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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
1. The assessee and the revenue has filed cross appeals against the orders dated 25.01.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-14 (for short ‘the CIT(A), Mumbai, for the assessment years 2009-10 whereby the Assessment Years: 2009-10 and 2010-11 Ld. CIT (A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (for short ‘the Act’). The third appeal has been filed by the revenue against the order dated 19.01.2017 passed by the Ld. CIT (A) pertaining to the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Act. Since, all the three appeals pertain to the same assessee, these were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience.
2. Brief facts of the case are that the assessee engaged in the business of providing fuel and facilitation services to power plants, electronically filed its return of income for the assessment year under consideration on 29.09.2009 and revised return on 21.01.2011 declaring total loss at Rs. 241,25,98,712/-. The assessment was completed u/s 144 read with section 143 (3) on 17.12.2011 determining the total income at (-) Rs. 226,39,01,418/-. The assessment was re-opened u/s 147 after issuing notice u/s 148 of the Act on the ground that the assessee during the financial year 2006-07 relevant to the assessment year 2007-08 had raised funds equivalent to US $ 300 million by issuing Foreign Currency Convertible Bonds (FCCB), vide circular dated 12.10.2006. The report was received from Directorate of Intelligence, New Delhi regarding suspicious financial transactions carried out overseas in the case of the assessee. The said report was based on investigation carried out by SEBI, wherein it was found that FCCB money of ADA group companies including the assessee had been used to invest in shares of Reliance Communication Ltd. through an investment vehicle ‘Plury Cell E’ in Mauritius in violation of FEMA and SEBI norms. Accordingly, the assessment for A.Y. 2009-10 was re-opened to verify the allowability of interest expenditure of Rs. 80,53,09,681/- in view of diversion of proceeds of FCCB for non business purposes, allowablity of FCCB expenses amounting to Rs. 13,85,96,004/- income arising out of investment in YMC’s and non reflection of income of US$ 5.6 million in final accounts and Assessment Years: 2009-10 and 2010-11 return of income and failure to provide complete details regarding interest of USD 1.6 million or Rs. 625,60,000/- on YMC investment credited to the account of assessee during the year relevant to the assessment year under consideration. In response to the notice u/s 148, the assessee furnished return of income declaring loss at Rs. 241,24,88,388/-. The assessee opposed the re- opening, however, AO rejected the objection vide order dated 17.02.2015. In response to notice u/s 143 (2), the assessee furnished the details called for and further made submissions. The AO after hearing the assessee determined the income at (-) Rs. 1,70,29,72,022/- under the normal provisions of the Act and at (-) Rs. 18,11,11,566/- u/s 115JB of the Act, after making addition of Rs. 13,85,96,004/- towards FCCB issue expenses and Rs. 80,53,09,681/- towards interest expenditure on FCCB. 3. The assessee challenged the assessment order before the CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal. Still aggrieved, the assessee is in appeal before the Tribunal. 4. The assessee has raised the following effective ground of appeal against the impugned order passed by the Ld. CIT (A):-
A. REOPENING OF ASSESSMENT: 1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 14, Mumbai ("the CIT(A)") erred in confirming the action of the Assistant Commissioner of Income Tax - 8(1)(1), Mumbai ('the Assessing Officer") that the re-opening the assessment under section 143(3) r.w.s. 147 of the Income Tax Act ("the Act') was justified and in accordance with the provisions of the Act.
The Appellant submits that it be held that the reopening of assessment is bad in law, illegal, void and the reassessment order passed under section 143(3) r.w.s.147 ought to be quashed.
B. PRINCIPLES OF NATURAL JUSTICE:
2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in not upholding the contention of the Assessment Years: 2009-10 and 2010-11 Appellant that the principles of natural justice were not followed by the Assessing Officer while framing the re-assessment order under section 143(3) r.w.s. 147 of the Act.
The Appellant submits that the re-assessment order under section 143(3) r.w.s. 147 of the Act passed by the Assessing Officer is without following the principles of natural justice and therefore, the re-assessment order passed under section 143(3) r.w.s. 147 of the Act is illegal and ought to be quashed.
