Income Tax Appellate Tribunal - Chennai
Jennys Hotel Pvt Ltd., Trichy vs Dcit, Trichy on 18 January, 2018
आयकर अपील
य अ धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'C' BENCH, CHENNAI
ी ए. मोहन अलंकामणी, लेखा सद य एवं ी ध!ु वु" आर.एल रे #डी, या%यक सद य के सम&
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER
आयकरअपीलसं./I.T. A. Nos. 1543 &1544/Mds/ 2012,
1348, 1349 &1350/Mds/2014 & 1657/Mds/2015
( नधा रणवष / Assessment Years: 2007-08, 2008-09, 2003- 04,
2009-10, 2010-11 & 2011-12)
The Deputy Commissioner of Income Vs M/s. Jennys Hotel Pvt. Ltd.,
Tax, 3/14, Mcdonalds Road,
Circle - 1(1), Trichy Cantonment, Trichy
PAN: AABCJ1281G
(अपीलाथ /Appellant) ( यथ /Respondent)
&
CO No s. 7 2 & 7 3/M d s/ 20 1 4, 1 1 2, 1 13 & 1 1 4/ M d s/2 01 4 & 1 32 /M d s/ 20 1 5
( i n I.T . A. Nos . 1 54 3 & 1 54 4 /M ds / 2 0 12 ,1 3 48 , 13 49 &1 3 5 0/ Mds / 20 1 4 & 16 5 7/ M ds / 2 01 5 )
M/s. Jennys Hotel Pvt. Ltd., Vs The Deputy Commissioner of
3/14, Mcdonalds Road, Income Tax,
Cantonment, Trichy Circle - 1(1), Trichy
PAN: AABCJ1281G
(अपीलाथ /Appellant) ( यथ /Respondent)
राज व क ओर से /Revenue by : Shri Asish Tripathi, JCIT
नधा रती क ओर से /Assessee by : Shri B. Ramakrishnan, FCA
सन
ु वाईक तार!ख/Da t e of h e ar in g : 06.12.2017
घोषणाक तार!ख /D at e of Pr on o unc em en t : 18.01.2018
आदे श / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the Revenue and the cross objections by the assessee are directed against the respective orders of the Ld.CIT(A)-1, Trichy as detailed herein below:- 2 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 Revenue's Appeal Assessee's Cross CIT(A)-1, Trichy Order details Assessment ITA No. Objection Passed under year Order No. Date CO No. Section 250 (6) r.w.s.
180/10-11/ 143(3) &147 of the
2003-04 1348/Mds/2014 112/Mds/2014 20.01.2014
CIT(A)/TRY Act
250 (6) r.w.s.
2007-08 1543/Mds/2012 72/Mds/2014 410/11-12 04.05.2012
143(3) of the Act
250(6) r.ws. 143(3)
2008-09 1544/Mds/2012 73/Mds/2014 310/10-11 04.05.2012
of the Act
250 (6) r.w.s.
08/13-14/
2009-10 1349/Mds/2014 113/Mds/2014 20.01.2014 143(3) &147 of the
CIT(A)/TRY Act
007/13-14/ 250 (6) r.w.s.
2010-11 1350/Mds/2014 114/Mds/2014 20.01.2014 143(3) of the Act
CIT(A)/TRY
314/13-14/ 250 (6) r.w.s.
2011-12 1657/Mds/2015 132/Mds/2015 22.04.2015
CIT(A)/TRY 143(3) of the Act
2. There is a delay of 10 days in filing the appeals by the Revenue in ITA Nos.1348 & 1349/Mds/2014 for the assessment years 2003-04 & 2009-10. The Ld.ACIT has furnished an affidavit before us stating that the delay had occurred because the Ld.AO was engaged in carrying election duty as observer and therefore was not able to trace the file in time. It was therefore pleaded that the short delay in filing the appeals may be condoned. The Ld.AR objected to the submission of the Ld.DR. However, after hearing both sides, in the interest of justice we are of the considered view that the short delay in filing the appeals by the Revenue requires to be condoned because the Ld.AO has a reasonable cause for the delay in filing the appeals. Accordingly we hereby condone 3 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 the delay of 10 days in filing the appeals by the Revenue and proceed to hear the case on merits.
