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TMI Blog2022 (12) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... he order. Moreover, we also find that these bonds were indeed repaid by the assessee on 18/03/2021 with interest and on 11/05/2021 with interest. The evidences in this regard are enclosed and the fact of repayment of these borrowings with interest had also been duly notified by the assessee to BSE Ltd. and NSE Ltd as per the requirement of SEBI regulations. This categorically goes to prove that it is not a case of equity and the issue of perpetual bonds is only borrowing made by the assessee. Since the said borrowing has been used for business purposes of the assessee, the interest paid thereon would be squarely allowable as deduction u/s. 36(1)(iii) of the Act. Hence, even on merits, the action of the ld. PCIT would have no legs to stand. Thus we have no hesitation in quashing the revision order passed by the ld. PCIT u/s. 263 of the Act. Accordingly, the grounds raised by the assessee are allowed - Shri M. Balaganesh, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member For the Assessee : Shri Nishant Thakkar / Ms. Jasmin Amalsadwala. For the Revenue : Shri Manoj Kumar. ORDER PER M. BALAGANESH (A.M): These appeals in ITA Nos. 1315 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -13 respectively vide order dated 29/03/2019 wherein this Tribunal had restored the matter back to the file of the ld. PCIT for disposal of the Jurisdictional ground and other grounds as it was not decided by the ld. PCIT while passing the original revision order u/s. 263 of the Act dated 22/03/2018. Pursuant to this order of this Tribunal, the ld. PCIT issued a show cause notice u/s. 263 of the Act on 08/03/2021 as under:- On examination of records, is observed that the assessment order dated 25.01.2016 passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the revenue due to the following reasons: (i) Rs. 24,85,25,000 has been reduced from taxable income in Statement of Computation of Total Income on account of Hybrid Bond Expenses and Rs 678,90,411 on account of Return on Perpetual Bond although the said amounts were not debited in profit and loss account. The Assessing Officer allowed this amount which was prima facie not allowable due to the following 1. The expenditure were not of revenue nature as it was not debited in profit and loss account. 2. Perpetual (Hybrid) bonds and perpetual bonds are akin to equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted only in respect of matters that had already been considered and decided by the ld. Commissioner of Income Tax (Appeals). According to the ld. PCIT, other than these all other orders are subjected to revision u/s. 263 of the Act. The ld. PCIT also placed reliance on the decision of the co-ordinate Bench of Kolkata Tribunal in the case of Philips India Ltd. vs. PCIT in ITA No. 1142/Kol/2016 dated 27/03/2019 wherein the similar proposition was addressed. 3.2. In this regard, we find that the Hon ble Karnataka High Court in the case of Devas Multimedia Pvt. Ltd. vs. PCIT reported in 419 ITR 391 (Kar) had also addressed the very same issue. The relevant operative portion of the said order is reproduced hereunder:- 18. It is undisputed that Draft Assessment Order was notified by the AO in view of the fact that assessee's business involved International Money Transaction. Petitioner/assessee was entitled to have an opportunity to look into Draft Assessment Order. He had option either to accept or to submit objections on variations. If objections were filed, in such an event, the AO is required to forward Draft Assessment Order and objections raised by the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of personal hearing on 20/02/2015. It was submitted that the ld. AO had made adequate enquiries with regard to the said issue and deduction was granted to the assessee accordingly. Accordingly, it was submitted that this cannot be a case of lack of enquiry by the ld. AO and hence, it was pleaded that the revision proceedings initiated by the ld. PCIT on the ground that the ld. AO had not made any enquiries on the impugned issue is factually incorrect and requested for dropping the proceedings. 4.1. With regard to this aspect of the issue, we find from page 1 of the paper book that the ld. AO during the course of personal hearing on 20/02/2015 had indeed asked for various details and explanations from the assessee and one such query raised by the ld. AO vide question No. 8 is as under:- 8. Proof of utilisation of Hybrid Bond expenses and show-cause as to why the same should not be treated as capital in nature. 