WITHOUT PREJUDICE TO GROUND NOS. 1 & 2:
C. DISALLOWANCE OF FOREIGN CURRENCY CONVERTIBLE BOND's ("FCCB" INTEREST:
3. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the proportionate disallowance of FCCB's interest to the extent of utilisation in investments in Yield Management Certificates ("YMCs") on the premise that the said funds are utilized for investments in Reliance Communications Limited's ("RCOM") shares and therefore, the same is used for non business purposes.
Further, the Learned CIT (A) erred in confirming the action of the Assessing Officer that income earned from the utlisation of said funds as business income and expenses related to the said income is disallowed on the premise that the same was used for the non business purpose.
The Appellant submits that the above disallowance is incorrect on facts and the same ought to be deleted. Without prejudice to the above, if it is held the said funds were utilised for non business purpose i.e. for investment purpose, the said interest expenses to be allowed under section 57 of the Act.
4. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the finding of the Assessing Officer and thereby holding that FCCB funds were used directly / indirectly for investment in Pluri Cell and other related entities and YMCs which is turn subscribed to PN/ODI Assessment Years: 2009-10 and 2010-11 with RCOM shares and thereby treating the same as use for non business purposes.
The Appellant submits that the above findings of the Assessing Officer and confirmed by the Learned CIT(A) are without any evidence and have been arrived at without confronting the evidence to the Appellant. The Appellant, therefore, submits that the disallowance of FCCB's interest on the aforesaid ground ought to be deleted.
Without prejudice to the above, if it is held the said funds were utilised for non business purpose i.e. for investment purpose, the said interest expenses to be allowed under section 57 of the Act.
5. On the facts and in the circumstances of the case and in law. the Learned CIT(A) erred in not appreciating the fact that the Appellant has earned income from the said funds for the entire period of investment which was treated as business income and accordingly. the expenses are wrongly disallowed as not for business purpose.
The Appellant submits that the claim of interest on FCCBs be fully allowed as the income from the same is taxed as business income by the Assessing Officer.
WITHOUT PREJUDICE TO GROUND NOS. 1 & 2:
D. DISALLOWANCE OF FCCB ISSUE EXPENSES: 6. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer and ignoring the Third Proviso to Section 147 of the Act and thereby confirming the disallowance of FCCB issue expenses. The Appellant submits that the issue of allowability of FCCB issue expenses was a subject matter of order passed under section 143 (3) of the Act dated 17.12.2011 and the Appellant has filed appeal before the CIT (A) (i.e. against the assessment order passed u/s 143 (30 of the Act0 and according the CIT (A) ought to have held that reopening of assessment to disallow FCCB issue expenses or part thereof is bad-in-law and illegal Assessment Years: 2009-10 and 2010-11 and ought to have upheld the part disallowance of FCCB issue expenses.
WITHOUT PREJUDICE TO GROUND NOS. 1. 2 & 6:
7. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the Assessing Officer in disallowing the part of FCCB issue expenses based on his finding in relation to disallowance of FCCB interest.
The Appellant submits that the disallowance of part of FCCB interest was incorrect and accordingly, the disallowance of part of FCCB issue expenses is also incorrect and the same ought to be deleted.
Without prejudice to the above, if it is held the said funds were utilised for non business purpose i.e. for investment purpose, the said expenses to be allowed under section 57 of the Act.
On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the disallowance of FCCB issue expenses in the ratio of FCCB interest disallowed to total FCCB interest paid.
The Appellant submits that the disallowance of part of FCCB issue expenses is incorrect and the same ought to be deleted.
Without prejudice to the above, if it is held the said funds were utilized for non business purpose i.e. for investment purpose, the said expenses to be allowed under section 57 of the Act.”
5. At the outset, the Ld. counsel for the assessee submitted that Ground No. 3 to 8 are covered in favour of the assessee by the order of the ‘D’ Bench of the Tribunal passed in the assessee’s own case A.Y. 2007-08 and cross appeal filed by the revenue. The Ld. counsel further submitted that the Bench did not adjudicate ground No. 1 and 2 of the assessee’s appeal for the reason that the assessee’s appeal was allowed on merits. The Ld. counsel further contended that since the Tribunal has deleted Assessment Years: 2009-10 and 2010-11 the partial addition confirmed by the Ld. CIT (A) made by AO on account of disallowance of interest paid on FCCB and further deleted the addition confirmed by CIT (A) on account of disallowance of FCCB expenses, the present appeal may be decided accordingly.
