DCIT Corporate Circle 1, Coimbatore V. Sakthi Sugars Limited, Coimbatore

ITA 1356/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4137 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 04-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 37(1); 201; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, C HENNAI . . . , , ! BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 1356/CHNY/2019 / ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1, COIMBATORE. VS. SAKTHI SUGARS LIMITED, NO. 180, RACE COURSE ROAD, COIMBATORE 641 018. [PAN: AADCS 0651B] ( / APPELLANT) ( '#$% /RESPONDENT ) $%&' / APPELLANT BY : SHRI. S. BHARATH, CIT '#$%&' / RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN ADVOCATE ) &* /DATE OF HEARING : 21.11.2019 +,- &* /DATE OF PRONOUNCEMENT : 19.02.2020 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IN ITA NO. 96/15- 16 DATED 31.01.2019 FOR ASSESSMENT YEAR 2012-13. 2. M/S. SAKTHI SUGARS LTD., THE ASSESSEE, IS CARRYI NG ON THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR, INDUSTRIAL ALCOHO L, POWER GENERATION :-2-: ITA NO.1356/CHNY/2019 (CO-GEN) AND SOYA PRODUCTS. WHILE MAKING THE ASSE SSMENT FOR ASSESSMENT YEAR 2012-13, THE AO, INTER ALIA, MADE D ISALLOWANCE ON PREMIUM PAID ON REDEMPTION OF FOREIGN CURRENCY CONV ERTIBLE BONDS HOLDING THAT IT IS A CAPITAL LOSS IN NATURE. AGGRIE VED AGAINST THAT ORDER THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE LD CIT(A) ALLOWED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL. 3. THE LD. DR SUBMITTED THAT THE AO NOTICED THAT TH E ASSESSEE HAS DEDUCTED RS. 26,78,77,675/- BEING FCCB PREMIUM PROV ISIONS NETTED IN THE INTEREST EXPENDITURE FROM THE NET PROFIT FOR TH E YEAR WHILE COMPUTING THE TOTAL INCOME. THE ASSESSEE HAS INFUS ED EQUITY IN THE FORM OF SHARE CAPITAL BY INTRODUCING OF FOREIGN CUR RENCY CONVERTIBLE BONDS (FCCB). ACTUALLY THESE BONDS REPRESENT THE C APITAL OF THE COMPANY. THEREFORE, THE AO HELD THAT THE EXPENDITU RE INCURRED BY WAY OF PREMIUM ON THESE BONDS ARE OF CAPITAL IN NATURE, IT CANNOT BE DEDUCTED WHILE COMPUTING THE TOTAL INCOME OF THE CO MPANY AND HENCE DISALLOWED THE ASSESSEES CLAIM. THE ASSESSEE FILE D AN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) ALLOWED THE APPEAL. AG GRIEVED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL WITH THE FOLLO WING GROUNDS OF APPEAL: :-3-: ITA NO.1356/CHNY/2019 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R IT IS RIGHT ON THE CIT(A) TO ALLOW THE ASSESSE'S CLAIM AS REVENUE EXPE NDITURE, WHEN THE ASSESSEE COMPANY ITSELF CHOOSES TO TREAT. THE PREMI UM ON REDEMPTION OF FCCB AS CAPITAL EXPENDITURE BY CHARGING IT TO PREMI UM A/C IN ACCORDANCE WITH THE ACCOUNTING STANDARDS ? 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER IT IS RIGHT ON THE CIT(A) TO ALLOW THE ASSESSEE'S CLAIM TO REVERSE THE EXPENSE, WHEN THE ASSESSEE COMPANY ITSELF ADMITS THAT 'THE REVERSAL O F THE SAME IN THE P&L A/C (RS. 26,78,77,675L-) HAS NOT BEEN BROUGHT TO TA X BASED ON JUDICIAL PRONOUNCEMENT' IN PARA 1.4 IN ITS PAPER BOOK PRESEN TED BEFORE THE CIT(A). 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT (A) ERRED IN ALLOWING THE PREMIUM EXPENSES AS REVENUE IN NATU RE APPLYING THE CASE LAWS QUOTED BY THE ASSESSEE WHEN THEY MOSTLY PERTAI NED TO ISSUE EXPENSES OF FCCB AND NOT THE ISSUE OF PREMIUM INVOL VED? 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ALLOWING THE PREMIUM PAID OF RS. 13,55,82,338/- IN THE AY 2012-13, WHICH WAS DISALLOWED BY A SUBSEQUENT ORDER U/S 147 DT 30/12/2OL7 FOR VIOLATION OF SEC 40A(I)A AND THE SAID LATTER ORDER HAS MERGED INTO THE 143(3) ORDER ? 5. IN THE FACTS OF THE CASE, WHETHER THE CIT(A) FAILED TO CONSIDER THE QUESTION OF ALLOWABILITY OF THE PREMIUM EXPENSES EV EN ON GROUNDS OF PAYMENT U/S 43B, WHICH IS PRIMARILY A CAPITAL EXPEN DITURE ? 6. IN THE FACTS OF THE CASE, WHEN THE ASSESSEE ITSELF OPTS NOT TO MAKE A CHARGE TO THE P&L A/C, WHETHER IT HAS A RIGHTFUL CL AIM UNDER THE INCOME TAX ACT ON PAYMENT BASIS? AND PRESENTED THE CASE ON THE LINES OF GROUNDS OF A PPEAL , SUPRA, AND PLEADED THAT THE ORDER OF THE AO MAY BE RESTORED. :-4-: ITA NO.1356/CHNY/2019 4. PER CONTRA, THE LD. AR SUBMITTED THAT DURING THE FINANCIAL YEAR ENDED 31.03.2011, THE ASSESSEE HAS MADE A PROVISION OF RS. 26,78,77,675/- REPRESENTING PREMIUM ON FCCB. OUT OF THOSE PROVISIONS, THE ASSESSEE CLAIMED EXPENDITURE AT RS. 15,24,84,21 5/- ONLY, IE THE ACTUAL PAYMENT OF FCCB PREMIUM , AND DISALLOWED RS. 11,53,93,460/- APPLYING THE PROVISION OF SECTION 43(B). DURING TH E ASSESSMENT YEAR 2012-13, THE TREATMENT OF FCCB PREMIUM WAS RECONSI DERED IN THE LIGHT OF ACCOUNTING STANDARD 29 AND SECTION 78 OF THE COM PANIES ACT, 1956 AND THE BOARD OF DIRECTOR DECIDED THAT THE PREMIUM ON FCCB SHOULD BE CHARGED AGAINST SECURITY PREMIUM ACCOUNT. THEREFOR E, THE P&L ACCOUNT WAS CREDITED WITH RS. 26,78,77,675/-, WHICH IS ACTU ALLY A REVERSAL OF PREVIOUS YEARS CHARGE. SINCE, THE PREMIUM AMOUNT RELATING TO ASSESSMENT YEAR 2011-12 HAS ALREADY BEEN CLAIMED AS AN EXPENDITURE AND WHICH IS AN ALLOWABLE EXPENSES, THE REVERSAL OF THE SAME IN THE PROFIT AND LOSS ACCOUNT HAS NOT BEEN BROUGHT TO TAX . OUT OF THE DISALLOWED AMOUNT OF RS. 11,53,93,460/-, BY APPLYIN G THE PROVISIONS OF SECTION 43B IN ASSESSMENT YEAR 2011-12 , RS. 10,30 ,29,875/- HAS BEEN PAID DURING THE FINANCIAL YEAR 2011-12 IE IN AY 201 2-13 HAS BEEN CLAIMED AS AN EXPENDITURE U/S. 43B. THE ACTUAL PAY MENT OF PREMIUM RELATING TO ASSESSMENT YEAR 2012-13 IS OF RS. 3,25, 52,465/-, ON REDEMPTION OF FCCB MADE DURING THE YEAR ENDED 31.03 .2012, HAS BEEN DIRECTLY CHARGED AGAINST THE SECURITIES PREMIUM ACC OUNT IN THE BALANCE :-5-: ITA NO.1356/CHNY/2019 SHEET AND THE SAME HAS BEEN CLAIMED AS EXPENSES. H OWEVER, FOR THE IT PURPOSES, WHILE COMPUTING THE TOTAL INCOME OF THE PREVIOUS YEAR, THE ACTUAL PAYMENT OF FCCB PREMIUM HAVE BEEN CLAIMED U/ S. 43B. THEREFORE, IT WAS SUBMITTED THAT THE CLAIM IS CORRE CT AND ACCORDINGLY BE ALLOWED. IN THIS REGARD, THE LD. AR RELIED ON THE DECISION OF THE LD CIT(A) IN WHICH THE LD CIT(A) INTER ALIA, RELIED THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF MAHINDRA & MAHINDRA LTD VS DCIT-2(2) FOR ASSESSMENT YEAR 2006-07 DATED 06.06.2012 REPORTED IN 24 TAXMANN.COM 267 (MUMBAI) AND INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE HEAD NOTE IS EXTRACTED AS UNDER: V. SECTION 37(1) OF THE INCOME TAX ACT, 1961- BUSI NESS EXPENDITURE ALLOWABILITY OF ASSESSMENT YEAR 2006-07 ASSESSE E PAID PREMIUM OF RS. 5.39 CRORES ON REDEMPTION OF FOREIGN CURRENCY CONVERTIBLE BONDS ASSESSING OFFICER DISALLOWED PAYMENT OF SAID PREMIU M ON GROUND THAT FCCBS WERE CONVERTIBLE INTO SHARES AND THEREFORE, C OULD NOT BE CONSTRUED AS BORROWING; THAT THEY INCREASED CAPITAL BASE OF C OMPANY AND, THEREFORE, EXPENDITURE INCURRED THEREUPON WAS CAPITAL IN NATUR E WHETHER FOLLOWING JUDGMENTS OF CRANE SOFTWARE INTERNATIONAL LTD. [IT APPEAL NOS. 741 AND 742 (BANG.) OF 2010, CIT VS SECURE METERS LTD. [201 0] 321 ITR 611/[2008] 175 TAXMAN 567 (RAJ.) AND CIT VS. ITC HO TELS LTD. [2011] 334 ITR 109/[2010] 190 TAXMAN 430 (KAR.) EXPENDITUR ES INCURRED IN CONNECTION WITH FCCBS WERE TO BE TREATED AS REVENUE IN NATURE HELD, YEAS [IN FAVOUR OF ASSESSEE]. AND SUPPORTED THE ORDER OF THE LD CIT(A). :-6-: ITA NO.1356/CHNY/2019 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THE LD CIT(A) HELD THAT A NOTE SUBMITT ED BY THE ASSESSEE COMPANY ON PURPOSE OF FCCB LOANS WOULD SHOW THAT IT HAD RAISED RS. 250/- CRORES FROM FCCB AND THE SAME HAS BEEN UTILIZ ED FOR THE FALLOWING PROJECTS: A) MODAKKURICHI SUGAR AND CO-GEN PROJECT, B) SIVAGANGA CO-GEN PROJEET. C) SALDHINAGAR CO-GEN II PROJECT, D) EXPANSLON OF SUGAR UNIT AT SAL