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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI WASEEM AHMED
PER SUCHITRA KAMBLE, JUDICIAL MEMBER :
This appeal is filed by the Revenue against the order dated 31.03.2014 passed by the CIT(A)-III, Baroda for the Assessment Year 2008-09.
The Revenue has raised the following grounds of appeal:
1(i) On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of Rs.3,30,36,346/- being expenses of FCCB held s capital expenditure by the AO, by merely relying on the decisions relied upon by the assessee and without deciding the issue on merits.
(ii) On the facts and in the circumstances of the case and in law the learned CIT(A) erred in taking cognizance of the fact that in assessee’s case there were various terms offered for raising the funds through FCCB convertible into ordinary equity shares therefore the ratio of M/s. Secure Meters Limited cannot be squarely applied to the assessee’s case.
Relief claimed in appeal
The order of the Ld. CIT(A) on the issues raised in the aforesaid Grounds be set aside and that of the Assessing Officer be restored.”
ITA No.1877/Ahd/2014 Assessment Year: 2008-09
Page 2 of 4 3. The assessee is engaged in the business of trading of Computer System/ Telecom System/development of Software and GIS. The assessee filed return of income under Section 139(1) of the Income Tax Act, 1961 on 30.09.2018 declaring total income of Rs.5,59,67,400/-. The return of income was processed under Section 143(1) of the Act. The case of the assessee was selected for scrutiny. The notice under Section 143(2) of the Act was issued on 25.08.2009 & 31.03.2010 which was duly served. Subsequently, notice under Section 142(1) read with Section 129 of the Act was issued on 13.01.2010 calling thereby preliminary information, documents such as copy of audited balance sheet and tax audit report in form no.3CB & 3CD etc. The detailed questionnaire was issued on 13.07.2011 for which the ld. AR of the assessee as well as Sr. Manager (Accounts) appeared before the Assessing Officer. The Assessing Officer made addition of Rs.29,65,012/- being upward adjustment to total income of the assessee. The Assessing Officer also made addition of Rs.5,000/- in respect of Sales Tax penalty of Rs.1,59,656/- in respect of interest on late payment of TDS and Rs.3,30,36,346/- claimed as deduction on issue expenses of Foreign Currency Convertible Bonds (FCCB) claimed as deduction.
Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
At the time of hearing none appeared on behalf of the assessee despite giving notice. The Department has also served the notice but the assessee was not available on last known address and thereby no address given to the Department by the assessee. From the perusal of the records, it is seen that vide letter dated 30.09.2019, the Ld. AR of the assessee has filed a copy of the order passed by NCLT in respect of the assessee appointing Mr. Kiran Chinubhai Shah as Interim Resolution Professional but the known address has not been given to the Registry from that letter upon which the Registry could not issue any notice or serve any notice to the concerned professional. Since this is the appeal filed by the Revenue, we are proceeding on the basis of Ld .DR’s submission before us.
The Ld DR submitted that the CIT(A) erred in deleting the addition of Rs.3,30,36,346/- being expenses of Foreign Currency Convertible Bonds (FCCB)
ITA No.1877/Ahd/2014 Assessment Year: 2008-09
Page 3 of 4 which was held as capital expenditure by the Assessing Officer by merely relying on the decisions relied by the assessee and not deciding the issue contested by the assessee on merit. In assessee’s case there were various terms offered for raising funds through FCCB convertible into ordinary equity shares. Therefore, the ratio of M/s. Secure Meters Limited cannot be squarely applied to the assessee’s case. Ld. DR relied upon the assessment order.
We have heard the Ld. DR and perused all the relevant material available on record. From the perusal of the statement of facts attached in Form no.35, the assessee has submitted that the decision in the case of Mahindra & Mahindra Limited vs. JCIT passed by Mumbai Tribunal is applicable ain the present case. As regards the submissions before the CIT(A), the assessee stated that the issue of FCCB is a Foreign Currency Bond issue and it is basically a debt instrument in the nature of loan and all issue expenses related to that are allowable as revenue expenses. This issue is not a public issue but is made to class of persons. Hence provisions of Section 35D are not applicable. The assessee submitted before the Assessing Officer that since this is a debit instrument on the date on which it is issued, expenses incurred on this should be allowed as revenue expenses. As per the terms of issue the holder has an option to convert the FCCBs into equity shares at an initial conversation price of Rs.130/- per share from the issue date until 14.10.2012. There are no chances of conversation into the equity shares since the same is not converted till date and it is not likely to covert because the market price of the company’s share is below Rs.10 as on that particular date. The entire amount of FCCB is to be redeemed on or before 14.11.2012. The assessee relied upon the decision of India Cement (SC) 60 ITR 52, decision of Hon’ble Rajasthan High Court in the case of CIT vs. Secure Meters Limited, 175 taxman 567. After going through the assessee’s submissions, the CIT(A) has observed that the decision relied by the Assessing Officer in the case of Ashima Syntex (100 ITD 247) and Banco Products (I) Limited vs. DCIT of ITAT Ahmedabad was delivered prior to 2007 and there are decisions of the Hon’ble High Courts which held that the expenses issue of fully convertible debentures are allowable as Revenue expenditure. The CIT(A) has relied upon the decision of Hon’ble Rajasthan High Court in case of Secure Meters Limited (supra) wherein it has been held that expenditure incurred for fully convertible debentures are allowable as Revenue
ITA No.1877/Ahd/2014 Assessment Year: 2008-09
Page 4 of 4 expenditure. Thus, the CIT(A) has allowed this ground of the assessee. After perusal of the records, it can be seen that the assessee though issued foreign currency convertible bonds the same are basically debt instrument and though the decision in case of Secure Meters was related to the issue of fully convertible debentures, the same cannot be totally differentiated as the conditions in regard to FCCB about conversion price, conversion price reset, adjustment to conversion price, redemption of bonds in the event of de-listing and etc. will have very limited bearing while opting for conversion into ordinary equity shares as per the records. The assessee has given details as regards to computation of income for expenses on issue of FCCB, security premium on redemption of FCCB and interest booked under FCCB expenses and initial conversion price of Rs.130/- per share from the issue date and until 14.10.2012 was defined by the assessee. Therefore, mere reference on the decision by the CIT(A) cannot be called as not deciding the case on merit. The CIT(A) has taken proper cognisance related to various terms offered for raising funds though FCCB into convertible bond of ordinary equity shares and thus ratio of Secure Meters (supra) squarely applied in assessee’s case by the CIT(A). Thus, appeal of the Revenue is dismissed. 8. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open Court on this 21st day of September, 2022.
Sd/- Sd/- (WASEEM AHMED) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 21st day of September, 2022 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad