2017 (6) TMI 348 - AT - Income Tax

Allowance of expenditure in the form of processing fees paid to bank for obtaining loan from the Bank for five years - assessee has claimed 1/5th of the expenditure in the preceding Assessment Year 2010-11 and was allowed but in the current year denied - Held that - The issue under consideration is covered by the decision of Gujarat High Court in the case of Gujarat State Fertilisers and Chemicals Ltd. 2013 (7) TMI 701 - GUJARAT HIGH COURT wherein held that financial consultants for professional services in connection with corporate debt restructuring by negotiating with banks and financial institutions are to be allowed in the year in which it was incurred. The Court further observed that where the assessee has spread over the expenditure for six years and 1/6th is claimed, the department should not have objected such spreading over. Thus once the expenditure is accepted as Revenue Expenditure , then it is upto the assessee that whether to claim the expenditure in one year or to spread over the said expenditure as per the enduring benefit available with them. - Decided in favour of assessee. Disallowance u/s.14A - Held that - As found that the assessee has earned dividend income from one company only, the assessee does not require to incur any specific expenditure to maintain the investment portfolio, we direct AO to restrict the disallowance to the extent of 5% of the dividend income so earned from a company. We direct accordingly.

Summary

Issues:
1. Disallowance of bank's loan processing fees
2. Disallowance under section 14A of the Act
3. Charging of interest under sections 234A, 234B, 234C, 234D
4. Initiation of penalty under section 271(1)(c) of the Income Tax Act

Analysis:

Issue 1: Disallowance of bank's loan processing fees
The assessee appealed against the addition of 1/5th of the bank's loan processing fees paid, arguing that the loan was for more than one year, justifying the spreading of the expenditure over 5 years. The CIT(A) confirmed the disallowance, leading to further appeal. The Tribunal found that the expenditure incurred for obtaining the loan was revenue in nature and should have been allowed in the year of incurring itself. Referring to a decision of the Gujarat High Court, it held that spreading over the expenditure over multiple years should not be objected to by the department if the expenditure is revenue in nature. Therefore, the Tribunal directed the allowance of the 1/5th expenditure claimed during the year under consideration.

Issue 2: Disallowance under section 14A of the Act
The assessee challenged the disallowance under section 14A, claiming that no extra expenditure was incurred for earning the dividend income from a specific company. The Tribunal observed that since the assessee earned dividend income from only one company and did not need to incur any specific expenditure to maintain the investment portfolio, the disallowance should be restricted. Consequently, the AO was directed to restrict the disallowance to 5% of the dividend income earned from that company.

Issue 3: Charging of interest under sections 234A, 234B, 234C, 234D
The contention regarding the charging of interest under various sections of the Income Tax Act was not specifically addressed in the detailed analysis provided in the judgment.

Issue 4: Initiation of penalty under section 271(1)(c) of the Income Tax Act
The Tribunal did not provide a detailed analysis or decision regarding the initiation of penalty under section 271(1)(c) of the Income Tax Act in the judgment.

In conclusion, the Tribunal allowed the appeal in part, directing the allowance of the bank's loan processing fees and restricting the disallowance under section 14A of the Act. The issues related to the charging of interest and initiation of penalty were not extensively discussed in the judgment.