3. There is a delay of 673 days in filing the cross objections by the assessee in CO Nos.72 & 73/Mds/2014 for the assessment years 2007-08 & 2008-09. The Ld. AR submitted that the delay had occurred due to the oversight of his staff. Therefore the Ld. AR pleaded that the inadvertent delay may be condoned because it would be unjust to penalize the assessee for the shortcomings of his staff. The Ld. DR strongly objected to the submission of the Ld. AR. After hearing both sides, though we do not appreciate the lethargic attitude of the assessee's Ld. Representative, in the interest of justice, we are of the considered view that the delay of 673 days in filing the appeals requires to be condoned.
Accordingly we hereby condone the delay of 673 days in filing the cross objections by the assessee and proceed to hear the appeal on merits.
4. Assessment year 2003-04:-
A) Revenue's Appeal:-
The only issue which arises in the appeal for our consideration is that the Ld.CIT(A) has erred in excluding the 4 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 interest waived in the relevant assessment year pertaining to the earlier assessment years amounting to Rs.79,91,716/- while computing the profit of the assessee for the purpose of Section 115JB of the Act on the ground that the interest claimed by the assessee as deduction during the earlier assessment years were disallowed by invoking the provisions of Section 43B of the Act due to non-payment of interest to M/s.Tourism Finance Corporation of India a Government of India Undertaking. B) Assessee's Cross Objection:-
The assessee has raised the following cross objections:
1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law facts and circumstances of the case to the extent prejudicial to the interest of the respondent and at any rate is opposed to the principles of equity, natural justice and fair play.
2. For that the reopening / reassessment is bad-in-law.
5) Assessment year 2007-08 :- A) Revenue's Appeal:-
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in 5 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 adopting compound interest @ 12.92% without taking note of the decision of the Hon'ble Apex court in the case CIT vs. Madras Industrial Investment Corporation Limited reported in 225 ITR 802 wherein it was held that the rate of interest should be adopted on 'straight line method' for granting deduction on amortization of premium on debentures.
B) Assessee's Cross Objection:-
The assessee has raised five grounds in its CO however the crux of the issue is that the Ld.CIT(A) has erred in upholding the disallowance of amortization of premium on debentures to the extent of Rs.14,54,741/-.
6) Assessment year 2008-09:- A) Revenue's Appeal:-
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in adopting compound interest @ 12.92% without taking note of the decision of the Hon'ble Apex court in the case CIT vs. Madras Industrial Investment Corporation Limited reported in 225 ITR 802 wherein it was held that the rate of interest should be adopted on 6 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 'straight line method' for granting deduction on amortization of premium on debentures.
B) Assessee's Cross Objection:-
The assessee has raised seven grounds in its CO however the cruxes of the issues are that
(i) The Ld.CIT(A) has erred in upholding the disallowance of amortization of premium on debentures to the extent of Rs.14,54,741/-.
(ii) The Ld.CIT(A) has erred by omitting to adjudicate the issue with respect to disallowance of revenue expenditure of Rs.42,25,206/- which the Ld.AO held to be capital in nature.
7) Assessment year 2009-10:- A) Revenue's Appeal:-
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in adopting compound interest @ 12.92% without taking note of the decision of the Hon'ble Apex court in the case CIT vs. Madras Industrial Investment Corporation Limited reported in 225 ITR 802 wherein it was held that the rate of interest should be adopted on 7 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 'straight line method' for granting deduction on amortization of premium on debentures.
B) Assessee's Cross Objection:-
The assessee has raised six grounds in its CO however the crux of the issue is that the Ld.CIT(A) has erred in upholding the disallowance of amortization of premium on debentures to the extent of Rs.14,54,741/-.
