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TMI Blog2012 (6) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... new asset came into existence - Held that:- There is no need to further capitalize the upfront fee for term loan in connection with the transfer of the loans from one bank to another against prepayment penalty charges paid to the existing banks. Especially when the subsequent loan as bearing is having less rate of interest i.e. 10% as against the existing term loan of three banks which is 15% - Decided in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital goods on which depreciation has been claimed by us year to year. These were expenses incurred to obtain either loans or to reduce the cost of such loans which were duly utilized to acquire capital goods. Actually the expenditure that was incurred to 'bring into existence an asset' was the amount of loan and the amount of loan has not been claimed as revenue expenditure. The expenses incurred for obtaining the loan cannot be equated with the amount of loan. In course of the assessment proceeding it was explained and the Assessing Officer also accepted in principle, that these expenses resulted in the business being benefited. The Assessing Officer's finding that the said expenses resulted in enduring benefit is not correct. Only the loan amounts which were utilized to acquire the capital assets were expenses incurred 'with a view to bringing into existence an asset' and there is no dispute regarding the capital nature of such expenditure. Enduring benefit for the business is derived from the capital goods purchased and not by getting some reduction in the interest outgo. By applying the Assessing Officer's logic we have already derived the benefit when we acquired the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk Charges claimed by it by holding it as capital expenditure. The appellant's case is that this expenditure was incurred in connection with procurement of Term Loans from Banks/Financial institutions and hence should be adjudged as revenue expenditure. The appellant's submissions on this issue are a matter of record and have been perused. The Bank Charges consist of 'Upfront fee for Term loan' & 'Prepayment penalty charges'. By the appellant's own admission, these have been used to obtain bank loans to finance procurement of machinery. In my opinion, it is not a case of equating expenses incurred for obtaining loan with loan itself. The expenditure has ultimately resulted in enduring benefit to the appellant in the shape of new machineries which it had purchased. Logically, therefore, it should be capitalized. Under the circumstances, I uphold the AO's action on this issue and dismiss this ground of appeal." 3.2. Aggrieved by this now assessee is in appeal before us. 4. The revenue has raised the following grounds : "1. Whether the ld. CIT (Appeals)-VIII, Kolkata is correct in law and on the facts and circumstances of the case in treating the expenditure of Rs. 20,18,744/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated the submissions made before the revenue authorities which are as under :- "The maintenance of the godown in proper condition is a must to prevent any accident and is a must as per the guidelines of the Port Authorities. Detailed clarifications in respect of the items cited by you is furnished (Annexure-6). The importance of the jobs can be gauged from the fact that we have to employ a leading organization like Larsen & Toubro Ltd. for some of the jobs to ensure proper repairs and longevity and also to reduce the time of repairs as Larsen & Toubro Ltd. has got fully mechanised system to handle such work. The Assessing Officer, without going into the merits of our submission summarily rejected the arguments with the terse observation - "Assessee submitted various decisions, which not cover amended provisions of Section 30. A sample example is 6l Mtr. Fabrication @ Rs. 9000/- per Mt., is not repair but expenditure in nature of capital'. He has also observed that in the records of last three sears no sizeable expenditure of this nature is reflected. The Assessing Officer's observation is not correct and not supported by the actual facts as may kindly be seen from the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ane which was put to use in the financial year 2003-04 and depreciation on this asset has been claimed by us year to year starting from the financial year 2003-04 (photo copy of Depreciation Schedule enclosed) and as such were purely in the nature of revenue expenditure. Capital expenditure in this connection was duly incurred being