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2021 (12) TMI 989 - AT - Income TaxDeduction of interest (premium) on Zero Coupon Convertible Bonds(ZCCB) - Disallowances being the proportionate claim of the premium on ZCCBs written off during the tenure of Zero Coupon Convertible Bonds - Assessee is following mercantile methods of accounting - different treatment in books of accounts and income tax computation - HELD THAT:- Accounting entries are not determinative of the true nature of the transaction. The accounting treatment has been given in compliance with the companies Act provisions. There is no claim of any violation in this regard. The claim in income tax Act has to be made as per mercantile system and consistent method accounting. A liability which has been accrued has to be provided and allowed. It is not that liability is allowed only on the payment basis. Adverse inference cannot be taken for non deduction of TDS as reasons submitted by the assessee are cogent. As submitted above, these bonds are listed on Singapore Stock Exchange and till redemption on maturity, the beneficiary of the premium is not known. In such circumstances in absence of the identification of recipient and TDS deduction cannot be given credit for. Further, though not directly on this issue the CBDT circular on deep discount bond referred above also provides that on similar issue, TDS has to be deducted on the point of redemption. Furthermore as submitted, at the time of redemption tax was deducted at source in accordance with the provisions of the Act. This submission has not been disputed. Hence, this reasoning for rejection is also not sustainable. The argument of revenue that the amount has not been debited in account is also not sustainable as the assessee has very much been debited in the account to the debit of share premium account. The Companies Act duly permits the same. Hence, the plea that amount is contingent and not debited is not correct, when revenue itself has accepted the debit in this regard of the amount to the share premium account. Revenue authorities cannot take a shifting stand that the amount is correctly accrued and debit to share premium account is correct, but the same is still a contingent amount. The assessee could have very well debited the amount to the profit and loss account, but it has chosen to debit the amount to share premium account in the books, which is also permitted as per Companies Act. No infraction of law in this regard was pointed out. Since revenue has accepted the debit of the premium to share premium account, it is clear that revenue has accepted that redemption premium amount has been accepted as accrued. In the present case there is nothing on record that the borrower had exercised any such discretion. In this view of the matter, the said case law SM HOLDING AND FINANCE P. LTD. [2003 (3) TMI 44 - BOMBAY HIGH COURT] is fully applicable on the facts of the case and the liability on account of debenture redemption premium is liable to be deducted from the income and cannot be treated as contingent liability. The amount of debenture redemption premium is accrued and liable to be deducted. Hence, in the background of aforesaid discussion and precedents, we set aside the orders of the authorities below, and decide the issue in favour of the assessee. Disallowance u/s. 14A - suo-moto disallowance made by assessee - HELD THAT:- We note that assessee has given the reasons for expenditure, which as per the assessee is disallowable u/s.14A. Assesee has provided the basis of working of disallowance, however, the same has been rejected by the authorities below without cogent reasoning. The AO and Ld.CIT(A) are mentioning that “it is difficult to accept that assessee has incurred only that much of expenditure.” This is no reason at all. It is settled law that proper satisfaction is necessary in this regard in rejecting assessee’s contentions. See M/S. BOMBAY STOCK EXCHANGE LTD. [2019 (11) TMI 105 - BOMBAY HIGH COURT] wherein as come to the conclusion that nonsatisfaction as recorded by the Assessing Officer for rejecting the sou motu disallowances claimed by the assessee is not done as required under section 14A(2) . Corporate guarantee commission - TPO has calculated the ALP @ 6.67 - HELD THAT:- We note that Hon’ble Bombay High Court in CIT vs.Everest Kento Cylinders Ltd. Kanto, [2015 (5) TMI 395 - BOMBAY HIGH COURT] has confirmed the ITAT order of 0.5% corporate guarantee commission - Thus we direct that disallowance should be restricted @0.5%
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