8) Assessment year 2010-11:- A) Revenue's Appeal:-
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in adopting compound interest @ 12.92% without taking note of the decision of the Hon'ble Apex court in the case CIT vs. Madras Industrial Investment Corporation Limited reported in 225 ITR 802 wherein it was held that the rate of interest should be adopted on 'straight line method' for granting deduction on amortization of premium on debentures.8 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 B) Assessee's Cross Objection:-
The assessee has raised five grounds in its CO however the crux of the issue is that the Ld.CIT(A) has erred in upholding the disallowance of amortization of premium on debentures to the extent of Rs.14,54,741/-.
9) Assessment year 2011-12:- A) Revenue's Appeal:-
The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in adopting compound interest @ 12.92% without taking note of the decision of the Hon'ble Apex court in the case CIT vs. Madras Industrial Investment Corporation Limited reported in 225 ITR 802 wherein it was held that the rate of interest should be adopted on 'straight line method' for granting deduction on amortization of premium on debentures.
B) Assessee's Cross Objection:-
The assessee has raised five grounds in its CO however the crux of the issue is that the Ld.CIT(A) has erred in upholding the disallowance of amortization of premium on debentures to the extent of Rs.14,54,741/-.9 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015
10) The brief facts of the case are that the assessee is a private limited company engaged in the business of Hotel business filed its return of income for the relevant assessment year. Thereafter assessments were completed U/s. 147 r.w.s 143(3) of the Act for the assessment year 2003-04 and U/s.143(3) of the Act for the assessment years 2007-08 to 2011-12 wherein certain additions were made and sustained/deleted by the Ld.CIT(A) aggrieved by which both the Revenue and the assessee are in appeal before us.
11) Assessment year 2003-04:-
Revenue's Appeal: Excluding the gain arising out of waiver of interest of Rs.79,91,716/- while computing profit for the purpose of Section 115JB of the Act.
During the relevant assessment year M/s. Tourism Finance Corporation of India had rescheduled the loan advanced of the assessee and in the process revised the interest @ 14% with retrospective effect. As a result the interest element of Rs.79,91,716/- stood as waived by the Corporation during the relevant assessment year. The assessee had computed its profit during the relevant assessment year by excluding the waived 10 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 interest of Rs.79,91,716/- for the purpose of Section 115JB of the Act. However the Ld.AO opined that as per the provisions of Companies Act, the remission of interest has to be credited in the income side of the P&L account thereby consequently increasing the book profit to that extent for the purpose of determining tax U/s.115JB of the Act. Before the Ld.CIT(A) the Ld.AR had argued citing the decision in the case Apollo Tyres Limited vs. CIT reported in 255 ITR 273 by stating that the Ld.AO has no right to recomputed the book profit. The Ld.AR had further submitted before the Ld.CIT(A) that the assessee company on its own had disallowed the interest payable to M/s. Tourism Finance Corporation by virtue of Section 43(B) of the Act because the assessee had not paid the interest during the earlier relevant assessment years. Based on the argument of the Ld.AR the Ld.CIT(A) directed the Ld.AO to exclude the amount of Rs.79,91,716/- for determining the profit for the purpose of Section 115JB of the Act by observing as under:-
"I have carefully considered rival submissions and I find force in the submissions of the appellant and I am of the considered opinion that it is a fundamental rule of taxation that, unless otherwise expressly provided, income cannot be taxed twice as held in Laxmipat Singhania vs CIT in 72 ITR - 291 (Supreme Court 1969). Respectfully following the above decisions, I consider the prayer of the appellant that the addition of Rs.79,91,716/- made by the Assessing Officer to the book 11 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 profit of the appellant company needs to be deleted is justified and hence I here by direct the AO to delete the addition of Rs.79,91,716/- to the book profit of the company and the appellant get relief on this ground.
