In a significant rulin in CIT v. M/s Modern Threads (I) Ltd., Jaipur, the Rajasthan High Court dismissed the plea of the revenue by holding that the expenditure towards interest and financial/back charges are revenue expenditure when the same is paid to the financial institution against loan obtained.
Earlier, the lower appellate authorities held that the expenditure towards interest and financial/back charges as revenue expenditures when the said expenditure were pertaining to interest and bank charges which were pre-operative in nature and were paid to the financial institution against loan obtained for installing the unit and were enduring the nature and hence, allowed the expenditure incurred by the assessee in earlier years treating the above as deferred revenue expenditure.
Aggrieved by the above orders, the Revenue approached the High Court.
The division bench comprising of Justice K.S Jhaveri and Justice Vinit Kumar Mathur relied upon the decision in Commissioner of Income Tax vs. M/s Modern Denim Ltd, wherein it was held that “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.”
Relying on the above decision, the Court concurred with the findings of the adjudicating authorities and held in favour of the assessee.
Read the full text of the Judgment below.
