R.K. Panda, Accountant Member - The above cross appeals filed by the revenue and the assessee respectively are directed against the order dated 02-03-2010 of the CIT(A)-4, Mumbai relating to A.Y. 2003-04. For the sake of convenience these were heard together and are being disposed of by this common order.

ITA No. 879/PN/2010 (By Revenue) :
2. The only effective ground raised by the revenue reads as under :

"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in directing the Assessing Officer not to reduce 90% of miscellaneous income from the eligible business profits for the purpose of computation of deduction u/s.80HHC when the same was rightly held by the Assessing Officer as non-operational business income".

3. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has claimed deduction u/s.80HHC amounting to Rs.42,40,416. He observed from the P&L Account of the assessee company that the assessee has shown an amount of Rs.63,91,400 as Miscellaneous income under the head "other income". While computing the deduction claimed u/s.80HHC the assessee has reduced 90% of gross interest received but has not reduced 90% of the Miscellaneous income to arrive at the adjusted profit eligible for deduction u/s.80HHC. He referred to the order for A.Y. 1998-99 in case of the assessee wherein the issue has been discussed elaborately and the claim for the assessee that the Miscellaneous income consists mainly of scrap sale and exchange gain and hence forms a part of eligible business profit was not accepted for the reasons mentioned therein. Since the issue in the instant year is identical to that of assessment year 1998-99 the Assessing Officer relying on the observation made in the A.Y. 1998-99 recomputed the deduction u/s.80HHC by reducing 90% of the Miscellaneous income of Rs.63,91,400 in addition to 90% of interest income.

4. In appeal the learned CIT(A) allowed the claim of the assessee by following the decision of the Tribunal in assessee's own case for earlier years. Aggrieved with such order of the CIT(A) the revenue is in appeal before us.

5. The learned counsel for the assessee at the outset filed copies of the orders of the Tribunal in assessee's own case for A.Y. 1998-99, 2000-01, 2001-02 and 2002-03 and submitted that under identical facts and circumstances the Tribunal has allowed the claim of the assessee and the appeal filed by the revenue in A.Ys. 2000-01, & 2002-03 has been dismissed and in other years the appeal filed by the assessee has been allowed.

6. The learned Departmental Representative fairly conceded that the issue has been decided against the revenue by the decisions of the Tribunal in assessee's own case for the preceding assessment years.

7. After hearing both the sides we find the assessee has claimed the following items as miscellaneous income, the details of which are mentioned at para 21 of the order of the CIT(A) :

Account Head	Amount Rs.	Particulars
Sales Tax Refund	9,95,864	This represents the sale tax refund received on completion of the sales tax assessment
Misc. Income	15,198	This represents sundry income of the company
Sale of Scrap	33,02,043	This represents the recovery made by the company in respect of scrap generated during production and is nothing but a reduction/recovery of the costs incurred and is intricately linked to the operating and manufacturing activities of the company
Discount	9,495	This represents discounts received from vendors
Sale of Garbage	1.06.024	This represents the sale of waste at the factory
Gain on Exchange	19,62,776	This represents the exchange gain accruing to the company as part of its operational activities
Total	63,91,400

8. We find the Tribunal in assessee's own case vide ITA No.5155/M/2007 order dated 27-08-2008 for A.Y. 2002-03 has dismissed the appeal filed by the revenue by holding as under :

"4. During the course of hearing both the parties fairly conceded that these issues are covered in favour of the assessee by the decision of the ITAT 'A' Bench Mumbai in ITA No. 3588/M/2004 in assessee's own case for A.Y. 2000-01 and also in ITA No.6427/M/2003 in assessee's own case for 1998-9. In the later referred case, in para 15 of the order it was held as under :

13. Various decisions of the Bombay High Court and the Tribunals have consistently held that sales-tax refund goes to reduce the cost of production. Foreign exchange gains form part of eligible turnover and income from scrap sales pertain the character of business income. Useful reference may be made to the decisions of the Bombay High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 ITR 371 and Alfa Laval India Ltd. v. Dy. CIT [2004] 266 ITR 418.(Bom.) The Mumbai Tribunal in the case of Renaissance Jewellery (P.) Ltd. v. ITO [2006] 101 ITD 380 has followed the same rule. In assessee's own case for the assessment year 2000-01, the Tribunal has held in ITA No.3588/Mum/2004, that such items are forming part of the business profits for the purpose of Sec. 80HHC. Therefore, this ground is also liable to be dismissed.

5. It is also noticed from the order of the CIT(A) that miscellaneous income consist mainly of scrap sales, sales tax refund and discount. Nowhere it is mentioned that exchange gain is also included. Be that as it may, if there is any exchange gain involved the assessee is entitled for deduction under section 80HHC on the above amount. Respectfully following the above decision the grounds of the Revenue are rejected".

9. Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice we find no infirmity in the order of the CIT(A) directing the Assessing Officer not to reduce 90% of Miscellaneous income from the eligible business profits for the purpose of computation of deduction u/s.80HHC. The ground raised by the revenue is accordingly dismissed.
ITA No. 3465/M/2010 (By Assessee) :

10. Grounds of appeal No. 1 and 2 by the assessee read as under :

"1.	The Ld. CIT(A) erred in confirming the action of the Assessing Officer in disallowing the amount of Rs.1,34,99,999 being the loss on assignment of a debt, by holding that the same was not allowable u/s.37(1) of the Act.
2.	Without prejudice to Ground No.1 above, the Ld. CIT(A) erred in holding that the amount of Rs.1,34,99,999 could not be allowed as a bad debt u/s.36(1)(vii) r.w.s.36(2) of the Act as the conditions prescribed were not satisfied".

11. Facts of the case, in brief, are that the assessee company is engaged in the business of manufacture and sale of sintered bearings and parts, sintered automotive components, sintered filters and metal powders. The company also manufactures tools. During the course of assessment proceedings the Assessing Officer noted that the assessee has debited an amount of Rs.2,09,99,999 to the profit and loss account while arriving at the profit figure of Rs.13,04,53,776/- as extraordinary items of expenditure. The details in respect of these extraordinary items of expenditure specified in Note 3(a) & (b) of Schedule-XV of the audited accounts which is reproduced by the Assessing Officer in the assessment order read as under :

"a. The Company Mahindra & Mahindra Ltd. (M&M) and GKN Sinter Metals Holdings Ltd. (GKN) entered into a Share Sale & Purchase Agreement on 28th March, 2002, in terms of which M&M sold 11,50,508 equity shares in the Company to GKN. Pursuant to this, GKN together with its nominees, holds the entire equity shares of the Company. Pursuant to the change in shareholding, the name of the Company has been changed to GKN Sinter Metals Ltd., effective from 2nd August, 2002.

b. Extraordinary Items:
Pursuant to the Share Sale & Purchase Agreement referred above,

	(i)	The company has assigned debts aggregating to Rs.1,35,00, 000/- to M&M for a consideration of Re. 1. Accordingly, the loss on assignment has been written off in the books of account Rs. 1,34,99,999.	Rs.1,35,00,000/-
	(ii)	The Company has entered into a Name License Agreement with M&M for use of trademarks for a one time fee	Rs. 75,00,000/-
		TOTAL	Rs.2,09,99,999/-"

12. On being questioned by the Assessing Officer to justify the claim of the extraordinary items of expenditure amounting to Rs.1,35,00,000/- as a revenue expenditure the assessee replied as under :

"(1)

Enclosed please find copy of the Agreement dated 18.07.2002 between our Company, Mahindra & Mahindra and GKN Sinter Metals Holdings Ltd., U.K. for Share sale and Purchase. 2) The Company had debts due from various customers on account of sales made to them in the normal course of business. Needless to say, the corresponding amounts had been offered for tax from time to time. In ordinary course therefore if any portion of these debts had wholly or partially bad or irrecoverable, the shortfall would have been allowable as a deduction, as a bad debt u/s.36(1)(vii).

