DCIT, New Delhi V. M/s. UAG Builders Pvt. Ltd., New Delhi

ITA 2831/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65240 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: AJAY BHAGWANI
• Keywords: Business expenditure; Date of conversion

Judgement Text

I.T.A. NO. 2831/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER I.T.A. NO. 2831/DEL/2012 A.Y. : 2008-09 DY. COMMISSIONER OF INCOME TAX, CC-23, ROOM NO. 359, E-2, ARA CENTRE, JHANDEWALAN EXTN., NEW DELHI 110 055 VS. M/S UAG BUILDERS PRIVATE LTD., M-11, GOKUL NIWAS, CONNAUGHT CIRCUS, NEW DELHI 110 001 (PAN/GIR NO. : AAACU 4508Q) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. AJAY BHAGWANI, CA DEPARTMENT BY : DR. B.R.R. KUMAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, NE W DELHI DATED 29.3.2012 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF ` 13,60,459/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAID ON OPTIONALLY CONVERTIBLE DEBENTURE. I.T.A. NO. 2831/DEL/2012 2 II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT INTEREST PAID ON OPTIONALLY CONVERTIBLE DEBENTURES IS AN ASCERTAINED LIABILITY. III) THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. IV) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY / ALL OF GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 3. IN THIS CASE ASSESSING OFFICER NOTED THAT ASSE SSEE HAS ISSUED ONE LAC 6% OPTIONALLY CONVERTIBLE DEBENTURES (OCDS ) OF ` 10/- EACH AT PAR, TO M/S FIVE STAR PROMOTERS PVT. LTD., FOR A C ONSIDERATION OF ` 10 CRORES, ON 30.1.2008. FURTHER, ASSESSING OFFICE R NOTED THAT ASSESSEE HAS DEBITED AN AMOUNT OF ` 13,60,459/- ON ACCOUNT O F INTEREST ON DEBENTURES IN ITS P&L ACCOUNT FOR THE F.Y. 2007-08. ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS OF TERMS A ND CONDITIONS OF 6% OCDS ISSUED BY IT TO M/S FIVE STAR PROMOTERS PVT. LTD. AND WAS ALSO ASKED TO JUSTIFY ITS CLAIM OF INTEREST EXPENSES OF ` 13,60,459/- ON THESE DEBENTURES. IN ASSESSING OFFICERS OPINION, THE SA ME WAS NOT ALLOWABLE BEING A CONTINGENT LIABILITY. ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE DID NOT FURNISH THE DETAILS OF TERMS AND C ONDITIONS OF DEBENTURES ISSUED. ASSESSEE FURTHER SUBMITTED BEFOR E THE ASSESSING OFFICER THAT THE EXPENDITURE INVOLVED WAS NOT A CO NTINGENT LIABILITY, AS THE SAME WAS DULY PROVIDED IN THE P&L ACCOUNT AND BO OKS OF ACCOUNTS AND EVEN THE TDS WAS DULY DEDUCTED AND DEPOSITED AND AMOUNT WAS I.T.A. NO. 2831/DEL/2012 3 PAYABLE AS INTEREST. ASSESSEE FURTHER SUBMITTED THAT THE FUNDS WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY AND THE SAME WAS ALLOWABLE AS PER THE PROVISIONS OF SECTION 36(I)(III) OF I.T. ACT, 1961. ASSESSIN G OFFICER DID NOT AGREE WITH THE CONTENTION AND FOUND THE SAME UNTENABLE. HOWEVER, THE ASSESSING OFFICER NOTED THAT ONE LAC 6% OPTIONALL Y CONVERTIBLE DEBENTURES (OCDS) OF ` 10/- EACH AT PAR ISSUED ON 30 .1.2008 BY THE ASSESSEE FOR A CONSIDERATION OF ` 10 CRORES HAVE B EEN CONVERTED TO 31250 EQUITY SHARES OF THE COMPANY ON 07.4.2008. HOWEVER, ASSESSING OFFICER WAS OF THE OPINION THAT THE AMOUN T INVOLVED WAS CONTINGENT LIABILITY. HE FURTHER NOTED THAT THE CONTINGENT EVENT IN THIS CASE IS CONVERSION OR NON-CONVERSION OF DEBEN TURES INTO SHARES BY THE DEBENTURES HOLDER/ ASSESSEE. ASSESSING OFFIC ER REFERRED TO SEVERAL CASE LAWS AND MAKE THE ADDITION OF ` 13,60,4 59/-. 4. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 5. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ASS ESSEE SUBMITTED THAT THE COMPLETE DETAILS OF TERMS AND CON DITIONS OF OPTIONALLY CONVERTIBLE DEBENTURES (OCDS) AS CONTAINE D IN A RESOLUTION PASSED WITH COMPLETE WORKING OF INTEREST PAID ON T HESE DEBENTURES ALONG WITH COPY OF DEBENTURE CERTIFICATE WAS SUBMIT TED BEFORE THE ASSESSING OFFICER. COPIES OF THESE REPLIES WERE AL SO FILED IN THE APPELLATE PROCEEDINGS BEFORE THE LD. COMMISSIONER OF INCOME TAX (A). ASSESSEE SUBMITTED THAT INTEREST PAID WAS NOT A CON TINGENT LIABILITY. ASSESSEE ALSO SUBMITTED THAT THE DETAILS OF TDS DEDUC TED, DEPOSITED ALONGWITH COPY OF INCOME TAX RETURN OF RECIPIENT OF INTEREST I.E. M/S FIVE STAR PROMOTERS PVT. LTD. IT WAS FURTHER SUBMITT ED THAT OCDS WERE CONVERTED ON 7.4.2008 AND COMPLETE DETAILS OF SUCH CONVERSION I.T.A. NO. 2831/DEL/2012 4 ALONGWITH EVIDENCES WERE DULY FILED BEFORE THE ASSE SSING OFFICER. IT WAS FURTHER SUBMITTED THAT ASSESSING OFFICER HAS NO T MENTIONED ANYTHING IN THE ASSESSMENT ORDER AS TO WHAT IS THE CONTINGENCY INVOLVED IN THE PAYMENT OF INTEREST ON THE SAID DEBE NTURES. ASSESSEE FURTHER SUBMITTED IN THE TAX AUDIT REPORT, THE AUDIT ORS OF THE COMPANY HAD CERTIFIED THAT NO CONTINGENT LIABILITY IS DEBIT ED TO P&L ACCOUNT AND THAT EVEN IN THE NOTES TO ACCOUNTS NO AMOUNT IS SHO WN AS CONTINGENT LIABILITY. ASSESSEE FURTHER SUBMITTED THE COPY OF APPLICATION FILED U/S. 154 BY THE ASSESSEE BEFORE THE ASSESSING OFFICER F OR RECTIFICATION OF DISALLOWANCE INTEREST PAID IN VIEW OF THE FACT THA T NO CONTINGENCY WAS INVOLVED. IN THIS REGARD, ASSESSEE FURTHER SUBMIT TED THAT THE SAID APPLICATION WAS NOT DISPOSED OF BY THE ASSESSING OF FICER TILL DATE. LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE ABOVE SUBMISSIONS AND NOTED THAT ALL THE SUBMISSION ALONGWITH THE PAPE R BOOK WERE SENT TO THE ASSESSING OFFICER FOR HER COMMENTS. HOWEVER , NO WRITTEN COMMENTS WERE RECEIVED. LD. COMMISSIONER OF INCOM E TAX (A) FURTHER CONCLUDED AS UNDER:- FROM A PERUSAL OF THE ABOVE DEFINITIONS IT IS CLEA R THAT DEBENTURES ARE ACKNOWLEDGEMENT OF DEBT BY A COMPANY GUARANTEEING REPAYMENT WITH INTEREST. DEBENTURES, WHETHER FULLY OR PARTLY OR OPTIONALLY CONVERTIBLE, ARE NOTHING BUT DEBT TILL THE DATE OF CONVERSION AND ANY INTE REST PAID ON THESE DEBENTURES IS ALLOWABLE AS NORMAL BUSINESS EXPENDITURE. THE ONLY UNCERTAINTY IN THE OPTIONAL LY CONVERTIBLE DEBENTURES ISSUED BY THE APPELLANT IS W HETHER THE DEBENTURE HOLDER WILL GO FOR CONVERSION INTO S HARES OR WILL CONTINUE TO HOLD THEM AS DEBENTURES. THIS UNC ERTAINTY IN NO WAY IMPACTS THE APPELLANT COMPANYS LIABILITY T O PAY I.T.A. NO. 2831/DEL/2012 5 INTEREST TILL THE DATE OF CONVERSION. THE ASSESSI NG OFFICER HAS QUOTED NUMBER OF CASES LAWS ON ALLOWABILITY OF CONTINGENT EXPENDITURE WHICH ARE NOT RELEVANT TO TH E PRESENT CASE. THE INTEREST ON DEBENTURES, WHICH WERE OPTIONALLY CONVERTIBLE, IS ALLOWABLE, QUANTIFIED AN D ASCERTAINED BUSINESS EXPENDITURE. IN VIEW OF THE AB OVE, THE ADDITION OF ` 13,60,459/- TREATING INTEREST ON DEBE NTURES AS CONTINGENT LIABILITY IS DELETED. GROUND NO. 2, IS , THEREFORE, ALLOWED. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND OURSE LVES IN AGREEMENT WITH THE LD. COMMISSIONER OF INCOME TAX (A)S FINDING THAT THERE WAS NO CONTINGENCY INVOLVED IN THE ACCRUAL OF LIABILITY WITH REFERENCE TO THE INTEREST ON THE DEBENTURES. LD. COMMISSIONER OF IN COME TAX (A) RIGHTLY OBSERVED THAT DEBENTURES, WHETHER FULLY OR PARTLY OR OPTIONALLY CONVERTIBLE, ARE NOTHING BUT DEBT TILL THE DATE OF CONVERSION AND ANY INTEREST PAID ON THESE DEBENTURES IS ALLOWABLE AS N ORMAL BUSINESS EXPENDITURE. THE ONLY UNCERTAINTY IN THE OPTI ONALLY CONVERTIBLE DEBENTURES ISSUED BY THE ASSESSEE IS WHETHER THE D EBENTURE HOLDER WILL GO FOR CONVERSION INTO SHARES OR WILL CONTINUE TO HOLD THEM AS DEBENTURES. LD. COMMISSIONER OF INCOME TAX (A) RIG HTLY HELD THAT THIS UNCERTAINTY IN NO WAY IMPACTS THE ASSESSEE COMPANYS LIABILITY TO PAY INTEREST TILL THE DATE OF CONVERSION. LD. COMMISSI ONER OF INCOME TAX (A) HAS RIGHTLY HELD THAT THE CASE LAWS REFERRED BY THE ASSESSING OFFICER WERE NOT APPLICABLE ON THE FACTS OF THE PRESENT CAS E. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE DO N OT FIND ANY I.T.A. NO. 2831/DEL/2012 6 INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (A) AND ACCORDINGLY, WE UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/8/2012. SD/- SD/- [ [[ [C.M. GARG C.M. GARG C.M. GARG C.M. GARG] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 09/8/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES