2017 (11) TMI 1416 - AT - Income Tax

Claim of deduction towards loan processing charges - allowable business expenditure - Held that - loan processing charges paid by the assessee was wholly and exclusively for the purpose of assessee s business and by incurring such expenditure neither any new asset was created nor any enduring benefit has accrued to the assessee. While deciding the issue of identical nature in case of assessee s sister concern, the Tribunal has allowed loan processing charges as revenue expenditure. - Decided in favour of assessee. Deduction of an amount towards loans sourcing fees paid to Maruti Udyog Ltd. - Held that - The issue has been decided in favour of the assessee in preceding assessment year. In view of the aforesaid submissions of the learned Counsels appearing for the parties, we uphold the order of the learned Commissioner (Appeals) as found that the loan sourcing fees was paid to Maruti Udyog Ltd. and is amortized over the period of loan agreement. He found that only the amount which is amortizable for the current year has been debited to the Profit & Loss account. He also found that the Assessing Officer has not provided any basis why he considers the expenditure as capital in nature. Further, the learned Commissioner (Appeals) found that in assessee s own case for assessment year 2008 09, similar deduction claimed by the assessee was allowed by the first appellate authority. Addition of sales promotion expenses - Held that - As before the first appellate authority the assessee furnished bifurcation of the expenses claimed of ₹ 10.75 crore. As stated by the assessee, the aforesaid amount comprises of different component of services availed by the assessee which also includes sales promotions services. As per bifurcation submitted before the learned Commissioner (Appeals), the expenses incurred towards sales promotion was to the tune of ₹ 74,62,146 and on that basis, the learned Commissioner (Appeals) has directed the Assessing Officer to disallow 10% of ₹ 74,62,146. Thus, from the aforesaid facts, it is evident that the assessee has brought fresh facts before the learned Commissioner (Appeals) insofar as it relates to quantum of sales promotion expenses which was never filed before the Assessing Officer. In view of the aforesaid we are inclined to restore the issue back to the file of the Assessing Officer to verify assessee s claim and disallow 10% out of sales promotion expenses claimed by the assessee. This ground is allowed for statistical purposes.

Summary

Issues:
1. Allowance of deduction for loan processing charges.
2. Treatment of loans sourcing fees as capital expenditure.
3. Disallowance of sales promotion expenses.

Issue 1: Allowance of deduction for loan processing charges:
The Department challenged the allowance of the assessee's claim of deduction of ?21,17,250 towards loan processing charges. The Assessing Officer considered the charges as capital in nature and added back the amount to the income of the assessee. However, the learned Commissioner (Appeals) held that the charges were wholly and exclusively for the purpose of the assessee's business and allowed the deduction. The Tribunal upheld the decision of the learned Commissioner (Appeals) based on the precedent set in a similar case involving the assessee's sister concern.

Issue 2: Treatment of loans sourcing fees as capital expenditure:
The Assessing Officer disallowed the deduction claimed by the assessee for loans sourcing fees paid to Maruti Udyog Ltd., treating it as capital expenditure. The learned Commissioner (Appeals) found that the fees were amortized over the period of the loan agreement and only the current year's amortizable amount was debited to the Profit & Loss account. The disallowance was deleted by the learned Commissioner (Appeals) based on the decision in the preceding assessment year favoring the assessee. The Tribunal upheld this decision, noting that the issue had already been decided in favor of the assessee.

Issue 3: Disallowance of sales promotion expenses:
The Department challenged the partial relief granted by the learned Commissioner (Appeals) to the assessee regarding sales promotion expenses. The Assessing Officer disallowed 10% of the total sales promotion expenses claimed by the assessee due to lack of complete verification. The learned Commissioner (Appeals) directed the Assessing Officer to disallow 10% of the expenses specifically related to sales promotion. The Tribunal, after considering the arguments, decided to restore the issue back to the Assessing Officer for fresh verification regarding the quantification of sales promotion expenses claimed by the assessee. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the decisions of the learned Commissioner (Appeals) in allowing deductions for loan processing charges and loans sourcing fees as revenue expenditures. However, the issue of sales promotion expenses was remanded back to the Assessing Officer for further verification.