2013 (8) TMI 1000 - AT - Income Tax

Appeal partially allowed on FCCBs deductions, denial upheld on duty drawback/DEPB under section 80-IB.

The Tribunal partly allowed the appeal, permitting deductions for expenses on Foreign Currency Convertible Bonds (FCCBs) but upholding the denial of ... Expenses incurred on the issuance of such FCCBs - Held that:- expenditure on the issue of convertible debentures is admissible. We find that there is no qualitative difference between the issuance of debentures or bonds. Both fall in the realm of loan. In the light of these precedents, we are of the considered opinion that the assessee deserves deduction for this amount Denial of deduction u/s 80-IB on duty drawback / DEPB - Held that:- Tribunal in assessee’s own case has denied similar deduction on DEPB in the past. This position was fairly admitted by the learned AR as well. However it was argued that the receipt of duty drawback to the extent of actual expenses should be allowed. In support of this contention the learned AR relied on some order passed by the Ahmedabad Bench of the Tribunal. We are unable to accept this contention in view of the direct judgment of the Hon’ble Supreme Court in Liberty India v. CIT [2009 (8) TMI 63 - SUPREME COURT ] in which it has been held that duty drawback / DEPB are not derived from industrial undertaking and hence no deduction is available u/ss 80-I, 80-IA and 80-IB. Denial of deduction u/s 80-IB on interest income on subsidy received under the Textile Upgradation Fund - Held that:- The authorities below did not allow deduction u/s 80-IB on subsidy received under TUF. We are convinced with the view point of the authorities below that such subsidy received on account of interest on loan borrowed for acquisition of plant and machinery cannot be considered as an income derived from industrial undertaking. Interest under TUF scheme - revenue or capital receipt - Held that:- We find that there being a pure question of law as to whether such subsidy is a revenue or a capital receipt, can be taken up for consideration before the Tribunal for the first time. Since there is no adjudication by the authorities below on this point, we are of the considered opinion that the ends of justice would meet adequately if the matter is restored to the file of Assessing Officer for examination and evaluation of this contention. Issues Involved:1. Denial of deduction on expenses incurred on issue of Foreign Currency Convertible Bonds (FCCBs).2. Denial of deduction under section 80-IB on duty drawback / DEPB.3. Treatment of duty drawback / DEPB as capital receipt.4. Denial of deduction under section 80-IB on interest income on subsidy received under the Textile Upgradation Fund.5. Consideration of subsidy received under TUF as revenue or capital receipt.Issue 1: Denial of deduction on expenses incurred on issue of Foreign Currency Convertible Bonds (FCCBs)The appellant claimed deduction of &8377; 2.24 crore towards expenses on FCCBs, which was denied by the Assessing Officer and upheld by the CIT(A). The Tribunal noted that appellate authorities can consider claims without a revised return. Citing relevant case law, it was held that expenses on issuing debentures or bonds, including FCCBs, are allowable deductions as they represent loans. Following precedents, the Tribunal allowed the deduction, disagreeing with the lower authorities' decision.Issue 2: Denial of deduction under section 80-IB on duty drawback / DEPBThe appellant's claim for deduction under section 80-IB on duty drawback / DEPB was rejected by the Assessing Officer, supported by the Tribunal's past decision in the appellant's case. Despite arguments for allowing the deduction on actual expenses, the Tribunal relied on a Supreme Court judgment stating that duty drawback / DEPB do not qualify for deductions under relevant sections. Upholding the lower order, the Tribunal disallowed the deduction.Issue 3: Treatment of duty drawback / DEPB as capital receiptAn additional ground was raised to treat duty drawback / DEPB as capital receipt and not taxable, but this was not pursued by the appellant and was dismissed by the Tribunal.Issue 4: Denial of deduction under section 80-IB on interest income on subsidy received under the Textile Upgradation FundAuthorities denied deduction under section 80-IB on subsidy received under the Textile Upgradation Fund, stating it did not constitute income from industrial undertakings. Grounds 4 and 5 challenging this denial were dismissed. However, additional grounds 9 and 10, arguing for the treatment of such subsidy as capital in nature, were allowed for reconsideration by the Assessing Officer.Issue 5: Consideration of subsidy received under TUF as revenue or capital receiptThe question of whether subsidy received under the Textile Upgradation Fund should be considered a revenue or capital receipt was raised. As this was a pure question of law not addressed by the lower authorities, the Tribunal decided to remand the matter to the Assessing Officer for examination and evaluation. Additional grounds 9 and 10 were allowed for statistical purposes.In conclusion, the Tribunal partly allowed the appeal, allowing deductions on expenses incurred on FCCBs but upholding the denial of deductions under section 80-IB on duty drawback / DEPB. The treatment of subsidy received under the Textile Upgradation Fund was referred back to the Assessing Officer for further evaluation. Various other grounds raised by the appellant were dismissed for not being pressed during the proceedings.