Deputy Commissioner of Income-tax, Bangalore v. M/s. Shriram Chits(Karanataka) Pvt. Ltd, Bangalore

ITA 543/BANG/2017 | 2013-2014
Pronouncement Date: 28-11-2017 | Result: Dismissed

Appeal Details

RSA Number 54321114 RSA 2017
Assessee PAN AACCS2078R
Bench Bangalore
Appeal Number ITA 543/BANG/2017
Duration Of Justice 8 month(s) 22 day(s)
Appellant Deputy Commissioner of Income-tax, Bangalore
Respondent M/s. Shriram Chits(Karanataka) Pvt. Ltd, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 28-11-2017
Assessment Year 2013-2014
Appeal Filed On 08-03-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI JASON P BOAZ ACCOUNTANT MEMBER ITA NO.543/BANG/2017 ASSESSMENT YEAR : 2013-14 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1) BENGALURU ROOM NO.237 2 ND FLOOR BMTC BUILDING 80 FEET ROAD KORAMANGALA BENGALURU 560 001. VS. M/S. SHRIRAM CHITS (KARNATAKA) PVT. LTD. NO.259/31 1 ST FLOOR 10 TH CROSS WILSON GARDEN BENGALURU-5600278. PAN:AACCS 2078 R APPELLANT RESPONDENT REVENUE BY : SHRI. PRADEEP KUMAR ADDL. CIT ASSESSEE BY : SMT. LALITHA KAMESHWARAN ADVOCATE DATE OF HEARING : 22.11.2017 DATE OF PRONOUNCEMENT : 28.11.2017 O R D E R PER SUNIL KUMAR YADAV JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF CIT(A) INTERALIA ON THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND TH E FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BID LOSS CLAIMED IN THE COMPUTA TION OF TOTAL INCOME IN ADDITION TO BID LOSS CLAIMED IN THE PROFIT & LOSS A CCOUNT WITHOUT APPRECIATING THAT THE AMOUNT OF BID LOSS CLAIMED IS INCORRECT AS PER THE PROVISIONS OF SECTION 145(1) OF THE I. T. ACT. FURTHER IT IS NO T IN CONSONANCE WITH BOARDS NOTIFICATION NO.SO 69(E) DT. 25.01.1996 AND ACCOUNT ING STANDARD AS 22 OF ICAI. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSES SING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. DURING THE COURSE OF HEARING THE LEARNED COUNSE L FOR THE ASSESSEE INVITED OUR ITA NO. 543/BANG/2017 PAGE 2 OF 8 ATTENTION THAT THE IMPUGNED ISSUE IS SQUARELY COVER ED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 20 10-11 TO 2012-13 IN WHICH THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF VARIOUS HIGH COURTS AND APEX COURT WHILE ALLOWING THE RELIEF TO THE ASSESSEE. THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF TAPARIA T OOLS LTD. JCIT [2015] 372 ITR 605 (SC) IN WHICH THE TRIBUNAL HAS EXAMINED THE SIM ILAR ISSUE AND FINALLY CONCLUDED THAT ASSESSEE IS ENTITLED TO THE DEDUCTION OF THE E NTIRE EXPENDITURE IN THE YEAR IN WHICH THE AMOUNT WAS ACTUALLY PAID. 3. THE LEARNED DR PLACED THE RELIANCE UPON THE ORDE R OF THE AO. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES AND JUDGMENTS REFERRED TO BY THE PARTIES AND THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE WE FIND THAT IDENTICAL ISSUE WAS RAISED BEFORE THE TRI BUNAL. THE TRIBUNAL HAS ADJUDICATED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNC EMENTS OF DIFFERENT HIGH COURTS AND APEX COURT AND AFTER FOLLOWING THE SAME THE TRIBUN AL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT BID LOSS INCURRED ON A CCOUNT OF LIFTING THE CHIT IN THE CAPACITY OF SUBSCRIBER TO CHIT IS ALLOWABLE IN FULL