Case Law Details
DCIT Vs Citicorp Maruti Finance Ltd. (ITAT Mumbai)
The learned Commissioner (Appeals) found that the loan sourcing fees was paid to Maruti Udyog Ltd. and is amortized over the period of loan agreement. He found that only the amount which is amortizable for the current year has been debited to the Profit & Loss account. He also found that the assessing officer has not provided any basis why he considers the expenditure as capital in nature. Further, the learned Commissioner (Appeals) found that in assessee’s own case for assessment year 2008–09, similar deduction claimed by the assessee was allowed by the first appellate authority. Accordingly, he deleted the disallowance made by the assessing officer.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal by the Department is directed against the order dated 8-9-2014, passed by the learned Commissioner (Appeals)–X, Delhi, for the assessment year 2007–08.
2. In total, Department has raised five grounds.
3. Grounds no. 4 and 5, being general in nature do not require adjudication.
4. In ground no. 1, the Department has challenged allowance of assessee’s claim of deduction of Rs. 21,17,250, towards loan processing charges.
5. Brief facts are, the assessee a non–banking finance company (NBFC) is engaged in hire, purchase, finance and loan business. For the assessment year under dispute, the assessee filed its return of income on 31-10-2007, declaring loss of Rs. 12,06,02,070. During the assessment proceedings, on examining the details filed by the assessee, the assessing officer found that the assessee has taken loan from Citi Bank for which a sum of Rs. 21,17,250, has been paid to the bank towards loan processing charges. He found that the assessee has debited the said amount to the Profit & Loss account. Being of the view that loan processing charges paid by the assessee is capital in nature, he called upon the assessee to justify its claim. In response to the query raised, thought, the assessee submitted that deduction claimed is allowable, however, the assessing officer did not find merit in the submissions of the assessee. He held that the loan processing charges paid by the assessee is capital in nature, hence, cannot be allowed. Accordingly, he added back an amount of Rs. 21,17,250. The assessee challenged the disallowance before the learned Commissioner (Appeals).
6. The learned Commissioner (Appeals) after considering the submissions of the assessee in the light of the decisions relied upon held that loan processing charges paid by the assessee was wholly and exclusively for the purpose of assessee’s business and by incurring such expenditure neither any new asset was created nor any enduring benefit has accrued to the assessee. He also found that while deciding the issue of identical nature in case of assessee’s sister concern, the Tribunal has allowed loan processing charges as revenue expenditure. Accordingly, he deleted the addition made by the assessing officer.
7. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have submitted before us that the issue is covered in favour of the assessee by the decision of the Tribunal referred to by the learned Commissioner (Appeals). Keeping in view the aforesaid submissions of both the learned Counsels, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.
8. In ground no.2, the assessing officer noticed that the assessee has claimed deduction of an amount of Rs. 4,80,84,411, towards loans sourcing fees paid to Maruti Udyog Ltd. Being of the view that by incurring such expenditure, assessee has derived enduring benefit, the assessing officer has treated it as capital expenditure and accordingly added back to the income of the assessee. Being aggrieved by the order of the assessing officer, the assessee preferred appeal before the learned Commissioner (Appeals).
9. After considering the submissions of the assessee and examining facts and material on record, the learned Commissioner (Appeals) found that the loan sourcing fees was paid to Maruti Udyog Ltd. and is amortized over the period of loan agreement. He found that only the amount which is amortizable for the current year has been debited to the Profit & Loss account. He also found that the assessing officer has not provided any basis why he considers the expenditure as capital in nature. Further, the learned Commissioner (Appeals) found that in assessee’s own case for assessment year 2008–09, similar deduction claimed by the assessee was allowed by the first appellate authority. Accordingly, he deleted the disallowance made by the assessing officer.
10. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue has been decided in favour of the assessee in preceding assessment year. In view of the aforesaid submissions of the learned Counsels appearing for the parties, we uphold the order of the learned Commissioner (Appeals) by dismissing ground raised.
