TMI Blog2013 (7) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred mainly on the borrowings for repayment of loan which was availed for investment in DDBs of Nirma Ltd. Series A and, therefore, interest expenditure was incurred wholly and exclusively for the purpose of earning such income which is taxable and hence, rightly claimed. As neither CIT(A) nor D.R. could establish that this contention of the assessee is not factually correct disallowance deleted. In favour of assessee. Notional accrued interest on optionally fully convertible premium notes (OFCPNs) - Additions to income - Held that:- It is not the case of the A.O. that the assessee has sold or transferred these OFCPNs in the present year, thus in the absence of this, it cannot be said that any income has accrued to the assessee even if it is accepted that the market value of these OFCPNs till the last date of the present year is more than cost price i.e. issue price which can be issue price + proportionate accretion and the difference between the face value and issue price. As the nature of OFCPN is not that of FD and it is also not of the nature of DDB because of convertibility option and uncertainty about receipt of any extra amount over and above the issue price. Even o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 Grounds No.2 3 are interconnected, which are as under:- 2. In law and in facts and circumstances of the Appellant's case, the Id. Commissioner of Income tax (Appeals) has grossly erred upholding the action of Ld. Assessing Officer in considering the long term capital gain of ₹ 72,92,630/- on sale of 330 Deep Discount Bonds series -A issued by Nirma Limited as short term capital gain. 3. In law and in facts and circumstances of the Appellant's case, the Id. Commissioner of Income tax(Appeals) has grossly erred upholding the action of Ld. Assessing Officer in not allowing claim of deduction of ₹ 17,50,000/- u/s.54EC of the IT. Act on long term capital gain referred to in ground no. 2 above. 2.2.1 Brief facts are that it is noted by the A.O. in para 4 of the assessment order that the assessee has purchased 330 Deep Discount Bonds (DDBs) Series A of Nirma Ltd. of ₹ 330 lacs and sold the same on 18.03.2002 for a total consideration of ₹ 4,02,92,630/- and declared long term capital gain (LTCG) of ₹ 72,92,630/-. The A.O. has also noted that the debenture deed in that case is dated 27.04.2001 and the certificate of holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical and after considering identical facts, the tribunal decided this issue in favour of the assessee by holding that the period of holding has to be counted form the date of allotment. In the present case also, when we count the period of holding from the date of allotment, the same is more than 12 months and, therefore, the resultant capital gain in the present case is also taxable as LTCG and consequently, the assessee is entitled to the deduction u/s 54EC of the Income tax Act, 1961 also as claimed by the assessee. Hence, both these ground No.2 3 are allowed. 2.3 Ground No.4 is as under: 4. In law and in facts and circumstances of the Appellant's case, the Id. Commissioner of income tax (Appeals) has grossly erred in upholding the Id. Assessing Officer's not allowing the salary paid to the employee who is a company secretary as claimed by the appellant. 2.3.1 It was submitted by the Ld. A.R. that this issue is squarely covered in favour of the assessee by the tribunal's decision rendered in the case of Banihal Holdings Pvt. Ltd. Vs ACIT in I.T.A.No. 1250/Ahd/2006 dated 15.02.2013 and it is submitted that the relevant para of his Tribunal deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the expenditure and disallowing net interest expenses of ₹ 1,22,314/-. 2.4.1 It was submitted by the Ld. A.R. that in the same decision of the tribunal rendered in the case of Banihal Holdings Pvt. Ltd., this issue was decided by the tribunal in favour of the assessee and the relevant paras of this tribunal order are paras 15.7 and 17.3 on pages 187 and 189 of the paper book. Ld. D.R. supported the orders of authorities below. 2.4.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the tribunal decision cited by the Ld. A.R. In that case, regarding allowability of interest expenditure of ₹ 1,50,754/-, it was explained by he assessee before the tribunal that the amount was incurred mainly on borrowing for repayment of loan which was availed for investment in DDBs of Nirma Ltd., Series A. The argument was this that this interest expenditure was incurred wholly and exclusively for the purpose of earning such income which was taxable and rightly claimed. In the present case also, the contention of the assessee is same that this interest expenditure of ₹ 1,22,314/- was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uliar facts of the present case. Regarding the peculiar facts, it was submitted that the issue details of OFCPNs of Nirma Industries Ltd. is available on pages 7-14 of the common paper book. He further submitted that as per the issue details on page 7 of the paper book, it can be seen that his issue price is ₹ 25,000/- and face value is ₹ 33750/- and the tenure is five years from the date of allotment. He also pointed out that the investor has an option to put the OFCPNs in the last quarter of 5th year and regarding convertibility, it was submitted that investors have option to convert each of OFCPNs at the end of 5th year from the date of allotment into 2500 equity shares of ₹ 10 each at par but no interest is payable till maturity. He submitted that under these facts, it is apparent that if the assessee opts for conversion i.e. conversion of OFCPNs into equity shares, the assessee will get only 2500 equity shares of ₹ 10/- each at par in lieu of one OFCPN of issue price of ₹ 25000 and the assessee will not get any monetary gain in the form of interest or otherwise and only if the assessee does not exercise this option then the assessee will get the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as per the issue details of OFCPN of Nirma Industries Ltd. available on pages 7-14 of the paper book and after considering the arguments of both the sides. 2.8.4 As per the issue details of these OFCPNs of Nirma Industries Ltd. Available on page 7 of the common paper book, we find that the issue price of these debentures was ₹ 25000 each having face value of ₹ 33750/-. The tenure was 5 years form the date of allotment. One such OFCPN is convertible into 2500 equity shares of ₹ 10 each at par at the option of the investor to be exercised at the end of 5th year from the date of allotment and if such option is not exercised by the assessee then assessee will get the amount of ₹ 33750/- being the face value of each OFCPN after five years. These facts are very important that in the initial four years, the assessee is not eligible to decide as to whether he is going to exercise the option of convertibility or not and such option is to be exercised only in the last quarter of the 5th year and the assessee will get shares at the end of the period of five years and no interest as such is payable till maturity even if the assessee does not opt for conversion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the facts of the present case, no income is accruing to the assessee because of this reason that in case, the assessee decides in future at appropriate time i.e. in the last quarter of the 5th year that the assessee wants to exercise this option for conversion of OFCPN in the equity shares, the assessee is not receiving any income on account of these OFCPNs and in that situation when the assessee ultimately after 5 years decides to convert the OFCPNs in equity shares, what the assessee is going to get is only prescribed number of shares of the company Nirma Industries Ltd. and not any amount against these OFCPNs. Hence, whether the CBDT Circular No.2 dated 15.02.2002 is illegal or legal, is not required to be decided by us in the facts of the present case because our decision regarding accrual of income in these facts is not dependent on the legal validity of this Board's circular. 2.8.7 Now, we have to decide as to whether any income is accruing to the assessee in respect of these OFCPNs issued by Nirma Industries Ltd. We have already discussed that as per the issue details of these OFCPNs, the issue price is ₹ 25000 each, the face value is ₹ 33750/-, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market value of the asset has gone up nor any loss is allowable to the assessee even if market value of the asset has gone down. It is not the case of the A.O. that the assessee has sold or transferred these OFCPNs in the present year. In the absence of this, it cannot be said that any income has accrued to the assessee even if it is accepted that the market value of these OFCPNs till the last date of the present year is more than cost price i.e. issue price which can be issue price + proportionate accretion and the difference between the face value and issue price. We have already discussed that the nature of OFCPN is not that of FD and it is also not of the nature of DDB because of convertibility option and uncertainty about receipt of any extra amount over and above the issue price. Even on conversion, shares are to be allotted at par and not at a premium i.e. face value. Considering all these facts, we hold that in the facts of the present case, it cannot be said that any income has accrued to he assessee on account of these OFCPNs of Nirma Industries Ltd. because no sale has taken place and there is no guaranteed income to the assessee even after five years in case the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee in I.T.A.No. 1259/Ahd/2006, we have decided this issue in favour of the assessee as per para 2.8.4 to 2.8.8 above and accordingly, in this case also, this issue is decided in favour of the assessee and the additional ground is allowed. 3.7 In the result, this appeal of the assessee stands partly allowed. 4. Now, we take up the appeal filed by another assessee i.e. Nirman Discretionary Family Trust in I.T.A.No. 3758/Ahd/2007 for the assessment year 2003-04. 4.1 Ground No.1 is general. 