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TMI Blog2020 (10) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 17.03.2014 on the following substantial question of law: (i) Whether in law, the tribunal was justified in holding that the discount on issue of debenture was required to be spreadover in proportion to the percentage of redeeming of such debenture and to be allowed only to the extent of discount charged off in the relevant year? (ii) When the appellant following the mercantile system of accounting has incurred the expenditure of discount on issuance of debenture, was it not liable to be allowed in the same year in full as revenue expenditure? (iii) Whether the ratio laid down by the Supreme Court in Madras Industrial Investment Corporation Ltd. Vs. CIT (225 ITR 802) would apply to all cases irrespective of difference in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in 'MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT', 225 ITR 802 (SC) held that discount on debentures was revenue expenditure but had to be allowed for a period of five years in proportion in which debentures were to be redeemed by the assessee. The Assessing Officer allowed a sum of Rs. 50 Lakhs as deduction for the Assessment Year 2006-07 and claim for deduction for a sum of Rs. 4.5 Crores was rejected by the Assessing Officer. 3. The assessee thereupon approached the Commissioner of Income Tax (Appeals) who by an order dated 21.02.2011 inter alia held that there was no fresh flow of funds in case of assessee and therefore, the discount on the debentures is revenue expenditure and is deductible in the year of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to appreciate that the debentures were issued towards fund raising for business purposes and the funds were utilized for the discharge of the loan taken for business purposes, by which substantial benefit was availed by the assessee. It was further submitted that discount given was incidental to the benefit being obtained, which also incidentally suffered the tax. It is also argued that Supreme Court in MADRAS INDUSTRIAL INVESTMENT COPORATION LTD. supra has not held that in all cases where the expenditure incurred on debenture is redeemable after over a period of time, the expenditure should be spread over. Our attention has also been invited to decision of the Supreme Court in 'TAPARIA TOOLS LIMITED VS. JOINT COMMISSIONER OF INCOME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arved out an exception to the aforesaid rule and held that discount on debentures if allowed to be deducted in entirety in one year might give a distorted picture of the profits of a particular year and therefore, the accounting treatment given by the assessee spreading out the discount on debentures and claiming deduction of a proportionate deduction over the life of the debentures was a proper accounting method and should be accepted in the matter of allowing discount on the issue of debentures as a deduction. In TAPARIA TOOLS LIMITED supra, the Supreme Court in paragraph 17 of the decision held that it is conscious of the principle that normally revenue expenditure is to be allowed in the same year, in which it is incurred at the instanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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