2020 (11) TMI 407 - AT - Income Tax

ITAT rules in favor of assessee on revenue expenditure for loan, distinguishing capital expenses

M/s Infra Dredge Services Pvt. Ltd. Versus The DCIT Circle (2) (2) (1), Mumbai

M/s Infra Dredge Services Pvt. Ltd. Versus The DCIT Circle (2) (2) (1), Mumbai - TMI Issues: Disallowance of revenue expenditure on stamp duty and mortgage charges for obtaining a loan.The primary issue in this case pertains to the disallowance of revenue expenditure incurred on stamp duty amounting to Rs. 21,31,120 and mortgage charge amounting to Rs. 8,30,920 for obtaining a loan. The Assessing Officer categorized this expenditure as capital expenditure since the loan was utilized for acquiring a capital asset. Upon appeal, the learned CIT(A) upheld the disallowance, emphasizing that the expenses were related to the acquisition of new assets, specifically 'Two Dry Docking of Trailer Suction Hooper Dredgers.' The CIT(A) noted that the expenses were not for stock in trade and therefore should be treated as capital in nature. The appellant's argument that the expenses were incurred for acquiring business funds and did not provide any enduring benefit was rejected by the CIT(A). The appellant relied on various judicial pronouncements to support their claim, but the CIT(A) deemed these references irrelevant as they did not address expenses related to the acquisition of capital assets. Consequently, the disallowance of Rs. 21,30,120 for stamp duty charges and Rs. 8,30,920 for mortgage charges was confirmed by the CIT(A).On further appeal, the ITAT considered the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. vs. CIT 60 ITR 52, where a similar issue arose regarding the treatment of expenditure incurred in obtaining a loan secured by fixed assets. The Supreme Court held that such expenditure, even if incurred for securing the use of money, was not in the nature of capital expenditure if it was laid out wholly and exclusively for the purpose of the assessee's business. Drawing parallels with the India Cements Ltd. case, the ITAT found that the facts of the present case aligned with the Supreme Court's decision. Therefore, the ITAT concluded that the authorities' decision to treat the expenditure as capital in nature was unsustainable. Consequently, the ITAT set aside the orders of the lower authorities and ruled in favor of the assessee, allowing the appeal.In conclusion, the ITAT's judgment revolved around the classification of expenditure on stamp duty and mortgage charges for obtaining a loan as either revenue or capital in nature. By referencing the relevant legal precedents and applying the principles laid down by the Hon'ble Supreme Court, the ITAT determined that the expenses were revenue in nature and were laid out wholly and exclusively for the business, thereby overturning the decision of the lower authorities and ruling in favor of the assessee.