COMMISSIONER OF INCOME TAX vs. M/S.THIRU AROORAN SUGAR

T.C.A.No.769 of 2015 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 01.07.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMY AND THE HON'BLE MRS.JUSTICE R.HEMALATHA T.C.A.No.769 of 2015 Commissioner of Income Tax, Corpoorate Circle 3, Chennai. ... Appellant v. M/s. Thiru Arooran Sugar Limited, Eldorado V Floor, 112, M.G. Road,Chennai 600 034. PAN AAACT 2382 B ... Respondent Appeal preferred under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Chennai, "B" Bench, dated 20.03.2015 in I.T.A.No.1610/Mds/2014 for the Assessment Year 2007-2008. For Appellant : Mr. M. Swaminathan

Senior Standing Counsel Assisted by Mrs. V. Pushpa, JSC For Respondent : Mr.R.Venkat Narayanan Page 1/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015

JUDGMENT (Judgment was delivered by M. DURAISWAMY, J.) Challenging the order passed in I.T.A.No.1610/Mds/2014 in respect of the Assessment Year 2007-2008 on the file of the Income Tax Appellate Tribunal, Chennai, "B" Bench (for brevity, the Tribunal), the Revenue has filed the above appeal. 2.1 The assessee company is a manufacturer and settler of white crystal sugar and its by-products. The assessee company filed its return of income on 30.10.2007 declaring NIL income. The case was selected for scrutiny and a notice under section 143(2) was issued and seved on the assessee company. During the course of scrutiny assessment proceedings, the Assessing Officer found that the aseesee had claimed an expense of Rs.4,20,60,863/- in the profit and loss account under the head, extraordinary expenses. Since the payment of Rs.10,00,000/- towards the research study to increase fuel efficiency and benefit of which is enduring in nature, the expenditure is patently of capital in Page 2/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 nature. Hence, the Assessing Officer disallowed the entire expenditure. Out of the exordinary expnses, the assessee had claimed an amount of Rs.4,08,22,374/- towards payment of pre-payment premium and interest to various banks. As per Corporate Debt Restructuring (CDR) agreement the loans are of the nature of term loan of Rs.132 corres, working capital of Rs.80.19 corres and preferential share money of Rs.19.33 crores. The payment has been made to compensate the loss of the above financial institutions due to CDR agreement and assessee has been provided with an enduring benefit out of the above CDR agreement and thus is of othe nature of capital expenditure. Therefore, the assessee claim of the same as revenue expenditurewas disallowed by the Assessing Officer. The Assessing Officer completed the assessment on 24.11.2009 under section 143(3). 2.2 Aggrieved over the order passed by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of Income Tax by order dated 07.02.2014 dismissed the appeal. Challenging the same, the assessee Page 3/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 preferred an appeal before the Income Tax Appellate Tribunal, and the Tribunal, by its order dated 20.03.2015 allowed the appeal of the assessee. Aggrieved over the order passed by the Tribunal, the Revenue has filed the above appeal. 3. The above appeal was admitted on the following substantial questions of law: “ (I) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in holding that the expenditure was crystalized during the relevant previous year when the assessee hijmself has classified the expenses as "prior period expenditure"?

(ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in holding that one time payment made by the assessee towards prepayment premimum and interest compense is business expenditure in the nature of rEvenue Expeidutre?" Page 4/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 4.1 When the appeal is taken up for hearing, Mr. M. Swaminathan, learned Senior Standing Counsel appearing for the appellant fairly submitted that the substantial questions of law arise for consideration in the present appeal were already decided by the Hon'ble Supreme Court of India in its Judgment dated 14.01.2020 in Civil Appeal Nos.7615 of 2009 and 2414 of 2010 [ Commissioner of Income Tax v. Gujarat Guardian Limited, Erode] wherein, the Hon'ble Supreme Court of India held as follows : “Heard learned counsel for the parties. These appeals were admitted only in reference to question of law formulated as follows: - "Whether on the facts and in the circumstances of the case, the Hon'ble High Court of Delhi was right in law in allowing deduction of lump sum pre-payment premium paid by the assessee to IDBI amounting to Rs. 8 crores, ignoring the fact that the aforesaid payment represented upfront [present value] of differential rate of interest that would have been on the loan if no restructuring of the debt had taken place; and that the judgment of Page 5/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 Supreme Court in 225 ITR 802 is squarely applicable to the present case? The assessing officer and the First Appellate Authority answered the issue against the assessee but the ITAT and the High Court has held that the principle underlying the exposition in Madras Industrial Investment Corporation Ltd. Vs. C.I.T.- 225 ITR 802 has no application to the fact situation of the present case, in view of the dictum in paragraphs 15 and 16 of the reported decision itself. The ITAT in its judgment had observed as follows: 31. We have heard the rival submissions. The assessee had made proposal to Industrial Development Bank of India (IDBI) for restructuring of debt IDBI vide letter dated 19th March 1995 agreed to, inter alia, reduce the rate of interest on rupee loan to 15% per annum, effective from 1st April, 1995 upon payment of lump sum prepayment premium of Rs. 8 crores. The Assessing Officer has allowed deduction for Rs. 80 lacs being 1/10th of the prepayment premium of Rs. 8 crores during the year, applying the ratio of Page 6/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 the Supreme Court decision in the case of Madras Industrial Corporation Vs. CIT, 225 ITR 802. The prepayment premium paid by the assessee to EDBI is in lieu of IDBI agreeing to reduce the rate of interest on the rupee loan aggregating to Rs 170.76 crores. The same, in other words, represents upfront payment (present value) of differential rate of interest that would have been due on the loan if no restructuring of the debt had taken place. In terms of S. 36(1)(ii) read with S. 2(28A) of the Act prepayment charges being interest paid on moneys borrowed for purposes of business, is to be allowed deduction as revenue expenditure. The prepayment premium being revenue expenditure, is to be allowed deduction in the year of accrual thereof, since the Act does not recognize the concept of deferred revenue expenditure. 32. The decision of the Chennai Bench of the Tribunal in the case of Overseas Ltd. Vs. JCIT 86 ITD 602 Chennai also supports the plea of the assessee. Besides the above S. 43B(d) also permits claiming deduction on actual payment. Even on this basis the claim of the assesseedeserves to be Page 7/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 accepted. Ground No.3 is accordingly allowed." (emphasis supplied in italics) The view so taken by the ITAT commended to the High Court. We find no reason to take a different view in the matter. In view of the above, these appeals deserve to be dismissed and are dismissed accordingly. No order as to costs. Pending applications, if any, stand disposed of." 4.2 The learned Senior Standing Counsel submitted that in view of the ratio laid down by the Hon'ble Supreme Court of India, the questions of law has to be decided against the revenue and in favour of the assessee. 5 Mr.R.Venkat Narayanan, learned counsel appearing for the respondent-assessee submitted that in view of the Judgment of the Hon'ble Supreme Court of India the appeal may be dismissed.

Page 8/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 6. Having regard to the submissions made by the learned counsel on either side, following the ratio laid down by the Hon'ble Supreme Court of India in the Judgment reported made in Civil Appeal Nos.7615 of 2009 and 2414 of 2010 [cited supra], the questions of law are decided against the Revenue and in favour of the assessee. Accordingly, the Tax Case Appeal is dismissed. No costs. [M.D., J.] [R.H., J.] 01.07.2021

Index : Yes/No Internet : Yes Rj To The Income Tax Appellate Tribunal, Chennai,"B" Bench. Page 9/10 https://www.mhc.tn.gov.in/judis/ T.C.A.No.769 of 2015 M. DURAISWAMY, J. and R.HEMALATHA, J. Rj T.C.A.No. 769 of 2015 01.07.2021 Page 10/10 https://www.mhc.tn.gov.in/judis/