Tca/769/2015 Of Commissioner Of Income Tax v. M/S.thiru Arooran Sugar

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE R.HEMALATHA Commissioner of Income Tax, Corpoorate Circle 3,Chennai. ... Appellant M/s. Thiru Arooran Sugar Limited,Eldorado V Floor,112, M.G. Road,Chennai 600 034.PAN AAACT 2382 B ... Respondent Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, "B" Bench, dated 20.03.2015 in I.T.A.No.1610/Mds/2014for the Assessment Year 2007-2008 against the Proceedings ofthe Commissioner of Income Tax (A)-III, Chennai -34 inI.T.A.No.864,865,1546 & 1654/2013-2014 Dated 07/02/2014 againstthe Assessment Order of the Deputy Commissioner of Income TaxCompany Circle III (2), Chennai – 34 Dated 24/11/2009. For Respondent : Mr.R.Venkat Narayanan Challenging the order passed in I.T.A.No.1610/Mds/2014 inrespect of the Assessment Year 2007-2008 on the file of theIncome Tax Appellate Tribunal, Chennai, "B" Bench (for brevity,the Tribunal), the Revenue has filed the above appeal. 2.1 The assessee company is a manufacturer and settler ofwhite crystal sugar and its by-products. The assessee company https://hcservices.ecourts.gov.in/hcservices/ filed its return of income on 30.10.2007 declaring NIL income.The case was selected for scrutiny and a notice under section143(2) was issued and seved on the assessee company. Duringthe course of scrutiny assessment proceedings, the AssessingOfficer found that the aseesee had claimed an expense ofRs.4,20,60,863/- in the profit and loss account under thehead, extraordinary expenses. Since the payment ofRs.10,00,000/- towards the research study to increase fuelefficiency and benefit of which is enduring in nature, theexpenditure is patently of capital in nature. Hence, theAssessing Officer disallowed the entire expenditure. Out ofthe exordinary expnses, the assessee had claimed an amount ofRs.4,08,22,374/- towards payment of pre-payment premium andinterest to various banks. As per Corporate Debt Restructuring(CDR) agreement the loans are of the nature of term loan ofRs.132 corres, working capital of Rs.80.19 corres andpreferential share money of Rs.19.33 crores. The payment hasbeen made to compensate the loss of the above financialinstitutions due to CDR agreement and assessee has been providedwith an enduring benefit out of the above CDR agreement andthus is of othe nature of capital expenditure. Therefore, theassessee claim of the same as revenue expenditurewas disallowedby the Assessing Officer. The Assessing Officer completed theassessment on 24.11.2009 under section 143(3). 2.2 Aggrieved over the order passed by the AssessingOfficer, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals) and the Commissioner ofIncome Tax by order dated 07.02.2014 dismissed the appeal.Challenging the same, the assessee preferred an appeal beforethe Income Tax Appellate Tribunal, and the Tribunal, by itsorder dated 20.03.2015 allowed the appeal of the assessee.Aggrieved over the order passed by the Tribunal, the Revenuehas filed the above appeal. 3. The above appeal was admitted on the followingsubstantial questions of law: “ (I) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in holding that theexpenditure was crystalized during the relevantprevious year when the assessee hijmself hasclassified the expenses as "prior periodexpenditure"? (ii) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in holding that onetime payment made by the assessee towards prepayment premimum and interest compense isbusiness expenditure in the nature of rEvenueExpeidutre?" 3. The above appeal was admitted on the followingsubstantial questions of law: “ (I) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in holding that theexpenditure was crystalized during the relevantprevious year when the assessee hijmself hasclassified the expenses as "prior periodexpenditure"? (ii) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in holding that onetime payment made by the assessee towards prepayment premimum and interest compense isbusiness expenditure in the nature of rEvenueExpeidutre?" 