11.1 Before us the Ld.DR argued in support of the order of the Ld.AO while as the Ld.AR relied on the order of the Ld.CIT(A). 11.2 We have heard the rival submissions and carefully perused the materials available on record. It is pertinent to mention that the book of accounts of the assessee company has to be mandatorily maintained by adhering to the provisions of Companies Act. When the books of accounts of the company are maintained in accordance with the provisions of Companies Act, as observed by the Hon'ble Apex Court in the case Apollo Tyres Ltd vs. CIT supra, the Ld.AO has no right to re-compute the book profit for the purpose of Section 115JB of the Act. However in the case of the assessee, the assessee had failed to comply with the provisions of the Companies Act. Schedule VI part II, 2(b) of the Companies Act specifies as to how items of gain including non-recurring transactions have to be disclosed in the P&L account. It is specifically provided that such items shall be credited to the P&L 12 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 account with proper disclosure with respect to the nature of gain. Therefore the Ld.AO has rightly observed that as per the provisions of the Companies Act the gain enjoyed by the assessee on account of waiver of loan has to be necessarily credited to the P&L account which the assessee had failed to comply. Further it is also pertinent to mention that the interest accrued to the assessee has to be debited to the P&L account of the assessee in the relevant assessment years as per the provisions of Companies Act following the mercantile method of accounting, even though such interest are not allowable as deduction as per the provisions of the Income Tax Act due to the applicability of Section 43B of the Act. From the above it is clear that the addition made by the Ld.AO for Rs.79,91,716/- for computing the book profit of the assessee for the purpose of Section 115JB of the Act is in accordance with the provisions of the Company Act as well as the Income Tax Act which calls for no interference. Therefore we hereby set aside the order of the Ld.CIT(A) and reinstate the order of the Ld.AO on this issue. B) Assessee's Cross Objection:
At the time of hearing the case, the Ld.AR did not advance any argument with respect to reopening of the assessment. 13 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 Further since we have allowed the appeal of the Revenue the cross objections raised by the assessee stands dismissed.
12) Assessment year 2007-08 : -
A) Revenue's Appeal: Deduction with respect to amortization of premium on debentures:-
The assessee company had issued 67,500 debentures having face value of Rs.3,000/- per debenture to M/s. Exim Rajathi Pvt. Ltd., after receiving the consideration of Rs.6,25,00,000/-. Thereafter the assessee claimed deduction towards interest on those debentures being amortization of the amount payable after the expiry of 10 years in equal installments of Rs.2,02,50,000/- for the relevant assessment year 2007-08 by relying on the decision of the Hon'ble Apex Court in the case Madras Industrial Investment Corporation Limited reported in 228 ITR 802. It appears that the computation made by the assessee in that regard is as follows:-
"Future Value (FV) = Px[1+(1+r)] n, where P=Principal, R=rate of interest for the period, N=number of rests. Applying the above formula, the future value of ₹.6.75 crores at 13.02% p.a. (1.160%) p.m) at monthly rests for 10 years (i.e. 120 months) works out at ₹.27.00 crores. Thus, the premium for the ten year period works out to ₹20.25 crores (₹27.00 Crores - 6.75 crores). Hence, applying the above rate of 13.02% p.a. or 14 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 1.160% p.m. as claimed to have been admitted by the appellant, the amortization of premium comes to only ₹2,02,50,000/-."
However the Ld.AO opined that the above referred decision is not applicable to the case of the assessee and thereafter computed the allowable deduction at Rs.1,00,57,500/- by observing as under:-
"Since, debentures were issued at 0% interest and the deemed deferred interest rate chargeable for the debenture value of Rs.6,75,00,000/- to be redeemed after 10 years worked out as under:-
n P 1+r =A 100 6,75,00,000 (1+4/100) 10 =6,75,00,000 + 2,02,50,000 r = 14.9% Hence, the premium to be amortized for each year should be in algebraic proportion at the rate of 14.9% compound interest per annum and it being the first year, the quantum of premium allowable for deduction would be Rs.1,00,57,500/- (67500000 x 14.9%) as against the claim of Rs.2,02,50,000/- by the assessee."
