DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-5(1), MUMBAI vs. ANAND RATHI GLOBAL FINANCE LIMITED, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)

ITA No. 6255/MUM/2025 Assessment Year: 2023-24

Deputy Commissioner of Anand Rathi Global Finance Income Tax, Central Circle – Limited, A-Wing, 10th Floor, Vs. 5(1), Room No.429, 4th Floor, Express Zone, Goregaon East kautilya Bhawan, BKC, S.O. Mumbai – 400063, Mumbai – 400051, Mumbai. Maharashtra. PAN NO. AABCR 1136 N Appellant Respondent

Assessee by : Shri Dharmesh Shah & Ms Mitali Parekh : Shri Rajesh Kumar Yadav, (CIT. DR) Revenue by

: 13/04/2026 Date of Hearing : 22/05/2026 Date of pronouncement ORDER PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against the order dated 31.07.2025 passed by the learned Commissioner of Income-Tax (Appeals)-53, Mumbai [“the Ld. CIT(A)”] for Assessment Year 2023– 24. The Revenue has assailed the relief granted by the Ld. CIT(A) in respect of (i) allowability of discount on issue of debentures, and (ii) restriction of disallowance under section 14A of the Income-tax Act,

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1961 (“the Act”). The relevant 1961 (“the Act”). The relevant grounds of Revenue are extracted as are extracted as under:

“1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) 1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) 1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in deleting the disallowance of justified in deleting the disallowance of ₹33,23,90,083/ 33,23,90,083/-on account of discount on issue of debentures, by treating the entire discount as revenue discount on issue of debentures, by treating the entire discount as revenue discount on issue of debentures, by treating the entire discount as revenue expenditure allowable in the year of issue, ignoring that the said expenditure expenditure allowable in the year of issue, ignoring that the said expenditure expenditure allowable in the year of issue, ignoring that the said expenditure secures enduring benefit over secures enduring benefit over the tenure of debentures and is required to be the tenure of debentures and is required to be amortized over the debenture period as laid down by the Hon'ble Supreme Court amortized over the debenture period as laid down by the Hon'ble Supreme Court amortized over the debenture period as laid down by the Hon'ble Supreme Court in Madras Industrial Investment Corp. Ltd. v. CIT (1997) 225 ITR 802 (SC)? in Madras Industrial Investment Corp. Ltd. v. CIT (1997) 225 ITR 802 (SC)? in Madras Industrial Investment Corp. Ltd. v. CIT (1997) 225 ITR 802 (SC)? 2. (2015) 372 ITR 605 (SC), overlooking that the facts o 2. (2015) 372 ITR 605 (SC), overlooking that the facts of the present case are f the present case are distinguishable Whether the Hon'ble CIT(A) erred in law in applying the ratio of distinguishable Whether the Hon'ble CIT(A) erred in law in applying the ratio of distinguishable Whether the Hon'ble CIT(A) erred in law in applying the ratio of Taparia Tools Ltd. v. JCIT inasmuch as the assessee itself had accounted the Taparia Tools Ltd. v. JCIT inasmuch as the assessee itself had accounted the Taparia Tools Ltd. v. JCIT inasmuch as the assessee itself had accounted the discount as deferred expenditure in its books of account, thereby attracting the discount as deferred expenditure in its books of account, thereby attractin discount as deferred expenditure in its books of account, thereby attractin principle of consistency and matching concept? principle of consistency and matching concept? 3. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) 3. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) 3. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was correct in law in restricting disallowance u/s 14A to 1% of only those was correct in law in restricting disallowance u/s 14A to 1% of only those was correct in law in restricting disallowance u/s 14A to 1% of only those investments which yielded exempt income (251.25 investments which yielded exempt income (251.25 lakh), ignoring that Rule lakh), ignoring that Rule 8D(2)(iii) requires disallowance at 1% of the average value of all investments, 8D(2)(iii) requires disallowance at 1% of the average value of all investments, 8D(2)(iii) requires disallowance at 1% of the average value of all investments, income from which does not or shall not form part of total income, irrespective of income from which does not or shall not form part of total income, irrespective of income from which does not or shall not form part of total income, irrespective of whether such investments have actually yielded exempt income in the relevant whether such investments have actually yielded exempt income in th whether such investments have actually yielded exempt income in th year? 4. Whether the Hon'ble CIT(A) was correct in law in directing reduction of 4. Whether the Hon'ble CIT(A) was correct in law in directing reduction of 4. Whether the Hon'ble CIT(A) was correct in law in directing reduction of disallowance to 51,250/ disallowance to 51,250/-, overlooking CBDT Circular No. 5/2014 dated , overlooking CBDT Circular No. 5/2014 dated 11.02.2014 which clarifies that expenditure relatable to income not includible in 11.02.2014 which clarifies that expenditure relatable to income not includible in 11.02.2014 which clarifies that expenditure relatable to income not includible in total income is to be disallowed even if no exempt Income has been earned in that is to be disallowed even if no exempt Income has been earned in that is to be disallowed even if no exempt Income has been earned in that year?" 2. Briefly stated, the assessee filed its return of income on Briefly stated, the assessee filed its return of income on Briefly stated, the assessee filed its return of income on 26.10.2023 declaring total income at Rs.51,05,82,070/-. The 26.10.2023 declaring total income at Rs.51,05,82,070 26.10.2023 declaring total income at Rs.51,05,82,070 assessment under section 143(3) of the Act was completed on assessment under section 143(3) of the Act was completed on assessment under section 143(3) of the Act was completed on 26.03.2025 at an assessed income of Rs.84,59,20,553/-, inter alia, 26.03.2025 at an assessed income of Rs.84,59,20,553/ 26.03.2025 at an assessed income of Rs.84,59,20,553/ by making disallowance of discount on issue of debentures and by by making disallowance of discount on issue of debentures and by by making disallowance of discount on issue of debentures and by invoking section 14A read with Rule 8D of the Income-tax Rules, invoking section 14A read with Rule 8D of the Income invoking section 14A read with Rule 8D of the Income 1962 (“the Rules”). 1962 (“the Rules”). In appeal, the Ld. CIT(A) deleted the In appeal, the Ld. CIT(A) deleted the disallowance relating to discount on debentures and restricted the disallowance relating to discount on debentures and restricted the disallowance relating to discount on debentures and restricted the

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disallowance under section 14A. Aggrieved, the Revenue is in disallowance under section 14A. Aggrieved, the Revenue is in disallowance under section 14A. Aggrieved, the Revenue is in appeal before us by way of raising the grounds as reproduced by way of raising the grounds as reproduced by way of raising the grounds as reproduced above. 3. Before us, the assessee has filed a paper book containing pages 1 Before us, the assessee has filed a paper book containing pages 1 Before us, the assessee has filed a paper book containing pages 1 to 92 and compilation of the case laws. compilation of the case laws. 4. The Ground Nos. 1 and 2 of the Ground Nos. 1 and 2 of the appeal of the Revenue appeal of the Revenue relate to disallowance of Rs.33,23,90,083 33,23,90,083/- made by the Assessing Officer on by the Assessing Officer on account of discount on issue of debentures, which was claimed by of discount on issue of debentures, which was claimed by of discount on issue of debentures, which was claimed by the assessee as a revenue expenditure allowable in the year of revenue expenditure allowable in the year of revenue expenditure allowable in the year of issue. 4.1 The facts relevant to the controversy are that during the year The facts relevant to the controversy are that during the year The facts relevant to the controversy are that during the year under consideration the assessee, a non under consideration the assessee, a non-banking financial banking financial company engaged in financing and lending activities, issued non-convertible engaged in financing and lending activities, issued non engaged in financing and lending activities, issued non debentures aggregating to Rs.495 crores at a discount. The debentures aggregating to Rs.495 crores at a discount. The debentures aggregating to Rs.495 crores at a discount. The assessee assessee assessee claimed claimed claimed the the the entire entire entire discount discount discount amounting amounting amounting to to to Rs.40,01,48,500/- as revenue expenditure in the year of issue as revenue expenditure in the year of issue as revenue expenditure in the year of issue itself. The assessee relied upon the decision of the Hon’ble Supreme he assessee relied upon the decision of the Hon’ble Supreme he assessee relied upon the decision of the Hon’ble Supreme Court in the case of Court in the case of Madras Industrial Investment Corporation Madras Industrial Investment Corporation Ltd. vs. CIT, [225 ITR 802], , [225 ITR 802], Taparia Tools Ltd. vs. JCIT [2015] Taparia Tools Ltd. vs. JCIT [2015] 372 ITR 605 (SC) and also the decision of the Hon’ble Bombay and also the decision of the Hon’ble Bombay and also the decision of the Hon’ble Bombay High Court in the case of t in the case of Pr. Commissioner of Income Tax [PCIT] Pr. Commissioner of Income Tax [PCIT] vs. TATA Industries Limited in [ITA No.661 of 2018]. Further vs. TATA Industries Limited in [ITA No.661 of 2018]. vs. TATA Industries Limited in [ITA No.661 of 2018]. the assessee submitted that such deduction on discount for the assessee submitted that such deduction on discount for the assessee submitted that such deduction on discount for

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debenture had been consistently allowed by the AO in earlier debenture had been consistently allowed by the AO in earlier debenture had been consistently allowed by the AO in earlier scrutiny assessments scrutiny assessments and, hence, any attempt to alter the position and, hence, any attempt to alter the position without any change in fact, or legal provision would be arbitrary without any change in fact, or legal provision would be arbitrary without any change in fact, or legal provision would be arbitrary and legally untenable. and legally untenable. 4.2 The Assessing Officer, however, was of the opinion that The Assessing Officer, however, was of the opinion that The Assessing Officer, however, was of the opinion that firstly, discount on debentures represent an amount paid to , discount on debentures represent an amount paid to , discount on debentures represent an amount paid to the issue of the debenture at a price lower than the nominal value and issue of the debenture at a price lower than the nominal value and issue of the debenture at a price lower than the nominal value and hence of the discount did not represent any payment made to hence of the discount did not represent any payment made to hence of the discount did not represent any payment made to anyone so as to constitute expenditure, secondly econdly, the benefit anyone so as to constitute expenditure arising from the debentures extended over the tenure of the arising from the debentures extended over the tenure of the arising from the debentures extended over the tenure of the debentures and, therefore, the expenditure ought to be amortized entures and, therefore, the expenditure ought to be amortized entures and, therefore, the expenditure ought to be amortized over the life of the instrument. over the life of the instrument. The Assessing Officer principally The Assessing Officer principally relied upon the judgment of the Hon’ble Supreme Court in Madras relied upon the judgment of the Hon’ble Supreme Court in relied upon the judgment of the Hon’ble Supreme Court in Industrial Investment Corporation Ltd. v. CIT Industrial Investment Corporation Ltd. v. CIT (supra) (supra) for the proposition that discount on debentures represents a continuing roposition that discount on debentures represents a continuing roposition that discount on debentures represents a continuing liability and, therefore, deduction should be spread over the period liability and, therefore, deduction should be spread over the period liability and, therefore, deduction should be spread over the period of debentures. The ld AO observed that assessee’s contention of The ld AO observed that assessee’s contention of The ld AO observed that assessee’s contention of discount on debentures being allowable in the first year and cannot discount on debentures being allowable in the first year and discount on debentures being allowable in the first year and be amortized, was incorrect interpretation of the decision of the be amortized, was incorrect interpretation of the decision of the be amortized, was incorrect interpretation of the decision of the Hon’ble Supreme Court. The ld AO also distinguished the decision Hon’ble Supreme Court. The ld AO also distinguished the decision Hon’ble Supreme Court. The ld AO also distinguished the decision of Hon’ble Supreme Court in the case of Taparia Tools Ltd. vs. Taparia Tools Ltd. vs. of Hon’ble Supreme Court in the case of JCIT (Supra) relied upon by the assessee. relied upon by the assessee. Regarding th Regarding the rule of the consistency, the AO was of the view that every financial year was a consistency, the AO was of the view that every financial year was a consistency, the AO was of the view that every financial year was a separate year and tax liability are determined independently for separate year and tax liability are determined independently for separate year and tax liability are determined independently for

