TMI Blog2021 (6) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... imed as not taxable and the CIT(A) gave certain directions which has been reproduced in the preceding paragraphs. We find some force in the arguments of the learned counsel for the assessee. We find the assessee has prepared its accounts as per AS-11 which deals with effect of changes in foreign exchange rate and such difference is required to be recognized as income or expenditure. The Hon ble Supreme Court in the case of CIT v Woodward Governor India P. Ltd.[ 2009 (4) TMI 4 - SUPREME COURT] has held that AS-11 is mandatory and is required to be followed in computing the income as required by section 145(1) read with section 145(2) of the Act. The Hon ble Delhi High Court in the case of CIT v. Virtual Soft Systems Ltd. [ 2012 (2) TMI 120 - DELHI HIGH COURT] has explained the duty of the AO to follow Accounting Standards. In view of the above discussion, following the decision of the Hon ble Supreme Court in the case of CIT v Woodward Governor India P. Ltd. (supra), where it is held that AS-11 is mandatory and required to be followed in computing the income and the decision of the Hon ble Delhi High Court in the case of CIT vs Virtual Soft Systems Ltd.(supra), holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has admittedly not received any dividend during the year. Accordingly, ground raised by the assessee on this issue is allowed. Accrual of income - Taxability of discount received on FCCB - HELD THAT:- CIT(A) was not justified in holding the discount received through buyback of FCCBs at a discounted price as income of the assessee. Accordingly, the order of the learned CIT(A) is set-aside and the grounds raised by the assessee on this issue are allowed. - ITA No.767/DEL/2014, ITA No.1378/DEL/2017, ITA No.2288/DEL/2017 - - - Dated:- 15-6-2021 - Shri R.K. Panda, Accountant Member And Ms. Suchitra Kamble, Judicial Member For the Assessee : Sh. Satyan Sethi, Adv., Sh. Arta Trana Padna, Adv. For the Revenue : Ms. Sushma Singh CIT-DR ORDER PER R.K. PANDA, AM, ITA No.767/Del/2014 filed by the assessee is directed against the order dated11.11.2013 of the learned CIT(A)-XVII, New Delhi, relating to Assessment Year 2009-10. ITA No.1378/Del/2017 filed by the assessee and ITA No.2288/Del/2017 filed by the Revenue are cross appeal and are directed against the order dated 30.01.2017 of the learned CIT(A)-7, New Delhi, relating to the Assessment Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Transferred to P L A/c 34725800 Less Transferred to General Reserve 52930800 Allocated to fixed assets Domestic 126554992 Imported 18467408 Treated in Income Tax Computation As per Income Tax Act foreign exchange fluctuation is governed by following section/Rules. - Rule 115 - 4 3 A Accordingly assessee while preparing Income Tax Return has followed tax treatment as per these requirements of Income Tax Act. Exchange Taxation on FCCBs has been dealt as to given below: - Exchange fluctuation, for pro rata borrowings used for acquiring imported fixed assets has neither been claimed as deduction in P L a/c nor adjusted in Cost of fixed assets during the year (section 43A). Exchange fluctuation for pro rata borrowings used for acquiring indigenous depreciable fixed assets has been adjusted in cost of fixed assets during the year. Exchange, fluctuation for prorate borrowings used for othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investment is exempt, therefore, provisions of section 14A are applicable to the facts of the case. On being questioned by the AO, it was explained by the assessee that it has not earned any dividend income during the year and provisions of section 14A are not applicable. However, the AO was not satisfied by the arguments advanced by the assessee. Relying on the decision the Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs CIT, where it is held that the provisions of section 14A are constitutionally valid and the decision of the Delhi Bench of the Tribunal in the case of Cheminvest Ltd vs ITO (2009) 317 ITR (A.T.) 0086, wherein it was held that if any income is exempt from tax by virtue of section 10 of the Act and not included in the total income of the assessee, the same would attract the provisions of section 14A, the AO made disallowance of ₹ 26,92,582/-. 8. The AO similarly disallowed an amount of ₹ 12,13,352/- on account of short deduction u/s 35D of the Act. Thus, the AO determined the loss of the assessee at ₹ 37,98,97,365/- as against the returned loss of ₹ 50,63,80,172/-. 