6. On the other hand, the Ld. Departmental Representative (DR) did not controvert the fact that this issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case for the A.Y., 2007-08. However, the Ld. DR supported the order passed by the authorities below. 7. We have heard the rival submissions and also gone through the entire material on record including the order of the Tribunal relied upon by the assessee. The coordinate Bench has decided the issue regarding disallowance of FCCB interest in favour of the assessee vide order dated 12.05.2017. The relevant paras of the order of the coordinate Bench read as under: “30. The assessee in Ground No.3, 4 and 6 has challenged the addition confirmed by CIT(A) out of FCCB interest paid. 31. The AO in his reasons recorded has laid great emphasis on application of funds. The AO in this regard has relied upon the report of SEBI and report of DIT (Intelligence), New Delhi. As per AO, the funds raised by issue of FCCB were used for investment purposes outside India and the same were used in various Yield Management Certificates (YMCs). The AO in course of re- assessment proceedings referred to various investments for different period the chart of which appears on the page 18 of the re-assessment order. The reasoning of the AO is that the FCCB funds we reused in business and the same has been diverted for non business purposes by investing the funds in YMCs. AO had disallowed the entire FCCB interest on the ground that the FCCB funds were found to be non genuine and addition was made u/s.68. Thus the claim of the AO was that the entire FCCB interest is disallowable as non genuine expenditure following the addition u/s.68 of the FCCB funds.
The Ld. A.R. submitted that CIT(A) has already held that provisions of section 68 are not applicable to FCCB funds and therefore CIT(A) has rightly deleted the disallowance of interest. He further pointed out that CIT(A) has directed to restrict the Assessment Years: 2009-10 and 2010-11 disallowance for the period of utilization of FCCB funds for non business purpose i.e. investment in YMCs. As per Ld. A.R. the funds raised by issue of FCCB were invested in various investment vehicles which was resulting in income and was offered to tax. The assessee has offered to tax the income for the period for which the investments were made in YMCs. The claim of the assessee regarding interest is justified u/s.36 as the interest income is offered to tax as business income and the AO has accepted the same both in original assessment as well as re- assessment order. The Ld. A.R. further pointed out that even if the investment income is to be taxed under the head income from other sources, the proportionate interest is allowable u/s.57(iii). The Ld. AR therefore submitted that the order of CIT(A) has to be reversed.
The Ld. DR relied upon the order of CIT(A). He further submitted that the claim cannot be admitted both u/s.36 as well as u/s.57(iii). 34. We have heard the rival contentions of both the parties. We find that the assessee has offered to tax the investment income which is not disputed by the A.O. The AO has also taxed the investments income as business income both in original assessment and re-assessment. After taxing the income from application of funds, the AO cannot turn his back and claim that the expenditure on borrowing is not allowable as business expense. The assessee has been requesting the AO to provide the copy of report of SEBI and report of Director of DIT (Intelligence) which is the basis for reopening the assessment as well as making the addition. The same has not been supplied to the assesse. No adverse evidence has been confronted to the assesse. The perusal of the assessment order also does not reveal any adverse evidence. The finding of the AO in this regard is unsupported by any evidence. Considering the above and the fact that income from investments has been offered to tax and the same has been taxed as business income, there is no justification for disallowance of so called proportionate interest. We therefore hold that the order of CIT(A) upholding the disallowance of proportionate interest is to be reversed. We hold accordingly. Assessment Years: 2009-10 and 2010-11 8. The facts and the issue involved in the present case are identical to the facts and the issue involved in the assessee’s own case for A.Y. 2007-08. Since, the coordinate Bench has decided the identical issue in favour of the assessee and since the Ld. DR has not pointed out any material change in the present case, we do not find any reason to take a view which is contrary to the view already taken by the coordinate Bench in the assesse’s own case for the immediate preceding assessment year. Hence, we respectfully following the decision of the coordinate Bench set aside the findings of the Ld. CIT (A). Consequently, we allow ground No. 3 to 5 of the assessee’s appeal and direct the AO to delete the addition made on account of interest expenditure on FCCB. 9. Ground No. 6 to 8 pertain to the addition confirmed by the CIT (A) out of FCCB expenses. As pointed out by the Ld. counsel for the assessee, the coordinate Bench has decided the identical issue in favour of the assessee in the assessee’s own case for the A.Y. 2007-08 and cross appeal ITA No. 1076/Mum/2016. The findings of the coordinate Bench are as under:- 35. The assessee in Ground No.7 and 8 has challenged the addition confirmed by CIT(A) out of FCCB expenses.
