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TMI Blog2016 (2) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, find that this issue is fairly covered by the above cited decisions. Hence, we hold that the expenditure incurred by the assessee on issue of FCCB is revenue expenditure allowable under section 37(1) of the I.T. Act. - Decided in favour of assessee - ITA. Nos. 1325/Hyd/2015 - - - Dated:- 10-2-2016 - Smt. P. Madhavi Devi, Judicial Member And Shri S. Rifaur Rahman, Accountant Member For the Petitioner : Mr. Y. Ratnakar For the Respondent : Mr. B. Kurmi Naidu ORDER Per Smt. P. Madhavi Devi, J. M. This is assessee s appeal for the A.Y. 2007-08. In this appeal, the assessee is aggrieved by the order of the Ld. CIT(A) in confirming the assessment order wherein the expenditure incurred by the assessee on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in its order. Against the order of the ITAT, the assessee preferred an appeal before the Hon ble High Court but the Hon ble High Court dismissed assessee s appeal holding that there was no substantial question of law involved in the matter. Therefore, the A.O., while giving effect to the order of ITAT, re-examined the allowability of expenditure incurred by the assessee on issue of FCCBs and held that FCCB bonds were issued with an option to the bond holders to convert them to ordinary shares or to redeem their claim of bonds on 06.12.2011 at 147.882% of the principal. He observed that since the said bonds are convertible and have the characteristic of equity shares, proportionate expenditure on the issue of bonds has to be treated as ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business and the amount received is thus an unsecured loan in the hands of the company. He submitted that the expenditure of ₹ 2,64,26,757 incurred by the assessee company for issuing these bonds is therefore revenue expenditure. He also submitted that during the F.Y. 2006-07 relevant to the A.Y. 2007-08, the funds collected by the assessee company continued to remain with the assessee only as a liability in the form of unsecured loans as none of the bond holders exercised any option for conversion of their bonds into shares during the relevant financial year. He, further submitted that in the F.Y. 2007-08, the bonds to the extent of 5 million US dollars were converted into share capital as the bond holders exercised their option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. CIT vs. Secure Meters Ltd., 321 ITR 611 7. CIT vs. ITC Hotels Ltd., 334 ITR 109 8. M/s. Crane Software International Ltd. vs. DCIT, Bangalore Order dated 08.02.2011 in ITA.Nos. 741 742/Bang/2010. 9. CIT vs. Havells India Ltd., 352 ITR 376 10. DCIT vs. UAG Builders (P) Ltd., Delhi (2012) 25 taxmann.com 205 (Del.) 3.1. Further he has also relied upon the CBDT circular No.56 dated 19th March, 1971 on the provisions of section 35D wherein it was clarified that the provisions of section 35D will not have the effect of bringing the expenditure covered by the decision of the Hon ble Supreme Court in the case of India Cements Ltd., reported in (1966) 60 ITR 52 within the scope of the expenditure to be amortized against profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the loan was a revenue expenditure or capital expenditure and therefore, it was held that the expenditure incurred for availing loan is allowable under section 37(1) of the Act. This decision of the Hon ble Supreme Court has been followed by various High Courts in the cases cited by the Ld. Counsel for the assessee cited supra. The Hon ble Madhya Pradesh High Court in the case of CIT vs. Tumus Electric Corpn. Ltd., (1990) 49 Taxman 249 (MP) (cited supra), after considering the above judgment of the Hon ble Supreme Court has held that the expenditure incurred by the assessee therein in connection with the execution of a mortgage deed to secure a loan was revenue expenditure as there was no regulation regarding the application of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (Agencies) Ltd., (cited supra), the Hon ble High Court of Madras was seized of the issue as to whether the expenditure incurred on issue of debentures was capital or revenue and after considering the decision of the Hon ble Supreme Court in the case of India Cements (cited supra) as well as the Delhi High Court decision in the case of CIT vs. Thirani Chemicals Ltd., reported in 290 ITR 196, held that the expenditure incurred on the issue of debentures is permissible deduction under section 37 of the I.T. Act. Similar view was expressed by the Hon ble High Court of Madras in the case of First Leasing Company India Limited (cited supra). 8. The Hon ble Karnataka High Court in the case of ITC Hotels Ltd., (cited supra) has also consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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