The Delhi High Court has delivered a judgment in favor of Indus Towers, affirming the company’s right to an income tax deduction on an upfront loan processing fee. The bench, led by Justice Rajiv Shakdher and Justice Girish Kathpalia, stated,
“merely because the loan processing charges were paid upfront but amortized over a period of five years, solely to be in consonance with the mercantile system of accounting, the deduction of the entire charges in a lump sum in the year in which they were paid could not be denied to the respondent or assessee.”
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Indus Towers, a collaborative venture between Bharti Infratel Limited, Vodafone Essar Limited, and Aditya Birla Telecom Limited, is in the business of sharing telecom infrastructure. The company had filed its return of income declaring a total loss, which was subsequently revised to include unabsorbed depreciation.
During the scrutiny assessment, the Assessing Officer issued a notice under Section 143(2) and passed an order declaring the total loss of the assessee as against the claimed loss. The Assessing Officer’s stance was that
“all towers erected by the assessee might not have been put to use,”
leading to the capitalization of the interest expense for the funds borrowed in respect of towers not operational before March 31, 2009.
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The respondent/assessee had claimed an amount of Rs. 20.75 crore towards the upfront loan processing fees as revenue expenditure but had debited only Rs. 4,45,38,521 in its profit and loss account, amortizing the fee over the loan’s tenure. The Assessing Officer decided that
“the deduction allowable to the assessee had to be restricted to Rs. 4,45,38,521,”
granting the liberty to claim the disallowed amount in subsequent years.
The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, allowing the deductions for interest on the loan and claimed depreciation. The Tribunal concurred, noting that
“since funding is required in business from time to time, these expenses are regular business expenses,”
thus validating the full claim of the assessee for the loan processing fee as allowable.
The department’s appeal, which argued that the Tribunal failed to recognize that the loan was for asset procurement and not routine business, was dismissed by the court, which upheld the Tribunal’s order.
Representing the department, Counsel Zoheb Hossain contended that the Tribunal’s decision was flawed. However, the court’s dismissal of the appeal reaffirms the Tribunal’s stance and provides a precedent for the treatment of similar expenses under the Income Tax Act.
