Cholamandalam Investment & Finance Company Ltd. Vs DCIT (ITAT Chennai)
Conclusion: Deduction should be allowed towards finance charges including prepaid finance charges, if any, in the year of payment itself, even though, said expenditure had been treated as deferred revenue expenditure or prepaid expenditure in the books of accounts and claimed over a period of loan.
Held: AO noticed that the assessee in its computation of income claimed prepaid finance charges amounting to Rs.19,96,29,043/- and he asked to clarify or show-cause as to how the prepaid finance charges were allowable. Assessee submitted amortization schedule of such expenses over the subsequent financial years and claimed that the finance charges were in respect of payments made for availing loan such as processing charges, bank charges and stamping charges. It was also claimed that loan period covers more than one financial year and therefore, on payment basis, the same had been claimed in the computation of income. It was claimed that during the year under consideration, the company had incurred expenses as finance charges paid at the time of obtaining such loss and since the tenure of the loan might extent to more than one financial year, the company amortized such expenditure in its books of accounts over the tenure of the loan. It was claimed that the entire amount of finance charges was claimed u/s.37(1), since it represented the amount expended over the year for the purpose of business of the assessee company. Out of this amount, assessee company had already debited the prepaid finance charges of Rs.1,953.60 lakhs in its books of accounts and balance amount had been claimed as additional deduction in the tax computation amounting to Rs.1,996.29 lakhs and the detailed working and relevant extract of the computation of income was filed during the course of hearing. But AO had not accept the explanation of assessee and disallowed the prepaid finance charges claimed by assessee in the computation statement amounting to Rs.19,96,29,043/-. It was held that the key issue was whether the prepaid finance charges could be fully claimed in the year of payment or should be distributed across the loan period. Tribunal observed that in a previous case involving the same assessee for assessment year 2011-12, it was ruled that finance charges should be allowed as a deduction in the year of payment, even if they were treated as deferred revenue expenditure or prepaid expenditure in the books of accounts. Therefore, deduction on prepaid finance charges in the year of payment were allowable, and pro rata amortization was not necessary. Accordingly, the disallowance was deleted.
