2015 (8) TMI 551 - AT - Income Tax

Deduction of interest - Whether CIT(A) has erred in allowing the deduction of interest as revenue expenditure even though the same was never claimed by the assessee in the return of income? - Held that - It is not in dispute that the assessee paid instalment towards conversion charges of land and the asset was already in existence and the business of the assessee was running from the very same factory premises. Learned counsel of the assessee fairly accepted that the assessee neither made any claim in the original return nor filed any revised return and the interest was also not found placed in the profit and loss account but the assessee pressed his claim by way of letter filed before the Assessing Officer during the assessment proceedings. In view of the decision of the hon ble apex court in the case of Goetze (India) Ltd. v. CIT 2006 (3) TMI 75 - SUPREME Court AO is not empowered to entertain any claim out of return of income which could not find place in the original return of income or otherwise than by revised return but in the same decision, the hon ble apex court made it clear that this did not impinge on the power of the Tribunal. However, we are of the considered opinion that since the asset, i.e., factory premises was already in use of the assessee, therefore, the interest paid along with instalment towards conversion of charges of land cannot be treated as capital expenditure and the same cannot be held to be capital expenditure. Thus, we are of the opinion that the Commissioner of Income-tax (Appeals) was right in holding that the interest expenditure cannot be capitalised and the same was allowable as revenue expenditure. - Decided against revenue.

Summary

Issues:
- Whether interest paid on conversion charges of land is allowable as revenue expenditure when not claimed in the return of income?

Analysis:
1. Background: The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) regarding the deduction of interest as revenue expenditure for the assessment year 2008-09.

2. Facts: The assessee-company paid an amount inclusive of interest towards permission from the Government for using land for commercial activities. The Assessing Officer disallowed the deduction as revenue expenditure since it was not claimed in the return of income.

3. Revenue's Argument: The Revenue contended that the interest should not be allowed as revenue expenditure as it was not claimed in the return and was related to a capital asset. They relied on the decision of the Supreme Court in Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC).

4. Assessee's Argument: The assessee argued that the interest should be treated as revenue expenditure since the asset was already in existence and the business was running from the same factory premises. They compared it to interest paid on loans for fixed assets.

5. Tribunal's Decision: The Tribunal noted that the asset was in use, and the interest paid on conversion charges of land should be treated as revenue expenditure. They upheld the Commissioner of Income-tax (Appeals)'s decision, stating that the interest expenditure cannot be capitalized and was allowable as revenue expenditure.

6. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the allowance of interest as revenue expenditure by the Commissioner of Income-tax (Appeals) based on the nature of the expense and the existing business operations from the factory premises. The decision was in line with the facts and legal principles, leading to the rejection of the Revenue's appeal.