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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT-A 53, Mumbai dated 27/02/2015 for A.Y.2011-12 in the matter of order passed u/s.143(3) of the IT Act. 2. The following grounds have been taken by the assessee:-
1. The Ld. CIT (A) erred in confirming the addition of Rs.94,97,458/- being 1/5th of the bank's loan processing fees paid by the appellant.
2. The Ld. CIT (A) has erred in not appreciating the fact that the loan is for a period more than one year and, therefore the appellant is justified in debiting and claiming 1/5th of the total expenditure on bank's loan processing fees every year for 5 years.
M/s.Arch Impex Pvt. Ltd., 3. The Ld. CIT(A) ought to have considered the fact that the total expenditure of Rs 4,74,87,291/- for a loan of Rs.25 crores for a period more than one year is of enduring nature and hence appellant has rightly spread the bank's processing fees over 5 years.
4. The Ld. CIT(A) has grossly erred in not allowing the expenditure of Rs.94,97,458/- being 1/5th of the total expenditure of Rs.4,74,87,291/- for the year under assessment although in the immediately previous expenditure of Rs.94,97,458/ - was very much allowed.
5. The Ld. CIT (A) ought to have given direction for revision of the assessment for the A.Y.2009-10 and allowed total expenditure of Rs.4,74,87,291/- when CIT(A) have view that this expenses cannot be deferred.
The Ld. CIT (A) has grossly erred in confirming the disallowance Rs.3,43,937/- u/s. 14A of the Act.
On the facts and circumstances of case and in law, Ld. CIT(A) erred in confirming the charging of interest u/s. 234A, 234B, 234C, 234D of income Tax Act 1961.
8. On the facts and circumstances of case and in law, Ld. CIT(A) erred in confirming the charging of initiation of penalty u/s. 271 (1) (c) of Income Tax Act 1961.
9. The Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.
Rival contentions have been heard and record perused. The facts of the case are that the assessee is a private limited company engaged in the business of merchant exporter. The assessee had obtained a loan of Rs.25 crores from Standard Chartered Bank and had paid processing fees of Rs.4.75 crores to the said bank (SCE). Since the' amount of loan was for more than 1 year, the assessee debited to the P&L account 1/5th M/s.Arch Impex Pvt. Ltd., of the amount of the processing fees of Rs.4.75 i.e. RS.94.97lacs for the F.Y. 009-10 (A.Y.2010-11).
Similarly and for the very same reason the assessee debited same 1/5th of the expenditure i.e. RS.94.97 lacs for the F.Y. 2010-11 (A.Y.2011-12). The learned ACIT had allowed the 1/5th of the amount i.e. Rs.94.97 lacs for the A. Y. 2010-11. However, he has changed his opinion and disallowed the same 1/5th i.e. Rs.94.97 lacs during the year under consideration i.e., for the A.Y.2011-12.
By the impugned order, the CIT(A) confirmed the action of AO and assessee is in further appeal before us. 6. It was argued by learned AR that in case the learned ACIT wanted to disallowed Rs.94.97 lacs for the A.Y.2011-12 treating it to be not the expenditure of the year, he should have allowed the full expenditure of Rs.4.75 crores for the A.Y. 2009-10. He further contended that it is a gross injustice to the assessee that the expenditure though allowed in the immediately preceding year i.e. A.Y. 2010-11 on 1/5th basis, it's not allowed in the immediately subsiding assessment year i.e. A.Y. 2011-12 and at the same time, full expenditure of Rs. 4.75 Crores is not allowed/ignored for the A.Y. 2009-10 and A.Y.2010-11. 7. We have considered rival contentions and found that assessee has incurred expenditure in the form of processing fees paid to bank for obtaining loan from the Bank for five years. The expenditure incurred for obtaining the loan was revenue in nature, therefore, ought to have been M/s.Arch Impex Pvt. Ltd., allowed in the year of incurring itself. However, assessee has claimed 1/5th of the expenditure in the preceding Assessment Year 2010-11 i.e., the year in which it was incurred as Revenue expenditure and the same was allowed by the AO. However, in the immediately subsiding Assessment Year i.e. the year under consideration, AO has declined the claim. We do not find any justification for the same. The issue under consideration is covered by the decision of Gujarat High Court in the case of Gujarat State Fertilisers and Chemicals Ltd. , 358 ITR 323 wherein Hon’ble Court held that financial consultants for professional services in connection with corporate debt restructuring by negotiating with banks and financial institutions are to be allowed in the year in which it was incurred. The Court further observed that where the assessee has spread over the expenditure for six years and 1/6th is claimed, the department should not have objected such spreading over.
As per our considered view, once the expenditure is accepted as “Revenue Expenditure”, then it is upto the assessee that whether to claim the expenditure in one year or to spread over the said expenditure as per the enduring benefit available with them. For this contention the decision of the Hon’ble Gujarat High Court in the Case of CIT vs. Gujarat State Fertilizer Chemicals Ltd. reported in 358 ITR 323 supported our view. In the case of Gujarat State Fertilizers the assessee has claimed deduction of corporate debt restructuring expenses of Rs. 2.57 crores on payment to financial consultants who provided their professional services in connection with the scheme of corporate debt restructuring by negotiating with the banks and financial institutions, which eventually helped the reduction of the interest burden of the assessee. The Assessing Officer held that the assessee would derive benefit of enduring nature as a result of the corporate debt restructuring exercise and treated all the M/s.Arch Impex Pvt. Ltd., expenses as capital and disallowed them. The Commissioner (Appeals) held that the expenditure could not be considered to have an enduring benefit. The Tribunal held the expenditure revenue in nature and spread it over a period. On appeal held that for the waiver of the loan, payment had been made to the financial consultants. This was for the purpose of business and was allowable under section 37(1) of the Act. Once the expenditure was held to be revenue in nature incurred wholly and exclusively for the purpose of business, it could be allowed in its entirety in the year in which it was incurred. However, when the expenditure was spread over a period of six years and the assessee had no objection to such revenue expenditure being spread over, though it could have insisted that this amount be allowed in the year under consideration, the Department could not challenge it as the expenditure was revenue in nature.
In view of the above discussion, we do not find any justification for disallowance of 1/5th of the expenditure claimed during the year under consideration, in so far as expenditure so incurred is revenue in nature. We direct accordingly.
Assessee has also challenged disallowance of Rs.3,43,937 u/s.14A. We have considered rival contentions and found that during the year, the assessee has claimed an exempt income of Rs.10,67,850/- under the head of “Dividend Income” received only from one company i.e., M/s. Tube Glass Container.
M/s.Arch Impex Pvt. Ltd., 11. Contention of learned AR was that assessee was having sufficient interest free funds which have been used for the investment and no extra expenditure was incurred for earning the dividend income from M/s.Tube Glass Container.
We have considered rival contentions and found that the assessee has earned dividend income from one company only, the assessee does not require to incur any specific expenditure to maintain the investment portfolio.
Keeping in view the totality of facts and circumstances of the case, we direct AO to restrict the disallowance to the extent of 5% of the dividend income so earned from a company. We direct accordingly.
In the result, appeal of the assessee is allowed in part.