TaxTMI 
TaxTMI 
2022 (4) TMI 1566
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....r the due process of scrutiny and examination of the records. 2. The Learned Pr. CIT has erred in law and in facts by holding perpetual bonds akin to equity ignoring the fact that basic nature of perpetual bonds is debt instrument/loan. 3. The Learned Pr. CIT has erred in law and in facts by disallowing interest qualify as capital borrowed for the business or profession as it is perpetual and it does not have fixed redemption date. 4. The Learned Pr. CIT has erred in law and in facts by holding perpetual bonds are not a borrowing capital. He has ignored that though perpetual bonds are perpetual in tenure, but it would not change the basic character of borrowing into equity instrument. 5. The Learned Pr. CIT has erred in law and in facts by disallowing the interest expenditure of Rs.1,71,19,58,455/- as it was not debited to profit and loss account. The Pr. CIT has ignored the fact that accounting treatment will not be determining factor for allowability / dis-allowability of the expenses. 6. The Learned Pr. CIT has erred in law and in facts by passing the Order u/s 263 of the Act despite the fact that the assessment was done of the afores....
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....oresaid bonds was payable @ 11.40% on the borrowing of Rs. 1500 Cr. This works out to Rs. 171.20 Crs. for the year under assessment. ii In line with accounting standards, said perpetual securities have been classified as a separate line item between 'shareholders funds' and 'other non-current liabilities' captioned as "unsecured perpetual securities". iii. Interest to the holder of the perpetual securities has been treated as 'distribution to bond holders and was presented as a reduction in the 'Reserves and surplus" and not in statement of 'profit and loss account' However, the legal nature of aforesaid bonds was borrowed capital and the interest thereon was deductible as allowable expenses under section 36 of the Act, Accordingly, this amount has been claimed as allowable business expenditure, while computing income for the captioned assessment year. iv. Amount of Rs. 1500 owes was borrowed during FY 2011-12 on which Interest is payable @ 11.40% p. a. which works out to Rs. 171.20 crores for the year. The aforesaid amount has been used by the company for its business purpose. Thus, the Interest of Rs, 171.20 crores is all....
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.... they continued to be non-refundable deposits on which under contractual obligation the assessee had to pay interest as per terms of the contract and hence the same must be allowed as deduction permissible under section 28. Alternatively, the interest payable being a payment for business or trade in any case would be required to be allowed as deduction under section 37. X. The Company has paid interest as per the terms of issue of Perpetual Bonds which was a contractual obligation for the Company irrespective of the nature of the instrument issued, keeping in mind that basic nature of Perpetual Bonds being loan cannot be lost or forgotten. Hence, interest is allowable as deduction permissible under section 36 or otherwise under section 37. xi. The distribution costs which are in the nature of Interest expenses payable on the Perpetual Bonds, issued by the Company do not depend upon the operational performance of the Company. In other words, neither the return of the instrument, by any means, is linked to the Company's profitability nor the debenture holders have a right to participate in the profits of the Company. xii. The mere fact that the NCDs are....
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....examining and verifying the factual and legal position. Therefore, the ld. Pr.CIT held that assessment made was erroneous insofar as it is prejudicial to the interest of the revenue, and the Assessing Officer was directed to allow the aforesaid claims after due verification and inquiries and recompute the total income accordingly. 4. During the course of appellate proceedings before us the ld. Counsel has furnished paper book comprising copies of document and details of submission made before the A.O during the course of assessment proceedings. The ld. Counsel has referred notice u/s 142(1), dated 24.11.2016 vide which question no. 14 of the annexure the assessing officer has specifically asked the assessee that what was income tax reversal on distribution on unsecured perpetual securities in respect of earlier years and also asked to submit detailed note on allowability in profit and loss account. The ld. Counsel also referred detailed submission of the assessee made during the course of assessment proceedings vide letter dated 16.12.2016 in response to the query raised by the A.O in respect of income tax reversal on distribution on unsecured perpetual securities. As per para n....
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....as charged to Rs.113.61 crores after netting off taxes [142.03 - 28.42]. The amount of tax impact of Rs.28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs.18.63 crores on issue of 10.75% debenture of Rs.1500 crores. This amount being expenditure of capital nature has not been claimed by the assessee in its return of income. The assessee has also supplied to the Assessing Officer detailed offer document issued for unsecured perpetual debentures of Rs.1500 crores during the course of assessment proceedings. In the offer document the terms and conditions of issuing perpetual debentures, basis of allotment, creation of debenture redemption reserves along with object of the issue were clearly mentioned. As per the copy of object of the issue placed at page 67 of the paper book, it is mentioned that utilization of funds to be raised through this private placement will be for general business purpose and at page no. 62 issue size was mentioned of 15000 debentures of face value of Rs. 10 lac each aggregating to Rs.1500 crores. It is demonstr....