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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI A.T.VARKEY & SHRI L.P. SAHU
PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal filed by the revenue arises from the order of Commissioner of Income-tax (Appeals)-IV, Delhi dated 22.09.2010 and relates to assessment year 2003-04.
The grounds of appeal taken by the assessee reads as under :-
“1 The Ld. CIT(A) has erred on facts and in law in deleting addition Rs.28,42,760/- on account of processing and consortium fee paid to PNB without appreciating that the AO was right in considering the above expenses capital in nature. As the expenses were incurred and paid to bank for processing of various loans and CDR package hence the same were capital in nature. 2 The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 15,75,045/- on account of stamp duty charges paid for issue of debenture certificates while failing to distinguish in partly convertible debenture and fully convertible debentures. The AO was correct in considering the stamp duty charges for issue of debentures certificates as capital in nature.”
Ground 1 relates to deletion of addition of Rs.28,42,760/- being processing and consortium fee paid to PNB by the assessee company. The Assessing Officer held that the aforesaid expenditure is not a revenue expenditure but a capital expenditure as the charges have been paid to the bank for processing of various loans and CDR packages. He further held that these charges were not paid during the year and infact, the assessee has deposited the payment in these charges and credited the sum to the suspense account and therefore, it is not liability during the instant year. The CIT(A) however has held that such an expenditure incurred is a revenue expenditure.
As such, the revenue is in appeal.
The learned DR contended that the expenses incurred for processing of loans and CDR packages are capital expenditure, more particularly when these have been disputed by the appellant company and therefore, are not eligible for deduction in the instant year. The learned AR however supported the finding of the CIT(A) by relying upon the judgment of the Apex Court in the case of India Cements Ltd. vs. CIT 60 ITR 52 and also in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT - 82 ITR 363.
We have considered the rival submissions and perused the material on record. We take note that CIT(A) has deleted the disallowance of Rs.28,42,760/- by holding as under:
“It cannot be appreciated that how the Ld. AO has taken the expenditure as capital or as a contingent liability. The said expenditure was paid to the bank for taking of loan and CDR package. It is well settled that processing of loan per-se can never be capital in nature and is a part of the routine job of the business. In this regard the decision of the Delhi High Court in CIT vs. Monnet Industries Ltd. [2008] 16 DTR (Del) 307 is relied upon. Further, the loan cannot be construed as a contingent liability in as much as the bank had raised the said amount on the assessee. Once the amount had been raised, the same had been acknowledge but had been disputed. Because of the dispute, the assessee preferred to keep the same in the suspense account. Once the account had been credited, it cannot be called a contingent liability. Decision of the Apex Court in Kedarnath Jute Mfg. Ltd. vs. CIT (1971) 82 ITR 363 (SC) is a guiding decision. As such, therefore, the addition of Rs. 28,42,760/- is deleted. The assesee succeeds in ground of appeal no. 1.”
6. On careful consideration of the above findings, we notice that there is no basis for the revenue to contend that any expenditure incurred towards loan is not an eligible business expenditure. Such an expenditure is revenue expenditure as has also been held by the Apex Court in the case of India Cements Ltd. vs. CIT (supra) whereby Their lordships have concluded as under:
“We are of the opinion that: (a) the loan obtained is not an asset or advantage of an enduring nature; (b) that the expenditure was made for securing the use of money for a certain period; and (c) that it is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within section 10(2)(xv)”
So far as the fact that the appellant has disputed liability by keeping the same in suspense account, it is noticed that it is not in dispute that liability had been acknowledged and the sum paid has been credited to the suspense account and therefore, the CIT(A) correctly held that the amount cannot be treated as contingent liability by following the dicta of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (supra) wherein it has been held as under:
“It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed.”
Respectfully following the above judicial pronouncements, we hold that the finding of the CIT(A) is in order and as such, the ground raised by the revenue is rejected.
Ground 2 pertains to deletion of addition of Rs.15,75,045/- on account of stamp duty charges paid for issue of debenture certificates. We notice that the Assessing Officer had made disallowance by relying upon the judgment of the Apex Court in the case of Punjab State Industrial Development Corporation 225 ITR 792 and M/s. Brook Bond India Ltd. 225 ITR 798 and CIT(A) on appeal, further allowed the claim of deduction and as such this appeal by the revenue.
The learned DR contended that the CIT(A) has failed to distinguish partly convertible debentures and fully convertible debentures furnished and therefore, any expenditure incurred considering the stamp duty charges for issue of debentures are fully convertible debentures and revenue in nature.
The AR however, supported the order of the CIT(A) and contended that debentures are loans and therefore, any expenditure incurred for raising loan is eligible expenditure.
Having considered the rival submissions, we notice that the CIT(A) deleted the addition by holding as under:
“9. It may not be reiterated that there is no submission from the assessee. It needs to be mentioned that debenture or expenses thereof is not an expansion of capital base of the assessee. It is a loan which is to be returned and therefore the decision in Punjab State Indl. Development Corpn. Ltd. (supra) and Brook Bond India Ltd. cannot come to the help of the Revenue. The stamp duty towards debenture is nothing but done with the intention of furthering of business of the assessee. As such, therefore, the said expenditure would have to be considered as revenue in nature. This would be in accordance with the decision of the Delhi High Court in CIT Vs. J.K. Synthetics Ltd. (2009) 222 CTR (Del) 339. The assessee succeeds in ground of appeal no. 2.”
12. We find merit in the aforesaid finding that the debentures are loans raised by the assessee, therefore, any expenditure including stamp duty for such debentures is eligible for deduction for computing income of the appellant. A Coordinate Bench of Tribunal in the case of DCIT vs. UAG Builders (P) Ltd. 53 SOT 370 (Del) while considering the issue of fully convertible debentures has deleted the addition by observing as under :-
“7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find ourselves in agreement with the Ld. Commissioner of Income Tax (A)'s finding that there was no contingency involved in the accrual of liability with reference to the interest on the debentures. Ld. Commissioner of Income Tax (A) rightly observed that debentures, whether fully or partly or optionally convertible, are nothing but debt till the date of conversion and any interest paid on these debentures is allowable as normal business expenditure. The only uncertainty in the optionally convertible debentures issued by the assessee is whether the debenture holder will go for conversion into shares or will continue to hold them as debentures. Ld. Commissioner of Income Tax (A) rightly held that this uncertainty in no way impacts the assessee company's liability to pay interest till the date of conversion. Ld. Commissioner of Income Tax (A) has rightly held that the case laws referred by the Assessing Officer were not applicable on the facts of the present case. Accordingly, in the background of the aforesaid discussion, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A) and accordingly, we uphold the same.”
Accordingly, respectfully following the aforesaid decision of the coordinate Bench of the Tribunal, Ground 2 raised by the revenue is thus rejected.
In the result, appeal filed by the revenue is dismissed.
Order pronounced in open court on this day of 12th January, 2016.