(2)

The company assigned these debts to Mahindra & Mahindra in terms of an agreement dated 27th September, 2002 (copy enclosed). On the basis of a fair estimate of the chances of recovery of these debts, it was felt that only marginal amounts could be recovered against book value of Rs. 1,35,00,000. It therefore' made no sense in continuing to carry these debts in the books at their book value of Rs.1. The amounts treated as bad debts have been factually written off in the books by crediting the accounts of the respective parties and have claimed as bad debts u/s.36(1)(vii).

Needless to say, Mahindra & Mahindra Limited has offered to tax the amount recovered from the assigned debts in subsequent year in their assessment. A letter written by them to this effect is enclosed."

13. However, the Assessing Officer was not convinced with the above explanation given by the assessee and asked the assessee to file copy of certificate from auditors in respect of its claim for writing off bad debts assigned to Mahindra and Mahindra and also to file the copies of accounts of debts written off. In response to the same the assessee replied as under:

"(2)

The relevant portion of report given by Ernst & Young on receivables, which had mentioned about balances over one hundred and eighty days and were, outstanding on account of amounts disputed by the customers due to rejections, rate differences and also certain freight amounts and overdue interests amounts not accepted by customers, which were outstanding in our books and which, we were not hopeful of recovering.

(3)

We had actually written off balances of customers as Bad Debts which were considered as doubtful by Ernst & Young, which were over six months and were disputed by the customers. Copies of the some statement of accounts showing the write offs in the books are enclosed."

14. In order to verify the contents of the Share sale and Purchase Agreement dated 18-07-2002 the AO obtained a copy of the same from Mahindra and Mahindra Ltd. and noted that the share sale and purchase transaction agreement dated 28-03-2002 was entered into between following parties :

"(i)		Mahindra &-Mahindra Ltd. (Seller)
(ii)		GKN Sinter Metals Holding Ltd. (Purchaser)
(iii)		Mahindra Sintered Products Ltd. (Company).

The assessee company was formerly known as Mahindra Sintered Products Ltd., wherein M/s. Mahindra & Mahindra Ltd. (Seller) held 51% shares and M/s. GKN Sinter Metals Holdings Ltd. (Purchaser) held 49%.

By virtue of the agreement dated 28.03.2002, the purchaser acquired the share holding of the Seller for a consideration of Rs.65 Crores.
A supplementary agreement dated 18.07.2002 was made to the original agreement dated 28.03.2002, between the same 3 parties mentioned (supra).
By virtue of the supplementary agreement dated 18-07-2002, the assessee company assigned Book Debts of Rs.1,35,00,000/- for a consideration of Rs.1 to the Seller."

15. After analyzing the various clauses and schedule attached to the principal agreement the AO confronted the assessee with the following facts:
"4. (e) In this regard, vide this office letter dated 10-02-2006, the assessee was informed as under :

1.	In this regard the undersigned obtained a copy of the share sale and purchase agreement dated 20-03-2002, between Mahindra & Mahindra Ltd. (Seller) and G.K.N. Sinter Metals Holdings Ltd. (Buyer).
2.	As per Clause 2 of the said agreement, certain conditions precedent to the closing of the share sale and purchase transaction was laid down.
	Your attention is drawn more specifically to clause 2.1.9 of the same agreement, which stated that "the company shall have completed the writing of assets set out in Schedule '8' of this agreement as specifically identified by the parties, in its books of accounts after 31.03.2002, but prior to the closing".
3.	By virtue of supplementary agreement dated 18.07.2002 to the original share sale purchase agreement, clause 2.1.9 and schedule 8 of the principal agreement was deleted and clause 5.3 & 5.4 was inserted in the principal agreement. By virtue of this new clause 5.3, you have assigned Book Debtors of Rs.1.35 Crores for a consideration of Re.1. Furthermore, notwithstanding the assignment of these debtors to the company shall collect debts for and on behalf of the seller and shall remit to the seller any amount so collected on a monthly basis.
4.	From the above facts and circumstances, it can be seen that the assignment of Book Debtors of Rs.1.35 Crores for a value of Re.1, is a part of the consideration paid/payable to Mahindra & Mahindra for their share holding in the company. Hence, the expenses of Rs. 1,34,99,999/- claimed by you as loss on assignment of debtors to Mahindra & Mahindra is not a revenue expense but a capital expense and hence not allowable."

16. In response to the same the assessee replied as under :

"As mentioned in our letter dated January 30th, 2006 along with which we had enclosed the report of Ernst & Young which clearly stated that the receivables were doubtful, hence it was decided to write it off in the books and assigning the same to Mahindra & Mahindra Limited @ Re.1 value. As the receipt of money from the debtors by us was more convenient, it was decided that whatever was received from debtors against assigned debts shall be remitted to Mahindra & Mahindra Limited on monthly basis. We had in fact written off these assigned debts as bad debts in our books on assignment and given you the statement of debtors. Hence, we respectfully submit, that these should be considered as revenue expenditure for the purpose of determination of income. Incidentally, this was put in Share Sale Purchase agreement, by virtue of the Due Diligence report of Ernst & Young copy of which is already given to you. As already advised by Mahindra & Mahindra Limited the amount received by them, have been offered to tax."

17. However, the AO was not convinced with the explanation given by the assessee and disallowed the assessee's claim of expenditure amounting to Rs.1,34,99,999 holding the same to be capital expenditure in nature for the following reasons :

"4. (g) The assessee's various submissions have been considered in depth, however, the same is not accepted for the following reasons :

(i)		The assessee's contention that the amount of Book Debts assigned to Mahindra & Mahindra would be allowable as a deduction as a Bad Debts u/s.36(1)(vii) is belied by the fact that the assessee is recovering these debts on behalf of Mahindra & Mahindra and remitting the amount collected to Mahindra & Mahindra. Hence, it is not clear how these debts can be considered to be bad in the hands of the assessee company.
(ii)		From the copies of accounts filed by the assessee in respect of few parties in respect of debts assigned, such as :

1.		Hindustan Motors Ltd.
2.		Rico Auto Industries Ltd.
3.		Lohia Machines Ltd. Munjal Show Ltd.
4.		Hero Honda Motors Ltd.
5.		Escorts Ltd.

