Income Tax Appellate Tribunal - Delhi
Noida Toll Bridge Company Ltd., Noida vs Assessee on 22 November, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E ' NEW DELHI)
BEFORE Shri U. B. S. BEDI, JUDICIAL MEMBER
And Shri SHAMIM YAHYA , ACCOUNTANT MEMBER
I.T.A. No. 925 /Del/2011
(Assessment year 2004-05)
M/s. Noida Toll Bridge Co. Ltd., Vs. DCIT, Circle 13(1),
Toll Plaza, DND Flyway, New Delhi
Opp. Section 15A,
New Delhi
PAN/GIR No.: AAACN3498A
(Appellants) (Respondents)
Assessee by : Shri Vikas Srivastava, Adv.
Department by: Sh. Gunjan Prasad, CIT DR
ORDER
PER U B S BEDI, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order passed by Ld. CIT(A) XVII, New Delhi dated 22.11.2010 relevant for the assessment year 2004-05 wherein in all six grounds were raised out of which, grounds No.,1, 5 and 6 are general which need no specific adjudication and the remaining grounds No.2, 3 and 4, which are effective grounds, are reproduced as under:
"2) The ld. CIT(A), as well as Ld. A.O. have erred in law and on the facts and circumstances of the case by holding that a sum of Rs.1,34,44,986/- being the "take out assistance fees" as capital expenditure, paid by the appellant in connection with the loan raised by it. The appellant submit that the it is entitled to a deduction of Rs.1,34,44,986/- as revenue expenditure.
3) The Ld. CIT(A) has erred in law and on the facts and circumstances of the case by ignoring the judgment of Hon'ble "E"
Bench ITAT, New Delhi on the ground No.2, in the case of appellant 2 I.T.A. No. 925/Del/2011 for the assessment year 2002-03 and 2003-04. The Hon'ble Bench held that the Take Out Assistance Fees is revenue expenditure.
4) The Ld. CIT(A) has earned in law and on the facts and circumstances of the case by treating a sum of Rs.3,51,07,840/-s being amortization of Zero Coupon Bond (Series B), issued to Lenders as a part of the package of Relief and Restructuring Cell (CDR) of the Banks and Financial Institutions, as capital expenditure. The appellant submit that it is entitled to deduction of Rs.3,51,07,840/- as revenue expenditure."
2. As regards grounds No.2 & 3, the same are related to a single issue with regard to confirmation of addition of Rs.1,34,44,986/- being the "Take Out Assistance Fee" as capital expenditure paid by the assessee in connection with the loan raised by it against the claim of the assessee for deduction of the said amount as revenue expenditure.
3. The facts indicate that the assessee in its P & L account, as a part of finance charges, has claimed an amount of Rs.1,34,44,986/- towards 'take out assistance fee'. The assessee was asked to show cause as to why the same should not be disallowed considering the facts of the case being capital in nature. The assessee filed its objection and the A.O., after considering the plea of the assessee that 'take out assistance fee' is nothing but a guarantee commission paid to IL&FS and IDFC for taking the surety to discharge the obligation of the assessee in 5th and 9th year and thus an allowable revenue expenditure. But the A.O. did not take note of the contention of the assessee and while making reference to Hon'ble Gujarat High Court decision in the case of Gujarat Mineral Corporation Ltd. Vs CIT (1983) 143 ITR 822 (Guj.). In another case of Indian Ginning & Pressing Co. Ltd. Vs CIT 252 ITR 577, Hon'ble Gujarat High Court has held that such expenditure, being capital in nature, was disallowed and added back to the total income of the assessee.
