TaxTMI 
TaxTMI 
2020 (4) TMI 717
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....ess of manufacture and sale of sugar, industrial alcohol, power generation (co-gen) and soya products. While making the assessment for assessment year 2012-13, the AO, inter alia, made disallowance on premium paid on redemption of foreign currency convertible bonds holding that it is a capital loss in nature. Aggrieved against that order the assessee filed an appeal before the CIT(A) and the ld CIT(A) allowed the appeal. Aggrieved against that order, the Revenue filed this appeal. 3. The Ld. DR submitted that the AO noticed that the assessee has deducted Rs. 26,78,77,675/- being FCCB premium provisions netted in the interest expenditure from the net profit for the year while computing the total income. The assessee has infused equity in ....
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.... not the issue of Premium involved? 4. Whether in the facts and circumstances of the case, the CIT(A) erred in allowing the Premium paid of Rs. 13,55,82,338/- in the AY 2012-13, which was disallowed by a subsequent order u/s 147 dt 30/12/2Ol7 for violation of Sec 40a(i)a and the said latter order has merged into the 143(3) order ? 5. In the facts of the case, whether the CIT(A) failed to consider the question of allowability of the Premium expenses even on grounds of payment u/s 43B, which is primarily a Capital expenditure ? 6. In the facts of the case, when the assessee itself opts not to make a charge to the P&L a/c, whether it has a rightful claim under the Income Tax Act on payment basis?" and presented th....
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....012, has been directly charged against the securities premium account in the balance sheet and the same has been claimed as expenses. However, for the IT purposes, while computing the total income of the previous year, the actual payment of FCCB premium have been claimed u/s. 43B. Therefore, it was submitted that the claim is correct and accordingly be allowed. In this regard, the Ld. AR relied on the decision of the ld CIT(A) in which the ld CIT(A) inter alia, relied the decision of the ITAT Mumbai Bench in the case of Mahindra & Mahindra Ltd vs DCIT-2(2) for assessment year 2006-07 dated 06.06.2012 reported in 24 taxmann.com 267 (Mumbai) and invited our attention to the relevant portion of the head note is extracted as under: ....
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....Foreign Currency Convertible Bonds raised have been used for the purpose of its business only and any expenditure byway of premium paid on redemption of FCCB would also be revenue expenditure andnot capital expenditure as held by the assessing officer. The above view is supported by the judicial decision in the case of Mahindra & Mahindra Limited Vs. DCIT (2012)24 taxmann.com 267 (Mumbai). Another decision in CIT Vs. Secure Meiers Limited (321 ITR 611)(Raj) (confirmed in CIT Vs, Secure Meters Limited 2009 -TICL-93-SCIT)also supports the above view, in these decisions it 'was held that as the debenture when issued, is a loan, whether it is convertible or non-convertible, it does not militate against the nature of the debenture being loan....
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....h the issue of FCCB. As the bonds were convertible, the assessing authority treated the bond proceeds as increased to capital. Accordingly, he treated the expenditure of Rs. 6.63 crores. As capital in nature is, it was incurred for raising the capital of the assessee company. The said expenditure was disallowed. Assessee claimed the expenses is deductible as the expenses were incurred to raise loan finance. The assessing authority held that the bond holders at the option to convert the bonds to equity shares, and therefore-, the collection of funds for the issue of bonds needs to be treated as to increase the capital and, therefore, the connected expenses would be capital in nature and hands disallowed. We agree with the view of th....
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.... therefore, whether it is convertible, or nonconvertible, does not militate against the nature of the debenture, being loan, and, therefore, the expenditure incurred would be admissible as revenue expenditure." Following the above decision of the Rajasthan High Court, the Hon'ble Karnataka High Court in the case of CIT v. ITC Hotels lrd [201 1] 334 ITR 109 /120101 190 Taxman a30 held that even if the debenture is to be converted into a share at a later date, the expenditure so incurred for collection of debenture is to be treated as an expenditure of revenue nature. 5.1 Respectfully following the decisions of the above referred Hon'ble courts we hold that expenses incurred in connection with the issue of FCCB were reve....