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each year. The AO accordingly adjusted discount over the each year. The AO accordingly adjusted discount over the each year. The AO accordingly adjusted discount over the debenture life and has allowed 1/6 debenture life and has allowed 1/6th part of the discount in this part of the discount in this year year year and and and accordingly accordingly accordingly restricted restricted restricted discount discount discount claimed claimed claimed to to to Rs.6,77,58,417/- and the excess claim of Rs.33,23,90,083 (i.e., and the excess claim of Rs.33,23,90,083 (i.e., and the excess claim of Rs.33,23,90,083 (i.e., Rs.40,10,14,850 – Rs. Rs.6,77,58,417), was disallowed by the AO and 6,77,58,417), was disallowed by the AO and added to the income of the assessee. added to the income of the assessee. 4.3 Before the learned CIT(A), the assessee, inter alia, submitted e the learned CIT(A), the assessee, inter alia, submitted e the learned CIT(A), the assessee, inter alia, submitted that it is a Non-Banking Financial Company engaged in the Banking Financial Company engaged in the Banking Financial Company engaged in the business of lending and financing activities, including loans against business of lending and financing activities, including loans against business of lending and financing activities, including loans against securities, loans against property and other structured credit securities, loans against property and other structured credit securities, loans against property and other structured credit products. It was contended that the core business model of the s. It was contended that the core business model of the s. It was contended that the core business model of the assessee is founded upon deployment of borrowed funds into assessee is founded upon deployment of borrowed funds into assessee is founded upon deployment of borrowed funds into income-generating financial assets and that the interest income generating financial assets and that the interest income generating financial assets and that the interest income arising therefrom constitutes its principal source of revenue. In the arising therefrom constitutes its principal source of revenue. In the arising therefrom constitutes its principal source of revenue. In the ordinary course of its business operations, the assessee raises y course of its business operations, the assessee raises y course of its business operations, the assessee raises funds through issuance of non funds through issuance of non-convertible debentures (“NCDs”), the convertible debentures (“NCDs”), the proceeds whereof are directly utilized for extending credit facilities proceeds whereof are directly utilized for extending credit facilities proceeds whereof are directly utilized for extending credit facilities to customers. It was further submitted that during the year under to customers. It was further submitted that during the year u to customers. It was further submitted that during the year u consideration the assessee issued NCDs aggregating to a face value consideration the assessee issued NCDs aggregating to a face value consideration the assessee issued NCDs aggregating to a face value of Rs.495 crores at a discount, resulting in a discount expenditure of Rs.495 crores at a discount, resulting in a discount expenditure of Rs.495 crores at a discount, resulting in a discount expenditure of Rs.40,01,48,500/- -. According to the assessee, the said discount . According to the assessee, the said discount represented the cost incurred for raising busines represented the cost incurred for raising business funds and the s funds and the liability in respect thereof crystallized in the very year of issuance of liability in respect thereof crystallized in the very year of issuance of liability in respect thereof crystallized in the very year of issuance of the debentures. Since the assessee follows the mercantile system of the debentures. Since the assessee follows the mercantile system of the debentures. Since the assessee follows the mercantile system of

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accounting, the liability having arisen during the relevant previous accounting, the liability having arisen during the relevant previous accounting, the liability having arisen during the relevant previous year, the entire amount was c year, the entire amount was claimed as deduction in that year itself. laimed as deduction in that year itself. It was emphasized that the funds raised through the debenture It was emphasized that the funds raised through the debenture It was emphasized that the funds raised through the debenture issue were not utilized for acquisition of capital assets or for any issue were not utilized for acquisition of capital assets or for any issue were not utilized for acquisition of capital assets or for any enduring capital project, but were deployed entirely in the regular enduring capital project, but were deployed entirely in the regular enduring capital project, but were deployed entirely in the regular financing operations of the assessee. Accordingly, the expenditure ions of the assessee. Accordingly, the expenditure ions of the assessee. Accordingly, the expenditure was claimed to be revenue in nature and allowable under section was claimed to be revenue in nature and allowable under section was claimed to be revenue in nature and allowable under section 37(1) of the Income-tax Act, 1961 (“the Act”). The assessee further tax Act, 1961 (“the Act”). The assessee further tax Act, 1961 (“the Act”). The assessee further contended that the Assessing Officer had erred in seeking to contended that the Assessing Officer had erred in seeking to contended that the Assessing Officer had erred in seeking to amortize the discount expenditure over the tenure of the debentures discount expenditure over the tenure of the debentures discount expenditure over the tenure of the debentures by placing reliance upon the judgment of the Hon’ble Supreme by placing reliance upon the judgment of the Hon’ble Supreme by placing reliance upon the judgment of the Hon’ble Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT Madras Industrial Investment Corporation Ltd. v. CIT Madras Industrial Investment Corporation Ltd. v. CIT (supra). Reliance was placed upon the subsequent judgment of the . Reliance was placed upon the subsequent judgment of the . Reliance was placed upon the subsequent judgment of the Hon’ble Supreme Court in eme Court in Taparia Tools Ltd. v. JCIT Taparia Tools Ltd. v. JCIT (supra), wherein the Hon’ble Hon’ble Apex Court clarified that in Madras Industrial Apex Court clarified that in Madras Industrial Investment Corporation Ltd. (supra), spreading over of expenditure Investment Corporation Ltd. (supra), spreading over of expenditure Investment Corporation Ltd. (supra), spreading over of expenditure was permitted only because the assessee itself had opted for such was permitted only because the assessee itself had opted for such was permitted only because the assessee itself had opted for such treatment and not because the law mandated amortization. The nt and not because the law mandated amortization. The nt and not because the law mandated amortization. The assessee submitted that where an assessee claims a revenue assessee submitted that where an assessee claims a revenue assessee submitted that where an assessee claims a revenue expenditure wholly in the year of incurrence, the Revenue cannot expenditure wholly in the year of incurrence, the Revenue cannot expenditure wholly in the year of incurrence, the Revenue cannot compel deferment of such deduction over future years. The assessee compel deferment of such deduction over future years. The assessee compel deferment of such deduction over future years. The assessee also relied upon the judgment of the Hon’ble Bombay High Court in upon the judgment of the Hon’ble Bombay High Court in upon the judgment of the Hon’ble Bombay High Court in Tata Industries Ltd. v. CIT Tata Industries Ltd. v. CIT(supra) and various other judicial and various other judicial precedents to contend that there exists no provision under the Act precedents to contend that there exists no provision under the Act precedents to contend that there exists no provision under the Act authorising deferment of a revenue expenditure, except in cases authorising deferment of a revenue expenditure, except in cases authorising deferment of a revenue expenditure, except in cases

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specifically contemplated by statute, such as section 35D of the Act. ally contemplated by statute, such as section 35D of the Act. ally contemplated by statute, such as section 35D of the Act. It was submitted that in the absence of any statutory provision It was submitted that in the absence of any statutory provision It was submitted that in the absence of any statutory provision mandating amortization, the action of the Assessing Officer mandating amortization, the action of the Assessing Officer mandating amortization, the action of the Assessing Officer amounted to rewriting the law, which is impermissible. The amounted to rewriting the law, which is impermissible. The amounted to rewriting the law, which is impermissible. The assessee also pointed out that in Note No. 26 to its financial so pointed out that in Note No. 26 to its financial so pointed out that in Note No. 26 to its financial statements, the entire discount on issue of debentures amounting statements, the entire discount on issue of debentures amounting statements, the entire discount on issue of debentures amounting to Rs.40.01 crores had been recognised in Assessment Year 2023- to Rs.40.01 crores had been recognised in Assessment Year 2023 to Rs.40.01 crores had been recognised in Assessment Year 2023 24 itself and no deferment had been claimed. 24 itself and no deferment had been claimed.

4.4 After considering the subm After considering the submissions of the assessee and issions of the assessee and examining the assessment order, the learned CIT(A) deleted the examining the assessment order, the learned CIT(A) deleted the examining the assessment order, the learned CIT(A) deleted the disallowance. The learned CIT(A) observed that the Assessing Officer disallowance. The learned CIT(A) observed that the Assessing Officer disallowance. The learned CIT(A) observed that the Assessing Officer had principally relied upon the decision of the Hon’ble Supreme had principally relied upon the decision of the Hon’ble Supreme had principally relied upon the decision of the Hon’ble Supreme Court in Madras Industrial Inves Madras Industrial Investment Corporation Ltd. v. tment Corporation Ltd. v. CIT(supra) for holding that the discount on issue of debentures for holding that the discount on issue of debentures for holding that the discount on issue of debentures could not be allowed fully in the year of issuance. However, the could not be allowed fully in the year of issuance. However, the could not be allowed fully in the year of issuance. However, the learned CIT(A) found that the subsequent judgment of the Hon’ble learned CIT(A) found that the subsequent judgment of the Hon’ble learned CIT(A) found that the subsequent judgment of the Hon’ble Supreme Court in Taparia Taparia Tools Ltd. v. JCIT(supra) (supra) had expressly distinguished the earlier decision and clarified the legal position. distinguished the earlier decision and clarified the legal position. distinguished the earlier decision and clarified the legal position. The Hon’ble Apex Court held therein that the normal rule is that Apex Court held therein that the normal rule is that Apex Court held therein that the normal rule is that revenue expenditure incurred wholly and exclusively for the revenue expenditure incurred wholly and exclusively for the revenue expenditure incurred wholly and exclusively for the purpose of business m purpose of business must be allowed in the year in which it is ust be allowed in the year in which it is incurred and that spreading over of such expenditure can be incurred and that spreading over of such expenditure can be incurred and that spreading over of such expenditure can be permitted only at the option of the assessee. The learned CIT(A) permitted only at the option of the assessee. The learned CIT(A) permitted only at the option of the assessee. The learned CIT(A) further observed that the Hon’ble Supreme Court in Taparia Tools further observed that the Hon’ble Supreme Court in Taparia Tools further observed that the Hon’ble Supreme Court in Taparia Tools

