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TMI Blog2022 (12) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee chose to raise funds through (FCCB) Foreign Currency Convertible Bond as per the norms of the Government of India/RBI. The details with regard to the Foreign Currency Convertible Bond floated in the foreign market are tabularised as follows : No. of bonds Amount of each bond Date of issue Date of maturity Redemption amount payable at maturity 4500 10,000 US Dollar 15-2-2006 16-2-2011 136.055% 2.2 These bonds, unless previously redeemed, converted, purchased or cancelled were convertible at any time on or after March 15, 2006 up to January 16, 2011 by the holders of the bonds into fully paid-up equity shares with full voting rights and at par value of Rs. 10 each, at a conversion price of Rs. 200 per share, with a fixed rate of exchange on conversion of Rs. 44.257 = (US$1). These bonds could be redeemed in whole, but not in part at the option of the issuer, i. e., M/s. Nahar Industrial Enterprises Ltd. (the assessee-company) at any time on or after February 15, 2009 but prior to February 16, 2011, subject to satisfaction of certain conditions mentioned in the "offer letter". The bonds were listed at the Singapore Stock Exchange for trading purposes. 2.3 After the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by raising the following grounds : I. T. A. No. 1047/Chd/2013 (assessee) "1. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in sustaining the addition of Rs. 19.03 crores out of total addition of Rs. 60.87 crores which was made by the Assessing Officer in assessment order by treating the amount of relinquishment/reduction in long-term debt liability by accepting loan for the purpose of creation of capital assets as revenue receipt under section 28(iv) of the Act. The directions be given to treat the total amount of Rs. 60.87 crores as capital receipt being the amount relates to Foreign Currency Convertible Bond which was a debt and redemption on discount of Foreign Currency Convertible Bond is a capital receipt on account of extinguishment of a capital liability. 2. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts and failed to appreciate that the amount raised by the appellant through Foreign Currency Convertible Bond, was a debt raised for the purpose of its expansion plan and accordingly utilised from time to time for acquisition of fixed assets as per requirement of the appellant-company. The waiver/cessatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the Assessing Officer to delete the adjustment made under section 115JB of the Act. 2.8 The Department has also preferred to file a cross-appeal for the captioned year on two issues, viz., the Foreign Currency Convertible Bond relief given by the learned Commissioner of Income-tax (Appeals) and the directions of the learned Commissioner of Income-tax (Appeals) to not make adjustment under section 115JB of the Act with regard to the disallowance made under section 14A of the Act. 2.9 The Department has raised the following grounds as well as the additional grounds in this regard : I. T. A. No. 1125/Chd/2013 (Revenue) "1. The Commissioner of Income-tax (Appeals) has erred on law and on facts in deleting the substantial addition. 2. The Commissioner of Income-tax (Appeals) has erred in not taking into account the written submissions filed vide letters dated May 8, 2013, May 23, 2013 and June 10, 2013 thus violating the principles of natural justice. 3. The Commissioner of Income-tax (Appeals) has erred in making observations in para 13 of the order whereas the Assessing Officer gave enough opportunity and the onus was on the assessee. 4. Without prejudice to gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in continuation and without prejudice to previous submissions of the Assessing Officer without considering the fact that the Assessing Officer asked to give opportunity to verify the material. 15. The Commissioner of Income-tax (Appeals) has erred in picking a few sentences in letter dated July 29, 2013 of the Assessing Officer without considering the context in which it was written and without reading the letter para to para. 16. The Commissioner of Income-tax (Appeals) has erred in giving a finding that it was an acceptance by the Assessing Officer that funds have been utilised for capital purpose. 17. The Commissioner of Income-tax (Appeals) has erred in misreading the letter dated July 29, 2013 of the Assessing Officer whereas the figures given by the Assessing Officer were as per version of the assessee and not the acceptance by the Assessing Officer. 18. The Commissioner of Income-tax (Appeals) has erred in not following the ratio of decision of the hon'ble Supreme Court in the case of CIT v. T. V. Sundram Iyenagar and Sons Ltd. [1996] 222 ITR 344 (SC). 19. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed of." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court. 8. Whether on the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred in holding that the Assessing Officer questioned the accounts as prepared under the Companies Act whereas the Assessing Officer has not questioned the correctness of the profit and loss account by the assessee-company except the amount of disallowance determined under section 14A as per provisions of section 115JB Explanation 1(f). 9. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed of." 3. The learned senior advocate submitted that as far as the issue of Foreign Currency Convertible Bond was concerned, neither provisions of section 41(1) of the Act nor section 28(iv) of the Act were applicable to the case of the assessee in view of the numerous decisions of the co-ordinate Benches of the Tribunal as well as of the various hon'ble High Courts and the hon'ble apex court. The learned authorised representative drew our attention seeking to rely in this regard. The learned senior advocate referred at length to the judgment of the hon'ble apex court in the case of Commissioner v. Mahindra and Mahi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpletely unsustainable. 3.2 It was further submitted by the learned senior advocate that the learned Commissioner of Income-tax (Appeals) had erred in sustaining the addition to the tune of Rs. 19.03 crores on the ground that the same was not relatable to capital expenditure when, admittedly, the entire amount of proceeds received from the Foreign Currency Convertible Bonds had been utilised towards capital outlay/capital expenditure and this fact had duly been brought to the notice of the Assessing Officer vide the submissions of the assessee dated December 20, 2011 (our attention was drawn to the copy of the said letter placed at pages 19 to 20 of the paper book). It was further submitted that this fact remained uncontroverted by the Assessing Officer. It was further submitted that the learned Commissioner of Income-tax (Appeals), during the course of first appellate proceedings, had directed the assessee-company to file a certificate from a chartered accountant certifying that the entire amount of Foreign Currency Convertible Bonds had been utilised towards capital expenditure. It was submitted that the assessee-company had duly submitted the certificate as required by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue, i. e., the taxability or otherwise of amount received on account of cessation of liability with regard to Foreign Currency Convertible Bonds. The learned Departmental representative submitted that while allowing relief to the assessee, the learned Commissioner of Income-tax (Appeals) had not considered the very important fact that the assessee had not demonstrated with evidence the actual utilisation of Foreign Currency Convertible Bond funds and had instead relied upon the various submissions made before other authorities like, RBI etc. It was further submitted that the learned Commissioner of Income-tax (Appeals) had wrongly applied the various case law which were not on the issue of buy-back of bonds but on the waiver of loan. The learned Commissioner of Income- tax-Departmental representatives submitted that the buy-back of Foreign Currency Convertible Bonds had resulted in a benefit to the assessee which was convertible into money although it was not in the form of cash. The learned Commissioner of Income-tax, Departmental representative referred to the observations of the Assessing Officer wherein he had mentioned that although the proceeds of Foreign Currency Convert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relief had been allowed to the assessee on a wrong footing. 5. In response to the arguments of the learned Commissioner of Income- tax-Departmental representative, in the rejoinder, the learned senior advocate submitted that the evidence of capital expenditure having already been incurred had been produced before both the lower authorities and in this regard our attention was drawn to the balance-sheet of the company placed at page 18 of the paper book wherein it was demonstrated that the assessee had spent Rs. 512 crores towards capital expenditure. Our attention was also drawn to Circular No. 39, dated December 8, 2008 laying down the policy in respect of external commercial borrowings. Our attention was also drawn to the copy of the certificate issued by the chartered accountant with respect to the amounts spent towards capital expenditure. 5.1 With reference to the additional ground of the Department regarding the direction of the learned Commissioner of Income-tax (Appeals) for not applying the provisions of section 115JB vis-a-vis to the section 14A disallowance, reliance was extensively placed on the order of the learned Commissioner of Income-tax (Appeals). 6. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself had submitted that Rs. 80.5 crores were utilised for buy-back of 3530 Foreign Currency Convertible Bonds, Rs. 60.87 crores were utilised for redemption of Foreign Currency Convertible Bonds and the balance amount of Foreign Currency Convertible Bonds was utilised for running the business of the company. Based on this submission of the assessee, the Assessing Officer proceeded to hold that since the assessee had admitted having spent the profits for running the business of the company, the ratio of the judgment of the hon'ble apex court in the case of CIT v. T. V. Sundram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC) was applicable wherein it had been held by the hon'ble apex court that where the assessee had received the deposits from its customers and the unclaimed balances were transferred by the assessee to the profit and loss account, the same would be trading receipts even though initially the deposits were treated as capital receipts. As per the Assessing Officer, due to lapse of time, the deposits, although received as capital receipt, had become a trade surplus. The Assessing Officer also made an observation that the assessee had not submitted any evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ics, sugar, steel, etc. The appellant in order to run its business as detailed above has to raise