It is seen that the assessee has regular transactions throughout the year and is also receiving payments from these parties regularly and periodically. Hence, the assessee's claim that certain amounts due from these parties are not recoverable and hence bad debts cannot be accepted. The assessee has not given any evidence to support its claim that these amounts were disputed by the customers for various reasons.

(iii)	As mentioned in my letter dated 10.02.2006 to the assessee, form a plain reading of, the terms of the Share Sale & Purchase Agreement it can be seen that the assignment of Book Debts of Rs. 1.35 Crores for a value of Re.1, is a intrinsic part of the consideration payable to Mahindra & Mahindra for relinquishing its shareholding in the assessee company.
(iv)	Mahindra & Mahindra Ltd., vide their letter dated 07.02.2006 have confirmed that out of total debts of Rs. 1,35,00,000/- taken by them at a value of Re.1, they have recovered debts amounting to Rs.79,51,040/- as under :

		(a)	A.Y. 2003-04	Rs.72,09,104/-
		(b)	A.Y. 2004-05	Rs. 7,41,936/-
			Total	Rs.79,51,040/-

Thus, further fortifies my contention that the debts assigned to Mahindra & Mahindra, were in no way bad, as Mahindra & Mahindra has recovered 53.40% of the said debts in the same financial year.

(v)

The assignment of book debts of Rs.1,35,00,000/- at a value of Re.1 and claiming the difference as a Revenue expense is nothing but a colourable device adopted by the assessee company for compensating Mahindra & Mahindra for the surrender of their shareholding (51%) in the assessee company. Relying upon the decision of Mc Dowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), I disallow the assessee's claim of expense amounting to Rs. 1,34,99,999/-, holding the same to be expense of capital nature."

18. Before the CIT(A) the assessee filed elaborate written submissions wherein the disallowance made by the AO was challenged. It was submitted that the assessee has fulfilled all the conditions prescribed for claiming the bad debt since :

(i)	The company has not arbitrarily or irrationally written off any bad debt.
(ii)	Complete details of each and every bad debt was furnished by the AO.
(iii)	Bad debts were on account of supplies made/services rendered to customers.
(iv)	In most cases the amount is very petty so that any legal proceedings would amount to wasting good money or bad money.
(v)	Bad debt is mere 1.32% of the total sales.
(vi)	None of the parties are Government parties.

18.1 The assessee also relied on various decisions. It was submitted that if the bad debt is not allowable as bad debt then the loss suffered on account of assigning such debt has to be allowed as business loss u/s.37. It was submitted that Mahindra & Mahindra Ltd. have confirmed that they have subsequently recovered debts amounting to Rs.79.5 lakhs only which proves that the debt assigned to Mahindra & Mahindra Ltd. was in no way good debt. It was also confirmed by Mahindra & Mahindra Ltd. that the bad debt so recovered has been offered to tax. The observations of the AO that the assignment of book debts is nothing but a colourable device was challenged. It was submitted that for the purpose of share sale one of the commercial terms of the transactions was that any debt which were doubtful for recovery and outstanding for more than 180 days is to be written off by the assessee company. A due diligence report was obtained from Ernst &Young Company on behalf of the purchaser before the share sale. Therefore, the loss claimed by the assessee is allowable as revenue loss.

19. However, the learned CIT(A) also was not convinced with the arguments advanced by the assessee and upheld the action of the AO by holding as under :
"6. I have duly considered the submission of the authorized representative and I find that the assessee has written off an amount of Rs.1,34,99,999/- in accordance with an agreement with the purchaser of shares. In the facts and circumstances of the case it cannot be said that the loss is a bad debt as the assessee is not in the business of money lending. The assessee has also not shown any evidence to show that any of the debt has become bad or the party has expressed its inability to pay any amount due to any differences. Hence the claim made by the appellant cannot be categorised as bad debt as conditions prescribed in section 36(1)(vii) & 36(2) requires the assessee to write off only bad debt and not any other debt. Various case laws cited by the appellant also emphasis the need to take honest decision regarding writing off the debt. In this case the assessee has not written off the debt as they are not recoverable but due to an agreement entered into with the purchaser of shares. Hence the claim is not allowable as bad debt.

7. As regards the claim of the appellant that the loss should be allowed as business loss is also not tenable as the loss was not incurred by the assessee for the purpose of business. It is evident from the facts of this case that an agreement was entered between the appellant and purchaser of shares that debts which are outstanding for more than 180 days should be written off. Accordingly, the assessee has written off these debts. Rather the assessee has assigned these debts to Mahindra & Mahindra for Re. 1. The question is whether this loss is for the business of the assessee? Is it possible by any appellant to enter into an agreement with a third party and write off certain amount and claim the same as bad debt? In my considered opinion the loss claimed by the appellant is not for the business of the assessee. No agreement can be entered into by any person against the Law. In this case it is evident that the purchaser of shares and the appellant has entered into an agreement to write off all debts which are more than 180 days and accordingly the assessee has written off these debts not because they were bad but because there was an agreement with the purchaser of shares. Such claim of loss created by the assessee cannot be regarded as genuine loss and hence they are not allowable as business loss under Section 37(1) of the I.T. Act. The A.O. has proved that these debts are not bad in the sense that Mahindra & Mahindra to whom these debts were assigned has recovered the debts to the extent of Rs. 79.51 Lacs. Hence the loss claimed by the appellant cannot be allowed. In the result, this ground of appeal is dismissed.

8. The authorized representative filed additional ground of appeal during the course of appellate proceedings. In the additional ground of appeal the appellant has claimed that the A.O. has disallowed the bad debt which is not justified.

9. I find that the assessee has claimed expenditure/loss in the first ground of appeal. However, during the appellate proceedings all submissions were made claiming the loss as bad debt. As such the additional ground of appeal was filed claiming the loss as bad debt. Since the claim of bad debt is being disallowed for reasons stated above this additional ground of appeal is not required to be adjudicated separately."

19.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.

