TaxTMI 
TaxTMI 
2013 (7) TMI 113
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....eing expenses incurred on substitution of high interest bearing NCD's. It is submitted that in the facts and circumstances of the case the same is revenue in nature and required to be allowed as deduction. It is submitted that it be so held now. 2.1. It was noted by the AO that as per the computation of income the assessee had claimed a dededuction of Rs. 5 lacs towards incidental expenditure incurred on a substitution of high interest cost of NCDs. It was further noted that as per the P&L account, the assessee had debited only Rs. 1 lac being the amount of expenditure; rest was amortized over a period of 5 years and treated as a deferred Revenue Expenditure. The objection of the AO was that the entire expenditure could not be allowed u/s.37(1) of IT Act. 2.2. The explanation of the assessee was that there was a programme of "debt re-structuring" by the company, therefore an expenditure of Rs. 5 lacs was incurred towards pre-payment premium expenses on pre-payment of NCDs of Bank of Baroda. The assessee has replaced those NCDs by low cost loans. Hence, the claim of the assessee was that there was reduction in interest rate which had improved the profitability of the compa....
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....;s proposal to pre-pay the outstanding NCDs of Rs. 15 cr. Along with upto date interest by 15th Mar.2002. This is subject to the company paying to the Bank the agreed pre-payment charges of Rs. 7.50 lacs @ of 0.50% p.a. on the outstanding NCDs." The assessee has paid to the Centurion Bank Ltd. and claimed Rs. 7.50 lakhs in the relevant assessment year and claimed the deduction. It is not the case of the Revenue that this is not an allowable expenditure and moreover, the assessee has not deferred the payment rather it has made the entire payment in this year only and accordingly the same is allowable in this year only. Accordingly, we allow the claim of the assessee and this issue of the assessee's appeal is allowed." 4. From the side of the Revenue, ld. CIT-DR Mr.G.P.Gupta has pleaded that there is a distinction in the facts for the year under consideration, because for AY 2002-03 the claim was allowed because it was found that the assessee had not deferred the payment; rather made the entire payment in the year said under consideration. 5. Heard both the sides. Record of the case is perused. Case laws cited have also been examined. At the outset, we may like to ....
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....lease hold Captive Power Plant (CPP). The replacement expenditure was amounted to Rs. 4,16,93,695/-. It was noted that the same was amortized in the books of accounts over a period of three years, however the full amount was claimed while filing the return of income. The assessee has claimed the replacement cost of Core Engine u/s.37(1) of IT Act, however the AO was of the view that the replacement cost was in the nature of capital expenditure. The assessee's reply was as under:- "Core Engine is an important part of Captive Power Plant. This part is required to be replaced after every 24000 running hours. The same is sent back for the maintenance at the suppliers workshop. The replacement cost was incurred for the replacement of the core engine during the year. During the year 2002-2003, company has incurred expenditure of Rs. 4,16,93,695/- towards replacement cost of core engine for captive power plant which is taken on lease. Since the NCPL is not the owner of the assets, the expenditure was of the revenue nature and therefore, treated as deferred revenue expenditure and apportioned over a period of 3 years and accordingly debited Rs. 1,38,97,898/- to Profit....
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....by the assessee, hence the assessee is not an owner. In the case of a leased asset an expenditure is to be allowed as a Revenue Expenditure as held in the cases of CIT vs. Laxmi Talkies (2005) 275 ITR 125 (Guj.), CIT vs. Hari Vignesh Motors P.Ltd. (2006)282 ITR 338(Mad.) and CIT vs. Madras Auto Service (P) Ltd. 1998) 233 ITR 468 (SC). 7.1. From the side of the Revenue, ld.CIT-DR has placed reliance on the case of CIT vs. Sri Mangayarkarasai Mills (P) Ltd. (2009)315 ITR 114 (SC) for the legal proposition that in view of Explanation of section 31; "current repairs" are to be considered as capital expenditure. He has also argued that it was a replacement of machinery, therefore a capital expenditure was incurred by the assessee. 7.2. In rejoinder, ld.AR has drawn our attention on the "flow-on diagram" to demonstrate that the component which was replaced was a part of a big machinery, therefore replacement of a part cannot be treated as an installation of a new machinery. Further, he has also pleaded that the Explanation to section 31 was wrongly cited by ld.CIT-DR for the year under consideration, i.e. AY 2003- 04 because that Explanation was inserted with effect from 01/04/2004....
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....the case deduction should be allowed on the basis of book profit. It is submitted that it be so held now. 8.1. Before we deal with this ground, our attention has been drawn on the additional ground which is connected with ground No.3, for reference reproduced below:- Additional ground: In the facts and circumstances of the case while computing the Book Profit under section 115JB of the Act, the appellant would be entitled to deduction of the whole of the export profit computed as per section 80HHC of the Act on the basis of the Book Profit in view of the decision of the Supreme Court in the case of Ajanta Pharma. It is submitted it be so held now." 9. From the side of the Revenue, at the outset, ld.CIT-DR has vehemently objected the admission of the additional ground. However, considering the legal issue being raised through this additional ground based upon the facts already available on record, we hereby admit the same following the decision of Hon'ble Supreme Court pronounced in the case of cit VS. National Thermal Power Corporation Co.Ltd. (1998)229 ITR 383 (SC). As far as the AO's view in this regard was concerned, he has noted that the assessee....
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....ected to compute the eligible profit vis- à-vis deduction u/s.80HHC as prescribed in the case of Ajanta Pharma Ltd.327 ITR 305(SC). Therefore, the result of above discussion is that ground No.3 is allowed in favour of the assessee, however, additional ground is restored back to the file of the AO to be decided as per law after verification of the facts and figures, hence may be treated as allowed for statistical purposes only. 11. Ground No.4 reads as under:- 4. The learned Commissioner of Income Tax (appeals) erred in not adjudicating Ground no.6.1 & 6.2 raised before him relating to inclusion of excise duty and sales tax in the total turnover, reduction of jobwork charges and interest income from profit of the business. It is submitted that if the appellant is eligible for deduction under section 80HHC of the Act, then excise duty & sales tax should not be reduced while computing total turnover and job work charges & interest should not be reduced from profit of the business. It is submitted that it be so held now. In any event learned Commissioner of Income Tax (Appeals) be directed to dispose of the same. 11.1. It is apparent from the language of ....
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....to compute the interest component. The final outcome as per the assessment order was as under:- "The total gross lease rentals to be received over the entire lease period are Rs. 47,42,58,600/-. Thus, in the absence of any further details from the assessee's side, it is not possible to work out the interest component. Hence, the entire lease rent payment of Rs. 7,48,28,546/- claimed by the assessee is disallowed. Further, the depreciation of Rs. 1,29,88,373/- claimed in the hands of GNFC Ltd. on these assets and disallowed in the assessment order of GNFC Ltd. for A.Y. 2003-04 is allowed to the assessee." 12.3. When the matter was carried before the first appellate authority, ld.CIT(A) has taken a note of the decision taken in the case of GNFC for AY 2003-04, wherein it was held that GNFC was not entitled for depreciation. A view was taken that as per the lease agreement all the benefits of ownership have vested with the lessee, i.e. the assessee. He has held that the assessee was entitled for the depreciation. He has also held that the interest component was to be allowed. Finally, the disallowance of payment of lease rent for Captive Power Plant and Incinerator was....
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....n and (ii) that the assessee did not use these trucks in the course of its business. It was argued that depreciation can be claimed by an assessee only in a case where the assessee is both, the owner and user of the asset." 13.1. An observation of the Hon'ble Court in respect of whether the assets in question must be used by the assessee itself, the answer given was as under:- "We would like to dispose of the second contention before considering the first. Revenue argued that since the lessees were actually using the vehicles, they were the ones entitled to claim depreciation, and not the assessee. We are not persuaded to agree with the argument. The Section requires that the assessee must use the asset for the "purposes of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case before us, the a is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(....