the capital cost of the machineries financed by the Term loans" that were originally received from the Banks/Financial institutions (State Bank of India, State Bank of Hyderabad and ING Vysya Bank Ltd). The Assessing Officer's finding as to the amount of Rs. 14,24,000/- being 'Upfront fee for term loan' and Rs. 20,56.019/- being 'prepayment penalty charges' are in the nature of capital expenditure is not correct These were expenses incurred subsequent to completion of construction of Floating Crane and utilisation of the same for the business of the assessee company in the year 2003-04 and to reduce the cost of such loans which were originally utilized to acquire capital goods. It is also required to state that all the related expenses including interest paid on term loans were capitalised till the point of completion of the construction of Floating Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000 under various sanction as follows : S. No. Name of Bank Sanction No. Date 1. State Bank of India CD/00/1120 30.03.2000 2. State Bank of India F/ADV 27.04.2000 3. ING Vysya Bank Ltd. RO:HO:EC:DP 15.12.1999 & (16.04.2005) 3. The loans were sanctioned initially at interest rates upto 17.34% by ING Vysya Bank Ltd. and at 15.50% by State Bank of India and State Bank of Hyderabad. The said loans were to be repaid as per the schedule of repayment fixed by the Banks under the consortium arrangement. 4. The draw-down of the loans with respective Banks commenced on the following dates State Bank of India - Rs. 23.05.2000 State Bank of Hyderabad - Rs. 23.05.2000 ING Vysya Bank Ltd. - Rs. 19.05.2000 5. As on 01.04.2005, the following balances were outstanding against the term loans with the concerned Banks respectively State Bank of India Rs. 7,76,25,000/- State Bank of Hyderabad Rs. 4,65,75,000/- ING Vysya Bank Ltd. Rs. 5,06,89,787/- 6. The respective charges were created with ROC on 17.05.2000 and the repayment in instalments commenced from 01.10.2001. Bank First 27 quarters @ 28th quarter Installments commencing from State Bank of India Rs. 35.72 lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, the Company submitted its proposal to ABN Amro Bank among various Banks for considering takeover of the loan from the consortium. 12. The request of the Company was considered by ABN Amro Bank who sanctioned a term loan of Rs. I 4,24,00,000/-at overall cost of 8.25% per annum. 13. Upon receipt of the approval from ABN Amro Bank, the Company made a plea to the consortium of Banks to reduce the rate of interest to at least 8.25% and agreed to continue with the consortium of Banks itself if the cost of interest was brought down to the desired level. The consortium of Banks could not favourably respond and agreed to ABN Amro Bank taking over the loans. 14. On 12.12.2005, ABN Amro Bank handed over the payments of the respective principal amounts outstanding as follows: Favouring D.D. No. & Date Amount Drawn on State Bank of India 00324, 12.12.05 6,42,00,000/- ICICI Bank Ltd. Vishakapatnam State Bank of Hyderabad 00325,12.12.05 3,84,20,945/- ICICI Bank Ltd. Vishakapatnam ING Vysya Bank Ltd. 008293, 12.12.05 3,97,79,055/- ABN Amro Bank 15. At the time of handing over the documents/loans/securities etc. State Bank of India and State Bank of Hyderabad insisted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31.03.2003, 31.03.2004, 31.03.2005 and 31.03.2007 and it is observed that this is only the changing over of the term loan from the Consortium Banks i.e. State Bank of India, State Bank of Hyderabad and ING Vysya Bank Ltd. to ABN AMRO bank which was apparent from Schedule-C attached to the balance sheet as on 31.03.2005. Keeping in view of these facts since the assessee has already capitalized the initial loan expenditure along with the interest there is no need to further capitalize Rs.14,24,000/-being upfront fee for term loan and Rs. 20,56,019/- being prepayment penalty charges and the expenditure of the Consortium i.e. State Bank of India, Vizag, State Bank of Hyderabad, Vizag and ING Vysya Bank Ltd. Vizag cannot be capitalized since assessee has not acquired any further additional asset of enduring nature. Therefore he requested to set aside the orders of the revenue authorities and direct the AO to allow the claim of assessee that the upfront fee for term loan as well as prepayment penalty charges as revenue expenditure. 13. On the other hand the ld. DR appearing on behalf of the revenue relied on the orders of the revenue authorities and the observations made by AO as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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