20. The Ld. Counsel for the assessee reiterated the same arguments as made before the AO and the CIT(A). He submitted that the Ld. CIT(A) is not justified in disallowing the claim of bad debt as claimed by the assessee. He submitted that according to the Ld. CIT(A) if the company would have written off it would have got the deduction. Referring to Page 2 of the assessment order he submitted that the amount of Rs.1.35 Crores was taken into account while computing the income of earlier years. Referring to page 3 and 5 of the assessment order he submitted that the debts were actually written off in the books. He submitted that the ratio of decision of Hon'ble Supreme Court in the case of TRF Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 is squarely applicable to the facts of the present case and it is not necessary to prove that the amount written off had become bad. Referring to the copy of the share sale agreement dated 28-03-2002, (copy of which is placed at Pages 1 to 58 of the Paper Book) the Ld. Counsel for the assessee drew the attention of the Bench to Clause 2 at page 9 which speaks of conditions preceding to closing. He submitted that Mahindra & Mahindra has already paid the tax on account of collection out of bad debts and therefore taxing the same in the hands of the assessee company by disallowing the claim of bad debt will amount to double taxation. He submitted that since the assessee has written off the bad debt of Rs.1,35,00,000/- by assigning the same for Rs.1/-, therefore, the balance amount of Rs.1,34,99,999/-has to be allowed as bad debt in view of the ratio of decision of Hon'ble Supreme Court in the case of TRF Ltd. (supra). Without prejudice to the above he submitted that since the assessee has assigned the debtors of Rs.1.35 Crores for Rs.1/-, therefore, the balance amount is clearly allowable as business loss. He accordingly submitted that either the amount has to be allowed as bad debt or the same has to be allowed as business loss.

20.1 The Ld. Departmental Representative on the other hand heavily relied on the order of the AO and the CIT(A). He submitted that so far as the claim of the assessee regarding allowability of the same as bad debt, the same can be allowable only if the same is written off in conformity with the provisions of the I.T. Act. Further any recovery subsequent to write off is taxable under the provisions of section 41(4) of the I.T. Act and the assessee does not lose the ownership over the debt since the ownership remains with the assessee when the debt is written off. However, in the instant case the ownership has been transferred by assignment.

20.2 So far as the loss on account of assignment of the debt is concerned he submitted that in such a case the assignor assigns the debts to the assignee for the collection of the same. The assignee acting as the agent of the assignor recovers the debts from the debtors and remit to the assignor or principal. The assignor pays the assignee some commission as per agreement towards the services. Therefore, in case of assignment of debt the assignee acts as collector of debt and after collecting the money hand it over to the assignor. Relating to the facts of the case he submitted that here the assessee has collected the debt and has sent the amount collected to Mahindra & Mahindra Ltd. He submitted that the assessee, i.e. GKN Sinter Metal Ltd. has transferred the debt of Rs.1.35 Cr. for Rs.1/- to Mahindra & Mahindra Ltd. under share sale and purchase agreement dated 28-03-2002. Under this agreement the 51% shareholding of Mahindra & Mahindra Ltd. has been purchased by the assessee company. The Ld. Departmental Representative drew the attention of the Bench to Clause 2.1.9 of the agreement which reads as under :

"The Company shall have completed the writing off of assets set out in Schedule "8" to this Agreement, as specifically identified by the Parties, in its books of accounts after March 31, 2002, but prior to Closing".

He submitted that under this clause the company was having intention to write off assets as per Schedule '8' of the above agreement. The Schedule '8' included the debts overdue by more than 180 days which worked out at Rs.1.35 Cr. However, the company changed its intention of writing off by entering into the supplementary agreement dated 18-07-2002. As per Para 2 of this agreement the clause 2.1.9 and Schedule '8' of the principal agreement were deleted. Thus, the company itself decided not to write off the debts by entering into the supplementary agreement. Therefore, the claim of the assessee of writing off of bad debt u/s.36(i)(vii) of the Act has got no merit. He submitted that the assessee in the year of claim itself had recovered an amount of Rs.72,09,104/- but no income on account of recovery of such debts was shown by the assessee. This also proved that the claim is not in conformity with the provisions of the I.T. Act. He accordingly submitted that the assessee is neither entitled to claim of bad debt nor on account of business loss. He submitted that the facts of the case has to be seen in broader prospect as part of share purchase and sale agreement. Since the assessee company has paid the consideration for purchase of shares in the form of cash and transferring of debts, therefore, this transfer of debts is basically part of the sale consideration for purchase of shares. Therefore, no deduction is available either u/s.36(i)(vii) or u/s.37(1).

20.3 So far as the argument of the Ld. Counsel for the assessee that recovery of debt has been offered to tax by Mahindra & Mahindra Ltd. he submitted that the same is not relevant here since the issue of taxation of recovery of bad debt is not the issue before the Tribunal. He accordingly submitted that the order of the Ld. CIT(A) be upheld.

20.4 We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question to be decided here is as to whether the amount of Rs.1,34,99,999/- is allowable as bad debt or business loss as claimed by the assessee or the same is not allowable u/s.36(i)(vii) r.w.s. 36(2) or u/s.37(1) as held by the AO and upheld by the CIT(A). From the various details furnished by the assessee we find the assessee has assigned the debts to Mahindra & Mahindra Ltd. for Rs.1/-. The copy of the assignment of debt filed in Paper Book at Pages 63 & 64 is undated. We find the first sentence of the agreement reads as under :

"This deed of assignment is made at Mumbai on this day of September 2002".

20.5 The first proposition made by the Ld. Counsel for the assessee is that the same should be allowed as bad debt in view of the decision of Hon'ble Supreme Court in the case of TRF Ltd. (supra) However, we find no force in the above submission of the Ld. Counsel for the assessee since the assessee has not written off the amount as bad debt but has claimed loss on assignment due to transfer of the debtors by a deed of assignment for a consideration of Rs.1/-. In our opinion, for claiming the bad debt as allowable under the provisions of the Income Tax Act the same must be written off in conformity with the provisions of the Income Tax Act. By transferring the debt of Rs.1.35 Crores to Mahindra & Mahindra Ltd. for Rs.1/-, the assessee has lost the ownership over the debts. Therefore, by doing this the assessee has made the provisions of section 41(4) redundant. As per the said provisions if any amount is recovered in future on account deduction allowed in respect of bad debts or part thereof then the same shall be deemed to be the profits and gains of business or profession in that year and accordingly chargeable to tax. However, in the instant case the assessee has not shown any income on account of recovery of part of such debt since the assessee has assigned the debts to Mahindra & Mahindra and as per submission of the Ld. Counsel for the assessee Mahindra & Mahindra has offered the same to tax. Therefore, the first proposition argued by the Ld. Counsel for the assessee being without any merit is dismissed.

20.6 Now coming to the second proposition of the Ld. Counsel for the assessee that the same should be allowed as business loss since the assessee has sold the debts of Rs.1.35 Crores for Rs.1/- we find the same is also without any merit. First of all it is not the business of the assessee to assign debts. Further, the assessee in the instant case has assigned the debts to M/s. Mahindra & Mahindra Ltd. Therefore, the assessee becomes the assignor and M/s. Mahindra & Mahindra Ltd. becomes the assignee. In a case like this the assignee is supposed to collect on behalf of the assignor for which the assignor shall give some commission to the assignee. However, in the instant case the assessee, i.e. the assignor has undertaken to collect the debts on behalf of the assignee and has remitted the same periodically. The submission of the Ld. Counsel for the assessee that M/s. Mahindra & Mahindra Ltd. has paid tax on the debts so recovered and therefore taxing the same in the hands of the assessee amount to double taxation in our opinion is of no merit. We, therefore, find no merit in the arguments advanced by the Ld. Counsel for the assessee that amount of Rs.1,34,99,999/- should be allowed either as a bad debt or a business loss. Rather, we find force in the argument of the Ld. Departmental Representative that the assessee has adopted a colourable device to compensate Mahindra & Mahindra for the surrender of their 51% shareholding and therefore this is a capital expenditure. We accordingly dismiss the ground raised by the assessee.
21. Grounds of appeal 3, 4 and 5 by the assessee read as under :

"3. The Ld. CIT(Appeals) erred in holding that the amount of Rs.75,00,000/-paid for use of Trade Name for a period of two years constitutes capital expenditure."

4. Without prejudice to Ground No.3 above, the Ld. CIT(Appeals) further erred in enhancing the assessment, by treating the entire amount of Rs.75,00,000/- paid for use of the Trade Name for two years as payment for purchase of goodwill.

5. Without prejudice to Ground Nos.3 and 4 above, the Ld. CIT(Appeals) further erred in not allowing depreciation on the said amount of Rs.75,00,000/".
21.1 Facts of the case, in brief, are that the extraordinary items of Rs.2,09,99,999/- debited to the profit and loss account includes an amount of Rs.75,00,000/-. On being asked by the AO to justify the same it was submitted that the same has been paid to Mahindra & Mahindra, by virtue of a "Name Licence Agreement" dated 18-07-2002. It was submitted that as per clause 6 of the agreement, M/s. GKN Sinter Metals Ltd. was allowed to use the Trade Mark "Mahindra" for two years. The AO asked the assessee to justify the payment of Rs.75,00,000/- paid for acquisition of Trade Mark and explain as to why the same should not be treated as capital Expense. In reply, the assessee vide letter dated 24-01-2006 made following submissions :

"Copy of the Name Licence Agreement is enclosed. The fee was for use of 'Mahindra' name after our Company came out of Mahindra Group on 17th July, 2002. We were allowed to use 'Mahindra Sintered Products Limited' name till 31st December, 2002 and 'Formerly Mahindra Sintered Products Limited' for a period of two years from the Agreement date. The Name Licence Fee was paid in the Assessment Tear 2003-04 and can be allowed to be claimed as 'Royalty Payment for use of the name.

Since the availability of the name was for a very limited period and moreover since what was available was only a right to use the name etc., and that too for a limited period, neither any ownership acquired nor any advantage of an enduring nature acquired. The expenditure is therefore allowable as a routine business expenditure."

21.2 However, the same was not accepted by the AO who disallowed 50% of the same for the following reasons :

"Acquisition of Trade Mark in ordinary circumstances is the acquisition of a intangible capital asset as envisaged in the I.T. Rules and consequently payments for same would be capital expenditure with entitlement to depreciation thereon @ 25%.

However, in the instant case, the payment is not for the purchase of the trade mark, "Mahindra", but a licence fees payable for use of the trade mark for a period of 2 years from date of agreement. The benefit of this payment is spread over a period of 2 years.

Accordingly, the assessee is allowed 50% of the amount paid in the year under consideration and balance portion is allowable for remaining portion of licence term in next year. Consequently, Rs.37,50,000/- is disallowed and added back to assessee's total income."

21.3 Before the CIT(A) it was argued that by paying a sum of Rs. 75 Lacs the assessee has used the name of Mahindra alongwith the name of the company. This expenditure is revenue expenditure in view of the fact that no new asset was acquired by the assessee. There is no enduring benefit derived by paying a sum of Rs. 75 Lacs for a limited period of two years. Hence the expenditure is required to be allowed in full. It was submitted that there is no concept of deferred revenue expenditure in Income tax. Hence the A.O. is not justified in allowing only 50% of the expenditure in this year. The following case laws were relied upon :

i.		Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 (SC)
ii.		Alembic Chemicals Works Ltd. v. CIT [1989] 177 ITR 377/43 Taxman 312 (SC)

21.4 However, the CIT (A) also was not convinced with the explanation given by the assessee. He issued notice for enhancement u/s. 251(1) to show cause as to why the entire expenditure of Rs. 75 Lacs should not be disallowed as the assessee has acquired good will of Mahindra which is a capital expenditure and not allowable as revenue expenditure. No depreciation is also allowable in respect of goodwill.

21.5 It was reiterated that the company has paid a sum of Rs.75 Lacs to Mahindra & Mahindra for use of its name. The trade mark is one of the most valuable industrial properties of Mahindra & Mahindra. By paying a sum of Rs. 75 Lacs the assessee has become entitled to use the Trade name Mahindra for a limited period of two years. As no new asset has come into existence the expenditure cannot be treated as capital expenditure. No enduring benefit has also come into the possession of the company. It was submitted that u/s. 32(l)(ii) of the I.T.Act depreciation is granted on intangible assets as well. It was argued that in general in other business of commercial rights of similar nature would include the use of trade name and hence the depreciation is allowable on the intangible assets u/s. 32(l)(ii). The following decisions were relied upon :

i.		CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC)
ii.		S.C. Cambatta & Co. (P.) Ltd. v. CEPT [1961] 41 ITR 500 (SC)
iii.		Seethalakshmi Ammal v. CED [1966] 61 ITR 317(SC)

21.6 However, the CIT(A) was not convinced with the explanation given by the assessee and upheld the action of the Assessing Officer by holding as under :
"I have duly considered the submissions of the authorized representative and I find that the assessee has incurred the expenditure of Rs. 75Lacs on acquiring of good will for two years. Good will is an asset on which no depreciation can be allowed as the same is not an item listed in section 32(1)(ii). Hence the expenditure incurred for acquiring good will i.e. trade name of Mahindra & Mahindra is not allowable and no depreciation also is allowable on good will. Hence the income of the appellant is enhanced by Rs.37,50,000/- as the A.O. has disallowed only a sum of Rs. 37,50,000/- in this year i.e. 50% of the expenditure incurred by the assessee whereas the entire expenditure of Rs. 75 Lacs is required to be disallowed as capital expenditure on account of purchase of good will. Hence the income is enhanced by Rs. 37,50,000/- and no depreciation is allowable on this capital expenditure."

