Commissioner of Income Tax vs P. Industries Pvt. Ltd.

Vijay Bishnoi, J—This Income Tax Appeal has been preferred under section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ''the Act of 1961'') against the order dated 12.10.2007 passed by the Income Tax Tribunal, Jodhpur Bench, Jodhpur (hereinafter referred to as ''the Tribunal'').

The Tribunal vide impugned order has upheld the order dated 26.06.2006 passed by the learned Commissioner of Income Tax (Appeals), Udaipur (hereinafter referred to as ''the CIT(A)'') and deleted disallowance of expenses of Rs. 38,01,629/- out of total premium of Rs. 47,69,517/- paid on account of reducing interest rate of IDBI loan. Initially, the assessing authority had disallowed the expenses of Rs. 38,01,629/- to the assessee paid on account of reducing interest rate of IDBI loan.

Brief facts, necessary for disposal of this I.T. Appeal, are that during the course of assessment proceedings for the year 2003-2004, the assessing authority held that an amount of Rs. 38,01,629/- paid by the assessee as upfront payment in the assessment year 2003-2004 is not allowable while treating as revenue expenditure for the assessment year in question. The CIT(A) in an appeal preferred on behalf of the assessee held that the disallowance of claim of Rs. 38,01,629/- is not justified and the same is required to be treated as revenue expenditure for the assessment year 2003-2004. The Tribunal has also upheld the findings of the CIT(A) vide order dated 12.10.2007 and being aggrieved with this, the instant appeal has been preferred.

This Court vide order dated 07.08.2009, while admitting the appeal, framed following substantial question of law:

"Whether on the facts and in the circumstances of the case, the learned Tribunal was right in upholding the deduction of Rs. 47,69,517/- being the lump sum payment of 50% of total interest amount as revenue expenditure in the relevant assessment year only notwithstanding the fact that the amount was including the payment of interest for subsequent years?"

Mr. K.K. Bissa appearing on behalf of the appellant has argued that the Tribunal has erred in observing that as the liability was crystallized and paid entirely during the relevant year ignoring the fact that only part of the expenditure pertains to assessment year 2003-2004 and remaining expenditure relates to other assessment years. It is contended that amount of Rs. 38,01,629/- was rightly disallowed by the Assessing Officer as the same relates to future years and not in the assessment year 2003-2004.

In support of the above contentions, learned counsel for the appellant has placed reliance on a decision of Gujarat High Court in Gujarat Ambuja Cotspin Ltd. v. Assistant Commissioner of Income-tax, [2015] 57 taxmann.com 210 (Gujarat).

Per contra, learned counsel appearing for the assessee has argued that the case does not involve any substantial question of law and as per the provisions of sub-section (4) of section 260-A of the Act of 1961, the assessee has every right to argue that the case does not involve such question. Learned counsel for the assessee has placed reliance on a decision rendered by a Coordinate Bench of this Court at Jaipur Bench in I.T. Appeal No. 101/2011-Commissioner of Income Tax v. Jugal Kishore Dangayach, and argued that when business/revenue expenditure is for business consideration as a measure of commercial expediency, the same cannot be disallowed. Learned counsel for the assessee has placed reliance on decisions of Hon''ble Supreme Court in J.K. woolen Manufacturers Vs. Commissioner of Income Tax, U.P., AIR 1969 SC 609 : (1969) 72 ITR 612 : (1969) 1 SCR 525 , The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, AIR 1971 SC 2145 : (1971) 82 ITR 363 : (1972) 3 SCC 252 : (1972) 1 SCR 277 : (1971) 28 STC 672 , Commissioner of Income Tax, Madras Vs. Ashok Leyland Ltd., AIR 1973 SC 420 : (1972) 86 ITR 549 : (1973) 3 SCC 201 : (1973) 2 SCR 516 , Commissioner of Income Tax, Tamil Nadu II, Madras Vs. Madras Auto Service (P) Ltd., (1998) 6 AD 50 : AIR 1998 SC 2667 : (1998) 233 ITR 468 : (1998) 5 JT 507 : (1998) 4 SCALE 537 : (1998) 6 SCC 404 : (1998) 3 SCR 1121 : (1998) AIRSCW 2707 : (1998) 6 Supreme 359 , Bharat Earth Movers Vs. Commissioner of Income Tax, Karnataka, AIR 2000 SC 2636 : (2000) 245 ITR 428 : (2000) 8 JT 606 : (2000) 5 SCALE 497 : (2000) 6 SCC 645 : (2000) 2 SCR 295 Supp : (2000) 112 TAXMAN 61 : (2000) AIRSCW 2797 : (2000) 5 Supreme 440 , Deputy Commissioner, Income Tax, Baroda Vs. Gujarat Alkalies and Chemicals Ltd., (2008) 2 CLT 688 : (2008) 215 CTR 10 : (2008) 299 ITR 85 : (2008) 2 SCALE 336 : (2008) 2 SCC 475 : (2008) 167 TAXMAN 206 : (2008) 167 TAXMAN 203 : (2008) AIRSCW 1287 , of this Court in Commissioner of Income Tax Vs. P.I. Industries Ltd., (2009) 221 CTR 259 , Commissioner of Income Tax Vs. Secure Meters Ltd., (2009) 221 CTR 405 and Commissioner of Income Tax Vs. Jugal Kishore Dangayach, (2014) 265 CTR 215 , and of Dy. Commissioner of Income Tax Vs. Sun Pharmaceutical Ind. Ltd., (2009) 227 CTR 206 .

Heard learned counsel for the parties and perused the impugned order.

It is not in dispute that prior to the assessment year, the assessee had taken loan from IDBI, Jaipur at interest rate of 15.0929% per annum. The assessee was facing some difficulty in paying the interest on above mentioned rate and approached the IDBI, which proposed to reduce the existing rate of interest on outstanding loan and desired to upfront payment of 50% of the present value of differential interest and according to the terms and conditions, the assessee paid Rs. 47,69,517/- and got reduced the interest rate from 15.0929% to 13.5%.

We are of the view that when the amount of Rs. 47,69,517/-, paid as upfront payment for getting the benefits of reduced interest, the same is liable to be treated as business/revenue expenditure and is allowable in the year, it was determined and paid.

The Hon''ble Supreme Court as well as this Court in the decisions referred above, clearly held that in order to decide whether an expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view.

In the present case, the assessee had made 50% of the upfront payment to the IDBI to get the interest rate reduced. The expenditure, therefore, was made in order to get the loan on reduced rate of interest. In other words, the assessee made substantial savings in not making payment of interest per month for subsequent years by making payment of 50% upfront amount, therefore, such payment was an expenditure of commercial expediency.

As a result of the aforesaid discussion, the question as framed is answered against the revenue, and in favour of the assessee.