4.2. The assessee vide letter dated 27/02/2015 filed on 02/03/2015 made a detailed submission regarding this aspect before the ld. AO. The letter dated 27/02/2015 is enclosed in pages 2-8 of the paper book filed before us. For the sake of convenience, the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Companies Act, 1956, PNDCs stand in preference to Equity Preference shareholders in the event of winding up of the company. iv) The Company is eligible to issue irredeemable/perpetual debentures under section 120 of companies Act. v) The Company has issued the PNDC in compliance with the provisions of the Securities and Exchange Board of India (Issued and Listing of Debt Securities Regulations, 2008. vi) The distribution or interest payable on PNCDs is not contingent on the availability of profits. vii) Amount of PNCD distribution made during the previous year relevant to the assessment year under consideration aggregated Rs. 4.54 crores. viii) PNDCs are governed by a Trust Deed and IDBI Trusteeship Services Limited has been appointed as 'Debenture Trustees'. ix) The Holders of PNDCs can initiate the proceedings against the Company through Debenture Trustees in the event of non-payment of interest or in insolvency or winding up of the Company. As opposed to the above the PNDCs cannot perfore be treated as Equity for the following reasons: a. A PNDC is not a Share within the meaning of Section 2(46) or 2(46A) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omponent of Rs. 833.47 Crores as one of the items like calculating the disallowance under Rule 8D(2)(ii) of the Income Tax Rules. Similarly, the ld. AO had also considered the interest of Rs. 715,06,00,632/- and proceeded to disallow the same on the ground that it is paid on borrowings which were used for acquiring controlling interest in a company which is capital investment and accordingly, such interest expenditure was disallowed u/s. 36(1)(iii) of the Act by the ld. AO. These two acts clearly go to prove that the ld. AO had indeed examined the entire borrowings made by the assessee and the interest paid thereon by the assessee during the course of assessment proceedings. Hence, there is complete application of mind on the part of the ld. AO with regard to the borrowings made and interest incurred by the assessee. Hence, we hold that the ld. AO having taken a possible view in the matter after due application of mind while framing the assessment, the said assessment cannot be termed as erroneous by the ld. PCIT while invoking revision jurisdiction u/s. 263 of the Act. In fact, these submissions were also made by the assessee before the ld. PCIT. Infact, we find the ld. PCIT had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowing in the form of perpetual bonds or is it akin to equity. When assessee itself is doubtful, how could the ld. AO arrive to a logical conclusion on the issue was the predominant argument of the ld. DR before us. 4.7. We find that the assessee during the course of assessment proceedings itself had submitted the entire facts of the case by placing reliance on various provisions of the Companies Act and SEBI Regulations and had also taken efforts to explain the meaning of the term debentures , debts , bonds , shares etc., under provisions of various Acts. The assessee had specifically pointed out in para 5 of its reply filed before the ld. AO vide letter dated 27/02/2015 filed on 02/03/2015 that the purpose of issue of this Hybrid Securities is clearly set out in page 39 of the Information Memorandum wherein it specifies that utilisation of funds proposed to be raised through this private placement will be for general corporate purposes, however, excluding specifically acquisition or purchase of land, investment in equity / capital markets. The main case of the Revenue is only that the perpetual debentures issued are akin to equity and hence, it does not fall under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page No. 1 to 160 of the paper book filed by the assessee. It is noticed that assessing officer has specifically asked the assessee vide notice dated 24.11.2016 to provide the detail of income tax reversal on distribution of unsecured perpetual securities. In this regard assessee has given detailed submission vide letter dated 16.12.2016 stating that it has issued 11.4% unsecured perpetual securities (bonds) for the purpose of business use. Interest of such securities is payable 11.40% per annum. The assessee has also specifically explained in line with accounting standard, the aforesaid interest is charged to reserve and surplus. The gross amount of interest of aforesaid securities was of Rs. 142.03 crores for FY 2010- 11. But the same was charged to Rs. 113.61 crores after netting off taxes [142.03-28.42]. The amount of tax impact of Rs. 28.42 crores has been charged to reserve and surplus during the year. Thereafter again on 23.12.2016 the assessee has explained to the assessing officer that during the year the company has incurred Rs. 18.63 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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