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Ltd. (supra) categorical Ltd. (supra) categorically held that where an assessee claims the ly held that where an assessee claims the entire expenditure in the year of incurrence, the Department cannot entire expenditure in the year of incurrence, the Department cannot entire expenditure in the year of incurrence, the Department cannot compel the assessee to defer the deduction over subsequent years compel the assessee to defer the deduction over subsequent years compel the assessee to defer the deduction over subsequent years merely because a different treatment may have been adopted in the merely because a different treatment may have been adopted in the merely because a different treatment may have been adopted in the books of account. The learned CIT(A), therefore, concluded that the t. The learned CIT(A), therefore, concluded that the t. The learned CIT(A), therefore, concluded that the reliance placed by the Assessing Officer on Madras Industrial reliance placed by the Assessing Officer on Madras Industrial reliance placed by the Assessing Officer on Madras Industrial Investment Corporation Ltd. (supra) was wholly misconceived, Investment Corporation Ltd. (supra) was wholly misconceived, Investment Corporation Ltd. (supra) was wholly misconceived, inasmuch as the assessee in the present case had never opted for inasmuch as the assessee in the present case had never opted for inasmuch as the assessee in the present case had never opted for spreading over of the expenditure and had consistently claimed the of the expenditure and had consistently claimed the of the expenditure and had consistently claimed the entire amount in the year of incurrence itself. The learned CIT(A) entire amount in the year of incurrence itself. The learned CIT(A) entire amount in the year of incurrence itself. The learned CIT(A) also placed reliance upon the judgment of the Hon’ble Bombay High also placed reliance upon the judgment of the Hon’ble Bombay High also placed reliance upon the judgment of the Hon’ble Bombay High Court in Tata Industries Ltd. v. CIT Tata Industries Ltd. v. CIT (supra), wherein, following the , wherein, following the ratio laid down in Taparia Tools Ltd. v. JCIT Taparia Tools Ltd. v. JCIT(supra), it was held that , it was held that the Revenue cannot compel an assessee to amortize revenue the Revenue cannot compel an assessee to amortize revenue the Revenue cannot compel an assessee to amortize revenue expenditure over the tenure of debentures where the assessee has expenditure over the tenure of debentures where the assessee has expenditure over the tenure of debentures where the assessee has chosen to claim the entire expenditure in the year of incurrence. chosen to claim the entire expenditure in the year of incurrence chosen to claim the entire expenditure in the year of incurrence Upon consideration of the aforesaid judicial precedents and the Upon consideration of the aforesaid judicial precedents and the Upon consideration of the aforesaid judicial precedents and the factual position emerging from the financial statements, the learned factual position emerging from the financial statements, the learned factual position emerging from the financial statements, the learned CIT(A) held that the discount on issue of debentures constituted CIT(A) held that the discount on issue of debentures constituted CIT(A) held that the discount on issue of debentures constituted allowable revenue expenditure deductible in the year of issuance of allowable revenue expenditure deductible in the year of allowable revenue expenditure deductible in the year of the the the debentures debentures debentures itself. itself. itself. Consequently, Consequently, Consequently, the the the disallowance disallowance disallowance of of of Rs.33,23,90,083/- made by the Assessing Officer was deleted. The made by the Assessing Officer was deleted. The made by the Assessing Officer was deleted. The relevant extract of decision of ld CIT(A) is reproduced as under:- relevant extract of decision of ld CIT(A) is reproduced relevant extract of decision of ld CIT(A) is reproduced

“6.2 Facts of the case and submission of the assessee 6.2 Facts of the case and submission of the assessee have been examined. The have been examined. The assessee has claimed discount on debenture of Rs.40,01,48,500/- in the assessee has claimed discount on debenture of Rs.40,01,48,500/ assessee has claimed discount on debenture of Rs.40,01,48,500/

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computation of income filed in the ITR. The AO in the assessment order has of income filed in the ITR. The AO in the assessment order has of income filed in the ITR. The AO in the assessment order has mainly relied on the mainly relied on the decision of Hon’ble Supreme Court in the case of Madras decision of Hon’ble Supreme Court in the case of Madras Industrial Investment l Investment Corporation vs. CIT and has held that the assessee cannot Corporation vs. CIT and has held that the assessee cannot claim the entire discount claim the entire discount on the issue of debenture during the year and has on the issue of debenture during the year and has restricted the discount claimed to restricted the discount claimed to Rs.6,77,58,417/- for the year under for the year under consideration and has disallowed exces consideration and has disallowed excess claim of Rs.33,23,90,083/ Rs.33,23,90,083/-. I found that the Hon’ble Supreme Court in the case of Taparia the Hon’ble Supreme Court in the case of Taparia Tours Ltd. vs. JCIT (2015) 372 Tours Ltd. vs. JCIT (2015) 372 ITR 605 (SC) has distinguished the judgment given in Madras Industrial ITR 605 (SC) has distinguished the judgment given in ITR 605 (SC) has distinguished the judgment given in Corporation and observed that in Madras Industrial Investment Corporation, the Corporation and observed that in Madras Industrial Investment Corporation and observed that in Madras Industrial Investment proportionate deduction was allowed solely because it was the assessee’s proportionate deduction was allowed solely because it was the proportionate deduction was allowed solely because it was the chosen method, not because the law mandates such amortization. The Apex chosen method, not because the law mandates such amortization. The chosen method, not because the law mandates such amortization. The Court further held that where an assessee claims a revenue expenditure in full in Court further held that where an assessee claims a revenue expenditure in full Court further held that where an assessee claims a revenue expenditure in full the year of incurrence, as the appellant has done in the present case, the incurrence, as the appellant has done in the present case, the incurrence, as the appellant has done in the present case, the Department cannot defer the deduction over future years. Therefore, the Department cannot defer the deduction over future years. Therefore, the Department cannot defer the deduction over future years. Therefore, the Assessing Officer’s reliance on Madras Industrial Investment Corporation is both Officer’s reliance on Madras Industrial Investment Corporation is both Officer’s reliance on Madras Industrial Investment Corporation is both factually and legally inapplicable to th legally inapplicable to the appellant’s case. The relevant portion of e appellant’s case. The relevant portion of judgment in the case of Taparia Tours Ltd. is reproduced as under: case of Taparia Tours Ltd. is reproduced as under: case of Taparia Tours Ltd. is reproduced as under: “15. "What is to be borne in mind is that the moment second option was “15. "What is to be borne in mind is that the moment second option was “15. "What is to be borne in mind is that the moment second option was exercised by the exercised by the debenture holder to receive the payment upfront, debenture holder to receive the payment upfront, liability of the assessee to make the payment in of the assessee to make the payment in that very year, on exercising of that very year, on exercising of this option, has arisen and this liability was to pay the interest @ this option, has arisen and this liability was to pay the interest @ this option, has arisen and this liability was to pay the interest @ Rs. 55 per debenture. In Bharat Earth Movers v. CIT [(2000) 245 ITR 428 (SC)], per debenture. In Bharat Earth Movers v. CIT [(2000) 245 ITR 428 (SC)], per debenture. In Bharat Earth Movers v. CIT [(2000) 245 ITR 428 (SC)], this Court had this Court had categorically held that if a business liability has arisen in ly held that if a business liability has arisen in the accounting year, the deduction the accounting year, the deduction should be allowed even if such a should be allowed even if such a liability may have to be quantified and discharged at a future liability may have to be quantified and discharged at a future liability may have to be quantified and discharged at a future date. Following passage from the aforesaid judgment is worth a quote: Following passage from the aforesaid judgment is worth a quote: Following passage from the aforesaid judgment is worth a quote: "The law is settled: if a business liability has definitely arisen in the law is settled: if a business liability has definitely arisen in the law is settled: if a business liability has definitely arisen in the accounting year, the deduction accounting year, the deduction should be allowed although the liability should be allowed although the liability may have to be quantified and discharged at a future date. may have to be quantified and discharged at a future date. may have to be quantified and discharged at a future date. What should be certain is the incurring of the liabilit be certain is the incurring of the liability. It should also be capable of being y. It should also be capable of being estimated with reasonable certainty though the actual quantification may with reasonable certainty though the actual quantification may with reasonable certainty though the actual quantification may not be possible. If these not be possible. If these requirements are satisfied the liability is not a requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it contingent one. The liability is in praesenti though it will be disch will be discharged at a future date. It does not make any difference if the future date on which a future date. It does not make any difference if the future date on which a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." liability shall have to be discharged is not certain." liability shall have to be discharged is not certain." The present case is even on a stronger footing inasmuch as not only the The present case is even on a stronger footing inasmuch as not only the The present case is even on a stronger footing inasmuch as not only the liability had arisen in the liability had arisen in the assessment year in question, it was even ear in question, it was even quantified and discharged as well in that very quantified and discharged as well in that very accounting year." accounting year." "16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] "16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] "16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 802/91 Taxman 340 (SC) was cited by the learned counsel for the 340 (SC) was cited by the learned counsel for the Revenue to justify Revenue to justify the decision taken by the courts below. courts below. We find that the Court categorically held even in that case that the general the Court categorically held even in that case that the general the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly principle is that ordinarily revenue expenditure incurred wholly principle is that ordinarily revenue expenditure incurred wholly

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and exclusively for the purpose of business is to be allowed in the and exclusively for the purpose of business is to be allowed in the and exclusively for the purpose of business is to be allowed in the year in which it is incurred in which it is incurred. However, some exceptional cases can exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing justify spreading the expenditure and claiming it over a period of ensuing justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the It is important to note that in that judgment, it was the It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a pe assessee who wanted spreading the expenditure over a pe assessee who wanted spreading the expenditure over a period of time and had justified the same. It was a case of issuing time and had justified the same. It was a case of issuing time and had justified the same. It was a case of issuing debentures at discount; whereas the assessee had actually debentures at discount; whereas the assessee had actually debentures at discount; whereas the assessee had actually incurred the liability incurred the liability to pay the discount in the year of issue of to pay the discount in the year of issue of debentures itself debentures itself. The Court found that the assessee could still assessee could still be allowed to spread the said expenditure over the entire period of five years, allowed to spread the said expenditure over the entire period of five years, allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the at the end of which the debentures were to be redeemed. By raising the at the end of which the debentures were to be redeemed. By raising the money collected under money collected under the said debentures, the assessee could utilise the the said debentures, the assessee could utilise the said amount and secure the bene said amount and secure the benefit over number of years. This is number of years. This is discernible from the following passage in that judgment on which discernible from the following passage in that judgment on which discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself: was placed by the learned counsel for the Revenue herself: was placed by the learned counsel for the Revenue herself: "15. The Tribunal, however, held that since the entire liability to pay the "15. The Tribunal, however, held that since the entire liability to pay the "15. The Tribunal, however, held that since the entire liability to pay the discount had discount had been incurred in the accounting year in question, the incurred in the accounting year in question, the assessee was entitled to deduct the entire assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified accounting year. This conclusion does not appear to be justified accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the the nature of the liability. It is true that the liability has been incurred in liability has been incurred in the accounting the accounting year. But the liability is a continuing liability which year. But the liability is a continuing liability which stretches over a period of 12 years. It is, stretches over a period of 12 years. It is, therefore, a liability spread over a therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is period of 12 years. Ordinarily, revenue expenditure which is period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its lly and exclusively for the purpose of business must be allowed in its lly and exclusively for the purpose of business must be allowed in its entirety in the entirety in the year in which it is incurred. It cannot be spread over a year in which it is incurred. It cannot be spread over a number of years even if the assessee has number of years even if the assessee has written it off in his books over a written it off in his books over a period of years. However, the facts period of years. However, the facts may justify an assessee who may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a incurred expenditure in a particular year to spread and claim it over a incurred expenditure in a particular year to spread and claim it over a period of ensuing period of ensuing years. In fact, allowing the entire expenditure in one year years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the might give a very distorted picture of the profits of a particular year. T profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. v. CIT, in the case of Hindustan Aluminium Corporation Ltd. v. CIT, in the case of Hindustan Aluminium Corporation Ltd. v. CIT, (1982) 30 CTR (Cal) 363 : (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the (Cal) 363 : (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the (Cal) 363 : (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure the assessee to spread out a lump sum payment to secure the assessee to spread out a lump sum payment to secure technical assistance and training over technical assistance and training over a number of years and allowed a number of years and allowed a proportionate deduction in the accounting year in question. proportionate deduction in the accounting year in question. proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, 16. Issuing debentures at a discount is another such instance where, 16. Issuing debentures at a discount is another such instance where, although the assessee has although the assessee has incurred the liability to pay the discount in the incurred the liability to pay the discount in the year of issue of deb year of issue of debentures, the payment is to secure a benefit over a secure a benefit over a number of years. There is a continuing benefit to the business of the number of years. There is a continuing benefit to the business of the number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread company over the entire period. The liability should, therefore, be spread company over the entire period. The liability should, therefore, be spread over the period of the over the period of the debentures." 17. Thus, the first thin 17. Thus, the first thing which is to be noticed is that though the entire g which is to be noticed is that though the entire expenditure was incurred in expenditure was incurred in that year, it was the assessee who wanted it was the assessee who wanted the spread over the spread over. The Court was conscious of the principle that normally principle that normally revenue expenditure is to be allowed in the same year in which revenue expenditure is to be allowed in the same year in which revenue expenditure is to be allowed in the same year in which it is