21.7 Aggrieved with such order of CIT(A) the assessee is in appeal before us.

21.8 We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. There is no dispute to the fact that the assessee has incurred expenditure of Rs.75 lakhs being one time licence fee paid to the owner for granting to the user, the licence to continue to use the trade mark as per the name licence agreement dated 18-07-2002. We find the assessee treated the same as Revenue expenditure in the books. However, the AO allowed only 50% of the expenses as allowable during the year and the balance 50% in subsequent year since the licence was obtained for a period of 2 years. We find the Ld. CIT(A) enhanced the amount and disallowed the entire expenditure on the ground that the same is for acquiring of goodwill for 2 years and on which no depreciation can be allowed. It is the submission of the Ld. Counsel for the assessee that the entire amount should be allowed as Revenue expenditure. Alternatively it is the argument of the Ld. Counsel for the assessee that depreciation should be allowed in case it is held to be acquisition of goodwill in view of decision of Hon'ble Supreme Court in the case of CIT v. SMIFS Securities Ltd. [2012] 348 ITR 302/210 Taxman 428/24 taxmann.com 222. We find the alternate contention of the assessee that depreciation should be allowed is acceptable in view of decision of Hon'ble Supreme Court in the case of SMIFS Securities Ltd. (supra) wherein it has been held that goodwill under Explanation 3(b) of section 31(2) of the Act is eligible for depreciation. In view of the decision of Hon'ble Supreme Court cited supra we set-aside the order of CIT(A) and direct the AO to allow depreciation on the goodwill as per law. Accordingly, Ground of appeal Nos. 3 and 4 by the assessee are dismissed and Ground of appeal No.5 is allowed.

22. Grounds of appeal No.6 by the assessee reads as under :

"6. The Assessing Officer erred in holding and the the Ld. CIT (Appeals) erred in confirming the disallowance of Rs.43,34,000/- being prepayment charges paid in respect of debentures issued were not expenses incurred for the purpose of carrying on business."

22.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has claimed an expenditure of Rs.43,34,000/- towards debenture pre payment charges. On being asked by the AO to justify the deduction it was submitted that the company had issued debenture for meeting its financial requirements. Pending utilization of the proceeds these debenture funds were kept in short term deposit with Standard Chartered Bank. Subsequently it was realized that the company is paying heavy interest on debenture for a period of 3 years. Therefore these debentures were cancelled and the money was paid back to Deutsche Bank. But in this process the company had to pay pre-payment charges of Rs.43,34,000/- .

22.2 However, the AO was not satisfied with the explanation given by the assessee. Relying on various decisions he disallowed the expenses of Rs.43,34,000/- claimed by the assessee company as pre-payment charges of debenture and added the same to the total income of the assessee for the following reasons:

"1.	From the perusal of the principal terms and conditions of the placement of these unsecured, redeemable non-convertible debentures, it is clear that there is no condition for payment of any pre-closure charges, what is specified is only the Tenor/Maturity & Coupon Rate.
2.	The debentures were issued by the assessee company to Mahindra & Mahindra on private placement basis. Mahindra & Mahindra in turn sold these debentures to Deutsche Bank, The debentures were held by Deutsche Bank at the time of pre-closure and hence the assessee company was not under contractual obligation to pay pre-closure charges to the Bank.
3.	The objects of debenture issue was for general corporate purposes. The assessee company utilized the debenture proceeds by placing the amount received as fixed deposit with Standard Chartered Bank.
4.	The expenditure incurred for raising money for the purpose of business has been held to be allowable expenditure u/s. 37 in view of various decision of the Courts. However, in present case, expenditure is not being incurred to raise the money but is being incurred to return the money already raised.

Moreover, this expenditure is not contractual but purely voluntary in the sense that there is no such provision in the terms of issue of the debenture payment of this pre-closure charges. This payment is purely a discretionary decision by the assessee company, who is under no legal compulsion to make this payment."
22.3 Before CIT(A) the assessee reiterated the same arguments as made before the Assessing Officer. However, the CIT(A) was also not convinced with the arguments advanced by the assessee and upheld the action of the Assessing Officer by holding as under :

"I have duly considered the submission of the Authorised Representative and I find that the Assessing Officer is justified in disallowing the prepayment charges of Rs.43,34,000/-, incurred by the assessee on cancellation of debentures. I find that there is no condition for payment of pre-closure charges. The debentures were issued by assessee company to Mahindra & Mahindra on private placement basis and Mahindra & Mahindra in turn sold these debentures to Deutsche Bank. Therefore the debentures held by Deutsche Bank at the time of pre-closure were not contractual obligation to pay pre-closure charges to the bank. It is also true that the assessee company has used these amount of debenture in placing short term fixed deposit with Standard Chartered Bank. The expenditure incurred for raising the money is allowable u/s. 37. However, in the present case the assessee has not incurred these expenditure for raising the money but incurred this expenditure to return the money already raised. Hence the A.O. is justified in disallowing the expenditure of Rs.43,34,000/- as it cannot be said that the assessee has incurred the loss for the purpose of carrying on the business. Issue of debenture is not the business of the assessee. Paying prepayment charges cannot be regarded as payment for the business of the assessee. Reliance is placed on the decision of Associated Hotels of India Ltd. vs. CIT 231 ITR 134(Punjab High Court). This ground of appeal is dismissed."

22.4 Aggrieved with such order of the CIT(A) the assessee is in appeal before us

22.5 The Ld. Counsel for the assessee referring to the decision of Delhi Bench of the Tribunal in the case of Gujarat Guardian Ltd. v. Jt. CIT [2008] 174 Taxman 151 (Chd.) submitted that any amount paid as prepayment charges as a result of restructuring of debt to save business expenditure for the year or subsequent years will be in the nature of Interest cost and is a revenue expenditure and therefore allowable as deduction. Referring to the decision of Hon'ble Delhi High Court in the case of CIT v. Gujarat Guardian Ltd. [2009] 177 Taxman 434 he submitted that the decision of the Tribunal has been upheld by the Hon'ble High Court wherein it has been held that the prepayment premium paid to IDBI for restructuring of its debts was "interest paid to Public Finance Institution" and was deductible u/s.43B(d) of the I.T. Act. Referring to the decision of the Hon'ble Supreme Court in the case of CIT v. Ashok Leyland Ltd.[1972] 86 ITR 549 he drew the attention of the Bench to the following :

"It is obvious from the facts set out earlier that the compensation paid for termination of the services of the managing agents was a payment made with a view to save business expenditure in the relevant accounting year as well as for a few more years. It was not made for acquiring any enduring benefit or income yielding asset. We agree with the High Court that the Tribunal was right in its conclusion that the expenditure in question was a revenue expenditure."

22.6 Referring to the decision of Chennai Bench of the Tribunal in the case of Overseas Sanmar Financial Ltd. v. Jt. CIT [2003] 86 ITD 602 he submitted that deduction claimed for foreclosure premium paid on loan taken in earlier year which was repaid prematurely in full in previous year was held to be revenue expenditure. Relying on various other decisions he submitted that since the assesses incurred the expenditure of prepayment charges to relieve it from future financial burden, therefore, the same should be allowed as a revenue expenditure.

