Tribunal allows deduction for premium on redemption of preference shares under Income Tax Act

The Tribunal allowed the assessee's appeals regarding the disallowance of the provision for premium on redemption of preference shares under Section 115JB of the Income Tax Act. The Tribunal held that the provision for premium on redemption of preference shares was an ascertained liability and should be deductible while computing book profit. The Revenue's appeals on the scope of assessment under Section 153A were dismissed, affirming the CIT(A)'s deletion of additions not based on incriminating material found during the search. The assessee's claim regarding the treatment of interest income from FDRs was dismissed as not pressed.

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Issues Involved
1. Disallowance of provision for premium on redemption of preference shares while computing book profits under Section 115JB of the Income Tax Act.
2. Treatment of interest income from Fixed Deposit Receipts (FDR) for deduction under Section 80IB of the Income Tax Act.
3. Scope and ambit of assessment under Section 153A read with Section 143(3) of the Income Tax Act, particularly regarding additions based on incriminating material found during the course of search.

Detailed Analysis

1. Disallowance of Provision for Premium on Redemption of Preference Shares
The primary issue in the assessee's appeals for Assessment Years 2012-13, 2013-14, and 2014-15 was the disallowance of the provision made for premium on redemption of preference shares while computing book profits under Section 115JB of the Income Tax Act. The assessee argued that the provision for premium on redemption of preference shares and the 3% annual return were ascertained liabilities and should be deductible while computing book profit under Section 115JB. The Assessing Officer disallowed the sum, reasoning that the redemption of preference shares amounted to a reduction of capital, not a revenue expenditure, and thus could not be considered an ascertained liability. The CIT(A) upheld the disallowance, stating that the provision was a reserve, not an ascertained liability, and hence not deductible from the book profit.

The Tribunal referred to its earlier decision in the assessee's own case and a sister concern, where a similar issue was decided in favor of the assessee. The Tribunal reiterated that the provision for premium on redemption of preference shares, as per Section 80 of the Companies Act, 1956, was a charge against the profits of the company and thus an ascertained liability. Consequently, the Tribunal allowed the assessee's claim, directing that the provision be reduced from the book profit under Section 115JB.

2. Treatment of Interest Income from FDR for Deduction under Section 80IB
The second issue raised by the assessee pertained to the treatment of interest income from FDRs, which the Assessing Officer treated as income not derived from the business and thus not eligible for deduction under Section 80IB. However, this ground was not pressed by the assessee during the hearing and was dismissed as not pressed.

3. Scope and Ambit of Assessment under Section 153A read with Section 143(3)
The Revenue's appeals for Assessment Years 2008-09, 2009-10, and 2010-11 involved the scope and ambit of assessment under Section 153A read with Section 143(3), particularly regarding additions based on incriminating material found during the course of search. The CIT(A) deleted several additions made by the Assessing Officer, holding that they were not based on any incriminating material found during the search. The CIT(A) relied on the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva Ltd), which held that in assessments under Section 153A, where the original assessment does not abate, additions can only be made based on incriminating material found during the search.

The Tribunal upheld the CIT(A)'s decision, affirming that the additions made by the Assessing Officer were not based on any incriminating material found during the search and thus were beyond the scope of assessment under Section 153A. The Tribunal also noted that the Revenue's argument, based on the pending SLP before the Hon'ble Supreme Court against the judgment of the Hon'ble Bombay High Court, did not detract from the applicability of the judgment in the present case.

Conclusion
The Tribunal allowed the assessee's appeals for the disallowance of the provision for premium on redemption of preference shares and dismissed the Revenue's appeals regarding the scope of assessment under Section 153A, thereby affirming the CIT(A)'s deletion of additions not based on incriminating material found during the search. The assessee's claim regarding the treatment of interest income from FDRs was dismissed as not pressed.

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