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TMI Blog2024 (10) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of allowing deduction for the proportionate amount of redemption premium as interest during the relevant previous year, in our view, does not arise.- Decided against assessee. - SHRI ABY T. VARKEY, JM AND SHRI S RIFAUR RAHMAN, AM For the Assessee: Shri Chaitanya Joshi Riken Shah For the Revenue: Shri P. Sudhakar Naik ORDER PER ABY T. VARKEY, JM: This appeal is filed by the assessee against the assessment order passed u/s 143(3) read with section 144C(13) of the Income Tax Act, 1961 (here in after the Act ) dated 30.01.2015 passed by the DCIT- 10(2)(2), Mumbai for AY. 2010-11, pursuant to direction of the Dispute Resolution Panel-1, Mumbai (hereinafter the Ld. DRP ) dated 27.10.2014. 2. At the outset, the Ld. AR has brought to our notice that this appeal of the assessee company for the relevant year i.e. AY. 2010-11 was partly allowed by this Tribunal vide order dated 12.06.2023. And there after, the assessee preferred a Miscellaneous Application (MA) before this Tribunal pointing out that an additional ground of appeal relating to disallowance of premium paid on account of repayment of optionally convertible debenture (OCD) u/s 37 of the Act had not been admitted/adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing case laws:- I. Jute Corporation of India Ltd Vs. CIT and Another (187 ITR 688) (SC) II. Ultratech Cement Ltd Vs. ACIT (408 ITR 500) (Bom HC) III. CIT Vs. Pruthvi Brokers Shareholders Pvt. Ltd (349 ITR 336) (Bom HC) IV. Balmukund Acharya Vs. DCIT (176 Taxman 316) (Bom HC) V. Chicago Pneumatic India Ltd Vs. DCIT (15 SOT 252) (Mum Trib) 5. Further, the Ld. AR fairly admitted before us that in the subsequent assessment years i.e. AY. 2011-12 to AY. 2013-14, the assessee had made similar ground of appeal (additional ground of appeal); and this Tribunal was pleased to dismiss the same in assessee s own case (ITA. Nos. 5260 5764/Mum/2017, 5280 5940/Mum/2017 5823/Mum/2019 dated 18.10.2023). However, in the light of the aforesaid facts, the Ld. AR pleaded that compulsorily convertible debentures are in nature of debt and not equity and relied on the following case laws: - i. CWT Vs Spenser and Co. Ltd (88 ITR 429) (SC) ii. ACIT Vs. CAE Flight Training (India) Pvt. Ltd[IT(TP)A No. 2060/Bang/2016] iii. TE Connectivity Services India P. Ltd Vs. NFAC (145 taxmann.com 214) (Bang. Trib) iv. IMS Health Analytics Services Vs. DCIT (ITA. No.1549/Bag/2019 6. Further, according to the Ld. AR, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then holders of CCDs namely L T Fincorp Ltd., L T Infrastructure Finance Co. Ltd. Tata Capital Financial Services Ltd. 7.2. The contention of the Assessee is that on 28/02/2014, the terms of issue of Debentures were changed and the Debentures were converted from mandatorily convertible debentures to Optionally Convertible Debentures. The holder (i.e. ABNL) did not opt for conversion of debentures and therefore, the same were redeemed on 26/03/2014 for INR 380 Crore (including premium of 130 Crore). 7.3. Out of the total amount of premium of INR 130 Crore, in Assessment Year 2014-15 the Assessee claimed deduction for INR 54,59,43,438/- being premium pertaining to debentures proceeds utilised in business for the entire period of Assessment Year 2010- 11 to Assessment Year 2014-15. However, the Assessing Officer rejected the plea of full claim and allowed only pro-rata claim for Assessment Year 2014-15 of INR 12,15,52,414 vide order, dated 21/12/2017, passed under Section 143(3) of the Act. 7.4. Meanwhile, vide letter dated 27/02/2015, the Assessee also filed claim for deduction of INR 14,37,11,341/- for the proportionate premium paid on redemption of Debentures under Section 37(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, whether it is a case of discount or premium, it would still be allowable as interest expense so long as it is to compensate for use of money. (d) Discount or Premium on debentures has been held as an allowance expense by the Hon'ble Apex Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT (225 ITR 802). This was a case of 'Discount on issue of Debentures. Further, reliance was placed on the decision of Hon'ble Madras High Court in the case of CIT Vs. First Leasing Company of India Ltd (Tax Case Appeal No.209 of 2006 1099 of 2004 wherein it is held that there is no distinction between 'Premium' and 'Discount' and both of them are entitled to be spread over the period of debentures. In holding so, the Hon'ble High Court relied upon judgment of the Hon'ble Calcutta High Court in the case of National Engg. Industries Ltd. v. CIT The courts have held that premium on debentures is allowable over the period of debentures. Accordingly, the Assessee has made a claimed deduction for the proportionate amount only for the relevant assessment year. (e) Premium or interest is indeed recompense for the use of funds. Commercially, when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts. (g) Though the order for Assessment Year 2014-15 is under appeal before CIT(A), in order to protect the Appellant from double jeopardy, the Assessee has made an additional claim for pro-rata amount pertaining to the captioned year of INR 14,37,11,341/- vide letter, dated 27/02/2015. 7.9. Per contra, the Learned Departmental Representative placed reliance on the order passed by the CIT(A) and submitted that the expenditure was of capital nature. The CIT(A) had rightly observed that the claim has been made after the expiry of almost 4 years from the end of the relevant assessment year. The amount claimed as deduction by the Assessee did not enter the books of account of the Assessee for the relevant previous year either at the time of closure of books of account or at the time of filing return of income as at that point in time the issue payment of premium of redemption of shares was not there. Therefore, deduction for premium paid on redemption of debentures cannot be allowed to the Assessee as a deduction during the relevant previous year. 7.10. We have given thoughtful consideration to the rival submission. It is admitted position that the Assessee had issued CCDs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either on accrual or paid basis during the relevant previous year. 7.13. On 28/02/2014, by way of mutual agreement between ABNL and the Assessee, OCDs came into existence for the first time. The issue redemption premium arose only when ABNL opted not to get shares and instead sought redemption of debentures, and thereafter, the OCDs were redeemed by the Assessee at a premium of INR 130 Crores on 26/03/2014. Since the OCDs were not in existence during the relevant previous year, the question of allowing deduction for the proportionate amount of redemption premium as interest during the relevant previous year, in our view, does not arise. 7.14. It has been contended on behalf of the Appellant that premium on redemption of debentures is recompense for the use of funds. It is a matter of the commercial arrangement whether the lender opts for recompense in the form of allotment of equity shares in case of CCDs or premium on redemption in case of OCDs. For the relevant previous year, the borrower had opted for recompense in the form of allotment of equity shares. Therefore, deduction for premium on redemption claimed by the Assessee cannot be allowed. 7.15. It was submitted on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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