12.1 On appeal the Ld.CIT(A) relying in the decision of the Chennai Bench of the Tribunal in ITA No.407/10-11/A-III dated 28.03.2011 and the decision of the Hon'ble Apex Court in the case Madras Industrial Investment Corporation Limited reported in 15 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 225 ITR 802 held 12.92% as the interest rate that would be appropriate by observing as under:
"6. Respectfully following the above decisions, I consider the claim of the appellant on premium accrued on Debentures of ₹2,02,50,000/- @ 12.92% as reasonable which works out to ₹1,87,95,259. The Assessing Officer is directed to adopt the same figure instead of ₹2,02,50,000. Therefore the balance amount of ₹14,54,741 is confirmed out of the addition made by the Assessing Officer. The appellant get a part relief on this ground.
7. Accordingly, the Assessing Officer is directed to restrict the disallowance of interest for the year under consideration at ₹14,54,741 in the place of 1,00,57,500. Thereby the appellant's loss gets reduced to the extent of ₹14,54,741/-."
12.2 Before us the Ld.DR argued in support of the order of the Ld.AO and pleaded for reinstating the same while as the Ld.AR argued in support of the computation made by the assessee and pleaded that deduction on account of amortization of premium should be granted at Rs.2,02,50,000/-.
12.3 We have heard the rival submissions and carefully perused the material on record. The Hon'ble Apex Court in the case Madras Industrial Corporation Ltd supra had held that the liability accrued on account of expenditure incurred for redeeming the debentures should be spread over the period of the debentures. 16 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 The gist of the decision of the Hon'ble Apex court is extracted herein below for reference:-
"Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures.
The appellant-company issued debentures in December, 1966, at a discount. The total discount on the issue of Rs. 1.5 crores amounted to Rs. 3 lakhs. For the assessment year 1968-69, the appellant-company wrote off Rs. 12,500 out of the total discount of Rs. 3 lakhs being the proportionate amount of discount for the period of six months ending with June 30, 1967, taking into account the period of 12 years which was the period of redemption and dividing the discount of Rs. 3 lakhs over the period of 12 years. The Income-tax Officer disallowed the claim but the Appellate Assistant Commissioner allowed the deduction of Rs. 12,500. The Tribunal held that the entire expenditure of Rs. 3,00,000 was allowable as expenditure incurred for the purpose of business. On a reference, the High Court noted that out of the total discount of Rs. 3,00,000 an amount of Rs. 12,500 had been allowed which the Department had not challenged. Hence, the High Court was concerned only with the balance amount of Rs. 2,87,500 which the High Court held, could not be considered as expenditure. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, that the liability to pay the discounted amount over and above the amount received for the debentures was a liability incurred by the company for the purposes of its business in order to generate funds for its business activities. It was, therefore, expenditure. The appellant-company had, in its return, correctly claimed a deduction only in respect of the proportionate part of discount of Rs. 12,500 over the relevant accounting period in question. This was also in conformity with the accounting practice of showing the discount in the "discount on debentures account" which was written off over the period of the debentures. The appellant-company was entitled to deduct a sum of Rs. 12,500 out of the discount of Rs. 3,00,000 in the 17 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 relevant assessment year. The balance expenditure of Rs. 2,87,500 could not be deducted in the assessment year 1968-69."
From the above it is crystal clear that the interest / financial charge / premium on amortization etc., as the case may be accrued to the assessee for redeeming the debentures should be spread over the period of the debentures. In the case of the assessee, the assessee has received Rs.6,25,00,000/- from M/s. Exim Rajathi Pvt. Ltd., to acquire 67,500 debentures having face value of Rs.3,000/- per debenture to be redeemed after the expiry of 10 years. Therefore the assessee has to re-pay Rs.20,25,00,000/- (67500 x 3000) on redemption of debentures at the end of the 10th year. Therefore the interest / financial charge / premium on amortization etc., as the case may be, works out to Rs.14 crores (20,25,00,000 - 6,25,00,000). This cost has to be spread over for the period of debentures as held by the Hon'ble Apex Court in the case Madras Industrial Corporation Limited cited supra. Hence the allowable deduction for the relevant assessment years including the assessment year 2007-08 would be Rs.1,40,00,000/- (Rs.14,00,00,000//10). Hence we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- in the relevant assessment year towards the interest / financial charge / 18 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 premium on amortization etc., as the case may be, on debentures redeemable after the period of 10 years.
B) Assessee's Cross Objection:-
Since we have decided the issue with respect to granting of deduction towards the interest / financial charge / premium on amortization etc., as the case may be, on debentures redeemable after the period of 10 years in the case of the assessee herein above in the Revenue's appeal, the cross objection raised by the assessee aggrieved by the order of the Ld.CIT(A) for disallowing the amount of Rs.14,54,741/- as against the total claim of deduction of Rs.2,02,50,000/- towards amortization of premium on debentures stands dismissed.
13. Assessment year 2008-09 A) Revenue's Appeal:-
The identical issue in the Revenue's appeal for the assessment year 2007-08 is partly allowed in favour of the Revenue by holding as follows:
"From the above it is crystal clear that the interest / financial charge / premium on amortization etc., accrue to the assessee for renewing the debentures should be spread over the period of the debentures. In the case of 19 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 the assessee, the assessee has received Rs.6,25,00,000/- from M/s. Exim Rajathi Pvt. Ltd., to acquire 67,500 debentures having face value of Rs.3,000/- per debenture to be redeemed after the expiry of 10 years. Therefore the assessee has to re-pay Rs.20,25,00,000/- (67500 x 3000) on redemption of debentures at the end of the 10th year. Therefore the interest / financial charge / premium on amortization etc., as the case may be, works out to Rs.14 crores (20,25,00,000 - 6,25,00,000). This cost has to be spread over for the period of debentures as held by the Hon'ble Apex Court in the case Madras Industrial Corporation Limited cited supra. Hence the allowable deduction for the relevant assessment years including the assessment year 2007-08 would be Rs.1,40,00,000/-
(Rs.14,00,00,000//10). Hence we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- in the relevant assessment year towards the interest / financial charge / premium on amortization etc., as the case may be, on the debentures redeemable after the period of 10 years." Being the 2nd year of the issuance of 67,500 debentures redeemable on the expiry of 10 years, as held herein above, we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- towards the interest / financial charge / premium on amortization etc., as the case may be, for the relevant assessment year also. 20 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 B) Assessee's Cross Objection:-
Ground No.1 : Since we have decided the issue with respect to granting of deduction towards the interest / financial charge / premium on amortization etc., as the case may be, on debentures redeemable after the period of 10 years in the case of the assessee herein above in the Revenue's appeal, the cross objection raised by the assessee aggrieved by the order of the Ld.CIT(A) for disallowing the amount of Rs.14,54,741/- as against the total claim of deduction of Rs.2,02,50,000/- towards amortization of premium on debentures stands dismissed. Ground No.2 : Omitting to adjudicate the issue with respect to disallowance of Revenue expenditure of Rs.42,25,206/- by holding it to be capital in nature:-
During the relevant assessment year the assessee had incurred expenditure of Rs.83,71,424/- towards renovation of the 3rd floor. The assessee bifurcated the amount of Rs.42,25,206/- as Revenue expenditure and the balance amount as capital expenditure. Since the assessee could not furnish details as to how the expenditure was bifurcated the Ld.AO treated the amount of Rs.42,25,206/- also as capital expenditure. The assessee carried the matter on appeal before the Ld.CIT(A). The Ld.CIT(A) 21 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 after examining the issue directed the Ld.AO to verify whether depreciation is allowable as per law as contested by the Ld.AR. In the cross objection the assessee has raised the ground stating that the Ld.CIT(A) has failed to appreciate the fact that the expenditure of Rs.42,25,206/- incurred for renovation was Revenue in nature. However even before us at this stage neither the assessee nor the Ld.AR has submitted any details with respect to the nature of expenditure incurred. Therefore we do not find it necessary to interfere in the order of the Ld.CIT(A) who has directed the Ld.AO to grant depreciation to the assessee with respect to the capital expenditure incurred in accordance with law. It is ordered accordingly.
