2017 (4) TMI 1004 - AT - Income Tax

Tribunal reverses disallowed expenses, remands issue for fresh adjudication.

Housing and Urban Development Corporation Ltd. Versus DCIT, Circle-12 (1), New Delhi

Housing and Urban Development Corporation Ltd. Versus DCIT, Circle-12 (1), New Delhi - TMI Issues Involved:1. Disallowance of Rs. 7.14 crores on account of prior period expenses.2. Addition of Rs. 1.20 crores on account of loans pending reconsideration of excess or additional interest.3. Disallowance of Rs. 15.68 crores on account of financial charges paid for the issue of bonds, etc., held as capital expenditure.Issue-wise Detailed Analysis:1. Disallowance of Rs. 7.14 crores on account of prior period expenses:The first issue pertains to the disallowance of Rs. 7.14 crores, which was interest paid to the Government of India on unspent subsidy. The assessee argued that the liability for this interest crystallized during the year due to a board resolution, making it an allowable expense for the current year. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had disallowed this expense, treating it as a prior period expense.The Tribunal considered the facts that the interest liability arose from an audit objection raised by the C&AG for the year ending March 2000, and the Ministry decided on 07/10/2003 that the appellant should pay the interest. The liability was quantified and admitted during the year when the Board of Directors decided to pay the interest on 17/11/2003. The Tribunal referred to various judicial precedents, including the Hon’ble Gujarat High Court in Saurashtra Cement and the Hon’ble Delhi High Court in Jet Lite India, which supported the view that a liability crystallized in the current year is allowable in that year, even if it pertains to an earlier period. Consequently, the Tribunal allowed the appeal on this ground, reversing the disallowance.2. Addition of Rs. 1.20 crores on account of loans pending reconsideration of excess or additional interest:The second issue involved the addition of Rs. 1.20 crores, which was shown as a deduction from loans pending reconsideration of excess or additional interest. The assessee contended that this amount represented excess interest received from borrowers, which was to be adjusted against future dues and was not actual income for the current year. The AO and CIT(A) had disallowed this deduction, treating it as income.The Tribunal found that the method of accounting followed by the assessee involved recognizing interest income only when it became due, and any excess interest received was shown as a liability until it was adjusted. The Tribunal noted that this method was consistently followed by the assessee and accepted by the Revenue in past years. The Tribunal held that the excess interest received, which was to be adjusted in subsequent years, could not be treated as income for the current year. Therefore, the Tribunal reversed the CIT(A)'s finding and allowed the appeal on this ground.3. Disallowance of Rs. 15.68 crores on account of financial charges paid for the issue of bonds, etc., held as capital expenditure:The third issue was the disallowance of Rs. 15.68 crores on account of financial charges for issuing bonds, PDS, and term loans, which the AO and CIT(A) treated as capital expenditure. The assessee argued that these charges were claimed as revenue expenditure in the year they were incurred and not as deferred revenue expenditure.The Tribunal noted that this issue had been decided in the assessee's favor in earlier years by a coordinate bench, which had remanded the matter back to the AO for fresh adjudication. Following the consistency in the Tribunal's decisions, the Tribunal set aside this issue back to the AO for fresh adjudication in accordance with the law, after granting the assessee an appropriate opportunity of hearing.Conclusion:The Tribunal allowed the appeal for statistical purposes, reversing the disallowance of Rs. 7.14 crores and Rs. 1.20 crores, and remanding the issue of Rs. 15.68 crores back to the AO for fresh adjudication. The order was pronounced in the open court on 07/10/2016.