Income Tax Appellate Tribunal - Chandigarh
Dcit, C-1 , Ludhiana vs M/S Vardhman Polytex Ltd., Ludhiana on 20 December, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, "बी " च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, 'B', CHANDIGARH
ी एन. के. सैनी, उपा य एवं ी संजय गग , या यक सद य
BEFORE SHRI N.K. SAINI, VICE PRE SIDENT &
SHRI SANJAY GARG, JUDICIAL ME MBER
आयकरअपीलसं./ITA No. 391/ C H D / 2 0 1 7
नधा रणवष / Assessment Year : 2012-13
M/s Vardhman Polytex Vs. The DCIT ,
Limited, Vardhman Park बनाम Circle-1,
Chandigarh Road, Ludhiana
Ludhiana
थायीले खासं . / PAN NO: AAACV5821H
Appeal against the order of CIT(A)-1, Ludhiana 28.12.2016
अपीलाथ$/ Appellant &'यथ$/ Respondent
आयकरअपीलसं./ITA No. 413/ C H D / 2 0 1 7
नधा रणवष / Assessment Year : 2012-13
The DCIT , Vs. M/s Vardhman Polytex
Circle-1, बनाम Limited, Chandigarh Road,
Ludhiana Ludhiana
थायीले खासं . / PAN NO: AAACV5821H
Appeal against the order of CIT(A)-1, Ludhiana 28.12.2016
अपीलाथ$/ Appellant &'यथ$/ Respondent
आयकरअपीलसं./ITA No. 802/ C H D / 2 0 1 8
नधा रणवष / Assessment Year : 2013-14
The DCIT , Vs. M/s Vardhman Polytex
Circle-1, बनाम Limited, Vardhman Park
Ludhiana Chandigarh Road,
Ludhiana
थायीले खासं . / PAN NO: AAACV5821H
Appeal against the order of CIT(A)-1, Ludhiana 30.3.2018
अपीलाथ$/ Appellant &'यथ$/ Respondent
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018
M/s Vardhman Polytex Limited, Ludhiana
2
&
आयकरअपीलसं./ITA No. 803/C H D / 2 0 1 8
नधा रणवष / Assessment Year : 2014-15
The DCIT , Vs. M/s Vardhman Polytex
Circle-1, बनाम Limited, Vardhman Park,
Ludhiana Chandigarh Road,
Ludhiana
थायीले खासं . / PAN NO: AAACV5821H
Appeal against the order of CIT(A)-1, Ludhiana 30.3.2018
अपीलाथ$/ Appellant &'यथ$/ Respondent
नधा )रतीक+ओरसे/Assessee by : Shri Subhash Aggarwal, Advocate
राज वक+ओरसे/ Revenue by : Smt. Veena Joshi, CIT DR
सन
ु वाईक+तार/ख/Date of Hearing : 21.10.2019
उदघोषणाक+तार/ख/Date of Pronouncement : 20.12 .2019
आदे श/ Order
Per Sanjay Garg, Judicial Member:
The captioned appeals preferred by the Revenue as well as the assessee against the respective orders of the Commissioner of Income Tax (Appeals), Chandigarh [hereinafter referred to as 'CIT(A)'] pertains to the same assessee and even the issues involved in all the appeals are almost identical, hence, these were heard together and are being adjudicated by this common order for the sake of convenience.
2. Firstly, we shall take up assessee's appeal in ITA No. 391/Chd/2017 for assessment year 2012-13, wherein, the assessee has taken the following grounds of appeal:-
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 3 ITA No. 391/Chd/2017 (A.Y.2012-13)
1. That the learned CIT(A)-1 has erred in confirming the disallowance of premium payable of Rs. 98,91,159/- on redemption of Foreign Currency Convertible Bonds by wrongly treating the same as capital expenditure.
2. That the order of the Ld. CIT(A) is against the law and facts of the case.
3. That the Appellant craves leave for permission to add, amend or alter any ground of appeal at the time of hearing.
3. The sole issue raised by the assessee in this appeal is against the confirmation of disallowance of premium payable on redemption of Foreign Currency Convertible Bonds (FCCB) by treating the same as capital expenditure.
