9911796707
TMI Blog2017 (3) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered while concluding the assessment u/s.143(3) of the Act. Recourse to the provisions of Sec.154 cannot and ought not to be made for such highly debatable issues which might require detailed examination of facts. Secondly the upfront premium paid was in the nature of interest on loan on borrowing, as admittedly the loans in questions were non-convertible debentures. Such expenditure was in the nature of interest expenses and had to be allowed as deduction. Further the AO has erroneously considered the sum of ₹ 72,53,359/- as not pertaining to the relevant previous year and was a payment of interest in advance. The sum claimed as deduction was in relation to the period from October, 2005 to March, 2006 and therefore ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of upfront premium pertaining to the period from April, 2006 to March, 2011. The nature of this upfront premium paid was the Assessee had borrowed from various Financial Institutions on Zero Coupon Non-Convertible debentures (ZCNCD) at premium rate of interest from 13.50 - 13.75%. It bargained with those financial institutions for a discounted rate of 9.00%. The financial Institutions agreed to reduce the premium rate subject to the condition that the Assessee will pay upfront premium of 50% of Net Present Value (NPV) of differential premium i.e. difference of 13.75% or 13.50% to discounted rate of 9.00%. Accordingly, during the Assessment Year - 2006- 07, the Assessee had paid upfront premium of ₹ 8,06,41,668/- to various Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. National Insurance Company (NIC) 245497/- Total 80641668/- It was the plea of the Assessee that the Assessee is maintaining its accounts on mercantile basis and accordingly Assessee claimed only ₹ 72,53,359/- (being the portion of upfront premium, which was pertaining to the period from Oct, 2005 to March, 2006), in AY 2006-07. 4. The claim of the Assessee was allowed by the AO in the assessment completed u/s.143(3) of the Income Tax Act, 1961 (Act) by order dated 15.12.2008. Subsequently the AO issued a notice u/s.154 of the Act for disallowing the deduction of ₹ 72,53,359/- allowed in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was revenue in nature and the deduction claimed related to the previous year and was well within the mercantile system of Accounting to be allowed as a deduction. The following were the relevant observations of the CIT(A). 5. I have perused the impugned order of the AO. I have also considered the submissions of the Ld. AR and the material placed by him on record. It appears that the assessee company has rearranged its debt with 6 financial Institutions in as much as the zero coupon non-convertible debentures (ZCNCD) carrying premium rate of 13.50 - 13.75% was converted to discounted rate of 9% with the agreement that 50% of the Net Present Value (NPV) of differential premium for the period from October, 2005 to March, 2012 will be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions made before CIT(A) and relied on the order of CIT(A). After considering the rival submissions, we are of the view that there is no merit in this appeal by the revenue. Firstly the question whether the upfront premium on Zero coupon Non-convertible debentures to the extent of ₹ 72,53,359/- which was pertaining to the period from October, 2005 to March, 2006 can be regarded as revenue expenditure or not or was in the nature of interest or was advance payment of future interest liability which cannot be allowed under the mercantile system of accounting are matters which the AO ought to have considered while concluding the assessment u/s.143(3) of the Act. Recourse to the provisions of Sec.154 of the Act cannot and ought not to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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