14) Assessment year 2009-10 A) Revenue's Appeal:
The identical issue in the Revenue's appeal for the assessment year 2007-08 is partly allowed in favour of the Revenue by holding as follows:
"From the above it is crystal clear that the interest / financial charge / premium on amortization etc., accrue to the assessee for renewing the debentures should be spread over the period of the debentures. In the case of the assessee, the assessee has received Rs.6,25,00,000/- 22 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 from M/s. Exim Rajathi Pvt. Ltd., to acquire 67,500 debentures having face value of Rs.3,000/- per debenture to be redeemed after the expiry of 10 years. Therefore the assessee has to re-pay Rs.20,25,00,000/- (67500 x 3000) on redemption of debentures at the end of the 10th year. Therefore the interest / financial charge / premium on amortization etc., as the case may be, works out to Rs.14 crores (20,25,00,000 - 6,25,00,000). This cost has to be spread over for the period of debentures as held by the Hon'ble Apex Court in the case Madras Industrial Corporation Limited cited supra. Hence the allowable deduction for the relevant assessment years including the assessment year 2007-08 would be Rs.1,40,00,000/-
(Rs.14,00,00,000//10). Hence we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- in the relevant assessment year towards the interest / financial charge / premium on amortization etc., as the case may be, on the debentures redeemable after the period of 10 years." Being the 3rd year of the issuance of 67,500 debentures redeemable on the expiry of 10 years, as held herein above, we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- towards the interest / financial charge / premium on amortization etc., as the case may be, for the relevant assessment year also. 23 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 &
1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 B) Assessee's Cross Objection Since we have decided the issue with respect to granting of deduction towards the interest / financial charge / premium on amortization etc., as the case may be, on debentures redeemable after the period of 10 years in the case of the assessee herein above in the Revenue's appeal, the cross objection raised by the assessee aggrieved by the order of the Ld.CIT(A) for disallowing the amount of Rs.14,54,741/- as against the total claim of deduction of Rs.2,02,50,000/- towards amortization of premium on debentures stands dismissed.
15) Assessment year 2010-11 A) Revenue's Appeal:
The identical issue in the Revenue's appeal for the assessment year 2007-08 is partly allowed in favour of the Revenue by holding as follows:
"From the above it is crystal clear that the interest / financial charge / premium on amortization etc., accrue to the assessee for renewing the debentures should be spread over the period of the debentures. In the case of the assessee, the assessee has received Rs.6,25,00,000/- from M/s. Exim Rajathi Pvt. Ltd., to acquire 67,500 debentures having face value of Rs.3,000/- per debenture to be redeemed after the expiry of 10 years. Therefore 24 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 the assessee has to re-pay Rs.20,25,00,000/- (67500 x 3000) on redemption of debentures at the end of the 10th year. Therefore the interest / financial charge / premium on amortization etc., as the case may be, works out to Rs.14 crores (20,25,00,000 - 6,25,00,000). This cost has to be spread over for the period of debentures as held by the Hon'ble Apex Court in the case Madras Industrial Corporation Limited cited supra. Hence the allowable deduction for the relevant assessment years including the assessment year 2007-08 would be Rs.1,40,00,000/-
(Rs.14,00,00,000//10). Hence we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- in the relevant assessment year towards the interest / financial charge / premium on amortization etc., as the case may be, on the debentures redeemable after the period of 10 years." Being the 4th year of the issuance of 67,500 debentures redeemable on the expiry of 10 years, as held herein above, we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- towards the interest / financial charge / premium on amortization etc., as the case may be, for the relevant assessment year also. B) Assessee's Cross Objection Since we have decided the issue with respect to granting of deduction towards the interest / financial charge / premium on amortization etc., as the case may be, on debentures redeemable 25 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 after the period of 10 years in the case of the assessee herein above in the Revenue's appeal, the cross objection raised by the assessee aggrieved by the order of the Ld.CIT(A) for disallowing the amount of Rs.14,54,741/- as against the total claim of deduction of Rs.2,02,50,000/- towards amortization of premium on debentures stands dismissed.
