Different treatment in books of accounts cannot deprive claiming of entire expenditure

This appea1 under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been fi1ed by the revenue. The subject matter of the appea1 pertains to the Assessment Year 2014-15. The appea1 was admitted by a Bench of this Court vide order dated 25.02.2019 on the fo11owing substantia1 question of 1aw:

“Whether on the facts and in the circumstances of the case, the Tribunal is justified in directing the Assessing Officer to delete the disallowance of Bid loss claimed in the computation of total income in addition to Bid Loss claimed in P&L Account without appreciating that the amount of Bid Loss claimed is incorrect as per provisions of section 145(1) of the Income Tax Act and is not in consonance with the Board’s Notification No.69(E) dated: 25.01.2016 and Accounting Standard As 22 of ICAI?”

2. Facts leading to filing of this appeal briefly stated are that the assessee is a company engaged in business of organizing and conducting chit funds for different groups. The assessee, for the Assessment Year 2014-15, debited a sum of Rs.14,13,48,676/- as loss on own chits bidding  and also claimed bid loss of Rs.18,65,72,307/-. From the aforesaid amount, the assessee reduced an amount of Rs.14,13,48,676/- being bid loss and claimed reduction of Rs.4,52,23,631/- on account of bid loss. The assessee filed return of income on 30.09.2014 declaring a loss of Rs.4,77,49,534/-. Thereafter, the assessee filed revised return on 29.10.2014 in which the assessee claimed bid loss of Rs.14,13,48,676/-. The Assessing Authority, by an order dated 21.12.2016, held that method of accounting and bid loss claimed as an expenditure in the year of pricing, was not in consonance with system of accounting and therefore, disallowed the claim.

3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), by an order dated 14.07.2017, by placing reliance on the assessee’s case in the earlier Assessment Year with regard to bid loss claimed as well as relying on the decision of Madras High Court in ‘BILAHARI INVESTMENT Vs. CIT’ 288 ITR 39 (MAD), allowed the claim of the assessee with regard to the bid loss. Thereupon, the revenue assailed the aforesaid order in an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as theTribunal’ for short). The Tribunal, by an order dated 08.06.2018, by placing reliance on the decision of the Supreme Court in ‘TAPARIA TOOLS Vs. JCIT’ (2015) 372 ITR 605 (SC), upheld the order of the Commissioner of Income Tax (Appeals) and the appeal preferred by the revenue was dismissed. In the aforesaid factual background, the revenue has filed this appeal.

4. Learned counsel for the revenue submitted that the Commissioner of Income Tax (Appeals) as well as the Tribunal ought to have appreciated that the Assessing Authority had rightly disallowed the claim of the assessee with regard to the bid loss. It is further submitted that the assessee had claimed bid loss in two ways namely, one debited in profit and loss account under the head ‘other expenses’ which relates to the period ending 31.03.2009 and the other one is reduced in the computation of income representing bid loss relating to the chit groups that extend to the subsequent years. It is therefore urged that the Assessing Authority had rightly held that the claim of the assessee that there is no scope to apportion any portion of bid loss to the remaining period of chit, cannot be accepted in view of the notification issued by the Central Board of Direct Taxes. It is also submitted that the claim of the assessee also is in violation of Section 145(1) of the Act and the same also violates the notification dated 25.01.1996 issued by the Board. It is also urged that the extraordinary item mentioned in the said circular does not cover the activities of the assessee and the accounting standard AS 22 of ICAI does not permit to claim the amount of bid loss pertaining to a different period other than the period for which computation of income is made. It is also pointed out that as per the said accounting standard, the statements of different entities are uniform and with a view to apply the principle of ‘matching concept’ to arrive at a true picture of revenue of an enterprise for a given accounting period, the assessee has failed to satisfy the above said requirements.

5. On the other hand, learned Senior counsel for the assessee has submitted that the substantial question of law is no longer res integra and the same has been answered by the decision of the Supreme Court in TAPARIA TOOLS, In this connection, learned Senior counsel has invited the attention of this Court to paragraph 19 of the aforesaid decision.

6. We have considered the submissions made on both sides and have perused the record. Paragraph 19 of the decision rendered by the Supreme Court in TAPARIA TOOLS, supra, is reproduced below for the facility of reference:

“19 In the instant case, as noticed above, the Assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the Assessee as it was in consonance with the provisions of the Act which permit the Assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act (See-Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta (1972) 3 SCC 252; Tuticorin Alkali Chemicals and Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras (1997) 6 SCC 117; Sutlej Cotton Mills Ltd. v. Commissioner of Income Tax, Calcutta (1978) 4 SCC 358; and United Commercial Bank, Calcutta v. Commissioner of Income Tax, WB-III, Calcutta (1999) 8 SCC 338.”

7. Thus, from the close scrutiny of paragraph 19 of the aforesaid decision, it is evident that the substantial question of law involved in this appeal is no longer res integra and the same is already answered against the

8. In view of the aforesaid enunciation of law, the substantial question of law involved in this appeal is answered against the revenue and in favour of the

In the result, the appeal fails and is dismissed