[2013] 37 taxmann.com 271 (Rajasthan)
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax, Kota
v.
Instrumentation Ltd.*
DINESH MAHESHWARI AND NARENDRA KUMAR JAIN-II, JJ.
D. B. IT APPEAL NO. 57 OF 2012†
JULY 5, 2013
I. Section 37(1), read with section 35D, of the Income-tax Act, 1961 - Business expenditure - Allowability of [Bond issue expenditure] - Assessment year 2003-04 - Assessee incurred expenditure for issuing bonds and claimed it as revenue expenditure - However, Assessing Officer sought to make addition to income on ground that it was capital in nature - Whether funds having been raised precisely with issuance of secured redeemable non-convertible bonds, impugned expenditure incurred on account of issue of bonds was revenue in nature - Held, yes [Paras 7 & 8][In favour of assessee]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Contingent liability] - Assessment year 2003-04 - Assessee made provision for contractual obligation and claimed deduction for same - Claim was disallowed by Assessing Officer on ground that same was not allowable being contingent/unascertainable liability - Same issue relating to previous year was subjudice before instant High Court - Whether appeal on this issue was to be admitted - Held, yes [Para 9][Appeal admitted]
CASE REVIEW-I
CIT v. Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567 (Raj.), CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi) (para 7) followed.
CASES REFERRED TO
CIT v. Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567 (Raj.) (para 3), India Cements Ltd. v. CIT [1996] 60 ITR 52 (SC) (para 6), CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi) (para 7) and Shree Synthetics Ltd. v. CIT [2008] 303 ITR 451 (MP) (para 8).
Mrs. Parinitoo Jain for the Appellant.
ORDER
By The Court: By way of this appeal under Section 260A of the Income Tax Act, 1961 ['the Act'], the appellant-revenue seeks to question the order dated 05.08.2011 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur ['the ITAT'] allowing the cross-objections filed by the assessee [CO No.60/JP/2011] in the revenue's appeal [ITA No.331/JP/2011] relating to assessment year 2003-04.
2. In the assessment order dated 28.10.2005 leading to the present appeal, the Assessing Officer ['the AO'] processed the return filed by the respondent-assessee, who derives income from manufacture and sale of process control instruments, UPS and telecommunication instruments.
3. For the purpose of present appeal, suffice it to notice that the AO found a sum of Rs.1,05,87,365/- having been provided for contractual obligation; and with reference to the fact that provision under this head was subject-matter of consideration in the preceding years too and the matter was subjudice before this Court in the appeal filed by the department, the AO proceeded to disallow such a provision and added the amount in question to the income of the assessee. The Commissioner of Income Tax (Appeals), Ajmer ['the CIT(A)'] found such an addition justified. The ITAT though noticed that the issue was sub judice before this Court but, found it justified to follow its order in the case of assessee for the earlier year and held that CIT(A) was not justified in confirming disallowance of Rs.1,05,87,365/-. The other aspect related with this appeal with reference to the grounds urged is with regard to the expenses incurred by the assessee for issuing the
bonds to the tune of Rs.12,74,949/-. The AO disallowed the claim in regard to this expenditure treating it to be of capital expenditure and added the same to the income of the assessee. The CIT(A) confirmed the action of the AO. The ITAT found the expenditure for raising funds through bonds being allowable as revenue expenditure with reference to the decision of this Court in the case of CIT v.Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567.
4. Seeking to question the findings of the ITAT in respect of the aspects aforesaid, the revenue has preferred this appeal suggesting the following substantial questions of law:—
"1. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and deleting the disallowance of Rs.1,05,87,365/- provided for contractual obligation in the return which was not allowable being contingent/unascertainable liability?
2. Whether the Tribunal has acted perversely in reversing the findings of the CIT(A) and holding that the expenditure of Rs.12,74,949/- incurred on account of issue of bonds was of revenue nature and not capital expenditure?"
5. So far the suggested question No.1 is concerned, in the totality of circumstances and with reference to the fact that the same issue in relation to the previous year is pending in this court, it appears just and proper to formulate the same for the purpose of consideration of this appeal too. However, so far the suggested question No.2 is concerned, we are clearly of the view that the same does not arise as a substantial question of law for consideration in this appeal.
6. This Court in the case of Secure Meters Ltd (supra) with reference to the decision of the Hon'ble Supreme Court in the case of India Cements Ltd.v. CIT [1996] 60 ITR 52 has held,—
"Admittedly, the debentures when issued is a loan and, therefore, whether it is convertible or non-convertible does not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure."