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incurred, but at the instance of the assessee, who wanted spreading over, incurred, but at the instance of the assessee, who wanted spreading over, incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to the Court agreed to allow the assessee that benefit when it was found that allow the assessee that benefit when it was found that there was a continuing benefit to the there was a continuing benefit to the business of the company over the business of the company over the entire period. 18. What follow What follows from the above is that normally the ordinary rule s from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a is to be applied, namely, revenue expenditure incurred in a is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee particular year is to be allowed in that year. Thus, if the assessee particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot claims that expenditure in that year, the IT Department cannot claims that expenditure in that year, the IT Department cannot deny the sam deny the same. However, in those cases where the assessee himself e. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it wants to spread the expenditure over a period of ensuing years, it wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is can be allowed only if the principle of 'Matching Concept' is can be allowed only if the principle of 'Matching Concept' is satisfied, which up to now has been restricted to the cases of satisfied, which up to now has been restricted to the cases of satisfied, which up to now has been restricted to the cases of debentures. 19. In the instant case, as noticed above, the assessee did not want 19. In the instant case, as noticed above, the assessee did not want 19. In the instant case, as noticed above, the assessee did not want spread over of this spread over of this expenditure over a period of five years as in the return expenditure over a period of five years as in the return filed by it, it had claimed the entire interest filed by it, it had claimed the entire interest paid upfront as deductible paid upfront as deductible expenditure in the same year. In expenditure in the same year. In such a situation, when this course of such a situation, when this course of action was permissible in law to the assessee as it was in consonance action was permissible in law to the assessee as it was in consonance action was permissible in law to the assessee as it was in consonance with the provisions of the with the provisions of the Act which permit the assessee to claim the Act which permit the assessee to claim the expenditure in the year in which it was incurred, expenditure in the year in which it was incurred, expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor reatment was given in the books of account cannot be a factor reatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as would deprive the assessee from claiming the entire expenditure as would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in It has been held repeatedly by this Court that entries in It has been held repeatedly by this Court that entries in the books of account are not determinative or conc the books of account are not determinative or conc the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained matter is to be examined on the touchstone of provisions contained matter is to be examined on the touchstone of provisions contained in the Act. At the most, an inference can be drawn that by showing in the Act. At the most, an inference can be drawn that by showing in the Act. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, this expenditure in a spread over manner in the books of account, this expenditure in a spread over manner in the books of account, the assessee had initially intended to ma the assessee had initially intended to make such an option. ke such an option. However, it abandoned the same before reaching the crucial stage, However, it abandoned the same before reaching the crucial stage, However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income inasmuch as, in the income-tax return filed by the assessee, it tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was chose to claim the entire expenditure in the year in which it was chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of spent/paid by invoking the provisions of Section 36(1)(iii) of the Act. Section 36(1)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the Once a return in that manner was filed, the AO was bound to carry out the Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond assessment by applying the provisions of that Act and not to go beyond assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act There is no estoppel against the Statute and the Act the said return. enables and entitles the assessee to claim the entire expenditure in d entitles the assessee to claim the entire expenditure in d entitles the assessee to claim the entire expenditure in the manner it is claimed the manner it is claimed. 20. The High Court has also observed that it was a case of deferred 20. The High Court has also observed that it was a case of deferred 20. The High Court has also observed that it was a case of deferred we do not agree with the High Court. It has interest option. Here again, interest option. Here again, we do not agree with the High Court. been explained in various been explained in various judgments that there is no concept of judgments that there is no concept of deferred revenue expenditure in the Act except under specified deferred revenue expenditure in the Act except under specified deferred revenue expenditure in the Act except under specified sections, i.e., where amortization is specifically provided, such as sections, i.e., where amortization is specifically provided, such as sections, i.e., where amortization is specifically provided, such as Section 35-D of the Act. D of the Act.

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decision of the Supreme Court and the Co the Supreme Court and the Co-ordinates Bench o ordinates Bench of this Court, no substantial question of law arises on this issue. question of law arises on this issue. 8. In any case, the decision of the Supreme Court in Madras Industrial 8. In any case, the decision of the Supreme Court in Madras Industrial 8. In any case, the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT [(1997) 225 ITR 802 (SC)] has been Investment Corporation Ltd. v. CIT [(1997) 225 ITR 802 (SC)] has been Investment Corporation Ltd. v. CIT [(1997) 225 ITR 802 (SC)] has been subsequently considered and explained by the Sup subsequently considered and explained by the Supreme Court in Taparia reme Court in Taparia Tools Ltd. v. JCIT [(2015) 372 ITR 605 (SC)], and the Hon’ble Supreme Ltd. v. JCIT [(2015) 372 ITR 605 (SC)], and the Hon’ble Supreme Ltd. v. JCIT [(2015) 372 ITR 605 (SC)], and the Hon’ble Supreme Court has held Court has held that revenue expenditure is to be allowed in the year in that revenue expenditure is to be allowed in the year in which it is incurred, but it which it is incurred, but it could be spread over only at the instance of an could be spread over only at the instance of an assessee. In th assessee. In the present case, since there is no dispute that the since there is no dispute that the expenditure incurred is revenue in nature and expenditure incurred is revenue in nature and the respondent the respondent-assessee has opted to claim it in assessment year 2004 has opted to claim it in assessment year 2004–05 itself, the appellant- revenue cannot compel the respondent revenue cannot compel the respondent-assessee to claim it assessee to claim it over a period of two years. Therefore, even on this count, no substantial question two years. Therefore, even on this count, no substantial question two years. Therefore, even on this count, no substantial question of law arises. 9. In view of the above, no case is made out by the appellant 9. In view of the above, no case is made out by the appellant 9. In view of the above, no case is made out by the appellant–revenue for admission of the present appeal and, therefore, the same is dismissed admission of the present appeal and, therefore, the same is dismissed admission of the present appeal and, therefore, the same is dismissed with no order as to order as to costs.” 6.2.3 Further, I found that the assessee in Note n Further, I found that the assessee in Note no.26 of the financial statement o.26 of the financial statement has accounted entire discount on issue of debenture of Rs.40.01 crore in the accounted entire discount on issue of debenture of Rs.40.01 crore in the accounted entire discount on issue of debenture of Rs.40.01 crore in the A.Y.2023-24 and no deferment was claimed by the assessee. In view of the and no deferment was claimed by the assessee. In view of the and no deferment was claimed by the assessee. In view of the above facts and decisions of Hon’ble Supreme Court in the case of Taparia Tours decisions of Hon’ble Supreme Court in the case of Taparia Tours decisions of Hon’ble Supreme Court in the case of Taparia Tours Ltd. and Hon’ble Bombay High Court in the case of Tata Industries Ltd. as Bombay High Court in the case of Tata Industries Ltd. as Bombay High Court in the case of Tata Industries Ltd. as referred above, it is held referred above, it is held that discount on issue of debenture is a revenue that discount on issue of debenture is a revenue expenditure and is therefore expenditure and is therefore allowable in the year in which the debentures were the year in which the debentures were issued. Accordingly, issued. Accordingly, disallowance of Rs.33,23,90,083/- made by the AO on made by the AO on account of discount on debenture is deleted. ” account of discount on 5. We have heard the rival submissions and carefully examined We have heard the rival submissions and carefully examined We have heard the rival submissions and carefully examined the material available on record. T the material available on record. The short issue arising for he short issue arising for adjudication is whether the assessee, having incurred liability adjudication is whether the assessee, having incurred liability adjudication is whether the assessee, having incurred liability towards discount on issue of debentures during the year under towards discount on issue of debentures during the year under towards discount on issue of debentures during the year under consideration, is entitled to claim the entire amount as deduction in consideration, is entitled to claim the entire amount as deduction in consideration, is entitled to claim the entire amount as deduction in the same year, or whether such de the same year, or whether such deduction is required to be spread duction is required to be spread over the tenure of the debentures. over the tenure of the debentures.

5.1 According to the assessee entire According to the assessee entire discount is allowable discount is allowable in the year of issue of the debentures, w of the debentures, whereas, according to the AO hereas, according to the AO

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proportionate deduction should be allowed proportionate deduction should be allowed over the life of the debentures. The AO debentures. The AO has relied on the decision of the Hon’ble has relied on the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Madras Industrial Investment Supreme Court in the case of Corporation Ltd. vs. CIT Corporation Ltd. vs. CIT, [supra], wherein Hon’ble Supreme Court wherein Hon’ble Supreme Court observed as under:

“6. The said assessee had issued de The said assessee had issued debentures of Rs.1.50 Cr at a discount of 2% bentures of Rs.1.50 Cr at a discount of 2% redeemable after 12 years. Thus, the total discount on issue of debentures was redeemable after 12 years. Thus, the total discount on issue of debentures was redeemable after 12 years. Thus, the total discount on issue of debentures was Rs.3,00,000/-. For A.Y. 68 . For A.Y. 68-69, the said assessee had filed return of income and 69, the said assessee had filed return of income and claimed deduction on account of discount of debenture claimed deduction on account of discount of debenture at Rs.12,500/ at Rs.12,500/- out of the total discount of Rs.3,00,000/ total discount of Rs.3,00,000/- being the proportionate amount of discount based being the proportionate amount of discount based on the life of the debentures. The discount claimed by the assessee was on the life of the debentures. The discount claimed by the assessee was on the life of the debentures. The discount claimed by the assessee was disallowed by the Ld. A.O. in the assessment order. The dispute was later disallowed by the Ld. A.O. in the assessment order. The dispute was later disallowed by the Ld. A.O. in the assessment order. The dispute was later challenged before the Hon'ble ITAT wherein, for the first time, the assessee challenged before the Hon'ble ITAT wherein, for the first time, the assessee challenged before the Hon'ble ITAT wherein, for the first time, the assessee claimed deduction of the entire amount of discount on debenture of Rs.3,00,000/- claimed deduction of the entire amount of discount on debenture of Rs.3,00,000/ claimed deduction of the entire amount of discount on debenture of Rs.3,00,000/ . The Hon'ble ITAT adjudicated the claim of the assessee of Rs. 3,00,000/- and . The Hon'ble ITAT adjudicated the claim of the assessee of Rs. 3,00,000/ . The Hon'ble ITAT adjudicated the claim of the assessee of Rs. 3,00,000/ allowed the same as allowed the same as deduction. The order of the Hon'ble ITAT granting deduction deduction. The order of the Hon'ble ITAT granting deduction of the entire amount of discount was then challenged before the Hon'ble Madras of the entire amount of discount was then challenged before the Hon'ble Madras of the entire amount of discount was then challenged before the Hon'ble Madras High Court.” 7. The Hon'ble High Court held that the discount of Rs.3,00,000/-did not 7. The Hon'ble High Court held that the discount of Rs.3,00,000/ 7. The Hon'ble High Court held that the discount of Rs.3,00,000/ represent expenditure as no pay represent expenditure as no payment was made to anyone so as to constitute an so as to constitute an expenditure. The disallowance was therefore confirmed by the Hon'ble High expenditure. The disallowance was therefore confirmed by the Hon'ble High expenditure. The disallowance was therefore confirmed by the Hon'ble High Court. 8. In an appeal against the said judgement, the Hon'ble Supreme Court reversed 8. In an appeal against the said judgement, the Hon'ble Supreme Court reversed 8. In an appeal against the said judgement, the Hon'ble Supreme Court reversed the finding of the Hon'ble High Court thereby hol the finding of the Hon'ble High Court thereby holding that the discount on ding that the discount on debenture constitutes an expenditure in the year of issue of debentures. debenture constitutes an expenditure in the year of issue of debentures. debenture constitutes an expenditure in the year of issue of debentures. However, the deduction was allowed to the assessee only to the extent of Rs. However, the deduction was allowed to the assessee only to the extent of Rs. However, the deduction was allowed to the assessee only to the extent of Rs. 12,500/- as the assessee had claimed only proportionate amount in the return. It as the assessee had claimed only proportionate amount in the return. It as the assessee had claimed only proportionate amount in the return. It would be relevant to reproduce the findings of the Hon'ble Supreme Court herein would be relevant to reproduce the findings of the Hon'ble Supreme Court herein would be relevant to reproduce the findings of the Hon'ble Supreme Court herein below:- "14. The Tribunal, however, held that since the entire liability to pay the discount "14. The Tribunal, however, held that since the entire liability to pay the discount "14. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to had been incurred in the accounting year in question, the assessee was entitled to had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that does not appear to be justified looking to the nature of the liability. It is true that does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a the liability has been incurred in the accounting year. But the liability is a the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a ing liability which stretches over a period of 12 years. It is, therefore, a ing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is liability spread over a period of 12 years. Ordinarily, revenue expenditure which is liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its incurred wholly and exclusively for the purpose of business must be allowed in its incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of the year in which it is incurred. It cannot be spread over a number of the year in which it is incurred. It cannot be spread over a number of years even if the assessee had written it off in his books over a period of years. years even if the assessee had written it off in his books over a period of years. years even if the assessee had written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a However, the facts may justify an assessee who has incurred expenditure in a However, the facts may justify an assessee who has incurred expenditure in a

