Tribunal allows FCCB expenses, grants relief under section 40(a)(i), confirms disallowance of GDR listing fees

DCIT 7 (2), Mumbai Versus M/s. Reliance Natural Resources Limited And Vice-Versa

DCIT 7 (2), Mumbai Versus M/s. Reliance Natural Resources Limited And Vice-Versa - Tmi Issues Involved:
1. Treatment of FCCB-related expenses as capital or revenue expenditure.
2. Disallowance under section 40(a)(i) for non-deduction of tax at source.
3. Disallowance under clause (f) of Explanation-1 to section 115JB.
4. Disallowance of professional fees for listing of GDR.

Detailed Analysis:

1. Treatment of FCCB-related Expenses:
The primary issue revolves around whether the expenses incurred by the assessee in connection with the issuance of Foreign Currency Convertible Bonds (FCCB) should be treated as capital or revenue expenditure. The Assessing Officer (AO) had treated these expenses as capital expenditure, following the precedent set in earlier years. However, the CIT(A) reversed this decision, allowing the expenses as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, noting that FCCB expenses are akin to debenture issuance costs, which are considered revenue in nature. The Tribunal also observed that FCCB holders did not have voting rights as the bonds were not converted into equity shares during the relevant year.

2. Disallowance Under Section 40(a)(i):
The second issue pertains to the disallowance of Rs. 14.86 crores under section 40(a)(i) for non-deduction of tax at source. The AO disallowed the amount due to non-compliance with TDS provisions. The CIT(A) partially upheld this disallowance but granted relief for certain payments, such as those made to T.T. Forex, UK companies, and USA companies, based on the provisions of the respective DTAAs. The Tribunal confirmed the CIT(A)'s decision, emphasizing that identical payments in earlier years were not subject to TDS, and there was no requirement to deduct tax at source under section 195.

3. Disallowance Under Clause (f) of Explanation-1 to Section 115JB:
The third issue involves the disallowance under clause (f) of Explanation-1 to section 115JB, which pertains to the computation of book profit. The AO added the disallowance computed under section 14A to the book profit, while the CIT(A) estimated 10% of the dividend income as the expenditure related to exempt income. The Tribunal upheld the CIT(A)'s approach, citing the Special Bench decision in ACIT Vs. Vireet Investment (P) Ltd., which held that section 14A disallowance should not be imported into clause (f) of Explanation-1 to section 115JB.

4. Disallowance of Professional Fees for Listing of GDR:
The final issue concerns the disallowance of Rs. 93,060 paid for listing of GDR. The CIT(A) treated this expenditure as capital in nature, and the Tribunal upheld this decision, consistent with the rulings in earlier years.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes. The key takeaways include the affirmation of FCCB-related expenses as revenue expenditure, relief granted for certain payments under section 40(a)(i) based on DTAA provisions, and the adoption of a reasonable estimate for expenditure related to exempt income under section 115JB. The professional fees for listing of GDR were consistently treated as capital expenditure.