TaxTMI 
TaxTMI 
2012 (6) TMI 63
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....x, Circle 9, Kolkata was contrary to law and facts as none of the conditions precedent for holding such expenditure as being capital in nature existed and/or fulfilled in the instant case and the purported finding on that behalf is altogether flawed, erroneous and perverse. 3. For that the Ld. Commissioner of Income Tax (Appeals) Viii, Kolkata acted unlawfully in upholding the alleged finding of the Ld. Assistant Commissioner of Income Tax, Circle 9, Kolkata that the expenditure of Rs. 34,80,019/- constituted deferred revenue expenditure as per the provisions of the Income Tax Act, 1961 and the impugned finding in this respect was capricious, unjustified, wrong and perverse." 3. The brief facts relating to grounds raised by assessee as appearing in the impugned order are as under :- "The appellant company, carrying on the business of Stevedoring & Clearing Agents, Ship Handlers. Transport & Commission Agents had filed its return of income for the assessment year 2006-07 on 03.11.2006 disclosing total income of Rs. 3,1766,597/-. The return was filed along with properly audited accounts and the tax audit report u/s. 44AB of the I.T. Act, 1961. The return was asse....
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....egotiating with a new lender we were able to extract some ret benefit so far as our interest outgo is concerned. By paying a lesser amount by way of interest we not only obtained a benefit for our business, we were able to return increased amount of Total Income which resulted in a benefit for the exchequer also as an increased amount of income tax was paid compared to the amount which would have been payable had there been no decrease in the payment of interest on the loans. In the assessment order the Assessing Officer has elaborately quoted from the Judgement in the case of Gujarat Mineral Development Corpn. Ltd. v. CIT [1983] 143 ITR 822 (Guj.) to highlight the tests to be applied in determining 'capital expenditure'. There is no dispute regarding the tests to be applied in determining 'capital expenditure'. However the assessment order is silent on how the tests were applied in our case. In the show cause issued in course of the assessment proceeding and also in the assessment order, the Assessing Officer has indicated that the expenditure in question should have been treated as 'deferred revenue expenditure'. It has also been explained in the assessment order through a hyp....
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....re was incurred for new concrete floor was constructed." 4.1 The brief facts in respect of ground raised by the revenue are that while doing the scrutiny assessment the AO has observed that assessee has debited an amount of Rs. 20,18,744/- in P&L account which was relating to repair and maintenance charges. Based on the explanations of section 30 of the IT Act the ld. AO has treated the same as capital in nature and added to the income of assessee. 4.2 On appeal the ld. CIT(A) after taking into consideration of the various submissions and the expenditure incurred for godown maintenance for the past five years deleted the same by observing as under :- "In the instant case, floors have been repaired, which in a godown, is necessary for normal wear and tear. Fabrication does not necessarily mean that a new asset has been brought to existence. In this case, keeping in view, the WDV of the assets, the amount spent on fabrication is comparatively small and, in my opinion, that is indicative of the fact that the purpose here has been for normal maintenance. Also, if the overall size of the assets, as evident from their WDV is kept in mind then the amount claimed by the appellant ....
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.... Expenditure incurred on "Godown Maintenance" (Rs.) 2005-06 92,76,719.00 2004-05 48,32,090.00 2003-04 18,87,739.50 2002-03 43,92,633.85 2001-02 19,37,540.00 From the above chart it is clear that expenses for godown repairing were incurred every year and the quantum varied depending on the actual requirement. In this context your kind attention is drawn to the fact that disaster in the form of Tsunami struck South East Asia and India on the 26th of December, 2004. The same was the worst natural disaster in the recorded history of Planet Earth. Our godowns being located on the South East of India were severely damaged and to bring the godowns back to normal condition we had to incur much more than the average of expenses on this account. So the Assessing Officer's finding in this context is absolutely wrong and illegal and you are requested to kindly delete the addition of Rs. 20,18,744/- on this account." 8. After hearing the rival submissions and on careful perusal of materials available on record, keeping in view of the fact that the ld. CIT(A) has rightly observed....
