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TMI Blog2020 (4) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... stical purposes. - I.T.A. No. 1356/Chny/2019 - - - Dated:- 19-2-2020 - Shri N.R.S. Ganesan, Judicial Member And Shri S. Jayaraman, Accountant Member For the Appellant : Shri. S. Bharath, CIT For the Respondent : Shri. R. Vijayaraghavan Advocate ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The Revenue filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Coimbatore in ITA No. 96/15- 16 dated 31.01.2019 for assessment year 2012-13. 2. M/s. Sakthi Sugars Ltd., the assessee, is carrying on the business of manufacture and sale of sugar, industrial alcohol, power generation (co-gen) and soya products. While making the assessment for assessment year 2012-13, the AO, inter alia, made disallowance on premium paid on redemption of foreign currency convertible bonds holding that it is a capital loss in nature. Aggrieved against that order the assessee filed an appeal before the CIT(A) and the ld CIT(A) allowed the appeal. Aggrieved against that order, the Revenue filed this appeal. 3. The Ld. DR submitted that the AO noticed that the assessee has deducted ₹ 26,78,77,675/- being FCCB premium provisions netted in the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pleaded that the order of the AO may be restored. 4. Per contra, the Ld. AR submitted that during the financial year ended 31.03.2011, the assessee has made a provision of ₹ 26,78,77,675/- representing premium on FCCB. Out of those provisions, the assessee claimed expenditure at ₹ 15,24,84,215/- only, ie the actual payment of FCCB premium , and disallowed ₹ 11,53,93,460/- applying the provision of section 43(B). During the assessment year 2012-13, the treatment of FCCB Premium was reconsidered in the light of accounting standard 29 and section 78 of the Companies Act, 1956 and the Board of Director decided that the premium on FCCB should be charged against security premium account. Therefore, the P L account was credited with ₹ 26,78,77,675/-, which is actually a reversal of previous year s charge. Since, the premium amount relating to assessment year 2011-12 has already been claimed as an expenditure and which is an allowable expenses, the reversal of the same in the profit and loss account has not been brought to tax. Out of the disallowed amount of ₹ 11,53,93,460/-, by applying the provisions of section 43B in assessment year 2011-12 , ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0TCD. e) Expansion of Distillery at Sakthinagar. The above note submitted would show that the Foreign Currency Convertible Bonds raised have been used for the purpose of its business only and any expenditure byway of premium paid on redemption of FCCB would also be revenue expenditure andnot capital expenditure as held by the assessing officer. The above view is supported by the judicial decision in the case of Mahindra Mahindra Limited Vs. DCIT (2012)24 taxmann.com 267 (Mumbai). Another decision in CIT Vs. Secure Meiers Limited (321 ITR 611)(Raj) (confirmed in CIT Vs, Secure Meters Limited 2009 -TICL-93-SCIT)also supports the above view, in these decisions it 'was held that as the debenture when issued, is a loan, whether it is convertible or non-convertible, it does not militate against the nature of the debenture being loan. Therefore, the expenditure incurred would be admissible as revenue expenditure. The relevant portion of the order of Mahindra Mahindra Limited Vs. DCIT (2012)24 taxmann.com 267 (Mumbai) is extracted as under : 5. Next ground of appeal is about disallowance of pro rata premium of ₹ 5.39 crores payable on redemption of 'Foreign Cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd holders. and exercise their option at the appropriate time in future. That conversion is only a future event, that may or may not happen, depending on the option exercised by the bond holders. Therefore, the possible equity character of the funds was contingent on the assessed whether bonds would be converted or not, in a future date. The nature of a present-day loan fund cannot be held equity fund on the basis of such contingency. As far as the nature of the funds for the assessment year 2006-07 is concerned, it was a liability in the nature of loan, that too interest-bearing loan. If the funds are dated as equity capital for the assessment year 2006-07 how the payment of bond interest would be justified in law, is law does not permit payment of interest on a company's equity capital. In the case of CIT v. Secure Meters Ltd.[2010J 321 ITR 611/[2008] 175 Taxman 567 Hon'ble Rajasthan HC has held - Admittedly, the debentures, when a shoot is a loan, and, therefore, whether it is convertible, or nonconvertible, does not militate against the nature of the debenture, being loan, and, therefore, the expenditure incurred would be admissible as revenue expenditure. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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