurred as liability during the previous year 2002-03 relevant to AY when the agreement was reached on 29-6-2002 as per agreement dt. 11-4-2002. Allowability of the expenditure should not be on the basis of the treatment given to the expenditure in the books of account by the assessee but on the contractual obligation undertaken by the assessee (reliance placed on SC decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 - (pages 15 to 17 of the compilation of case law) and the Bombay High Court decision in the case of Backou Wolf New India Engg. Works Ltd. [1986] 157 ITR 751 (pages 18 to 22 of the compilation of case law). Case law relied by the CIT(A) are distinguishable. The deduction, however, is admissible subject to the provisions of section 43B(d) i.e. on actual payment basis hence the amount claimed at Rs. 2,09,00,008 be held as allowable for AY 2003-04 (reliance again placed on Delhi High Court decision in the case of Gujarat Guardian Ltd. (supra). Even assuming but not admitting that the loan restructuring fees are allowable as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred is of capital nature. (Reliance placed on SC decision in CIT v. Shivkami Mills Ltd. [1997] 227 ITR 465/95 Taxman 73 copy placed at pages 12 to 14 of the compilation of case law. 12. Assessee's submissions for AY 2001-02: Only the assessee is in appeal before the ITAT for this year claiming that the entire interest re-set premium of Rs. 75 lakh (which is considered by the CIT(A) under the term restructuring fees), be slowed as a deduction under section 36(1)(iii) as interest read with the provisions of section 43B(c) of the Act, the said amount is actually paid on 27-12-2000 i.e. during the previous year 2000-01 relevant to AY 2001-02, the payment being in the nature of interest and as it is paid to a financial institute. It may be stated that there is no re-structuring of any loan involved in this year. The Revenue as not come in appeal but as it can support the CIT(A)'s order on other grounds decided against it, my submissions are same as for the AY 2003-04. 13. Assessee's submissions for AY 2004-05: There is appeal only by the Revenue. The assessee has received deduction in respect of the interest re-set premium and loan restructuring fees at Rs. 1,04,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, whether the assessee makes claim or not. The concept of the 'deferred revenue expenditure' of this kind is not supported by the express legal provisions in the Act and it vary case to case based or facts of each case. So far as the capital nature of expenditure is concerned, it is a decided law at the level of the Supreme Court as held in the case of Empire Jute Co. Ltd. (supra) that the capitalization of expenditure has to be decided based on the facts of each claim of expenditure and it is difficult to evolve a rule on this point. Thus, we are left with only one core issue for adjudication and it relates to if the impugned expenditural claim of the assessee constitutes 'interest' or not. 18. We find that the expression 'interest' is defined in section 2(28A) of the Act and it has an inclusive side of the definition too. The same is inserted vide the Finance Act, 1976 and the same reads as follows. "2(28A) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the monies borrowed or debt incurred or in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected to the following. 21. Regarding other aspects of the issue on the issue of extent of allowability, in our opinion, these issues are consequential in nature and the treatment that should be given to the 'interest' has to be given to these payments also in view of the definition given in section 2(28A) of the Act. As seen from the paragraphs 7 to 13 of the impugned order, the CIT(A) has not harmoniously interpreted the provisions of section 2(28A), section 43B and the judgments in the cases of Madras Industrial Development Corpn. (supra) and Taparia Tools Ltd. (supra). In other words, if the impugned expenditure constitutes 'interest' within the meaning of section 2(28A) of the Act, the same attracts the provisions of section 43B as argued by the Ld counsel and claim has to be allowed in accordance with the provisions of section 43B of the Act. We find force in the said arguments CIT(A) has not attended to these arguments as noted above. From the perusal of the said judgments relied upon by the CIT(A), prima facie we find the facts of those cases are entirely different and they are not in the context of the issue of interest as defined in section 2(28A) r. w. s. section 43B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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