IN THE YEAR IN WHICH THE CHIT WAS AUCTIONED. RELEVANT OBSERVATION OF THE TRIBUNAL IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN APPEAL PERTAINS TO WHETHER TH E LOSS INCURRED ON ACCOUNT OF BIDDING THE CHIT IS ALLOWABLE IN FULL IN THE YEAR OF BIDDING THE CHIT. THE LOSS REPRESENTS DIFFERENT BETWEEN THE FACE VALU E OF THE CHIT AND THE BID VALUE. THIS DIFFERENCE WAS CLAIMED AS LOSS IN THE C OMPUTATION OF THE TOTAL INCOME WHEREAS THE AO WAS OF THE OPINION THAT THI S LOSS SHOULD BE APPORTIONED OVER THE PERIOD OF THE CHIT. THE IDENT ICAL ISSUE HAD COME UP BEFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S BILAHARI INVESTMENTS PVT.LTD. VS CIT REPORTED 288 ITR 39 W HEREIN THE HONBLE MADRAS HIGH COURT AFTER DISTINGUISHING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT C ORPORATION LTD VS CIT (197) 225 ITR 802 ALSO FOLLOWING THE DECISION OF TH E HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS KOVUR TEXT ILES & CO. REPORTED IN 136 ITR 61 HELD AS UNDER; THE ANDHRA PRADESH HIGH COURT IN CIT VS. KOVUR TEX TILES & CO. (1982) 136 ITR 61 (AP) FOUND THAT THE ASSESSEE COMPANY SUBSCRI BED TO A CHIT FUND BY JOINING IN A CHIT GROUP AND AFTER PAYING FEW INSTAL MENTS THE ASSESSEE BID THE CHIT AND CLAIMED THE DIFFERENCE BETWEEN THE CHI T AMOUNT AND THE PRICE ITA NO. 543/BANG/2017 PAGE 3 OF 8 FOR WHICH IT WAS BID AS A BUSINESS LOSS. ON THE FAC TUAL BACKDROP THE ANDHRA PRADESH HIGH COURT HELD THAT THE LOSS INCURRED BY T HE ASSESSEE IN THE PROCESS OF BIDDING THE CHIT AMOUNT COULD BE ALLOWED AS A BUSINESS LOSS. OF COURSE THE PUNJAB & HARYANA HIGH COURT IN SODA SILICATE & CHEMICAL WORKS VS. CIT (1989) 179 ITR 588 (P&H) TOOK A CONTR A VIEW THAT WHERE THE ASSESSEE SECURED A CHIT ON DISCOUNT AND CLAIMED DED UCTION OF DISCOUNT AMOUNT WHILE COMPUTING ITS ASSESSABLE INCOME THE L OSS INCURRED THEREON WAS NOT INCIDENTAL TO THE BUSINESS AND THEREFORE D ISALLOWED THE ASSESSEES CLAIM DURING THE YEAR IN QUESTION. WE ARE UNABLE TO AGREE WITH THE DECISION OF THE DIV ISION BENCH OF THE PUNJAB & HARYANA HIGH COURT IN SODA SILICATE & CHEM ICAL WORKS VS. CIT CITED SUPRA. THE PUNJAB & HARYANA HIGH COURT HELD T HAT THE DISCOUNT AMOUNT IS NOT ALLOWABLE AS BUSINESS LOSS ON THE GRO UND THAT THE TRANSACTION INVOLVED DID NOT GIVE RISE TO ANY INCOME ASSESSABLE TO INCOME-TAX NOR ANY REVENUE LOSS IN RESPECT OF WHICH ANY DEDUCTION COUL D BE CLAIMED. THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT HAS NO RELEVANCE TO THE FACTS OF THE PRESENT CASE AS IN THIS CASE BUSINESS LOS S OCCURRED DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR AND THE DISCOUNT IS FOUND TO BE CONNECTED WITH THE BUSINESS ACTIVITIES OF THE AS SESSEES WHEREAS IN THE CASE BEFORE THE PUNJAB & HARYANA HIGH COURT ON FAC TS IT WAS FOUND THAT THE DISCOUNT IS NOT CONNECTED WITH THE BUSINESS OF THE ASSESSEE. ON THE OTHER HAND THE FACTS OF THE PRESENT CASE ARE SIMIL AR TO THAT OF THE CASE BEFORE THE ANDHRA PRADESH HIGH COURT VIZ. CIT VS. KOVUR TEXTILES & CO. (SUPRA) AND HENCE WE AGREE WITH THE VIEW TAKEN BY THE ANDHRA PRADESH HIGH COURT. THE TRIBUNAL RELIED ON THE DECISION OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT (SUP RA) AND HELD THAT THE