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particular year to sprea particular year to spread and claim it over a period of ensuing years. In fact, d and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of allowing the entire expenditure in one year might give a very distorted picture of allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus, in the case of Hindustan Aluminium Corpn. the profits of a particular year. Thus, in the case of Hindustan Aluminium Corpn. the profits of a particular year. Thus, in the case of Hindustan Aluminium Corpn. Ltd. v. CIT [1983] 144 ITR 474, the Ltd. v. CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and assessee to spread out a lump sum payment to secure technical assistance and assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the training over a number of years and allowed a proportionate deduction in the training over a number of years and allowed a proportionate deduction in the accounting year in question.” accounting year in question.” 9. The above findings of t The above findings of the Hon'ble Supreme Court clearly show that revenue he Hon'ble Supreme Court clearly show that revenue expenditure which is incurred wholly and exclusively for the purpose of business expenditure which is incurred wholly and exclusively for the purpose of business expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It could not be must be allowed in its entirety in the year in which it is incurred. It could not be must be allowed in its entirety in the year in which it is incurred. It could not be spread over a number of years if the as spread over a number of years if the assessee has shown in return and in its sessee has shown in return and in its books over a period of years. The Hon'ble Supreme Court also declared the legal books over a period of years. The Hon'ble Supreme Court also declared the legal books over a period of years. The Hon'ble Supreme Court also declared the legal position that discount on debentures constitutes a liability incurred in the year of position that discount on debentures constitutes a liability incurred in the year of position that discount on debentures constitutes a liability incurred in the year of issue of debentures. It is submitted that the claim i issue of debentures. It is submitted that the claim in the said case was rejected n the said case was rejected on the ground that the assessee itself wanted the expenditure to be allowed over on the ground that the assessee itself wanted the expenditure to be allowed over on the ground that the assessee itself wanted the expenditure to be allowed over a period of years.” 5.2 On perusal of the On perusal of the above decision, it is evident that the decision, it is evident that the claim of entire deduction of the discount was rejected on the ground that entire deduction of the discount was rejected on the gro entire deduction of the discount was rejected on the gro assessee itself wanted the expenditure to be allowed over a period of assessee itself wanted the expenditure to be allowed over a period of assessee itself wanted the expenditure to be allowed over a period of the years.

5.3 Whereas the assessee has relied on the decision of the Hon’ble Whereas the assessee has relied on the decision of the Hon’ble Whereas the assessee has relied on the decision of the Hon’ble Supreme Court in the case of Supreme Court in the case of Taparia Tools Ltd. vs. JCIT Taparia Tools Ltd. vs. JCIT (Supra). In the said case the assessee ha d claimed deduction on In the said case the assessee had claimed deduction on account of interest payment to two parties. The relevant part is account of interest payment to two parties. The relevant part is account of interest payment to two parties. The relevant part is reproduced as under: reproduced as under:

“11. In the said case, the assessee has claimed deduction on account of interest the said case, the assessee has claimed deduction on account of interest the said case, the assessee has claimed deduction on account of interest payment to two parties in respect of the debentures issued by the company payment to two parties in respect of the debentures issued by the company payment to two parties in respect of the debentures issued by the company during the year. As per the terms of the debenture, the debenture holders were during the year. As per the terms of the debenture, the debenture holders were during the year. As per the terms of the debenture, the debenture holders were given option of payment of in given option of payment of interest periodically @18% p.a. or upfront payment of terest periodically @18% p.a. or upfront payment of interest at a certain amount per debenture The debenture holder would only interest at a certain amount per debenture The debenture holder would only interest at a certain amount per debenture The debenture holder would only receive the face value of the debenture at the time of redemption. Since interest receive the face value of the debenture at the time of redemption. Since interest receive the face value of the debenture at the time of redemption. Since interest was paid to two debenture holders on upfront ba was paid to two debenture holders on upfront basis, the same was entirely sis, the same was entirely claimed as deduction during the year. The Ld. A.O. disallowed the said deduction claimed as deduction during the year. The Ld. A.O. disallowed the said deduction claimed as deduction during the year. The Ld. A.O. disallowed the said deduction on the ground that the same constitutes deferred revenue expenditure to be on the ground that the same constitutes deferred revenue expenditure to be on the ground that the same constitutes deferred revenue expenditure to be written offover the period. The Ld. A.O, therefore allowed proportionate amount, written offover the period. The Ld. A.O, therefore allowed proportionate written offover the period. The Ld. A.O, therefore allowed proportionate

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i.e. 1/5th of the amount as deduction during the year and disallowed the balance i.e. 1/5th of the amount as deduction during the year and disallowed the balance i.e. 1/5th of the amount as deduction during the year and disallowed the balance portion.” 5.4 In the said case the Hon’ble Bombay High Court upheld the In the said case the Hon’ble Bombay High Court upheld the In the said case the Hon’ble Bombay High Court upheld the disallowance made by the AO on the ground that assessee itself had disallowance made by the AO on the ground that assessee itself had disallowance made by the AO on the ground that assessee itself had spread the interest expendit spread the interest expenditure in its books over the period of five ure in its books over the period of five years and therefore applying the principle of matching concept the years and therefore applying the principle of matching concept the years and therefore applying the principle of matching concept the deduction was allowable to the assessee on the proportionate basis deduction was allowable to the assessee on the proportionate basis deduction was allowable to the assessee on the proportionate basis over the period of years. On further appeal Hon’ble Supreme Court over the period of years. On further appeal Hon’ble Supreme Court over the period of years. On further appeal Hon’ble Supreme Court held that interest was payable upfront and therefore the interest est was payable upfront and therefore the interest est was payable upfront and therefore the interest liability in such case of stands discharge liability in such case of stands discharged in the year of issue itself. in the year of issue itself. Accordingly, the Hon’ble Supreme Court held that assessee was Accordingly, the Hon’ble Supreme Court held that assessee was Accordingly, the Hon’ble Supreme Court held that assessee was entitled to deduction of the entire amount in the year of incurrence entitled to deduction of the entire amount in the year of incurrence entitled to deduction of the entire amount in the year of incurrence of the liability. The Hon’ble Supreme Court also noted that in the f the liability. The Hon’ble Supreme Court also noted that in the f the liability. The Hon’ble Supreme Court also noted that in the case of Taparia Tools Ltd. vs. JCIT (Supra), Taparia Tools Ltd. vs. JCIT (Supra), the assessee did not the assessee did not want spread over of this expenditure, and therefore, it had want spread over of this expenditure, and therefore, it had want spread over of this expenditure, and therefore, it had deduction in the year of incurrence of the liability. Accordingly the deduction in the year of incurrence of the liability. Accordingl deduction in the year of incurrence of the liability. Accordingl said expenditure was entirely allowable in the year of the appeal. said expenditure was entirely allowable in the year of the appeal. said expenditure was entirely allowable in the year of the appeal. The Hon'ble Supreme Supreme Court, referring to its decision in case of Court, referring to its decision in case of Madras Industrial Investment Corporation Ltd. (supra), Madras Industrial Investment Corporation Ltd. Madras Industrial Investment Corporation Ltd. observed that even in the said decision the Hon'ble Court had held observed that even in the said decision the Hon'ble Court had observed that even in the said decision the Hon'ble Court had that the general principle is that ordinarily revenue expenditure that the general principle is that ordinarily revenue expenditure that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be incurred wholly and exclusively for the purpose of business is to be incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. Distinguishing the facts allowed in the year in which it is incurred. Distinguishing the facts allowed in the year in which it is incurred. Distinguishing the facts ase of Madras in that case, the Hon'ble Court held that in c in that case, the Hon'ble Court held that in case of Industrial Investment Corporation Ltd. Industrial Investment Corporation Ltd.(supra) (supra), it was the

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assessee who wanted spreading of the expenditure over the period assessee who wanted spreading of the expenditure over the period assessee who wanted spreading of the expenditure over the period of time. It was on those facts, the Hon'ble Supreme Court in the of time. It was on those facts, the Hon'ble Supreme Court in the of time. It was on those facts, the Hon'ble Supreme Court in the Madras Madras Madras Industrial Industrial Industrial Investment Investment Investment Corporation Corporation Corporation Ltd. Ltd. Ltd. case of (supra)had held that the deduction be allowed over the life of had held that the deduction be allowed over the life of had held that the deduction be allowed over the life of debenture issued. 5.5 Thus, the case of Madras Industrial Investment Corporation Ltd Thus, the case of Madras Industrial Investment Corporation Ltd Thus, the case of Madras Industrial Investment Corporation Ltd v. CIT (supra) was clearly distinguished on the ground that the v. CIT (supra) was clearly distinguished on the ground that the v. CIT (supra) was clearly distinguished on the ground that the principle of proportionate allowance of deduction can be considered principle of proportionate allowance of deduction can be considered principle of proportionate allowance of deduction can be considered only if the assessee choose to claim it. The proportionate allowance only if the assessee choose to claim it. The proportionate a only if the assessee choose to claim it. The proportionate a of an expenditure cannot be thrust upon the assessee. of an expenditure cannot be thrust upon the assessee. of an expenditure cannot be thrust upon the assessee. 5.6 As already explained above, the issue before the Hon’ble As already explained above, the issue before the Hon’ble As already explained above, the issue before the Hon’ble Supreme Court in case of Supreme Court in case of Taparia Tools Ltd v. JCIT [ Taparia Tools Ltd v. JCIT [supra] was with respect to availability of interest paid in the first year of issue with respect to availability of interest paid in the first year of is with respect to availability of interest paid in the first year of is of debentures. The following findings of the Hon’ble Supreme Court of debentures. The following findings of the Hon’ble Supreme Court of debentures. The following findings of the Hon’ble Supreme Court are reproduced for ready reference: are reproduced for ready reference: “16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] Madras Industrial Investment Corpn. Ltd. v. CIT [1997] Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC) 225 ITR 802/91 Taxman 340 (SC) was cited by the learned counsel for the was cited by the learned counsel for the Revenue to justify the decision taken by the courts below. We find that the ue to justify the decision taken by the courts below. We find that the ue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that Court categorically held even in that case that the general principle is that Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the ordinarily revenue expenditure incurred wholly and exclusively for the ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed purpose of business is to be allowed in the year in which it is incurred. in the year in which it is incurred. However, some exceptional cases can justify spreading the expenditure However, some exceptional cases can justify spreading the expenditure However, some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that and claiming it over a period of ensuing years. It is important to note that and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the in that judgment, it was the assessee who wanted spreading the in that judgment, it was the assessee who wanted spreading the expenditure over a period of time and had justified the same. It was a case ure over a period of time and had justified the same. It was a case ure over a period of time and had justified the same. It was a case of issuing debentures at discount, whereas the assessee had actually of issuing debentures at discount, whereas the assessee had actually of issuing debentures at discount, whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures incurred the liability to pay the discount in the year of issue of debentures incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee itself. The Court found that the assessee could still be allowed to spread could still be allowed to spread the said expenditure over the entire period of five years, at the end of the said expenditure over the entire period of five years, at the end of the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected which the debentures were to be redeemed. By raising the money collected which the debentures were to be redeemed. By raising the money collected

