Evaluation fees for loan deductible as business expenses, not part of asset cost. ITAT Pune ruling.

The ITAT Pune held that evaluation fees paid by an assessee-company for obtaining a loan were deductible as business expenses, not part of the actual cost of assets acquired. Despite the loan being primarily for setting up the business, the Tribunal considered the loan a liability and allowed the evaluation fees as a business expenditure for expanding existing business activities. Relying on legal precedents, the Tribunal concluded that interest on borrowed capital is allowable for business purposes, leading to the deletion of the addition to the assessee's income and allowing the appeal.

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Issues:
Dispute over disallowance of bank evaluation fees for obtaining a loan.

Summary:
The assessee-company, engaged in poultry breeding, obtained a loan from Allahabad Bank for acquiring sheds. The bank evaluation fees of Rs. 80,930 were paid by the assessee and claimed as business expenditure. The Assessing Officer considered the fees as part of the actual cost of assets acquired with the loan, leading to an addition to the assessee's income. The Commissioner (Appeals) upheld this decision, stating the loan was primarily for setting up the business. However, the assessee argued that the loan was for expanding existing business activities, not for setting up the business.

The ITAT Pune held that the loan was a liability, and the evaluation fees were a business expenditure, not capital expenditure. Referring to legal precedents, it was established that interest on borrowed capital is allowable for business purposes, regardless of the purpose of the loan. The Tribunal emphasized that the loan was for expanding the existing business, making the evaluation fees allowable. Citing the decision in Gwalior Rayon Silk Mfg. (Weaving) Co. Ltd., the Tribunal concluded that the evaluation fees were deductible as business expenses. Consequently, the addition of Rs. 80,930 was deleted, and the appeal was allowed.

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