2014 (11) TMI 471 - AT - Income Tax

Classification of expenses - Take Out Assistance Fee Capital or revenue expenses Held that - Following the decision in Commissioner of Income Tax Versus M/s Noida Toll Bridge Co Ltd. 2012 (11) TMI 556 - ALLAHABAD HIGH COURT - take out assistance fee paid by the assessee is allowable expense u/s 37(1) of the Act thus, the addition made by the AO and confirmed by Ld. CIT(A) needs to be deleted Decided in favour of assesse. Classification of expenses revenue or capital - Amortization of zero coupon bonds treated as part of the package of relief and concessions granted by CDR empowered group of the Corporate Debt Restructuring Cell Held that - Assessee rightly contended that the zero coupon bond is issued in order to compensate the loss of interest payable to them and accordingly amortization of zero coupon bond is nothing but the payment of interest to them and it is deductible expenditure as per Section 37(1) of the it act being revenue in nature relying upon CIT Vs Gujarat Guardian Ltd. 2009 (1) TMI 13 - HIGH COURT DELHI - addition made by the AO and confirmed by Ld. CIT(A) could not be made in view of the facts and circumstances of the case the AO is directed to delete the addition Decided in favour of assessee.

Summary

Issues Involved:

1. Classification of "Take Out Assistance Fees" as capital or revenue expenditure.
2. Treatment of amortization of Zero Coupon Bonds (Series B) as capital or revenue expenditure.

Issue-wise Detailed Analysis:

1. Classification of "Take Out Assistance Fees" as Capital or Revenue Expenditure:

The primary issue in grounds No. 2 and 3 was whether the "Take Out Assistance Fees" amounting to Rs. 1,34,44,986/- should be classified as capital expenditure or revenue expenditure. The assessee claimed this fee as revenue expenditure, arguing it was a guarantee commission paid to IL&FS and IDFC for taking surety to discharge the obligation in the 5th and 9th years. The Assessing Officer (A.O.) disallowed this claim, treating it as capital expenditure based on precedents from the Hon'ble Gujarat High Court in the cases of Gujarat Mineral Corporation Ltd. Vs CIT and Indian Ginning & Pressing Co. Ltd. Vs CIT.

The CIT(A) upheld the A.O.'s decision, referencing the Supreme Court's ruling in Assam Bengal Cement Co. Ltd. Vs CIT, which outlined that expenditures made for acquiring an asset or advantage for enduring benefit are capital in nature. The CIT(A) also noted consistency with earlier years' decisions against the appellant.

However, the assessee's counsel argued that similar facts in previous years were decided in favor of the assessee by the ITAT, Delhi Benches, and the Hon'ble Allahabad High Court, which classified the "Take Out Assistance Fees" as revenue expenditure under Section 37(1) of the Income Tax Act. The Tribunal found that the issue was indeed covered by these decisions and directed the deletion of the addition made by the A.O., confirming the fee as revenue expenditure.

2. Treatment of Amortization of Zero Coupon Bonds (Series B) as Capital or Revenue Expenditure:

The second issue, raised in ground No. 4, involved the treatment of Rs. 3,51,07,840/- as capital expenditure by the A.O. The assessee claimed this amount as revenue expenditure, arguing that the Zero Coupon Bonds (ZCBs) were issued to lenders as compensation for the loss of interest due to reduced interest rates, as part of a relief package approved by the Corporate Debt Restructuring Cell (CDR).

The A.O. disallowed the claim, treating it as capital expenditure. The CIT(A) upheld this decision, stating that the expenditure was incurred for raising capital and thus was capital in nature.

The assessee contended that the amortization of ZCBs was akin to paying interest, deductible under Section 37(1) of the Income Tax Act. The assessee provided detailed submissions and professional confirmations regarding the appropriateness of the Sinking Fund Method used for amortization.

The Tribunal, after considering both sides and the precedent set by the Delhi High Court in CIT Vs Gujarat Guardian Ltd., found that the addition made by the A.O. and confirmed by the CIT(A) was not justified. The Tribunal directed the deletion of the addition, recognizing the amortization of ZCBs as revenue expenditure.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the deletion of the additions made by the A.O. and confirmed by the CIT(A) on both issues. The "Take Out Assistance Fees" were classified as revenue expenditure, and the amortization of Zero Coupon Bonds (Series B) was also treated as revenue expenditure. The order was pronounced in the open court on 17th Jan., 2014.