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Man Industries (India) Ltd 14

10. In ground No. 3 Revenue has challenged disallowance of depreciation claimed by the assessee on written down value of the capitalized withholding tax paid on the premium for the redemption of foreign currency convertible bonds. The facts in brief qua the issue in dispute are that during the year under consideration, the Assessing Officer disallowed depreciation claimed of Rs.59,64,352/-

Rs.59,64,352/ on the portion of withholding tax capitalized capitalize on payment for premium paid on foreign currency convertible bonds (FCCB). It was submitted by the assessee that while redeeming the FCCB, the assessee Rs.124,45,40,750/-- in AY 2013-14 see paid total premium of Rs.12 by grossing up the amount of withholding tax. It was claimed that payment of withholding tax of Rs. 124,45,40,750/- was nothing but premium on redemption and had the assessee not borne the amount of TDS, it would had to pay higher premium to the bondholders and thus the TDS so deducted forms part of premium pre and allowable expenditure. In the year under consideration, the assessee redeemed FCCB and paid total premium of Rs. 1,12,05,07,097/- by grossing up the amount of withholding tax. Identical provision was claimed by the assessee in assessment year 2014-15 to 2017--18, wherein the Tribunal deleted such disallowance made by the Assessing Officer observing as under:

9. We heard the rival contentions and perused the record. The facts relevant to the issue are that the assessee has borne the TDS payable on the FCCB premium paid by the assessee. The withholding tax liability so borne by the assessee was Rs. 12.40 crores. In the normal course, the TDS amount would be reduced Man Industries (India) Ltd 15 from the amount payable to the payee and the net amount alone will be paid to him. The TDS amount will be remitted to the credit of the payee, who can adjust the same against his tax liability. In the instant case, since the assessee has borne the TDS deductible on the amount of premium payable on FCCD, the same would become additional cost to the assessee. Hence it will go to increase the premium payable on FCCB. The assessee has capitalized a portion of premium amount, which included the above said amount of Rs. 12.40 crores. The amount was capitalized by the assessee in the year relevant to AY 2013-14 and it also claimed depreciation thereon, which was disallowed by the assessing officer in AY 2013-14. The Ld CIT(A), however, deleted the disallowance and hence the revenue filed appeal before the Tribunal in that year. As stated by Ld A.R, the ITAT has confirmed the order passed by Ld CIT(A), vide its order dated 25.11.2021 passed in ITA No.7530/Mum/2019, with the following observations:-
"98. The issue raised in the 6th ground of appeal is against the deletion of addition of Rs.1,68,96,638/- by CIT(A) as made by the AO on account of Depreciation of claimed on account of premium.
99. During the course of Assessment Proceeding the A.O. observed that the assessee has made excess payment to the bond holder to the extent of Rs.12,40,33,655/- and accordingly deprecation on capitalized premium amounting to Rs.1,68,96,,338/- was claimed by the assesse. The AO during the assessment proceedings noted that depreciation on the excess payment made to FCCB holders can not be allowed and added dded the same to the income of the assessee.
100. The Id CIT(A) allowed the appeal of the assesse by observing that the AO has not disputed the fact that the withholding tax is paid actually paid by the Assessee. Further it is also not a case wherein the a ssessee has recovered assessee withholding tax from the bond holder. The payment made by the assessee is its business decision and accordingly the payment in question should be allowed.
101. After hearing the parties and material placed before us, we note that the assesse has redeemed FCCB and paid total premium of 1,12,05,07,097/- by grossing up the amount by Man Industries (India) Ltd 16 withholding tax. In other words the TDS deducted and deposited by the assesse on behalf bondholders was treated as part of that. Besides we note that claim was was in accordance with section 195A of the Income Tax Act, 1961 as the Company paid withholding tax of Rs. 12,40,33,655/- by the grossing up the amount of premium and paid Rs.112,05,07,097/- as premium on redemption of FCCB to bondholder. We also note that iti has been provided in the section 195A itself which is extracted below: