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TMI Blog2016 (5) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd., the assessee herein, which was engaged in the business of cement. The cement business was transferred with effect from April 1, 2003, to RIL, i.e., the assessee's subsidiary. Thereafter, the assessee herein, viz., Rain Commodities Ltd., had merged with its group company Rain Calcining Ltd. with effect from April 1, 2007, and the CPC business of Rain Calcining Ltd., which was transferred by the Rain Commodities, i.e., RCOL by virtue of merger, was transferred to RIL with effect from April 1, 2007. The cement business was again retransferred to Rain Commodities Ltd., i.e., the assessee herein with effect from July 1, 2006, and, hence, for the relevant assessment year 2006-07, the assessee's business was cement business. During the assessment year 2006-07, the assessee had filed its return of income originally on November 20, 2006, declaring a total loss of Rs. 12,32,83,565. Subsequently, on March 23, 2007, the assessee filed revised return declaring a total loss of Rs. 15,50,69,761. During the assessment proceedings under section 143(3) of the Income-tax Act, 1961, the Assessing Officer observed that the assessee-company has agreed to compensate ICICI Bank Ltd. by a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired written back of Rs. 15,29,71,500". Thus, he has sought to explain that RIL had offered the sum of Rs. 15,29,71,500 as its income for the relevant assessment year and that this amount of Rs. 15 crores includes a sum of Rs. 12 crores also and, therefore, bringing to tax a sum of Rs. 12 crores in the hands of the assessee would result in double taxation of the same amount. 5. Learned counsel for the assessee has further drawn our attention to page 10 of the paper book consisting of the financials of the assessee and schedule P therein which consists of "interest and finance charges" wherein "interest on fixed loans" is shown at Rs. 12 crores while the bank charges and other interest were a negligible amount of Rs. 11,081. In order to demonstrate that the assessee was transparent in disclosing its related party transactions, he has drawn our attention to page 13 of the paper book, wherein the related party disclosures are made, showing that RIL has been shown as a subsidiary company of the assessee. He has also drawn our attention to pages 9, 10 and 14 of the paper book to demonstrate that the scheme of arrangement between the assessee-company and RIL, a subsidiary company, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Civil Appeal No. 514 of 2008, dated November 5, 2015, in the case of Hero Cycles P. Ltd. v. CIT [2015] 379 ITR 347 (SC). 6. The learned Departmental representative, on the other hand, supported the orders of the authorities below and submitted that the loan taken by RIL, i.e., subsidiary of the assessee-company was for the purposes of its business and does not pertain to the assessee. He submitted that the assessee has not been able to establish the business expediency of taking over the loan of the subsidiary company and even if it is to be considered as the liability of the assessee-company, the loan being in the capital field, the loss arising is a capital loss and cannot be allowed as an expenditure under section 37 of the Income-tax Act. He has drawn our attention to the letter of ICICI Bank Ltd., placed at page 57 of the paper book to demonstrate that the amount of Rs. 12 crores shown as the "interest and finance charges" by the assessee is not in fact interest but is the term loan which has been shown as such by ICICI Bank in the terms and conditions stipulated by it. He further submitted that the judgments relied upon by learned counsel for the assessee are on the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of taking over of the loan is to be examined. According to the assessee, the purpose of taking over of the loan is "to improve the financial viability of RIL", to facilitate "one-time settlement" of certain "loans in RIL" and "to complete subscription of non-convertible debentures with the face value of Rs. 112.78 crores in RIL, which is critical for the operations of RIL". It is also not in dispute that the assessee has invested a sum of Rs. 76.75 crores in the business of its subsidiary. Further, it is noticed from paragraph 9 to the notes on accounts of the assessee-company that there was a scheme of arrangement between the assessee-company and its subsidiary which was approved by the hon'ble High Court of Andhra Pradesh, by the respective shareholders of the said companies ; and also by the lenders of the company through a credit restructuring package by virtue of which, the business of cement manufacturing was transferred to RIL with effect from April 1, 2003, and the effective date of the scheme was August 30, 2014, and, accordingly, the scheme has been give effect to in the books of account for the 18 months period ended September 30, 2003. From paragraph 10 thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICI Bank Ltd. to RIL has been advanced as a term loan for working capital requirements of RIL and the same has been discharged by the assessee in view of the debt restructuring scheme. The debt restructuring scheme is pursuant to transfer of the cement business from RIL to the assessee herein. Thus, the business expediency of the transaction is established. Further, as regards the learned Commissioner of Income-tax (Appeals)'s finding that the loan is in the capital field and, therefore, the resultant loss is capital loss and is not allowable under section 37(1) of the Income-tax Act, we find that the sum of Rs. 12 crores is not towards payment of interest but it is for the repayment of the principal as well as the interest as on the date of repayment of the loan. The sum of Rs. 12 crores has been offered by RIL as "the liability no longer required and written back" but in the hands of the assessee, it is an expenditure to safeguard its interests or its investment in the subsidiary company. Therefore, it is for the business purpose of the assessee and, hence, revenue in nature and cannot be treated as a capital loss. The assessee's grounds of appeal 2(a), 2(b) and 3 are, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he placed reliance upon the judgment of the hon'ble Supreme Court in the case of Hero Cycles Ltd. (cited supra). 