Income Tax Appellate Tribunal - Mumbai
Malco Energy Ltd., Mumbai vs Asst Cit Circle-10(2)(2), Mumbai on 19 December, 2019
आयकर अपीलीय अधिकरण "J " न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL " J" BENCH, MUMBAI
श्री महावीर स हिं , न्याययक दस्य एविं श्री राजेश कुमार लेखा दस्य के मक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
स्थधित आवे द न सुं . /SA No. 445/Mum/2019
(Arising out of ITA No.7314/Mum/2019 for AY: 2015-16)
Malco Energy Limited The Asst. Commissioner of
Vedanta House, 75, Nehru Road, Income-tax, Circle -10(2)(2),
Ville-Parle, Mumbai-400099, Mumbai, Room No. -2,9, 2 n d Floor,
Vs.
Maharashtra, India Aayakar Bhavan, Maharishi Karve
Road, Mumbai-400 020
Maharashtra, India
(आवेदक / Applicant) .. (p`%yaqaaI- / Respondent)
स्थायी ले खा िं . / PAN No. AAHCS6896A
आवेदक की ओर े / Applicant by : Miss. Fereshte Sethna,
Shri Mrunal Parekh,
Miss. Hasmukh Ravana, ARs
प्रत्यथी की ओर े / Respondent by : Shri Michael Jerald , DR
ुनवाई की तारीख / Date of hearing: 13.12.2019
घोषणा की तारीख / Date of pronouncement : 19.12.2019
AadoSa / O R D E R
महावीर स हिं , न्याययक दस्य/
PER MAHAVIR SINGH, JM:
By way of this Stay Application, the assessee has requested for stay of balance outstanding demand of ₹48,80,76,920/-.
2. The assessee is a public company engaged in the business of generation and distribution of power through thermal energy and operates 106.6 MW coal based power plant at Mettur Dam, District 2 SA N o . 4 4 5/ Mu m/ 20 1 9 Ma l c o E ne rg y Li mit e d Salem, Tamil Nadu. The AO made following additions (i) foreclosure cost on account of early redemption of preferential shares under section 115JB of the Act amounting to ₹200 crores; (ii) disallowance of share issue expenses of ₹25 lacs; (iii) transfer pricing adjustment on account of sale of fuel stock for an amount of ₹18,67,424/-; and,
(iv) Transfer pricing adjustment on purchase of fuel stock for an amount of ₹1,17,01,150/-. The main addition of ₹200 crores is on account of adjustment of foreclosure cost on early redemption of preferential shares added by the AO under section 115JB of the Act while computing book profit. The fact relating to this addition is that on 28.03.2012, the assessee has issued redeemable preference shares, the details of which are given by assessee in his stay application as under: -
Particulars Details
Issue date 28 March 2012
Face Value ₹ 100 Crores
Issue Premium ₹ 2,900 crores
Total Issue Consideration ₹3,000 crores
Tenure 10 years
Redemption due date 28 March 2022
Redemption Premium ₹6,865 Crores
Total Redemption Consideration ₹6,965 Crores
3. In the year 2015, the assessee revised the terms of preference shares to allow MEL to foreclose the preferential shares and for this, the revised terms included foreclosure cost of ₹200 crores to be paid by MEL to the preference shareholders against the implicit waiver of the proportionate redemption premium by the 3 SA N o . 4 4 5/ Mu m/ 20 1 9 Ma l c o E ne rg y Li mit e d preference shareholders. The details are given by assessee in its stay petition as under: -
Particulars Details
Foreclosure date 30 March2015
Actual tenure 3 years
Foreclosure cost ₹ 200 crores
Foreclosure Consideration ₹ 3,200 Crores
(issue consideration of 3,000
Crores + Foreclosure cost of 200
Crores)
4. Now, the dispute is regarding payment to preferential shareholders of ₹200 crores over and above the original value of ₹3,000 crores as foreclosure cost. The assessee claimed that foreclosure cost is in the nature of redemption premium and in principle is similar to pre-payment charges levied by banks for foreclosure of loans over and above the interest charges. It was claimed that such charges are in the nature of expense and hence, rightly claimed by assessee in its profit and loss account. The AO and DRP noted that the assessee itself has considered this item in its audit report as capital in nature and hence, this cannot be allowed as expenses. This addition was made by AO by computing revised book profit for the purpose of computing tax liability under section 115JB of the Act by making addition of this expenditure of ₹200 crores claimed as foreclosure cost on account of early redemption of preferential shares. The learned Counsel for the assessee, Ms Fereshte Sethna argued that stay should be granted in view of the above given facts. She also stated that the assessee has financial hardship in making payment of such huge demands 4 SA N o . 4 4 5/ Mu m/ 20 1 9 Ma l c o E ne rg y Li mit e d but could not produce the latest bank statements or asset and liability statement as on the date of hearing.
