2016 (8) TMI 860 - AT - Income Tax

Disallowance of loan processing charges and pre-payment charges paid to the bank - whether prepayment charges and processing fee shall form part of the word interest as used in section 24(b) of the Act? - Held that - As far as the prepayment charges are concerned, these have been paid for the loans which have been refunded and thus no more utilised by the assessee. It has been clearly provided that any charges incurred even for any credit facility which has not been utilised shall also form part of the term interest . Even, otherwise, both of these payments have been made for the purpose of availing of the loan at lower interest cost. It is for the assessee to plan its financial affairs in the best possible manner. It is none of the business of the revenue to guide the assessee or put any obstacle in the management of its financial affairs. The assessee appears to have done the restructuring of its loans and changed its lenders for the purpose of reducing its interest burden by availing loan from the lenders at lower rate of interest. The prepayment charges and processing fee borne by the assessee at this stage were be compensated subsequently by payment of lower amount of interest. In any case, so long as the expenses incurred by the assessee are genuine and not part of any colorable device to make tax evasion, then such expenses should be allowed under the relevant provisions of the Act. The legal position is clear that these payments are allowable u/s 24(b) and therefore, AO is directed to grant the benefit of the same the disallowance made by the AO is directed to be deleted. - Decided in favour of assessee Claim of maintenance charges recovered by the assessee from its tenants - Held that - a claim can be allowed to assessee which is valid as per law and made by the assessee in accordance with law and in a complete and rightful manner. In case the assessee wants its income to be assessed under different head as per the provisions of law, then, the minimum duty expected from the assessee is to at least file a revised computation sheet of income offering the income in proper heads and making appropriate claims against each and every head separately. This exercise is not expected to be done by the AO on behalf of the assessee. But nonetheless, with a view to meet the ends of justice and in view of these peculiar facts and circumstances of the case, we find it appropriate to give an opportunity to the assessee to file revise computation sheet of income before the AO making out its claim in an appropriate and complete manner. Grant of full TDS - Held that - We send these grounds back to the file of the AO with the direction to allow opportunity to the assessee to file requisite details and documents. The AO shall grant credit of TDS certificate after verifying requisite facts. these grounds may be treated as allowed for statistical purposes.

Issues Involved:
1. Deduction under Section 24(b) for loan processing charges.
2. Deduction under Section 24(b) for prepayment charges.
3. Deduction of common area maintenance charges under Section 23.
4. Credit for TDS certificates.

Detailed Analysis:

1. Deduction under Section 24(b) for Loan Processing Charges:
The assessee claimed a deduction for loan processing charges paid to Axis Bank, which was disallowed by the AO on the grounds that no such deduction is allowable under Section 24(b) as the assessee is already granted a standard deduction of 30%. The CIT(A) upheld the AO's decision, stating that processing fees are administrative charges and are not directly related to the payment of interest. The Tribunal, however, noted that the term "interest" under Section 2(28A) includes any service fee or other charge in respect of moneys borrowed. The Tribunal concluded that processing fees are indeed a service fee and should be allowed as a deduction under Section 24(b).

2. Deduction under Section 24(b) for Prepayment Charges:
Similarly, the assessee claimed a deduction for prepayment charges paid to six bankers, which was also disallowed by the AO and upheld by the CIT(A). The Tribunal observed that prepayment charges are linked to the restructuring of loans and should be considered as part of the term "interest" as defined under Section 2(28A). The Tribunal emphasized that the prepayment charges were incurred to avail loans at a lower interest cost, which ultimately reduces the interest burden. Therefore, the Tribunal directed the AO to allow the deduction for prepayment charges under Section 24(b).

3. Deduction of Common Area Maintenance Charges under Section 23:
The assessee claimed deduction of common area maintenance charges recovered from tenants, which was disallowed by the AO and upheld by the CIT(A) on the grounds that there is no provision under Section 23 or 24 for such deduction. The Tribunal noted that the assessee had consistently shown its income under "Income from house property" and had not exercised this claim in earlier or subsequent years. The Tribunal directed the AO to give the assessee an opportunity to file a revised computation sheet of income, making appropriate claims under the correct heads. The AO was instructed to verify the claims and allow deductions as per law.

4. Credit for TDS Certificates:
The assessee raised additional grounds requesting the AO to grant full TDS credit based on original TDS certificates furnished during scrutiny assessment proceedings. The Tribunal directed the AO to allow the assessee to file requisite details and documents and to grant TDS credit after verifying the facts.

Conclusion:
The appeal was treated as allowed for statistical purposes, with directions to the AO to reconsider the claims for loan processing charges, prepayment charges, and common area maintenance charges, as well as to grant appropriate TDS credit after necessary verification. The Tribunal emphasized adherence to the legal definitions and provisions under the Income Tax Act while determining the tax liability of the assessee.

← Previous Next →