Pure Equity Convertible Debentures Excluded from MAT Transition Amount | ITAT

Case Details: ACIT vs. Reliance Industrial Investments and Holdings Ltd. - [2026] 186 taxmann.com 1032 (Mumbai - Trib.)

Judiciary and Counsel Details

• Saktijit Dey, Vice President & Makarand Vasant Mahadeokar, Accountant Member
• Madhur Agarwal, Nimesh Vora & M. Mohsha Mehta for the Appellant.
• Umashankar Prasad, CIT-DR for the Respondent.

Facts of the Case

Assessee, a wholly owned subsidiary of a listed company, was engaged in acquiring/holding investments, providing loans, trading in petroleum products and manpower services. It had issued various convertible debentures to its holding company.

Under IGAAP up to 31.03.2016, these were shown as long-term borrowings. Upon adoption of Ind AS from A.Y. 2017-18, the assessee classified the debentures under ‘Other equity’ with a sub-head ‘Instruments classified as equity’, while Note 36.2 of the financial statements referred to them as the equity component of a CFI. The outstanding comprised ZOFCDs of Rs. 441.57 crores (issued in 1995), ZOFCDs of Rs. 15,103 crores (issued during F.Y. 2015-16) and FCDs of Rs. 279.90 crores (issued in 1996), aggregating to Rs. 15,824.47 crores.

The AO treated the instruments as CFIs for inclusion in the MAT transition amount under section 115JB(2C). CIT(A) deleted the additions. The matter reached the Tribunal.

ITAT Held

The Tribunal upheld the order of CIT(A). The Tribunal held that the debentures were never intended to be treated as liabilities, as no payment of interest was made or intended. Though, as per the terms of ZOFCDs, the debentures were redeemable at a premium of 5% of the face value, the redemption was not unilateral but mutual.

Thus, the assessee was never under any compulsion to pay out cash. The statement under note 36.2 has to be viewed in the context of the corresponding accounting entries, not on a standalone basis. Thus, on overall consideration of facts and materials on record, the Court is persuaded to believe that the statement in Note 36.2 was due to an inadvertent mistake.
Since materials on record suggested that instruments comprised purely of equity component without any element of liability, debentures could not have been categorised as ‘CFI’, or for that matter, ‘other equity’. Thus, ZOFCDs/FCDs issued by the assessee to its holding company did not fall within either the category of CFI or other equity and hence would not form part of the transition amount to increase the book profit u/s 115JB(2C).

List of Cases Referred to

• Reliance Industrial Investment and Holdings Ltd. v. Dy. CIT [2023] 149 taxmann.com 113 (Mumbai – Trib.) (para 36)
• Shasun Chemicals & Drugs Ltd. v. CIT-II, Chennai [2016] 73 taxmann.com 293/388 ITR 1/243 Taxman 47 (SC) (para 38)
• Antony Lara Enviro Solutions (P.) Ltd. v. PCIT, Thane-1 [2025] 181 taxmann.com 174 (Mumbai – Trib.) (para 39)