High Court: Commissioner can revise orders under Income-tax Act SS263. Discount to bond subscribers is allowable expenditure.

MP Financial Corporation Versus Commissioner Of Income-Tax

MP Financial Corporation Versus Commissioner Of Income-Tax - [1987] 165 ITR 765, 51 CTR 249, 26 TAXMANN 42 Issues involved:
The issues involved in this judgment are:
1. Competency of Commissioner of Income-tax to revise an order passed by Inspecting Assistant Commissioner (Assessment) under section 263 of the Income-tax Act, 1961.
2. Allowability of a sum of Rs. 94,875 as discount to subscribers of bonds issued by the assessee-Corporation as an expenditure.

Competency of Commissioner to revise under section 263:
The High Court held that orders passed by the Inspecting Assistant Commissioner (Assessment) are subject to revision under section 263 of the Income-tax Act. The court emphasized that the Commissioner of Income-tax was competent to revise the order passed by the Inspecting Assistant Commissioner (Assessment) as per the provisions of the Act. The court's decision was based on the clear provision in sub-section (4) of section 125A of the Act, which states that orders passed by the Inspecting Assistant Commissioner are liable to be revised by the Commissioner under section 263.

Allowability of discount as expenditure:
Regarding the allowance of Rs. 94,875 as discount to subscribers of bonds, the court referred to principles from accounting and auditing books. It was noted that when debentures or bonds are issued at a discount, the discount represents deferred interest and should be written off over the period of having the use of the money raised. The court highlighted that while the entire discount amount may not be deductible in the year of issuance, a proportionate amount should be spread over the years for which the bonds remain outstanding. The court disagreed with a previous decision and emphasized that the term "expenditure" in section 37 of the Act may cover amounts that are essentially losses and have not physically left the assessee's possession.

Conclusion:
The High Court answered the questions raised in the reference by stating that the Commissioner of Income-tax was indeed competent to revise the order under section 263. Additionally, the court ruled that while the full discount amount was not allowable as expenditure in the assessment year, a proportionate amount should be considered as an allowable expenditure over the period for which the bonds are issued. The judgment was made based on the interpretation of relevant provisions and principles from accounting and taxation laws.

Note: The judgment was delivered by Judges G. G. SOHANI and K. L. SHRIVASTAVA of the High Court of Madhya Pradesh.