ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER I.T.A.No.223/Vizag/2014 (Assessment Year: 2010-11) ACIT, Circle-1, M/s. RVR Marine Products Ltd., Eluru Vs. Bhimavaram [PAN: AABCR9336E] ( Appellant) ( Respondent) C.O. No.40/Vizag/2014 (Arising out of I.T.A.No.223/Vizag/2014) ( Assessment Year: 2010-11) M/s. RVR Marine Products ACIT, Circle-1, Ltd., Eluru Vs. Bhimavaram ( Appellant) (Respondent) Appellant by : Shri M.K. Sethi, DR Respondent by : Shri G.V.N. Hari, AR Date of hearing : 18.07.2016 Date of Pronouncement : 30.09.2016 O R D E R PER V. DURGA RAO, Judicial Member: This appeal filed by revenue is directed against order of CIT(A), Visakhapatnam dated 26.2.2014 for assessment year 2010-11. 1 ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram 2. Facts are in brief that assessee company, engaged in business of processing and export of prawns . It has filed its return of income by admitting total income of Rs.51,71,720/-. assessee s case was selected for scrutiny and accordingly, assessment was completed u/s 143(3) of Income Tax Act, 1961 (hereinafter called as Act ). In assessment order, A.O. has observed that assessee has transferred/shifted loan amount from Union Bank of India (UBI) to IDBI bank after paying interest of Rs.2.25 crores to UBI on 26.3.2010 and on 31.3.2010. Assessee also booked same amount as expenses in tax computation and claimed it as revenue expenditure. However, A.O. has asked assessee specific question related to this on 8.1.2013. assessee has submitted loan agreement copy and utilization of loan certificate from bank before A.O. A.O. after verifying same, he has observed that assessee has closed loan account of Union Bank of India and has taken loan from IDBI. Union Bank of India has charged interest for pre-closure of account of ` 2.25 crores. This interest is under normal interest of current period, due to above reason, entire amount has been reduced from accumulated profits of company. A.O. in his assessment order further observed that loan amount was transferred from one bank to another bank, 2 ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram consequently, expenses debited by UBI is interest portion, which was supposed to be paid by assessee in number of years. Since assessee has transferred or shifted loan amount from one bank to another bank, those expenses were charged by UBI and asked assessee to pay interest. According to A.O., expenses incurred by assessee are of capital in nature, spread over number of years, given for enhancing production capacity in terms of day-to-day running and assets purchasing. By considering these facts, A.O. is of opinion that interest claimed made by assessee is not related to one year, but total loan amount and related interest amount is to be paid back in number of years, accordingly, addition of Rs.2.25 crores was made. On appeal, Ld. CIT(A) deleted addition made by A.O. 3. On being aggrieved, revenue is in appeal before Tribunal. Ld. D.R. has submitted that interest amount paid by assessee for purpose of business, same has to be allowed in impugned assessment year. 4. On other hand, Ld. A.R. strongly supported order passed by A.O. 3 ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram 5. We have heard both parties, perused materials available on record and gone through orders of authorities below. only issue for consideration is whether expenditure incurred by assessee has to be allowed in year under consideration or in subsequent years. Ld. CIT(A) has observed that expenditure incurred by assessee is not related to any acquisition of capital asset. Therefore, by following judgement of Supreme Court in case of India Cements Limited Vs. CIT 60 ITR 52, he has held that claim made by assessee is allowable. relevant portion of order is as under: 4.4 I have considered submissions made. It could be seen that Assessing Officer had taken view that impugned amount represent capital expenditure for reason that said expenditure is not entirely relatable to current year and its benefit is of enduring nature. Apparently said expenditure is-not related to any acquisition of any capital asset. In this regard, observation of Hon'ble Court in case of India Cements Ltd Vs. CIT 60 ITR 52, is relevant wherein court took view that loan obtained was not a5 asset or advantage of enduring nature. As in instant case, subject expenditure was incurred for shifting of loan from one Bank to another, to get higher working capital limits, subject expenditure incurred in relation thereto cannot be said to be towards obtaining advantage of enduring nature. expenditure though cannot be said to be interest incurred for current year, it cannot be denied that it is incurred during year in normal course of running business for business purpose. As it is incurred during year during course of normal business activity assessee is justified in claiming it as deduction for this year. Thus, as expenditure is incurred for purpose of business and it is not capital in nature, I am of view that impugned amount is allowable as deduction u/s.37 of I.T. Act, even though it was not specifically claimed in P&L a/c. decision of Hon'ble Gujarat High Court in DOT vs. Gujarat Narmada Valley Fertilizers Co., Ltd 356 ITR 460 and decision of Hon ble ITAT in Windermere Properties Pvt. Ltd Vs. DOT 2013 TJOL-368-ITAT-Mum are relevant wherein it was held that pre-closure expenses are allowable as revenue expenditure. Hence, AO is directed 4 ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram to delete impugned addition and same may be allowed u/s.37 of I.T. Act. Accordingly, this ground of appeal is allowed. 6. We find that Ld. Commissioner by taking into consideration facts and circumstances of case decided that assessee has incurred expenditure to run business and accordingly, considered expenses incurred by assessee as revenue expenditure. We find no infirmity in order passed by Ld. CIT(A). Thus, this ground of appeal is dismissed. 7. So far as cross objection filed by assessee is concerned, it is only supportive and same is mere academic in nature and hence dismissed. 8. In result, appeal filed by revenue and cross objection filed by assessee are dismissed. above order was pronounced in open court on 30th Sept16. Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Visakhapatnam: Dated : 30.09.2016 VG/SPS 5 ITA No.223/Vizag/2014 M/s. RVR Marine Products Ltd., Bhimavaram Copy of order forwarded to:- 1. Appellant ACIT, Circle-1, Eluru 2. Respondent M/s. RVR Marine Products Ltd., D.No.28-8-6, Komarada Road, Balusumudi, Bhimavaram. 3. CIT, Rajahmundry 4. CIT(A), Visakhapatnam 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER // True Copy // (Sr.Private Secretary) ITAT, VISAKHAPATNAM 6 ACIT, Circle-1, Eluru v. M/s. RVR Marine Products Ltd