M/s. TOMTIT INVESTMENTS & TRADE P. LTD., MUMBAI V. DCIT CIR. - 2(3), MUMBAI

ITA 6051/MUM/2006

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78843 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-05-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 16-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S A KANJI
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 6051/MUM/2006 ( / ASSESSMENT YEAR: 2002-03) TOMTIT INVESTMENTS & TRADE PVT. LTD. 136, GREAT WESTERN BUILDING, NAGINDAS MASTER ROAD EXTN., FORT, MUMBAI-400 001 / VS. DY. CIT, CIRCLE 2(3), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ' ./# ./PAN/GIR NO. ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI S. A. KANJI %&'$ ' ( / RESPONDENT BY : SHRI MAURYA PRATAP )* + ' , / DATE OF HEARING : 19.05.2014 -./ ' , / DATE OF PRONOUNCEMENT : 19.05.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-XXXIII, MUMBAI (CIT(A) FO R SHORT) DATED 28.08.2006, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASS ESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2002-03 VIDE ORDER DATED 31.01.2005. 2. THE FACTS OF THE CASE TO THE EXTENT RELEVANT ARE THAT THE ASSESSEE OFFERED TO ISSUE TWO LAKH UNSECURED DEBENTURES OF RS.100/- EACH CARR YING INTEREST @ 2% P.A. VIDE LETTER OF 2 ITA NO. 6051/MUM/2006 (A.Y. 2002-03) TOMTIT INVESTMENTS & TRADE PVT. LTD. VS. DY. CIT OFFER DATED 27.09.1990. THE SAME WERE, HOWEVER, FI NALLY ISSUED (AT 1.77 LACS DEBENTURES) W.E.F. 01.06.1993 AT A COUPON RATE OF 0%, TO BE RED EEMED AT A PREMIUM OF RS.50/- PER DEBENTURE, PAYABLE AT THE TIME OF REDEMPTION, FIVE YEARS HENCE. AS THE ASSESSEE FACED FINANCIAL DIFFICULTIES, IT APPROACHED THE DEBENTURE -HOLDERS FOR EXTENSION OF THE TENURE OF THE DEBENTURES, AND IT WAS ACCORDINGLY DECIDED TO I NCREASE THE TENURE FROM 5 YEARS TO 10 YEARS, AND ALSO THE PREMIUM PAYABLE ON REDEMPTION F ROM RS.50/- TO RS.100/- PER DEBENTURE. THE ASSESSEE CLAIMED THE SAID PREMIUM ON A PROPORTIONATE BASIS FROM YEAR TO YEAR PER ITS RETURNS OF INCOME, I.E., AS WE GATHER, AT RS.10/- PER DEBENTURE PER YEAR OR AT RS.11.77 LACS. THE SAME STOOD DISALLOWED AS BEING N OT A REVENUE EXPENDITURE BY THE ASSESSING OFFICER (A.O.), WHILE THE REASON FOR ITS CONFIRMATION BY THE LD. CIT(A) WAS THAT THE REDEMPTION OF THE DEBENTURES COULD, AT THE OPTI ON OF THE DEBENTURE-HOLDERS, BE BY WAY OF ALLOTMENT OF SHARES (OF RS.10/- EACH) AT PAR. TH IS INTRODUCED AN ELEMENT OF UNCERTAINTY IN-AS-MUCH AS THE DEBENTURES UNDER REFERENCE WERE O PTIONALLY NON-CONVERTIBLE, SO THAT THEY COULD, AT THE OPTION OF THE DEBENTURE-HOLDER, BE CONVERTED INTO EQUITY SHARES. RELIANCE STOOD PLACED BY HIM ON THE DECISION IN THE CASE OF CIT VS. TUNGABHADRA INDUSTRIES LTD. [1994] 207 ITR 553 (CAL). 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE LD. AUTHORIZED REPRESENTATIVE (AR) WAS AT T HE OUTSET SPECIFICALLY QUESTIONED AS TO THE STATUS OF THE ASSESSMENT IN THE ASSESSEE S CASE FOR THE EARLIER YEARS, I.E., PRIOR TO THE CURRENT ASSESSMENT YEAR, WHEREAT AGAIN SIMILAR DISALLOWANCE OF THE PROPORTIONATE PREMIUM ON REDEMPTION OF DEBENTURES STOOD MADE (REF ER PARA 4 OF THE IMPUGNED ORDER), WITH THE LD. CIT(A) MERELY FOLLOWING THE ORDER BY H IS PREDECESSOR/S. IT WAS ADMITTED BY HIM THAT NO APPEAL WAS PREFERRED BY THE ASSESSEE BE YOND THE FIRST APPELLATE STAGE FOR ANY OF THE YEARS. AS SUCH, IT IS THE FIRST TIME THAT TH IS ISSUE COMES UP BEFORE THE TRIBUNAL QUA THE PRESENT ASSESSEE. WE SHALL, NEVERTHELESS, EVEN AS CLARIFIED DURING HEARING, PROCEED TO DECIDE THE SAME UNINFLUENCED BY THE FACT OF THE ACC EPTANCE OF THE DISALLOWANCE BY THE ASSESSEE FOR THE EARLIER YEARS. THIS IS AS THE THER E IS NO ESTOPPEL AGAINST LAW, AND ONCE A 3 ITA NO. 6051/MUM/2006 (A.Y. 2002-03) TOMTIT INVESTMENTS & TRADE PVT. LTD. VS. DY. CIT MATTER COMES BEFORE THE TRIBUNAL, IT IS DUTY BOUND TO DECIDE THE SAME IN ACCORDANCE WITH LAW. 3.2 THE ASSESSEES CASE BEFORE US WAS THAT THE DECI SION IN THE CASE OF TUNGABHADRA INDUSTRIES LTD. (SUPRA) IS NOT APPLICABLE ON FACTS. IN THE FACTS OF THAT CASE, THE COMPANY ISSUED 15% NON-CONVERTIBLE DEBENTURES, REDEEMABLE A FTER FIVE YEARS AT A PREMIUM OF 5% (OF THE ISSUE PRICE). HOWEVER, THE COMPANY COULD PU RCHASE THE DEBENTURES EARLIER, IN WHICH CASE NO PREMIUM WAS PAYABLE, WHILE INTEREST @ 15% P.A. WOULD CONTINUE TO BE PAYABLE, I.E., ON A HALF YEARLY BASIS. CLEARLY, NO SUCH UNCERTAINTY QUA PREMIUM OBTAINS IN THE INSTANT CASE, AS THE DEBENTURES ARE TO BE IN AN Y CASE, UPON TERM, REDEEMED AT THE PREMIUM AS PRE-DETERMINED. FURTHER, EVEN IF THE RED EMPTION AMOUNT (I.E., RS.200/- PER DEBENTURE, INCLUDING PREMIUM OF RS. 100/-) IS PAID NOT IN CASH BUT BY ISSUE OF SHARES AT PAR, THE NUMBER OF SHARES WOULD AGAIN BE RECKONED O NLY WITH REFERENCE TO THE REDEMPTION VALUE OF THE DEBENTURES, I.E., RS.200/- EACH, SO TH AT THE FACT THAT THE DEBENTURES ARE OPTIONALLY CONVERTIBLE IS OF NO MOMENT. IT IS NOT, IT MAY BE APPRECIATED, A CASE OF DEDUCTIBILITY OF ISSUE EXPENSES, IN WHICH CASE A CO NVERSION INTO EQUITY SHARES COULD BE CONSTRUED TO MEAN THAT THE CAPITAL RAISED WAS IN FA CT TOWARD OWN (RISK) CAPITAL, WITH THE INTEREST COST BEING INCURRED FOR THE INTERIM PERIOD , SO THAT THE SAME MAY NOT BE ALLOWED AS A REVENUE EXPENDITURE. AS SUCH, THE OPTIONALLY CONV ERTIBLE DEBENTURES IN THE INSTANT CASE CLEARLY CARRY A PRICE, WHICH IS ONLY THE TIME COST OR THE CARRYING COST OF THE CORRESPONDING FUNDS RAISED THUS, I.E., INTEREST, BY DEFINITION AN D, ACCORDINGLY, WOULD MERIT BEING ALLOWED ON A PRO-RATA BASIS. IN FACT, EVEN THE PREMIUM AMOU NT IS UNIFORM FROM YEAR TO YEAR; THE PREMIUM PER YEAR BEING THE SAME THROUGHOUT. IN FACT , WE OBSERVE THE ASSESSEE TO HAVE APPORTIONED THE PREMIUM EQUALLY FOR ALL THE YEARS, EVEN AS INTEREST BEING A TIME COST OF FUNDS, A MORE RATIONAL APPROPRIATION WOULD SUGGEST A SKEWED CHARGE, INCREASING WITH TIME, SO THAT THE LATER YEARS BEAR A HIGHER CHARGE, I.E., CORRESPONDING TO THE CHARGE OF INTEREST COMPOUNDED PER UNIT OF TIME. HOWEVER, BE T HAT AS IT MAY, THE SAME IN FACT WOULD BE NO GROUND FOR DISALLOWANCE OF ANY PART OF THE AM OUNT APPROPRIATED, WITH RATHER THE SAME LEADING TO A LOWER CHARGE FOR THE CURRENT YEAR , BEING THE FINAL YEAR. 4 ITA NO. 6051/MUM/2006 (A.Y. 2002-03) TOMTIT INVESTMENTS & TRADE PVT. LTD. VS. DY. CIT 3.3 THE DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. C IT (1997) 225 ITR 802 (SC) IS SQUARELY APPLICABLE IN T HE FACTS OF THE CASE, WHEREIN, LIKEWISE, DEBENTURES WERE ISSUED AT A DISCOUNT, SO THAT THEY WERE TO BE REDEEMED AT A PREMIUM OVER THE ISSUE PRICE. THE SAME STANDS SUBSE QUENTLY APPLIED BY THE HONBLE HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD VS. JT. CIT [2003] 260 ITR 102 (BOM), UPHOLDING THE ALLOWABILITY OF THE PREMIUM PAYABLE ON THE REDE MPTION OF DEBENTURES BASED ON THE PRINCIPLE OF MATCHING COST. THE ISSUE THUS IS IN FA CT WELL SETTLED AND NO LONGER RES INTEGRA . WE, ACCORDINGLY, REVERSING THE FINDINGS BY THE LD . CIT(A), DIRECT THE ALLOWANCE OF THE IMPUGNED SUM, I.E., THE PREMIUM AS ALLOCATED FOR TH E CURRENT YEAR. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 0/ 1 )2 30 ' * 4 ' 56 ORDER PRONOUNCED IN THE OPEN COURT ON MAY 19, 2014 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 7+ MUMBAI; 8) DATED : .05.2014 *.)../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. ;*< = %)>2 , , >2/ , 7+ / DR, ITAT, MUMBAI 6. = ?3 @ + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 7+ / ITAT, MUMBAI