TaxTMI 
TaxTMI 
2011 (5) TMI 283
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..../07 AY 2004-05/Revenue Nil Interest reset premium 1509/P/07 AY 2005-06/Revenue Nil Interest reset premium 3. From the above, it is evident that there are a couple of issues for adjudication and they are: (i) allowability of the claim of deduction of interest reset premium; and (ii) allowable extent of the burning loss. Relevant facts regarding the first issue of 'interest reset premium' is as follows. I. Allowability of the claim of deduction of interest reset premium 4. This issue is the bone of contention before us by both the parties. Briefly stated relevant facts of the case are that the assessee is a Public Limited Company, engaged in the running of a foundry business, in which castings are produced which are useful in the automobile industries. In the years prior to AY 2001-02, assessee raised foreign currency loans from ICICI which carried interest rate of 18%. These were later on converted into rupee loans, which also carried an interest rate of 18%. Said outstanding loans works out to over 20 crore rupees and the interest due thereon was over Rs. 2 crores in the FY 2000- 01. The company was facing acute financial probl....
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....ations were made in various meetings with the officials of the ICICI Bank Ltd. These efforts resulted into the ICICI Bank offering to restructure the existing loans and to reduce the rate of interest to 12.5% from 15% by their letter dt. 11-4-2002. One of the conditions in this offer letter was that the assessee-company will pay re-structuring fees of Rs. 2,80,00,000. The assessee-company agreed to all the conditions set by the ICICI Bank Ltd. and accepted the offer on 29-6-2002 and this agreement was made on that date. These restructuring fees were payable in 12 equal monthly instalments. Accordingly, the loans were restructured with a moratorium of 3 years and 84 equal instalments payable commencing from 15-7-2005 and ending on 15-6-2012. The interest payable thereon was reduced to 12.5% from existing rate of 15%. As agreed, out of the restructuring fees of Rs. 2 crore and 80 lakh, the assessee paid 9 instalments totalling to Rs. 2,09,00,998 in FY 2002-03 relevant to AY 2003-04 and the balance three instalments totaling to Rs. 70,00,002 were paid in the FY 2003-04 relevant to AY 2004-05. The assessee considered the amount of Rs. 2,09,00,998 paid in FY 2002-03 as deferred expendit....
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....siness and (2) the assessee has acquired enduring benefits by incurring this expenditure and hence it is a capital expenditure. For this proposition, he relied on the SC decision in the case of Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160. 7. For the AYs 2003-04 & 2004-05, regarding the claims of deduction of Rs. 2,09,00,998 and Rs. 70,00,002 respectively, the AO did not allow the claims of the assessee too. For the AY 2003-04, regarding the claim for deduction of Rs. 2,09,00,998, AO held claim of deduction of interest is not acceptable because: (i) The amount actually paid to ICICI Bank is not interest on capital borrowed under the definition provided in section 2(28A) of the even Act; (ii) In the books of account, it is not considered as part of the interest paid; (iii) It is not admissible even under section 37 of the Act as, it is a capital expenditure, as the assessee had acquired enduring benefits by incurring this expenditure. Reliance was placed for the reasons given in this respect in the assessment order for AY 2001-02. For the AY 2004-05, the claim for deduction of Rs. 70,00,002 is not admissible because : (i) The amount of the re-structuring fees of Rs. 70,00,0....
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....sion in Taparia Tools Ltd. v. Jt. CIT [2003] 260 ITR 102/126 Taxman 544. C. Regarding the same claim for the AY 2005-06, the CIT(A) merely relied on his decision on the issue for the earlier AYs and as per the para 6 of the impugned order, CIT(A) directed the AO to verify and allow the claim in tune with the claim in earlier years. 9. Thus, the CIT(A) is of the opinion, that the claim of the assessee is not allowable as the same is not debited the expenditure to P& L Account or in view of the binding judgments of the Mumbai High Court in Taparia Tools Ltd. (supra). As seen form the above table, the both revenue and the assessee are aggrieved against the findings of the CIT(A). Cross appeals for the AY 2003-04 vouch for the same. While the revenue is not happy with the finding that the claim is allowable finding but as the deferred revenue expenditure; the assessee is not happy with the finding that the claim is fully allowable on payment basis and also in view of the provisions of section 43B of the Act. We shall take up the issue in these cross appeals first as the outcome of the same helps the issue for the other AYs. Cross Appeals for the AY 2003-04 10. An amount of ....
