The Ahmedabad division of Income Tax Appellate Tribunal recently allowed the entire amount of expenses in respect of Non-convertible debentures in the year in which they were incurred by the assessee. The ITAT, while allowing deduction held that under section 37 of the Income Tax Act, 1961, the assessee is entitled to get the deduction in the relevant assessment year even if they are redeemable after five years.
Coming to the facts of the case, the assessee, Gruh Finance Ltd claimed deduction in respect of expenses incurred on Non-Convertible Debentures. However, the Assessing Officer, rejected the same by holding that the same was not claimed in the Profit & Loss Account, while the it was claimed in the statement of income.He further observed that the entire amount of NCD expenses cannot be allowed in the current year since they are redeemable after five years.The assessee maintained that the expenditure in respect of NCD is incurred during the relevant previous year and these are relating to borrowing by way of issue of NCD and the same is allowable deduction u/s 37 of the Income Tax Act. According to them, these expenses was reduced from the share premium account in the books of accounts and not debited to profit and loss account but separately claimed as deduction while computing the income.They further relied on the decision of Supreme Court in Tuticorn Alkali Chemicals & Fertilizers Ltd vs. CIT, 227 ITR 172 (SC).
While rejecting the contentions of the assessee, the Assessing Officer took a stand that when the benefit of a particular expenditure has been accruing over a period of five years, the entire expenditure cannot be allowed in one year and it is also against the matching principles of income and expenditure.The decision of the Supreme Court in Madras Industrial Investment Corporation Ltd vs. CIT, 225 ITR 802 (SC) was cited in their favour. On this basis the AO held that total NCD expenses was required to be allowed in equal installments in five years. Accordingly, he allowed 20% of the expenses as deduction in FY 2004-05 and the balance expenses of NCD was not allowed to the assessee.
Though the assessee has approached the Commissioner of Income Tax(Appeals) through first appeal, the order was sustained. Being aggrieved, the assessee approached the Appellate Tribunal on second appeal.
The Tribunal noticed that in Taparia Tools Ltd (372 ITR 605), the Supreme Court has held that where assessee-company issued debenture for 5 years and the assessee did not want to spread over the interest expenditure over a period of 5 years, it claimed entire deductible expenditure in the same year in the return filed byit, in such a situation it was permissible in law to the assessee in consonance with the provisions of the Act to claim the expenditure in the year in which it was incurred.
Following the above decision, the Tribunal held that the assessee is entitled to claim the entire expenses incurred by them in respect of the Non-Convertible Debentures.
Read the full text of the order below.
