PRIME FOCUS LTD.., MUMBAI V. D.C.I.T. (ODS) C. RG. 7, MUMBAI

ITA 8364/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4183 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2011
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Assessee Lawyers: R R VORA
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Bad and doubtful debts; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. NO.8364/M/2011 (ASSESSMENT YEAR: 2008 - 2009) C.O.233/M/2012 (ARISING OUT OF ITA NO.8066/M/2011) (AY 2008 - 09) PRIME FOCUS LIMITED, 1 ST FLOOR, OLD DUBBING AND RECORDING STUDIO BUILDING, DADASAHEB PHALKE CHITRA NAGARI,FILMCITY CAMPUS, OPPOSITE HOTEL FOOD PARADISE, FILMCITY, GOREGAON (E), MUMBAI 400 065. / VS. DCIT (OSD - 1), CENTRAL RANGE, AAYAKAR BHAVAN, MARINE LINES, MUMBAI 400 020. ./ PAN : AAACP6811B ( / APPELLANT) .. ( / RESPONDENT ) I.T.A. NO.8066/M/2011 (ASSESSMENT YEAR: 2008 - 2009) DCIT (OSD - 1), CENTRAL RANGE, AAYAKAR BHAVAN, MARINE LINES, MUMBAI 400 020. / VS. PRIME FOCUS LIMITED, 1 ST FLOOR, OLD DUBBING AND RECORDING STUDIO BUILDING, DADASAHEB PHALKE CHITRA NAGARI, FILMCITY CAMPUS, OPPOSITE HOTEL FOOD PARADISE, FILMCITY, GOREGAON (E), MUMBAI 400 065 . ./ PAN : AAACP6811B ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI R.R. VORA / REVENUE BY : SHRI M. DAYASAGAR, DR / DATE OF HEARING : 09.12.2015 / DATE OF PRONOUNCEMENT : 04 .02.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS AND ONE CROSS OBJECTION UNDER CONSIDERATION INVOLVING THE ASSESSMENT YEAR 2008 - 2009. ASSESSEE FILED THE APPEAL ITA 2 NO.8364/M/2011 & C.O.NO.233/M/2012. REVENUE FILED THE APPEAL ITA NO.8066/M/2011. SINCE THE ISSUES RAISED IN ALL THE APPEALS ARE INTER - CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL W ISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. ITA NO.8364/M/2011 (BY ASSESSEE) 2. THIS APPEAL FILED BY THE ASSESSEE ON 9.12.2011 IS AGAINST THE ORDER OF THE CIT (A) - 40, MUMBAI DATED 26.9.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. THE LD CIT (A) HAS ERRED IN TREATING EXPENSES OF RS. 5,82,40,318/ - INCURRED ON ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPEND ITURE. 2. THE LD CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS. 35,53,568/ - UNDER SECTION 14A OF THE ACT. 3. WITHOUT PREJUDICE TO THE APPELLANTS ABOVE CONTENTION THAT THE AMOUNT OF RS. 35,53,568/ - SHOULD NOT BE DISALLOWED U/S 14A OF THE ACT, THE LD CIT (A) HAS ERRED IN NOT RESTRICTING THE QUANTUM OF DISALLOWANCE U/S 14A OF THE ACT TO THE AMOUNT OF EXEMPT INCOME IE RS. 20,17,860/ - . 4. THE LD CIT (A) HAS ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234D OF THE ACT. 3. THE CORE ISSUE R AISED IN THIS APPEAL RELATES TO THE ALLOWABILITY OF THE CLAIM OF EXPENSES OF RS. 5,82,40,318/ - . THIS EXPENDITURE WAS INCURRED IN CONNECTION WITH THE ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS). RELEVANT FACTS IN THIS REGARD INCLUDE THAT THE ASSESSEE RAISED FCCBS IN THE YEAR UNDER CONSIDERATION. THESE ARE OPTIONALLY CONVERTIBLE BONDS INTO EQUITY AND THE SAME IS SUPPORTED BY THE ISSUE DOCUMENTS. WHEN THE SAME ARE NOT CONVERTED INTO EQUI TY, THE BONDS ARE TO BE REDEEMED WITH PREMIUM. THE BONDS WERE ISSUED WITH A VIEW TO UTILISE THE PROCEEDS FOR THE PURPOSE OF STRATEGIC ACQUISITIONS AND / OR ALLIANCES OVERSEAS. THE UNDISPUTED FACT IS THAT NONE OF THE BOND SUBSCRIBERS EXERCISED THE OPTION TO CONVERT THE BONDS INTO EQUITY. IN SUBSTANCE, ALL THE BONDS WERE REDEEMED WITH PREMIUM WITHOUT ANY CONVERSION INTO EQUITY WHATSOEVER. ASSESSEE INCURRED THE ABOVE SUM OF RS. 5.82 CRS (ROUNDED OFF) IN CONNECTION WITH RISE OF SUCH FCCBS, WHICH WERE EVENTU ALLY REDEEMED WITH PREMIUM TO THE BOND HOLDERS. THE SAID RS. 5.82 CRS WAS INCURRED ON 3 ACCOUNTS OF (I) FEE PAID TO THE LEAD MANAGERS TO THE ISSUE; (II) FEES PAID TO THE LEGAL ADVISORS TO THE ISSUE AND (III) LISTING FEES PAID. WHILE ACCOUNTING OF THE ABOVE CLAIM OF RS. 5.82 CRS IN THE BOOKS OF ACCOUNTS, ASSESSEE TRANSFERRED THE SAME TO THE SECURITY PREMIUM ACCOUNT IN THE BALANCE SHEET AND DID NOT DEBIT THE SAME IN THE PROFIT & LOSS ACCOUNT. HOWEVER, IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED THE SA ME AS AN ALLOWABLE DEDUCTION. DURING THE ASSESSMENT PROCEEDINGS, AO OBJECTED TO THE SAID DEDUCTION OF THE SUM OF RS. 5.82 CRS FROM THE INCOME OF THE ASSESSEE AND RELIED HEAVILY ON THE ASSESSEES TREATMENT OF THE SAID AMOUNT IN THE B OOKS OF ACCOUNT. ASSES SEE TOOK THE SAME IN THE BALANCE SHEET. AO DISALLOWED THE SAID SUM OF RS. 5.82 CRS IN THE ASSESSMENT ON THE GROUND THAT THE SAID AMOUNT CONSTITUTES CAPITAL IN NATURE. ON THE OTHER HAND, ASSESSEE IS OF THE OPINION THAT THE SAID AMOUNT BEING PAID TO LEAD M ANAGER / LEGAL ADVISORS / LISTING FEES CONSTITUTES REVENUE EXPENDITURE. THIS CLAIM OF THE ASSESSEE WAS REJECTED IN THE ASSESSMENT. 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT (A) CONSIDERED THE SUBMISSION OF THE ASSESSEE AND HELD IN HIS ORDER DATED 26. 9.2011 THAT THIS EXPENDITURE SINCE INCURRED IN CONNECTION WITH THE FCCBS MEANT FOR EQUITY CONSTITUTES CAPITAL EXPENDITURE. HE IGNORED THE FACT THAT THE SAID BONDS NEVER CONVERTED TO THE EQUITY AND THE BONDS WERE FINALLY REDEEMED TO THE BOND HOLDERS WITH P REMIUM. AGGRIEVED WITH THE ABOVE FINDING OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE US WITH GROUND NO.1 MENTIONED ABOVE. 