CIT(A) has confirmed the disallowance out of FCCB expenses in the ratio of FCCB interest disallowed to total interest claimed. As per CIT(A), the facts and circumstances as discussed in context of FCCB interest expense is equally applicable to FCCB expenses. He accordingly disallowed the FCCB expenses in the ratio of FCCB interest expenses disallowed to total FCCB interest expenses claimed. As stated in respect of FCCB interest the AO has disallowed entire FCCB expenses on the ground that FCCB funds have been considered to be non genuine and provisions of section 68 were applied. CIT(A) has treated the FCCB funds as properly explained and has deleted the FCCB expenses except a part thereof which was disallowed as the funds were used for investments purpose outside India which as per him was non business purpose. Assessment Years: 2009-10 and 2010-11 37. The Ld. AR submitted that the said proportionate disallowance of expenses is incorrect and stated that submission as regards FCCB interest equally applies to FCCB expenses. 38. We have heard the rival contentions of both the parties. We find that CIT(A) has disallowed the proportionate amount based on the FCCB interest disallowed. In earlier para we have held that FCCB interest is not disallowable and therefore we have reversed the order of CIT(A) on the disallowance of FCCB interest. Based on same reasoning, proportionate FCCB expenses is also not disallowable and therefore the order of CIT(A) in this regard is also reversed.”
Since, the coordinate Bench has decided the identical issue in favour of the assessee in the assessee’s own case for the A.Y. 2007-08 (supra) and since there is no material change in the facts of the present case, we respectfully following the decision of the coordinate Bench set aside the findings of the Ld. CIT (A) and allow Ground No. 6 to 8 of the appeal and further direct the AO to delete the addition made on account of FCCB expenses.
Since, we have allowed the appeal of the assessee on merits, we do not consider it necessary to adjudicate Ground No. 1 and 2 challenging the re- opening of the assessment. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):- (i) The Ld. CIT (A) has erred on facts and in law in deleting the addition of FCCB proceeds of Rs. 1304,10,00,000/- u/s 68 of the Act. (ii) The Ld. CIT (A) has erred on facts and in law in deleting the addition of FCCB proceeds of Rs. 1304,10,00,000/- u/s 68 of the Act without appreciating the fact that the assessee had failed to discharge its onus of establishing the identity creditworthiness and genuineness of the actual holders of individual certificates collectively represented by single global certificate. (iii) The Ld. CIT (A) has erred on holding that subscribers to the bonds are the lead managers and beneficial Assessment Years: 2009-10 and 2010-11 bondholders are irrelevant for the purpose of Section 68 of the I.T. Act, 1961. (iv) The Ld. CIT (A) has erred in allowing the issue expenses and interest expenses to the extent such funds were deployed for business purpose without appreciating the fact that entire expenses warrant to be disallowed in light of failure to establish the genuineness of FCCB funds in the first place. (v) The CIT (A)’s order is contrary to law and on facts and deserves to be set aside.”
The Ld. counsel submitted that so far as Ground No. (i) to (iii) of the revenue’s appeal is concerned, neither the AO made such addition nor the Ld. CIT (A) confirmed the addition in the assessment year under consideration. Hence, Ground No. (i) to (iii) revenue appeal are not maintainable. We notice that the said grounds do not arise out of the order of the Ld. CIT (A). Hence, we dismiss Ground No. (i) to (iii) of the revenue’s appeal being not maintainable.
