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2020 (2) TMI 416 - AT - Income TaxPerquisite or Benefit u/s 28(iv) - Addition for a discount on buy-back of Foreign Currency Convertible Bonds (FCCB) - Business income or capital receipt - HELD THAT - In the instant case, the benefit has been received in the shape of the money and thus, the said benefit cannot be held as taxable even under section 28(iv) of the Act. We set aside the finding of the Ld. CIT(A) on the issue in dispute and hold that the discount received on FCCB is not taxable in the hands of the assessee. The Ground No. 1 of the appeal of the assessee is accordingly allowed. Disallowance under section 40(a)(ia) for non-deduction of tax at source on certain payments made - HELD THAT - lower authorities have not verified the exact nature of payments and constitution of the entities. In view of the undertaking given by the assessee, we feel it appropriate to restore the issue back to the Assessing Officer for deciding the same afresh. Accordingly, the issue is restored back to the Assessing Officer to decide the issue afresh, after affording adequate opportunity of being heard to the assessee. Thus, this Ground no. 2 of the appeal is allowed for statistical purposes.
Issues Involved:
1. Addition of ?9,46,73,015/- representing discount on buy-back of Foreign Currency Convertible Bonds (FCCB). 2. Disallowance of business expenditure under section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source. 3. Specific disallowance of ?5,82,825/- and ?4,80,480/- under section 194C read with section 40(a)(ia) of the Act. Issue-wise Detailed Analysis: 1. Addition of ?9,46,73,015/- representing discount on buy-back of FCCB: The primary issue was whether the discount on buy-back of FCCB should be treated as a capital receipt or a trading receipt. The assessee contended that the loan raised via FCCB was for capital purposes, and thus, any discount on buy-back should be considered a capital receipt and not taxable. The Assessing Officer (AO) argued that the FCCB was a hybrid instrument and the discount should be treated as business income or an unexplained credit under section 68 of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] relied on various judgments, including the Hon'ble Delhi High Court in Logitronics (P) Limited Vs CIT, which differentiated between loans taken for capital assets and trading purposes. The Tribunal found that the FCCB funds were utilized for capital expenditure, making the discount a capital receipt not exigible to tax. The Tribunal set aside the CIT(A)’s findings and ruled in favor of the assessee, stating that the discount received on FCCB is not taxable. 2. Disallowance of business expenditure under section 40(a)(ia) of the Act: The second issue involved the disallowance of ?98,41,570/- paid to Indian Overseas Bank, Hong Kong, and ?2,28,370/- paid to HSIIDC Ltd. The AO disallowed these amounts for non-deduction of tax at source under section 195 of the Act. The CIT(A) upheld the disallowance, stating that even if payments were made to an Indian bank, they were liable for TDS. Regarding HSIIDC, the CIT(A) held that the payment was for services and not exempt under section 194A of the Act. The Tribunal noted that the lower authorities had not properly verified the nature of the payments and the constitution of the entities. The Tribunal restored the issue back to the AO for fresh adjudication, allowing the assessee to present necessary documentary evidence to substantiate its claim. 3. Specific disallowance of ?5,82,825/- and ?4,80,480/- under section 194C read with section 40(a)(ia) of the Act: This issue was not pressed by the assessee before the Tribunal and was thus dismissed as infructuous. Conclusion: The Tribunal allowed the appeal partly for statistical purposes. The addition of ?9,46,73,015/- representing discount on buy-back of FCCB was held as a capital receipt and not taxable. The disallowance of business expenditure under section 40(a)(ia) was remanded back to the AO for fresh adjudication. The specific disallowance of ?5,82,825/- and ?4,80,480/- was dismissed as infructuous. The order was pronounced in the open court on 13th January 2020.
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