4.1 When the appeal is taken up for hearing,Mr. M. Swaminathan, learned Senior Standing Counsel appearingfor the appellant fairly submitted that the substantialquestions of law arise for consideration in the presentappeal were already decided by the Hon'ble Supreme Court ofIndia in its Judgment dated 14.01.2020 in Civil AppealNos.7615 of 2009 and 2414 of 2010 [ Commissioner of Income Taxv. Gujarat Guardian Limited, Erode] wherein, the Hon'ble SupremeCourt of India held as follows : “Heard learned counsel for the parties. These appeals were admitted only in reference toquestion of law formulated as follows: - "Whether on the facts and in thecircumstances of the case, the Hon'ble HighCourt of Delhi was right in law in allowingdeduction of lump sum pre-payment premiumpaid by the assessee to IDBI amounting toRs. 8 crores, ignoring the fact that theaforesaid payment represented upfront[present value] of differential rate ofinterest that would have been on the loan ifno restructuring of the debt had takenplace; and that the judgment of SupremeCourt in 225 ITR 802 is squarely applicableto the present case? The assessing officer and the First AppellateAuthority answered the issue against the assessee butthe ITAT and the High Court has held that theprinciple underlying the exposition in MadrasIndustrial Investment Corporation Ltd. Vs. C.I.T.- 225ITR 802 has no application to the fact situation ofthe present case, in view of the dictum in paragraphs15 and 16 of the reported decision itself. The ITAT in its judgment had observed as follows: 31. We have heard the rival submissions. Theassessee had made proposal to IndustrialDevelopment Bank of India (IDBI) forrestructuring of debt IDBI vide letter dated 19th March 1995 agreed to, inter alia, reducethe rate of interest on rupee loan to 15% perannum, effective from 1st April, 1995 uponpayment of lump sum prepayment premium of Rs. 8crores. The Assessing Officer has alloweddeduction for Rs. 80 lacs being 1/10th of theprepayment premium of Rs. 8 crores during theyear, applying the ratio of the Supreme Courtdecision in the case of Madras IndustrialCorporation Vs. CIT, 225 ITR 802. The prepaymentpremium paid by the assessee to EDBI is in lieuof IDBI agreeing to reduce the rate of intereston the rupee loan aggregating to Rs 170.76crores. The same, in other words, representsupfront payment (present value) of differentialrate of interest that would have been due on theloan if no restructuring of the debt had takenplace. In terms of S. 36(1)(ii) read with S. 2(28A) of the Act prepayment charges beinginterest paid on moneys borrowed for purposes ofbusiness, is to be allowed deduction as revenueexpenditure. The prepayment premium beingrevenue expenditure, is to be allowed deductionin the year of accrual thereof, since the Actdoes not recognize the concept of deferredrevenue expenditure. 32. The decision of the Chennai Bench of theTribunal in the case of Overseas Ltd. Vs. JCIT86 ITD 602 Chennai also supports the plea of theassessee. Besides the above S. 43B(d) alsopermits claiming deduction on actual payment.Even on this basis the claim of theassesseedeserves to be accepted. Ground No.3 isaccordingly allowed." (emphasis supplied initalics) The view so taken by the ITAT commended tothe High Court. We find no reason to take adifferent view in the matter. In view of theabove, these appeals deserve to be dismissed andare dismissed accordingly. No order as to costs. Pending applications, if any, stand disposed of." 4.2 The learned Senior Standing Counsel submittedthat in view of the ratio laid down by the Hon'bleSupreme Court of India, the questions of law has to be decided against the revenue and in favour of theassessee. 5 Mr.R.Venkat Narayanan, learned counsel appearing for therespondent-assessee submitted that in view of the Judgment ofthe Hon'ble Supreme Court of India the appeal may bedismissed. 6. Having regard to the submissions made by the learnedcounsel on either side, following the ratio laid down by theHon'ble Supreme Court of India in the Judgment reported madein Civil Appeal Nos.7615 of 2009 and 2414 of 2010 [citedsupra], the questions of law are decided against the Revenueand in favour of the assessee. Accordingly, the Tax CaseAppeal is dismissed. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar Rj To1)The Registrar,The Income Tax Appellate Tribunal, Chennai,"B" Bench.2) The Commissioner Income Tax (A)-III, Chennai- 34.3) Deputy Commissioner of Income TaxCompany Circle III (2), Chennai – 34+1cc to Mr.M. Swaminathan, Advocate, S.R.No. 30425 T.C.A.No. 769 of 2015 PPA(CO)CT/20/07/2021