22.7 The Ld. Departmental Representative on the other hand heavily relied on the orders of the AO and the CIT(A)

22.8 We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the genuineness of the expenditure of Rs.43,34,000/- towards debenture prepayment charges. The only dispute is regarding the allowability of the same. It is the case of the revenue that there is no condition for payment of pre-closure charges. Further, the debentures were held by Deutsche Bank at the time of pre-closure and there were no contractual obligation to pay pre-closure charges to the Bank. It is also the case of the Revenue that the assessee in the instant case has not incurred this expenditure for raising the money but incurred the same to return the money already raised and that issue of debenture is not the business of the assessee. It is the argument of the Ld. Counsel for the assessee that the assessee had to incur the expenditure to relieve it from further financial burden and this is a commercial decision. We find merit in the above argument of the Ld. Counsel for the assessee. By incurring such expenditure the assessee has tried to relieve itself from further financial burden.

22.9 We find the Hon'ble Supreme Court in the case of Ashok Leyland Ltd. (supra) has held as under :

'There is no doubt that, as a result of the termination of the services of the managing agents, the company got rid of its liability to pay office allowance as well as the commission it was required to pay under the managing agency agreement not only during the accounting year but also for a few years more. The expenditure thus saved undoubtedly swelled the profits of the company. From the facts found, it is clear that the managing agency was terminated on business considerations and as a matter of commercial expediency. There is no basis for holding that by terminating the managing agency, the company acquired any enduring benefit or any income yielding asset It is true that by terminating the services of the managing agents, the company not only saved the expense that it would have had to incur in the relevant previous year but also for few more years to come. It will not be correct to say that by avoiding certain business expenditure, the company can be said to have acquired enduring benefits or acquired any income yielding asset.

To quote the illustration given by Rowlatt J. in B.W. Noble Ltd. v. Mitchell, in the ordinary case a payment to get rid of a servant when it is not expedient to keep him in the interest of trade would be a deductible expenditure. A payment made to remove the possibility of a recurring disadvantage cannot be considered as a payment made to acquire an enduring advantage.

In Noble's case, Rowlatt J. had to examine the question whether the item of expenditure concerned in that case was a revenue expenditure. Briefly stated the facts of that case were : Under its articles of association the management of a company of insurance brokers registered in England was vested in its board of directors in London, with powers of delegation. One of the directors was appointed resident director in France. He conducted the French business of the company from an office in Paris under a power of attorney from the company.

The company claimed as a deduction from its profits for income tax purposes a sum of pound 19,200 payable (by instalments) to a retiring director in the following circumstances: 'The original directors were appointed for life so long as they held a qualifying number of shares, subject to dismissal forthwith for neglect or misconduct towards the company. A director so dismissed was only entitled to receive his salary then due and could be required to sell his shares to the other directors at par. He would also have to surrender for cancellation certain notes issued by the company entitling him to participate in surplus profits. Circumstances arose in 1920 and 1921 in which the company might possibly have been justified in dismissing one of the directors, but to avoid publicity injurious to the company's reputation, it entered into negotiation with the director for his retirement. He claimed pound 50,000 as compensation ; but a compromise was arrived at and embodied in an agreement dated the 30th December, 1921, by which he agreed to retire from the company, to transfer his 300 pound 1 shares to the other directors at par value (they were then worth considerably more) and to surrender his participating notes. The company agreed to pay him pound 19,200 and the directors to pay him pound 300 (as consideration for his shares) making together pound 19,500 (payable in five annual instalments) which he agreed to accept in full satisfaction of all claims against the company or the directors. The question was whether the payment of pound 19,200 was a deductible expenditure. The Special Commissioners decided against the company but the King's Bench Division as well as the Court of Appeal accepted the company's contention and held that the payment of pound 19,200 made was an admissible deduction in arriving at its profits for income tax purposes. In the course of his judgment Rowlatt J., sitting on the King's Bench Division, relied on the observations of the Lord Chancellor in Atherton v. British Insulated and Helsby Cables Ltd. to the effect :

"'a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade. ' "
These observations of the Lord Chancellor were again quoted with approval by Lord Hanworth M. R. when the matter was taken in appeal to the Court of Appeal.

The next case which may be usefully referred to is the decision in Anglo Persian Oil Co. Ltd. v. Dale. Therein the assessee company by agreement made in 1910 and 1914 had appointed another limited company as its agents in Persia and the East for a period of years, upon the terms that the agents should be remunerated by commission at specified rates. With the passage of time the amounts payable to the agents by way of commission increased far beyond the amounts originally contemplated by the company, and, after negotiations between the parties, the agreements were cancelled in 1922, the agent company agreeing to go into voluntary liquidation and the company agreeing to pay to the agents pound 300,000 in cash. This sum was in fact paid and the company contended before the Special Commissioners that it was an admissible deduction in computing the company's profits for purposes of income tax and corporation profits tax. The Special Commissioners rejected this contention and the company appealed. Rowlatt J., sitting in the King's Bench Division, allowed the appeal and held that the payment to the agents was an admissible deduction for the purpose of income tax and corporation profits tax. His decision was affirmed by the Court of Appeal. In the course of his judgment Rowlatt J. observed :

"Now I want to see how the Commissioners have dealt with it, and what they say is that this was expenditure of a capital nature to secure an enduring benefit for the company's trade by getting rid of an onerous contract In my judgment that is a finding which is perfectly inconclusive. It does not deal with the question. The question is not merely getting rid of an onerous contract, but an onerous contract for what ? If it is an onerous contract for the payment of wages or commission which are chargeable to revenue account in the plainest possible way, and if that is the onerous contract that you are getting rid of, it is impossible to suggest that that is a reason for saying that this is a capital expenditure unless you get rid of that onerous contract (as I pointed out just now) by erecting in its place a capital asset in the nature of course I am only using this as an illustrative example a labour saving machine which gives you an asset and so dispenses with the expenses of labour. But, to say that it is a capital expenditure because it secured an enduring benefit by getting rid of an onerous contract is not to state the material thing, and it is completely inconclusive"

In G. Scammell & Nephew Ltd. v. Rowles, the Court of Appeal held that the expenditure incurred for the termination of a trading relationship in order to avoid losses occurring in the future through that relationship, whether pecuniary losses or commercial inconveniences, is just as much for the purposes of the trade as the making or the carrying into effect of a trading agreement.

The case which can be said to be the nearest to the facts of the present case decided by any Indian court is that decided by the Calcutta High Court inAnglo Persian Oil Co. (India) Ltd. v. Commissioner of Income tax Therein, money was paid by an oil company in a lump sum as compensation for loss of agency whereby the company relieved itself of future annual payments of commission chargeable to revenue account. The question was whether the money paid as compensation was allowable as proper deduction from the business profits of the company. The court upheld the contention of the company that it was a revenue expenditure. Further, the court observed that the principle that capital receipt spells capital expenditure or vice versa is simple but it is not necessarily sound. Whether a sum is received on capital or revenue account depends or may depend upon the character of the business of the recipient. Whether a payment is or is not in the nature of capital expenditure depends or may depend upon the character of the business of the payer and upon other factors related thereto.

