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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : The appellant, DCIT, Circle 13 (2), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 09.12.2014 passed by Ld. CIT (Appeals)-VIII, New Delhi qua the Assessment Year 2010-11 on the following grounds inter alia that:-
“1. On the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1,32,00,000/- made by the AO by way of disallowance on a/c of interest free ICD advance by the assessee company) solely relying on the submission of the assessee company that interest on such ICD was duly charged and offered to tax in the subsequent year 2011- 12, without verifying the facts in this regard which were contrary to the submission made by the assessee company before the CIT(A).
On the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting the addition of Rs.1,32,00,000/- made by the AO by way of disallowance on a/c of interest free ICD advanced by the assessee company on the ground that there was no nexus between interest bearing loan funds and ICD advanced by the assessee company from its own funds without appreciating the facts that even own funds of the assessee company were interest bearing funds.
On the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in holding that the upfront charges paid for obtaining term loan from bank is covered within the definition of interest given in section 2(28A) of the IT Act and hence allowable as revenue expenditure.
On the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in not considering the proportionate interest disallowances for upfront fee payment of Rs.1,67,22,000/- treated in the nature of interest and allowed as revenue expenditure.
5. On the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting the addition of Rs.47,94,600/- made by the AO by way of disallowances out of total expenditure of Rs.59,93,250/- incurred towards purchase of data package inter-alia giving a finding that the AO himself treated such expenditure as differed revenue expenditure, thus giving a finding which is contrary to the finding of the AO in this regard who explicitly treated whole of such expenditure of Rs.59,93,250/- as capital in nature and disallowed 4/5 of such expenditure (i.e. Rs.47,94,600/-) in the assessment year under consideration.
That the order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law.
That the grounds of appeal are without prejudice to each other.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee is into the business of oil & gas exploration and production. Assessing Officer noticed that the assessee has lent unsecured interest free loans to the tune of Rs.11,00,00,000/- to M/s. Jubilant Oil & Gas Pvt. Ltd.. Declining the contentions raised by the assessee, AO made disallowance of Rs.1,32,00,000/- @ 12% on the ground that the said funds were interest bearing in nature. AO also noticed that the assessee has paid upfront fees of Rs.2,09,02,500/- to the Central Bank of India for disbursement of a term loan of Rs.200 crores. Declining the contentions raised by the assessee, AO treated a sum of Rs.2,09,02,500/- as capital expenditure and amortized the same over a period of five years and thereby made disallowance of Rs.1,67,22,000/-. AO also noticed that the assessee has purchased data package from Director General of Hydro Carbon (DGH) for Rs.59,93,250/-. Declining the contentions raised by the assessee, AO proceeded to conclude that data package purchased by the assessee is capital in nature as assessee will derive enduring benefits from the same and amortized the same for a period of five years and thereby disallowed the amount of Rs.47,94,600/-.
3. The assessee carried the matter before the ld. CIT (A) by way of an appeal who has deleted the additions by partly allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
4. Assessee has not preferred to put in appearance despite issuance of the notice and consequently, we proceeded to decide the present appeal with the assistance of the ld. Senior DR as well as on the basis of documents available on the file.
We have heard the ld. Senior Departmental Representative for the revenue to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
6. The ld. DR for the Revenue challenging the impugned order contended that since the assessee has been following mercantile system of accounting, the ld. CIT (A) erred in deleting the additions and relied upon the order passed by the AO.
GROUNDS NO.1 & 2 7. Undisputedly, the assessee company has advanced unsecured interest free loans of Rs.11,00,00,000/- to M/s. Jubilant Oil & Gas Pvt. Limited (JOGPL), its group company. It was the case of the assessee before ld. CIT (A)/AO that in AY 2009-10, Inter- corporate Deposit (ICD) of Rs.11,00,00,000/- was advanced to JOGPL by virtue of the loan agreement dated 01.04.2008 on the terms that no interest was payable and as such, no interest income was offered to tax in the return of income. It was further the case of the assessee that ICD advance by the assessee company was out of own funds as the same was advanced much prior to the loan availed of by the assessee company from the banks i.e. amount of Rs.5,00,00,000/- was advanced on 03.10.2008 and amount of Rs.6,00,00,000/- advanced on 06.11.2008 whereas assessee has availed of the loan of Rs.100 crores each from State Bank of India and Central Bank of India on 16.02.2009 and 25.06.2009 respectively.