16) Assessment year 2011-12 A) Revenue's Appeal:
The identical issue in the Revenue's appeal for the assessment year 2007-08 is partly allowed in favour of the Revenue by holding as follows:
"From the above it is crystal clear that the interest / financial charge / premium on amortization etc., accrue to the assessee for renewing the debentures should be spread over the period of the debentures. In the case of the assessee, the assessee has received Rs.6,25,00,000/- from M/s. Exim Rajathi Pvt. Ltd., to acquire 67,500 debentures having face value of Rs.3,000/- per debenture to be redeemed after the expiry of 10 years. Therefore the assessee has to re-pay Rs.20,25,00,000/- (67500 x 3000) on redemption of debentures at the end of the 10th year. Therefore the interest / financial charge / premium on amortization etc., as the case may be, works out to Rs.14 crores (20,25,00,000 - 6,25,00,000). This cost has to be spread over for the period of debentures as held by 26 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 the Hon'ble Apex Court in the case Madras Industrial Corporation Limited cited supra. Hence the allowable deduction for the relevant assessment years including the assessment year 2007-08 would be Rs.1,40,00,000/-
(Rs.14,00,00,000//10). Hence we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- in the relevant assessment year towards the interest / financial charge / premium on amortization etc., as the case may be, on the debentures redeemable after the period of 10 years." Being the 5th year of the issuance of 67,500 debentures redeemable on the expiry of 10 years, as held herein above, we hereby direct the Ld.AO to grant the deduction of Rs.1,40,00,000/- towards the interest / financial charge / premium on amortization etc., as the case may be, for the relevant assessment year also. B) Assessee's Cross Objection Since we have decided the issue with respect to granting of deduction towards the interest / financial charge / premium on amortization etc., as the case may be, on debentures redeemable after the period of 10 years in the case of the assessee herein above in the Revenue's appeal, the cross objection raised by the assessee aggrieved by the order of the Ld.CIT(A) for disallowing the amount of Rs.14,54,741/- as against the total claim of 27 ITA Nos. 1543&1544/Mds/2012,1348 to 1350 & 1657/Mds/2014 CO Nos.72, 73, 112,113 & 114/Mds/2014 & 132/Mds/2015 deduction of Rs.2,02,50,000/- towards amortization of premium on debentures stands dismissed.
17. In the result the appeal of the Revenue for the assessment year 2003-04 is allowed and the cross objection of the assessee is dismissed. The appeals of the Revenue for the assessment years 2007-08 to 2011-12 are partly allowed in Revenue's favour and the relevant cross objections raised by the assessee are dismissed.
Order pronounced on the 18th January, 2018 at Chennai.
Sd/- Sd/-
(ध!ु व"
ु आर.एल रे #डी) (ए. मोहन अलंकामणी)
( Duvvuru RL Reddy ) ( A. Mohan Alankamony )
%या यक सद य /Judicial Member लेखा सद य / Accountant Member
चे%नई/Chennai,
(दनांक/Dated 18th January, 2018
RSR
आदे श क त*ल+प अ,े+षत/Copy to:
1. नधा रती/Assessee 2. राज व/Revenue 3. आयकर आय/
ु त (अपील)/CIT(A)
4. आयकर आय/
ु त/CIT 5. +वभागीय त न2ध/DR 6. गाड फाईल/GF