Commissioner Of Income Tax, Udaipur v. M/S P.industries Pvt. Ltd

D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JODHPUR JUDGMENT D.B.INCOME TAX APPEAL NO.198/2008 Commissioner of Income Tax, Udaipur vs. M/s P.Industries Pvt. Ltd. Date of judgment :18 August 2015 PRESENT HON'BLE MR JUSTICE AJAY RASTOGIHON'BLE MR JUSTICE VIJAY BISHNOI Mr K.K.Bissa for appellant Mr Anjay Kothari for respondent BY THE COURT:(PER HON'BLE BISHNOI,J.) This Income Tax Appeal has beenpreferred under section 260-A of the IncomeTax Act, 1961 (hereinafter referred to as'the Act of 1961') against the order dated12.10.2007 passed by the Income Tax Tribunal,Jodhpur Bench, Jodhpur (hereinafter referredto as 'the Tribunal'). The Tribunal vide impugned orderhas upheld the order dated 26.06.2006 passedby the learned Commissioner of Income Tax D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. (Appeals), Udaipur (hereinafter referred toas 'the CIT(A)') and deleted disallowance ofexpenses of Rs.38,01,629/- out of totalpremium of Rs.47,69,517/- paid on account ofreducing interest rate of IDBI loan.Initially, the assessing authority haddisallowed the expneses of Rs.38,01,629/- tothe assessee paid on account of reducinginterest rate of IDBI loan. Brief facts, necessary for disposalof this I.T.Appeal, are that during thecourse of assessment proceedings for the year2003-2004, the assessing authority held thatan amount of Rs.38,01,629/- paid by theassessee as upfront payment in the assessmentyear 2003-2004 is not allowable whiletreating as revenue expenditure for theassessment year in question. The CIT(A) in anappeal preferred on behalf of the assesseeheld that the disallowance of claim ofRs.38,01,629/- is not justified and the sameis required to be treated as revenueexpenditure for the assessment year 2003-2004. The Tribunal has also upheld thefindings of the CIT(A) vide order dated D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. 12.10.2007 and being aggrieved with this, theinstant appeal has been preferred. This Court vide order dated07.08.2009, while admitting the appeal,framed following substantial question of law: “Whether on the facts and in thecircumstances of the case, the learnedTribunal was right in upholding the deductionof Rs.47,69,517/- being the lump sumpayment of 50% of total interest amount asrevenue expenditure in the relevantassessment year only notwithstanding the factthat the amount was including the payment ofinterest for subsequent years?” Mr K.K.Bissa appearing on behalf ofthe appellant has argued that the Tribunalhas erred in observing that as the liabilitywas crystallized and paid entirely during therelevant year ignoring the fact that onlypart of the expenditure pertains toassessment year 2003-2004 and remainingexpenditure relates to other assessmentyears. It is contended that amount of Rs.38,01,629/- was rightly disallowed by theAssessing Officer as the same relates tofuture years and not in the assessment year2003-2004. D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. 4 Insupportoftheabovecontentions, learned counsel for theappellant has placed reliance on a decisionof Gujarat High Court in GujaratAmbujaCotspin Ltd. vs. Assistant Commissioner ofIncome-tax, [2015] 57 taxmann.com 210(Gujarat) Rs.38,01,629/- was rightly disallowed by theAssessing Officer as the same relates tofuture years and not in the assessment year2003-2004. D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. 4 Insupportoftheabovecontentions, learned counsel for theappellant has placed reliance on a decisionof Gujarat High Court in GujaratAmbujaCotspin Ltd. vs. Assistant Commissioner ofIncome-tax, [2015] 57 taxmann.com 210(Gujarat) Per contra, learned counselappearing for the assessee has argued thatthe case does not involve any substantialquestion of law and as per the provisions ofsub-section (4) of section 260-A of the Actof 1961, the assessee has every right toargue that the case does not involve suchquestion. Learned counsel for the assesseehas placed reliance on a decision rendered bya Coordinate Bench of this Court at JaipurBenchinI.T.AppealNo.101/2011-Commissioner of Income Tax vs. Jugal KishoreDangayach,andarguedthatwhenbusiness/revenue expenditure is for businessconsideration as a measure of commercialexpediency, the same cannot be disallowed.Learned counsel for the assessee has placedreliance on decisions of Hon'ble Supreme D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. Court in J.K.Woollen Manufacturers vs. CIT,(1969) 72 ITR (SC) 612, Kedarnath JuteManufacturing Co.Ltd. vs. Commission ofIncome Tax, (1971) 82 ITR (SC) 363, CIT vs.Ashok Leyland Ltd., (1972) 86 ITR (SC) 549,CIT vs. Madras Auto Service (P) Ltd., (1998)233 ITR (SC) 468, Bharat Earth Movers vs.CIT, (2000) 245 ITR (SC) 428, DCIT vs.Gujarat Alkalies & Chemicals Ltd., (2008) 299ITR (SC) 85, of this Court in CIT vs.P.I.Industries Ltd., (2010) 321 ITR (Raj.)601, CIT vs. Secure Meters Ltd. (2010) 321ITR (Raj.) 611 and CIT vs. Jugal KishoreDangayach (2014) 265 CTR (Raj.) 215, and ofGujarat High Court inDCIT vs. SunPharmaceutical Industries Ltd., (2010) 329ITR (Gaj.) 479. Heard learned counsel for theparties and perused the impugned order. It is not in dispute that prior tothe assessment year, the assessee had takenloan from IDBI, Jaipur at interest rate of15.0929% per annum. The assessee was facingsome difficulty in paying the interest onabove mentioned rate and approached the IDBI, D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. which proposed to reduce the existing rate ofinterest on outstanding loan and desired toupfront payment of 50% of the present valueof differential interest and according to theterms and conditions, the assessee paidRs.47,69,517/- and got reduced the interestrate from 15.0929% to 13.5%. We are of the view that when theamount of Rs.47,69,517/-, paid as upfrontpayment for getting the benefits of reducedinterest, the same is liable to be treated asbusiness/revenue expenditure and is allowablein the year, it was determined and paid. The Hon'ble Supreme Court as wellas this Court in the decisions referredabove, clearly held that in order to decidewhether an expenditure is revenue expenditureor capital expenditure, one has to look atthe expenditure from a commercial point ofview. In the present case, the assesseehad made 50% of the upfront payment to theIDBI to get the interest rate reduced. Theexpenditure, therefore, was made in order toget the loan on reduced rate of interest. In D.B.INCOME TAX APPEAL NO.198/2008Commission of Income Tax Udaipurvs.M/s P.Industries Pvt. Ltd. 7 other words, the assessee made substantialsavings in not making payment of interest permonth for subsequent years by making paymentof 50% upfront amount, therefore, suchpayment was an expenditure of commercialexpediency. As a result of the aforesaiddiscussion, the question as framed isanswered against the revenue, and in favourof the assessee. ,J. ,J. -m.asif/