It is obvious from the facts set out earlier that the compensation paid for termination of the services of the managing agents was a payment made with a view to save business expenditure in the relevant accounting year as well as for a few more years. It was not made for acquiring any enduring benefit or income yielding asset. We agree with the High Court that the Tribunal was right in its conclusion that the expenditure in question was a revenue expenditure.'

22.10 We find the Hon'ble Delhi High Court in the case of Gujarat Guardian Ltd. (supra) has held as under :

"14. Briefly, the assessee in its profit and loss account has debited a sum of Rs 8 crores as pre-payment premium which is classified as an extraordinary item. The Assessing Officer sought justification from the assessee for claiming the entire amount as deduction in the previous year relevant to the assessment year under consideration in view of the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd v.CIT [1997] 225 ITR 802. The Assessee responded to the query of the Assessing Officer by submitting that it had made a proposal to IDBI for restructuring its debt with respect to rupee term loan aggregating to Rs 170.76 crores. The IDBI vide letter dated 19.03.1995 agreed to the proposal and inter alia reduced the rate of interest on the rupee term loan to 15% p.a. effective from 01.04.1995 upon the assessee paying IDBI a lump sum pre-payment premium of Rs 8 crores.

17.1 According to us, as correctly held by the Tribunal, the assessee's claim for deduction had to be allowed, in one lump sum, keeping in view the provisions of Section 43B(d) which provides that any sum payable by the assessee as interest on any loan or borrowing from any financial institution shall be allowed to the assessee in the year in which the same is paid irrespective of the provisions in which the liability to pay such sum is incurred by the assessee according to the method of accounting regularly applied by the assessee. Since the authorities below have not disputed that pre-payment premium paid to IDBI, in the instant case, is nothing but "interest" or that it was paid to a public financial institution i.e., IDBI then, in terms of, Section 43B(d) the assessee's claim for deduction could only have been allowed in the year in which the payment had actually been made. It is not disputed that payment has been made in the previous year relevant to the assessment year under consideration i.e., assessment year 1996-97. Therefore, there is no scope for spreading over the liability over a period of 10 years as was sought to be done by the Assessing Officer which was, according to us, erroneously sustained by the CIT(A). The ratio of the judgment of the Supreme Court in the case of Madras Industrial Corporation (supra) is not applicable to the present case. The facts of the instant case are different. Madras Industrial Corporation (supra) pertains to treatment of discount on debenture issued by the assessee. The Supreme Court's observations that a claim for deduction by an assessee be spread over as deduction in one year would distort the picture of profits, cannot be applied to the instant case, as the mechanism for claiming deduction on account of "interest" paid on loans obtained by the assessee from a public financial institution, is specifically provided for in the statute under Section 43B(d) of the Act. Therefore, in terms of Section 43B(d) once it is ascertained that the payment is in the nature of "interest" in terms of Section 36(1)(iii) read with Section 2(28A) of the Act, and the assessee fulfills the conditions provided in Section 43B(d), that is, it is the interest paid in respect of loans obtained from public institutions, it follows that, the interest will have to be allowed as a deduction only in the year of payment, notwithstanding the fact that, the liability to pay such sum was incurred in an earlier year based on the method of accounting regularly employed by the assessee. In these circumstances, in our opinion the Assessing Officer failed to appreciate the ratio of the judgment of the Supreme Court in Madras Industrial Corporation (supra), which is, really an application of the principle of accountancy of matching income with expenditure, where the Act makes no specific provision for claim of deduction. The said principle enunciated by the Supreme Court was not contemplated to apply to situations where the Act makes a distinct and specific provision. See Observations made by the Supreme Court in Tuticorin Alkali Chemicals v. CIT [1997] 227 ITR 172 at pages 183-184. In the result, no fault can be found with the approach of the Tribunal in respect of this issue."

22.11 We find the Chennai Bench of the Tribunal in the case of Overseas Sanmar Financial Ltd. (supra) has held as under :

"The rival contentions on this issue together with the case laws as referred to have been given our very careful consideration. The fact as is evident from record is that the loan that was taken in earlier years was repaid in full in the previous year relevant to the assessment year and this resulted in the payment of charges levied by the financial institutions to the tune of Rs.56,15,126. It is also evident from the record that the reduction in the rate of interest for fresh loans to be advanced by the financial institutions led the assessee company to pay off the entire loan that carried the burden of higher rate of interest. The assessee apparently calculated the amount of interest that it would be paying over the years at the agreed rate of interest and compared it with the foreclosure premium together with the interest that it would pay on the revised rate basis and found it to be advantageous to the company by paying the foreclosure premium. This advantage that the company wanted to benefit from is clearly a well-judged business decision and therefore, it is laid out wholly for the purposes of its business. This itself is sufficient for allowing the claim in full in the year in which it was incurred.

In Madras Industrial Investment Corpn. Ltd. 's case (supra) the assessee did not make its claim for deduction of entire amount of discount allowed on debenture issues but only to the extent of a portion that it arrived by dividing the amount of discount by the number of years of life of debenture. Thus, the Apex Court was not addressed on the allowability of the entire amount in the year of incurring and therefore, there was no ruling on that point. However, the decision Sivakami Mills Ltd. s case (supra) clearly goes to show that the guarantee charges paid for a loan that is to run for a few years is allowable on the basis of the contract being effected in the year. In the other case, Madras Auto Service (P.) Ltd. (supra), the lessee demolished the entire building that was taken on a lease of 39 years and constructed a new building in its place on the understanding that on expiry of the lease the building as reconstructed would be handed over to the lessor for which consideration a lower rent was agreed to by the lessor. The court ruled that by constructing a new structure in place of the old structure the assessee only derived a business advantage and no asset of enduring nature was acquired and hence, the entire cost of construction is allowable as revenue expenditure in the year itself.

We are therefore of the opinion that the claim for deduction for the entire amount of foreclosure premium in the assessment year is justified and we accordingly uphold the claim. This issue is decided in favour of the assessee and against the revenue."

22.12 So far as the decision relied on by the CIT(A) in the case of Associated Hotels of India Ltd. v. CIT [1953] 23 ITR 134 (Punj. & Har) we find the same was decided by the Hon'ble Punjab High Court (Circuit Bench at Delhi). The facts in that case were distinguishable and not applicable to the facts of the present case. In that case debentures were redeemed before maturity by paying bonus and fresh debentures were issued before maturity. However, in the instant case, it is not the case of the revenue that the assessee has issued fresh debentures after prepayment of the debentures. Therefore, the above decision is not applicable to the facts of the present case. Considering the totality of the facts of the case and in view of the decisions cited (Supra) we are of the considered opinion that the amount of Rs.43,34,000/- incurred by the assessee being prepayment charges paid in respect of debentures issued are expenses incurred for the purpose of business and the same is an allowable expenditure. Accordingly the order of the CIT(A) on this issue is set-aside and Ground of appeal No.6 by the assessee is allowed.

23. In the result, the appeal filed by the revenue is dismissed and the appeal filed by the assessee is partly allowed.