11. The learned Departmental representative, on the other hand, supported the orders of the learned Commissioner of Income-tax (Appeals) on the issue of bringing to tax the interest on the loan advanced by the assessee to its subsidiary but as far as the learned Commissioner of Income-tax (Appeals)'s direction that the interest rate should be at LIBOR + is concerned, he has submitted that the interest being advanced from India, the rate of interest charged by the banks in India should be adopted as rightly done by the Assessing Officer. He further submitted that the case law relied upon by the assessee relate to domestic transactions whereas the transaction between the assessee and its subsidiary in the U.S.A. is an international transaction and, therefore, they are not applicable to the facts of the case before us. 12. Having regard to the rival contentions and the material on record, we find that the transaction of capital financing including any type of long- term or short-term borrowing, etc., has become an international transaction with retrospective eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rment that is deferred, the payment of which starts from 2012, he held that the interest on such sales tax deferment is not allowable. He, accordingly, disallowed a sum of Rs. 8,79,58,467 and brought it to tax. 16. Aggrieved, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals) against the disallowance of interest on sales tax deferment which was allowed by him. The assessee had also raised an additional ground of appeal before the Commissioner of Income- tax (Appeals) claiming deduction of "discount on issue of debentures" on proportionate basis consequent to the assessment order in the case of RIL. It was submitted that during the assessment year 2006-07, RIL had raised Rs. 112.78 crores from/by issuance of debentures at a discount of Rs. 12.78 crores which were redeemable in 10 annual instalments and that RIL had debited one-fifth of the discount, i.e., Rs. 2,55,60,000 in its books and claimed the balance of Rs. 10,22,40,000 while computing this total income and that the Assessing Officer had held that only the proportionate amount was allowable during the year. The assessee also submitted that these debentures are transferred to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the assessee with effect from July 1, 2006, and, therefore, the amortisation of discount on the issue of debentures has to be allowed in the hands of the assessee in proportion to the period of its holding the debentures during the relevant financial year. Therefore, we are of the opinion that the assessee was prevented by reasonable cause in not making a claim before the Assessing Officer during the assessment proceedings and has, accordingly, raised an issue before the learned Commissioner of Income-tax (Appeals) on account of the assessment order passed in the case of Rain Cements Ltd. In view of the same, we are inclined to admit the additional ground of appeal and remit the issue to the file of the Assessing Officer to consider and allow the discount on debentures on proportionate basis in accordance with the decision of this Tribunal in the case of Rain Cements Ltd. in I. T. A. No. 878/2014, dated September 24, 2015. 18. In the result, I. T. A. No. 1067/Hyd/2014 of the assessee is treated as allowed for statistical purposes. 19. As regards the Revenue's appeal in I. T. A. No. 989/Hyd/2014 is concerned, we find that the Government of Andhra Pradesh has allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee. 22. Brief facts of the case are that the assessee had issued certain debentures on discounted value in the financial year relevant to the assessment year 2006-07. The assessee had claimed the whole of the discount in the assessment year 2006-07 but the Assessing Officer disallowed the same and allowed one-tenth amortisation in the earlier year. The issue travelled up to the Income-tax Appellate Tribunal and the Tribunal has held that the same cannot be allowed in entirety in the year of issue but has to be amortised for the period of debentures and in the case of the assessee for a period of 5 years. Following the order of the Assessing Officer for the earlier assessment year 2006-07, the Assessing Officer for the assessment year 2007-08 also disallowed the claim of the assessee and brought it to tax. Aggrieved, the assessee preferred an appeal before the learned Commissioner of Income- tax (Appeals) who also confirmed the disallowance and the assessee is in second appeal before us stating that the assessee is entitled to the amortisation of the discount on debentures from the assessment year 2007-08 onwards as directed by the hon'ble Tribunal an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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