Debenture restructuring charge paid to debenture holders for re-negotiating terms and conditions to extend the redemption date held revenue expenditure-ITAT

Debenture restructuring charge paid to debenture holders for re-negotiated terms and conditions to extend the redemption date was held to be revenue expenditure-ITAT

Case Law Details:
DCIT vs. M/S JUBILANT FOOD WORKS LTD.
ITA No.1407/Del/2014 A.Y. : 2004-05
Date of Order/Judgment: 05/05/2016

Important Case Laws Referred:
CIT vs. Gujarat Guardian Ltd. 222 CTR 526 (Del.)

Brief Facts of the Case:
The assessee was a Company incorporated in India and was resident of India for tax purposes. The assessee was engaged in the business of manufacture and sale of pizzas and related fast food products of pizzas and their sales from its retail outlets throughout India under a franchisee model taken from a reputed international pizza chain; Domino’s Pizza International Inc., USA and had countrywide presence.

After the completion of assessment u/s 143(3) and CIT(Appeals) Thereafter, the case was reopened for assessment u/s. 147 issued under section 148. The assessee filed its objection against the reasons recorded, which were rejected. Thereafter, the AO passed the order under section 147 read with section 143(3) making several additions. One of the additions was on account of disallowance under the head Debt Restructuring Fees.

On appeal, CIT(A) deleted the additions in dispute and allowed the appeal of the Assessee. However, the Revenue being aggrieved against the order of CIT(A) filed the present appeal before the Tribunal.

Contentions of the Assessee:

(1) That the issue raised relating to deletion the addition of Rs. 84,80,000/- being debentures restructuring by treating the same as revenue expenditure was allowed by the CIT(A) following the jurisdictional High order in the case of Gujarat Guardian case (supra)

(2) Further, for the AY 2003-04 also the CIT(A) had allowed this issue in favour of the assessee in which the Revenue went in appeal before ITAT and the Tribunal in ITA No. 183 to 186/Del/2011 (allowed the said ground in favour of the assessee. Aggrieved with the Tribunal’s order in ITA 183-186/2011, the Revenue filed Appeal before Delhi High Court in assessee’s own case and the High Court allowed the ground in favour of the assessee and dismissed the appeal of the revenue. Therefore, he requested that this ground may also be allowed in favour of the assessee.

Important Excerpts from ITAT Judgment:

…………. the same was allowed by the Ld. CIT(A) by following the jurisdictional High order in the case of CIT vs. Gujarat Guardian Ltd. 222 CTR 526 (Del.) by holding as under:- 

“I have considered the submissions of the appellant, the findings of the AO and the facts on record. Keeping in view the ratio of the above referred decisions and on going through the decision of the jurisdiction Delhi High Court in the case of CIT vs. Gujarat Guardian Ltd. (Supra), it is observed that the restructuring fees paid by the appellant to renegotiate the rate of interest on debentures represented the present value of differential rate of interest which should be allowed as revenue expenditure.

It is also seen that the above issue on similar facts was decided in favour of the appellant by the Hon’ble ITAT in its order for the AY 2003-04 to 2005-06. Accordingly, this ground of appeal is allowed in favour of the appellant and the disallowance made by the AO is deleted.”

the Tribunal vide order dated 24.10.2012 passed in ITA No. 183 to 186/Del/2011 (Ayrs. 2003-04 to 2005-06) in assessee’s own case has held as under:-

“We have heard both the sides, considered the material on record as well as basis and reasoning as given by the CIT(A). It is not in dispute that due to non-availability of finances, assessee was not in a position to negotiate the debentures issue which got matured during the year under consideration. So, he has arranged the finance by paying Rs. 15 lakhs to M/s Infrastructure Leasing & Financial Services Ltd. In the light of case laws cited by the Ld. CIT(A) and in the absence of any contrary decision or evidence produced or any higher courts orders having been placed to support the plea raised by the department, we do not find any reasonable ground to interfere in the order passed by the CIT(A), which is confirmed and the appeal of the Revenue is dismissed on this ground.”

…….that aggrieved with the order dated 24.10.2012 of the Tribunal passed in ITA No. 183 to 186/Del/2011 (Ayrs. 2003-04 to 2005-06) in assessee’s own case, the Revenue has preferred an appeal before the Hon’ble High Court of Delhi and the Hon’ble High Court of Delhi vide dated 1.8.2014 passed in ITA No. 311/2014 has allowed the ground in favour of the assessee and dismissed the appeal of the revenue by observing as under:- 

“The Tribunal in the impugned order has recorded a finding that Rs. 15 lacs was paid to the debentures holders in view of the restructuring of the debenture terms. The respondent-assessee had issued non-convertible redeemable debentures of Rs. 25 Crores during the Financial year 2000-01 to meet working capital requirements. These debentures could not be redeemed and during the impugned assessment year, the respondentassessee re-negotiated terms and conditions of the issue with the debenture holders, who agreed to redeem the debentures at a later date. One of the terms and conditions on the basis of which the debenture holders had agreed to extend the redemption date was that the respondent-assessee should make payment of Rs. 15 lacs. It is not the case of the appellant-Revenue that Rs. 15 lacs paid to the debenture holders became part of the principal amount, which was advanced to the respondent-assessee and / or interest was payable thereon. It is apparent that the term or tenure for which the debenture had been issued were modified / altered on payment of Rs. 15 lacs. Thus, the debenture holders forgo their right to the principal amount and interest which was payable as per terms of initial issue and the payment of Rs. 15 lacs did not affect the face value of the debenture. The aforesaid payment would, therefore, be in the nature of debt servicing and would not be capital payment.