3 I.T.A. No. 925/Del/20114. The assessee took up the matter in appeal but of no consequence. Still aggrieved the assessee come up in further appeal and while reiterating its submissions made before the A.O. and as submitted before the first appellate authority, who recorded assessee's submission in para 4.1 and 4.1.1 of his order, to plead that such expenditure was revenue expenditure and the same should be allowed. Ld. CIT(A) while considering but not accepting the plea of the assessee, has concluded to confirm the action of the A.O. as per para 4.2 of his order which is as under:
"4.2 I have carefully considered the submissions made by Ld. A.R. and perused the assessment order passed by the A.O. The Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. Vs CIT (1955) 27 ITR 34, 45 (S.C.) observed that;
'if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was par of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure.' 4 I.T.A. No. 925/Del/2011 The perusal of Article II of takeout agreement contains the condition that the company shall pay to the takeout lenders, takeout fee on the respective amounts of takeout obligation. Such takeout fee shall be paid six months from the date of signing of the agreement or from the date of allotment of DDBs whichever is earlier, up to the end of ninth year from the date of allotment of DDBs or until the date of conversion whichever event is later. I find that the similar issue was decided against the appellant in the earlier years. The Ld. CIT(A) - XVI, Delhi vide his appeal order No.114/05-06 dated 31.07.2006 for assessment year 2003-04 has held as under:
'I have gone through the rival submissions. On perusal of the facts and circumstances of the case and on perusal of the various judicial precedents relied upon by both the parties, I hold that the fee is being paid for redemption of bonds and is directly related to the fixed capital of the appellant. The capital is altered every time a bond is redeemed and consequently this expense of takeout assistance fee is directly linked to this transaction. The addition made by the A.O. on this account is thus fully justified and is hereby confirmed.' Since there is no change in the facts and circumstances of the case in this year as compared to assessment year 2003-04, I do not find any scope to deviate from the findings of the Ld. CIT(A)-XVI for assessment year 2003-04. Considering the totality of the facts and circumstances of the case and with a view to maintain consistency, I hold that takeout assistance fee was a capital expenditure. Therefore, the addition made by the A.O. is confirmed. This ground of appeal is rejected."
5. Still aggrieved, the assessee took up the mater in further appeal and raised grounds Nos.2 & 3 with regard to this issue.
6. Ld. counsel for the assessee at the very outset submitted that on absolutely similar facts, in assessee's own case, ITAT, Delhi Benches, Delhi vide its common order dated 20.04.2009 in I.T.A. No. 1683 and 2864/Del/2006 for assessment years 2002-03 and 2003-04 and I.T.A. No. 4765/Del/2010 for assessment year 2005-06, accepted the contention of the 5 I.T.A. No. 925/Del/2011 assessee and held that 'take out assistance fee' paid by the assessee is allowable expense u/s 37(1) of the Act. Furthermore, Hon'ble Allahabad High Court has also decided this issue in favour of the assessee and against the revenue in I.T.A. No. 44/2010 (assessment year 2002-03) 2730/2011 (assessment year 2003-04) and 316/2011 (assessment year 2005-06) dated 08.11.2012 reported in CIT Vs Noida Toll Bridge Co. Ltd. 255 CTR 88 (Alld.). Since, this issue is covered by the decision of Hon'ble High Court in assessee's own case, therefore, appeal of the assessee is liable to be allowed which may be allowed and addition made by the A.O. and confirmed by Ld. CIT(A) needs to be deleted which may kindly be deleted.
7. Ld. D.R. could not controvert this factual aspect that this issue is squarely covered in favour of the assessee in assessee's own case for the assessment year 2005-06. It was submitted that the issue may be decided in accordance with Hon'ble jurisdictional High Court decision.
8. We have heard both the sides, perused the material on record and find that it is undisputed fact that the issue raised in the appeal of the assessee in grounds No.2 & 3 is squarely covered in favour of the assessee by Hon'ble Allahabad High Court decision as relied upon by the Ld. Counsel for the assessee. Since, there is no change of facts as emerging in this year and as was there before the Hon'ble Allahabad High Court on the issue, which is squarely covered in favour of the assessee, therefore, respectfully following the same, we direct to delete the addition as made by the A.O. and confirmed by Ld. CIT(A).
9. Regarding 2nd issue as contained in ground No.4, the challenge of the assessee is with regard to treating a sum of Rs.,3,51,07,840/- being amortization of zero coupon bonds (series B) issued to lenders as a part of the package of relief and concessions granted by CDR empowered group of 6 I.T.A. No. 925/Del/2011 the Corporate Debt Restructuring Cell (CDR) of the banks and financial institutions, as capital expenditure whereas the assessee claimed it as revenue expenditure pertains to disallowance of Rs.3,51,07,840/- being the amortization of zero coupon bonds (Series B) issued to leaders as a part of the package of relief and concessions granted by the CDR empowered group of the corporate debt restructuring cell (CDR) of the banks and financial institutions as capital expenditure as against the assessee's claim that it was a revenue expenditure. The A.O. was of the view that it was a capital expenditure. For the sake of convenience, the relevant findings of the A.O. are reproduced as under:
'The submissions made by the assessee company year considered. As admitted by the assessee company itself in its submissions that thee bonds, which would be redeemed not later than March 31, 2014, were issued to the lenders towards compensation for the loss of interest they have suffered from the documented rate. Thus, such amortization is not an expenditure of revenue in nature. Accordingly, the expenditure claimed towards amortization of zero coupon bonds amounting to Rs.3,51,07,840/- (Rs.5,16,01,434 - Rs.1,64,93,594/-) is disallowed being capital in nature and added to the total income of the assessee company.'
