NUVAMA WEALTH FINANCE LIMITED,BANDRA EAST, MUMBAI vs. DEPUTY COMISSIONER OF INCOME TAX, CGO BUILDING, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER SHRI JAGADISH, ACCOUNTANT MEMBER

ITA No. 481/MUM/2025 (Assessment Year : 2020-21) Nuvama Wealth Finance Limited, 801 to 804 Wing A, Building No.3, BKC G Block, Bandra (E) ............... Appellant Maharashtra – 400051 PAN: AAACC2233N v/s Deputy Commissioner of Income Tax - 4(1)(1), ……………… Respondent CGO Building, M.K. Road, New Marine Lines, Mumbai - 400020 Assessee by : Shri Madhur Agarwal Revenue by : Shri Jaya Ragavan, CIT-DR

Date of Hearing – 01/04/2026 Date of Order - 14/05/2026

O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 29.11.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”), by the learned Commissioner of Income Tax (Appeals)-47, Mumbai [“learned CIT(A)”], for the assessment year 2020-21.

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incurred for issue of Market Linked/Non-Convertible Debentures by holding that the said expenditure could be claimed only under section 35D of the Act. The Appellant submits that expenses incurred by for issue of Market Linked/Non-Convertible Debentures are allowable u/s 37 of the Act; hence, the disallowance made by the AO shall be deleted.”

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incurred a total expenditure of Rs. 15,49,30,669/- during the year towards the issuance of Market Linked Debentures ("MLDs") and Non-Convertible Debentures ("NCDs"). It was further observed that only an amount of Rs. 97,74,921/- (i.e., Rs. 24,53,593/- for MLDs and Rs. 73,21,328/- for NCDs) was debited to the Profit and Loss account. However, an amortised balance of Rs. 14,51,55,749/- was claimed as a deduction from the net profit in the computation of the revised return of income. Accordingly, the assessee was asked to show cause as to why the provisions of section 35D of the Act should not be applied, and only 1/5th of the total expenditure amounting to Rs. 15,49,30,669/-, i.e. Rs. 3,09,86,134/-, incurred towards the issue of MLDs and NCDs should not be allowed. In response, the assessee submitted that as an NBFC registered with the RBI, it has raised funds through public issue of MLDs and NCDs to facilitate its regular financial activities. It was submitted that Rs. 115.41 crore was received on the issue of MLDs and Rs. 221.91 crore was received on account of the issue of NCDs. The assessee submitted that out of Rs. 15,49,30,669/-, the assessee debited Rs. 97,74,921/- to the Profit and Loss account as per Ind-AS requirements, and the remaining amount of Rs. 14,51,55,748/- was recorded as an asset and offset against borrowings. However, for tax purposes in the revised return, the entire expenditure of Rs. 15,49,30,669/- was claimed as revenue deduction. The assessee further submitted that the expenditure was incurred for borrowing funds through the issuance of debentures for its ongoing business activities and is, therefore, an allowable expenditure. In support of its submission, the assessee placed reliance upon the CBDT Circular No. 56 dated 19.03.1971 and the decision of the Hon’ble Supreme Court in India Cement Limited vs. CIT, reported in

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[1966] 60 ITR 52 (SC). As regards the non-applicability of provisions of section 35D of the Act, the assessee submitted that it has not entered into any new line of business and that the issuance of MLDs and NCDs are for its existing business activities as NBFC.

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assessee to expand the financing portfolio, which is nothing but an extension of the existing business. The AO further held that the intention of the assessee for the issue of debentures is to increase the area of its activity of financing, which is nothing but an extension of its financing business. Accordingly, the AO held that the provisions of section 35D of the Act are clearly applicable to the present case and accordingly allowed deduction of only 1/5th of the total expenditure of Rs. 15,49,30,669/- incurred during the year towards issue of MLDs and NCDs (i.e., Rs. 3,09,86,134/-). Since the assessee had already debited an amount of Rs. 97,74,921/- in the Profit and Loss account, the balance of Rs. 2,12,11,213/- was allowed as a deduction from the net profit, and the remaining excess claim of Rs. 12,39,44,535/-, made vide revised computation, was disallowed and added to the total income of the assessee.

