There is not concept of deferred revenue expenditure in Income Tax Act, 1961

Section Involved

37(1), 35D (35D is not applicable in this case, howver the same has been referred)

Facts (Brief):

The assessee had claimed the expenditure by partly debiting in Profit and Loss Account and Partly in Computation of Income. The expenditure related to borrowing of funds repayable over a period of time.

Contentions/Appeal By Assessee (Before ITAT aggrieved with decision of CIT (A))

5. That on the facts and in the circumstances of the case, the learned CIT (A) erred in upholding addition of Rs 12,22,63,212/ being expenditure incurred in respect of raising loan funds, by treating the same as Deferred revenue expenditure.

5.1 That the learned CIT (A) erred on facts and in law in not appreciating that for purposes of the Act, revenue expenses have to be allowed in full in the year of accrual unless specifically deferred as provided under the Act.”

Contention of the Revenue (In Brief)

The contention of AO was that, the expenses shoul be spred over the period of liability i.e. the total period for which funds have been raised. Further he also contended that, the assessee had claimed only a part of expense against taxable income.  

AO’s contention was based on the case of Madras Industrial Investment Corporation Limited 225 ITR 802 (SC)

Decision of ITAT:

We find that there is no concept of deferred revenue expenditure under the Income Tax Act except under certain specific, provisions like section 35D. Therefore, unless statutory provision is there to defer the revenue expenditure over a period, the entire amount is to be allowed in the year in which it is incurred for running the business as per section 37 of the Income Tax Act

Analysis:

AO relied upon the Madras Industrial Investment Corporation Limited 225 ITR 802 (SC), in which it had been held that, assessee itself  had claimed proportionate amount in the P & L account and the Hon’ble Court had held that in such a scenario proportionate claim was admissible. Further ITAT has rightly appreciate that section 35D is not applicable in this case. (There many cases discussed in the order of  ITAT,  discussion of which is not possible, kindly go through the order)