2020 (4) TMI 717 - AT - Income Tax

Disallowance on premium paid on redemption of foreign currency convertible bonds - Revenue expenditure or capital loss - HELD THAT - Expenditure incurred by the assessee by way of premium paid on redemption of FCCB would be of revenue expenditure only and hence the assessee would be entitled to claim the same in accordance with the law. It is also clear from the above that the AO has not examined this issue properly and he merely disallowed the sum stating that the assessee s claim is of capital nature. The description given as regards to various entries and as explained by the ld AR, supra, and its corresponding implications were neither examined by the AO nor by the ld CIT(A). Remit this issue back to the A O for a fresh examination and allow the assessee s claim in accordance with law. The assessee shall place all materials in support of its contention and shall comply with the requirements of the AO in accordance with law. AO is free to conduct appropriate enquiry as deemed fit. - Revenue s appeal is treated as partly allowed for statistical purposes.

Issues:
1. Disallowance of premium paid on redemption of foreign currency convertible bonds as capital loss.
2. Allowability of premium expenses as revenue expenditure.
3. Treatment of FCCB premium under section 43B.
4. Disallowance of premium paid in a subsequent order and its impact.
5. Consideration of premium expenses under section 43B.
6. Claim under the Income Tax Act on a payment basis.

Issue 1: Disallowance of premium paid on redemption of foreign currency convertible bonds as capital loss:
The Revenue appealed against the order disallowing the premium paid on redemption of foreign currency convertible bonds as a capital loss. The AO held that the expenditure on premium was capital in nature as the bonds represented the capital of the company. The CIT(A) allowed the appeal, considering the premium as a revenue expenditure. The Revenue challenged this decision, questioning the treatment of the premium as a capital expenditure.

Issue 2: Allowability of premium expenses as revenue expenditure:
The AR argued that the premium on FCCB should be treated as a revenue expenditure based on accounting standards and the Companies Act. The AR cited relevant case laws supporting the treatment of such expenses as revenue in nature. The CIT(A) supported this view, emphasizing that the funds raised through FCCB were utilized for business purposes, justifying the premium expenses as revenue expenditure.

Issue 3: Treatment of FCCB premium under section 43B:
The AR contended that the premium expenses should be allowed as revenue expenditure under section 43B. The actual payment of premium related to the assessment year was directly charged against the securities premium account and claimed as expenses. The AR relied on the decision of the ITAT Mumbai Bench and relevant legal provisions to support the claim of the premium expenses under section 43B.

Issue 4: Disallowance of premium paid in a subsequent order and its impact:
The Revenue raised concerns about the disallowed premium paid in a subsequent order and its impact on the assessment. The AR explained the treatment of premium expenses in previous years and the reversal of charges in the profit and loss account. The AR argued for the correctness of the claim and relied on legal precedents to support the allowance of premium expenses.

Issue 5: Consideration of premium expenses under section 43B:
The AR highlighted the treatment of premium expenses under section 43B and the compliance with relevant provisions for claiming the expenses. The AR presented a detailed explanation of the premium payments related to FCCB and their treatment for income tax purposes. The AR supported the claim for premium expenses under section 43B based on legal interpretations and case laws.

Issue 6: Claim under the Income Tax Act on a payment basis:
The discussion centered on the assessee's claim under the Income Tax Act on a payment basis concerning the premium expenses. The Tribunal deemed it necessary to remit the issue back to the AO for a fresh examination to allow the assessee's claim in accordance with the law. The Tribunal emphasized the need for a thorough review of all materials and compliance with legal requirements before making a decision on the claim.

In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes and directed a fresh examination of the premium expenses issue in accordance with the law, providing the assessee with an opportunity to present supporting materials and comply with the AO's requirements.

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