TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 319
X X X X Extracts X X X X
X X X X Extracts X X X X
....nces: - a) disallowance of depreciation of Rs. 11,53,53,162/- on differential amount of fixed assets between purchases consideration for Rs. 235 cores - w.d.v. as per Income-tax Act at Rs. 88.66 crores. b) disallowance of non-processing charges Rs. 21,50,367/- 3. The assessee preferred appeal before ld. CIT(A) who while partly allowing the appeal, deleted the disallowances on account of depreciation. As regards loan processing fee, while upholding the assessee's contention that the expenditure was revenue in nature allowed the deduction to the extent of Rs. 21,50,367/- instead of Rs. 2,43,70,830/- as claimed by assessee. 4. Being aggrieved with the order of ld. CIT(A), both assessee and department are in appeal before us. 5. First we take up the Department's appeal vide ITA No. 4276/Del/2010. 6. The Department has taken following grounds of appeal: - 1. "The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 11,53,53,162/- on account of disallowance of depreciation u/s 32 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 644906000 67119000 Sewa 319150000 42867000 Total 2922703000 235847000 Grant Total 3158550000 8. The AO further noticed that there was another valuation dated 04/01/2006 of Plant and Machinery and Building by JMR Consultants, Chennai which valued these at Rs. 240.85 crores. He has further pointed out that this valuation did not find mention in the Scheme of Arrangement and Demerger presented before the Hon'ble High Court. This valuation was as under: - Description Appraised value of present assets in Rs. Lakhs Plants & Machinery Civil Works Total Value Ballarpur unit 4,136,05 704.16 4,840.21 Bhigwan unit 10,500.40 554.46 11,054.86 Shree Gopal Unit 4,785.24 671.19 5,429.43 SEWA unit 233.83 428.67 2,760.50 Total 21,726.52 2,358.48 24,085.00 9. The AO further observed that while approving the Scheme of Arrangement and Demerger on 25th May, 2006, the Hon'ble High Court of Delhi observed that, merely because consideration was being paid to the transferor company, it could not be presumed that the scheme as such was contrary to public interest or against the interest of shareholders of transferor company. Hon'ble H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; a. The property of Power Division being transferred by BILT at consideration of Rs. 235 crores is not at value appearing in the books of account immediately before the demerger. Thus, condition of clause (iii) of sec. 2(19AA) is not satisfied. b. Assessee Company has not issued any shares in consideration of demerger to shareholders of BILT. Thus, condition of clause (iv) of sec. 2(19AA) is not satisfied. c. Shareholders of BILT have not held ¾ in value of shares in Assessee Company; however, as on June 30, 2006 Assessee Company has allotted 26% shares to BILT. Thus, condition of clause (v) of sec. 2(19AA) is not satisfied. d. BILT has transferred Power Division to the assessee company at lumpsum consideration of Rs. 235 crores on sump sale basis and has paid long term capital gain tax on this sale consideration as per section 50B of the Act." 12. On AO's further queries in regard to the book value of the assets purchased from BILT, the assessee stated as under: - &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ores and Rs. 240.85 crores has been determined by independent valuers, therefore, it is reasonable to believe that consideration was paid for acquisition of the capital assets at Rs. 235 crores." 13. As regards WDV of the assets in the books of transferor i.e. BILT as on the date of transfer, the AO issued notice u/s 133(6) of the Act to BILT which submitted its reply, giving the value of assets transferred to APIL, as under: - Assets Transferred Power Division (Amount Rs.) Building 13,17,66,409 Less: Accumulated Depreciation 3,22,55,781 9,95,10,628 P&M 3,68,93,07,593 Less: Accumulated Depreciation 1,64,72,10,288 2,04,20,97,305 2,14,16,07,933 He observed that the above value of the assets transferred was as per the books value and not as per the Tax Audit Report. He, therefore, again issued notice u/s 133(6) to BILT asking specifically to furnish WDV as per 3CD of Tax Audit Report in respect of assets transferred to APIL. The reply submitted by BILT showed the WDV of the assets transferred to APIL as under: - Building 8,91,21,537 Plant & Machinery 77,75,43,827 Total 86,66,65,364 14. In the backdrop of abo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l as the Tribunal have rightly rejected the contention of the assessee and have rightly held that the actual cost once determined u/s 43(1) read with Explanation 6 will remain the same for that assessee. The explanation 6 referred in the para though does not apply to the case of the assessee, it is the principle that 'mere payment of capital gains tax by the seller company' will not entitle depreciation to the purchaser taking purchase price as WDV, which has been elucidated." 15.1 He, therefore, concluded that the assessee's claim is to be examined with reference to Explanation 3 to sec. 43(1). 