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were raised as part of its business, and the entire expenditure of Rs. 15,49,30,669/- was incurred wholly and exclusively for the purpose of business. Thus, the learned AR submitted that the said expenditure is allowable under section 37(1) of the Act. In support of the submission that in cases where expenditure is allowable under section 37(1) of the Act, the provisions of section 35D are not attracted, the learned AR, inter alia, placed reliance upon the CBDT Circular No. 56 dated 19.03.1971. The learned AR submitted that the CBDT, after taking into consideration the decision of the Hon’ble Supreme Court in India Cement Limited (supra), vide aforesaid Circular, clarified that in cases where a company which is already in business, incurs expenditure on issue of debentures, and such expenditure is admissible as deduction against the profit of the year in which it is incurred, section 35D will not be applicable. The learned AR submitted that this contention of the assessee, though raised, was not dealt with by any of the lower authorities. Instead, the AO, as well as the learned CIT(A), rendered findings on the other aspect that, by raising funds through debentures, the assessee is extending its existing business. The learned AR submitted that the assessee, being an NBFC, was already engaged in raising funds and lending money. Thus, the issuance of MLDs and NCDs cannot be treated as an extension or expansion of the business.

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extension/expansion of the business of the assessee. The learned DR submitted that these provisions of section 35D of the Act specifically govern expenses such as underwriting commission, brokerage, advertisement charges, and printing incurred in connection with the subscription of debentures, and mandate their amortisation over five years. Thus, it was submitted that in such circumstances, the general provisions of section 37(1) need to give way to the specific provisions under section 35D of the Act pertaining to expenditure incurred on the issue of debentures. In respect of this contention, the learned DR placed reliance upon the decision of the Hon’ble Madhya Pradesh High Court in Shree Synthetics Pvt. Ltd. vs. CIT, reported in [2008] 303 ITR 451 (MP), and a decision of the Coordinate Bench of the Tribunal in CIT vs. A.T.V. Projects India Ltd., reported in [2003] 84 ITD 470 (Mumbai).

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repayment of interest and principal with respect to borrowings. For issuing MLDs and NCDs, the assessee incurred a total expenditure of Rs. 15,49,30,669/-, the details of which are as follows: - Nature of Expenditure Amount (₹) S. No. 1. Advisory Fees Income – Lead 55,04,500 Manager 2 Business Promotion Expenses 7,74,997 3 Commission expenses 11,97,17,576 4 Depository Charges 31,11,530 5 Listing Fees 2,72,500 6 Listing Fees - Stock Exchange 3,75,000 7 Miscellaneous expenses 3,85,563 8 Office stationery 4,55,772 9 Professional Fees 2,04,77,753 10 Rating fees 5,45,000 11 Registrar Fees 6,54,066 12 Registration Expenses 27,250 13 Stamp Duty Charges 25,03,000 14 Travelling Expenses 1,26,163 Total: 15,49,30,670 (15,49,30,669)

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activities, any expenditure incurred thereon is allowable as a business expenditure. In this regard, the assessee placed reliance upon the CBDT Circular No. 56 dated 19.03.1971 and the decision of the Hon’ble Supreme Court in India Cement Limited (supra). However, none of the lower authorities recorded any findings on this submission of the assessee and proceeded to adjudicate the issue on the basis that section 35D of the Act is applicable to the present case, as the expenditure was incurred by the assessee for raising funds which were utilised for the extension/expansion of the business.

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“45. It may be noted that the provision for amortisation is not intended to supersede any other provision in the income-tax law under which the expenditure is allowable as a deduction against profits. For instance, where a company which is already in business, incurs expenditure on issue of debentures, and such expenditure is admissible as a deduction against profits of the year in which it is incurred by virtue of the decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, section 3SD will not have the effect of bringing that expenditure within the scope of the expenditure to be amortised against profits over a 10-year period. As a corollary to this, where any expenditure has been included for the purpose of amortisation under section 35D on a claim being made by the assessee in that behalf, such expenditure will not qualify for deduction under any other provision of the Act for the same or any other assessment year vide subsection (6) of section 35D.”

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expenditure, is allowable against its profit of the year, and hence, section 35D of the Act is not applicable to this case.

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entered into to facilitate the running of the business and was made on the ground of commercial expediency. Accordingly, the Hon’ble Supreme Court in India Cements Limited (supra) held that its earlier decision in Eastern Investments Ltd. (supra) is directly applicable to the facts under consideration. It is pertinent to note that in India Cements Limited (supra), the learned Counsel for the Revenue tried to distinguish the decision in Eastern Investments Limited (supra) on the basis that the case of an investment company stands on a different footing from the case of a manufacturing company. However, the Hon’ble Supreme Court, rejecting the submissions of the learned Counsel for the Revenue, held that in some respects the position of an investment company and a manufacturing company may be different, but in determining the question of whether raising money is incidental to the business or not, there is no difference between them. Accordingly, deciding the question in favour of the taxpayer, the Hon’ble Supreme Court in India Cements Limited (supra) held that expenditure incurred in connection with obtaining the loan from the Industrial Finance Corporation of India is not in the nature of capital expenditure and the same was laid out or expended wholly and exclusively for the purpose of its business. The relevant findings of the Hon’ble Supreme Court in India Cements Limited (supra) are reproduced as follows: - “To summarise this part of the case, we are of the opinion that: (a) the loan obtained is not an asset or advantage of an enduring nature; (b) that the expenditure was made for securing the use of money for a certain period; and (c) that if is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within section 10(2)(xv). The last contention of Mr. Desai is that even if it is revenue expenditure, it was not laid out wholly and exclusively for the purpose of business. Subba Rao J.

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reviewed the case law in Commissioner of Income-tax v. Malayalam Plantations [1964] 53 ITR 140, 150 (SC) and observed as follows: "The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide: it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business: it may comprehend many other acts incidental to the carrying on of a business." Mr. Desai says that the act of borrowing money in this case was not incidental to the carrying on of a business. We are unable to accept this contention. In Eastern Investments Lad. V. Commissioner of Income- tax [1951) 20 ITR 1; [1951] SCR 594 this court held that the Eastern Investments Ltd., an investment company, when it borrowed money on debentures, the interest paid by it was incurred solely for the purpose of making or earning such income, profits or gains within the purview of section 12(2) of the Indian Income-tax Act, It held on a review of the facts that the transaction was voluntarily entered into in order indirectly to facilitate the running of the business of the company and was made on the ground of commercial expediency. This case, in our opinion, directly covers the present case, although Mr. Desai suggests that the case of an investment company stands on a different footing from the case of a manufacturing company. In some respects, their position may be different but in determining the question whether raising money is incidental to a business or not, we cannot discern any difference between are investment company and a manufacturing company. We may mention that in that case this court was not considering whether the expenditure was in the nature of a capital expenditure or not, because it was agreed all through that the expenditure was not in the nature of capital expenditure, and the only question which this court dealt with was whether the expenditure was incurred solely for the purpose of making or earning income, profits or gains. The case of Dharamvir Dhir v. Commissioner of Income-tax [1961] 42 ITR ; [1961] 3 SCR 359 also supports the conclusion we have arrived at on this part of the case. It was held in that case that the payment of interest and a sum equivalent to 11/16th of the profits of the business of the assessee in pursuance of an agreement for obtaining loan from the lender were in a commercial sense expenditure wholly and exclusively laid out for the purpose of the assessee's business and they were, therefore, deductible revenue expenditure. Before we conclude, we must deal with the point raised by Mr. Sastri that the High Court erred in law in preferring the findings of the Income-tax Officer to that of the Appellate Tribunal. It is not necessary to decide this question but it seems to us that, in a reference, the High Court must accept the findings of fact made by the Appellate Tribunal and it is for the person who has applied for a reference to challenge those findings first by an application under section 66(1). If he has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled

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to urge before the High Court that the findings are-vitiated for one reason or the other. To conclude, we hold that the expenditure of Rs. 84,633 was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business. The answer to the question referred, therefore, must be in the affirmative. The appeal is allowed, the judgment of the High Court set aside and the question referred answered in the affirmative. The appellant will have its costs incurred here and in the High Court.” (Emphasis supplied) 18. In the present case, as noted in the foregoing paragraphs, the assessee is undisputedly an NBFC and is engaged in the business of borrowing monies through various instruments and advancing such monies as loans. Further, from the prospectus for the issue of debentures as placed on record, it is sufficiently evident that the funds raised from the issuance of debentures were for the purpose of onward lending and repayment of interest and principal with respect to the borrowings of the assessee. Therefore, in light of the decision of the Hon’ble Supreme Court in India Cements Limited (supra), we find merit in the submissions of the assessee that the expenditure on issuance of debentures was incurred wholly and exclusively for the purpose of its business and, hence, is allowable under section 37(1) of the Act. Further, the CBDT, vide its Circular No. 56 dated 19.03.1971, has already clarified that, in cases where the expenditure on the issue of debentures is admissible as a deduction against the profits of the year, such expenditure shall not fall within the purview of section 35D of the Act.

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notwithstanding the provisions of section 35D of the Act. The relevant findings of the Hon’ble Delhi High Court, in the aforesaid decision, are reproduced as follows: - 1. The assessee-company, in order to modernize and expand its activities and with a view to augment its long term capital requirements, raised funds to the extent of Rs. 406.65 lakhs during the relevant accounting year by issue of debentures on right basis to the existing shareholders. The expenditure incurred by the assessee in this regard aggregated to Rs. 22,09,889. The assessee claimed deduction of the said amount from its taxable income. The Assessing Officer, however, came to the conclusion that the expenditure would qualify only for amortization under section 35D of the Act. He further held that the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 stood nullified by the introduction of section 35D. In appeal, the CIT (Appeals) affirmed the view taken by the Assessing Officer and held that the expenditure could not be allowed as a revenue expenditure because of the introduction of section 35D with effect from 1-4-1971. In a further appeal before it, the Tribunal reversed that view. The Tribunal held that the Central Board of Direct Taxes had in Circular No. 56, dated 19-3-1971 observed that the provisions of amortization were not intended to supersede any other provision in the Income-tax law under which the expenditure is allowable as deduction against profits. The circular went on to state that expenditure incurred on the issue of debentures was admissible as deduction by virtue of the decision of the Supreme Court in India Cements Ltd.'s case (supra) and that section 35D did not have the effect of bringing that expenditure within the scope of the expenditure to be amortized against profits over a period of ten years. The Tribunal also held that the circulars issued by the Court were binding on the income tax authorities, in view of the decision of the Supreme Court in Commissioner of Customs v. Indian Oil Corporation [2004] 187 CTR (SC) 297. It accordingly allowed the deduction of the expenditure on the issue of debentures. The present appeal filed by the Revenue assails the correctness of the said order. 2. We have heard Ms. Bansal, counsel for the revenue and perused the record. That the circulars issued by the Board of Direct Taxes are binding upon the revenue authorities except where the circulars take a view contrary to the decision of the Supreme Court is fairly well-settled by the decisions of the Apex Court including that in Indian Oil Corporation's case (supra). Ms. Bansal was, therefore, candid enough to concede that the circulars issued by the Board could not be departed from by the authorities. What she argued was that the circular notwithstanding, section 35D covered cases of expenditure incurred on expansion of the existing business like the respondent's business in the present case and would, therefore, exclude any other provision which may have permitted deduction of expenditure that requires to be amortized under section 35D. There is, in our view, no merit in that contention. The circular in question inter alia says that expenditure incurred on the issue of debentures is an admissible deduction in the light of the decision of the Supreme Court in India Cements Ltd.'s case (supra). It is true that India cements Ltd.'s case (supra) did not directly deal with expenditure incurred on the issue of debentures. That was a case where the assessee had borrowed a loan and the question was whether expenditure incurred on any such loan transaction was

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an admissible expenditure. The circular all the same extends the logic underlying the said decisions to cases where the expenditure is incurred by the assessee by issue of debentures as is the position in the instant case. If that be so, it is difficult to see how the Revenue can still argue that since the case in hand refers to issue of debentures for expansion of an existing business, the expenditure incurred on the same must be amortized. Since the circular instructions are binding the revenue would not be entitled to urge any such contention. To set the controversy at rest, the circular specifically states that expenditure incurred on the issue of debentures will be a permissible deduction notwithstanding the introduction of section 35D. There is, after those instructions, no room for any further debate on the issue. The Tribunal was, in that view, perfectly justified in holding that the expenditure was a permissible deduction and accordingly deleting the additions made by the Assessing Officer. This appeal does not raise any substantial question of law for our consideration. It accordingly fails and is hereby dismissed.

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(Cal.), upheld the findings of the Tribunal allowing the expenditure incurred on the issuance of debentures.

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the application of the provisions of section 35D of the Act. We find that this fact is sufficiently corroborated from the financial statement of the assessee at page 19 of the paper book, which is reproduced as follows: - For the year ended For the year ended March 31, 2020 March 31, 2019 C. Cash flow from financing activities Proceeds from issuance of Share Capital (including Securities Premium) 2,704,.80 - Proceeds from issuance of Debt Securities 3,281,.73 - (Decrease) / increase in Borrowings other than Debt Securities (refer note 2) (19,185.89) 1,645.47 Repayment of Subordinated Liabilities (176.04) -

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wholly and exclusively for the purpose of the assessee’s business as NBFC and the said expenditure cannot be amortised under section 35D of the Act. Accordingly, the impugned order on this issue is set aside, and the sole ground raised by the assessee is allowed.

Order pronounced in the open Court on 14/05/2026

Sd/- Sd/- JAGADISH SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14/05/2026 Prabhat

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file.

By Order Assistant Registrar ITAT, Mumbai.