9. In appeal, the learned CIT(A) not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as a loss as depreciation could not be claimed on these assets. He, thus, held that since, the assessee has clearly claimed the loss on non depreciation capital assets to reduce the incidence of tax and that this is first time that the assessee has claimed this loss, therefore, if there is reduction or increase in the liability of the assessee because of foreign exchange fluctuation it should be added to or reduced from the cost of the assets. The loss of ₹ 12,50,03,577/- can be claimed as a capital loss and not as a revenue loss u/s 37 on account of foreign exchange fluctuation. However, even this capital loss would be allowed only in the year in which the transaction had taken place. The gain can be claimed as a capital receipt. Distinguishing the various decisions cited before him and relying on various other decisions, he held that the assessee cannot claim the amount of ₹ 12,50,03,577/- as forex loss on revenue account without indulging in any transaction and without any revenue element to the transaction. The foreign currency was not part of the trading assets of the company, the loss was not incurred in the course of carrying on the business and was not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign currency. The liability of the appellant has not increased/decreased during the year towards the cost of the assets or repayment of moneys borrowed for acquiring such assets. The appellant has categorically stated that the assets were acquired in A. V. 2006- 07 and 2007-08. In view of the above, the appellant is not entitled to add Rs.l2,65,54,992/-to the cost of assets and claim depreciation as it is not covered by 43A. 5.27. The appellant has quoted several judicial decisions whose facts are different. The appellant has made a claim under 43A and not u/s 37. I have already stated that the appellant would not be allowed to claim the loss u/s 37. Now it is established that the claim u/s 43A would not be allowed. 5.28. The depreciation claimed on the assets is ₹ 1,56,34,104/-. The income of the appellant is enhanced by this amount. The amount of ₹ 12,65,54,992/- is deducted from the cost of assets and depreciation on this amount is disallowed. Penalty proceedings u/s 271(l)(c) are initiated for furnishing inaccurate particulars income. 10. So far as the disallowance u/s 14A is concerned, the learned CIT(A) also confirmed the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of ₹ 12,65,54,992/- was allowable deduction under section 37 of the Act. Hence the Appellant is entitled to relief of ₹ 12,65,54,992/-. 2. That on the facts and circumstances of the case and in law, CIT(A) while withdrawing depreciation of ₹ 1,56,34,104/- ought to have allowed deduction of ₹ 12,65,54,992/- being the loss on account of foreign exchange fluctuations attributable to acquisition of indigenous depreciable assets. 13. The learned counsel for the assessee while explaining the reasons for filing of the above additional grounds submitted that during the financial year 2006-07, the assessee had issued unsecured foreign currency convertible bonds of US$2,70,00,000/- for a period of five years which were redeemed on 23.11.2011. As at 31.03.2008, liability towards FCCBs converted into Indian Rupee was ₹ 108,00,00,000/- and as at 31.03.2009, it was ₹ 138,21,30,000/-. As such, the assessee incurred loss of ₹ 30,21,30,000/- on account of depreciation of rupee. The assessee in the accounts has dealt with the loss of ₹ 30,21,30,000/- was dealt as under:- S. No Amount of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be denied since the tax can be levied and collected only in accordance with law. He submitted that it is repeatedly held by the Courts in various decisions that even if an assessee declares an income in the return, the Assessing Officer cannot assess it merely on that basis and he has to consider its taxability in the light of other circumstances de hors the admission made in the return. He submitted that since, the loss of ₹ 12,65,54,992/- was allowable deduction as per law, therefore, the assessee deserves to be allowed deduction. It cannot be denied relief merely because the loss was not claimed as deduction in the return of income. There is no estoppels against the statute is well settled as held in various decisions. 15.2 Referring to the decision of the Hon ble Supreme Court in the case of NTPC Ltd. vs CIT 229 ITR 383(SC) and various other decisions, he submitted that since all material facts are already available on record and no new facts are required to be investigated, therefore, the additional grounds raised by the assessee should be admitted for adjudication. 16. The learned DR, on the other hand, strongly opposed the admission of the additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion grounds raised by the assessee. 19. Ground No.1 being general in nature is dismissed. 20. Grounds of appeal no.2 and 2.1 relates to denial of exchange loss of ₹ 12,50,33,577/-. 20.1. The learned counsel for the assessee, referring to page 34 read with page 45 of the paper book submitted that in the AY 2009-10, the assessee incurred exchange loss of ₹ 30,21,30,000/- [138,21,30,000 108,00,00,000] in respect of FCCBs. He submitted that during the FY 2006-07, the assessee issued unsecured foreign currency convertible bonds of US$2,70,00,000/-. The earlier proceeds were utilised in AY 2007-08 and 2008-09. The liability as on 31.03.2009 was in rupee terms of ₹ 1,38,21,30,000/-, whereas it was ₹ 1,08,00,00,000/- as on 31.03.2008. Thus, the difference was ₹ 30,21,30,000/- 20.2. He submitted that out of the forex loss of ₹ 30,21,30,000/-, ₹ 3,21,04,023/- and Rs.l,84,67,407/- was not claimed as a deduction. ₹ 12,65,54,992/- was the amount which pertained to acquisition of indigenous fixed assets. This was added to the cost of the assets by the assessee and depreciation was claimed on this amount and this depreciation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 by Notification 31.3.2009. 