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5. Before us, the learned Counsel for the assessee admitted that this issue stands decided against the assessee by the Tribunal in the assessment year 2006-07, vide order dated 6th June 2012, passed in ITA no.8597/Mum./2010, which has been followed by the Tribunal in the assessment year 2007-08 in ITA no.7999/Mum./2011. However, the learned Counsel for the assessee submitted that insofar as the expenditure relating to professional fees paid to D.S. Partnership is concerned, the same was for scientific research and is allowable under section 35D. These payments were in relation to the development of engine technology, which will meet the future emission standard of Euro-III. It was for this purpose the assessee company has appointed D.S. Partnership for providing consultancy services of preparing the detail design of new Engine Development Centre (EDC) and also to monitor and certify the implementation of the design of new EDC at its R&D Centre at Chennai. This payment should be allowed under section 35D. He further submitted that as regards difference in exchange on Foreign Currency Convertible Bonds (FCCB) of ` 27,40,189, the same has to be treated as revenue expenditure because the premium payable on FCCB has been allowed as revenue expenditure by the Tribunal and, therefore, it is a kind of an additional liability on account of difference in the exchange rate, the same should also be treated as revenue expenditure.

Mahindra & Mahindra Limited

6. Learned Departmental Representative relied upon the findings of the Assessing Officer as well as the DRP and submitted that this issue has been decided against the assessee by the Tribunal.

7. After carefully considering the relevant material and the submissions made before us, it is seen that most of the expenditures which have been debited by the assessee have been decided against by the Tribunal in the assessment years 2006-07 and 2007-08, wherein it has been held that these expenditures are capital in nature and forms part of cost of investment. The Tribunal, after discussing the issues in detail has held that these expenditures are capital in nature after analyzing each and every head of expenditure. Insofar as the expenditure relating to professional fees paid to D.S. Partnership for sum of ` 24,39,400, as submitted by the assessee and also seen from the material placed on record, it appears that these expenditures were on account of research and development activities which falls within the ambit of section 35D. However, this issue has not been examined by the Assessing Officer from this angle. Accordingly, we set aside this particular issue and restore back to the file of the Assessing Officer and direct him to examine the same afresh after verifying the contention of the assessee and decide the same in accordance with the provisions of law. As regards expenditure debited on account of difference in exchange on FCCB, it is seen that the Tribunal, while dealing the issue of premium payable on FCCBs has held that they are revenue in nature. Once that is so, the difference in the exchange which has resulted into loss of 27,40,189, on re- valuation of loan liability in the form of FCCB, the additional liability has also to be given the same treatment. Therefore, such a loss has to be allowed as revenue expenditure.

vi) Redemption at the option of issuer: The bond may be redeemed at the option of the issuer at any time on or after 13.4.2008.

vii) Redemption at maturity: Unless previously redeemed, converted or purchased and cancelled, the issuer will redeem each bond at 128.03 per cent of its principal amount on the maturity date.

8.2 The assessee company has claimed the expenditure on premium payable of ` 39,43,78,178 in respect of FCCB aggregating to ` 200 million issued during the year. Thus premium of ` 39,43,78,178 pertaining to FCCB has been claimed as expenditure which was not debited to the Profit & Loss account. In the books of account, the above amount was debited to share premium account."

76. Ground no.18, relates to disallowance of deduction of part reversal of FCCB premium of ` 1,24,41,145.

77. In the computation of income, the assessee has claimed that the reversal of FCCB premium which has been offered for taxation should be ignored because the same has already been disallowed in the earlier assessment years. Before the Assessing Officer, it was submitted as under:-

"In the Assessment Years 2005-06, 2006-07 and 2007-08, the Company had claimed an amount of Rs. 1,303.52 Lakhs (100% claim of Rs. 1,303.52 lakhs and Rs. 539.95 Lakhs (35.27 % of Mahindra & Mahindra Limited Rs. 1,530.90 lakhs) and Rs. 43.63 (2.85% of Rs. 1530.90 lakhs) respectively. During the year under review, bond holders holding further 97.15% have opted for conversion of FCCB's into GDR's/ shares of the Company. Accordingly, amount of premium of Rs. 124.41 lakhs (2.85 % of Rs. 4365.30 Lakhs (Rs.