2013 (12) TMI 1361 - AT - Income Tax

Bond issue expenses - Capital or revenue in nature - Held that - Following India Cement Ltd. vs. CIT 1965 (12) TMI 22 - SUPREME Court - A loan obtained cannot be treated as an asset or an advantage for the enduring benefit of the business of the assessee; that where the borrowal was incidental to the carrying on of the assessee s business, the expenditure was for securing the use of the money for a certain period - The bond issued was not entitled for conversion into shares and that being so, raising of funds through such bond issue cannot be termed as raising of capital by issuance of shares - Decided against Revenue.

Summary

Issues:
Department's appeal against Ld. CIT (A)'s decision on bond issue expenses as revenue expenditure for Assessment Year 2002-03.

Analysis:
The Assessing Officer disallowed bond issue expenses as capital expenditure, citing 'Assam Bengal Cement Company' case. He argued that the expenditure resulted in enduring benefits to the assessee and no provision for amortization existed. The Ld. CIT (A) disagreed, allowing the expenditure as revenue, following a previous order in the assessee's case for Assessment Year 2000-01.

The department contended that the expenditure was not solely for the business purpose in the relevant year, and the fruits would benefit the assessee in the future. They argued that since no amortization provision existed, the assessee's 20% annual write-off was unacceptable. They relied on 'Banco Products (India) Ltd. vs. DCIT' to claim the expenditure as capital.

Conversely, the assessee argued that the funds raised through bond issuance were liabilities, not capital, used for business purposes. They highlighted previous CIT (A) decisions in their favor for other assessment years and noted the department's acceptance of such expenses as revenue from 2003-04 onwards.

The Tribunal noted the funds raised through bonds were liabilities, not capital assets, as per Banking Regulation Act. Citing 'India Cement Ltd. vs. CIT', they concluded that the expenditure was for the business's purpose and not for enduring benefit. They referred to 'Premier Automobile vs. CIT' and 'CIT vs. Secure Meters Ltd.' to support the allowance of such expenses as revenue.

Ultimately, the Tribunal rejected the department's grievance, finding no merit in their arguments. The appeal was dismissed, affirming Ld. CIT (A)'s decision on bond issue expenses as revenue expenditure for Assessment Year 2002-03.