16. After considering the ingredients of Explanation 3 he examined the facts of the present case and observed as under: - "The Explanation has following limbs; i) Before the date of acquisition by the assessee, the assets were used by any other person for the purposes of his business. ii) Income-tax Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare capital Ballarpur Industries Ltd. It is same company which was demerged and its Power Division was transferred to assessee company. Here again BILT is making payment by way of share capital to APIL which is received back by BILT at later date, now as part of sale consideration of assets. Assessee has thus got back its money but parted with the shares. d. Another amount of Rs. 51.75 crores is mobilized by way of issue of share capital BILT Paper Holding Ltd. This is group company of the BILT and holds 37.08% of its shares. Here it is substantial shareholder of BILT who is contributing 51.75 crores for share capital of APIL which in turn is received back by the demerged company now as consideration for sale of assets. The funds could have otherwise been received by BILT from BILT Paper Holdin Ltd. without parting with the assets. BILT has thus got back the money of its substantial share holder after having routed through APIL but only after its assets were parted with. e. Another aspect requiring consideration is the sanctity of consideration and real value of the assets acquired. There appear quite a few figures. SPB Projects and Consultancy Limited has determined the value o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ILT Papers Holdings Limited which has 37.08% shares of BILT. The funds, thus, paid as part of sale consideration are generating from the demerging company, the company substantially interested in the demerged company and against the security of assets acquired by way of demerger of demerged company. The transactions are thus circular in nature in order to enhance the value of asset in the hands of assessee company for the claim of higher depreciation. In view of above, I am satisfied that the main purpose of transfer of the assets discussed above, by way of demerger is to reduce liability of Income tax by claiming depreciation with reference to an enhanced cost. Third condition is that the AO with the previous approval of the joint Commissioner will determine the WDV having regard to all the circumstances of the case. In this case since the assessment is being framed by the Additional Commissioner of Income tax, such a condition stands fulfilled. Therefore, I hereby invoke Explanation 3 to section 43(1) to restrict the WDV of the assets acquired by the assessee company from BILT and to take the WDV as appearing in the books of transferor company as on the date of transfer for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re three valuers giving the reports but finally since it was approved by Hon'ble High Court of Delhi and Bombay, there could not be any doubt on valuation of assets. When there is transfer of old assets, valuation of such assets on transfer may arise due to escalation of present value of such assets on transfer. ii) it was not a case of transfer of assets by a Holding Company to its Subsidiary as was in the case of M/s Dalmia Ceramic Industries Ltd. vs. CIT, 277 ITR 219. iii) Arrangement of fund and furnishing security thereof to the lending bank do not fortify the case of the assessee for the purpose of applicability of Explanation 3 of sec. 43(1) of the Act. iv) price paid by the assessee company to the transferor company was duly disclosed by the transferor company and resultant tax on capital gains on slump sale had also been paid. The department again taxed the transferee company on same transaction by disallowing depreciation. v) since the transferee company was paying higher amount of Rs. 235 crores (and not 86 crores), then it should get depreciation on Rs. 235 crores only. vi) the assessee had accounted and treated the transfer of the aforesaid undertaking on a slump ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also u/s 133(6) to the transferor company. As regards, the approval given by Hon'ble High Court of Delhi & Bombay, ld. DR submitted that merely because the transaction was approved by Hon'ble High Court, it could not be claimed that the assessee company would be entitled for higher depreciation. She submitted that depreciation is to be allowed as per the specific provisions of sec. 32 read with section 43(1) of the Act. She submitted that as far as approval of the Hon'ble High Court to the scheme of arrangement and demerger u/s 391 & 394 of the Companies Act was concerned, the same did not address the specific issues and provisions of the Income Tax Act. At the time of approval of the scheme, the Hon'ble High Court had not adjudicated the issue of "actual cost" of the assets as per the Income-tax Act and the claim of depreciation thereon. As regards, ld. CIT(Appeals) observation that if any doubt remained regarding valuation, the