TMI Blog2022 (4) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... s business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. Thus after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non-convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @ 11.40% along with redemption after the 10th year. These facts and submission were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 however, CIT without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consider that the order passed by the ld. Pr.CIT u/s 263 is unjustified and we quash the same. Therefore, we allow the ground of appeal of the assessee. - SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led on 30.11.2013. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 29.09.2014. Assessment u/s 143(3) r.w.s 144C(13) of the Act was finalized on 30.06.2017. Subsequently, the ld. Pr.CIT has initiated proceedings u/s 263 of the Act by issuing of show cause on 06.03.2018. The relevant part of show cause notice is reproduced as under: i. Rs. 171,19,58,455/- has been reduced from taxable income in Statement of Computation of Total Income on account of interest on perpetual bonds although the said amount was not debited in profit and loss account. The Assessing Officer allowed this amount which was prima facie not allowable due to the following reasons:- a. The expenditure were not of revenue nature as it was not debited in profit and loss account, b. Perpetual bonds are akin to equity and therefore, any expense on account of interest on this account is appropriation of profit. c. Perpetual bonds are not debts or borrowing as the option to call is not available to holders of the bonds and therefore, interest payable/paid on these bonds are not allowable under section 36(1)(iii) of the Act. Reliance is placed on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of debt. That is why these bonds are listed on wholesale Debt Market Segment of National Stock Exchange which deals only with the securities related to borrowing of capital. On the other hand equity is listed, on equity segment of the stock exchanges. This is the practice followed by all the Stock Exchanges in India as well as Globally. vii. In case of equity, the money is not payable back to the shareholders whereas in case of aforesaid perpetual bonds, the principal amount is tobe refunded to the bond holders' as per the terms of issue at the time of redemption of these bonds. viii. The facts of the decision of Hon ble Haryana High Court in the case of Pepsu Road Transport Corprn V. CIT 130 ITR 18 (P H) are different from the facts of issue of Perpetual Bonds by the company. In this case, the question, that came up for consideration was whether interest paid to the Northern Railway and the Punjab Government In respect of the capital borrowed for purposes of the assessee's business was allowable u/s. 36(l)(iii) of the Act and In that connection, the term 'borrowing' was explained. The aforesaid decision clearly distinguishes the terms capita! provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit that the order passed by assessing officer as per direction of DRP should not be revised u/s 263 of The Act. 3. On examination of the record, the ld. Pr.CIT observed that assessment order passed u/s 143(3) r.w.s 144C(13) was erroneous in so far as it was prejudicial to the interest of revenue on the reason that an amount of Rs.1,71,19,58,455/- has been reduced from taxable income in statement of computation of total income on account of interest expenditure incurred on perpetual bonds although the said amount was not debited in profit and loss account. The assessee explained that it has issued 11.40% unsecured perpetual securities for Rs. 1500 crore during F.Y. 2011-12 on which interest was payable @ 11.40% which worked out to Rs. 171.2 crores for the year under assessment. The perpetual securities were raised for general business purpose. The interest of Rs.171.20 crores was allowable u/s 36 of the Act as interest on borrowed capital. The assessee explained that perpetual bond was not in the nature of equity rather it was in the nature of debt. In case of equity the money is not payable back to the shareholders whereas in the case of perpetual bonds the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest expenses on debentures issued and also enclosed copies of all the relevant documents pertaining to the offer document of unsecured perpetual securities of Rs.1500 crores. On the other hand, the ld. D.R has contended that assessee has not debited the interest to the profit and loss account but it has reduced from its total income in the statement of computation of income. 5. Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed by the Assessing Officer u/s 143(3) r.w.s 144C(13) of the I.T. Act, 1961 on 30.06.2017. The ld. Pr.CIT has held vide order u/s 263(3) of the Act, dated 28.03.2018 that assessment order passed u/s 143(3) r.w.s 144C(13) as erroneous insofar as it was prejudicial to the interest of revenue holding that the Assessing Officer was not correct in allowing the interest on perpetual debt instruments without examining and verifying the allowability of such expenditure. With the assistance of ld. representatives we have gone through the copies of documents and detailed submission made before the A.O during the course of assessment proceedings as per page no. 1 to 160 of the paper book filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders. Debentures trustee were appointed to safeguard interest of the lenders. The assessee company had also stated on the basis of aforesaid discussion that it had borrowed fund for the purpose of its business and the interest on debenture was deductible in computing the income from profit and gains from business and profession. In the light of the above facts and after considering the detailed material furnished by the assessee during the course of assessment proceedings before the assessing officer we observe that the assessee has categorically explained to the assessing officer with relevant supporting material that it has issued unsecured perpetual non-convertible debentures and such lenders were not entitled to share any surplus or bear any loss like shareholders. These debentures were entitled for fixed interest @ 11.40% along with redemption after the 10th year. These facts and submission were also brought to the notice of the ld. Pr.CIT during the course of proceedings u/s 263 of the Act, however, the ld. Pr.CIT without controverting these undisputed fact held that assessment order was erroneous so far it was prejudicial to the interest of Revenue. Therefore, we consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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