Brief of the Case
Calcutta High Court held In the case of CIT vs. M/s Britannia Industries Ltd. that bank charges claimed by the assessee are not relatable to the fixed assets. Bank charges are payable in consideration of the risk undertaken by the bank. Therefore, it is in the nature of a fee for the guarantee provided by the banker. So, the consideration paid by the assessee to the authorized dealer of foreign exchange, in order to obtain protection from fluctuation of foreign exchange rates is revenue expenditure.
Facts of the Case
In this case, the assessee company took a foreign currency loan of US$ 10 million in the year 1995. The loan was utilized for incurring capital expenditure for acquisition of plant and machinery. The loan was to be repaid in two installments with interest. In order to ensure availability of foreign currency at a pre-determined rate, the assessee enters into a forward contract to the bank to obtain the foreign currency on a specific date at a specified rate. For obtaining this facility sum of Rs.1, 78, 08,000/- was paid to the State Bank of India and has been debited as bank charges in the accounts of the assessee. The Commissioner has disallowed sum of Rs.1,78,08,000/- being bank charges paid by the assessee company in connection with repayment of a loan of US $ 10 million.
Contention of the Assessee
The ld counsel of the assessee relied on the judgment of the Andhra Pradesh High court in the case of CIT v. AkkamambaTextiles Ltd. reported in (1979) 117 ITR 294 wherein it was held that guarantee commission paid by the assessee was a revenue expenditure.
Contention of the Revenue
The ld counsel of the revenue submitted that the expenditure should be added to the cost of acquisition of the capital assets under section 43A. He in support of his submission relied on Explanation 3 to section 43A and a judgement of the Apex Court in the case of Assistant Commissioner of Income Tax v. Elecon Engineering Co. Ltd. reported in (2010) 322 ITR 20 (SC).
He also submitted that the bank charges which are sought to be treated as revenue expenditure is not on account of a guarantee commission. Therefore, the judgement of Andhra Pradesh High Court which is relied upon by the assessee has no manner of application.
The followings questions presented at the time of appeal:
