9911796707
TMI Blog2022 (12) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any cogent reasons. Therefore, 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. 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 whereas the grounds preferred by the Department stand dismissed. - I.T.A. Nos. 1047 And 1125/Chd/2013 - - - Dated:- 4-8-2022 - N. K. Saini (Vice-President) And Sudhanshu Srivastava (Judicial Member) For the Assessee : Sanjay Bansal , Senior Advocate, Amit Prasad and Navdeeo Sharma , Advocates For the Department : Sarabjeet Singh , Commissioner of Income-tax, Departmental representative ORDER SUDHANSHU SRIVASTAVA (JUDICIAL MEMBER). - 1. These are cross-appeals filed by the assessee as well as by the Revenue against the order dated September 20, 2013 passed by the learned Commissioner of Income-tax (Appeals)-1, Ludhiana (CIT(A) and pertain to the assessment year 2009-10. 2. The brief facts of the case are that the assessee is a public limited company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e account and duly shown under reserves and surplus in its balance-sheet. This accounting treatment was duly disclosed in the notes on accounts at item No. 1(iv) in the balance-sheet. The information of the buy-back of bonds was also submitted with the Reserve Bank of India as per its guidelines. As per the assessee, this led to the cessation of liability of Foreign Currency Convertible Bond on the date of buy-back of Rs. 60,86,81,066 which was credited to the capital reserve account. 2.4 However, the Assessing Officer, vide assessment order dated December 30, 2011, passed under section 143(3) of the Income-tax Act, 1961 (hereinafter called, the Act ) held the amount of Rs. 60,86,81,068 (cost price minus bought back price) as income of the assessee-company under section 28(iv) of the Income-tax Act, 1961. 2.5 On an appeal by the assessee against the aforesaid addition, the learned Commissioner of Income-tax (Appeals)-I, Ludhiana, while agreeing with the contention of the assessee that section 41(1) of the Income-tax Act, 1961 had no applicability to the case of the assessee, applied the provisions of section 28(iv) of the Act and restricted the addition of Rs.60,86,81,068 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as run his flight of imagination that whatever the money has come and utilised for acquisition of capital assets should be apportioned on another fiction or assumption that some portion of it represent the company's own money and not the borrowed money raised for this purpose only, i. e., Foreign Currency Convertible Bond. The learned Commissioner of Income-tax (Appeals) failed to appreciate that amount of Rs. 80.50 crores out of Foreign Currency Convertible Bond funds raised was utilised for the purpose of buy- back of Foreign Currency Convertible Bond during the year under appeal. Without prejudice and in alternative to above ground he further erred in holding that the remission of loan liability is also part of business income irrespective of whether it is a trading receipt or capital receipt unless it has been utilised for the purpose of acquiring capital assets. Direction be given to delete the addition in toto. 4. That the appellant craves leave to add, amend, alter, modify or substitute all or any of the abovementioned grounds of appeal before the appeal is finally heard and disposed of. 2.7 Apart from the abovementioned additions, the Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure without considering the detailed submissions given vide letters dated May 7, 2013, May 8, 2013, May 23, 2013 and June 10, 2013. 7. The Commissioner of Income-tax (Appeals) has erred in giving a finding in paras 17 and 21, even though the submissions of the asses see are discussed in para 28. 8. The Commissioner of Income-tax (Appeals) has erred in not considering the fact that the assessee has not demonstrated with evidence the actual utilisation of Foreign Currency Convertible Bond funds, instead relied upon the recitals made before other authorities like RBI, etc. 9. The Commissioner of Income-tax (Appeals) has erred in giving a finding in para 26 (page 54) that the transactions in present case being a loan transactions, ignoring the fact that transaction is to be seen as a whole including buy-back. 10. The Commissioner of Income-tax (Appeals) has erred in considering the transactions on entry point only whereas it is a composite transactions till buy-back. 11. The Commissioner of Income-tax (Appeals) has erred in applying the various decisions which are not on the issue of buy-back of bonds but of waiver of loan. 12. The Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D with effect from the assessment year 2008-09 there is no notional disallowance whereas in the case of Dy. CIT v. Ind Swift Ltd. there was a finding of notional disallowance. 3. Whether on the facts and in the circumstances of the case the decision of the Assessing Officer is in consonance with the decision of the hon'ble Delhi High Court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505 (Delhi) dated December 9, 2013 in I. T. A. No. 1179 of 2010. 