2019 (4) TMI 1442 - HC - Income Tax

Disallowance being the front end fees or processing fees for obtaining loan - capital or revenue or deferred revenue expenditure - front end fee is part of interest u/s 2(28A) - assessee claimed amortization of the expense u/s 35D - HELD THAT - Issue similar to the case of the assessee relating to assessment year 2004-05 2019 (4) TMI 1321 - CALCUTTA HIGH COURT interest payment was spread over the duration of the loan. Therefore, the front ends fee constituted interest liability of the assessee spread over a period of time. Obtaining the loan and paying interest to service it ensured long term benefit to the assessee. Hence, this expenditure was revenue and not capital - Decided in favour of assessee. Allowable revenue expenditure - Deduction on payment of premium of pre payment of the loan to reduce its interest burden in view of falling interest rate - HELD THAT - Aforesaid expenditure incurred by the assessee by way of premium paid on pre-payment of loan for reducing interest the liability cannot be called acquisition of any asset and cannot be treated as capital expenditure and it has to be allowed as revenue expenditure. For the aforesaid reason this appeal is dismissed and accordingly question no. 1 is answered in negative and in favour of assessee and against the revenue.

Summary

Issues:
1. Disallowance of premium paid on prepayment of loan
2. Disallowance of front end fees or processing fees for obtaining a loan

Analysis:

Issue 1: Disallowance of premium paid on prepayment of loan
The appeal by the revenue concerns the deletion of the disallowance of the premium paid on prepayment of a loan by the assessee. The revenue argued that this expenditure is capital in nature and should not be treated as revenue expenditure. However, the Tribunal, following its earlier order in a similar case, upheld the deletion of the addition. The Court agreed with the Tribunal's decision, stating that the premium paid for prepayment of a loan to reduce interest liability does not amount to acquisition of any asset and should be treated as revenue expenditure. Therefore, the appeal was dismissed, and the first question was answered in favor of the assessee and against the revenue.

Issue 2: Disallowance of front end fees or processing fees for obtaining a loan
The second question raised in the appeal was similar to a case from a different assessment year, which was decided in favor of the assessee. The Court referenced this earlier decision and answered the second question in the negative and in favor of the assessee and against the revenue. This decision was based on detailed reasoning provided in the previous case, leading to the conclusion that the front end fees or processing fees for obtaining a loan should not be disallowed as claimed by the revenue.

In conclusion, the High Court of Calcutta upheld the Tribunal's decision to allow the deduction of the premium paid on prepayment of a loan as revenue expenditure and dismissed the appeal by the revenue. The Court also ruled in favor of the assessee regarding the disallowance of front end fees or processing fees for obtaining a loan based on a previous decision.