4. At the outset, the Ld. Counsel for the assessee has submitted that this issue is squarely covered by the decision of the Tribunal in the own case of the assessee for the earlier assessment years vide order dated 21.6.2019 passed in ITA Nos. 837/Chd/2018 & Ors relating to assessment years 2010-11 and 2011-12. The relevant part of findings given by the Tribunal is reproduced as under:-
"7. Before us, the Ld. Counsel for the assessee at the outset pointed out that identical issue had been dealt with by the ITAT Chandigarh Bench in the case of Vardhman Textiles Ltd. Vs. Addl.CIT in ITA No.787/2015, 894/2015, 483/2016 and 518/2016 dated 14.3.2019 holding the premium on FCCB bonds to be revenue in nature. Reliance was also placed on the decision of the I.T.A.T., Hyderabad Bench in the case of Gati Ltd. Vs. ACIT in ITA No.1467/2017, dated 20.6.2018 and on the decision of the I.T.A.T., Mumbai Bench in the case of Strides Shasun Ltd. Vs. ACIT in ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 4 ITA No.864/2011 dated 8.6.2018. Copies of all the above orders were placed before us.
8. The Ld. DR, on the other hand, relied upon the order of the Ld.CIT(A).
9. We have heard the rival contentions and perused the orders of the authorities below. We have also gone through the order of the ITAT Chandigarh Bench in the case of Vardhman Textiles Ltd. (supra) and find that the I.T.A.T. in the said case had dealt with the treatment of the premium paid on FCCB bonds whether capital or revenue in nature and had held that the same was revenue in nature. At the same time, we find that the I.T.A.T. had also held that the said expenditure was to be allowed only for the year of payment and the relevant findings of the I.T.A.T. at para Nos.13 to 15 of the order are as under:
"13. Ground No.5 : Vide ground No.5, the assessee has agitated the action of the lower authorities in holding that the premium paid on redemption of Foreign Currency Convertible Bonds (FCCB) is capital receipt as against the claim of the assessee that the same is Revenue expenditure. The facts relevant to the issue are that the assessee issued Foreign Currency Convertible Bonds in the year 2006 and these were to be matured in February 2011. As the Bonds holders did not exercise their option to convert the bonds in equity shares, so FCCB were repaid along with premium / interest @ 6% per annum. The lower authorities treated the aforesaid payment as capital payment and denied the deduction of expenditure in this respect.
14. The Ld. Counsel for the assessee has invited our attention to the decision of the Tribunal in the own case of the assessee M/s Vardhman Textiles Ltd Vs. Addl. CIT Ludhiana in ITA no. 1429/Chd/2010 for the assessment year 2006-07 and in ITA No. 270/Chd/2011 for assessment year 2007-08 order dated 18.12.2018, wherein, on identical facts, the Tribunal after considering the relevant facts has held that the said expenditure is to be treated as ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 5 Revenue expenditure, in the year of payment. The relevant findings of the Tribunal on this issue are reproduced as under:-
"20. Ground No. 9 : Vide ground No.9, the assessee has agitated the action of the CIT(A) in confirming the action of the Assessing officer in not allowing premium payable on redemption of optionally convertible foreign currency bonds as Revenue expenditure.
21. The Ld. Counsel for the assessee in this respect has relied upon the decision of the Hon'ble Jurisdictional High Court in the case of 'CIT Patiala Vs. Industrial Cables (P) Ltd'. reported in (2007) 162 taxman 272 (P&H), wherein, the issue is as to whether the premium paid on expiry / redemption of debentures was to be treated as capital expenditure or Revenue expenditure. The Hon'ble Court while relying upon the other case laws held that the said premium paid by the assessee on redemption of debentures as Revenue expenditure. The Ld. counsel has further relied upon the decision of the Hon'ble Supreme Court in the case of 'Taparia Tools Ltd Vs. JCIT' (2015) 7 taxman 361 wherein, the Hon'ble Supreme Court has held that such type of premium / interest paid to debenture holders was to be allowed as Revenue expenditure in the year of payment itself. Admittedly, in the year under consideration, the assessee has booked the aforesaid expenses payable which was paid in the assessment year 2011-12. In view of this, the said expenditure is to be allowed in the year of payment. Subject to the above observation, this ground of the assessee's appeal for the year under consideration is hereby dismissed."
15. The Ld. DR could not rebut the above findings of the Tribunal by bringing out any distinguishing fact or case law.
In view of this, this issue, in the above terms, is decided in favour of the assessee."
10. Since the issue involved in the present case is identical to that in the case of Vardhman Textiles Ltd.
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 6 (supra) and the Ld. DR having not brought any distinguishing facts to our notice, nor having drawn our attention to the decision of the Hon'ble High Court or Higher Authority contrary to that rendered by the I.T.A.T. in the case of Vardhman Textiles Ltd. (supra), the decision rendered by the I.T.A.T. in the case of Vardhman Textiles Ltd. (supra) will apply to the present case also, following which, we hold that the premium on FCCB bonds is in the nature of revenue and is to be allowed in the year of payment of the same. Ground of appeal No.3 raised by the assessee is allowed in the above terms."
5. Following the above decision of the Tribunal in the own case of the assessee for the earlier assessment years, we hold that the premium payable on Foreign Currency Convertible Bonds is in the nature of Revenue receipt, however, is to be allowed in the year of payment of the same.
In view of this, this appeal this appeal of the assessee stands allowed.
6. Now coming to the Revenue's appeal for assessment year 2012-13 (ITA No. 413/Chd/2017). The Revenue in this appeal has taken following grounds of appeal:-
ITA No. 413/Chd/2017
1. Whether in law and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition amounting to Rs. 13,57,51,945/- made u/s 14A of Income Tax Act, 1961 read with rule 8D?
2. Whether in law and circumstances of the case, the Ld.CIT(A) was justified in deleting the addition made on account of disallowance of interest on ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 7 investments for non-business purpose made u/s 36(1)(iii) of Income-tax Act, 1961 amounting to Rs.
11,18,63,706/-?
3. Whether in law and circumstances of the case, the Ld. CIT(A| was justified in deleting the addition made on account of disallowance of interest on loans and advances given for non-business purposes amounting to Rs. 2,10,23,259/- made u/s 36(1)(iii) of Income-tax Act, 1961?
4. Whether in law and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of depreciation of Rs. 1,15,19,946/- made after reducing the capital profit earned on buy back of Foreign Currency Convertible Bonds from the written - down value of the Block of assets?
5. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored.
6. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
7. Ground No.1: Vide ground No.1, the Revenue has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 (in short 'the Act') read with Rule 8D of the Income Tax Rules, 1962 on account of expenditure incurred for earning of tax exempt income.
8. The Ld. Counsel for the assessee, at the outset, has invited our attention to the impugned order of the Ld. CIT(A) to submit that the Ld. CIT(A) has deleted the addition holding that the assessee was possessed of sufficient own funds / interest free funds to meet the investment in question. The Ld. counsel, in this respect has relied upon the decision of the decision of the Hon'ble jurisdictional High Court in the case of ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 8 'Bright Enterprises Ltd vs CIT' (ITA No. 224 of 2013) dated 24.7.2015 and the recent decision of the Hon'ble Supreme Court in 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC). He has further submitted that these were old investments and no new investments were made.
9. The Ld. DR, on the other hand, has submitted that a perusal of the Chart submitted by the assessee shows that the assessee was not possessed of own sufficient funds to meet the investments.
10. We have considered the rival submissions. A perusal of the impugned order of the CIT(A) reveals that it was submitted before the Ld. CIT(A) that the investments in securities were made in the previous year by the assessee out of its own funds. That the investments of Rs. 901.99 lacs was made in the financial year 2006-07 against the total assets of the company at Rs. 650.47 crores and that the assessee company during the financial year 2006-07 had profit of Rs. 21.23 crores. It has been further submitted before the Ld. CIT(A) that during the financial year 2011-12, there was in-flow of Rs. 450.60 lacs from the sale of investments and Rs. 18.15 crores from the sale of fixed assets. After considering these facts, the Ld. CIT(A) following his own order in the assessee's case for assessment year 2011-12 decided this issue in favour of the assessee holding that the assessee was possessed of sufficient own funds to meet the investment in question. The Ld. ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 9 counsel has submitted that against the order of the CIT(A) dated 26.7.2016, the Revenue preferred appeal before this Tribunal which has been dismissed vide order dated 21.6.2019 (supra).
11. We have gone thought the order of the Tribunal and find that the Tribunal has noted that as on 31.3.2011, as per the balance sheet, the assessee was possessed of Rs. 17603.45 lacs of share capital, Reserve and Surpluses besides that the income of the assessee for the year was Rs. 3585.22 lacs while the investment made amounted to Rs. 13260.07 lacs. The Tribunal, relying upon the decision in the own case of the assessee for earlier assessment year, held that since the assessee during the year was possessed of sufficient own / interest free funds relating to disallowance u/s 14A of the Act, hence, the presumption would arise that the investments were made out of own / interest free funds, therefore, the Tribunal upheld the findings of the CIT(A) in deleting the disallowance out of interest expenditure.
So far as the disallowance of administrative expenditure u/s 14A of the Act read with Rule 8D(2)(iii) of the I.T. Rules is concerned, the issue was restored back to the file of the CIT(A) to be adjudicated afresh after given due opportunity of hearing to the assessee.
12. However, we find that the facts of the case for the year under consideration, so far as the availability of own funds is concerned, are different. As per the working given by the assessee vide its letter dated 18.10.2019, the total investments made as on 31.3.2011 were Rs.
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 10 136742.47 lacs, however, the same were at Rs. 13260.07 lacs as on 31.3.2012. The assessee share capital as on 31.3.2011 was Rs. 1627.75 lacs and there was no change as on 31.3.2012 in this respect. However, the assessee's reserve and surpluses were at Rs. 15975.70 lacs as on 31.3.2011 and the same got decreased to Rs. 7752.36 lacs as on 31.3.2012. The interest free own funds which were available with the assessee as on 31.3.2012 were at Rs. 9380.11 lacs whereas the total investments as on 31.3.2012 were at Rs. 13260.07 lacs which shows that the assessee share capital and reserves and surpluses were not enough to meet the investments in question. Even applying the own funds presumption theory, own funds of the assessee were not sufficient to meet the investment. As noted above, the investments were made out of mixed / common funds.
In view of this, the order of the CIT(A) on this issue in deleting the entire interest disallowance made by the Assessing Officer is not sustainable. The order of the CIT(A) on this issue is, therefore, set aside and the issue is restored back to the file of the Assessing Officer to decide it afresh considering the availability of the own funds / interest free funds with the assessee to meet the investment and in the light of the case laws as may be applicable including the decision of the Hon'ble Supreme Court in 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC).
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 11 The issue relating to the disallowance out of administrative expenses u/s 8D(2)(iii) is also restored to the file of the CIT(A) on the same lines as directed in the order of the Tribunal in the own case of the assessee for assessment year 2011-12 vide dated 21.6.2019 (supra).
13. Ground Nos.2 & 3 : The Revenue vide these grounds has agitated the action of the CIT(A) in deleting the disallowance made by the Assessing Officer out of interest expenditure in respect of interest free advances made by the assessee for non-business purposes.
14. The Ld. Counsel for the assessee has relied upon the findings of the Tribunal for the assessment year 2011-12 on this issue vide order dated 21.6.2019 (supra). However, we find that the Tribunal has decided this issue in favour of the assessee observing that the assessee's own / interest free funds were sufficient to meet the investments and interest free advances given by it for non-business purposes. However, as observed above, while deciding the issue relating to disallowance u/s 14A of the Act, we have noted that it does not appear that for the year under consideration, the assessee was possessed of sufficient own / interest free funds to meet the investments / interest free advances.
This issue is, accordingly, restored to the file of the Assessing Officer to examine the facts of the case and to decide it afresh after considering the contention of the assessee and also after considering the ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 12 availability of the funds with the assessee and in the light of the decisions available of the higher / highest court including the decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' (supra)
15. Ground No.4 : Vide ground No. 4, the Revenue has agitated the action of the CIT(A) in deleting the disallowance of depreciation made by the Assessing Officer after reducing the capital profit earned on buy back of Foreign Currency Convertible Bonds from the written down value of the Block of assets.
16. The brief facts relating to the issue are that the assessee earned certain profits form the buy back of the Foreign Exchange Convertible Bonds. The Assessing Officer observed that since as per the scheme, the assessee had to invest funds received from issue of Foreign Exchange Convertible Bonds in its capital assets, therefore, any profits earned by the assessee from buy back of Foreign Exchange Convertible Bonds would be a capital receipt and will go on to reduce the cost of assets purchased out of funds received from issue of Foreign Exchange Convertible Bonds. He, accordingly reduced the cost of assets from the written down value of the amount of profits earned on buyback of Foreign Exchange Convertible Bonds and accordingly reduced the allowable depreciation on the written down Value of the assets.
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 13
17. Before us, Ld. Counsel for the assessee has submitted that the Ld. CIT(A) has deleted the disallowance so made by the Assessing Officer observing that the profits earned on buy back of Foreign Exchange Convertible Bonds were not reduced from the block of assets. That the cost incurred by the assessee on the assets has no relevancy with the profits earned on buy back of Foreign Exchange Convertible Bonds.
18. We find force in the above contention of the Ld. Counsel for the assessee. However, we also find force in the alternative contention of the Ld. DR that the assessee has claimed premium paid on redemption of Foreign Exchange Convertible Bonds as Revenue expenditure. That applying the same analogy, if the assessee buys back the Foreign Exchange Convertible Bonds at a lower rate, then the profit earned by the assessee form Foreign Exchange Convertible Bonds should be treated as Revenue receipt. After considering the rival submissions, we are of the view, that this issue requires factual examination as to the nature of receipts in the hands of the assessee on buy back of Foreign Exchange Convertible Bonds.
It is to be noted that in the earlier paras of this order, we while adjudicating the issue raised in assessee's appeal ITA No. 391/Chd/2017 have already held the premium of interest payment on redemption of Foreign Exchange Convertible Bonds as Revenue expenditure. In view of this, this issue is restored to the file of the Assessing Officer to ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 14 examine the nature of the receipts on buy back of Foreign Exchange Convertible Bonds and then to decide the issue afresh after considering the submissions of the assessee and the relevant case laws as may be cited by the assessee.
This ground is accordingly treated as allowed for statistical purposes.
19. Ground No.5 & 6: These grounds are general in nature and do not require any specific adjudication.
In view of the findings given above, the appeal of the Revenue is treated as partly allowed for statistical purposes.
20. ITA No. 802/Chd/2018 (A.Y.2013-14) The Revenue in this appeal has taken following grounds of appeal:-
1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition made on account of disallowance u/s. 14A of the Income Tax Act, 1961?
2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition on account of disallowance of interest u/s.
36(1)(iii) of the Income Tax Act, 1961 on investments & capital advances?
3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition made on account of interest payment on "Foreign ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 15 Currency Convertible Bonds" by treating the same as revenue in nature?
4. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored.
5. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
21. Ground No.1: Vide g round No.1, the R ev enue has agitated the action o f th e Ld. C IT (A) in deleting th e addition made u/s 14A of the Act on acco unt of disallo wan ce o ut o f interest exp enditu re in cu rred fo r earnin g of tax ex empt in come.
22. At the outset, the Ld. Couns el for the as ses see has sub mitted that the ass essee during the y ear did not earn any tax free dividend incom e. The ass ess ee receiv ed interest on mutu al fun ds which was wro ngly treated as divid en d incom e. Th e Ld.C IT (A) considering the entire facts and circu m stan ces of the cas e and relying upon th e decision of th e Hon'ble jurisdiction al High Court in the case of 'CIT, Farid ab ad vs Lakh ani M ark eting In c. ' (2014 ) 49 tax m ann. co m 257 and furth er of th e Hon'ble Delhi Hig h C ou rt in the case o f 'Ch eminvest Ltd [20 15 ] 378 IT R 33 (Delhi), 'Coo rtech Energy (P) Ltd. (Guj)' 378 ITR 33 (Delhi) and 'Sh iv am Motors (P)' [2015 ] 272 CT R 277 (All) h eld th at un less th ere is a receip t of ex emp t inco me during the assess ment year und er con sid eration, disallowance u/s 14A ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 16 of the Act read with Rule 8 D of the Rules would not be attracted.
In all the above referred to case laws, the Hon'ble High Courts have been unanimous to hold that no disallowance is attracted u/s 14A in case the assessee has not earned any income not forming part of the total income. Since the assessee did not earn any tax exempt income, hence, no disallowance u/s 14A is attracted.