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....erm loans were capitalised till the point of completion of the construction of Floating Crane. The expenses incurred for shifting the loan from Consortium of Banks (with State Bank of India, State Bank of Hyderabad and ING Vysya Bank Ltd) to ABN AMRO Bank cannot be equated with the amount of loan. In course of the assessment proceeding it was explained and the Assessing Officer also accepted in principle, that these expenses resulted in the business being benefited. The Assessing Officer's finding that the said expenses resulted in enduring benefit is not correct. Enduring benefit for the business is derived from the capital goods purchased and not by getting some reduction in the interest outgo. By applying the Assessing Officer's logic we have already derived the benefit when we acquired the capital assets by obtaining loans and not at that point when by changing and negotiating with a new lender we were able to extract some net benefit so far as our interest outgo is concerned. By paying a lesser amount by way of interest we not only obtained a benefit for our business, we were able to return an increased amount of Total Income which resulted in a benefit for the exchequer....
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.... Rs. 4,65,75,000/- ING Vysya Bank Ltd. Rs. 5,06,89,787/- 6. The respective charges were created with ROC on 17.05.2000 and the repayment in instalments commenced from 01.10.2001. Bank First 27 quarters @ 28th quarter Installments commencing from State Bank of India Rs. 35.72 lacs Rs. 35.56 lacs 01.10.2001 State Bank of Hyderabad Rs. 22.00 lacs Rs. 6.00 lacs 01.10.2001 Vysya Bank Ltd. Rs. 22.68 lacs Rs. 22.64 lacs 01.10.2001 (Since renamed as ING Vysya Bank Ltd.) 7. Due to delay in project implementation for reasons beyond the control of the Company, the commencement of commercial operations was delayed. Since the company was not in a position to pay the instalments as scheduled, the repayment was rescheduled w.e.f. 01.01.2004 as follows: Bank First 20 Quarters @ 21st Quarter Installments commencing from State Bank of India Rs. 44.75 lacs Rs. 105.00 lacs 01.01.2004 State Bank of Hyderabad Rs. 26.85 lacs Rs. 63.00 lacs 01 .01 .2004 Vysya Bank L....
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....ng over the loans. 14. On 12.12.2005, ABN Amro Bank handed over the payments of the respective principal amounts outstanding as follows: Favouring D.D. No. & Date Amount Drawn on State Bank of India 00324, 12.12.05 6,42,00,000/- ICICI Bank Ltd. Vishakapatnam State Bank of Hyderabad 00325,12.12.05 3,84,20,945/- ICICI Bank Ltd. Vishakapatnam ING Vysya Bank Ltd. 008293, 12.12.05 3,97,79,055/- ABN Amro Bank 15. At the time of handing over the documents/loans/securities etc. State Bank of India and State Bank of Hyderabad insisted on payment of pre-payment charges due to pre-closure of the loan accounts. Accordingly, the Company had to pay pre-payment charges of Rs. 12,84,000/- to State Bank of India and Rs. 7,68,000/- to State Bank of Hyderabad in order to effect the switch over the amount outstanding against the loans to ABN Amro Bank. 16. The company took a conscientious decision in shifting the accounts to ABN Amro Bank and making the prepayment charges of Rs. 20,52,419/- (comprising Rs. 12,84,000/- to State Bank of India and Rs. 7,68,000/- to State Bank of Hyderabad) since the interest ....
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....since the assessee has already capitalized the initial loan expenditure along with the interest there is no need to further capitalize Rs.14,24,000/-being upfront fee for term loan and Rs. 20,56,019/- being prepayment penalty charges and the expenditure of the Consortium i.e. State Bank of India, Vizag, State Bank of Hyderabad, Vizag and ING Vysya Bank Ltd. Vizag cannot be capitalized since assessee has not acquired any further additional asset of enduring nature. Therefore he requested to set aside the orders of the revenue authorities and direct the AO to allow the claim of assessee that the upfront fee for term loan as well as prepayment penalty charges as revenue expenditure. 13. On the other hand the ld. DR appearing on behalf of the revenue relied on the orders of the revenue authorities and the observations made by AO as well as the ld. CIT(A). 14. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that from the correspondence of ABN AMRO bank filed by the ld. Counsel for assessee the following terms and conditions are as under :- 1. Security : Exclusive Change on the Floating Crane and Associat....