7. It is noticed that in the case of CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi), the Hon'ble Delhi High Court considered the argument if the ratio of the decision of Hon'ble Supreme Court in India Cements Ltd. (supra) stood nullified by introduction of Section 35D and while rejecting the contention and explaining the principles applicable observed as under:—
"…..There is, in our view, no merit in that contention. The circular in question, inter alia, says that expenditure incurred on the issue of debentures is an admissible deduction in the light of the decision of the Supreme Court in India Cements Ltd.'s case [1966] 60 ITR 52. It is true that India Cements Ltd.'s case [1966] 60 ITR 52 (SC) did not directly deal with expenditure incurred on the issue of debentures. That was a case where the assessee had borrowed a loan and the question was whether the expenditure incurred on any such loan transaction was an admissible expenditure. The circular all the same extends the logic underlying the said decision to cases where the expenditure is incurred by the assessed by issue of debentures as is the position in the instant case. If that be so, it is difficult to see how the Revenue can still argue that since the case in hand refers to issue of debentures for expansion of an existing business, the expenditure
incurred on the same must be amortised. Since the circular instructions are binding, the Revenue would not be entitled to urge any such contention. To set the controversy at rest, the circular specifically states that expenditure incurred on the issue of debentures will be a permissible deduction notwithstanding the introduction of Section 35D. There is, after those instructions, no room for any further debate on the issue. The Tribunal was, in that view, perfectly justified in holding that the expenditure was a permissible deduction and accordingly deleting the additions made by the Assessing Officer. This appeal does not raise any substantial question of law for our consideration. It, accordingly, fails and is hereby dismissed."
8. The learned counsel for the appellant has referred to the decision of the Hon'ble Madhya Pradesh High Court in the case of Shree Synthetics Ltd. v.CIT [2008] 303 ITR 451 in support of her contention that the ITAT has erred in holding that the expenditure incurred on account of issue of bonds was of revenue nature. However, on the facts and in the circumstances of the present case, with the funds having been raised precisely with issuance of secured redeemable non-convertible bonds, we find no reason to take any view different than that taken by this Court in Secure Meters Ltd's case (supra) as also by the Hon'ble Delhi High Court in Thirani Chemicals Ltd. (supra). Hence, we are not persuaded to formulate the suggested question No.2 in the present appeal.
9. In our view, only the following substantial question of law arises for consideration in this appeal:—
"Whether on the facts and in the circumstances of the case, the ITAT was legally justified in reversing the findings of the CIT (A) and deleting the disallowance of Rs.1,05,87,365/- provided for contractual obligation in the return which was not allowable being contingent /unascertainable liability?"
Admit. Issue notice.
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax, Kota
v.
Instrumentation Ltd.*
DINESH MAHESHWARI AND NARENDRA KUMAR JAIN-II, JJ.
D. B. IT APPEAL NO. 57 OF 2012†
JULY 5, 2013
I. Section 37(1), read with section 35D, of the Income-tax Act, 1961 - Business expenditure - Allowability of [Bond issue expenditure] - Assessment year 2003-04 - Assessee incurred expenditure for issuing bonds and claimed it as revenue expenditure - However, Assessing Officer sought to make addition to income on ground that it was capital in nature - Whether funds having been raised precisely with issuance of secured redeemable non-convertible bonds, impugned expenditure incurred on account of issue of bonds was revenue in nature - Held, yes [Paras 7 & 8][In favour of assessee]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Contingent liability] - Assessment year 2003-04 - Assessee made provision for contractual obligation and claimed deduction for same - Claim was disallowed by Assessing Officer on ground that same was not allowable being contingent/unascertainable liability - Same issue relating to previous year was subjudice before instant High Court - Whether appeal on this issue was to be admitted - Held, yes [Para 9][Appeal admitted]
CASE REVIEW-I
CIT v. Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567 (Raj.), CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi) (para 7) followed.
CASES REFERRED TO
CIT v. Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567 (Raj.) (para 3), India Cements Ltd. v. CIT [1996] 60 ITR 52 (SC) (para 6), CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi) (para 7) and Shree Synthetics Ltd. v. CIT [2008] 303 ITR 451 (MP) (para 8).
Mrs. Parinitoo Jain for the Appellant.
ORDER
By The Court: By way of this appeal under Section 260A of the Income Tax Act, 1961 ['the Act'], the appellant-revenue seeks to question the order dated 05.08.2011 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur ['the ITAT'] allowing the cross-objections filed by the assessee [CO No.60/JP/2011] in the revenue's appeal [ITA No.331/JP/2011] relating to assessment year 2003-04.
2. In the assessment order dated 28.10.2005 leading to the present appeal, the Assessing Officer ['the AO'] processed the return filed by the respondent-assessee, who derives income from manufacture and sale of process control instruments, UPS and telecommunication instruments.