23. In view o f this, we do not find any infirmity in the o rder o f the CIT (A) in deleting the impug ned disallo wan ce m ade u/s 14 A read with Rule 8 D of th e I.T. Rules.,
24. Ground No.2: Vid e g round No.2, the R ev enue has agitated th e action of th e C IT (A) in deleting the dis allowance o f notion al interes t exp enditu re on account of interest free adv an ces m ad e by the ass essee out o f interest bearing fund s. The Ld. Couns el for th e ass ess ee in respect of the above issu e has sub mitted that ass ess ee was possess ed o f su fficient o wn fun ds to m eet th e investment / interest free adv an ces. He, in this res pect has relied on the decision of the T ribunal dated 21.06.2019 (sup ra) in th e own case of assess ee (sup ra) fo r as sess men t year ass essm en t years 2010-11 & 2011 -12. Ho wev er, as per the details given by th e coun s el fo r th e as sess ee vid e letter dated 18.10.2019, the total inves tm ents as on 31.3.2013 ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 17 were at Rs. 1374 2.47 lacs and interest free funds of Rs. 2648.28 lacs were giv en to the subsidiaries, ho wev er, the share cap ital of the assess ee as on 31.3.2013 was Rs. 1787.75 lacs, wh ereas, res erv es and surplus es were at Rs. 8439.94 lacs totalling Rs. 10227.69 lacs w hich were less than th e total investm ent an d interest free adv an ces. In view o f this, th e matter needs factual ex am in atio n at the hand s of the Ass essing Officer. Follo wing the same lines as directed abo ve while adjud icating th e identical issue for ass ess m ent year 2012 -13, this issu e is also resto red to the file of th e As sessing Officer for decision afres h, as directed above.
25. Ground No.3: Vide g round No.3, the R ev enue has agitated the action of th e CIT (A) in deleting the addition mad e on account of interest paym ent on "Fo reign Cu rren cy Conv ertible Bon ds" by treating the sam e as R evenu e in natu re.
26. At the outset, the Ld. Counsel for the ass essee has sub mitted th at this issue is squ arely cov ered in fav our of the as sess ee by the decis ion o f th e Tribu n al dated 21.6.2019 (s up ra) pass ed in respect of ass es sm en t years 2010 -11 and 2011 - 12, wherein, the issu e has been dealt with in p ara 38 on wards of the s aid o rd er. The relev an t part of th e finding s of the Tribunal is reprodu ced as under:-
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 18 "42. We h av e heard the rival conten tions an d perused the ord ers of th e autho rities belo w.
The issu e b efo re us relates to claim o f th e as sess ee of interest exp enditu re incurred on FC CB issu ed by it. The fact that th e said bonds were iss u ed at interest rate of 2% p er annum to be paid s emi-an nu ally is not disputed. It is also not dispu ted th at th e interest was paid on the bonds and not on their conversion into equity. Therefore, the findings of th e Ld.C IT (A) that the interest expenditu re was th e actual liability of the ass essee on loans taken by it in the form o f bo nds, we find is correct. The Ld. DR has b een unable to draw our atten tion to any infirmity in the findings o f the Ld. CIT (A) in this regard.
Fu rther th e Ld. DR has been un able to d raw our attention /point out, as to why th e as sess ee's claim o f interes t expend iture was dis allowable. In view of th e s am e, we hav e no hes itation in upholding the order of th e C IT(A) in allo win g the claim of interest exp enses incu rred on FC CB amounting to Rs.1,20,92,984/-. The g round o f app eal No.4 and 5 rais ed by the R ev enu e are d is miss ed."
27. In view o f this, there is no m erit in th e groun d of th e app eal an d, therefo re, g round No.3 o f th e Reven ue's app eal is accordingly dism issed.
28. Ground No. 4 & 5 : These g rounds are g eneral in natu re and do no t n eed any sp ecific ad ju dication.
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 19 ITA No. 803/Chd/2018( A.Y. 2014-15):
29. The Rev enu e in this appeal has tak en the follo win g gro unds o f app eal:-
1 Whether upon facts and circumstances of the case, the Ld. CIT(A)was justified in law and on facts in deleting the addition made on account of disallowance u/s 14A of the Income Tax Act, 1961?
2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition on account of disallowance of interest u/s 36(l)(iii) of the Income Tax Act, 1961 on investments & capital advances?
3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition made on account of disallowance of depreciation of Rs.1,85,73,445/- made after reducing the capital profit earned on buy back of "Foreign Currency Convertible Bonds" from the written down value of the Block of assets?
4. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored.
5. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.
30. Ground No. 1: Vid e ground No.1, the Revenue has agitated th e action of th e Ld. CIT (A) in d eletin g th e additio n ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 20 m ad e u/s 14 A of the Act read with Rule 8 D of the Incom e Tax Rules on acco un t of disallo wan ce out of interest expenditu re which has been incu rred fo r earning of tax exempt inco me. We find that the facts and issu e rais ed is similar to that has b een raised vide gro und No.1 by the R evenu e in its app eal fo r as sess men t y ear 2013 -14 in ITA No. 802/Chd/2018.
