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2015 (9) TMI 556 - AT - Income TaxRevision u/s 263 - as per CIT(A) AO did not verify the claim of the Assessee for deduction u/s.35D of the Act, by taking note of the definition of capital employed and as to whether share premium can be considered as part of the capital employed and whether FCCBs can be considered as debentures and taken as part of capital employed for the purpose of allowing deduction u/s.35D of the Act - Held that:- In the present case, the 1st year in which relief was allowed u/s.35D of the Act has since been modified. Though such modification happened after the order u/s.263 of the Act, which order is impugned in this appeal, it cannot be said that the 1st year of allowance of deduction u/s.35D of the Act stands allowed as claimed by the Assessee. In none of the decisions relied upon by the Assessee, it has been held that even if the 1st year of allowance of a claim is withdrawn at a later point of time, still the revisional order would be bad in law on the ground that the 1st year a claim had been allowed. We are of the view in such circumstances, the exercise of jurisdiction cannot be attacked on the ground that it is only in the 1st year of allowance of a claim which is to be allowed over a period of time that jurisdiction u/s.263 can be exercised. We therefore reject this argument of the learned counsel for the Assessee. - Decided against assessee. Relief on the basis of "Cost of Project" u/s.35D(3)(a) - Held that:- It is only the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are acquired or developed in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the Assessee that should be considered. The Assessee issued GDRS and FCCBs and incurred expenditure in this regard. The proceeds of the issue were used to acquire shares of two foreign companies and thereby gain control of the two foreign companies. Therefore there were no fixed assets that were acquired or developed in connection with the extension of the industrial undertaking or setting up of the new industrial unit of the Assessee. The argument of the learned counsel for the Assessee cannot therefore be sustained and shares acquired cannot be treated by any stretch of imagination as land or building, plant or machinery etc., and treated as "cost of project" for the purpose of allowing deduction u/s.35D - Decided against Assessee. Share Premium - whether can be regarded as part of the Issued Share capital while computing "Capital Employed"? - Held that:- Sec.254(2) and the regular assessment proceedings, cannot be applied in the context of provisions of Sec.263 of the Act. The power u/s.263 of the Act is a supervisory power and protection of the interest of the revenue owing to an erroneous order is the salutary purpose of those provisions. The provisions of Sec.78 of the Companies Act, 1956 on which the decision of Sirhind Steel Ltd. (2005 (9) TMI 218 - ITAT AHMEDABAD-D) proceeded provides for a limited fiction of treating share premium as part of paid up capital for the purpose of reduction of the same. Sec.78(2) of the Companies Act, 1956 prohibits use of share premium for any purpose other than the purposes set out therein. Can it be said that share premium could be employed in the business of the Assessee as share capital? In our view therefore there is no merit in the contention of the learned counsel for the Assessee that share premium should be regarded as part of the "issued share capital" for allowing deduction u/s.35D of the Act - Decided against the Assessee. Treatment to FCCB - whether FCCBs can be considered as "Debentures" and taken as part of capital employed for allowing deduction u/s.35D? - Held that:- Conclusions of the CIT are unsustainable. In the light of the definition of Debentures as contained in the Companies Act, 1956 to include Bonds and in the light of the fact that the FCCBs in question are in the nature of bonds as defined in the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 wherein the meaning FCCBs is given as "bonds issued in accordance with the said scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments, we are of the view that FCCBs are to be regarded as debentures and consequently be considered as part of "capital Employed" for allowing deduction u/s.35D of the Act. - Decided in favour of the Assessee. Unrealised foreign exchange gain - Whether should be treated as "Income" or not? - Held that:- In our view the facts of the case in the decision of the Madras High Court in the case of PVP Ventures Ltd. (2012 (7) TMI 696 - MADRAS HIGH COURT ), is identical to the facts of the case of the Assessee in this appeal. FCCBs are instruments issued to investors for raising funds which is repayable after certain period. It is a debt instrument. The increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the Balance sheet would increase or decrease the liability of the Assessee and such liability would be on capital account. Therefore the gain or loss would be on capital account and not taxable. - Decided in favour of the Assessee.
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