resources/funds to meet the day to during the year expenses as well as incur capital expenditure to expand the avenues of operation. The raising of funds either through a capital issue in the form of equity or through loans from financial institutions or through foreign currency convertible bonds, etc., can not be termed as the objective/business of the assessee-company. It is a means to an end and the end is to profitably run the operations of the company. The Assessing Officer has taken view that the assessee on buying back its Foreign Currency Convertible Bonds has amounted to a business which to my mind is incorrect appreciation of facts and incorrect understanding of the meaning of the word business. The raising of funds through Foreign Currency Convertible Bond and later on buying back the same at a discounted price is not the repetitive business activity but largely one of exercise in the capital arena. Same cannot be termed as business per se of the asses see-company. However, the Assessing Officer has also relied upon the judgment of the hon'ble apex court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch exercise, the debtor is deemed to be absolved from the liability of repayment of loan subject to the conditions of waiver. The waiver may be a partly waiver, i. e., waiver of part of the principal or interest repayable, or a complete waiver of both the loan as well as interest amounts. Hence, waiver of loan by the creditor results in the debtor having extra cash in his hand. It is receipt in the hands of the debtor/assessee. The short but cogent issue in the instant case arises whether waiver of loan by the creditor is tax able as a perquisite under section 28(iv) of the Income-tax Act or tax able as a remission of liability under section 41(1) of the Income-tax Act. 12. The first issue is the applicability of section 28(iv) of the Income-tax Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision hereinbelow : '28. Profits and gains of business or profession.-The following income shall be chargeable to Income-tax under the head "Profits and gains of business or profession",-. . . (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay tax under section 41 of the Income-tax Act. The objective behind this section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability is undisputed fact that the respondent had been paying interest at 6 per cent. per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under section 36(1)(iii) of the Income-tax Act. In the case at hand, the learned Commissioner of Income-tax (Appeals) relied upon section 41(1) of the Income-tax Act and held that the respondent had received amortisation benefit. Amortisation is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence it is nothing else than depreciation. Depreciation is reduction in the value of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the respondent in previous assessment years was due to the depiction of the machine and not on the interest paid by it." 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance by the learned Commissioner of Income-tax (Appeals) does not survive. Thus, on an overall view of the facts and circumstances of the case, we are of the considered view that the learned Commissioner of Income- tax (Appeals) was not right in partly sustaining the addition made by the learned Commissioner of Income-tax (Appeals) in respect of the Foreign Currency Convertible Bonds for the simple reason that the assessee has demonstrated with ample evidence that no part of the proceeds were utilised towards non-capital expenditure. The learned Commissioner of Income-tax (Appeals) has sustained the proportionate disallowance on an incorrect assumption of facts and he has simply discarded the certificate of the chartered accountant without any cogent reasons. Therefore, we are of the considered view that the part sustenance by the learned Commissioner of Income-tax (Appeals), i. e., of Rs. 19.03 crores also needs to be deleted. The same is ordered accordingly. 6.8 Therefore, in view of the detailed reasons as given in the preceding paragraphs no addition of account of Foreign Currency Convertible Bonds survives and the grounds of appeal filed by the assessee stand allowed wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in Apollo Tyres Ltd. (supra) held that the profits of the business are not to be disturbed for computing the book profits except in the circumstances provided under the said Act. We confirm the order of the Commissioner of Income-tax in this regard and dismiss the ground No. l (iv) raised by the Revenue. The issue arising in the present appeal is identical to the issue before the Chandigarh Bench of the Tribunal in Dy. CIT v. Ind Swift Ltd. (supra) and following the same we direct the Assessing Officer to adopt the book profits as per the profit and loss account and do not make addition on account of disallowance worked out under section 14A of the Act, as such disallowance is computed under the normal provision of the Act, which are not applicable for determining book profits under section 115JB of the Act.' 34. I have perused the observations of the hon'ble Bench in holding that the disallowance under section 14A of the Act has to be computed under the normal provisions and not while working out the book profits under section 115JB. The provisions of section 115JB Explanation l(f) requires the Assessing Officer to increase the net profits as shown in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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