4. The Commissioner of Income-tax (Appeals) has wrongly applied the decision of the hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) whereas the hon'ble Supreme Court has held that the Assessing Officer has the limited power of making increases and deductions as provided for in the Explanation to section 115JB. 5. Whether on the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred in not applying the provisions of section 115JB Explanation 1(f) that mandates that the amount or amounts of expenditure in relating to any income to which section 10 applies are to be increased. 6. Whether on the facts and in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sine quo non that there should be an allowance or deduction claimed by the assessee in respect of loss, expenditure or trading liability incurred and when the assessee had not claimed any such deduction and the loan was obtained for acquiring capital assets, the waiver was on account of liability other than trading liability and, thus the provisions of section 41(1) of the Act were inapplicable. The learned authorised representative argued that it was an undisputed fact that the assessee had not debited to the trading account or to the profit and loss account in any of the assessment years nor had claimed any deduction in the preceding assessment years in respect of the purchase amount of the Foreign Currency Convertible Bonds and, therefore, the waiver of the bond amount not being waiver of trading liability would not attract the provisions of section 41(1) of the Act. 3.1 It was further submitted by the learned senior advocate that it was a matter of record that a total amount of Rs. 60,86,81,068 including the amount of Rs. 19.03 crores had been received as cash receipts from the bond holders of Foreign Currency Convertible Bonds due to waiver of financial liability arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent sustenance of Rs. 19.03 crores by the learned Commissioner of Income-tax (Appeals) was totally unwarranted. 3.3 It was further submitted by the learned senior advocate that the basis of disallowance of Rs. 19.03 crores sustained by the learned Commissioner of Income-tax (Appeals) on the ground of principle of proportionality had no basis inasmuch as the amount of capital expenditure in the earlier years, after the receipt of the Foreign Currency Convertible Bond proceeds, is not only much more than the amount lying with the assessee-company after the buy-back of bonds but also exceeds the total face value of the amount representing the bonds which were floated and, therefore, by no stretch of imagination, the addition of Rs. 19.03 crores could have been sustained the learned Commissioner of Income-tax (Appeals) by taking an incorrect view that no capital expenditure in relation to the said amount of Rs. 19.03 crores had been incurred by the assessee particularly when the fact of incurring capital expenditure had not been doubted in the earlier assessment years either by the Assessing Officer or by the learned Commissioner of Income-tax (Appeals). It was further pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the open market which were freely tradable on the Singapore Stock Exchange and that in the process of such transaction, the assessee had earned profit and, therefore, the same was not cessation of a trading liability but a profit which had been earned by the assessee on sale/purchase of Foreign Currency Convertible Bonds. The learned Commissioner of Income-tax, Departmental representative vehemently supported the order of the Assessing Officer and submitted that the Assessing Officer had rightly made the impugned disallowance of Rs. 60,86,81,068 but the learned Commissioner of Income- tax (Appeals) had erred greatly in ignoring the detailed findings of the Assessing Officer and in restricting the addition to Rs. 19.03 crores. 4.1 With respect to the additional ground of appeal raised by the Department which challenged the action of the learned Commissioner of Income-tax (Appeals) in directing that the provisions of section 115JB of the Act were not applicable to the disallowance made under section 14A of the Act, the Commissioner of Income-tax, Departmental representative submitted that the learned Commissioner of Income-tax (Appeals) had wrongly applied the various judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportionate basis ? 6.1 The factual matrix leading to the controversy is that the assessee- company had issued 4500 Foreign Currency Convertible Bonds of US$1000 each in the year 2006 and during the year under consideration, the assessee-company, in terms of the offer given as per the guidelines of the RBI, had bought back 3530 Foreign Currency Convertible Bonds bonds at a lesser price and the difference between the issue price and the re-purchase price amounting to Rs. 60.87 crores arose due to the right forgone by the bondholders and was the same credited to the reserve account. As per records, the Foreign Currency Convertible Bonds were issued initially to raise the capital of the company and whatever amount was received on account of Foreign Currency Convertible Bond was shown under the head liabilities-unsecured loans . Since these Foreign Currency Convertible Bonds were issued in order to borrow the funds to raise the capital, as per the assessee, the amount received had assumed the character of capital receipts as raising capital was not the business of the assessee. These Foreign Currency Convertible Bonds were to be converted into shares. However, these bonds could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o file a certificate from the chartered accountant certifying the capital expenditure incurred. 