5. On the other hand, the learned Sr. Departmental Representative Shri Michael Jerald strongly opposed the stay application on the reasons that; (i) the main addition of ₹200 crores, claimed by assessee as expenditure on account of foreclosure cost paid by MEL to the preferential shareholders which is claimed by assessee as capital in nature and it is not revenue in nature in any case; (ii) the assessee could not establish its financial position and what is the financial hardship in making payment of this tax of ₹48.80 crores. The learned Sr. Departmental Representative stated that at least 50% of demand should be deposited before granting stay and early hearing.
6. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the following are the additions made by the AO/ DRP; (i) addition of ₹18,67,424/- on account sale of fuel stock to AE i.e. Vedanta Limited. (ii) the addition of ₹1,17,01,150/- to the income on account of purchase of fuel stock from AE i.e. Vedanta Limited; (iii) disallowance of share issue expenses of ₹25 lacs on account of capital reduction; (iv) addition of foreclosure cost by computing revised book profit for the purpose of computing tax liability under section 115JB of the Act by adding back this expenditure of ₹200 crores to the book loss determining revised book profit at ₹ 155,43,34,549/-. We noted that the assessee itself has claimed this foreclosure cost in tax audit report 5 SA N o . 4 4 5/ Mu m/ 20 1 9 Ma l c o E ne rg y Li mit e d as capital in nature. We also noted argument of assessee that this redemption cost was claimed in the absence of any specific guidelines/ accounting standards issued/ notified under the Companies Act and/ or Companies (Accounting Standards) Rule 2006. The assessee chose to follow Accounting Standards ("AS") 30 Financial Instruments i.e. recognition and measurement issued by ICAI in 2007, which mentions that difference between the redemption value and the issue consideration of redeemable preferential shares should be recognized in the Profit and Loss Account. We noted that this AS 30 regarding Financial instruments is in respect to Companies Act and there are no specific provisions for claim of this expenditure. This needs to be examined in detail in the appeal hearing. Hence, we cannot say that the assessee has made a prima facie case in its favour. However, seeing the facts in entirety, we are inclined to grant stay of demand subject to the following conditions: -
(i) the assessee shall pay a sum of ₹5 crores on or before
31.01.2020;
(ii) the appeal will come up for hearing on 17th February, 2020 and none of the party will seek unnecessary adjournment except under exceptional circumstances;
(iii) no further notice to either of the parties will be issued for the fixed date of hearing. This order should be treated as notice to the parties;
6SA N o . 4 4 5/ Mu m/ 20 1 9 Ma l c o E ne rg y Li mit e d
(iv) the Stay will continue for 180 days or till the disposal of the appeal whichever is earlier. If Revenue or assessee wants to submit any paper book, then they can submit the same 15 days prior to the date of hearing;
7. In the result, the stay application of the assessee is allowed in term of the above.
Order pronounced in the open court on 19.12.2019.
Sd/- Sd/-
(राजेश कुमार / RAJESH KUMAR) (महावीरस हिं /MAHAVIR SINGH)
(लेखा दस्य / ACCOUNTANT MEMBER) (न्यासयक दस्य/ JUDICIAL MEMBER)
मिंबु ई, सदनािंक/ Mumbai, Dated: 19. 12.2019 सदु ीप सरकार, व.निजी सनिव / Sudip Sarkar, Sr.PS आदेश की प्रसिसलसि अग्रेसिि/Copy of the Order forwarded to :
1. अिीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयक्त ु (अिील) / The CIT(A)
4. आयकर आयक्त ु / CIT
5. सवभागीय प्रसिसनसि, आयकर अिीलीय असिकरण, मिंबु ई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
आदेशानु ार / BY ORDER, त्यासिि प्रसि //True Copy// ि/ हायक िजिं ीकार (Asstt. Registrar) आयकर अिीलीय असिकरण, मिंबु ई / ITAT, Mumbai