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under the said debentures, the assessee could utilise the said amount and under the said debentures, the assessee could utilise the said amount and under the said debentures, the assessee could utilise the said amount and secure the benefit over number of years. This is discernible from the cure the benefit over number of years. This is discernible from the cure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the following passage in that judgment on which reliance was placed by the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself: learned counsel for the Revenue herself: “15. The Tribunal, however, held that since the entire liability to pay the “15. The Tribunal, however, held that since the entire liability to pay the “15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the discount had been incurred in the accounting year in question, the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that assessee was entitled to deduct the entire amount of Rs.3,00,000 in that assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to accounting year. This conclusion does not appear to be justified looking to accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true the nature of the liability. It is true that the liability has been incurred in that the liability has been incurred in the accounting year. But the liability is a continuing liability which the accounting year. But the liability is a continuing liability which the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a stretches over a period of 12 years. It is, therefore, a liability spread over a stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is inc period of 12 years. Ordinarily, revenue expenditure which is inc period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its wholly and exclusively for the purpose of business must be allowed in its wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a entirety in the year in which it is incurred. It cannot be spread over a entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a number of years even if the assessee has written it off in his books over a number of years even if the assessee has written it off in his books over a period of years. However, t period of years. However, the facts may justify an assessee who has he facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a incurred expenditure in a particular year to spread and claim it over a incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year period of ensuing years. In fact, allowing the entire expenditure in one year period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particula might give a very distorted picture of the profits of a particula might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, [1982] 30 in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, [1982] 30 in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, [1982] 30 CTR (Cal) 363; (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld CTR (Cal) 363; (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld CTR (Cal) 363; (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure the claim of the assessee to spread out a lump sum payment to secure the claim of the assessee to spread out a lump sum payment to secure technical assistance and trainin technical assistance and training over a number of years and allowed a g over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing proportionate deduction in the accounting year in question. Issuing proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the debentures at a discount is another such instance where, although the debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue assessee has incurred the liability to pay the discount in the year of issue assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. debentures, the payment is to secure a benefit over a number of years. debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire There is a continuing benefit to the business of the company over the entire There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the period. The liability should, therefore, be spread over the period of the period. The liability should, therefore, be spread over the period of the debentures.” 17. Thus, the first 17. Thus, the first thing which is to be noticed is that though the entire thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted expenditure was incurred in that year, it was the assessee who wanted expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally the spread over. The Court was conscious of the principle that normally the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is revenue expenditure is to be allowed in the same year in wh revenue expenditure is to be allowed in the same year in wh incurred, but at the instance of the assessee, who wanted spreading over, incurred, but at the instance of the assessee, who wanted spreading over, incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that the Court agreed to allow the assessee that benefit when it was found that the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the there was a continuing benefit to the business of the company over the there was a continuing benefit to the business of the company over the entire period. 18. What follows from the above is that normally the ordinary rule is to be llows from the above is that normally the ordinary rule is to be llows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be applied, namely, revenue expenditure incurred in a particular year is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that allowed in that year. Thus, if the assessee claims that expenditure in that allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the year, the IT Department cannot deny the same. However, in those cases same. However, in those cases where the assessee himself wants to spread the expenditure over a period where the assessee himself wants to spread the expenditure over a period where the assessee himself wants to spread the expenditure over a period

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of ensuing years, it can be allowed only if the principle of ‘Matching of ensuing years, it can be allowed only if the principle of ‘Matching of ensuing years, it can be allowed only if the principle of ‘Matching Concept’ is satisfied, which upto now has been restricted to the cases of Concept’ is satisfied, which upto now has been restricted to the cases of Concept’ is satisfied, which upto now has been restricted to the cases of debentures. 19. In the instant case, as noticed above, the assessee did not want 19. In the instant case, as noticed above, the assessee did not want 19. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return spread over of this expenditure over a period of five years as in the return spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible filed by it, it had claimed the entire interest paid upfront as deductible filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. expenditure in the same year. In such a situation, when this course of In such a situation, when this course of action was permissible in law to the assessee as it was in consonance action was permissible in law to the assessee as it was in consonance action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the with the provisions of the Act which permit the assessee to claim the with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a expenditure in the year in which it was incurred, merely because a expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor t treatment was given in the books of account cannot be a factor t treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as which would deprive the assessee from claiming the entire expenditure as which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the a deduction. It has been held repeatedly by this Court that entries in the a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or c books of account are not determinative or conclusive and the matter is to onclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - be examined on the touchstone of provisions contained in the Act [See be examined on the touchstone of provisions contained in the Act [See Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United utlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United utlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).” Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).” Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).” 5.7 The controversy, in our considered view, is no longer res The controversy, in our considered view, is no longer res The controversy, in our considered view, is no longer res integra. The Hon’ble Supreme Court in Taparia integra. The Hon’ble Supreme Court in Taparia Tools Ltd. v. JCIT Tools Ltd. v. JCIT has authoritatively explained the ratio of the earlier decision has authoritatively explained the ratio of the earlier decision has authoritatively explained the ratio of the earlier decision rendered in Madras Industrial Investment Corporation Ltd. v. CIT. rendered in Madras Industrial Investment Corporation Ltd. v. CIT. rendered in Madras Industrial Investment Corporation Ltd. v. CIT. The Apex Court categorically held that the ordinary rule is that The Apex Court categorically held that the ordinary rule is that The Apex Court categorically held that the ordinary rule is that revenue expenditure incurred wholly and e revenue expenditure incurred wholly and exclusively for the xclusively for the purposes of business is allowable in the year in which the liability is purposes of business is allowable in the year in which the liability is purposes of business is allowable in the year in which the liability is incurred. Spreading over of such expenditure can be permitted only incurred. Spreading over of such expenditure can be permitted only incurred. Spreading over of such expenditure can be permitted only where the assessee itself seeks such treatment and where the where the assessee itself seeks such treatment and where the where the assessee itself seeks such treatment and where the matching concept so justifies. The Re matching concept so justifies. The Revenue cannot compel an venue cannot compel an assessee to defer a revenue expenditure over future years contrary assessee to defer a revenue expenditure over future years contrary assessee to defer a revenue expenditure over future years contrary to the claim made by the assessee in accordance with law. to the claim made by the assessee in accordance with law. to the claim made by the assessee in accordance with law.

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5.8 The distinction drawn by the Hon’ble Supreme Court between The distinction drawn by the Hon’ble Supreme Court between The distinction drawn by the Hon’ble Supreme Court between the two decisions is of considerable signifi the two decisions is of considerable significance. In Madras cance. In Madras Industrial Investment Corporation Ltd. v. CIT, the assessee itself Industrial Investment Corporation Ltd. v. CIT, the assessee itself Industrial Investment Corporation Ltd. v. CIT, the assessee itself had opted to spread the expenditure over the life of the debentures had opted to spread the expenditure over the life of the debentures had opted to spread the expenditure over the life of the debentures and sought proportionate deduction. It was in those peculiar and sought proportionate deduction. It was in those peculiar and sought proportionate deduction. It was in those peculiar circumstances that the Court approved amortization of the circumstances that the Court approved amort circumstances that the Court approved amort expenditure. Conversely, in Taparia Tools Ltd. v. JCIT, the assessee expenditure. Conversely, in Taparia Tools Ltd. v. JCIT, the assessee expenditure. Conversely, in Taparia Tools Ltd. v. JCIT, the assessee claimed the entire expenditure in the year of incurrence and the claimed the entire expenditure in the year of incurrence and the claimed the entire expenditure in the year of incurrence and the Hon’ble Supreme Court held that such claim could not be denied Hon’ble Supreme Court held that such claim could not be denied Hon’ble Supreme Court held that such claim could not be denied merely because the benefit may incidentally merely because the benefit may incidentally endure over a future endure over a future period. In the present case, the assessee has consistently claimed the In the present case, the assessee has consistently claimed the In the present case, the assessee has consistently claimed the entire discount on issue of debentures in the year in which the entire discount on issue of debentures in the year in which the entire discount on issue of debentures in the year in which the liability crystallized. The expenditure is admittedly revenue in liability crystallized. The expenditure is admittedly revenue in liability crystallized. The expenditure is admittedly revenue in nature and has been incurred wholl nature and has been incurred wholly and exclusively for the y and exclusively for the purpose of the assessee’s financing business. There exists no purpose of the assessee’s financing business. There exists no purpose of the assessee’s financing business. There exists no statutory provision under the Act mandating amortization of such statutory provision under the Act mandating amortization of such statutory provision under the Act mandating amortization of such expenditure. In absence of any express statutory embargo, the expenditure. In absence of any express statutory embargo, the expenditure. In absence of any express statutory embargo, the Assessing Officer could not have forced d Assessing Officer could not have forced deferment of the deduction eferment of the deduction merely on the basis of perceived enduring benefit. merely on the basis of perceived enduring benefit. 5.9 We also find that the issue stands further fortified by the We also find that the issue stands further fortified by the We also find that the issue stands further fortified by the judgment of the Hon’ble Bombay High Court in PCIT v. Tata judgment of the Hon’ble Bombay High Court in judgment of the Hon’ble Bombay High Court in Industries Ltd.(supra) (supra), wherein, following the ratio of , wherein, following the ratio of Taparia Tools Ltd. v. JCIT, it was held that where an assessee claims the entire , it was held that where an assessee claims the entire , it was held that where an assessee claims the entire

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expenditure in the year of incurrence, the Revenue cannot compel expenditure in the year of incurrence, the Revenue cannot compel expenditure in the year of incurrence, the Revenue cannot compel spreading over of the same across subsequent years. spreading over of the same across subsequent years. spreading over of the same across subsequent years. 5.10 The assessee further relies upon the decision of the The assessee further relies upon the decision of the The assessee further relies upon the decision of the Tribunal in the case of DCIT vs. Axis Assistant Management Co. Ltd [190 ITD in the case of DCIT vs. Axis Assistant Management Co. Ltd [190 ITD in the case of DCIT vs. Axis Assistant Management Co. Ltd [190 ITD 682] [Page 124-131 of PB2]. 131 of PB2]. In the said case, the issue before the In the said case, the issue before the Hon’ble ITAT was with respect to liability of the expenditure Hon’ble ITAT was with respect to liability of the expenditure Hon’ble ITAT was with respect to liability of the expenditure incurred for issue of expenditure towards brokerage claimed in the incurred for issue of expenditure towards brokerage incurred for issue of expenditure towards brokerage year itself. The claim of the assessee was upheld by the Hon’ble year itself. The claim of the assessee was upheld by the Hon’ble year itself. The claim of the assessee was upheld by the Hon’ble ITAT following Taparia Tools Ltd v. JCIT [ Taparia Tools Ltd v. JCIT [supra)] )] on the ground that the expenditure incurred by the assessee was already accrued that the expenditure incurred by the assessee was already accrued that the expenditure incurred by the assessee was already accrued in the said year and that the assessee had already claimed in the said year and that the assessee had alr in the said year and that the assessee had alr deduction of the entire expenditure in that year. While following the deduction of the entire expenditure in that year. While following the deduction of the entire expenditure in that year. While following the aforesaid decision of the Hon’ble Supreme Court, the Hon’ble aforesaid decision of the Hon’ble Supreme Court, the Hon’ble aforesaid decision of the Hon’ble Supreme Court, the Hon’ble Tribunal also referred to the decision in the case of Madras Tribunal also referred to the decision in the case of Tribunal also referred to the decision in the case of Industrial Investment Corporation Ltd. (supra) and observed Industrial Investment Corporation Ltd. (supra) Industrial Investment Corporation Ltd. (supra) that the said decision had a distinguishing feature that it was that the said decision had a distinguishing feature that it was that the said decision had a distinguishing feature that it was assessee who would choose to spread the expenditure. The assessee who would choose to spread the expenditure. The assessee who would choose to spread the expenditure. The Coordinate Bench of Tribunal Coordinate Bench of Tribunal also observed that only advantage in also observed that only advantage in capital field would not be fully allowable. capital field would not be fully allowable. 5.11 Further, reliance r, reliance was also placed by the assessee by the assessee on the following decisions wherein the claim of the Ld. A.O. to allow only following decisions wherein the claim of the Ld. A.O. to allow only following decisions wherein the claim of the Ld. A.O. to allow only proportionate expenditure did not succeed: proportionate expenditure did not succeed: i. Amar Raja Batteries Ltd. ACIT [91 ITD 280 (Hyd)] Amar Raja Batteries Ltd. ACIT [91 ITD 280 (Hyd)] Amar Raja Batteries Ltd. ACIT [91 ITD 280 (Hyd)]

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ii. Gruh Finance Ltd. v. JCIT [ITA No.129 Finance Ltd. v. JCIT [ITA No.1295/Ahd/2009] dated 5/Ahd/2009] dated 17.08.2016 5.12. Equally untenable is the contention of the Revenue that the Equally untenable is the contention of the Revenue that the Equally untenable is the contention of the Revenue that the accounting treatment adopted in the books of account should accounting treatment adopted in the books of account should accounting treatment adopted in the books of account should govern the allowability under the Act. It is a settled principle of law govern the allowability under the Act. It is a settled principle of law govern the allowability under the Act. It is a settled principle of law that entries in the books of account are not determinative of tax that entries in the books of account are not determinative of ta that entries in the books of account are not determinative of ta liability. The allowability of deduction must be tested on the liability. The allowability of deduction must be tested on the liability. The allowability of deduction must be tested on the touchstone of the statutory provisions and not on the basis of touchstone of the statutory provisions and not on the basis of touchstone of the statutory provisions and not on the basis of accounting presentation. accounting presentation. 5.13 In view of the foregoing discussion and respectfully following In view of the foregoing discussion and respectfully following In view of the foregoing discussion and respectfully following the ratio laid down by the Hon’ble Supreme Court in Taparia Tools the ratio laid down by the Hon’ble Supreme Court in Taparia Tools the ratio laid down by the Hon’ble Supreme Court in Taparia Tools Ltd. v. JCIT(supra) as well as the decision of the Hon’ble Bombay as well as the decision of the Hon’ble Bombay as well as the decision of the Hon’ble Bombay High Court in PCIT v. Tata Industries Ltd. High Court in PCIT v. Tata Industries Ltd.(supra) (supra), we find no infirmity in the order of the Ld. CIT(A) deleting the disallowance of infirmity in the order of the Ld. CIT(A) deleting the disallowance of infirmity in the order of the Ld. CIT(A) deleting the disallowance of Rs.33,23,90,083/- made on account of discount on issue of made on account of discount on issue of made on account of discount on issue of debentures. Accordingly, Ground Nos. 1 and 2 raised by the debentures. Accordingly, Ground Nos. 1 and 2 raised by the debentures. Accordingly, Ground Nos. 1 and 2 raised by the Revenue are dismissed Revenue are dismissed 6. Ground Nos. 3 and 4 relate to the disallowa Ground Nos. 3 and 4 relate to the disallowance made under nce made under section 14A read with Rule 8D of the Rules. section 14A read with Rule 8D of the Rules. The Assessing Officer The Assessing Officer observed that the assessee tendered shares of Anand Rathi Housing observed that the assessee tendered shares of Anand Rathi Housing observed that the assessee tendered shares of Anand Rathi Housing Finance Limited under the buyback scheme floated by the said Finance Limited under the buyback scheme floated by the said Finance Limited under the buyback scheme floated by the said company. company. company. The The The buyback buyback buyback consideration consideration consideration received received received was was was Rs.1,85,48,400/- as against the original cost of acquisition of as against the original cost of acquisition of as against the original cost of acquisition of

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Rs.1,56,00,000/-, resulting in gains of Rs.29,48,400. The assessee , resulting in gains of Rs.29,48,400. The assessee , resulting in gains of Rs.29,48,400. The assessee contended that Anand Rathi Housing Finance Limited had already contended that Anand Rathi Housing Finance Limited had already contended that Anand Rathi Housing Finance Limited had already discharged tax liability under section 115QA of the Act in respect of discharged tax liability under section 115QA of the Act in res discharged tax liability under section 115QA of the Act in res the buyback transaction and, consequently, in view of section the buyback transaction and, consequently, in view of section the buyback transaction and, consequently, in view of section 10(34A) of the Act, the income arising therefrom was exempt in the 10(34A) of the Act, the income arising therefrom was exempt in the 10(34A) of the Act, the income arising therefrom was exempt in the hands of the assessee. The aforesaid explanation of the assessee hands of the assessee. The aforesaid explanation of the assessee hands of the assessee. The aforesaid explanation of the assessee was, however, not accepted by the Assessing Officer. According to was, however, not accepted by the Assessing Officer. A was, however, not accepted by the Assessing Officer. A the Assessing Officer, investments in shares are inherently capable the Assessing Officer, investments in shares are inherently capable the Assessing Officer, investments in shares are inherently capable of yielding exempt income and decisions relating to such of yielding exempt income and decisions relating to such of yielding exempt income and decisions relating to such investments necessarily require continuous monitoring, managerial investments necessarily require continuous monitoring, managerial investments necessarily require continuous monitoring, managerial oversight and deployment of administrative resources. Therefore, it oversight and deployment of administrative resources. oversight and deployment of administrative resources. could not be accepted that no expenditure had been incurred in could not be accepted that no expenditure had been incurred in could not be accepted that no expenditure had been incurred in relation to earning the exempt income. relation to earning the exempt income. The Assessing Officer further The Assessing Officer further placed reliance upon CBDT Circular No. 5/2014 dated 11.02.2014, placed reliance upon CBDT Circular No. 5/2014 dated 11.02.2014, placed reliance upon CBDT Circular No. 5/2014 dated 11.02.2014, wherein it has been clarified that expenditur wherein it has been clarified that expenditure incurred in relation to e incurred in relation to income not forming part of the total income is liable to be income not forming part of the total income is liable to be income not forming part of the total income is liable to be disallowed under section 14A of the Act irrespective of the fact disallowed under section 14A of the Act irrespective of the fact disallowed under section 14A of the Act irrespective of the fact whether such income has actually arisen during the year. whether such income has actually arisen during the year. whether such income has actually arisen during the year. Proceeding on the aforesaid premise, the Assessi Proceeding on the aforesaid premise, the Assessing Officer invoked ng Officer invoked Rule 8D and computed disallowance under section 14A at 1% of the Rule 8D and computed disallowance under section 14A at 1% of the Rule 8D and computed disallowance under section 14A at 1% of the annual average value of investments amounting to Rs.5,308.19 annual average value of investments amounting to Rs.5,308.19 annual average value of investments amounting to Rs.5,308.19 crores. However, the disallowance was ultimately restricted to the crores. However, the disallowance was ultimately restricted to the crores. However, the disallowance was ultimately restricted to the extent of exempt income earned during the year, namely extent of exempt income earned during the ye extent of exempt income earned during the ye Rs.29,48,400/-

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6.1 Before the learned CIT(A), the assessee submitted that during Before the learned CIT(A), the assessee submitted that during Before the learned CIT(A), the assessee submitted that during the year under consideration it had earned exempt income the year under consideration it had earned exempt income the year under consideration it had earned exempt income amounting to Rs.29,48,400/ amounting to Rs.29,48,400/- arising from buyback of shares by arising from buyback of shares by M/s. Anand Rathi Housing Finance Ltd., and that the said M/s. Anand Rathi Housing Finance Ltd., and th M/s. Anand Rathi Housing Finance Ltd., and th company had already discharged tax liability under section 115QA company had already discharged tax liability under section 115QA company had already discharged tax liability under section 115QA of the Act. It was contended that no expenditure whatsoever had of the Act. It was contended that no expenditure whatsoever had of the Act. It was contended that no expenditure whatsoever had been incurred by the assessee in relation to earning of the said been incurred by the assessee in relation to earning of the said been incurred by the assessee in relation to earning of the said exempt income. Without prejudice to the aforesaid Without prejudice to the aforesaid contention, the assessee further submitted that the Assessing Officer had erred in assessee further submitted that the Assessing Officer had erred in assessee further submitted that the Assessing Officer had erred in invoking Rule 8D by considering the entire investment portfolio of invoking Rule 8D by considering the entire investment portfolio of invoking Rule 8D by considering the entire investment portfolio of the assessee for the purpose of computing disallowance under the assessee for the purpose of computing disallowance under the assessee for the purpose of computing disallowance under section 14A of the Act, instead of restricti section 14A of the Act, instead of restricting the computation only ng the computation only to those investments which had actually yielded exempt income to those investments which had actually yielded exempt income to those investments which had actually yielded exempt income during the relevant previous year. The assessee drew attention to during the relevant previous year. The assessee drew attention to during the relevant previous year. The assessee drew attention to Note No. 8 of the audited financial statements to demonstrate that, Note No. 8 of the audited financial statements to demonstrate that, Note No. 8 of the audited financial statements to demonstrate that, except for the investment in Anand R except for the investment in Anand Rathi Housing Finance Ltd., athi Housing Finance Ltd., none of the other investments had generated any exempt income none of the other investments had generated any exempt income none of the other investments had generated any exempt income during the year. It was specifically pointed out that no dividend during the year. It was specifically pointed out that no dividend during the year. It was specifically pointed out that no dividend income, tax-free interest or any other exempt income had arisen free interest or any other exempt income had arisen free interest or any other exempt income had arisen from the remaining investments. Accor from the remaining investments. According to the assessee, the ding to the assessee, the average value of investments yielding exempt income worked out average value of investments yielding exempt income worked out average value of investments yielding exempt income worked out only to Rs.51.25 lakhs as against Rs.5,308.19 crores considered by only to Rs.51.25 lakhs as against Rs.5,308.19 crores considered by only to Rs.51.25 lakhs as against Rs.5,308.19 crores considered by the Assessing Officer. Accordingly, it was pleaded that the the Assessing Officer. Accordingly, it was pleaded that the the Assessing Officer. Accordingly, it was pleaded that the disallowance, if any, ought to be restri disallowance, if any, ought to be restricted to Rs.51,250/ cted to Rs.51,250/-, being 1% of the average value of investments which had actually yielded of the average value of investments which had actually yielded of the average value of investments which had actually yielded

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exempt income. In support of the aforesaid submissions, reliance In support of the aforesaid submissions, reliance In support of the aforesaid submissions, reliance was placed upon the judgments of the Hon’ble Calcutta High Court was placed upon the judgments of the Hon’ble Calcutta High Court was placed upon the judgments of the Hon’ble Calcutta High Court in REI Agro Ltd. vs. PCIT (ITAT REI Agro Ltd. vs. PCIT (ITAT No.416 of 2017) No.416 of 2017) and PCIT vs. Shalimar Pellet Shalimar Shalimar Pellet Pellet Feeds Ltd. [(2022) 138 taxmann.com Feeds Ltd. Feeds Ltd. [(2022) 138 [(2022) 138 taxmann.com 124 taxmann.com 124 124 (Cal)/(2022) 287 taxmann 134 (Cal)/(2023) 453 ITR 547 (Cal)], as (Cal)/(2022) 287 taxmann 134 (Cal)/(2023) 453 ITR 547 (Cal)] (Cal)/(2022) 287 taxmann 134 (Cal)/(2023) 453 ITR 547 (Cal)] well as the decisions of the Hon’ble Delhi High Court in PCIT vs. well as the decisions of the Hon’ble Delhi High Court in well as the decisions of the Hon’ble Delhi High Court in Times Internet Ltd. [(2023) 156 taxmann.com 577 (Delhi)/(2024) Times Internet Ltd. [(2023) 156 taxmann.com 577 (Delhi)/(2024) Times Internet Ltd. [(2023) 156 taxmann.com 577 (Delhi)/(2024) 296 taxmann 547 (Delhi)] 296 taxmann 547 (Delhi)] and Cargo Motors (P.) Ltd. vs. DCIT Cargo Motors (P.) Ltd. vs. DCIT [(2022) 145 taxmann.com 641 (Delhi)/(2023) 291 taxmann 208 [(2022) 145 taxmann.com 641 (Delhi)/(2023) 291 taxmann 208 [(2022) 145 taxmann.com 641 (Delhi)/(2023) 291 taxmann 208 (Delhi)/(2023) 453 ITR 554 (Delhi)] (Delhi)/(2023) 453 ITR 554 (Delhi)].

6.2 After considering the s After considering the submissions of the assessee and ubmissions of the assessee and examining the material available on record, the learned CIT(A) examining the material available on record, the learned CIT(A) examining the material available on record, the learned CIT(A) partly accepted the contention of the assessee and restricted the partly accepted the contention of the assessee and restricted the partly accepted the contention of the assessee and restricted the disallowance under section 14A read with Rule 8D to 1% of the disallowance under section 14A read with Rule 8D to 1% of the disallowance under section 14A read with Rule 8D to 1% of the average value of investments which average value of investments which had actually yielded exempt had actually yielded exempt income. The learned CIT(A) observed that although the assessee income. The learned CIT(A) observed that although the assessee income. The learned CIT(A) observed that although the assessee had earned exempt income of Rs.29,4 had earned exempt income of Rs.29,48,400/- during the year, no during the year, no suo-motu disallowance under section 14A had been offered. disallowance under section 14A had been offered. disallowance under section 14A had been offered. According to the learned CIT(A), it could n According to the learned CIT(A), it could not be accepted that no ot be accepted that no expenditure at all had been incurred in relation to investments expenditure at all had been incurred in relation to investments expenditure at all had been incurred in relation to investments capable of yielding exempt income. Reference was made to the capable of yielding exempt income. Reference was made to the capable of yielding exempt income. Reference was made to the provisions of sections 14A(2) and 14A(3) of the Act, which empower provisions of sections 14A(2) and 14A(3) of the Act, which empower provisions of sections 14A(2) and 14A(3) of the Act, which empower the Assessing Officer to determine such e the Assessing Officer to determine such expenditure in accordance xpenditure in accordance

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with the prescribed method where he is not satisfied with the with the prescribed method where he is not satisfied with the with the prescribed method where he is not satisfied with the correctness of the claim of the assessee. correctness of the claim of the assessee.

6.3 The learned CIT(A), however, found merit in the alternate The learned CIT(A), however, found merit in the alternate The learned CIT(A), however, found merit in the alternate contention of the assessee that while computing disallowance under contention of the assessee that while computing disallowance und contention of the assessee that while computing disallowance und Rule 8D(2), the Assessing Officer had erroneously considered the Rule 8D(2), the Assessing Officer had erroneously considered the Rule 8D(2), the Assessing Officer had erroneously considered the entire average value of investments amounting to Rs.5,308.19 entire average value of investments amounting to Rs.5,308.19 entire average value of investments amounting to Rs.5,308.19 crores. On examination of Note No. 8 to the financial statements, crores. On examination of Note No. 8 to the financial statements, crores. On examination of Note No. 8 to the financial statements, the learned CIT(A) recorded a categorical finding that exempt the learned CIT(A) recorded a categorical finding that exempt the learned CIT(A) recorded a categorical finding that exempt income during the relevant year had arisen only from investment in income during the relevant year had arisen only from investment in income during the relevant year had arisen only from investment in Anand Rathi Housing Finance Ltd., and that the average value of Anand Rathi Housing Finance Ltd., and that the average value of Anand Rathi Housing Finance Ltd., and that the average value of such investment yielding exempt income was Rs.51,25,000/-. such investment yielding exempt income was Rs.51,25,000/ such investment yielding exempt income was Rs.51,25,000/ Consequently, the Assessing Officer was directed to restrict the Consequently, the Assessing Officer was directed to restrict the Consequently, the Assessing Officer was directed to restrict the disallowance under section 14A to Rs.51,250/ disallowance under section 14A to Rs.51,250/-, being 1% of the , being 1% of the aforesaid average investment value. aforesaid average investment value.

6.4 We have heard the rival submissions advanced by the parties We have heard the rival submissions advanced by the parties We have heard the rival submissions advanced by the parties and carefully perused the material available on record. The and carefully perused the material available on record. The and carefully perused the material available on record. The controversy arising in Ground N controversy arising in Ground Nos. 3 and 4 pertains to the scope os. 3 and 4 pertains to the scope and manner of computation of disallowance under section 14A read and manner of computation of disallowance under section 14A read and manner of computation of disallowance under section 14A read with Rule 8D of the Income with Rule 8D of the Income-tax Rules, 1962. 6.5 The learned CIT( The learned CIT(A), upon examination of the financial A), upon examination of the financial statements and the nature of exempt income earned during the statements and the nature of exempt income earned during the statements and the nature of exempt income earned during the year, recorded a categorical finding that the exempt income had year, recorded a categorical finding that the exempt income had year, recorded a categorical finding that the exempt income had arisen solely from the investment held in Anand Rathi Housing arisen solely from the investment held in Anand Rathi Housing arisen solely from the investment held in Anand Rathi Housing

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Finance Ltd. and that no other Finance Ltd. and that no other investment in the assessee’s investment in the assessee’s portfolio had yielded any exempt income during the relevant portfolio had yielded any exempt income during the relevant portfolio had yielded any exempt income during the relevant previous year. On the basis of such factual finding, the learned previous year. On the basis of such factual finding, the learned previous year. On the basis of such factual finding, the learned CIT(A) restricted the computation of disallowance under Rule 8D CIT(A) restricted the computation of disallowance under Rule 8D CIT(A) restricted the computation of disallowance under Rule 8D only to the investments which had actu only to the investments which had actually generated exempt ally generated exempt income. 6.6 In our considered opinion, the aforesaid approach adopted by In our considered opinion, the aforesaid approach adopted by In our considered opinion, the aforesaid approach adopted by the learned CIT(A) is in consonance with the settled legal position. the learned CIT(A) is in consonance with the settled legal position. the learned CIT(A) is in consonance with the settled legal position. The Hon’ble Special Bench of the Tribunal in ACIT v. Vireet The Hon’ble Special Bench of the Tribunal in ACIT v. Vireet The Hon’ble Special Bench of the Tribunal in ACIT v. Vireet Investment Pvt. Ltd. Investment Pvt. Ltd.(supra) has authoritatively held that for the authoritatively held that for the purpose of computing disallowance under Rule 8D, only those purpose of computing disallowance under Rule 8D, only those purpose of computing disallowance under Rule 8D, only those investments which have yielded exempt income during the relevant investments which have yielded exempt income during the relevant investments which have yielded exempt income during the relevant assessment year are liable to be considered. The ratio laid down assessment year are liable to be considered. The ratio laid down assessment year are liable to be considered. The ratio laid down therein has consistently been f therein has consistently been followed in subsequent judicial ollowed in subsequent judicial pronouncements. 6.7 In the present case, the Revenue has not brought on record In the present case, the Revenue has not brought on record In the present case, the Revenue has not brought on record any material to controvert the factual finding recorded by the any material to controvert the factual finding recorded by the any material to controvert the factual finding recorded by the learned CIT(A) that exempt income during the year was derived only learned CIT(A) that exempt income during the year was derived only learned CIT(A) that exempt income during the year was derived only from investment in Anand Rathi Housing Finance Ltd. Once that in Anand Rathi Housing Finance Ltd. Once that in Anand Rathi Housing Finance Ltd. Once that factual position stands accepted, inclusion of the entire investment factual position stands accepted, inclusion of the entire investment factual position stands accepted, inclusion of the entire investment portfolio for the purposes of Rule 8D would be wholly unsustainable portfolio for the purposes of Rule 8D would be wholly unsustainable portfolio for the purposes of Rule 8D would be wholly unsustainable in law. 6.7 We, therefore, find no infirmity, either factual or legal, We, therefore, find no infirmity, either factual or legal, We, therefore, find no infirmity, either factual or legal, in the conclusion arrived at by the learned CIT(A) restricting the conclusion arrived at by the learned CIT(A) restricting the conclusion arrived at by the learned CIT(A) restricting the disallowance under section 14A to Rs.51,250/ disallowance under section 14A to Rs.51,250/-, being 1% of the , being 1% of the

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average value of investments which had actually yielded exempt average value of investments which had actually yielded exempt average value of investments which had actually yielded exempt income during the year under consideration. The order of the income during the year under consideration. The order of the income during the year under consideration. The order of the learned CIT(A) on this issue is accordingly affirmed and Ground arned CIT(A) on this issue is accordingly affirmed and Ground arned CIT(A) on this issue is accordingly affirmed and Ground Nos. 3 and 4 raised by the Revenue stand dismissed. Nos. 3 and 4 raised by the Revenue stand dismissed. Nos. 3 and 4 raised by the Revenue stand dismissed.

Order pronounced in the open Court ounced in the open Court on 22/05/2026. /05/2026. Sd/- Sd/- (ANIKESH BANERJEE ANIKESH BANERJEE) (OM PRAKASH KANT PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 22/05/2026 M. Ranganath Vittal , Sr. P.S. M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai