THE ACIT, KOCHI vs. M/S.INNOVATIVE FOODS LTD, COCHIN

This appeal by revenue is directed against order of CIT(A) dated 25.9.2019 for the assessment year 2007-08.

The only issue in this appeal is with regard to deleting the addition of Rs.15 lakhs being disallowance of pre-payment of premium on term loan from IDFC. 2.1 Originally, this appeal came before this Tribunal on 2.3.2020. The Tribunal dismissed the appeal on tax effect. However, the department filed MA in No.170/Coch/2020. The Tribunal recalled the earlier order of the Tribunal vide order of the Tribunal dated 8.9.2023 by observing as under: 4. “We have heard the party before us, and perused the material of record. We have perused the audit report. Para 3 thereof raises the issue of deduction claimed through debit of the Profit and Loss Account toward prepayment of premium on IDFC term loan, which is the issue raised M/s. Innovative Foods Ltd., Kochi Page 2 of 3 in the Revenue’s appeal under reference. The audit objection, since accepted, thus forms the basis of the impugned disallowance. The Revenue’s appeal is thus maintainable. We, accordingly, restore it’s captioned appeal for being heard and decided by the Tribunal on merits. We decide accordingly. “ 2.2 Hence, this appeal is listed once again. In this case, the term loan has been pre-closed for which the assessee has paid pre- payment of Rs.15 lakhs. The same has been claimed as deduction, which was disallowed by the ld. AO on the reason that it is relating to increase the capital business of the assessee company which is a capital expenditure. On appeal, ld. CIT(A) allowed the same considering it as revenue expenditure. Against this revenue is in appeal before us.

We have heard the rival submissions and perused the materials available on record. In our opinion, payment of pre- payment charges cannot be considered a cost of acquisition or construction and the said expenditure is allowable expenditure u/s 36(1)(iii) or 37 of the Act when the income of the assessee is computed as business income or it should be allowable as deduction u/s 24b of the Act when the income is assessed as income from house property. If the loan has been taken for acquisition of any capital asset and income is assessable u/s 28 of the Act, it should be allowed as a deduction u/s 36(1)(iii) or u/s 37 of the Act. In case if income is assessable u/s 22 of the Act, it should be allowed u/s 24b of the Act. This view of ours is fortified by the Mumbai Bench of Tribunal in the case of Windermere Properties Pvt. Ltd. in for the assessment year 2006-07 dated 22.3.2013. Accordingly, we decide this issue in favour of the assessee and against the revenue.