31. In view o f our findings arriv ed at while decidin g g roun d No.1 o f the Rev enue's app eal for ass essm en t year 2013-14, we do not find any infirmity in the ord er o f th e C IT (A) in deleting the impugned dis allo wan ce made u/s 14 A read with Rule 8 D o f the I.T. Rules.
32. Ground No.2 : Vide this ground, the R evenu e has agitated the action of the CIT (A) in d eleting the addition mad e by th e Assessin g Officer on accou nt of disallo wan ce out of interest exp enditu re u/s 36(1 )(iii) of th e Act in res p ect of inv estment and ad v ance m ade fo r non-business pu rpos es out of interest bearing fund s.
33. The Ld. CIT (A) deleted th e disallo wan ce so mad e by th e Assessin g Officer on this issu e observing th at th e assess ee was poss ess ed of sufficient o wn funds / interest free fun ds to m eet the inv estment in question out o f interest bearing funds m ad e by the assess ee. Th e R ev enue h as, th us, com e in appeal befo re us.
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 21
34. We hav e con sidered the riv al subm issions. As per th e details giv en in the letter dated Octob er,18, 2019 by the counsel fo r th e ass essee, the total inv es tm en t as on 31.3.2013 of th e as sess ee were ta Rs. 13742.47 lacs, wh ereas, the same were at Rs. 13720.03 lacs as on 31.3.2014. The share capital an d res erv es and surp luses of th e ass essee were at Rs. 1 0227.69 lacs as on 31.3.2013, whereas, the s am e were at Rs. 11888.88 lacs as on 31.3.2014. The above facts sho ws that th e findings o f th e C IT(A) th at ass ess ee was poss essed of sufficient o wn funds to m eet th e inv estment from interest free adv an ces do not s eem to be correct.
35. As o rdered above while decid ing the id en tical gro und No.2 of th e app eal of the Rev enu e for the assessm en t year 2013 -14, this issu e is also resto red to the file of th e Assess ing Officer to ex am in e th e accounts and the fu nds av ailable with the assessee and also to cons ider th e oth er contention s as may be m ade o r raised by the ass es see and decid e the issu e afresh in acco rd anc e with law.
36. Ground No. 3: Vide ground No.3, the Revenue has agitated the action of the CIT(A) in deleting the addition made on account of disallowance of depreciation of Rs.1,85,73,445/- made after reducing the ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 22 capital profit earned on buy back of "Foreign Currency Convertible Bonds" from the written down value of the Block of assets.
37. We find that this ground is identical to that has been raised by the Revenue vide ground No.4 of its appeal for assessment year 2012-13.
In view of our finding given above while deciding the ground No.4 of the Revenue's appeal for assessment year 2012-13, this issue is restored to the file of the Assessing Officer to examine the nature of the receipts of buy back of Foreign Exchange Convertible Bonds and then to decide the issue afresh after considering the submissions of the assessee and the relevant case laws as may be cited by the assessee.
This ground is accordingly treated as allowed for statistical purposes.
38. Ground Nos.4 & 5 : These gro unds are g eneral in natu re and do no t require any sp ecific ad judication.
In view o f this, assessee's appeal in ITA No. 391/Chd/201 7 is allo wed and Rev enu e's appea ls in IT A Nos. 413/Chd/2 017, 802 & 803/Chd/2 018 stand p artly allo wed.
Order pronounced in the Open Court on 20.12.2019.
Sd/- Sd/- (एन. के. सैनी / N.K. SAINI) (संजय गग! / SANJAY GARG) उपा#य$ /Vice President या%यकसद&य/ Judicial Member Dated : 20.12.2019
ITA Nos. 413 & 391-chd-2017 & 802 & 803-Chd-2018 M/s Vardhman Polytex Limited, Ludhiana 23 "आर.के."
आदे शक+& त4ल5पअ6े5षत/ Copy of the order forwarded to :
1. अपीलाथ$/ The Appellant
2. &'यथ$/ The Respondent
3. आयकरआयु7त/ CIT
4. आयकरआयु7त (अपील)/ The CIT(A)
5. 5वभागीय& त न9ध, आयकरअपील/यआ9धकरण, च;डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायकपंजीकार/ Assistant Registrar