Crayons Advertising (P) Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that processing fees for purchase of business assets is allowable as deduction as the loan has been taken for purchase of assets which are used for the business of the assessee.
Facts-
AO noted that the assessee has debited processing fees of Rs.25,74,864/- under the head ‘Interest & Finance Costs’. Upon AO’s enquiry, it was submitted that 7,74,864/- was paid as processing fees for purchase of business assets and the same is allowable as the loan has been taken for assets used for the business of the assessee. AO was of the opinion that the same cannot be allowed, hence he disallowed the claim of processing fees. CIT(A) upheld the action of the AO. Being aggrieved, the assessee has preferred the present appeal.
Conclusion-
We find that in the case of India Cements Ltd. (Supra), Hon’ble Apex Court has expounded that loan is neither an asset nor any business advantage and that nature of expenditure incurred in raising a loan is not dependent upon nature and purpose of loan. Accordingly, we set-aside the order of authorities below and decide the issue in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of the Ld. CIT(A)-10, New Delhi, dated 31.07.2019 pertaining to Assessment Year 2015-16.
2. Grounds of appeal raised by the assessee reads as under:-
“1. That the learned Commissioner of Income Tax (Appeals)-2, New Delhi has erred both in law and on facts in upholding the denial of claim of exemption of Rs. 4,05,241/- under section 10(38) of the Act.
1.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the judgment of the Hon’ble Apex Court in the case of Goetze (India) Ltd. vs. CIT. reported in 284 ITR 323 had no application to the facts of the assessee company and therefore, could not have been made a basis to deny the claim of exemption under section 10(38) of the Act.
1.2. That even otherwise, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the claim not allowed in the assessment proceedings could be allowed during the appellate proceedings and in such circumstances, the judgment of the Hon’ble Apex Court in the case of Goetze (India) Ltd. vs. CIT reported in 284 ITR 323 have no application.
1.3. That the finding of the learned Commissioner of Income Tax (Appeals) that judgment of the Hon’ble Apex Court has no reference to CIT(A) and therefore, addition claim cannot be entertained by the Commissioner of Income Tax (Appeals) is based on fundamental misconception of facts and law and wholly unsustainable.
2. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding addition of Rs.2,87,80,000/- by invoking section 56(2)(vii)(a) of the Act.
2.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that section 56(2)(vii)(a) of the Act had no application to the transactions of allotment of shares by write issue by JAM India Pvt. Ltd. and therefore, invocation of provisions to make the impugned addition is not in accordance with law and wholly untenable
2.2. That the learned Commissioner of Income Tax (Appeals) while upholding and sustaining the addition, has failed to appreciate that shares had been purchased by the assessee on the basis of book value of shares and therefore, since book value of shares was Rs. 37.56 per share, no addition could be made by adopting the figure between the valuation of shares as determined by Chartered Accountant and the actual consideration paid by the assessee.
2.3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that section 56(2)(vii)(a) of the Act enables the assessee to acquire the shares at the book value of the shares and therefore, once the acquisition is in accordance with law as per the book value of shares then addition made by adopting the figures stated in the valuation report prepared by the Chartered Accountant on the basis of the discounted cash flow method could not be a basis to invoke section 56(2)(vii)(a) of the Act.
2.4. That the finding of the learned Commissioner of Income Tax (Appeals) that Rule 11UA(1)(c) of the Income Tax Rules is applicable to the facts of the assessee is wholly misconceived and untenable.
3 .That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining disallowance of Rs. 7,74,864/- representing the process fee for purchase of capital assets and allowable as revenue expenditure during the year. 3
3.1. That the finding of the learned Commissioner of Income Tax (Appeals) that there is no material to prove that assets had been put to use during the instant year is wholly misconceived, misplaced and untenable.
3.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that use of office premises was neither disputed nor denied and therefore, the denial of deduction was not in accordance with law and wholly untenable.
4. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in making a disallowance of 3,40,313/- representing bed debt allowable under section 36(l) (vii) of the Act and alternatively as business loss under section 28 of the Act.
5. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest under section 234B of the Act.
Apropos Ground No.1.
3. On this issue, the Assessing Officer noted that vide letter dated 10.20 17, it was submitted that the assessee has earned Long Term Capital Gain of Rs.4,05,241/-, which is exempt u/s 10(38) but due to oversight the assessee did not claim deduction and the same should be allowed. However, this plea of the assessee was rejected by the Assessing Officer by referring the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs CIT [2006] 157 Taxman 1 (SC).
4. Upon assessee’s appeal, the Ld. CIT(A) upheld the order of the Assessing Officer.
5. Against this order, the assessee is in appeal before us.
6. We have heard both the parties and perused the records. We note that in the said order, Goetze (India) Ltd. (supra) the Hon’ble Apex Court has expounded that the said decision would not impinge upon the powers of ITAT in dealing with the claim otherwise than by revised return. Accordingly, we direct the Assessing Officer to consider this issue and decide as per law.
Apropos Ground No.2
7. The assessee has made share investment of Rs. 8,04,00,000/- in M/s JAM India P. Ltd. Following is the detail of shares purchased:
