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2022 (5) TMI 1514 - AT - Income TaxTP Adjustment - adjustment made on account of interest chargeable on Optionally Convertible Debentures (OCDs) - determining the ALP by imputing interest in respect of OCD's at LIBOR plus 150 bps - HELD THAT:- We find that the issue in appeal is squarely covered, in favour of the assessee, by a coordinate bench decision in the case of Cadila Healthcare Ltd. [2017 (4) TMI 462 - ITAT AHMEDABAD] held that the consideration for having given the loan is, as we have noted earlier, opportunity and privilege of owning capital of the borrower on certain favourable terms. If at all the comparison of this transaction was to be done with other loan transaction, the comparison should have been done with other loans giving rise to similar privilege and opportunity to the lender. The very foundation of impugned ALP adjustment is thus devoid of legally sustainable basis. While the learned Transfer Pricing Officer had discussed, at length, nature of ‘debenture’ being a debt instrument, what he has missed out is the fact the character of an optionally convertible debenture is materially different vis-à-vis a debenture simplicitor, and that it’s the opportunity to subscribe to equity which, in such a case, becomes pre-dominant motive for subscription of the optionally convertible debenture. There is not even a dispute that the OCD’s in question have been subsequently been converted into equity capital at par value. The actual value of OCD being in the convertibility of OCD in the equity capital is thus not even in doubt. We uphold the plea of the assessee and delete the impugned ALP adjustment - Decided in favour of assessee. Disallowing the amount of sundry advances written off - Amount written off by the appellant in its books of accounts considering the same as prior period expenses though accepting that same are for the purpose of business and are revenue in nature - AO disallowed the claim for write off of the advances written off with the short observation that the assessee could not provide enough justification for these write off - HELD THAT:- CIT(A) has given a categorical finding to the effect that the expenses are revenue in nature and pertain to business of the assessee, but has disallowed the write off only on the ground that expense pertains to the earlier years. What he has apparently missed out is the fact that so far as write off of dues on Business News Asia Pvt Ltd., and Seachange International is concerned, the write off is for the amounts which are unrecoverable. The claim for deduction therefore can only arise in which amount is written off, and that is preciously what the assessee has claimed. We see no infirmity in the same. So far as the amounts given to MIB are concerned, it is only when the assessee realized that MIB issues only receipts and no separate instrument of the invoice nature, for registration of channels, that the write off was claimed. There is no dispute about genuineness or nature of payment, or the fact that this deduction has not been made earlier. In these circumstances, the amount admittedly being of revenue nature should have been allowed as a deduction. In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance. Nature of expenses - Expenses incurred on account of Employee Stock Option Plan Scheme - revenue expenditure allowable as deduction u/s. 37 - HELD THAT:- As decided in assessee own case for the assessment year 2008-09 sustain the order of the Ld.CIT(A) in deleting the ESOP expenses allowing the same as revenue expenditure. Ground raised by the Revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - Sufficiency of own funds - HELD THAT:- As decided in assessee’s own case including the order for assessment year 2008-09 when assessee has sufficient own and interest free funds for making the investments no disallowance is warranted under Rule 8D(2) (ii) of I.T. Rules. Subject to verification the claim of the assessee is allowed. Disallowance under Rule 8D(2)(iii) of I.T Rules - As following the Special Bench decision in the case of Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] we hold that only those investments which yielded dividend income should be considered for disallowance under Rule 8D(2)(iii) of the I.T Rules. Thus, we direct the Assessing Officer to recompute the disallowance u/s. 14a r.w. Rule 8d of the Act in the light of our above observations.
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