Loan pre-payment premium/charges paid not capital expenditure but Revenue – HC

Loan pre-payment premium/charges paid for reducing interest liability not result in acquisition of any asset and not a capital but Revenue expenditure 

ABCAUS Case Law Citation:
ABCAUS 2890 (2019) (04) HC

The instant appeal was filed by the Revenue against the impugned order of the Income Tax Appellate Tribunal (Tribunal) in deleting the disallowance made by the Assessing Officer (AO) towards the premium paid on prepayment of loan by the assessee.

The case of the Revenue was that the said expenditure was not allowable since it was capital in nature and the same should not treated as revenue expenditure.

The Hon’ble High Court observed that the AO, in a preceeding assessment year himself had allowed deduction on payment of such premium as revenue expenditure and in yet another AY , the AO had disallowed the same by treating the payment of such premium as capital expenditure while the CIT (appeals) had deleted the said addition and the Tribunal had upheld the order of CIT (appeals) deleting such addition.

The Hon’ble High Court opined that the Tribunal was justified in allowing the claim of deduction on payment of premium of pre payment of the loan to reduce its interest burden in view of falling interest rate.

The Hon’ble High Court opined that the  expenditure incurred by the assessee by way of premium paid on pre payment of loan for reducing interest the liability could not be called acquisition of any asset and could not be treated as capital expenditure and it has to be allowed as revenue expenditure.

Accordingly, the appeal of the Revenue was dismissed.

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