5. BEFORE US, LD COUNSEL FOR THE ASSESSEE NARRATED THE ABOVE FACTS OF THE ISSUE AND EXPLAINED THAT THE FCCBS IN THIS CASE ARE ONLY I SSUED BY THE COMPANY AS A DEBT RAISING INSTRUMENT. THE BOND HOLDERS NEVER HAD ANY VOTING RIGHTS AS THE SAME WERE NEVER CONVERTED INTO EQUITY SHARES OF THE COMPANY. THE BONDS EVENTUALLY WERE REDEEMED WITH PREMIUM AT THE OPTION OF THE BOND HOLDERS. IN SUC H CIRCUMSTANCES, IN SUBSTANCE, THE SAID BONDS ARE TO BE DEEMED AS DEBENTURES ISSUED BY THE ASSESSEE FOR THE BUSINESS PURPOSES. FURTHER, HE RELIED ON VARIOUS DECISIONS TO DEMONSTRATE THAT THE SAID BONDS WERE DEEMED AS DEBENTURES AND THE EXPENSES INCURRED I N ISSUING SUCH DEBT INSTRUMENTS WERE ALLOWED AS A REVENUE EXPENDITURE U/S 37(1) OF THE ACT. SOME OF THE DECISIONS RELIED UPON BY THE LD COUNSEL FOR THE ASSESSEE ARE ENLISTED IN 4 PARA 2.15 OF THE NOTE FURNISHED BY THE LD COUNSEL FOR THE ASSESSEE. THE CONTE NTS OF PARA 2.15 AND 2.16 ARE EXTRACTED AS UNDER: - 2.15. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT EXPENSES INCURRED ON FCCBS ARE ALLOWABLE AS REVENUE EXPENDITURE EVEN AFTER CONSIDERING THE SPECIAL BENCH RULING IN THE CASE OF ASHIMA SYNTEX (SUPRA): SECURE METERS LTD (321 ITR 611) (RAJASTHAN HIGH COURT) SUPREME COURT HAS DISMISSED DEPARTMENTS SLP VIDE APPEAL (CIVIL) 10548) OF 2008 DATED 11 TH AUGUST, 2009. SUKHJIT STARCH & CHEMICALS LTD (326 ITR 29) (P & H) HIGH COURT ITC HOTELS LTD (334 ITR 109) (KARNATAKA HIGH COURT) MAHINDRA AND MAHINDRA LIMITED (36 SOT 348) (MUMBAI TRIBUNAL) DOLPHIN OFFSHORE ENTERPRISES (I) LTD (ITA NO. 4273/M/2011) DATED 28 TH JUNE, 2013 (MUMBAI TRIBUNAL) FAZE THREE LIMITED (ITA NO.54 49/M/2011) DATED 16 TH AUGUST, 2013 (MUMBAI TRIBUNAL) CRANE SOFTWARE INTERNATIONAL LIMITED (ITA NOS. 741 & 741/BANG/2010 AND ITA NOS. 774 & 775/BANG/2010) DATED 8 TH FEBRUARY, 2011. AUROBINDO PHARMA LIMITED (62 SOT 214) (HYDERABAD TRIBUNAL) 2.16. IN THE VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT EXPENSES INCURRED ON FCCB ISSUE SHOULD BE ALLOWED AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. 6. ON THE OTHER HAND, LD DR FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ZEE TELEFILMS LIMITED (33 TAXMANN.COM 413), WHEREIN IT WAS HELD THAT SUCH EXPENSES SHOULD BE CONSIDERED AS PER THE PROVISIONS OF SECTION 35D OF THE ACT. 7. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE ARGUED VEHEMENTLY STATING THAT THE ISSUE BEFORE THE REVEN UE AUTHORITIES REVOLVE AROUND IF THE EXPENSES ALLOWABLE U/S 37(1) OF THE ACT OR OTHERWISE IE CAPITAL OR REVENUE AND THE LD DRS ATTEMPT TO ROPE IN THE PROVISIONS OF SECTION 35D OF THE ACT CONSTITUTES CREATING A NEW CASE / ISSUE BY THE LD DR, WHICH IS NOT P ERMISSIBLE AS PER THE RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF MAHINDRA AND MAHINDRA (122 TTJ 577), DATED 9.4.2009 AND ALSO THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF PRAKASH