As regards Ground No. (iv), the Ld. counsel for the assessee submitted that the Ld. CIT (A) had confirmed the similar ground in the assessee’s own case for the A.Y. 2007-08, however the Tribunal deleted the said addition. Since, the order passed by the Ld. CIT (A) is in accordance with the findings of the Tribunal, there is no merit in the appeal of the revenue. The Ld. DR admitted that the Tribunal has decided the identical issue in favour of the assessee in the assessee’s own case for the A.Y. 2007-08. However, the Ld. DR supported the assessment order. 4. We have heard the submissions of the parties and also perused the material on record. As pointed out by the Ld. counsel, this issue is covered in favour of the assessee. The coordinate Bench has decided the issue in the assessee’s own case for the A.Y. 2007-08 holding as under:-
“25. The next grounds of appeal of the Revenue is against the deletion of FCCB issue expenses and FCCB interest. The AO had disallowed the FCCB issue expenses of Rs.285828246 and FCCB interest of Rs.331693100. The AO has disallowed the above expenses relating to FCCB on the premise that the Assessment Years: 2009-10 and 2010
11. FCCB funds are non genuine as held by him while making the addition of FCCB proceeds u/s.68. Since we have held that the nature and source of funds of FCCB is fully explained and that the addition u/s.68 was rightly deleted by CIT(A), the addition of FCCB expenses and FCCB interest are also rightly deleted by CIT(A). CIT(A) has partially upheld the disallowance of FCCB interest and FCCB expenses on the reason of deployment of the funds in various securities. The said addition is a subject matter of assessee’s appeal and is separately decided in subsequent paras. Thus, the addition of FCCB interest and FCCB expenses deleted by CIT(A) is correct as addition u/s.68 relating to FCCB funds is deleted.”
Since, the findings of the Ld. CIT (A) is in accordance with the order rendered by the coordinate Bench in the assessee’s own case discussed above, we do not find any infirmity therein to interfere with. Hence, respectfully following the decision of the coordinate Bench, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. The assessee filed its return of income for the assessment year under consideration declaring the total income of Rs. 17,95,94,947/- under the normal provisions of the Act and Rs. 67,79,30,195/- under section 115JB of the Act. Subsequently, the assessee revised its return and claiming long term capital loss of Rs. 26,82,47,370/- under the normal provisions of the Act and the income of Rs. 66,36,88,985/- u/s 115JB of the Act. The case was selected for scrutiny and in response to the notices u/s 143 (2) and 142 (1) of the Act, the assessee submitted the details and discussed the case. It was noticed that the assessee had claimed the following payments made in relation to the issue of Foreign Currency Convertible Bonds:
Name of the Party Nature of Expenses Amount (Rs.) B L/C Commission and 12,94,11,690 arclay’s Bank Fronting Fee Assessment Years: 2009-10 and 2010-11 Reliance Infrastructure Keep well charges 72,43,599 Deutsche Bank Trusteeship Fees 2,07,888
2. The assessee contended that expenses in relation to FCCB have to be allowed as revenue expenditure since the same was incurred for raising funds in the nature of debit. The AO rejecting the contention of the assessee treated the expenses as capital expenditure and disallowed the claim of the assessee u/s 37(1) of the Act. The assessee challenged the action of the AO before the Ld. CIT (A). The Ld. CIT (A) relying on the findings of the CIT (A) in assessee’s appeal for the A.Y. 2009-10 and the decision of the ITAT in the assessee’s own case for the A.Y. 2007-08 held that the expenditure incurred by the assessee in connection with the issue of FCCB is revenue expenditure. The revenue is in appeal against the said findings of the Ld. CIT (A).
3. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
(i) The Ld. CIT (A) has erred on facts and in law in deleting the addition of FCCB proceeds of Rs. 13,08,61,311/- u/s 37 of the Act.
(ii) The Ld. CIT (A) has erred on facts and in law in deleting the addition of FCCB proceeds of Rs. 13,08,61,311/- u/s 37 of the Act without appreciating the fact that the assesee had failed to discharge its onus of establishing the fact that the said amount is not capital in nature.
(iii) The CIT (A)’s order is contrary to law and on facts and deserves to be set aside.”
4. At the outset, the Ld. counsel for the assessee submitted that the Tribunal has already decided this issue in favour of the assessee in the assessee’s own case for the A.Y. 2007-08, 2008-09 and 2009-10. Since, the Tribunal has held that the expenditure incurred in connection with the issue of FCCB is deductible as revenue expenditure, there is no merit in the appeal of the revenue. Therefore, the revenue’s appeal is liable to be dismissed. Assessment Years: 2009-10 and 2010-11 5. On the other hand, the Ld. DR did not controvert the submission of the Ld. counsel that the issue is covered in favour of the assessee by the decision of the ITAT, however, supporting the assessment order passed by the AO submitted that since the assessee has failed to discharge its onus of establishing the fact that the said expenditure is not capital expenditure, the Ld. CIT (A) ought to have confirmed the addition made by the AO.