4.2 Ground No. 2 reads as under: In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in confirming addition of ₹ 21,98,586/- being notional interest on investment of OFCPNs issued by Nirma Industries Ltd. 4.2.1 It was agreed by both the sides that this issue is identical to the additional ground raised by the assessee in I.T.A.No. 1259/Ahd/2006 and the same can be decided on similar lines. While deciding the additional ground in I.T.A.No. 1259/Ahd/2005 as per para 2.8.4 to 2.8.8 above, we have decided this issue in favour of the assessee and accordingly, in this case also, this issue is decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his issue is identical to the additional ground raised by the assessee in I.T.A.No. 1259/Ahd/2006 and the same can be decided on similar lines. While deciding the additional ground in I.T.A.No. 1259/Ahd/2005 as per para 2.8.4 to 2.8.8 above we have decided this issue in favour of the assessee and accordingly, in this case also, this issue is decided in favour of the assessee. This ground no.3 of the assessee's appeal is allowed. 5.4 Ground No.4 is as under: 4. In law and in the facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in confirming disallowance of ₹ 2,30,000 on account of advances written off. 5.4.1 It was submitted by the Ld. A.R. that the assessee is NBFC company and he submitted a copy of the certificate issued by RBI in this regard. Regarding allowability of the claim of the assessee, he placed reliance on the judgment of Hon'ble Apex Court rendered in the case of TRF Ltd. as reported in 323 ITR 397. Ld. D.R. supported the orders of authorities below. 5.4.2 We have considered the rival submissions, perused the material on record and have gone through the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal of the assessee in the case of Kargil Holding Pvt. Ltd. for the assessment year 2003-04 in I.T.A.No. 3763/Ahd/2007. 6. Ground No.1 is general. 6.1 Ground No.2 is as under: In law and in the facts and circumstances of the case, the Ld. CIT(A) has gsrossly erred in cnfirming addition of/Rs.6,19,320/- being notional interests on investment of OFCPNs issued by Nirma Industries Ltd. 6.2 It was agreed by both the sides that this issue is identical to the additional ground raised by this very assessee in assessment year 2002-03 in I.T.A.No. 1260/Ahd/2006 and the same can be decided in this year also on similar lines. While deciding this issue in assessment year 2002-03 in I.T.A.No. 1260/Ahd/2006 as per para 3.6.1 above, this issue was decided in favour of the assessee by following the decision on the same issue as per additional ground raised in I.T.A.No. 1259/Ahd/2006 as per para 2.8.4 to 2.8.8 above. Accordingly, in this year also, this issue is decided in faovur of the assessee. This ground of the assessee is allowed. 6.3 Ground No.3 is regarding chargeability of interest u/s 234A, 234B and 234C of the Income tax Act, 1961. This ground is consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral. 8.2 Ground no.2 is as under: In law and in the facts and circumstances of the case, the Ld. CIT(A) has gsrossly erred in confirming addition of ₹ 24,95,860/- being notional interest on investment of OFCPNs issued by Nirma Industries Ltd. 8.2.1 It was agreed by both the sides that this issue is identical to the additional ground raised by the assessee in I.T.A.No. 1259/Ahd/2006 and the same can be decided on similar lines. While deciding this issue in that case as per para 2.8.4 to 2.8.8, this issue was decided by us in faovur of the assessee and accordingly, in the present case also, this issue is decided in favour of the assessee and this ground is allowed. 8.3 Ground No.3 is regarding levy of inters u/s 234A, 234B and 234C of the Income tax Act, 1961 and the same is held to be consequential. 8.4 Ground No.4 is regarding levy of interest u/s 234D. This issue is now covered in favour of the assessee by the decision of the special bench of the Tribunal decision rendered in the case of Ekta Promoters as reported in 113 ITD 719 (SB). Respectfully following the same, this ground of the assessee is allowed. 8.5 Ground No.5 is regarding initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.No. 1259/Ahd/2006 and the same can be decided on similar lines. While deciding this issue in that case as per para 2.8.4 to 2.8.8, this issue was decided by us in faovur of the assessee and accordingly, in the present case also, this issue is decided in favour of the assessee and this ground is allowed. 10.3 Ground No.3 is regardign levy of inters u/s 234A, 234B and 234C of the Income tax Act, 1961 and the same is held to be consequential. 10.4 Ground No.4 is regarding levy of interest u/s 234D. This issue is now covered in favour of the assessee by the decision of the special bench of the Tribunal decision rendered in the case of Ekta Promoters as reported in 113 ITD 719 (SB). Respectfully following the same, this ground of the assessee is allowed. 10.5 Ground No.5 is regarding initiation of penalty proceedings u/s 271(1)(c) of the Income tax Act, 1961. This ground is premature and rejected accordingly. 10.6 Ground no.6 is general. 10.7 In the result, this appeal of the assessee is partly allowed. 11. In the combined result, all the Nine appeals of seven different assessees are partly allowed. 12. Order pronounced in the open court on the date menti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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