DIVIDEND IS TAXABLE AND DISCOUNT IS ALLOWABLE BOTH DURING THE ACCOUNTING YEAR PROPORTIONATELY. IN MADRAS INDUSTRIAL INVESTME NT CORPORATIONS CASE CITED SUPRA THE ASSESSEE COMPANY ISSUED DEBENTURES AT A DISCOUNT AND IT INCURRED A LIABILITY TO PAY A LARGER AMOUNT THAN WH AT IT HAD BORROWED. THE LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AND ABO VE THE AMOUNT RECEIVED FOR THE DEBENTURES IS A LIABILITY WHICH HAS BEEN IN CURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE F UNDS FOR ITS BUSINESS ACTIVITIES. THEN WHILE DECIDING THE QUESTION WHETH ER SUCH A LIABILITY IS AN EXPENDITURE OR NOT THE APEX COURT HELD THAT THE LI ABILITY TO PAY DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE D EBENTURES IS A LIABILITY INCURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUS INESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES AND THER EFORE IT IS AN EXPENDITURE. THE APEX COURT ALSO HELD THAT IT IS AN EXPENDITURE DEDUCTIBLE ONLY PROPORTIONATELY DURING THE PERIOD OF ASSESSMENT YEA RS. THE DECISION OF THE APEX COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATIONS CASE (SUPRA) AS RIGHTLY POINTED OUT BY LEARNED COUNSEL FOR THE APPELLANTS/ASSESSEES IS DISTINGUISHABLE ON THE FAC TS OF THE CASE. THE PRESENT CASE RELATES TO THE CHIT FUND TRANSACTI ON. THE CHIT IS A KIND OF SAVINGS SCHEME. IN A CHIT SCHEME A SPECIFIC NUMBER OF INDIVIDUALS COME TOGETHER TO POOL A SPECIFIC AMOUNT AT PERIODIC INTE RVALS. USUALLY THE NUMBER OF INDIVIDUALS AND THE NUMBER OF PERIODS WILL BE TH E SAME. AT THE END OF ITA NO. 543/BANG/2017 PAGE 4 OF 8 EACH PERIOD THERE WILL BE AN AUCTION OF THE MONEY. THE MEMBERS OF THE CHIT WILL PARTICIPATE IN THIS AUCTION FOR THE POOLED MON EY DURING THAT INTERVAL. THE BID AMOUNT WILL BE DIVIDED BY THE NUMBER OF MEMBERS AND THUS DETERMINING PER HEAD CONTRIBUTION DURING THAT PERIOD. USUALLY T HE DISCOUNT NAMELY THE SUM OF MONEY WHICH THE PRIZED SUBSCRIBER IS REQUIRE D TO FORGO WILL CONTINUE TO DECREASE OVER PERIODS. THE PERSON GETTING MONEY IN THE LAST PERIOD WILL RECEIVE THE FULL SCHEME AMOUNT. ON THE OTHER HAND THE DEBENTURE IS AN INSTRUMENT O F DEBT EXECUTED BY THE COMPANY ACKNOWLEDGING ITS RECEIPT TO REPAY THE SAME AT A SPECIFIED RATE AND ALSO CARRYING INTEREST. IT IS IN SUM AND SUBSTA NCE A CERTIFICATE OF LOAN OR A BOND EVIDENCING THE FACT THAT THE COMPANY IS LIAB LE TO PAY A SPECIFIED AMOUNT WITH INTEREST. A DEBENTURE IS UNSECURED IN T HE SENSE THAT THERE ARE NO LIENS OR PLEDGES ON SPECIFIC ASSETS. IT IS HOWE VER SECURED BY ALL PROPERTIES NOT OTHERWISE PLEDGED. IN THE CASE OF BA NKRUPTCY THE DEBENTURE- HOLDERS ARE CONSIDERED GENERAL CREDITORS. WHEN A CO MPANY ISSUES DEBENTURES AT A DISCOUNT THE DEBENTURE-HOLDERS ARE REQUIRED TO PAY A LESSER SUM THAN THE FACE VALUE AND THE COMPANY INCU RS A LIABILITY TO PAY A LARGER AMOUNT THAN WHAT IT HAS BORROWED AT A FUTUR E DATE. THE LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTURES IS A LIABILITY WHICH HAS BEEN INCURRED B Y THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. INSOFAR AS DEBENTURE IS CONCERNED THE BENEFIT TO B E DERIVED FROM THE AMOUNT BORROWED WILL CONTINUE TILL THE DEBENTURE IS REDEEMED AND THE