3. For the purpose of present appeal, suffice it to notice that the AO found a sum of Rs.1,05,87,365/- having been provided for contractual obligation; and with reference to the fact that provision under this head was subject-matter of consideration in the preceding years too and the matter was subjudice before this Court in the appeal filed by the department, the AO proceeded to disallow such a provision and added the amount in question to the income of the assessee. The Commissioner of Income Tax (Appeals), Ajmer ['the CIT(A)'] found such an addition justified. The ITAT though noticed that the issue was sub judice before this Court but, found it justified to follow its order in the case of assessee for the earlier year and held that CIT(A) was not justified in confirming disallowance of Rs.1,05,87,365/-. The other aspect related with this appeal with reference to the grounds urged is with regard to the expenses incurred by the assessee for issuing the
bonds to the tune of Rs.12,74,949/-. The AO disallowed the claim in regard to this expenditure treating it to be of capital expenditure and added the same to the income of the assessee. The CIT(A) confirmed the action of the AO. The ITAT found the expenditure for raising funds through bonds being allowable as revenue expenditure with reference to the decision of this Court in the case of CIT v.Secure Meters Ltd. [2010] 321 ITR 611/[2008] 175 Taxman 567.
4. Seeking to question the findings of the ITAT in respect of the aspects aforesaid, the revenue has preferred this appeal suggesting the following substantial questions of law:—
"1. Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and deleting the disallowance of Rs.1,05,87,365/- provided for contractual obligation in the return which was not allowable being contingent/unascertainable liability?
2. Whether the Tribunal has acted perversely in reversing the findings of the CIT(A) and holding that the expenditure of Rs.12,74,949/- incurred on account of issue of bonds was of revenue nature and not capital expenditure?"
5. So far the suggested question No.1 is concerned, in the totality of circumstances and with reference to the fact that the same issue in relation to the previous year is pending in this court, it appears just and proper to formulate the same for the purpose of consideration of this appeal too. However, so far the suggested question No.2 is concerned, we are clearly of the view that the same does not arise as a substantial question of law for consideration in this appeal.
6. This Court in the case of Secure Meters Ltd (supra) with reference to the decision of the Hon'ble Supreme Court in the case of India Cements Ltd.v. CIT [1996] 60 ITR 52 has held,—
"Admittedly, the debentures when issued is a loan and, therefore, whether it is convertible or non-convertible does not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure."
7. It is noticed that in the case of CIT v. Thirani Chemicals Ltd. [2007] 290 ITR 196/[2006] 155 Taxman 233 (Delhi), the Hon'ble Delhi High Court considered the argument if the ratio of the decision of Hon'ble Supreme Court in India Cements Ltd. (supra) stood nullified by introduction of Section 35D and while rejecting the contention and explaining the principles applicable observed as under:—
"…..There is, in our view, no merit in that contention. The circular in question, inter alia, says that expenditure incurred on the issue of debentures is an admissible deduction in the light of the decision of the Supreme Court in India Cements Ltd.'s case [1966] 60 ITR 52. It is true that India Cements Ltd.'s case [1966] 60 ITR 52 (SC) did not directly deal with expenditure incurred on the issue of debentures. That was a case where the assessee had borrowed a loan and the question was whether the expenditure incurred on any such loan transaction was an admissible expenditure. The circular all the same extends the logic underlying the said decision to cases where the expenditure is incurred by the assessed by issue of debentures as is the position in the instant case. If that be so, it is difficult to see how the Revenue can still argue that since the case in hand refers to issue of debentures for expansion of an existing business, the expenditure
incurred on the same must be amortised. Since the circular instructions are binding, the Revenue would not be entitled to urge any such contention. To set the controversy at rest, the circular specifically states that expenditure incurred on the issue of debentures will be a permissible deduction notwithstanding the introduction of Section 35D. There is, after those instructions, no room for any further debate on the issue. The Tribunal was, in that view, perfectly justified in holding that the expenditure was a permissible deduction and accordingly deleting the additions made by the Assessing Officer. This appeal does not raise any substantial question of law for our consideration. It, accordingly, fails and is hereby dismissed."
8. The learned counsel for the appellant has referred to the decision of the Hon'ble Madhya Pradesh High Court in the case of Shree Synthetics Ltd. v.CIT [2008] 303 ITR 451 in support of her contention that the ITAT has erred in holding that the expenditure incurred on account of issue of bonds was of revenue nature. However, on the facts and in the circumstances of the present case, with the funds having been raised precisely with issuance of secured redeemable non-convertible bonds, we find no reason to take any view different than that taken by this Court in Secure Meters Ltd's case (supra) as also by the Hon'ble Delhi High Court in Thirani Chemicals Ltd. (supra). Hence, we are not persuaded to formulate the suggested question No.2 in the present appeal.
9. In our view, only the following substantial question of law arises for consideration in this appeal:—
"Whether on the facts and in the circumstances of the case, the ITAT was legally justified in reversing the findings of the CIT (A) and deleting the disallowance of Rs.1,05,87,365/- provided for contractual obligation in the return which was not allowable being contingent /unascertainable liability?"
Admit. Issue notice.
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