20.7. Referring to the decision in the case of CIT vs Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) @ 265], he submitted that AS-11 is mandatory and is required to be followed in computing the income as required by section 145(1) read with section 145(2) of the Act. Referring to the decision of the Hon ble Delhi High Court in the case of CIT v. Virtual Soft Systems Ltd. (2012) 341 ITR 593(Del) @ 602 603, he submitted that the Hon ble Delhi High Court has elaborated the duty of the AO to follow Accounting Standards. This judgment has been approved by Hon ble Supreme Court in CIT v. Virtual Soft Systems Ltd. [2018] 404 ITR 409(SC). 20.8. Referring to page 78 of the paper book, he drew the attention of the Bench to the companies (AS) Amendment Rules 2009 and submitted that as per the said rules, notwithstanding AS-11 (revised 2003), Companies (Accounting Standards) Amendment Rules, 2009 gave following option to an enterprise w.r.e.f. 7.12.2006: Exchange difference relating to acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age_56 of the paper book), which included forex gain of ₹ 4,72,43,028/-. Gain of ₹ 4,72,43,028/- was not reduced in computing the income and the assessment was made at the income of ₹ 41,05,91,605/-. Thus, forex gain of ₹ 4,72,43,028/- has been taxed in the assessment year 2008-09. 20.13. He submitted that even in the succeeding assessment year i.e. 2010-11, there was net gain of ₹ 5,44,92,768/-, which in the original return filed on 22.9.2010 was offered to tax. However, on account of inconsistent stand of the department, the gain was claimed as not taxable and the issue was raised before the CIT(A). The CIT(A) appreciating the inconsistency in the stand has passed the following order in Appeal No.05/CIT(A)-7/Del/14-15 dated 30.01.2017. During the year under consideration, it earned forex gain for ₹ 5,44,92,768/- and showed the same as income in the return but claimed the same in a revised computation in view of the fact that loss on this account was not allowed in the earlier year and therefore, the department needs to be consistent in its approach that if the loss was treated as of capital nature, even the receipt should be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction has taken place during the year, for no payment was made during the year. Further, assets were not acquired during the year. Loss can be allowed in the year in which transaction had taken place. Further, such exchange loss was capital loss and not revenue loss. It is the submission of the learned counsel for the assessee that the stand of the department is inconsistent since in AY 2008-09, foreign exchange gain of ₹ 4,72,43,028/- was taxed as income as the same was not reduced in computing the income. Similarly, in AY 2010-11, the net gain was offered to tax. However, due to inconsistent stand of the department, the gain was claimed as not taxable and the CIT(A) gave certain directions which has been reproduced in the preceding paragraphs. 22.2. We find some force in the arguments of the learned counsel for the assessee. We find the assessee has prepared its accounts as per AS-11 which deals with effect of changes in foreign exchange rate and such difference is required to be recognized as income or expenditure. The Hon ble Supreme Court in the case of CIT v Woodward Governor India P. Ltd. (Supra) has held that AS-11 is mandatory and is required to be followed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee submitted that exchange loss of ₹ 12,65,54,992/-was attributable to acquisition of indigenous depreciable assets. Increased liability on account of forex loss was added to the cost of the fixed assets and deprecation of ₹ 1,56,34,104/- claimed, which was allowed by the Assessing Officer. The CIT(A) enhanced the income, inasmuch as, deprecation of ₹ 1,56,34,104/- was withdrawn and the amount of ₹ 12,65,54,992/- was reduced from the WDV, for the reason that (i) section 43A was not applicable to such a case because the assets were not acquired from abroad and (ii) liability of the assessee towards cost of the assets or repayment of money borrowed has not increased or decreased during the year. 23.2. He submitted that Section 43A has no applicability in a case such as the present one, as has been held in Cooper Corporation (P) Ltd. v. Dy. CIT (2016) 159 ITD 165 (Pune), however, the conclusion that the liability due to exchange fluctuation has not increased during the year because the assets were acquired in earlier years runs contrary to the decision of the Hon ble Supreme Court in CIT vs Tata Iron Steel Co. Ltd. reported in 231 ITR 285, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the disallowance of depreciation against the assessee. Section 43A thus could not apply in the case of the assessee which is also held by various Benches of the Tribunal in the decisions quoted above. Accounting Standard-11 would also apply in the case of the assessee. The assessee has also explained that Companies Amendment Rules also apply to the facts of the case because option is given to assessee and it provided Where long term foreign currency monetary items relates to acquisition of depreciable capital asset, the same shall be added/deducted from the cost of the asset and shall be depreciated accordingly over the balance life of the asset. . It is not in dispute that assessee followed AS-11 regularly. In A.Y. 2010-2011 the Ld. CIT(A) allowed similar claim of the assessee, but, the Department did not file any appeal against the same Order. 