Keeping in view the factual position, the ld. CIT (A) has rightly deleted the addition on the grounds inter alia that the assessee company has already charged the interest @ 8% on ICD advance to its group company in the previous year relevant to 2011-12 including interest accrued under assessment year under consideration; that differential interest @ 4% (12% - 8%) has already been disallowed by the AO in the subsequent year 2011- 12; and that the ICD was advanced prior to the loan availed off from the bank meaning thereby the same has been advanced out of own funds by the assessee. So, in the given facts and circumstances, we find no ground to interfere with the findings returned by the ld. CIT (A) deleting the addition of Rs.1,32,00,000/-. Hence, Grounds No.1 & 2 are determined against the Revenue.
GROUNDS NO.3 & 4
Undisputedly, the upfront and syndication of charges of Rs.2,09,02,500/- was made by the assessee company for availing of the term loan of Rs.200 crores from State Bank of India and Central Bank of India respectively which was claimed as revenue deduction. It is also not in dispute that upfront fee is paid only once during the tenure of the term loan. It is the case of the assessee that such expenses on account of upfront charges are allowable u/s 36(1)(iii) of the Act read with section 2(28)(a) of the Act It is also not in dispute that interest paid on the monies borrowed for purpose of business is allowable deduction u/s 36(1)(iii) of the Act.
When we examine provisions contained u/s 36(1)(iii) in the light of the definition of “interest” in section 2(28)(a) of the Act, it certainly includes any service fee or other charges in respect of money borrowed or debt incurred. Even otherwise, when AO has allowed the interest on the loan in question as Revenue expenditure then how the “upfront fee” which also form the part of the interest can be disallowed. The ld. CIT (A) by relying upon the decision rendered by Hon’ble Bombay High Court in the case of Premier Automobiles Ltd. vs. CIT 80 ITR 415 and Hon’ble Rajasthan High Court in case of CIT vs. Secure Meters Ltd. 321 ITR 611 has rightly held that upfront charges paid by the assessee is allowable deduction being part of the “interest” already allowed by the AO as revenue expenditure. Finding no illegality or perversity in the deletion of addition of Rs.1,67,22,000/- on account of disallowance of upfront charges paid by the assessee for availing the loan of Rs.200 crores for business purpose, grounds no.3 & 4 are determined against the Revenue.
GROUND NO.5 11. The ld. CIT (A) has deleted the addition of Rs.47,94,600/- made by the AO on account of purchase of data packages on the ground that the same amounts to deferred revenue expenditure.
Undisputedly, the assessee company has made payment of Rs.59,93,250/- to Director General of Hydro Carbon (DGH) for purchasing data packages which was mandatory for the assessee company to participate in the bid. The Revenue has not disputed the incurrence of that expenses for business purposes but allowed the same as deferred expenditure over a period of five years. We are of the considered view that when the assessee was made to incur the mandatory expenses having been paid to DGH for participating in tender/bid process, no enduring benefit, as has been observed by AO, can be made out. Moreover, AO has not disputed the nature of these expenses as revenue expenses. So, when the incurrence of such expenses are admittedly of revenue nature, the same cannot be considered as deferred revenue expenditure. So, we are of the considered view that the ld. CIT (A) has rightly deleted the addition of Rs.47,94,600/- by appreciating the facts on record. Consequently, ground no.5 is determined against the Revenue.
GROUNDS NO.6 & 7 12. Grounds No.6 & 7 are general in nature, hence need no specific adjudication. 13. Resultantly, the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 30th day of November, 2018.