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TMI Blog2017 (12) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer be restored. 4. The appellant craves leave to add, alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal. 2. During the course of hearing, the learned counsel for the assessee invited our attention that the impugned issue is squarely covered by the order of the Tribunal in the assessee's own case for the assessment years 2010-11 to 2012-13 in which the Tribunal has followed the judgment of various High Courts and Apex Court while allowing the relief to the assessee. The assessee has also placed reliance upon the judgment of the Apex Court in the case of Taparia Tools Ltd., JCIT [2015] 372 ITR 605 (SC) in which the Tribunal has examined the similar issue and finally concluded that assessee is entitled to the deduction of the entire expenditure in the year in which the amount was actually paid. 3. The learned DR placed the reliance upon the order of the AO. 4. Having carefully examined the orders of the lower authorities and judgments referred to by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, disallowed the assessee's claim during the year in question. We are unable to agree with the decision of the Division Bench of the Punjab & Haryana High Court in Soda Silicate & Chemical Works vs. CIT cited supra. The Punjab & Haryana High Court held that the discount amount is not allowable as business loss on the ground that the transaction involved did not give rise to any income assessable to income-tax, nor any revenue loss in respect of which any deduction could be claimed. The judgment of the Punjab & Haryana High Court has no relevance to the facts of the present case, as, in this case, business loss occurred during the previous year relevant for the assessment year and the discount is found to be connected with the business activities of the assessees, whereas in the case before the Punjab & Haryana High Court, on facts, it was found that the discount is not connected with the business of the assessee. On the other hand, the facts of the present case are similar to that of the case before the Andhra Pradesh High Court, viz., CIT vs. Kovur Textiles & Co. (supra) and hence, we agree with the view taken by the Andhra Pradesh High Court. The Tribunal relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company is liable to pay a specified amount with interest. A debenture is unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy, the debentureholders are considered general creditors. When a company issues debentures at a discount, the debenture-holders are required to pay a lesser sum than the face value and the company incurs a liability to pay a larger amount than what it has borrowed, at a future date. The liability to pay the discounted amount over and above the amount received for the debentures is a liability which has been incurred by the company for the purposes of its business in order to generate funds for its business activities. Insofar as debenture is concerned, the benefit to be derived from the amount borrowed will continue till the debenture is redeemed and the liability is a continuing liability which should be spread over the period of the debentures. But, in a chit transaction, a member of the chit will forgo the discount when he bids the chit. The discount amount varies in each period and it has no connection or relevance to the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible to defer its assessability till the completion of the entire cycle of the chit. At this juncture, it is apt to refer to ss. 5 and 145 of the IT Act : "5. Scope of total income.-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-s. (6) of s. 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights accrue or liabilities are incurred irrespective of the date of payment, they have to account for their income or loss as per the mercantile system of accounting and not otherwise. Therefore, as rightly found by the CIT(A), the income derived during a particular previous year by way of chit dividend has to be reckoned and assessed as income of that year following the principles of mercantile/accrual system of accounting, particularly when the assessees are companies following the mercantile system of accounting. The chit transaction is governed by the provisions of the Chit Funds Act. In view of the non obstante clause found in s. 3 of the Chit Funds Act, 1982, namely, "3. Act to override other laws, memorandum, articles, etc.-Save as otherwise expressly provided in this Act,- (a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force or in the memorandum or articles of association or bye-laws or in any agreement or resolution whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and (b) any provision contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d supra, we hold that the bid loss incurred on account of lifting the chit in th capacity of subscriber to chit is allowable in full in the year in which the chit was auctioned. Therefore, we dismiss the appeals filed by the revenue." 5. The identical issue was also examined by the Apex Court in the case of Taparia Tools Ltd., Vs. JCIT (supra) in which their Lordship has examined the issue and held that the assessee is entitled for deduction of the entire expenditure. The relevant observation of the Hon'ble Supreme Court is extracted hereunder: "17. What follows from the above is that normally the ordinary rule 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 year, the Income-tax Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of "matching concept" is satisfied, which up to now has been restricted to the cases of debentures. 18. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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