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TMI Blog2024 (11) TMI 1386X X X X Extracts X X X X X X X X Extracts X X X X ..... the method of accounting followed by the appellant in respect of broken period interest are vitiated by factual errors? 3. Whether the ITAT erred in holding that the appellant was not entitled to a deduction in respect of the expenditure incurred by it on the issue of FCD's?" 3. We have heard Mr. Mistri, learned senior counsel for the appellant and Mr. Suresh Kumar for the respondent. Questions of Law No. 1 and 2 4. The facts relevant to the questions of law no. 1 and 2 need to be noted: The appellant is inter alia engaged in the business of providing long term finance in the course of which, various securities are held as stock in trade. These securities are purchased from time to time, which carry interest. The purchase price includes the component of interest for the broken period. The securities which remain unsold at the end of the year are shown in the closing stock at cost. However, while computing the income, the assessee claims deduction on account of interest for the broken period in respect of unsold securities since according to assessee, the entire interest income accrues to the assessee on the fixed date falling after the end of previous year. However, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity was not sold, then as per the settled principle of accountancy, it has to be shown in the closing stock either at cost or market price whichever is lower. There is no other method of accounting for computing business profit. The Tribunal rested its view referring to the decision of Supreme Court in Chainrup Sampatram vs. Commissioner of Income-tax (1953) 24 ITR 481 (SC). It is for such reason the Tribunal was of the considered opinion that the question of allowing any deduction separately did not arise. 6. Mr. Mistry has submitted that the questions of law no. 1 and 2 would no more be res integra. In support of such contention, Mr. Mistry has drawn our attention to the orders passed by the Division Bench of this Court in American Express International Banking Corporation vs. Commissioner of Income-tax (2002) 258 ITR 601(Bom) wherein similar questions as the present questions had fell for consideration of the Division Bench. The key issue which fell for consideration there was in regard to the correct treatment of the broken period interest needs to be accorded under the I.T. Act and whether the broken period interest (net) paid by the assessee at the time of purchase of secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench was carried to the Supreme Court in the proceedings of Civil Appeal No. 1549 of 2006 in Commissioner of Income Tax vs. CitiBank N.A. The Supreme Court rejected the Revenue's appeal by its judgment dated 12 August, 2008 where the Supreme Court referring to the decision in Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax, Bangalore (supra) as also the decision of this Court in American Express (supra) rejected the Revenue's appeal. The following are the observations of the Supreme Court: "The facts in the present case are similar to the facts in American Express (supra). Agreeing with this view and accepting the distinction pointed out by the Bombay High Court, this Court dismissed the two special leave petitions filed by the revenue, one of which was dismissed by a three Judge Bench. After going through the facts which are similar to the facts in American Express (supra), since the tax effect is neutral, the method of computation adopted by the assessee and accepted by the revenue cannot be interfered with. We agree with the view expressed by the Bombay High Court in American Express (supra) that on the facts of the present case, the judgment in Vijaya Bank Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swered in the affirmative i.e. in favour of the AppellantAssessee and against the Respondent-Revenue. 5. Accordingly, all the Appeals are Allowed." 11. Our attention is also drawn to a recent decision of the Supreme Court in Bank of Rajasthan Ltd. vs. Commissioner of Income-tax (2024) 167 taxmann.com 430 (SC) wherein the Supreme Court affirmed the view taken by this Court in CitiBank NA (supra), American Express International Banking Corporation(supra) as also in HDFC Bank Ltd. vs. CIT (2014) 49 taxmann.com 335. 12. Mr. Suresh Kumar, learned counsel for the Revenue would not dispute the aforesaid legal position. 13. In this view of the matter, questions of law nos. 1 and 2 are answered in affirmative in favour of the assessee and against the Revenue. Question of law no. 3:- 14. Insofar as question of law no. 3 is concerned, the same pertains to a deduction in respect of the expenditure incurred by the assessee on the issue of Fully Convertible Debentures. The assessee had made a 'rights issue' of Fully Convertible Debentures (FCDs) and in such connection, had incurred expenditure on account of printing expenses, advertisement, professional fees, stamp duty and filing fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar view was taken by this Court. In this case, one of the questions of law which had arisen for consideration, was to the following effect : "(b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in allowing the expenditure incurred on issue of Foreign Currency Convertible Bonds (FCCB) without appreciating that FCCBs are equity linked debt instruments that can be converted into equity at specified price on maturity of the instrument or at the end of the specified period, resulting in increase in the share capital of the assessee and therefore, the expenditure incurred thereon is necessarily a capital expenditure as held by the Supreme Court in the case of Brooke Bond India Ltd. vs. CIT (1997) 225 ITR 798?" In answering such question in favour of the assessee and against the Revenue, the Court held that the expenditure incurred thereon was revenue in nature, referring to the decision in Secure Meters Ltd. (supra) as also in Havells India Ltd. (supra) wherein it was held that as the debentures were to be converted in the near future into equity shares, the expenditure incurred needs to be allowed as revenue expenditure on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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