10. The assessee took up the matter in appeal and submitted before the first appellate authority that the assessee had amortized Rs.5,16,01,434/- on zero bonds series B. This zero coupon bond were issued to the lenders as a compensation towards the present value of loss of interest form the documented rate as a part of the package of relief and concessions granted by the CDR empowered group of the corporate debt restructuring cell (CDR) of the banks financial institutions vide their approval letter No.CDR/421 dated 06.01.2003 and letter no.CDR/461 dated 16.01.2003. As per the 7 I.T.A. No. 925/Del/2011 scheme the appellant had issued series B zero coupon bonds of Rs.100 each to banks, financial institutions and others which would be redeemed not later than March 31, 2014 towards the net present value of the sacrifice made by them way of reduction of interest rates form the contracted terms. Thus, ZCB is issued in order to compensate the loss of interest payable to them and accordingly the amortization of ZCB is nothing but the payment of interest to them, and it is a deductible expenditure as per the section 37(1) of the I. T. Act, 1961 being revenue in nature. The assessee had created a provision on a year to year basis on the principle of Sinking Fund by applying the weighted average interest rate on outstanding borrowing prior to restructuring as the discount rate and thereby arriving at the amount of the yearly charge. The assessee has obtained confirmation from professional experts with respect to appropriateness to the Sinking Fund Method as well as the adequacy of the charge on a year to year basis to account for the liability towards the ZCBs in the books. Accordingly, the P & L account has been debited with Rs.5,16,01,434/- being the required amount of provision and the corresponding liability has been created under the head secured loans and claiming it as a revenue expenditure. The assessee has also redeemed ZCBs (Series B) aggregating to Rs.2,77,71,100/- during the year and the same has been adjusted against the face value of the zero coupon bonds (Series B) issued by the assessee. Though, the P & L account was debited with Rs.5,16,01,434/- being the amortized amount of the cost of zero coupon bonds, the assessee had treated the same as interest or the purposes of claiming deducting under the income tax act. It will be appreciated that the amount of amortization included the following amounts:
8 I.T.A. No. 925/Del/2011 Name of the Lender Amount amortized Amount paid
Bank and Financial Inst. 35,714,694 19,221,100
IL & FS 15,886,740 8,550,000
Total 51,601,434 23,830,334
The aforesaid details were provided in Annexure 3 to the Tax Audit Report which is enclosed at page 273 to this submission. As the interest payable to banks and financial institutions is deductible only on actual payment basis in accordance with the provisions of section 43B of the I. T. Act, 1961 only Rs.19,221,100/- was claimed as tax deductible expenditure and balance was voluntarily disallowed by the assessee. However, since IL & FS is not a financial institution, the total amount payable to it was claimed as tax deductible expenditure. Thus, the said amount of Rs.3,51,07,840/- should have been allowed as a tax deductible expenditure. However, the A.O. has erred in treating the above payment is capital in nature. It is relevant to note that the A.O. has treated the above amount of provision as capital in nature without giving any explanation or without bringing into notice any fact that the above payment is capital in nature. The A.O. has simply ignored the plea of the assessee without considering the facts and submissions made by the assessee. As per section 37(1) of the I. T. Act, 1961 in order to claim the expenditure under that section the following conditions should be satisfied:
i) There should be an expense
ii) The expenditure should not be covered by section 30 to 36
iii) It should not be in the nature of capital expenditure
iv) It should not be personal expenditure of the assessee
v) It should be in respect of the business carried on the assessee
9 I.T.A. No. 925/Del/2011
vi) It should have been expended wholly and exclusively for the
purpose of such business. It should not have been incurred for any purpose that is an offence or is prohibited by any law.
Therefore, if all the above conditions are satisfied then the expenditure can be claimed as revenue expenditure u/s 37(1) of the I. T. Act, 1961.
