2020 (11) TMI 407 - AT - Income Tax

Nature of expenses - expenditure incurred on stamp duty and mortgage charge for obtaining loan - revenue or capital expenditure - HELD THAT - We find that the issue is squarely covered in favour of the assessee by the decision of India Cements Ltd. 1965 (12) TMI 22 - SUPREME COURT wherein assessee obtained certain loan which was secured by a charge on the fixed assets of the company. It incurred expenditure like legal fees, registration fees, stamps etc. and claimed that it was a business expenditure - as held that the loan obtained was not an asset or advantage of an enduring nature; that the expenditure was made for securing the use of money for a certain period and that it was irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee s business Thus we are of the view that the action of the authorities below in holding the expenditure as capital in nature is not sustainable. - Decided in favour of the assessee.

Summary

Issues: Disallowance of revenue expenditure on stamp duty and mortgage charges for obtaining a loan.

The primary issue in this case pertains to the disallowance of revenue expenditure incurred on stamp duty amounting to ?21,31,120 and mortgage charge amounting to ?8,30,920 for obtaining a loan. The Assessing Officer categorized this expenditure as capital expenditure since the loan was utilized for acquiring a capital asset. Upon appeal, the learned CIT(A) upheld the disallowance, emphasizing that the expenses were related to the acquisition of new assets, specifically "Two Dry Docking of Trailer Suction Hooper Dredgers." The CIT(A) noted that the expenses were not for stock in trade and therefore should be treated as capital in nature. The appellant's argument that the expenses were incurred for acquiring business funds and did not provide any enduring benefit was rejected by the CIT(A). The appellant relied on various judicial pronouncements to support their claim, but the CIT(A) deemed these references irrelevant as they did not address expenses related to the acquisition of capital assets. Consequently, the disallowance of ?21,30,120 for stamp duty charges and ?8,30,920 for mortgage charges was confirmed by the CIT(A).

On further appeal, the ITAT considered the decision of the Hon'ble Supreme Court in the case of India Cements Ltd. vs. CIT 60 ITR 52, where a similar issue arose regarding the treatment of expenditure incurred in obtaining a loan secured by fixed assets. The Supreme Court held that such expenditure, even if incurred for securing the use of money, was not in the nature of capital expenditure if it was laid out wholly and exclusively for the purpose of the assessee's business. Drawing parallels with the India Cements Ltd. case, the ITAT found that the facts of the present case aligned with the Supreme Court's decision. Therefore, the ITAT concluded that the authorities' decision to treat the expenditure as capital in nature was unsustainable. Consequently, the ITAT set aside the orders of the lower authorities and ruled in favor of the assessee, allowing the appeal.

In conclusion, the ITAT's judgment revolved around the classification of expenditure on stamp duty and mortgage charges for obtaining a loan as either revenue or capital in nature. By referencing the relevant legal precedents and applying the principles laid down by the Hon'ble Supreme Court, the ITAT determined that the expenses were revenue in nature and were laid out wholly and exclusively for the business, thereby overturning the decision of the lower authorities and ruling in favor of the assessee.