TaxTMI 
TaxTMI 
2011 (9) TMI 476
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....olasses and bagasse. For the instant assessment year 2003-04, the appellant company filed its return of income declaring total loss of Rs. 9,58,51,076/-. The return of income was processed on 3rd February, 2004 under Section 143(1)(a) of the Act at the returned loss. Thereafter, the case was selected for scrutiny and notice under Section 143(2) of the Act was issued. The Assessing Officer framed an assessment under Section 143(3) of the Act determining the loss at Rs. 6,81,51,750/-. The Assessing Officer, inter alia made the following disallowance:- (i) disallowance of claim of deferred revenue expenditure of Rs. 1,08,43,872/-. We may point out in this behalf that the assessee had taken loans towards working capital as well as term loans from various banks. On these loans, during the year in question, the assessee paid a total interest of Rs. 6,23,73,947/-. However, entire interest paid was not shown as revenue expenditure in this year. Instead the assessee booked a sum of Rs. 1,06,68,247/- to profit and loss account as revenue expenditure adopting the formula of 26 days : 150 days. The balance amount of Rs. 5,16,99,700/- was transferred by the assessee to deferred re....
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....bsp; Rs. 1,08,43,872. Balance was taken to the capital account and on that amount the assessee claimed depreciation. 4. The assessee further submitted that the aforesaid amount was treated as deferred revenue expenditure and written off over a period of five years i.e. 1/5th in each year on the basis of decision of the company which have been approved by the Directors as it was an act of business prudence, in order to avail credit facility from the banks. According to the assessee, thus, it was done for the commercial of the business. The course of action taken for amortising the said expenditure over a period of five years sought to be justified on the ground that in the case of sugar industry the work capital funds are used in building of stock, benefit whereof accrues in future. Judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 was relied upon in support of the contention that concept of deferred revenue expenditure has been duly approved by the Apex Court. The contention of the assessee found favour with the CIT (A) who allowed the claim as deferred revenue expenditure thereby deleting the....
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....e contention of the assessee that revenue expenditure which has been incurred in a particular year should be deferred to subsequent years. Therefore, no deduction out of deferred revenue expenditure, which has come from earlier years, can be allowed as deduction in the years under consideration as the same will constitute the prior period expenditure. The decision relied upon by the Ld. CIT (Appeals) in the case of Madras Industrial Investment Corporation (supra) is not applicable to the facts as pointed out by the Ld. Sr. DR. Accordingly, in our considered opinion, the Ld. CIT (Appeals) was not justified in allowing the claim of assessee in respect of deferred revenue expenditure. We, therefore, set aside the order of the Ld. CIT (Appeals) and restore that of the assessing officer. The ground relating to deferred revenue expenditure in all the years is allowed in favour of the Revenue." 6. It is not in dispute that the liability incurred on account of interest payable on term loan as well as working capital and also other expenditure by way of director's foreign travel expenses. It is also not in dispute that the liability on this account accrued in the year 2003-04 and incurred ....
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....ed the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 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 upto now has been restricted to the cases of debentures." 10. Even when we apply the aforesaid test in the present case, the assessee would not be entitled to defer the expenditure over a period of five years. For this reason, we dismiss the ITA 51/2011, 52/2011 and 58/2011. 11. In fact, Mr. Aggarwal, at the time of arguing these appeals, afte....