TaxTMI 
TaxTMI 
2013 (11) TMI 63
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....) erred in confirming the action of the AO in computing the disallowance under section 14A of the Act r.w.r. 8D of the Income tax Rules, at Rs.64,05,44,116/- being expenditure incurred in relation to investments capable of earning the exempt income, while computing income under the normal provisions of the Act (section 28 to 42 of the Act)." 3. Ground No. 1 regarding disallowance of discount on debentures. The assessee had issued 1,32,50,000 Zero Coupon secured optionally fully convertible redeemable debentures during the year 2006-07 at face value of Rs. 1,000/- each at a discount @ Rs. 400 per debenture. These debentures were redeemable on 1.4.2011 at face value of Rs. 1,000/-. This difference of Rs. 400/- is amortised by the assessee over this period. The AO noted that out of total 1,32,50,000 debentures 1,00,29,850 debentures were redeemed between 29th and 31st December 2008 and balance 3220150 debentures were redeemed on 31st March 2009. During the year the assessee has amortised Rs. 85.82 crores out of total discount of Rs. 530 crores and has reduced the same from the preference share premium account. However, the assessee has claimed this amount in computation of income as ....
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....d secured loans. Since the assessee has also issued shares on premium therefore the assessee has adjusted the discount on issue of debenture against the share premium but treatment and entries in the books of account would not bar the assessee claiming the same as a deductible expenditure under the Income Tax Act. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in case of CIT Vs Distributors (Baroda) (P.) Ltd. 83 ITR 377. The Ld. Counsel has further contended that advance to the group concern is for business expediency as the sister concerns are also in the same line of business therefore, the expenditure is allowable as the advance was given for commercial expediency. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in case of S. A. Builders Ltd. Vs CIT 288 ITR 1. The Ld. Counsel has pointed out that the loan was given to the sister concerns namely Reliance exploration Pvt. Ltd. and Reliance Extrusion Pvt. Ltd. which are in the same line of business. He has further submitted that the advance given to the group concerns have been received back in the subsequent year and therefore the observation of CIT(A) th....
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....y of the assessee. We reproduce the object clause 27 of the memorandum and association of articles assessment of the assessee company as under: "27 To lend, invest or otherwise employ or deal with surplus money belonging to or entrusted to the Company in securities and shares, bonds, real estate or other movable or immovable property or with or without security upon such terms and in such manner as may be thought proper and from time to time to vary such transactions and investments in such manner as the directors may think fit subject to the provisions of the Companies Act, 1956." 7. It has not been disputed by the revenue that the sister concerns, whom the assessee has advanced under Zero Coupon Optionally Convertible Loans are in the same line of business and the assessee is trading in transportation fuel with the group concerns. Therefore, the assessee is having business with its group concerns. As far as the allowability of discount on issue of debentures this issue has been settled by the Hon'ble Supreme Court in case of Madras Investment Corporation Vs CIT 225 ITR 802. The Hon'ble Supreme Court has observed at page No. 811 as under: "Therefore, w....
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.... over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of t....
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.... of India Cements Ltd. [1966] 60 ITR 52 , the matter related to the borrowing of Rs.40 lakhs from a financial institution, which loan was secured by a charge on the fixed assets of the company. The hon'ble Supreme Court in this judgment considered various aspects of the matter including the previous English judgments and couple of judgments of the English courts based on the English Income Tax Act and proceeded to draw distinction between the income tax law in England and India. Not only this, the hon'ble Supreme Court further proceeded to examine a number of cases decided by various High Courts like Kerala, Andhra Pradesh, Calcutta, Bombay, etc., and had gone to the extent of holding that some of the judgments were wrongly decided. Then, the hon'ble Supreme Court proceeded to hold as under (page 63) : "10. To summarise this part of the case, we are of the opinion that : (a) the loan obtained is not an asset or advantage of an enduring nature ; (b) that the expenditure was made for securing the use of money for a certain period ; and (c) that it is irrelevant to consider the object with which the loan was obtained." Thus, it was h....
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....when issued is a loan and, therefore, whether it is convertible or non-convertible does not militate against the nature of the debenture, being loan and, therefore, the expenditure incurred would be admissible as revenue expenditure." 10. The SLP filed by the revenue against the decision of Hon'ble Rajasthan High Court has been dismissed by the Hon'ble Supreme Court vide decision dated 11.8.2009 by observing as under: "Income Tax - Assessee issues debentures- treats expenses as revenue expenditure - HC allows the same by observing that it is irrelevant to consider the object, with which the loan was obtained - Admittedly the debentures when issued are a loan, and therefore, whether it is convertible, or non convertible, does not militate against the nature of the debenture, being loan, and therefore, the expenditure incurred would be admissible as revenue expenditure - Revenue's appeal dismissed by Supreme Court." 11. As it has been held that the debentures when issued are a loan therefore whether it is convertible or non-convertible it does not militate against the nature of the debenture being loan and therefore the expenditure incurred would be admissible as reve....