2023 (9) TMI 1546 - AT - Income Tax

Disallowance of prepaid finance charges - HELD THAT - We find that the Hon ble Supreme Court has considered an identical issue in the case of Taparia Tools Ltd 2015 (3) TMI 853 - SUPREME COURT and held that once actual payment is made towards any expenditure, merely because a different treatment was given in the books of accounts, could not be factor, which would deprive assessee from claiming the entire payment of interest as deduction in the year of payment. The Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co Ltd 1971 (8) TMI 10 - SUPREME COURT held that entries in books of accounts is not relevant to decide the issue of deductibility of any expenditure. In the present case, there is no dispute with regard to the fact that the assessee has incurred the expenditure towards finance charges and also paid during the impugned assessment year itself. Since, the assessee has already paid finance charges, in our considered view, deduction should be allowed towards finance charges including prepaid finance charges, if any, in the year of payment itself, even though, said expenditure has been treated as deferred revenue expenditure or prepaid expenditure in the books of accounts and claimed over a period of loan. CIT(A), without appreciating relevant facts simply sustained additions made by the AO and thus, we set aside the findings of the CIT(A) and direct the Assessing Officer to delete additions made towards disallowance of prepaid finance charges. Decided in favour of assessee.

Summary

Issues:
1. Condonation of delay in filing the appeal due to Covid-19 lockdown.
2. Disallowance of prepaid finance charges.
3. Claim of depreciation on temporary assets.
4. Allowability of education cess as an expenditure under section 37(1) of the Act.

Analysis:
1. The judgment addressed the issue of condonation of delay in filing the appeal due to the Covid-19 lockdown. The appellant sought condonation of a 176-day delay citing the lockdown's impact. The Hon'ble Supreme Court's order extending limitations due to Covid-19 was considered, leading to the condonation of the delay by the Appellate Tribunal.

2. The main issue was the disallowance of prepaid finance charges by the Assessing Officer and upheld by the CIT(A). The appellant contended that the charges were incurred wholly and exclusively for business purposes. The Tribunal noted that the expenditure was classified as prepaid in the books but claimed as a deduction in the year of payment. Relying on legal precedents, the Tribunal held that the expenditure should be allowed as a deduction in the year of payment, overturning the CIT(A)'s decision.

3. The claim of depreciation on temporary assets was raised but later withdrawn by the appellant during the hearing. Consequently, the ground challenging the disallowance of depreciation on temporary assets was dismissed as withdrawn by the Tribunal.

4. The issue of the deductibility of education cess paid as an expenditure under section 37(1) of the Act was also raised. The appellant decided not to press this ground during the hearing, leading to the dismissal of the appeal on this issue as withdrawn. The Tribunal partially allowed the appeal based on the above analysis, setting aside the disallowance of prepaid finance charges and dismissing the other withdrawn grounds.