2023 (11) TMI 88 - HC - Income Tax

Deduction of the depreciation as well as the interest - Construction of towers - Passive use - respondent/assessee commenced business through lease of towers under IRU Agreement - Upfront payment of processing fee on the loan - revenue expenditure u/s 37 or capital expenditure - HELD THAT - AO had proceeded in the absence of the requisite material pertaining to the tower-wise details and the said material was provided subsequently at the first appellate stage and on the basis thereof the learned Tribunal passed the impugned order. Depreciation and the interest on loan is similar to the issue of payment of upfront fee towards loan processing charges in the sense that the AO opted to truncate the said charges proportionally for the reason that not all the towers might have been put to use as the tower-wise details had not been furnished and that the respondent/assessee had amortized loan processing fee over a period of time in its profit loss account. On these aspects, the above cited judicial precedents clearly fortify the view taken by the learned Tribunal. The towers which were constructed subsequent to commencement of business of the respondent/assessee were so constructed admittedly during the year relevant to the subject Assessment Year. As laid down in the above cited judicial precedents, the expression used for the purposes of the business in Section 32(1) of the Act has to be construed liberally so as to include even passive user of the subject machinery (towers in the present case). It is nobody s case that the profits earned by the respondent/assessee had no nexus with the towers in question. Therefore, we find no infirmity in the view taken by the learned Tribunal on the basis of factual matrix, thereby allowing the amount of depreciation concerning the said towers to be deducted. Upfront payment of processing fee on the loan - revenue expenditure u/s 37 or capital expenditure - HELD THAT - We have no hesitation to reiterate that it being undisputed that the loan in question was raised by the respondent/assessee only for the purposes of its business, merely because the loan processing charges though paid upfront but amortized over a period of five years, solely to be in consonance with the mercantile system of accounting, deduction of the entire charges in lump sum in the year in which the same were paid could not be denied to the respondent/assessee. On this aspect also we find no infirmity in the view taken by the learned Tribunal in the impugned order. No substantial question of law.

Summary

Issues Involved:

1. Disallowance of gratuity payments.
2. Disallowance of interest on loan.
3. Disallowance of depreciation.
4. Disallowance of loan processing fee.

Summary of Judgment:

1. Disallowance of Gratuity Payments:
The Tribunal's decision to delete the addition made by the Assessing Officer on account of disallowance of gratuity payments amounting to Rs. 42,25,273/- was upheld. The Tribunal found that the payments were made to employees who were transferred from joint venture companies and were allowable under Section 37 of the Income Tax Act as they were incurred wholly and exclusively for business purposes.

2. Disallowance of Interest on Loan:
The Tribunal's decision to delete the addition of Rs. 123,75,65,807/- made on account of disallowance of interest on loan was upheld. The Tribunal found no infirmity in the CIT(A)'s decision, which was based on documentary evidence, including RFAI certificates and service tax returns. The Tribunal noted that the interest was paid on capital borrowed for business purposes, and the entire amount was allowable as per Section 36 of the Act.

3. Disallowance of Depreciation:
The Tribunal's decision to delete the addition of Rs. 107,50,16,411/- made on account of disallowance of depreciation was upheld. The Tribunal agreed with the CIT(A) that the Assessing Officer's ad-hoc assumption of 50% usage of towers was not sustainable. The Tribunal found that the expression "used for the purposes of business" under Section 32(1) of the Act should be construed liberally to include passive use, and the respondent/assessee was entitled to the full claim of depreciation.

4. Disallowance of Loan Processing Fee:
The Tribunal's decision to delete the addition of Rs. 16,29,41,479/- made on account of disallowance of loan processing fee was upheld. The Tribunal held that the entire amount of loan processing fees, though amortized for accounting purposes, was allowable as a deduction in the year it was paid. The Tribunal found that the loan was raised for business purposes, and the deduction of the entire charges in lump sum could not be denied.

Conclusion:
The appeal was closed as the court found no substantial question of law to be answered. The Tribunal's findings were based on factual matrix and supported by judicial precedents, leading to the deletion of additions made by the Assessing Officer on all four issues.