आदेश/ORDER

PER GEORGE MATHAN, JUDICIAL MEMBER:

This is an appeal filed by the assessee against the Order of the Commissioner of Income Tax (Appeals)-15, Chennai, in ITA No.107/2016-17/CIT(A)-15 dated 30.11.2017 for the AY 2013-14.

2. Mr. Sailendra Mamidi, PCIT, represented on behalf of the Revenue and Mr. M.Muraleedhara Reddy, Adv., represented on behalf of the assessee.

3. The Ld.AR filed written submissions as follows:

1. The Appellant company has filed its Return of Income for the Assessment year 2013-14 on 28th November 2013 declaring a total loss of Rs.30,82,73,823/- and books profit U/s.154JB of Rs.17,29,65,213/-. The case was selected for scrutiny and notice u/s.143(2) of the Income-Tax Act, 1961 dated 04-09-2014 was issued and the Assessing Officer completed assessment order u/s.143(3) by arriving at a taxable income of Rs.17,68,78,192/-. While completing the assessment, the Assessing Officer has disallowed “premium on repayment of debentures” of Rs.48,50,99,520/- claimed by the Appellant as expenditure. Further, the Assessing Officer has also disallowed Rs.1,51,453/- u/s.14A read with rule 8D. Aggrieved, the Appellant filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) while deleting the disallowance Rs.1,51,453/- u/s.14A read with rule 8D, confirmed the disallowance of “premium on repayment of debentures” of Rs.48,50,99,520/-. Hence, the present appeal.

2. The Appellant has raised an amount of Rs.49,99,99,900/-, by way of issue of 4,99,99,990 “Compulsory Convertible Debentures” (CCD) of Rs.10/- each, from a non- resident investor, M/s. CAC Spark Holdings Limited (CAC Spark), in order to fund the part of development of its integrated business park consisting of Special Economic Zone/Domestic Tariff Zone/Free Trade Warehousing Zone.

3. The date of issue of the above CCD’s was 28th September 2007. An option was given for conversion of these CCD’s issued by the Appellant into 20 Lakhs equity Shares of Rs.10/- each of the Appellant Company at a specified date as per the agreement between the investor and the Company. According to the terms of the agreement, CAC Spark was also given the option of exit through a buy back buy the Appellant at 15% IRR or buy back of these securities by a third party identified by the Appellant or its promoter in case the Appellant was not in a position to buy back by itself.

4. Appellant could not buy back due to insufficient profits and tried to identify a third party to buy. The terms that the third party wanted were detrimental to the interests of the company. In order to obviate this problem, the Appellant requested one of its investors in the Company, M/s.I Labs Hyderabad Technology Center (P) Ltd (I Lab), to buy the above mentioned 4,99,99,999 CCD’s of Rs.10/- each at same agreed price of 98.50 Crores. As a result of this, the ownership of 4,99,99,999 CCD’s of the Appellant company got transferred from CAC Spark to I Labs on 30th November 2012. Later, I Labs insisted the Appellant to change the character of the debentures from compulsory convertible debentures to 18% Non-convertible debentures re-payable on demand at a premium of Rs.9.70 per debenture {It is to be noted that this is equivalent to Rs.98.5 crores it has paid to CAC Spark for buying the 4,99,99,999 compulsory convertible debentures}. The Appellant had no other choice than accepting their request and therefore converted the 4,99,99,999 NCDs of Rs.10/- each into 18% Non-convertible debentures of Rs.10/- each repayable within one year with Put/Call option any time within one year at a premium of Rs.9.70 per debenture on 7th March 2013. The premium on repayment of 18% Non-convertible debentures works out to Rs.48,50,99,520/- payable at the time of redemption.

5. In its books of accounts, Appellant has passed the following journal entry on accrual basis, since the liability to pay the above premium was already accrued.

Premium on re-payment of NCD Dr. Rs.48,50,99,520/-

To Non-convertible debentures Rs.48,50,99,520/-