23.4. He also relied on the decision in the case of Dy. CIT v. Maddi Lakshmaiah Co. Ltd [2017] 82 taxmarnn.com 205 (Visakhapatnam) and the decision of the Cochin Bench of the Tribunal in the case of MFAR Hotels Resorts Ltd. v. ACIT vide ITA No.63/Coch/2015, order dated 16.03.2018. Further, Cooper Corporation (P) Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is added to the written down value of the block of assets . The Assessing Officer disallowed depreciation for the reason that definition of WDV does not envisage such adjustment and section 43A was not applicable, for assets were not acquired from a country outside India. CIT(A) allowed depreciation observing that else there would be a case to claim full amount of exchange fluctuation as revenue loss. In appeal, the Tribunal referring to CIT v Woodward Governor India P. Ltd. (2009) 312 ITR 254 (SC) upheld the order of CIT(A). 23.9. He accordingly submitted that the depreciation claimed by the assessee should be allowed and accordingly the additional ground may be treated as infructuous. 23.10. The learned CIT-DR on the other hand, heavily relied on the order of the CIT(A). She submitted that the learned CIT(A) has given valid reasons for disallowing the depreciation while enhancing the income of depreciation to the extent of ₹ 1,56,34,104/-, since, the assets were not acquired from abroad and the liability of the assessee company towards cost of the assets or repayment of money borrowed has not increased or decreased during the year. She accordingly submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any liability on account of prevailing exchange rate was shown in the balance-sheet under the Head Unsecured Loans the fluctuations to the extent of acquisition of fixed assets in India by utilising FCCBs was added to the actual cost and depreciation charged thereon. Thus, the assessee purchased the machinery in India from the foreign funds through FCCBs which fact is not disputed by the authorities below. It is, therefore, clear that though Section 43A apply to the assets acquired from Abroad, still the A.O. without justification applied Section 43A for making the disallowance of depreciation against the assessee. Section 43A thus could not apply in the case of the assessee which is also held by various Benches of the Tribunal in the decisions quoted above. Accounting Standard-11 would also apply in the case of the assessee. The assessee has also explained that Companies Amendment Rules also apply to the facts of the case because option is given to assessee and it provided Where long term foreign currency monetary items relates to acquisition of depreciable capital asset, the same shall be added/deducted from the cost of the asset and shall be depreciated accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but where the assessee has spread it over, the Court would allow the benefit. We find merit in the argument of the learned counsel for the assessee that it cannot be held that neither depreciation on enhanced cost due to exchange fluctuation is to be allowed nor the loss itself was to be allowed more so because claim to this effect was raised both before the Assessing Officer as well as the CIT(A). Accordingly, ground no.3 raised by the assessee is allowed and additional ground being infructuous is dismissed. 25. Ground number 4 relates to disallowance of ₹ 8,53,916/- under section 14A of the Act read with Rule 8D of Income tax Rules, 1962. 25.1. Fact of the case, in brief are that the AO during the course of assessment proceedings noted that the assessee has opening and closing investment of ₹ 27,39,71,001/-, the income from the investment of which is exempt under provisions of Income Tax Act. The AO relying on the decision of the Tribunal in the case of Cheminvest Ltd vs ITO (2009) 317 ITR (A.T.) 0086 computed the disallowance u/s 14A r.w.r. 8D at ₹ 26,92,582/-. In appeal, the learned CIT(A) upheld the disallowance so made by the AO. 25.2. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (page 4 of assessment order). Excluding the suo-moto disallowance, the Assessing Officer made further disallowance of ₹ 26,92,582/- which is not justified. He accordingly submitted that no disallowance u/s 14A r.w.r 8D is called for. 25.5. The learned DR on the other hand supported the order of the learned CIT(AO. 25.6. We have heard both the parties and perused the record. We find before the AO, the assessee has categorically stated that the assessee has not received any dividend income during the year. This fact was not controverted by the AO or the CIT(A). Even the learned DR also could not bring any material before us to show that the assessee has received any dividend income during the year. We, therefore, following the decision of the Hon ble Delhi High Court in the case of Cheminvest Ltd. vs CIT (supra) hold that the learned CIT(A) is not justified in sustaining the disallowance made by the AO u/s 14A r.w.r 8D when assessee has admittedly not received any dividend during the year. Accordingly, ground raised by the assessee on this issue is allowed. ITA No.2288/Del/2017 (Revenue s appeal) 26. The only effective ground raised by the Revenue reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receding years, therefore, department needs to be consistent in its approach and even receipt should be treated as capital in nature. He, accordingly directed the Assessing Officer to exclude the receipts from the total income. He, however, held that if in any further appeal for AY 2009-10, it is held that the loss has to be allowed as revenue expenditure, the gain for the assessment year under consideration would also has to be taxed as income. 30. While deciding the issue for AY 2009-10, we have already held that foreign exchange fluctuation loss to be revenue in nature. Therefore, following the similar reasoning, the gain for this assessment year has to be treated as income of the assessee for the impugned assessment year. We, therefore, hold that the amount of ₹ 5,44,92,768/- has to be treated as income of the assessee. Accordingly, the order of the Assessing Officer is upheld and the ground raised by the Revenue is allowed. ITA No. 1378/Del/2017(Assessee s appeal) 31. Ground of appeal no.1 and 1.1 raised by the assessee reads as under:- 1.That on the facts and circumstances of the case and in law, the Commissioner of Incometax( Appeals)-XVII, Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A), the assessee submitted that the this issue stands decided in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of Logitronics Pvt. Ltd. vs. CIT (2011) 333 ITR 386(Bom.). It was argued that due to the following reasons the addition of ₹ 45.64 Crores was not warranted:- i. Section 41(1) did not apply to buyback of FCCBs. ii. Even section 28(iv) does not apply to buyback of FCCBs. iii. The decision of the Hon ble Delhi High Court in the case of Logitronics P. Ltd. vs CIT (2011) 333 ITR 3786 (Del.) is squarely applicable to the facts of the case iv. There is no provision to charge to tax the sum of ₹ 45,64,91,290/-. 34.1. Relying on various other decisions, it was argued that addition made by the Assessing Officer has to be deleted. 35. However, the learned CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the addition made by the Assessing Officer by observing as under:- 4.2. I have carefully considered the submissions of the AR of the appellant and the order Massed by the AO. The appellant raised a sum of USD 27 million (₹ 118.17 crore) by way of Foreign Currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability which the assessee has incurred in praesenti although it is payable in futuro. A contingent liability that may arise in future is, however, not 'expenditure'. It would also cover not just a one-time payment but a liability spread out over a number of years... 15. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. 4.7. Following that ratio, the Madras High Court, in the case of CIT v. Tube Investments of (India) Ltd.[2003] 261 ITR 753, held that pro-rata annual allocation of premium payable on redemption of debentures is allowable as revenue expenditure. The Calcutta High Court, in the case of National Engineering Industries Ltd. v. CIT[1999] 236 ITR 577, held as below: 9. In our case, we are concerned not with debentures issued at a discount from the face value but with debentures which carry a premium to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue receipt, i.e. income chargeable to tax. It would be absurd to say that the discount allowed by the appellant on debentures should be revenue expenditure but the discount received by him on the same should be capital receipt. 4.12. .. As per the terms of the FCCBs, they had to be redeemed at premium of 45.54%. It has been ascertained that the appellant treated the said premium as revenue expenditure. When the appellant claimed deduction for premium payable as revenue expenditure, there is no reason why the discount received by it on the same should not be treated as revenue receipt. It is not the case that liability to the extent of ₹ 45.65 crores had ceased to exist and that the appellant repaid only the liability of ₹ 47.26 crores at face value. It is a case where the entire liability of ₹ 92.91 crores remained intact. It is just that the appellant discharged the same by paying only ₹ 47.26 crores. Flence, it is not a case of extinguishment of the loan liability but receipt of discount while discharging the same. 4.13. The appellant has relied on some decisions in support of its contention that when a part of the loan amount is waive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2020) ACIT