L. SHAH (115 ITD 167) DATED 22 ND AUGUST, 2008. IN ADDITION, LD C OUNSEL FOR THE ASSESSEE RELIED ON VARIOUS OTHER DECISIONS TO DEMONSTRATE THAT SIMILAR KIND OF EXPENSES WERE ALLOWED AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE DECISIONS IN THE CASE OF ASHIMA SYNTAX LTD (100 ITD 247) AND SECURE METERS LIMITED (321 IT R 611) (RAJASTHAN HIGH COURT) ARE SOME OF THEM. HE VEHEMENTLY DEMONSTRATED THAT THIS IS THE CASE WHERE THE BOND HOLDERS NEVER EXERCISED THE OPTION OF CONVERTING THE BONDS INTO EQUITY SHARES. THEREFORE, THE BONDS REMA I N E D AS THE DEBT INSTRUMENT LIKE DEBENTURES , WHICH WERE 5 EVENTUALLY REDEEMED. IN SUCH CIRCUMSTANCES, THE SAME CANNOT BE TREATED AS A CAPITAL EXPENDITURE. HE FURTHER SUBMITTED THAT THE ACCOUNTING TREATING DOES NOT DECIDE THE CHARACTER AND NATURE OF THE EXPENDITURE. IT IS THE DUTY OF THE ASSESSING OFFICER TO ASSESS CORRECT INCOME. THE AO CANNOT TREAT THE SAME AS A CAPITAL IN NATURE SOLELY ON THE GROUND THAT THEY WERE WRITTEN OFF IN THE SECURITY PREMIUM ACCOUNT, A BALANCE SHEET ENTRY. RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT I N THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY LIMITED (82 ITR 363), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ACCOUNTING ENTRIES DO NOT IMPACT TAX IMPLICATIONS. FURTHER, RELYING ON THE RECENT DECISION OF THE ITAT, HYDERABAD IN THE CASE OF BHAGYA NAGAR INDIA LIMITED (ITA NO. 99 AND 1345/2012), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES OPTION TO WRITE OFF FCCB ISSUE EXPENSES AGAINST THE SECURITY PREMIUM ACCOUNT DOES NOT PRECLUDE THE ASSESSEE FROM CLAIMING SUCH EXPENDITURE U/S 37(1) O F THE ACT IF THE SAME OTHERWISE ALLOWABLE. THE FCCBS CONSTITUTE A METHOD OF RAISING LOANS FOR THE ASSESSEE AND THE EXPENSES INCURRED IN THIS REGARD ARE STATUTORILY ALLOWABLE U/S 37(1) OF THE ACT. THE SAME HAS THE SANCTITY OF JUDICIAL RULING IN THE CASE O F SECURE METERS LIMITED (321 ITR 611) AND IN THE CASE OF SUKHJIT STARCH AND CHEMICALS LTD (326 ITR 29). THUS, LD COUNSEL FOR THE ASSESSEE SUMMED UP BY STATING THAT THE REVENUE EXPENDITURE INCURRED IN CONNECTION WITH THE FCCBS CONSTITUTE S AN ALLOWABLE REVE NUE EXPENDITURE U/S 37(1) OF THE ACT AND RELIED HEAVILY ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GRINDWELL NORTION INDIA LIMITED (ITA NO.694 OF 2012) DATED 24 TH DECEMBER, 2014. FURTHER, IT IS THE CASE OF THE LD COUNSEL FOR THE ASSES SEE THAT THE LD DR CANNOT MAKE A NEW CASE BEFORE THE TRIBUNAL, WHICH WAS NOT RAISED DURING THE ASSESSMENT / FIRST APPELLATE PROCEEDINGS. FOR THIS, HE RELIED ON THE SPECIAL BENCH DECISION IN THE CASE OF MAHINDRA AND MAHINDRA (SUPRA). 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITATIONS BY THE LD REPRESENTATIVES OF BOTH THE PARTIES. OUR ADJUDICATION ON THE CORE ISSUE IS GIVEN IN THE FOLLOWING PARAGRAPHS: 9 . ASSESSEE SPENT RS. 5,82,40,318/ - B Y WAY OF PAY MENTS TO (I) FEE PAID TO THE LEAD MANAGERS TO THE ISSUE; (II) FEES PAID TO THE LEGAL ADVISORS TO THE ISSUE AND (III) LISTING FEES PAID. THE SAME WAS PAID TO THOSE PARTIES WHO CONTRIBUTED FO R THE SUCCESS 6 OF THE ISSUE OF FC CB AMOUNTING TO US $5.5 MILLIONS. I N PRINCIPLE, THE PAYMENTS OF THIS NATURE IN OUR OPINION FALLS IN REVENUE ZONE. BUT THE FACT IS THAT THEY'D WERE INCURRE D IN CONNECTION WITH ISSUE OF FC CBS. ASSESSEE RAISED THESE FOREIGN CURRENCY BONDS OF RS 1 LAKH EACH. DETAILS OF SUCH EX PENDITURE IS GIVEN ON PAGE 42 OF THE APB. IN THIS CONTEST, ASSESSEE PAID RS. 5.82 CRS (ROUNDED OFF) TO LEAD MANAGERS / LEGAL ADVISORS AND LISTING FEES. AO TREATED THE SAME AS CAPITAL EXPENDITURE. WILL SUCH REVENUE EXPENDITURE WHEN INCURRED IN CONNECTION FCCB MAKES IT OF CAPITAL NATURE? WE SHALL EXAMINE THE NATURE OF FCCBS . 10 . ASSESSEE ISSUED THE FCCBS FOR THE PURPOSE OF ACQUISITION OF THE COMPANIES IN SIMILAR LINES ABROAD FOR EXPANDING THE BUSINE SS PRESENCE ABROAD. WHEREAS THE RELEVANT AGREEME NTS AND ISSUE DOCUMENTS SUGGEST THAT THEY WERE ISSUED FOR EQUITY PURPOSES. IT IS A FACT THAT THE PROCEEDS OF THE FCCBS WERE SPENT ON ACQUIRING THE COMPANIES ABROAD . BEING OPTIONALLY CONVERTIBLE, THE BOND HOLD ERS HAVE THE OPTION TO CONVERT INTO EQUITY. BUT THE AS SESSEE DID NOT ISSUE SHARES TO THE BOND HOLDERS AS THEY DID NOT EXERCISE THAT OPTION. RATHER, ASSESSEE REFUN DED THE BOND MONEY WITH PREMIUM TO THE BOND HOLDERS. CONSIDERING THE FACT OF REFUND OF ENTIR E FCCBOND MONEY, WE ARE OF THE OPINION THAT FFCB ISSUE EXERCISE OF THE ASSESSEE AMOUNTS TO ONE RAISING DEBT FOR THE INTENDED PURPOSE AND IT IS UNCONNECTED TO THE ISSUE OF SHARES. AS SUCH THE DIFFERENCE BETWEEN BOND AND DEBENTURE IS VERY THIN AS THEY BOTH ARE TWO DIFFERENT TYPES OF DEBT INSTRUMENTS. FURTHER, WE FIND THAT THERE IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BONDS OF THE ASSESSEE. IN SUCH CASE, THE CLAIM IS ALLOWABLE IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF HERO CYCLES P LTD (SUPRA) . RELEVANT PARA FROM THE SAID JUDGMENT IS EXTRACTED AS UNDER: - 'INSOFAR AS LOANS TO THE SISTER CONCERN / SUBSIDIARY COMPANY ARE CONCERNED, LAW IN THIS BEHALF IS RECAPITULATED BY THIS COURT IN THE CASE OF S.A. BUILDERS LTD. V. COMMISSIONER OF INCOME TAX (APPEALS) AND ANOTHER [2007 (288) ITR 1 (SC)]. ONCE IT IS ESTABLISHED THAT THERESO IS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CAN NOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM - CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. IT FURTHER HELD THAT NO BU SINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT AND THAT THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT TH AT OF A PRUDENT BUSINESSMAN.' 