AO should have taken an opinion from the departmental valuer, ld. DR submitted that the AO had not taken the actual cost of the assets on estimate or ad-hoc basis. Rather he had taken the cost which was appearing in the books of the transferor company. Thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 to section43(1). The purpose to be served under this provision is totally different. The effectiveness of the provisions could not be defeated in any manner, even if there was adjustment between the partners of the dissolved firm. * The Tribunal's view that the revaluation of the assets on the eve of the dissolution of the firm was made bona fide for adjustment of the mutual rights of the firm could not be agreed to. This was not a case where there was no written down value, which means, in the case of assets acquired in the previous year, the actual cost to the assessee and in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under the Act as defined u/s 43(6). Section 43(1) with Explanations thereof supersedes the general rule of law governing partnership, its assets and dissolution, etc. The definition of 'actual cost' contained in section 43(1), read with Explanations thereof, affords a mechanism by which to reduce the actual cost to a figure which is anything but real. When the asset was formally used by any other person for the purpose of his business and the main purpose of the transfer of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es Ltd. (Rs. 18.20 crores) and BILT Paper Holding Ltd. (Rs. 51.75 crores). She, therefore, submitted that the same person who enjoyed the benefits of the ownership of assets and its uses prior to transfer, continued to re-benefits even after the assets were transferred. She further submitted that the assets which had been transferred were in the nature of plant and machinery, furniture & fixture, etc. They were old assets and had already depreciated substantially over the years and their WDV in the books of transferor company was 88.66 crores. Therefore, there was no reason to take the value of those assets at Rs. 235 crores. She submitted that since the transfer was between the related parties, the value of assets was taken as per their own convenience and understanding. Ld. DR further submitted that payment of capital gains tax by the transferor company does not affect tax implication in assessee's case. She submitted that it was not a case of double taxation as held by ld. CIT(A). She submitted that AO himself gathered information and valued the assets after taking a holistic view of the entire scenario. Ld. DR submitted that the transaction was circular in nature in-as-much as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....revious use, the AO was justified in applying provisions of Explanation 3 to section 43(1) to work out actual cost of such assets. iv) CIT vs. Dalmia Dadri Cement Ltd., 125 ITR 510 (Del), in this case, it was, inter-alia, held that if expenses exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the vendee and there has been inflation or deflation of value for ulterior purpose, it is upon to the Income-tax authorities to accept the price mentioned in the deed or alleged by the assessee and to ascertain what the actual cost was. v) Ginners & Pressers P. Ltd. vs. CIT, 113 ITR 616 (Bom.), in this case, it was, inter-alia, observed as under: - "On the aspect of the market value of the transferred assets on the date of transfer, since the transaction was between the two companies, one of which was the holding company and the other 100% subsidiary company, the facts pertaining to the real market value of the assets transferred as on the date of transfer would be within the exclusive knowledge of either of the two companies and sinc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d company on the stock exchanges. Its main business, as set out in its memorandum of an association, is of manufacturing and sale of paper and paper products, chemicals, glass, fly ash, bricks, etc. In view of persistent power shortage because of power cuttings and/or power tripping during the period prior to 1980, BILT had established the power plants at 3 places for its captive use for the purpose of manufacturing of paper at various locations as under: - Name of the Paper Manufacturing Unite Location 1. Ballarpur Chandrapur, Maharashtra 2. Bhighwan Maharashtra 3. Shreegopal Yamunanagar, Haryana 4. Sewa Jeypura, Orissa He submitted that the assessee company M/s BILT Power Ltd. (Now known as Avantha Power & Infrastructure Ltd.) was incorporated on 20/07/2005 with the object of carrying on the business of generation and distribution of power with its registered office at 144-Janpath, Delhi. During the year under assessment, the assessee company and BILT had entered into a scheme of arrangement and demerger on slump sale basis for the purpose of transfer of power division to assessee company. 21. Ld. Counsel referred to pages 113 to 116 of the paper book, wherein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rved that the Regional Director who had raised objection in this regard, nowhere stated or even contended that the sale consideration, so fixed, was inadequate and did not represent the market value of transferred undertaking. He, therefore, submitted that it could not be pleaded that the price paid by the assessee was, in any manner, fictitious price. Ld. Counsel submitted that it was not a case of demerger as contemplated u/s 2(19AA) of the Income-tax Act. He, therefore, submitted that Explanation 7A to section 43(1) and Explanation 2B to section 43(6)(c) was not applicable to the assessee company. Ld. Counsel further submitted that assessee company had paid the consideration by mobilizing the funds as under: - i) loan taken from UTI & ICICI Bank Rs. 165 crores ii) share capital from Ballarpur Industries Ltd. Rs. 18.20 crores. iii) share capital from BILT Paper Holding Company Rs. 51.75 crores 23. Ld. SR. Counsel submitted that as regards the loan obtained from the banks, matter was further to ascertain the security against which the loan was obtained. The assets, which were received from demerged company, were in fact pledged as security to the bank, to obtain the loan. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 32 and 43 are parts of chapter IV and, therefore, section 43 is applicable to section 28 to 41 only. The definition of actual cost therefore, does not apply to capital gain. He submitted that for invoking Explanation 3, the AO should have material to satisfy himself that the main purpose of the transfer of assets, directly or indirectly to the assessee, was the reduction of a liability to Income-tax (by claiming depreciation with reference to an enhanced cost). He submitted that after recording his satisfaction to this effect he has to determine the actual cost as contemplated under Explanation 3 to section 43(1). He submitted that AO has not recorded any satisfaction that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of the liability to Income-tax. 27. Ld. Sr. Counsel submitted that AO has adopted the WDV of the assets as the actual cost as if it was a case of demerger and Explanation 7A was applicable. Thus, he submitted that the action of AO was not in accordance with law. Ld. Sr. Counsel submitted that without determining the actual cost of the assets, the AO could not reach the satisfaction that the main purpose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to the decision of Hon'ble SC in the case of CIT vs. Ram Krishna Pillai 66 ITR 725, which reads as under: - "A transaction by which a person carrying on business transfers the assets of that business to another assessable entity may take different forms and may have different legal effects. The assets of a business may be sold at a fixed price to a company promoted by a person who carried on the business: if the price paid for or attributable to an asset exceeds the written down value of the asset, proviso (ii) to sec. 10(2)(vii) of the Income Income-tax Act, 1922, would ex facie be attracted. Where the person carrying on the business transfers the assets to a company in consideration of allotment of shares, it would be a case of exchange and not of sale, and the true nature of the transaction will not be altered, because of stamp duty or other reasons the value of the assets transferred is shown as equivalent to the face value of the shares allotted. A person carrying on business may agree with a company floated by him that the assets belonging to him shall be transferred to the company for a certa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use the payment of higher rent could only reduce the assessee's total income. Ld. Counsel referred to the decision of Hon'ble Supreme Court in the case of Simon Carves Ltd., 105 ITR 212, wherein it was, inter-alia, observed that the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. 30. Ld. Counsel further referred to the following computation submitted before ld. CIT(A) to demonstrate that there was insignificant mandatory benefit on account of claim of depreciation on the purchase consideration of Rs. 235 crores: Rs. Crores Liability towards interest on Loan (Rs. 165 crores) in relation to undertakings (Interest for the period July 06 to Mar. 07 Rs. 11.49 crores) (approx.) Rs. 15.43 Depreciation on purchase consideration Rs. 235 crores as per auditor's Report in Form 3CD Rs. 18.49 Depreciation on WDV Rs. 88.66 crores as computed in Asstt. Order (Refer page no. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t price, ld. DR submitted that the assets in question are the old assets which have very nominal resale value. The nature of assets is also such which will not get appreciated over the years. She submitted that even the assessee does not have the exact market price of these assets and this fact is strengthened by the multiplicity of valuations. In fact the assessee company is the only buyer and the transaction is made to facilitate both the parties. Therefore, the AO was very reasonable in adopting WDV as actual cost and his action was supported by the judgments of various Hon'ble Courts. As regards, the submission of ld. Counsel that raising of loans of Rs. 165 crores on the assets is reflective of their value, ld. DR submitted that banks have not analyzed the issue of actual cost of the assets as per the specific provisions of the Income-tax Act. Even the CIT(A) has given findings on page 13 of the order that 'arrangement of fund and furnishing security thereof to the lending bank do not fortify the case of the appellant for the purpose of applicability of Explanation 3 of sec. 43(1) of the Act'. 34. As regards, the submission of ld. AR that banks carry out due diligence and val....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this scheme was reduction of tax liability by claiming higher depreciation in respect of those assets which were earlier used by transferor company by escalating the cost of the assets. Explanation 3 has been incorporated in sec. 43(1) to counter the attempts of assessee to claim higher depreciation by purporting to purchase assets at more than their true or real cost. It is fundamental principle that department cannot question the wisdom of assessee in carrying out its business operations. Department cannot dictate as to how the assessee should conduct its business. However, legislature has made specific provisions in the Income-tax Act when department can depart from this fundamental principle and ignore the apparent state of affairs and pearce the smoky screen created by assessee in the transaction to find out the true intention. These sections provide circumstances in which department can impute its judgment to the assessee's decision. The relevant provisions are to be found in section 40A(2), Explanation 3 to sec. 43(1), section 92C etc. But before these provisions can be invoked, legislature has required the AO to acquire necessary satisfaction in this regard which obviously ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to enhanced cost, it is not permissible to the AO to reject the cost paid for the transfer. The AO cannot substitute his own estimate of the value rejecting the assessee's estimate as was held in by Hon'ble Supreme Court in Joyta Coal Company Ltd. vs. CIT, 36 ITR 521. Thus, where at the time of partition of a family, as was the case in Kalu Ram Govind Ram vs. CIT, 57 ITR 335, the assets were allotted among the members at a valuation arrived at in a reasonable manner, there being no allegation of inflated cost by reason of fraud, collusion, subterfuge, devise or false transaction made with an ulterior purpose, the department was held to be precluded from going behind the agreement between the purchaser and the seller in determining the purchase price. The thresh hold condition is that the transfer should be with intent to get the benefit of enhanced value of asset. Therefore, before invoking Explanation 3, the AO is required to record his satisfaction that entire transaction was undertaken with a view to reduce the tax liability by claiming higher depreciation. Before we embark upon for detailed discussion regarding actual cost to the assessee in terms of Explanation 3, we first d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cheme of arrangement and demerger u/s 391 to 394 of the Companies Act. Section 391 of the Companies Act empowers the court to sanction the scheme. Section 392 empowers the court to supervise the carrying out of the scheme or to modify the same as it deems fit. Section 3(94) empowers the court either through the order sanctioning the scheme or by a subsequent order to make provisions for certain matters including incidental, consequential and supplemental matters as necessary to secure that the reconstruction or amalgamation is fully and effectively carried out. In exercising its discretion to sanction the scheme, the court considers, firstly whether the statutory provisions have been fulfilled; secondly, whether the classes were fairly represented by those who attended the meeting; thirdly whether the statutory majority was acting bonafide; and fourthly, whether the scheme is such as "a man of business" would reasonably approve. Following principles have been laid down in the case of Miheer H. Mafatlal vs. Mafatlal Industries Ltd. (1996) 87 Comp. Cases 792 : 1. The requisite statutory procedure for supporting the Scheme has been complied with and that the requisite meetings have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Transferor Company. The Court observed that merely because consideration is being paid to the Transferor Company, it cannot be presumed that the scheme as such is contrary to public interest or against the interest of shareholders of the Transferor Company. Under normal circumstances, the Transferor Company could have always transferred/sold any of its assets for consideration to the third party. The Court further observed that the sale consideration as fixed is based upon independent judgment of two valuers, namely, M/s SPB Products and Consultancy Limited, Chennai and M/s Infrastructure Leasing and Financial Services Ltd., New Delhi. The Regional Director