AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 781
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....e Ld.CIT(A) erred in allowing the interest expenditure on the ground that the assessee has converted the outstanding loan and interest accrued thereupon till 31/12/2006 into shares and it was not the case of the AO that the expense in question was incurred due to conversion of loan into shares or in any way pertain to the shares allowed without appreciating the fact that the equity was allowed including accrued interest upto 31/12/2006 to Yahoo Inc, USA and unsecured loan including interest of A.Y. 2007-08 has been converted into shares application money and shares allotted in A.Y. 2008-09.? " 3. "The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored." 3. The grounds of appeal raised by the assessee in Cross Objection ('C.O.' for short) reads as under: 1. The order passed by the assessing officer ('Ld. AO') and as upheld by the Commissioner of Income Tax (Appeals), to the extent prejudicial to the Appellant, is erroneous in facts and bad in law. 2. The Ld. AO erred in issuing notice under section 148 of the Income tax Act, 1961 ('the Act') based on audit objection raised during the course of au....
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....07-08. Hence, the assessment proceedings initiated for disallowing interest expense should be dropped. In this connection, the assessee also referred to Hon'ble Delhi High Court decision in the case of Boble & Hewitt (I) (P.) Ltd. [2008] 305 ITR 324 (Delhi), wherein the Hon'ble High Court has held as under: since the assessee did not debit the amount to the Profit & Loss Account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. 6. Furthermore, the assessee has made submissions about the allowability of the interest expenditure. The submissions of the assessee in this regard as reproduced by the A.O. reads as under: 2.1 No interest expense has been claimed during FY 2OO7-ofl and hence, reassessment proceedings initiated for disallowing interest expense should be dropped: 2.1.1 As it is evident from the facts stated above no interest expenditure was claimed as tax deductible expenditure in FY 2007-08, and interest expenditure was claimed in the previous year i.e. FY 2006-07. Therefore,....
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....submits that, interest accrued on ECB till the date of conversion in to equity is a revenue expenditure and therefore qualifies as a deductible expenditure under the provision of the Act: 2.2.1 As your goodself is aware, the ECB was obtained for general corporate purpose and hence was utilized by the Assesses Company for meeting its working capital requirements. Therefore, the interest on such ECB qualifies as tax deductible revenue expenditure under the provisions of the Act. Further, since ECB is a pure debt instrument, interest on such debt instrument is allowable business expenditure. There was no option of conversion of ECB in to equity, offered at the time of issue of ECB. It was only due to Assessee Company's financial and commercial consideration that, the Assessee Company decided to convert the ECB in to equity. Therefore, the Assessee Company submits that, interest on ECB up the date of conversion for the period April 2006 to December 2006 is a pure revenue expenditure deductible under the provisions of the Act. 2.2.2 The Assessee Company further relies on the Delhi Tribunal decision in case of UAG Builders (PJ Lid [2012] 25 taxmann.com 205 (Delhi), wherein, the....
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....ion money in A.Y. 2008-09. The assessee was regularly debiting interest expenditure on foreign currency loan to P & L account and in A.Y. 2007- 08 assessee company debited Rs. 2,62,44,1447- on account of interest on foreign currency loan to P & L a/c (as on March 2007). Thus, share application money which was pending for allotment in A.Y. 2007-08 has been finally allotted in A.Y. 2008-09. Therefore, interest up to December 31,2006 which was debited to P & L a/c is amounting to Rs. 2,62,44,144/- is disallowed as capital in nature and added to the income of the assessee. There was no occasion to disallow the interest in A.Y. 2006-07 relates to A.Y. 2007-08, since the conversion has not taken place, The share application money pending allotment has been issued & allotted shares in A.Y. 2007-08 only, therefore, interest is disallowed since it being crystallized in the A.Y. 2008-09. Since the assessee has furnished inaccurate particulars of its income. 8. Against this order, the assessee is in appeal before the ld. CIT(A) challenging both the validity of reopening and merits of the addition. 9. The ld. CIT(A) did not adjudicated upon the validity of reopening. However, as regards the....
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....the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : 12. From the above provision of law, it can be construed that the reopening is permissible if there is escapement of income from assessment in that particular year. It will be totally naive to hold that the reopening in a particular assessment year can be done for escapement of income which have not at all relate to that particular assessment year. 13. In this case, we note that as emanating from the reasons recorded, the assessment has been reopened to make the disallowance of interest which has not at all been incurred in the impugned assessment year. With the assistance of the ld. Counsel of the assessee, we have gone through the profit and loss account of the assessee company for the past year as submitted in paper book. It is clear that the amount sought to be disallowed was debited in the financial year 2006-07 which is not at all relevant for the assessment year 2008-09 in which assessment is sought to be done. No interest whatsoever has been debited in the assessment year 2008-09. Hence, in our considered opinion, there is no question at all ....