M/S. PRIME REGISTRY SERVICES P. LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax, Chennai-I, Chennai, dated 30.12.2010 and pertains to assessment year 2003-04.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the Assessing Officer completed the assessment by an order dated 31.12.2008. The assessee claimed a sum of `6,39,51,000/- as an expenditure under the head “Discounting Charges” on Zero Coupon optionally convertible debentures under Serial No.1 and Serial No.3 at 15.21% and 14.21% respectively. In fact, the Assessing Officer reopened the assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act') on the ground that discount claimed by the assessee was excessive. Accordingly, the income was assessed at `2,17,29,702/- as against the loss returned by the assessee. However, the Administrative Commissioner found that the Zero Coupon optionally convertible debenture was to be redeemed after one year and conversion is to be exercised within 24 months from the date of issue. Therefore, the discounting charges ought to have been spread over for two years and the assessee is entitled only for 50% of the amount incurred towards discount on the issue of debentures. Accordingly, the Administrative Commissioner found that an excess relief was allowed by the Assessing Officer in the order dated 31.12.2008.

Referring to the judgment of Apex Court in Civil Appeal Nos.

On the contrary, Dr. B. Nischal, the Ld. Departmental Representative, submitted that the Zero Coupon optionally convertible debentures was issued with a condition that the same has to be redeemed after one year and conversion has to be exercised within 24 months from the date of issue. Therefore, the discount on such debentures has to be spread over for two years and the assessee is entitled only for 50% of the discount on the issue of debentures for the year under consideration. At the best, according to the Ld. D.R., the remaining 50% can be claimed only for next assessment year, namely, 2004-05.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claimed the expenditure of `6,39,51,000/- for issuing Zero Coupon optionally convertible debentures under the head “Discounting Charges”. It is not the case of the Revenue that the discounting charges claimed by the assessee for issue of Zero Coupon optionally convertible debentures cannot be allowed. The only objection of the Administrative Commissioner is that the redemption period is after one year and the conversion had to be exercised within 24 months, therefore, the discounting charges have to be spread over for two assessment years. The question arises for consideration is whether the discounting charges otherwise incurred by the assessee can be spread over for two years or it has to be allowed during the year under consideration. As rightly submitted by the Ld.counsel for the assessee, the Apex Court in Taparia Tools Limited (supra) examined the issue and found that there is no concept of deferred revenue expenditure under the scheme of Income-tax Act. The Apex Court further found that except for amortization of the expenditure, which is specifically provided in Section 35-D of the Act, there is no concept of deferred revenue expenditure under the scheme of Income-tax Act. In view of the above judgment of Apex Court, this Tribunal is of the considered opinion that there is no question of spreading over the expenditure for two assessment years when the assessee incurred the discounting charges during the year under consideration. Therefore, this Tribunal is unable to uphold the order of the Administrative Commissioner in exercise of Section 263 of the Act. Accordingly, the order of the lower authority is set aside.

In the result, the appeal of the assessee is allowed.