nowhere stated or even contended that the sale consideration so fixed is inadequate and does not represent the market value of "transferred undertaking-1". The Court did not find any merit in the said objection and rejected the same. The second objection is that there is no object clause of the scheme and therefore, the purpose and benefits under the scheme as proposed may be ascertained. The Court observed that the Transferor Company is being split into three parts and transferred undertaking no. 1 i.e. (Power Division)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y had two pronged business model: To manage and expand the existing captive power plant (CPP) capacities for supporting the group's requirements as well as for tapping the opportunities available in the broader market in the form of other companies captive power requirements; and To spearhead the power sector initiatives of the group by undertaking super critical and sub-critical power projects under the independent power project (IPP) model. e) These objectives clearly spelled out the purpose with which demerger of the power division of Ballarpur Industries Ltd. was undertaken. f) The benefit of enhanced depreciation got almost mitigated because of interest payment of the outsider viz. all banks as is evident from the working submitted before the ld. CIT(A). The assessee has taken loan from ICICI Bank and AXIS Bank (UTI Bank) Rs. 165 crores for making payment for availing this facility and had paid more than 2 crores towards loan processing charges. The AO has not disputed the objective with which assessee had made this arrangement. The main/primary objective of assessee is relevant for purposes of Explanation 3. If the primary objective was not tax reduction. The Expla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that ld. CIT(A) has rightly held that the actual cost of the assets was Rs. 235 crores and not the written down value as per Income-tax assessments. 45. There is one more important aspect which fortifies our view upholding the ld. CIT(A)'s findings. It is pertinent to note that two WDV's were available before the AO one as per the books of the assessee and second as per the Income-tax computation. 46. Admittedly, as per the books of account of the BILT, the WDV was Rs. 214.16 crores on the date of transfer and the WDV as per Income-tax Act was 86.66 crores. The AO has completely ignored this important aspect while concluding that the actual cost for purposes of Explanation 3 to section 43(1) was 86.66 crores as per the Income-tax Act. WDV as per books of account of the assessee is determined on the basis of rate of depreciation prescribed under the Companies Act in Schedule XIV to the Companies Act. The depreciation rates have been prescribed differently under Companies Act and Income-tax Act. The object of allowing depreciation, as a charge against the profits, is to enable the assessee to recover the original cost of assets in course of time so that when the replacement of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rst put to use, the instance of loan processing charges accrued earlier i.e. before asset was actually acquired as payment was a pre-condition or at least simultaneously event of ownership for any purchase made in lieu of consideration. He, therefore, made an addition of Rs. 21,50,367/-. 50. Before ld. CIT(A) it was submitted that in the accounts the loan processing charges were booked in the following manner: a) Rs. 21,50,367/- was charged to profit and loss account. b) Rs. 2,27,20,463/- was treated in accounts as "deferred finance charges" for amortization in equal installments in subsequent years. It was clarified that the assessee company preferred to claim processing fee Rs. 21,50,367/- in the return since the same had already been booked in accounts, whereas balance Rs. 2,22,20,463/- was claimed at the earliest opportunity in course of assessment proceedings. Before ld. CIT(A), it was submitted that the "purpose" for raising finance from banks and the nature of expenditure are prime factors as opposed to manner of disclosure in the accounts. It was contended that expenditure was incurred in order to discharge the liability after 1/04/2006. Further it was submitted that loa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as incurred after assets had been first put to use in business by the assessee. Ld. counsel further submitted that it is not a case of new business but take over of going concern. 53. We have considered the rival submissions and have perused the record of the case. The facts are not disputed. As per section 2(28A) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Therefore, loan processing charges were in the nature of interest only. As per proviso to section 36(1)(iii), the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession is not allowable. Thus, up to the date the asset is put to use, the interest is to be capitalized. The interest for the period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, is not allowable as deduction. 54. The effective dat....