2017 (3) TMI 73

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....ront premium on Zero Coupon Non-Convertibility debenture. 2. That the Ld. CIT(A) erred in allowing upfront premium paid in advance despite the fact that Assessee Company was following accrual method of accounting. 3. That the department craves leave to add or modify the grounds of appeal before the hearing of the case." 3. The Assessee is a company. It is engaged in the business of manufacturing and sale of tyres. It filed return of income for A.Y.2006-07 on 14.11.2006. Assessment was completed u/s 143(3) of the Act by order dated 15.12.2008. The assessee had claimed as deduction a sum of Rs. 72,53,359/-. The sum so claimed as a deduction was on account of upfront premium pertaining to the period from April, 2006 to Mar....

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....Rs.) 1. IDBI - JKIL 27637168/- 2. IDBI - VTP 47189753/- 3. Life Insurance Company (LIC) 4126292/- 4. General Insurance Company (GIC) 592845/- 5. Oriental Insurance Company (OIC) 304408/- 6. New India Assurance Co.(NIAC) 545705/- 7. National Insurance Company (NIC) 245497/-   Total 80641668/-   It was the plea of the Assessee that the Assessee is maintaining its accounts on mercantile basis and accordingly Assessee claimed only Rs. 72,53,359/- (being the portion of upfront premium, which was pertaining to the period from Oct, 2005 to March, 2006), in AY 2006-07. 4. The claim of the Assessee was allowed by the AO in the assessment completed u/s.143(3) o....

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....t year. 6. The CIT(A) cancelled the order of the AO holding that the claim of the Assessee for deduction of upfront premium was correct and that the said expenditure was revenue in nature and the deduction claimed related to the previous year and was well within the mercantile system of Accounting to be allowed as a deduction. The following were the relevant observations of the CIT(A). "5. I have perused the impugned order of the AO. I have also considered the submissions of the Ld. AR and the material placed by him on record. It appears that the assessee company has rearranged its debt with 6 financial Institutions in as much as the zero coupon non-convertible debentures (ZCNCD) carrying premium rate of 13.50 - 13.75% was conve....

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.... appeal before the Tribunal. 8. We have heard the rival submissions. The ld. DR relied on the order of AO. The ld. Counsel for the assessee reiterated the submissions made before CIT(A) and relied on the order of CIT(A). After considering the rival submissions, we are of the view that there is no merit in this appeal by the revenue. Firstly the question whether the upfront premium on Zero coupon Non-convertible debentures to the extent of Rs. 72,53,359/- which was pertaining to the period from October, 2005 to March, 2006 can be regarded as revenue expenditure or not or was in the nature of interest or was advance payment of future interest liability which cannot be allowed under the mercantile system of accounting are matters which the ....