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....he case of Gujarat Guardian Ltd. (supra). Even assuming but not admitting that the loan restructuring fees are allowable as deferred revenue expenditure basis as held by the CIT(A) relying on Bombay High Court decision in Taparia Tools Ltd. (supra), still the claim of Rs. 2,09,00,998 be allowed following the ITAT Chandhigarh Special Bench decision in Dy. CIT v. Glaxo Smithkline Consumer Healthcare Ltd. [2007] 107 ITD 343 placed at pages 50 to 53 of the compilation of the cased law which has been followed by the ITAT Pune in the case of Force Motors Ltd. - (pages 74 to 81 of the compilation case law). The question of whether an expenditure is of capital nature arises only when it is to be considered under section 37 of the Act. The AO's claim that the re-structuring of the loan and reduction in interest rate is an enduring benefit resulting in the expenditure on fees therefore into capital expenditure is not correct as per law. The reliance placed on SC decision in Sitalpur Sugar Works Ltd. (supra) placed at pages 92 to 94 of the compilation of case law is misplaced because that case was of shifting of the machinery and the factory to a new place more advantageous to that assessee. ....
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....venue. The assessee has received deduction in respect of the interest re-set premium and loan restructuring fees at Rs. 1,04,63,418 as it is entitled to a deduction of only Rs. 70,00,002 it has not come in appeal. But while deciding the revenue's appeal, the deduction allowable be restricted to the actual payment of Rs. 70,00,002 under the provisions of section 43B(d) of the Act. 14. On the other hand, Ld DR for the revenue argued stating that the claim in question is not interest although it has the shade of it. The expenditure claimed is capital nature in view of the Supreme Court's decision in the case of Empire Jute Co. Ltd. (supra). Otherwise, he strongly relied on orders of the AO. Finding of the Tribunal: 15. We have heard the parties on the issues of 'interest reset premium' and the burning loss claims. In brief, the stand of the assessee is that the said expenditure incurred or fee paid to the banks/financial institutions for restructuring of the interest, accrued interest and the borrowed capital for the benefits of the assessee is not a capital expenditure and the same is an allowable expenditure as the spent for the purposes of the business of the assessee. Suc....
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....r similar right or obligation) and includes any service fee or other charge in respect of the monies borrowed or debt incurred or in respect of any credit facility which has not been utilized;" 19. In the present appeal, the said inclusive side of the definition is relevant. In other words, the expressions 'any service fee or other charge' in respect of the monies borrowed... are relevant. It is fact that the said expressions are not defined in the Act. But they are qualified by certain expressions and they are (i) 'in respect of the monies borrowed', (2) 'in respect of the debt incurred', (3) 'in respect of any credit facility' or (4) in respect of any credit, which has not been utilized'. These expressions indicate that the scope of the expression 'interest' is very wide. The expression 'any' borrowal/debt/ credit facility utilized or not, come under the said scope. The expression 'any service fee or other charges', which are undefined, in our opinion, covers fee or charges of any or every kind which are payable by the assessee in respect of such borrowal/debt/ credit facility utilised or not. 20. Therefore, we affirm the view of the CIT(A) who held that the expressions 'se....
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....se cases are entirely different and they are not in the context of the issue of interest as defined in section 2(28A) r. w. s. section 43B of the Act. Considering the important slip regarding the aspects of the 43B of the Act in his order, we find that this issue on the aspects of the extent of allowability has to go to the files of the CIT(A) for the adjudication afresh for determining if the matter has to be decided differently in view of the provisions of section 43B of the Act and also on the necessity of harmonious interpretations. Accordingly, for this limited purpose, the matter is set aside. The CIT(A) is directed to grant an opportunity of being heard to the assessee before deciding the same. He shall pass a speaking on the said issues after considering the entire gamut of the arguments and citations in line with the provisions of section 250(6) of the Act. Thus, this part issue of the issue with relevant grounds of both revenue and assessee in their appeals is set aside in all the appeals under consideration where ever applicable. Accordingly, the relevant grounds are partly set aside. II. Addition for excess melting loss being suppressed gross profit: 22. This issu....