6.3 It will be worthwhile to reproduce the observations of the learned Commissioner of Income-tax (Appeals) on the issue before him at this juncture : 14. Be that as it may, the issue before me still remains as to whether the assessee had derived the benefit which could be taxable as cessation of liability under section 41(1) or section 28(iv) of the Income tax Act, 1961. The provisions of section 41(1) require that the amount in question which has ceased to be the liability should have been debited as expenditure in the normal course of business and the same should be in the nature of trading receipt. Since the assessee had raised the loans for the purposes of business (specifically capital expenditure as required by the Reserve Bank of India guidelines) and had not been claimed as an expense, the provisions of section 41(1) do not come into play. The provisions of section 28(iv) require that value of any benefit or perquisite whether convertible into money or not arising from the business or the exercise of profession falls in the definition of income. It is clearly a matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V. Sundram Iyengar and Sons Ltd. [1996] 222 ITR 344 (SC) would amount to an attempt to fit square pegs into round holes. . . 21. . . Here again, it is to be seen that the amount raised by the appellant-company in the present case through Foreign Currency Convertible Bond is clearly meant for capital expenditure, and issue which has been clearly specified in the RBI regulations and admitted by the Assessing Officer in the assessment order as well. Therefore, seen in this background the judgment of the hon'ble Bombay High Court in the case of Solid Containers Ltd. v. Dy. CIT [2009] 308 ITR 417 (Bom) mentioned (supra) would not be applicable to the facts of the case as amounts raised as capital has not been for the purposes of running the day-to-day operations of the company but for capital expansion. 6.4 We are in complete agreement with the observations and findings of the learned Commissioner of Income-tax (Appeals) (as reproduced above). It will be relevant at this juncture to refer to the judgment of the hon'ble apex court in the case of Mahindra and Mahindra Ltd. [2018] 404 ITR 1 (SC). The hon'ble apex court in the said judgment has observed as under (page 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs. 57,74,064 can be taxed under the provisions of section 28(iv) of the Income-tax Act. 14. Another important issue which arises is the applicability of the section 41(1) of the Income-tax Act. The said provision is reproduced as under : '41. Profits chargeable to tax.-(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to Income-tax as the income of that previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foreign Currency Convertible Bonds would not fall under the purview of section 41(1) of the Act. 6.6 However, this would now lead us to the second question before us, i. e., whether the learned Commissioner of Income-tax (Appeals) was correct in sustaining part of the disallowance on proportional basis on the reasoning that since the assessee had not expended the entire proceeds from the buy-back of Foreign Currency Convertible Bonds towards incurrence of capital expenditure, a proportionate disallowance to the extent of expenditure not spent towards capital purposes should be sustained. In this regard, it is seen that the learned Commissioner of Income-tax (Appeals) had required the assessee to furnish a certificate from a chartered account ant certifying the extent of amount expended towards capital expenditure and the assessee, in compliance, had furnished a certificate which is also available on record. It is seen that in the said certificate it has been certified by the chartered accountant that the assessee had spent an amount of Rs. 51.258 crores towards capital expenditure/capital work-in-progress during the period April 1, 2006 to March 31, 2010 whereas, the remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing had been held in the case M/s. Nahar Capital and Financial Services Ltd., 375, Industrial Area-A, Ludhiana. We have heard the rival contentions and perused the record. The only issue arising in the present appeal is in respect of computation of book profits under section 115JB of the Act. The Assessing Officer while computing the said book profits had added back the disallowance worked out under section 14A of the Act of the net profits of the business and computed the tax liability of the assessee-company thereafter. We find that the issue in the present case is covered by the order of the Chandigarh Bench of the Tribunal in Dy. CIT v. Ind- Swift Ltd. (supra) where vide order dated January 30, 2009 vide para 8 it was held as under : 'The ground 1(iv) raised by the Revenue is against the computation of book profits under section 115JB of the Act. The Assessing Officer while computing the book profits under section 115JB of the Act had added back the disallowance worked under section 14A of the Income-tax Act to the net profits shown in the profit and loss account and computed the profits for the year. The Commissioner of Income-tax (Appeals) reworked the book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
