2022 (8) TMI 914 - HC - Income Tax

Claim of Deduction/ expenses on interest/redemption premium on debentures - liability to pay interest/redemption premium has not crystallized during the year - CIT-A allowed the deduction of premium on redemption of debentures as revenue expenditure, which would be spread over to three assessment years - ITAT reversed the order of CIT(A) and restored the order of AO - Whether the Tribunal is justified in law in holding that the genuineness of the Transaction has not been proved beyond doubt without passing a speaking order and ignoring the irrefutable evidence placed before it and consequently passed a perverse order on the facts and circumstance of the case? - HELD THAT - Issuance of debentures is not in dispute. Deduction of TDS (Tax deducted at source) is also not in dispute. The Tribunal has rightly recorded the correct principle of law that premium paid on redemption of debenture is Revenue expenditure. By the second Addendum Agreement dated 12.11.2012, the HDFC's right to exercise the option of converting the debentures into preference shares has been restored in consonance with the original Agreement. The resultant position is, the HDFC, at its option, could cause the assessee to redeem all debentures on September 20, 2012. The CIT(A) has accepted assessee's explanation that it had quantified the premium as per the agreement dated 15.05.2010 spread over for three financial years. It is trite that a borrowing Company, which issues debentures incurs liability to pay larger amount than what it has borrowed. The assessee - Company has made provision for payment of premium and also paid TDS. The adverse finding recorded by the ITAT that the parties had changed the agreement to suit their convenience and that it is a 'make-believe' story is not supported by any cogent reason nor material on record and therefore, untenable. CIT(A), following the decision in CIT Vs. Asea Brown Boveri Ltd. 2008 (8) TMI 348 - KARNATAKA HIGH COURT and Madras Industrial Investment Corporation Ltd. 1997 (4) TMI 5 - SUPREME COURT has rightly held that the premium payable quantified on redemption of debentures as Revenue expenditure. The impugned order passed by the ITAT is unsustainable and hence, this appeal merits consideration.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction claimed on interest/redemption premium on debentures.
2. Crystallization of liability to pay interest/redemption premium.
3. Genuineness of the transaction and passing a speaking order.
4. Adjudication of levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Issue 1: Disallowance of Deduction on Interest/Redemption Premium:
The appellant, a Private Limited Company, filed returns for A.Y 2011-12, initially declaring income and later claiming a loss due to debenture premium. The Assessing Officer disallowed the deduction, stating it was contingent upon completion of an IPO. The CIT(A) allowed the deduction, but the ITAT reversed the decision, considering it a 'make-believe' story. The High Court noted that the premium paid on redemption of debentures is a revenue expenditure, and the liability had been quantified and spread over three financial years. The ITAT's findings were deemed unsupported and the appeal was allowed.

Issue 2: Crystallization of Liability to Pay Interest/Redemption Premium:
The disagreement centered on whether the liability to pay interest/redemption premium had crystallized during the year. The appellant argued that the liability was certain and quantified, as per the agreement spread over multiple years. The Revenue contended that the liability had not crystallized, as revised returns were filed after the agreement. The High Court held that the liability had indeed crystallized, as evidenced by the agreement and quantification of the premium, thus allowing the deduction.

Issue 3: Genuineness of Transaction and Speaking Order:
The genuineness of the transaction and the need for a speaking order were also disputed. The appellant provided detailed agreements and explanations, while the Revenue claimed the deduction was an afterthought. The High Court found that the agreements and quantification of premium supported the genuineness of the transaction. It was noted that the ITAT's findings lacked cogent reasons and material, rendering them unsustainable in law.

Issue 4: Adjudication of Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal did not adjudicate on the issue of levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961. This omission was highlighted as an additional concern in the appeal. However, the High Court did not provide a detailed analysis of this specific issue in the judgment.

In conclusion, the High Court allowed the appeal, holding in favor of the assessee on the substantial questions of law. The disallowance of the deduction on interest/redemption premium was overturned, emphasizing the crystallization of the liability and the genuineness of the transaction. The ITAT's order was deemed unsustainable, and the CIT(A)'s decision was restored, without any costs imposed.