11. In ground no.3, the Department has challenged the decision of the learned Commissioner (Appeals) in granting partial relief to the assessee in respect of sales promotion expenses.
12. Brief facts are, during the assessment proceedings, the assessing officer on verifying the Profit & Loss account found that the assessee has claimed sales promotion expenses of Rs. 10,75,34,132. Therefore, he called upon the assessee to explain why the expenditure claimed should not be disallowed as was done in the preceding assessment year. In response, assessee justifying its claim submitted some supporting evidence. However, the assessing officer opining that complete verification of the expenditure could not be made in the absence of supporting evidence and there is substantial increase in the expenditure compared to the preceding assessment year, disallowed 10% out of the total expenditure claimed. Accordingly, he added back an amount of Rs. 1,07,53,413. The assessee challenged the disallowance before the learned Commissioner (Appeals). In the course of hearing before the first appellate authority, the assessee furnished the bifurcation of service charges claimed under the head Administrative and Other Expenses. The learned Commissioner (Appeals) found that the administrative and “other expenses” comprises of several expenses and were incurred towards technology services; collection services; sales promotion services; e–serve collection and write–off collection services.
13. He found that expenditure towards sales promotion accounts for Rs. 74,62,146 only. He, therefore, directed the assessing officer to disallow 10% out of sales promotion expenses of Rs. 74,62,146.
14. Learned Departmental Representative submitted, the assessee has not only credited an amount of Rs. 10,75,34,132 to the Profit & Loss account towards sales promotion expenses but in response to the query raised by the assessing officer, the assessee itself has submitted that the said amount was incurred for sales promotion expenses. Therefore, the learned Commissioner (Appeals) was not justified in accepting the submissions of the assessee for sales promotion expenses were to the tune of Rs. 74,62,146 only. He further submitted, the assessee has not produced any bifurcation or evidence before the assessing officer to demonstrate that sales promotion expenses was Rs. 74,62,146. He, therefore, submitted the issue may be restored to the assessing officer for fresh verification.
15. We have heard the parties. Learned Authorised Representative submitted, the expenditure of Rs. 10,75,34,132, shown under the head Administrative and Other Expenses was towards different types of services received by the assessee and sales promotion services is one amongst them. He submitted, after considering the bifurcation of expenses incurred by the assessee, the learned Commissioner (Appeals) has disallowed 10% of Rs. 74,62,146, which was incurred towards sales promotion expenses. He submitted, the matter can be restored back to the assessing officer for verification. As could be seen, the assessing officer has disallowed 10% of the expenses incurred towards sales promotion. The learned Commissioner (Appeals) has also sustained the disallowance made by the assessing officer. Undisputedly, the assessee has not challenged 10% disallowance out of sales promotion expenses sustained by the learned Commissioner (Appeals). The grievance of the Department is only confined to the quantification of sales promotion expenses claimed to have been incurred by the assessee. As could be seen, the assessing officer has observed that in the Profit & Loss account the assessee has debited Rs. 10,75,34,132, towards sales promotion expenses. However, before the first appellate authority the assessee furnished bifurcation of the expenses claimed of Rs. 10.75 crore. As stated by the assessee, the aforesaid amount comprises of different component of services availed by the assessee which also includes sales promotions services. As per bifurcation submitted before the learned Commissioner (Appeals), the expenses incurred towards sales promotion was to the tune of Rs. 74,62,146 and on that basis, the learned Commissioner (Appeals) has directed the assessing officer to disallow 10% of Rs. 74,62,146. Thus, from the aforesaid facts, it is evident that the assessee has brought fresh facts before the learned Commissioner (Appeals) insofar as it relates to quantum of sales promotion expenses which was never filed before the assessing officer. In view of the aforesaid we are inclined to restore the issue back to the file of the assessing officer to verify assessee’s claim and disallow 10% out of sales promotion expenses claimed by the assessee. This ground is allowed for statistical purposes.
16. In the result, Revenue’s appeal is partly allowed for statistical purposes.
Order pronounced in the open Court on 23.11.2017
