The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that Compulsorily Convertible Debentures (CCDs) are in the nature of borrowed fund and continue to be in debt till conversion thereof into shares.
The Assessee filed its return of income for AY 2012-13 on 27/09/2012 declaring income of Rs. 227,96,32,660/- which was subsequently revised on 26/03/2014 at Rs.218,31,32,540/-. The case was selected for scrutiny.
The order under Section 143(3) of the Income Tax Act was passed on 31/03/2015 assessing the income at Rs. 307,17,44,697/- after disallowance of Rs.16,72,58,935/- under section 14A read with Rule 8D of the Income Tax Rules, 1962, Rs. 9,65,00,120/- on account of depreciation arising out of change in method of accounting of financial lease.
Addition of Rs. 21,67,50,189/- on accounts of bad debts write off, Rs. 13,75,19,178/- on account of disallowance of interest on Compulsory Convertible debentures (CCDs) and disallowing of Rs. 27,05,83,732/- from support services and reimbursement expenses claimed, aggregating to total disallowances of Rs. 88,86,12,175/-
Aggrieved by the assessment order dated 31/03/2015, the assessee preferred an Appeal before the CIT(A). The CIT(A) vide order dated 19/05/2017, upheld the disallowance of Rs. 9,65,00,120/- claimed on vehicle given on finance lease and also upheld the disallowance to the extent of Rs. 19,95,37,610/- being 25% of support service fees and reimbursed of expenses, aggregating to Rs. 79,81,50,411/- paid by the Assessee to group Companies.
Aggrieved by the above said sustaining of the disallowance, the assessee preferred the Appeal before the tribunal and as against the restriction of the disallowance under section 14A, deletion of disallowance of bad debts written off and deletion of disallowance of interest on CCD, the department has preferred Appeal.
After hearing both parties, the tribunal came to the conclusion that the circular deems CCDS as part of equity/capital merely for the purpose of keeping check on measures used to circumvent the frame work for regulating debt flow in the country
The two- member bench consisting of Dr. B. R. R. Kumar (Accountant member) and Yogesh Kumar U.S. (Judicial member) held that CCDs are in the nature of borrowed fund and continued to be debt till conversion thereof into shares and consequently interest on CCDs is allowable as revenue deduction under Section 36(1)(iii) of the Income Tax Act. Thus the appeal of the assessee was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
