2021 (7) TMI 209 - AT - Income Tax

Tribunal partially allows appeal, rejects leasehold land premium amortization. Upholds addition under Income-tax Act.

The appeal was partly allowed by the Tribunal. The grounds related to the amortization of the premium paid for leasehold land were dismissed. However, the ... Disallowance on amortization of the premium paid for the lease hold land - HELD THAT:- We find that the learned AR fairly stated that this issue is covered against the assessee by the order of this tribunal in its own case for assessment year 2004-05 [2011 (3) TMI 1630 - ITAT MUMBAI] wherein this Tribunal by placing reliance on case of Mukund Limited [2007 (2) TMI 358 - ITAT MUMBAI] against the assessee. Since this fact is not disputed by the parties before us, the operative portion of the said tribunal order is not reproduced herein for the sake of brevity. Respectfully, following the said order, the ground raised by the assessee are dismissed. Addition u/s 41(1) - absence of the breakup of the loan it is not clear whether the loan was solely on account of principal amount or some interest element was also embedded into it - HELD THAT:- As the amounts written back purely represent principal portion of the loan and does not contain any interest element thereon. Admittedly, no deduction has been claimed by the assessee in earlier years in respect of the principal portion of the loan liability. Hence, the provisions of Section 41(1) of the Act cannot come into operation at all. See MAHINDRA AND MAHINDRA LTD. THRG. M.D. [2018 (5) TMI 358 - SUPREME COURT] Disallowance of swap charges on loans obtained by the assessee - HELD THAT:- As the swap charges which the assessee has incurred for conversion from floating to fixed rate of interest, would necessarily partake the character of interest. The interest paid by the assessee when the loan was in floating rate, was duly allowed by the learned Assessing Officer. Hence, the character of the transaction does not change pursuant to this swap from floating to fixed rate. The utilization of the loans for the purposes of business has not been disputed by the learned DR before us, hence, there is no question of disallowance of any interest, whether nomenclature as interest or swap charges. The nomenclature of the transaction is absolutely irrelevant than the substance of the transaction. Thus we hold that the assessee is entitled for deduction towards swap charges. Accordingly, the ground raised by the assessee are allowed. Issues Involved:1. Disallowance on amortization of the premium paid for leasehold land.2. Addition made under section 41(1) of the Income-tax Act, 1961.3. Disallowance of swap charges on loans obtained by the assessee.Issue-wise Detailed Analysis:1. Disallowance on Amortization of the Premium Paid for Leasehold Land:The assessee challenged the disallowance on amortization of the premium paid for leasehold land. The Tribunal noted that this issue had already been decided against the assessee in its own case for the assessment year 2004-05, where reliance was placed on the Special Bench decision in Mukund Limited (106 ITD 23). Since the facts were undisputed, the Tribunal dismissed the grounds raised by the assessee.2. Addition Made Under Section 41(1) of the Income-tax Act, 1961:The assessee contested the addition made under section 41(1) concerning the remission of a loan from the Bank of Nova Scotia. The facts revealed that the loan of Rs. 90 crores was restructured, resulting in a remission of Rs. 46.50 crores, which was credited to the Capital Reserve Account and not offered to tax. The Assessing Officer added this amount under section 41(1), arguing that the assessee failed to provide a breakup of the loan and prove that the remission did not include interest.The Tribunal found that the remission involved only the principal portion of the loan, with no interest element, and no deduction had been claimed by the assessee in previous years for the principal portion. Citing the Supreme Court decision in CIT vs. Mahindra And Mahindra Ltd. (93 taxmann.com 32), the Tribunal concluded that the provisions of section 41(1) did not apply, as the waiver of loan did not amount to cessation of trading liability. The Tribunal also noted that the jurisdictional High Court in PCIT vs. Colour Roof (India) Ltd. had followed the Supreme Court's decision, reinforcing the assessee's position. Consequently, the grounds raised by the assessee were allowed.3. Disallowance of Swap Charges on Loans Obtained by the Assessee:The assessee challenged the disallowance of swap charges incurred for converting a loan from a floating to a fixed rate of interest. The Assessing Officer and CIT(A) had treated these charges as capital expenditure, not allowable under section 37(1).The Tribunal examined the documents and found that the swap charges were akin to interest, as the conversion from floating to fixed rate did not change the character of the transaction. The Tribunal referenced the jurisdictional High Court decision in CIT vs. D. Chetan & Co (390 ITR 36), which supported the assessee's contention that such charges were not speculative but part of regular business activities. Therefore, the Tribunal held that the assessee was entitled to a deduction for swap charges, allowing the grounds raised.General Ground:The Tribunal noted that the fourth ground was general in nature and did not require adjudication.Conclusion:The appeal was partly allowed, with the Tribunal dismissing the grounds related to amortization of the premium paid for leasehold land and allowing the grounds concerning the addition under section 41(1) and the disallowance of swap charges. The order was pronounced in the open court on 25.06.2021.