The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) recently upheld deductions of Rs.2 Crore made by the Housing and Urban Development Corporation (HUDCO), citing expenditure on bonds and term loans.
The present Income Tax Appeal was filed by the Deputy Commissioner of Income Tax, Circle-11(2), New Delhi (DCIT) against HUDCO, a public sector undertaking under the Ministry of Housing and Urban Affairs, involved in financing housing and infrastructure for urban development projects in India.
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The Income Tax Appeal was one of multiple Appeals filed by the Revenue against HUDCO and vice versa; the ITAT rendered the judgment while disposing of the Appeals in unison. Present appeal, filed against the Order of the Commissioner of Income Taxes [CIT(A)], challenged the deletion of addition on account of capitalization of financial charges written off.
It was submitted by the Revenue that the Assessing Officer (AO) observed the Assessee’s deduction claim of Rs.2,47,66,000/- as financial expenses paid off during the Assessment Year (A.Y.) 2010-11. Furthermore, the AO made additions of Rs.22,87,32,000/- on financial charges which had been noted by the Assessee as financial charges in their books of accounts.
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HUDCO asserted that the expenses were on account of deferred expenditure on the issuance of bonds and term loans and fully integral to its financing operations, aimed at raising funds for their housing and infrastructure projects.
The AO and CIT(A) vehemently challenged these claims, arguing that such expenses could be considered capital in nature.
The two-member Bench of the Income Tax Appellate Tribunal, Delhi comprising Yogesh Kumar U.S., Judicial Member and M. Balaganesh, Accountant Member, referenced the decision of the Delhi High Court in CIT Vs. IRFC Ltd (2015) wherein a similar case lay before the Delhi High Court pertaining to the classification of expenditure towards bond issue expenses of different series during the concerned Assessment Year.
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The Delhi High Court in CIT Vs. IRFC Ltd (supra) had referenced the Supreme Court judgment in India Cements Ltd. v. CIT (1966) wherein the Court recognized that the Assessee is a Government of India undertaking, and though the expenditure on bonds was incurred for ensuring finance and funds for the company, it would benefit the revenue at a later stage.
In light of the precedents laid down, the Delhi Bench of the Income Tax Appellate Tribunal allowed the Assessee’s expenditure of Rs.2 Crore on Bonds and Term Loans, dismissing the claim by the Revenue.
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