vs M/s KEI Industries Ltd. (ITA No.1433/Del/2014 dated 03.12.2020) 38. He submitted that FCCB means a bond issued by an Indian company expressed in foreign currency. The principal and interest in respect of such a bond is payable in foreign currency. These bonds, at the option of bond holders are convertible into shares. FCCBs are unsecured loans. Referring to pages 144 to 151 of the paper book, the learned counsel for the assessee submitted that on 22.11.2006, the assessee had issued 5400 FCCBs aggregating to US$ 27 million. The bonds were to be redeemed on 23.11.2011 at a price of US$ 7277 per bond. During the period 22.11.2006 to 13.11.2011, bondholders had the option to convert the bonds into equity shares @₹ 265/- per share at a fixed rate of exchange of ₹ 44.99 = US$ 1. He submitted that the FCCB proceeds were utilized for setting up new manufacturing facility or expansion of manufacturing facility. Referring to page 203 of the paper book, he submitted that assessee in terms of automatic route repurchased FCCB of the value of US$ 19.50 million (₹ 92,91,10,000/ - rupee equivalent at prevailing exchange rate). Out of 5400 FCCBs of US$ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not provided. He submitted that both before the Assessing Officer and the CIT(A) assessee has clarified that FCCBs were bought back at discount. Such FCCBs were shown in the accounts as unsecured loan and the amount of FCCBs were neither claimed nor allowed as deduction in computing the income any earlier year. Referring to the decision of the Hon ble Delhi High Court in the case of CIT vs Havells India Ltd. (2013) 352 ITR 376(Del.), he submitted that Hon ble Delhi High Court while answering the question as to whether expenditure on fully convertible debentures was revenue expenditure did not accept the stand of the department that since the debentures are fully convertible and as such, it would strengthen the capital base of the company on conversion into equity, therefore, the position should not be seen only with reference to time at which convertible debentures were issued. It was held that the fact that debentures are to be converted in the near future into equity shares is irrelevant. Therefore, the allegation of the Assessing Officer that FCCBs were convertible into shares did not change its inherent character. At the time of buyback, FCCBs were nothing but unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds were utilized partly for ongoing capitalization programs and thus, same was capital receipt. 41. Referring to the decision of the Co-ordinate Bench of the Tribunal in the Case of OK Play India Ltd. vs JCIT in ITA No.3402/Del/2016, order dated 13.01.2020, he submitted that the Co-ordinate Bench of the Tribunal following the decision of the Hon ble Delhi High Court in the case of Logitrinics (P) Ltd. (supra) and various other decisions has held that discount received on FCCBs is not taxable in the hands of the assessee. Similar view has been taken by the Delhi Bench of the Tribunal in the case of ACIT vs M/s KEI Industries Ltd. in ITA No.1433/Del/2014. He accordingly submitted that this being a covered matter in favour of the assessee, the order of the learned CIT(A) on this issue should be set-aside and the grounds of the assessee should be allowed. 42. The learned CIT-DR on the other hand heavily relied upon the order of the learned CIT(A). 43. We have considered the rival arguments made by both sides, perused the orders of the learned AO and learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25%. The fact that the proceeds of these bonds was utilized partly for investment in foreign subsidiaries and partly for ongoing capitalization programs remain unrebutted before us. In fact, the RBI s terms of issue of bonds prohibits utilization of proceeds for trading purposes. The said facts lead us to form an opinion that the gains were on capital account. The Ld. AO, while making additions has invoked the provisions of Section 28(iv). These provisions consider value of any benefit or perquisite, whether convertible in money or not, arising from the business as business income. However, the benefit has to be in some form other than in the shape of money, as held by higher judicial authorities. 5.5 The Hon ble Supreme Court in recent decision of CIT V/s Mahindra and Mahindra Ltd. [93 Taxmann.com 32] has observed as under: - 10. The term loan generally refers to borrowing something, especially a sum of cash that is to be paid back along with the interest decided mutually by the parties. In other terms, the debtor is under a liability to pay back the principal amount along with the agreed rate of interest within a stipulated time. 11. It is a well-settled pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l matrix before us. Therefore, the benefit to be received by the assessee has to be in some form other than in the shape of money so as to bring the same within the ambit of Section 28(iv). 5.6 Similar view has been taken by Hon ble Bombay High Court in CIT V/s Xylon Holdings Pvt. Ltd [supra] wherein the case law of Solid Containers Ltd. [supra] as relied upon by Ld. AO, has been distinguished. Similar view has been expressed in CIT V/s Santogen Silk Mills Ltd. [supra]. 