2015 (9) TMI 1045 - AT - Income Tax

Notional interest on the alleged loan given by the assessee to its AE - Held that - Tribunal for AY 2008-09, has deleted the addition by following the decision rendered by Hon ble Bombay High Court in the cases of Vodafone india Services Pvt Ltd Vs. Union of India and Ors (2014 (10) TMI 278 - BOMBAY HIGH COURT) and M/s Shell India Markets Pvt Ltd (2014 (11) TMI 897 - BOMBAY HIGH COURT). The Ld D.R did not dispute these facts. The notional interest has been levied i.e., the addition relating to the difference in issue price which was considered to be the deemed loan , has since been deleted by the Tribunal. In that case, the impugned addition pertaining to notional interest made in both the years under consideration does not survive and is accordingly liable to be deleted. Accordingly, we direct the AO to delete the addition relating to notional interest in both the years. - Decided in favour of assessee. Disallowance made in respect of revaluation loss on index linked debentures - Held that - It is an accepted and prudent accounting practice to provide for all known liabilities and losses as on the date of Balance Sheet. The accounting standards also mandate the companies to provide for known liabilities and losses. During the years under consideration, the claim of the assessee is that the nifty index level has gone up vis- -vis the level existed at the time of allotment of debentures, meaning thereby the liability of the assessee was known as on the date of Balance Sheet. Accordingly, we are of the view that the said liability would fall in the category of expenditure‟, since it is in the nature of interest liability only. Accordingly, we are of the view that the ratio of the decision rendered by the Hon‟ble Supreme Court in the case of Woodward Governor India (P) Ltd shall apply to the facts of the present case also. As noticed that the assessing officer did not examine the workings relating to the liability quantified by the assessee. We notice that the terms and conditions relating to the debentures prescribe a particular methodology to arrive at the interest liability at the time of redemption of debentures. In our view, the liability of the assessee as on the Balance sheet date should be determined under the very same methodology. Accordingly, we are of the view that the computation made by the assessee requires verification at the end of the assessing officer. Thus we set aside the order of the AO/Ld DRP on this issue in both the years under consideration and restore the same to the file of the AO for the limited purpose of examining the computation made by the assessee in both the years. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Assessment of notional interest on alleged loan to AE.
2. Disallowance of revaluation loss on index-linked debentures.
3. Non-granting of TDS amount.

Assessment of Notional Interest on Alleged Loan to AE:
The assessee challenged the addition related to the difference in issue price of shares and the issue of "deemed loan" in AY 2008-09 before the Tribunal. The Tribunal, following relevant legal precedents, deleted the addition. As the foundation for levying notional interest was based on the now-deleted addition, the Tribunal directed the AO to delete the notional interest addition for both years under consideration.

Disallowance of Revaluation Loss on Index-Linked Debentures:
The dispute centered on the disallowance of revaluation loss on debentures by the Ld DRP/AO. The assessee argued that the interest liability on debentures, linked to the Nifty index, should be recognized on a mercantile basis. The Tribunal acknowledged that the liability was akin to interest compensation, subject to fluctuations in the Nifty index. Drawing parallels with a Supreme Court decision on foreign exchange rate changes, the Tribunal held that the liability should be treated as expenditure. However, the Tribunal remanded the issue to the AO for verifying the computation methodology adopted by the assessee.

Non-Granting of TDS Amount:
In AY 2009-10, the assessee raised a ground regarding the non-granting of TDS amounting to Rs. 2.69 crores. The Tribunal directed the AO to address this matter separately.

The Tribunal allowed both appeals for statistical purposes, setting aside the orders of the AO/Ld DRP on the issues of notional interest and revaluation loss on debentures. The case was remanded to the AO for further examination of the computations. Other grounds raised were deemed consequential. The judgment was pronounced on 16th Sept, 2015, by the Appellate Tribunal ITAT Mumbai.