We have heard the rival submissions and also gone through the entire material on record including the cases relied upon by the assessee. The only grievance of the revenue is that the Ld. CIT (A) has wrongly held the expenditure incurred in connection with FCCB issue is deductible as revenue expenditure. We notice that the revenue has raised this issue before the Tribunal in assessee’s case pertaining to the A.Y. 2007-08. The coordinate Bench after hearing the assessee upheld the findings of the Ld. CIT (A) that the expenditure incurred by the assessee in connection with the issue of FCCBs is revenue in nature being expenses incurred in connection with the raising of debts and allowable expenditure u/s 37(1) of the Act. Similarly, in assessee’s case ITA No. 6711/Mum/2012, the coordinate Bench has decided the identical issue in favor of the assessee by following the decision of the coordinate Bench in assessee’s own case for the A.Y. 2007-08. Further, the coordinate Bench in assessee’s own appeal ITA No. 6712/Mum/2012 for the A.Y. 2009-10, the coordinate Bench has again decided the identical issue in favour of the assessee by following the decisions of the coordinate Bench rendered in the assessee’s own cases pertaining to the earlier assessment years. The findings of the coordinate Bench read as under:-
“3. We shall first take up the appeal filed by the Revenue. The assessee claimed following expenses, which were incurred in connection with the issue of foreign currency convertible bonds (FCCB)
Agency Fee (Barclays Bank) 1058188 2. Commission & Fronting Fees 137338456 Assessment Years: 2009-10 and 2010-11 (paid to Barclays Bank) 3. Trustee-Maintenance Fees 199360 (Deutsche Bank) Total FCCB expenses 138596004 The Assessing Officer noticed that the assessee had incurred expenses of identical nature in the earlier years also and they were treated as capital expenses by the AO, as these expenses have been considered as incurred in connection with increasing the capital base of the company and not for carrying on day-to- day business activities. Accordingly, by following the orders passed in earlier years on the identical issue, the Assessing Officer disallowed the above said expenses by treating the same as capital expenditure. The learned CIT (A) noticed that he had allowed the identical claim of the assessee made in the earlier years and accordingly reversed the order passed by the Assessing Officer on this issue. Aggrieved, the revenue is agitating the decision of Ld. CIT (A) rendered on this issue.
We have heard the parties on this issue. We noticed that the Coordinate Bench of the Tribunal has considered an identical issue in dated 8.7.2016 relating to A.Y. 2008-09. In both the years the Tribunal has confirmed the decision rendered by the learned CIT (A) and accordingly decided the issue in favour of the assessee., 5. We have gone through the decision rendered by the Coordinate Bench. We noticed that the decision rendered in A.Y. 2007-08 has been followed in A.Y. 2008-09. In A.Y. 2007-08, the Coordinate Bench has followed the decision rendered by the Tribunal in the case of Prime Focus Ltd. vs. DCIT (ITA No. 836/Mum/2011 dated 4.2.2016). In the case of Prime Focus Lltd., the Tribunal observed that the FCCB is akin to borrowings made by issuing debentures and both of them are different types of debt instruments only. Accordingly it was held in the case of Prime Focus Ltd., that the expenses incurred in connection with FCCB are revenue in nature. The Tribunal in the instant case, further noticed that FCCB holders never had any voting rights as the same were not converted into equity shares of the company during that year. In view of these facts, the Coordinate Bench held that the expenditure incurred by the assessee in connection with the issue of FCCB is Revenue in nature. Assessment Years: 2009-10 and 2010-11 6. Learned AR submitted that there is no change in the facts with regard to the present claim of the assessee and also submitted that none of the FCCB has been converted into shares during this year also. On the contrary, the Ld. DR submitted that the assessee has collected huge funds by issuing FCCB and hence the assessing officer was right in treating the expenses as capital in nature.
Since the co-ordinate benches have already taken a view in this matter, consistent with the view taken by the Tribunal, we hold that the learned CIT (A0 was justified in holding that the expenditure incurred in connection with the issue of FCCB is deductible as revenue expenditure.”