2021 (7) TMI 577 - AT - Income Tax

Expenditure on brokerage expenditure paid for obtaining investments in mutual funds - investment made in the funds yields income over a period of years, however the said amount of brokerage expenditure incurred is not refundable to the assessee in any circumstances - HELD THAT - Undisputedly, the expenditure is wholly and exclusively for the purpose of business. The concept of deferred revenue expenditure is not there in I.T.Act, which is duly supported by the decision in Taporia Tools 2015 (3) TMI 853 - SUPREME COURT . The expenditure cannot also not be categorized in the capital filed on the plea of enduring benefit, as per the ratio of Hon ble Supreme Court in Empire Jute Mills 1980 (5) TMI 1 - SUPREME COURT - We have no hesitation to hold that in these circumstances and examining the present issue on the anvil of Hon ble Supreme Court decisions as above, the expenditure incurred on brokerage is to be allowed in full in the impugned assessment year, as deferral of the same over a number of years for income tax purposes is not sustainable - Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?11,26,94,520/- on account of deferred brokerage expenditure.
2. Application of the revenue matching principle.
3. Reliance on the Hon'ble Supreme Court decision in Taparia Tools Ltd. vs. JCIT.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Deferred Brokerage Expenditure:
The Revenue challenged the deletion of ?11,26,94,520/- made by the CIT(A) on account of deferred brokerage expenditure. The assessee, engaged in investment and portfolio management services, claimed a deduction for brokerage expenses in its income computation, although these were not debited to the profit and loss account but shown as deferred revenue expenditure in the balance sheet. The Assessing Officer (AO) disallowed this claim, arguing that the expenditure should be spread over the years as the income from the investments would be realized over multiple years. The CIT(A), however, allowed the assessee's claim based on the Supreme Court's decision in Taparia Tools Ltd. vs. JCIT, which held that if a business liability arises in the accounting year, the deduction should be allowed in that year, even if the liability is discharged in the future. The Tribunal upheld the CIT(A)’s decision, emphasizing that the expenditure was incurred wholly for business purposes and should be allowed in the year it was incurred.

Issue 2: Application of the Revenue Matching Principle:
The AO argued that the expenditure should be matched with the income generated over multiple years, invoking the revenue matching principle. However, the Tribunal noted that the Supreme Court in Madras Industrial Investment Corporation had allowed spreading of expenditure only when the assessee itself chose to do so. The Tribunal held that the AO cannot force the assessee to spread the expenditure over multiple years if the assessee claims it in the year it was incurred. The Tribunal also referred to the Supreme Court's decision in Empire Jute Co. Ltd. vs. CIT, which stated that not all expenditures resulting in enduring benefits are capital expenditures; if the expenditure facilitates business operations without creating fixed capital, it is revenue expenditure.

Issue 3: Reliance on Supreme Court Decision in Taparia Tools Ltd. vs. JCIT:
The CIT(A) and the Tribunal relied on the Supreme Court's decision in Taparia Tools Ltd., which rejected the concept of deferred revenue expenditure under the Income Tax Act, except where specifically provided. The Tribunal emphasized that the expenditure, though deferred in the books, should be allowed in full in the year it was incurred for tax purposes. The Tribunal also cited the Delhi High Court’s decision in CIT vs. City Financial Consumer Fin. Ltd., which supported the full allowance of business expenditure in the year incurred, regardless of its treatment in the books of account.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order to allow the entire brokerage expenditure in the year it was incurred. The Tribunal reiterated that the concept of deferred revenue expenditure is not recognized under the Income Tax Act, and the AO cannot impose the revenue matching principle to defer expenditure against the assessee's claim. The Tribunal’s decision was based on established judicial precedents, including the Supreme Court's rulings in Taparia Tools Ltd. and Empire Jute Co. Ltd.