7 11. LEGAL PROPOSITIONS : SCOPE OF LD DR - MAKING OUT A NEW CASE OF APPLICABILITY OF SECTION 35D: LD DR FOR THE REVENU E FILED WRITTEN NOTE STATING THAT THAT THE CLAIM OF SUCH EX PENSES IS TO BE CONSIDERED WITH IN THE MEANING OF T HE PROVISIONS OF SECTION 35D OF THE ACT. IN THIS REGARD, LD AR FOR THE SSSSSEE TRACED THE WAY AO DEALT WITH THIS ISSUE AND SUBMITTED THAT AO'S CASE IS IF THE SAID EXPENSES CONSTITUTES REVENUE OR CAPITAL WITH IN THE MEANING OF SECTION 37 OF THE ACT. APPLICABILITY OF THE PROVISIONS OF SECTION 35D OF THE ACT WAS NEVER THE ISSUE BEFORE EITHER THE AO OR BEFORE THE CIT(A). AT T HE SECOND APPEAL, LD CIT DR CAN NOT MAKE A NEW CASE BY INVOKING SECTION 35 D OF THE ACT EVEN IF IT IS CORRECTLY INVOKAB LE. FOR THIS PROPOSITION, HE RELIED ON VARIOUS BINDING JUDGMENT IN THE CASE OF MAHENDRA AND MAHENDRA LTD (SUPRA). THEREFORE, WE DISMISS THE LD DRS ARGUMENT ON THE ISSUE. 12 . IN THE INSTANT CASE, LD AR FOR ASSESSEE DEMONSTRATED THAT THE ASSESSEE EARNED SUBSTANTIAL BUSINESS FROM ABROAD AFTER ACQUIRING THE FOREIGN COMPANIES WITH THE SAID FCCBONDS. THE IMPUGNED EXPENDITURE INCURRED WERE INCURRED UNDISPUTEDLY BY THE ASSESSEE IN CONNECTION WITH FCCBS WHICH WERE APPLIED FOR ACQUIRING THE FOREIGN COMPANIES WHIC H BROUGHT MORE BUSINESS FOR THE ASSESSEE. THUS, THERE IS NEXUS TO THE BUSINESS OF THE ASSESSEE. CONSIDERING ALL THE FACTS OF THE PRESENT CASE WE ARE OF THE OPINION, THAT THE ORDER OF THE CIT(A) IS REQUIRED TO BE REVERSED. ACCORDINGL Y, THE RELEVANT GROUNDS OF THE A SSESSEE ARE ALLOWED . SUMMARY 13. WE HAVE HELD THAT THE EXPENSES IN QUESTION ARE IN PRINCIPLE OF REVENUE NATURE. IT IS THE TRITE LAW SUCH EXPENSES INCURRED N CONNECTION WITH RAISING OF DEBTS / FCC BONDS CONSTITUTE ALLOWABLE EXPENDITURE OF THE ASSESSEE. WE DISMISS THE REVENUE'S FINDING THAT THE SAID EXPENDITURE IS EXPENDED IN CONNECTION WITH ISSUE OF EQUITY SHARES AS THE SAID BOND SUBSCRIPTION $ 5.5 MILLION WAS ULTIMATELY REFUNDED WITH INTEREST AFTER THE LOCK IN PERIOD. 14 . GROUND NOS.2 AND 3 RELATES TO THE DISALLOWANCE U/S 14A OF THE ACT. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 20,17,860/ - . AGAINST THIS, AO QUANTIFIED DISALLOWABLE SUM OF RS. 35,53,568/ - U/S 14A 8 OF THE ACT. AS PER THE ASSESSEE IF THE CITATIONS REFERRED ABOVE ARE CONSIDERED, THE DISA LLOWABLE SUM WILL WORK OUT TO RS. 12,40,240/ - . IT IS THE CLAIM OF THE ASSESSEE THAT THE DISALLOWANCE SHOULD NOT EXCEED RS. 20,17,860/ - AND RELIED ON THE CITED JUDGMENT OF THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF JOINT INVESTMENTS PRIVATE LTD ( SUPRA). FURTHER, ASSESSEE ALSO AN ADDITIONAL GROUND IN SUPPORT OF THE ABOVE GROUNDS MENTIONING THAT SOME INVESTMENTS MADE IN THE SUBSIDIARIES YIELDED DIVIDENDS CHARGEABLE TO TAX IN INDIA. SUCH INVESTMENTS SHOULD BE KEPT OUTSIDE THE SCOPE OF THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962 WHILE DETERMINING THE QUANTITY TO BE DISALLOWED U/S 14A OF THE ACT. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE CITED VARIOUS DECISIONS AND VARIOUS ARGUMENTS IN SUPPORT OF HIS CLAIM. ONE OF SUCH JUDGMENT IS PRONOUNCED BY THE HON BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PRIVATE LIMITED, DATED 25.2.2015, WHICH IS RELEVANT FOR THE PROPOSITION THAT THE DISALLOWABLE AMOUNT U/S 14A MUST NOT MEAN THAT THE ENTIRE EXEMPT INCOME SHOULD BE DISALLOWED . VARIOUS DECISIONS HAVE COM E UP ON THIS ISSUE INVOLVING THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT. LD REPRESENTATIVES OF BOTH THE PARTIES SUGGESTED THAT THIS ISSUE REQUIRES RECONSIDERATION AND FRESH DECISION BY THE AO IN THE LIGHT OF THE SAID DECISIONS ON THE ISSUE. 15 . AFTE R HEARING BOTH THE PARTIES AND ON PERUSAL OF THE CITED DECISIONS, WE REMAND GROUND NOS. 2 AND 3 FILED BY THE ASSESSEE TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NOS. 2 AND 3 ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.4 WHICH RELATES TO THE INTEREST U/S 234D OF THE ACT, SINCE RELATED TO THE OUTCOME OF GROUND NO.2 AND 3, THIS GROUND ALSO REMANDED. ACCORDINGL Y, GROUND NOS.2, 3 AND 4 ARE ALLOWED FOR STATISTICAL PURPOSES . 16 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ITA NO.8066/M/2011 (BY REVENUE) C.O.NO.233/M/2012 (BY ASSESSEE) 17 . THE CAPTIONED APPEAL IS FILED BY THE REVENUE A ND THE CROSS OBJECTION IS FILED BY THE ASSESSEE FOR THE AY 2008 - 2009. GROUND RAISED IN REVNEUES APPEAL IS AS UNDER: - 9 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN ALLOWING DEDUCTION OF BAD DEBTS AMOUNTING TO RS. 24,88,85,442/ - WHEN THERE WAS NO MATERIAL EITHER BEFORE THE AO OR THE CIT (A) TO SHOW THAT THE ASSESSEE HAD FULFILL ED THE CONDITIONS U/S 36(1)(VII) READ WITH SECTION 36(2)(I) TO CLAIM DEDUCTION AS BAD DEBTS. GROUND OF CROSS OBJECTION RAISED BY THE ASSESSEE IS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN OBJECTING TO THE ORDER OF THE CIT (A) ALLOWING DEDUCTION OF BAD DEBTS AMOUNTING TO RS. 2,48,85,482/ - SINCE THE RESPONDENT HAD FULFILLED THE CONDITIONS OF SECTION 36(1)(VII) OF THE ACT. 1 8 . IN THE ABOVE REVENUES APPEAL AS WELL AS THE ASSESSEES CROSS OBJECTION, THE COMMON ISSUE RAISED RELATES TO THE ALLOWABILITY OF THE BAD DEBTS. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS. 24,88,85,442/ - AS AMOUNTS WR ITTEN OFF AS BAD DEBTS. THIS DEBT AROSE IN CONNECTION WITH THE AMALGAMATION BETWEEN THE ASSESSEE AND ITS SUBSIDIARY OF STOREMEDIA TECHNOLOGIES PRIVATE LIMITED (STOREMEDIA). AS PER THE ASSESSEE, IN CONSONANCE WITH THE SCHEME OF AMALGAMATION, IT WITHDREW A N AMOUNT OF RS. 17,90,74,480/ - BEING EXCESS BETWEEN THE ASSETS OF STOREMEDIA TAKEN OVER BY THE ASSESSEE OVER THE VALUE OF THE ASSESSEES INVESTMENT / LOAN S AND ADVANCES IN STOREMEDIA. ASSESSEE UTILIZED THE BALANCE IN THE BUSINESS RESTRUCTURING RESERVE ACC OUNT TO ALIGN THE VALUE OF DEBTORS AND ADVANCE TO THE SUPPLIERS TO FAIR VALUE. THE BALANCE IN THE BUSINESS RESTRUCTURING RESERVE WAS THEREAFTER TRANSFERRED TO THE PROFIT & LOSS ACCOUNT AND THE SAME WAS UTILISED TO WRITE OFF THE BAD DEBTS AND ADVANCES TO T HE SUPPLIERS (PARA5.3 AND 5.4 OF THE WRITTEN SUBMISSIONS ARE RELEVANT IN THIS REGARD). THESE FACTS WERE NOT PROPERLY UNDER STOOD AND APPRECIATED BY THE AO IN THE ASSESSMENT PROCEEDINGS. AO ERRONEOUSLY CAME TO THE CONCLUSION THAT THE ASSESSEE FAILED TO WR ITE OFF THE BAD DEBTS IN THE PROFIT & LOSS ACCOUNT. HOWEVER, ASSESSEE DEMONSTRATED THE SAME DURING THE FIRST APPELLATE PROCEEDINGS AND SUBMITTED THAT AS PER THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) AND 36(2) OF THE ACT, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS. ASSESSEE ALSO RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED (323 ITR 397) (SC) APART FROM MANY OTHER DECISIONS MENTIONED IN PARA 5.11 OF THE NOTE FURNISHED BY THE ASSESSEE. ON APPRECIATI NG THE SUBMISSIONS OF THE ASSESSEE, CIT (A) GRANTED RELIEF TO THE ASSESSEE AS PER THE DISCUSSION GIVEN IN PARAS 5 TO 5.7 OF HIS ORDER. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PARA 5.7 IS EXTRACTED AS UNDER: - 10 5.7. THE LD AO HAS NOT BEEN ABLE TO POINT OUT AN INSTANCE OF BAD DEBTS WHERE THE ACTION OF THE APPELLANT WAS MALA FIDE. AN ASSESSEE IS ENTITLED TO RE - EVALUATE AND REVALUE ITS DEBTORS FROM TIME TO TIME FAILING WHICH HE WILL HAVE UNREALISTIC REALIZABLE FIGURES IN HIS BOOKS OF ACCOUNTS AND THE APPELLANT HAS EXACTLY DONE THE SAME IN THIS CASE. IN VIEW OF THE ABOVE FACTS, THE DISALLOWANCE OF RS. 24,88,85,482/ - ON ACCOUNT OF BAD DEBTS IS DIRECTED TO BE DELETED. 19 . CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) ON THIS ISSUE IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED IN THE REVENUES APPEAL AS WELL AS IN THE ASSESSEES CROSS OBJECTION AR E DISMISSED. 20 . IN THE RESULT, APPEAL OF THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED . 21 . CONCLUSIVELY, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL AND THE ASSESSEES CROSS OBJECTIONS ARE DI SMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH FEBRUARY, 2016. SD/ - SD/ - ( AMARJIT SINGH ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 4 .2.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI