2021 (7) TMI 490 - AT - Income Tax

Unexplained cash credit u/s.68 - opening balance of loan amount - allegation that, the assessee had provided no evidence to prove that the said amount represents a known liability which is payable - CIT-A deleted the addition - HELD THAT - We concur with the view taken by the CIT(A), viz. that the interest accrued liability of ₹ 15.30 crore was transferred to the assessee on demerger/unbundling of the erstwhile MSEB; and as the said liabilities in question pertained to the earlier year, the same, thus, could not have been added during the year under consideration as an unexplained cash credit u/s 68 of the Act. We, therefore, finding no infirmity in the view taken by the CIT(A) uphold the deletion of addition - Decided against revenue. Disallowance of insurance charges of HVDC projects and lease rentals for HVDC projects - CIT-A deleted the addition - HELD THAT - We concur with the view taken by the CIT(A), that as rightly claimed by the assessee that the expenses in question pertaining to the HVDC project were not in the nature of prepaid expenses, but pertained to the year under consideration i.e A.Y. 2008-09, therefore, the same were rightly claimed as deduction. Accordingly, in the backdrop of our aforesaid deliberations, we are of the considered view that no infirmity arises from the order of the CIT(A) to the extent he had vacated the disallowance of the HVDC expenses, viz. Insurance charges and lease rentals - Decided against revenue. Disallowance of stamp duty and service fee - CIT-A deleted the addition - HELD THAT - Stamp Duty expenses and Service fees expenses having been incurred by the assessee in the normal course of its business, which had not resulted to creation of any capital asset of an enduring nature, thus were allowable as a deduction u/s 37(1) of the Act. Our aforesaid view is fortified by the judgment of the Hon ble Supreme Court in the case of India Cements Ltd. 1965 (12) TMI 22 - SUPREME COURT wherein it has been held by the Hon ble Apex Court that the stamp duty, registration fees, lawyers fees etc. paid for obtaining a loan is allowable as a business expenditure. - Decided against revenue. Disallowance of freight expenditure - CIT-A deleted the addition - HELD THAT - We concur with the view taken by the CIT(A) that the disallowance of freight expenses by the A.O was based on misconceived facts. As the aforesaid freight expenditure was incurred by the assessee for transportation/shifting of an existing capital asset i.e transformer (Nasik Circle), for the purpose of getting the same repaired, the same in our considered view, as observed by the CIT(A), and rightly so, was allowable as a revenue expenditure u/s 37(1) of the Act.- Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of ?15.30 crores as unexplained credit under Section 68 of the Income Tax Act.
2. Deletion of disallowance of ?36,63,345/- being insurance charges and ?27,34,250/- being lease rentals for HVDC project.
3. Deletion of disallowance of ?92,83,326/- being payment towards stamp duty and service fee.
4. Deletion of disallowance of ?10,62,493/- being freight on capital equipment.
5. Deletion of disallowance of ?5.87 crores as capital expenditure in AY 2007-08.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?15.30 Crores as Unexplained Credit under Section 68:
The revenue challenged the deletion of ?15.30 crores added by the Assessing Officer (A.O.) as unexplained credit under Section 68. The A.O. noted that the Comptroller & Auditor General (CAG) observed an outstanding liability of ?15.30 crores without corresponding bonds or loans. The assessee explained that this amount was an "opening balance" from the erstwhile MSEB, appearing in specific account codes, and would be cleared upon finalization of the transfer scheme. The CIT(A) found that the liability pertained to earlier years and was transferred during the demerger of MSEB, hence not applicable for the current year. The tribunal upheld the CIT(A)'s decision, stating the liability did not pertain to the current year and could not be added under Section 68.

2. Deletion of Disallowance of ?36,63,345/- Insurance Charges and ?27,34,250/- Lease Rentals for HVDC Project:
The A.O. disallowed these expenses, considering them prepaid. The assessee contended that the HVDC project was an existing one, and the expenses were not prepaid but pertained to the current year. The CIT(A) agreed with the assessee, noting that only the expenses relevant to the current year were claimed, including those paid in the previous year for the current year. The tribunal upheld the CIT(A)'s decision, confirming that the expenses were correctly claimed for the year under consideration.

3. Deletion of Disallowance of ?92,83,326/- Stamp Duty and Service Fee:
The A.O. disallowed the stamp duty and service fee, considering them capital expenditures related to loans for acquiring fixed assets. The assessee argued these were routine business expenses for hypothecation of assets and service fees for loans, allowable under Section 37(1). The CIT(A) observed that similar expenses were allowed in earlier years and were not for acquiring fixed assets. The tribunal upheld the CIT(A)'s decision, referencing the Supreme Court judgment in India Cement Ltd. v. CIT, which allowed such expenses as revenue expenditures.

4. Deletion of Disallowance of ?10,62,493/- Freight on Capital Equipment:
The A.O. disallowed the freight expenses, considering them related to capital items. The assessee clarified that the expenses were for transporting an existing capital asset (transformer) for repairs, not for new capital items. The CIT(A) agreed, noting the expenses were for shifting existing assets for repairs, thus allowable as revenue expenditures. The tribunal upheld the CIT(A)'s decision, confirming the expenses were correctly treated as revenue expenditures under Section 37(1).

5. Deletion of Disallowance of ?5.87 Crores as Capital Expenditure in AY 2007-08:
The assessee raised an additional ground, stating the A.O. failed to reduce ?5.87 crores disallowed in AY 2007-08 and directed to be allowed in AY 2008-09. The CIT(A) had directed the A.O. to allow these expenses in the subsequent year when rectification entries were passed. The CIT(A) for the current year directed the A.O. to follow the previous CIT(A)'s order. The tribunal upheld the CIT(A)'s decision, finding no infirmity in directing the A.O. to allow the expenses as per the earlier order.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues, confirming the deletions of the respective disallowances and additions. The order was pronounced in the open court on 18.06.2021.