11. Ld. CIT(A) forwarded the submissions of the assessee to the A.O. who vide remand report dated 14.09.2010 has filed his objections which were communicated to the Ld. A.R. of the assessee who filed its rejoinder dated 18.11.2010 and Ld. CIT(A) after incorporating remand report and rejoinder of the assessee in para 5.2 and 5.3 has concluded to confirm the action of the A.O. as per para 5.4, which is reproduced as under:
"I have carefully considered the submissions made by the Ld. A.R. and perused the assessment order passed by the A.O. I find that the assessee has liability of Rs.5,16,01,434/- on account of amortization of zero coupon bonds. Out of this the assessee itself has disallowed an amount of Rs.1,64,93,594/- u/s 43B. The A.O. has therefore disallowed the remaining amount of Rs.3,51,07,840/- as capital in nature. I find that this amount was on account of zero coupon bonds issued to compensate the lenders for loss of the interest. Section 37(1) requires that in order to claim an expenditure as deductible, the assessee must have incurred an expenditure and it should not be of the capital nature. The assessee does not fulfill these conditions. Since the amount was incurred for raising the capital, the same was in the nature of the capital expenditure. Therefore, the addition made by the A.O. is confirmed. This ground of appeal is rejected."
12. Still aggrieved, the assessee has come up in further appeal and while reiterating the submissions as made before the A.O. and Ld. CIT(A), has pleaded for deletion of the addition made by the A.O. confirmed by Ld. CIT(A). It has been submitted that zero coupon bonds and amortization is nothing but revenue expenditure amounting to Rs.5,16,01,434/- as zero coupon bonds (Series B) and zero coupon bonds issued to the lender as 10 I.T.A. No. 925/Del/2011 compensation towards the prevent value of loss of interest from the documents related as the part of relief. Concession granted by CDR empowered group of the Corporate Debt Restructuring Cell (CDR) of the banks and financial institutions vide their approval letter No.CDR/421 dated 6.1.2003 and letter No.CDR/461 dated 16.1.2003. As per the scheme, the assessee had issued Series B Zero Coupon Bonds of Rs.100 each to Banks, Financial Institutions and others which could be redeemed not later than March 31, 2014 towards the net present value of the sacrifice made by them by way of reduction of interest rates from the contracted terms. The zero coupon bond is issued in order to compensate the loss of interest payable to them and accordingly amortization of zero coupon bond is nothing but the payment of interest to them and it is deductible expenditure as per Section 37(1) of the it act being revenue in nature. The assessee had created the provision on a year to year basis on the principle of sinking fund by applying the weighted average interest rate on outstanding borrowing prior to restructuring as the discount rate and thereby arrive at the amount of the yearly charge. The assessee has obtained confirmation from professional experts with respect to appropriateness of the sinking fund method as well as the adequacy of the charge on a year to year basis to for the liability towards the ZCBs in the books. Accordingly, the P & L account was debited with Rs.5,16,01,434/- being the required amount of provision and the corresponding liability was recognized under the said secured loan. As this was expenditure pertaining to the period under consideration and it was claimed as revenue expenditure which liability to be allowed by making reference to various details as submitted before Ld. CIT(A) and incorporated in his order and by relying upon the decision of Hon'ble Delhi High Court in case of CIT Vs Gujarat Guardian Ltd. as reported in 222 CTR 526 (Del.), it 11 I.T.A. No. 925/Del/2011 was pleaded for deletion of addition made by the A.O. and confirmed by Ld. CIT(A).
13. Ld. D.R. relied upon the orders of authorities below and pleaded for its confirmation. When specifically asked whether the case of the assessee covered by decision cited by Ld. Counsel for the assessee, he could not be able to give any denial.
14. After haring both the sides and considering the material on record as well as the precedent relied upon by the Ld. counsel for the assessee, we are of the view that addition made by the A.O. and confirmed by Ld. CIT(A) could not be made in view of the facts and circumstances of the case in the light of the precedent relied upon by Ld. counsel for the assessee. We, therefore, while considering the entire facts and circumstances and material on record and the ratio of the decision relied upon by Ld. counsel for the assessee and not controverted by Ld. D.R., direct to delete the impugned addition made by the A.O. and confirmed by Ld. CIT(A).
15. As a result, the appeal of the assessee gets accepted.
16. Order pronounced in the open court on 17th Jan., 2014 Sd./- Sd./-
(SHAMIM YAHYA) (U.B.S.BEDI) Accountant Member Judicial Member Date: 17th Jan., 2014. Sp. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A)-XXV, New Delhi AR, ITAT, 5. CIT(ITAT), New Delhi NEW DELHI