5.7 Respectfully following the aforesaid binding judicial precedents, we confirm the view taken by Ld. first appellate authority. This ground stands dismissed. 44. We find the Co-ordinate Bench of the Tribunal in the case of OK Play India Ltd. vs JCIT (Supra) while deciding an identical issue has allowed the appeal filed by the assessee by observing as under:- 3.7 We have heard rival submissions and perused the relevant material on record. The assessee raised FCCB in the earlier year and during the year repaid with discount of ₹ 9,46,73,015/- received. According to the assessee, the discount received is in the nature of capital receipt but according to the Revenue the discount is in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan is waived off by the creditor, some benefit accrues to the assessee. Question is what would be the character of waiver of part of the loan at the hands of tHe assessee? Waiver definitely gives some benefit to the assessee. Whether it is to be treated as capital receipt? If it is so, then only capital gains tax would be chargeable under section 45 or else, whether remission of loan is no income at all? The answer to these questions would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax, but on the other hand, if the loan was taken for trading purpose and was treated as such from the very beginn ing in the books of account, the waiver thereof may result in the income, more so when it was transferred to the profit and loss account. [Para 23] 3.8 The Hon ble High Court has laid down test for holding the amount of waiver of loan as capital or trading receipt. If the amount of the loan has been utilized for capital expenditure, then the waiver amount is in the nature of the capital receipt and if the amount of the loan has been utilized for tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- ' 28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head Profits and gains of business profession ,- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of ₹ 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd., Roz-Ka-Meo Industrial Estate, Tehsil Nuh, District Mewat, Haryana vs., JCIT, Range-II, Gurgaon (supra), considering the Judgment of the jurisdictional Delhi High Court in the case of Logitronics P. Ltd., vs., CIT (supra) and Judgment of Hon ble Supreme Court in the case of CIT vs., Mahindra Mahindra Ltd., (supra), decided the identical issue in favour of the assessee and appeal of assessee has been allowed. The findings of the Tribunal in paras 3.7 to 3.12 are reproduced as under : 3.7. We have heard rival submissions and perused the relevant material on record. The assessee raised FCCB in the earlier year and during the year repaid with discount of ₹ 9,46,73,015/- received. According to the assessee, the discount received is in the nature of capital receipt but according to the Revenue the discount is in the nature of trading receipt. The Assessing Officer has alleged the activity of raising FCCB as an adventure in the nature of trade. This finding of the Assessing officer is without any basis. The assessee is not engaged in raising the FCCB with motive of any trading and discounting and thereby earning profit on the same. The allegation by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 45 or else, whether remission of loan is no income at all ? The answer to these questions would depend upon the purpose for which the said loan was taken. If the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax, but on the other hand, if the loan was taken for trading purpose and was treated as such from the very beginning in the books of account, the waiver thereof may result in the income, more so when it was transferred to the profit and loss account. [Para 23] 3.8 The Hon ble High Court has laid down test for holding the amount of waiver of loan as capital or trading receipt. If the amount of the loan has been utilized for capital expenditure, then the waiver amount is in the nature of the capital receipt and if the amount of the loan has been utilized for trading purposes then the waiver amount received would be in the nature of trading receipt. 3.9 Before us, the assessee has demonstrated how the FCCB amount has been utilized towards capital expenditure. The assessee submitted entire list of capital asset acquired through the funds of FCCB, which is available on page 235 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) the value of any benefit or perquisite, whether convertible into money or no , arising from business or the exercise of a profession; 13. On a plain reading of Section 28(iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of ₹ 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, our view, in no circumstances, it can be said that the amount of ₹ 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. [Emphasis supplied] 3.11. In the instant case, the benefit has been received in the shape of the money and thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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