ITAT Deletes CCD Interest Disallowance as Debentures Remain Debt Until Conversion

Goldman Sachs (India) Finance Pvt. Ltd. Vs Assessment Unit (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai, decided an appeal arising from the final assessment order for Assessment Year 2021-22 passed under Sections 143(3), 144C(13), and 144B of the Income Tax Act. The assessee challenged various additions and disallowances relating to occupancy expenses, Restricted Stock Unit (RSU) expenses, adjustments under Section 143(1), transfer pricing adjustment on interest paid on Compulsorily Convertible Debentures (CCDs), disallowance of interest on CCDs under Sections 36 and 37, TDS credit, and levy of interest.

On the issue of occupancy expenses, the Tribunal upheld the disallowance of ₹5,03,462. The amount represented depreciation on leasehold improvements incurred by the assessee’s group company and allocated to the assessee under a cost allocation agreement. The Tribunal held that depreciation is a statutory deduction under Section 32 and not an expenditure or service expense capable of being recharged. Since the assessee neither owned the asset nor incurred the expenditure on leasehold improvements, it could not claim the amount either as depreciation under Section 32 or as a business expenditure under Section 37(1).

Regarding the expenditure on RSUs granted to employees, the Tribunal deleted the disallowance of ₹2.46 crore. It followed earlier decisions in the case of the assessee’s group concern and held that expenditure relating to RSUs/ESOPs is an allowable business deduction. Since no distinguishing material was produced by the Revenue, the Tribunal allowed the assessee’s claim.