2015 (5) TMI 387 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on section 80IA claims and loan processing charges

The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claims under section 80IA for the Assessment Years 2006-2007 to 2010-2011. The Tribunal ... Deduction under section 80IA - assessee is a company which is engaged in the business of providing storage facilities and handling of cargo at Kakinada Sea Port - CIT(A) allowing the claim of the assessee for deduction - Held that:- Keeping in view the certificate dated 08.04.2005 issued by the Kakinada Deep Water Port in the light of CBDT Circular Nos. 793 dated 23.06.2000 and 10/2005 dated 16.12.2005, we are of the view that the issue involved in the present case relating to the claim of the assessee for deduction under section 80IA is squarely covered by the decision of Hon’ble Bombay High Court in the case of ABG Heavy Industries Ltd., (2010 (2) TMI 108 - BOMBAY HIGH COURT ) wherein a similar claim of assessee for deduction under section 80IA was allowed by the Hon’ble Bombay High Court relying inter alia on Circular Nos. 793 dated 23.06.2000 and 10/2005 dated 16.12.2005 issued by the CBDT and the facility provided by the assessee was an integral part of the port. The findings that the assessee had developed the infrastructure facility and that it was engaged in operating the cranes was, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes was not disputed. The assessee was entitled to the special deduction under section 80IA. and this position is not disputed even by the learned D.R. - Decided in favour of assessee. Disallowance of expenditure incurred towards loan processing charges and rates and taxes for loan documentation - CIT(A) allowed the claim - Held that:- Assessee has relied on the definition of “Interest” given in section 2(28A) of the Act which provides that ‘interest’ means, interest payable in any manner in respect of any monies borrowed or debt incurred and includes any service fee or other charge in respect of the monies borrowed or debt incurred. Processing charges and other expenses incurred by the assessee in connection with the loan borrowed, thus, are to be considered in the nature of interest as per the definition given in section 2(28A) and the Ld. CIT(A) in our opinion, was fully justified in allowing the same as deduction as claimed by the assessee. We, therefore, uphold the impugned order of the Ld. CIT(A) on this issue - Decided in favour of assessee. - Decided in favour of assessee. Issues Involved:1. Assessee's claim of deduction under section 80IA.2. Disallowance of expenditure incurred towards loan processing charges and rates and taxes for loan documentation.Issue-wise Detailed Analysis:1. Assessee's Claim of Deduction Under Section 80IA:The primary issue revolves around the assessee's claim for deduction under section 80IA for the Assessment Years (A.Ys.) 2006-2007 to 2010-2011. The assessee, a company engaged in providing storage facilities and handling cargo at Kakinada Sea Port, claimed deductions under section 80IA for profits derived from this business.Arguments by Assessing Officer (A.O.):The A.O. disallowed the claim on several grounds:- Only warehouses qualify as infrastructure facilities, not open land.- The infrastructure facility must be owned by the assessee, not leased.- The assessee did not enter into an agreement with the government, which is required for claiming the deduction.- The infrastructure was developed by the assessee and not transferred as required by the proviso to section 80IA(4).Arguments by Assessee:The assessee argued that:- Storage can be in covered godowns or open yards.- Circular No. 793 dated 23.06.2000 includes structures at ports for storage under the definition of 'Port' for section 10(23G).- The Director of Ports certified that the infrastructure forms part of the Kakinada Deep Water Port.- The infrastructure developed by the appellant would revert to the government after the lease period.Decision by CIT(A):The CIT(A) found merit in the assessee's arguments and directed the A.O. to allow the deduction under section 80IA. The CIT(A) reasoned that:- The infrastructure developed by the assessee qualifies as part of the port.- The lease agreement with the government and the sub-lease to the assessee complied with the requirements of section 80IA(4).- The infrastructure would revert to the government, fulfilling the conditions of the section.Tribunal's Analysis:The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Bombay High Court's decision in the case of CIT vs. ABG Heavy Industries Ltd., which allowed a similar claim under section 80IA. The Tribunal noted that the CBDT Circulars No. 793 and 10/2005 clarified that structures at ports for storage qualify for the deduction if certified by the port authority. The Kakinada Deep Water Port had issued such a certificate to the assessee.2. Disallowance of Expenditure on Loan Processing Charges and Rates and Taxes for Loan Documentation:Ground No. 3:This issue pertains to A.Y. 2010-2011, where the A.O. disallowed the expenditure on loan processing charges and rates and taxes, arguing that these should be capitalized as they were incurred for raising a loan.Arguments by Assessee:The assessee contended that:- The loan was for business purposes, and expenses related to obtaining the loan should be treated as revenue expenditure.- Cited judicial precedents, including the Supreme Court's decision in India Cements Vs. CIT, which held that expenses for obtaining a loan are allowable as revenue expenditure.Decision by CIT(A):The CIT(A) agreed with the assessee and allowed the deduction, stating that processing charges and other expenses related to the loan are in the nature of interest as per section 2(28A) of the Act.Tribunal's Analysis:The Tribunal upheld the CIT(A)'s decision, noting that the definition of 'interest' in section 2(28A) includes service fees or charges related to borrowed monies. Therefore, the loan processing charges and related expenses were rightly allowed as deductions.Conclusion:The Tribunal dismissed all five appeals of the Revenue, upholding the CIT(A)'s orders allowing the assessee's claims under section 80IA and the deduction of loan processing charges and related expenses for A.Y. 2010-2011.