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TMI Blog2023 (9) TMI 1546X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction should be allowed towards finance charges including prepaid finance charges, if any, in the year of payment itself, even though, said expenditure has been treated as deferred revenue expenditure or prepaid expenditure in the books of accounts and claimed over a period of loan. CIT(A), without appreciating relevant facts simply sustained additions made by the AO and thus, we set aside the findings of the CIT(A) and direct the Assessing Officer to delete additions made towards disallowance of prepaid finance charges. Decided in favour of assessee. - SHRI MAHAVIR SINGH, HON BLE VICE PRESIDENT AND SHRI MANJUNATHA. G, HON BLE ACCOUNTANT MEMBER For the Appellant : Shri. Ajit Kumar, CA and Shri. Kunal Shah, CA For the Respondent by : Shri. R. Mohan Reddy, CIT ORDER PER MANJUNATHA. G, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 04.03.2020 and pertains to assessment year 2011-12. 2. At the outset, we find that there is a delay of 176 days in appeal filed by the assessee. During the course of hearing, when defect was brought to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan On the facts and in the circumstances of the case, and in law, the learned CIT(A) erred in appreciating the fact that the prepaid finance charges were to be paid as a pre-condition to obtain the borrowing and were not a contingent liability to be incurred at a future date. Without prejudice to the above and on the facts and circumstances of the case, and in law, the learned CIT(A) erred in considering the submissions filed by the Appellant to direct the learned AO, that, a deduction to the extent of prepaid finance charges disallowed is ought to be allowed in the respective subsequent year to the Appellant. 2. Claim of depreciation at the rate of 10% on temporary assets amounting to INR : On the facts and in the circumstances of the case, and in law, the Appellant requests your Honour to direct the learned AO to allow the claim of depreciation @ I 0% on the written down value of leasehold premises for the additions made in the preceding financial year i.e. FY 2009-10 Your Appellant has made an application before the learned AO to give effect for the above ground. In the event, the learned AO passes the desired order giving effect as requested by Your Appellant, this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the Assessing Officer, finance and other charges amortized over a period in the books of accounts, cannot be claimed as deduction in full in the year of payment, because said finance charges would run over a period of time and further as per the Principle of matching concept of accounting, the corresponding expenditure relatable to income alone needs to be recognized. The ld. Assessing Officer had also discussed the issue in light of Hon'ble Apex Court in the case of Madras Industrial Investment Corpn. Ltd vs CIT reported in [1997] 91 Taxmann 340, and observed that though the liability to pay finance charges is incurred in the year of availing loan facility, the payment is secure a benefit over a number of years. There is a continuing benefit to the business of the company over the period and therefore, the liability should be over the period of loan. Therefore, disallowed prepaid finance charges claimed by the assessee in the computation statement, amounting to Rs. 12,27,11,592/-. 7. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has reiterated its arguments made before the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with regard to the fact that the assessee itself has classified said expenditure as prepaid and does not pertain to impugned assessment year. Once, the expenditure does not pertains to impugned assessment year, then the question of deduction towards said expenditure does not arise, because as per matching principal of accounting, expenditure corresponding to income earned for the relevant period alone needs to be accounted. The Assessing Officer and CIT(A), after considering relevant facts has rightly disallowed prepaid finance charges and their order should be upheld. 10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the appellant has amortized finance and other charges in the books of accounts over a period of loan and wherever finance charges pertains to subsequent financial year, the same has been accounted as prepaid finance charges and debited under the head current assets. But, for the purpose of income tax the appellant has claimed total finance charges including prepaid finance charges as deduction, on the ground that said expenditure has been incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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