Case Law Details
ACIT Vs ORG Informatics Limited (ITAT Ahmedabad)
Assessee stated that the issue of FCCB is a Foreign Currency Bond issue and it is basically a debt instrument in the nature of loan and all issue expenses related to that are allowable as revenue expenses. This issue is not a public issue but is made to class of persons. Hence provisions of Section 35D are not applicable. The assessee submitted before the Assessing Officer that since this is a debit instrument on the date on which it is issued, expenses incurred on this should be allowed as revenue expenses. As per the terms of issue the holder has an option to convert the FCCBs into equity shares at an initial conversation price of Rs.130/- per share from the issue date until 14.10.2012. There are no chances of conversation into the equity shares since the same is not converted till date and it is not likely to covert because the market price of the company’s share is below Rs.1 0 as on that particular date. The entire amount of FCCB is to be redeemed on or before 14.11.2012. The assessee relied upon the decision of India Cement (SC) 60 ITR 52, decision of Hon’ble Rajasthan High Court in the case of CIT vs. Secure Meters Limited, 175 taxman 567. After going through the assessee’s submissions, the CIT(A) has observed that the decision relied by the Assessing Officer in the case of Ashima Syntex (100 ITD 247) and Banco Products (I) Limited vs. DCIT of ITAT Ahmedabad was delivered prior to 2007 and there are decisions of the Hon’ble High Courts which held that the expenses issue of fully convertible debentures are allowable as Revenue expenditure. The CIT(A) has relied upon the decision of Hon’ble Rajasthan High Court in case of Secure Meters Limited (supra) wherein it has been held that expenditure incurred for fully convertible debentures are allowable as Revenue expenditure. Thus, the CIT(A) has allowed this ground of the assessee. After perusal of the records, it can be seen that the assessee though issued foreign currency convertible bonds the same are basically debt instrument and though the decision in case of Secure Meters was related to the issue of fully convertible debentures, the same cannot be totally differentiated as the conditions in regard to FCCB about conversion price, conversion price reset, adjustment to conversion price, redemption of bonds in the event of de-listing and etc. will have very limited bearing while opting for conversion into ordinary equity shares as per the records. The assessee has given details as regards to computation of income for expenses on issue of FCCB, security premium on redemption of FCCB and interest booked under FCCB expenses and initial conversion price of Rs.130/- per share from the issue date and until 14.10.2012 was defined by the assessee. Therefore, mere reference on the decision by the CIT(A) cannot be called as not deciding the case on merit. The CIT(A) has taken proper cognizance related to various terms offered for raising funds though FCCB into convertible bond of ordinary equity shares and thus ratio of Secure Meters (supra) squarely applied in assessee’s case by the CIT(A). Thus, appeal of the Revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Revenue against the order dated 31.03.2014 passed by the CIT(A)-III, Baroda for the Assessment Year 2008-09.
2. The Revenue has raised the following grounds of appeal:
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