ACIT Vs Reliance Industrial Investments and Holdings Limited (ITAT Mumbai)
The appeals before the ITAT Mumbai arose from three separate orders passed by the National Faceless Appeal Centre (NFAC) for Assessment Years (AYs) 2018-19, 2019-20, and 2020-21. Since the issues were identical except for the figures involved, the Tribunal treated AY 2019-20 as the lead case.
The principal issue concerned whether the assessee’s Zero Coupon Optionally Fully Convertible Debentures (ZOFCDs) and Fully Convertible Debentures (FCDs), issued to its holding company, should be treated as a “transition amount” under Section 115JB(2C) of the Income-tax Act for computing Minimum Alternate Tax (MAT). The Revenue also challenged the deletion of a disallowance under Section 14A.
The assessee, a wholly owned subsidiary of Reliance Industries Ltd., had historically prepared its financial statements under the Indian Generally Accepted Accounting Principles (IGAAP), under which the convertible debentures were shown as long-term borrowings. After the introduction of Indian Accounting Standards (Ind AS) from AY 2017-18, the assessee classified these debentures under “Other Equity” and, in Note 36.2 to its financial statements, referred to them as the equity component of Compound Financial Instruments (CFIs). According to the assessee, this classification under “Other Equity” resulted from the absence of a separate presentation category and did not alter the true character of the instruments.