LIABILITY IS A CONTINUING LIABILITY WHICH SHOULD BE SPREAD OVER THE PERIOD OF THE DEBENTURES. BUT IN A CHIT TRANSACTION A MEMBER OF THE CHIT WILL FORGO THE DISCOUNT WHEN HE BIDS THE CHIT. THE DISCOUNT AMOUNT VARIES IN EACH PERIOD AND IT HAS NO CONNECTION OR RELEVANCE TO THE LIABIL ITY TO PAY FUTURE INSTALMENTS. IN OTHER WORDS IN CHIT TRANSACTION TH E DISCOUNT IS BASED ON THE BID AND THE BID LOSS HAS NO RELEVANCE TO THE LIABIL ITY FOR FUTURE INSTALMENTS WHEREAS IN THE CASE OF DISCOUNT ON DEBENTURES IT I S NOT BASED ON ANY BID LOSS BUT IT SPREADS OVER THE PERIOD OF LIFE OF THE DEBENTURES. IN THE CASE OF DEBENTURES IT IS A CASE OF RECEIPT WHILE IN THE C ASE OF CHIT TRANSACTION IT IS AN AMOUNT PAID FOLLOWED BY THE ENCASHMENT OF THE CH IT AMOUNT AT AN EARLY DATE WITH THE PROMISE TO PAY THE REMAINING INSTALME NTS. IN THIS VIEW OF THE MATTER THE DECISION OF THE APEX COURT IN MADRAS IN DUSTRIAL INVESTMENT CORPORATION VS. CIT (SUPRA) IS NOT APPLICABLE AS IN THE INSTANT CASE THE DISCOUNT ARISES OUT OF A CHIT TRANSACTION WHEREAS THE APEX COURT DEALT WITH THE DISCOUNT ON THE ISSUE OF DEBENTURE. A FIVE-JUDGE BENCH OF THE KERALA HIGH COURT IN JANA RDHANA MALLAN VS. GANGADHARAN AIR 1983 KER 178 (FB) : (1985) 58 COMP CAS 390 (KER)(FB) HELD THAT ON ENTERING INTO THE CHITTY AGREEMENT A D EBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL THE FUTURE INSTALM ENTS BUT IT IS A PROMISE TO DISCHARGE THE CONTRACTUAL OBLIGATION WHETHER THE P RIZE IS DRAWN OR NOT OR THE PRIZE AMOUNT IS RECEIVED OR NOT. IT IS ALSO HELD TH AT BUT FOR SUCH OBLIGATION THERE WILL BE NO DIFFERENCE BETWEEN THE LIABILITY O F THE PRIZED SUBSCRIBER AND THE NON-PRIZED SUBSCRIBER AND BOTH ARISE OUT OF THE SAME CONTRACT AND THAT SINCE BOTH PROFIT AND LOSS ARISE SIMULTANEOUSLY ON THE DATE OF PRIZE DRAWN ITA NO. 543/BANG/2017 PAGE 5 OF 8 ITSELF THE QUESTION OF INCURRING FRESH OBLIGATION TO PAY FUTURE SUBSCRIPTION DOES NOT ARISE. THEREFORE THE SUBSCRIBER IS ENTITL ED TO DEDUCTION OF DISCOUNT AS BUSINESS LOSS IN THE ACCOUNTING YEAR IN WHICH IT OCCURRED. AS OBSERVED EARLIER IN THE CHIT TRANSACTION THERE IS ONLY A PROMISE ON THE PART OF THE ASSESSEES TO DISCHARGE THE CONTRACTUAL OBLIGATION. FURTHER THE ASSESSEE COMPANIES FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AS STATUTORILY REQUIRED UNDER THE COMPANIES ACT HAVE TO ACCOUNT FOR THEIR INCOME OR LOSS AS PER THE MERCANTILE SYSTEM OF ACCO UNTING AND NOT OTHERWISE. IN OTHER WORDS THE INCOME OR LOSS OF TH E ASSESSEES ACCRUING DURING THE RELEVANT ACCOUNTING YEAR HAS TO BE CONSI DERED FOR THE PURPOSE OF INCOME-TAX ASSESSMENT. WHEN THE ASSESSEES ARE IN TH E BUSINESS OF SUBSCRIBING TO CHITS AND DERIVING INCOME OUT OF IT DURING A PARTICULAR YEAR IT IS NOT POSSIBLE OR PERMISSIBLE TO DEFER ITS ASSESSA BILITY TILL THE COMPLETION OF THE ENTIRE CYCLE OF THE CHIT. AT THIS JUNCTURE IT IS APT TO REFER TO SS. 5 AND 1 45 OF THE IT ACT : '5. SCOPE OF TOTAL INCOME.(1) SUBJECT TO THE PROVI SIONS OF THIS ACT THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RE SIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR; OR (C) ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING S UCH YEAR : PROVIDED THAT IN THE CASE OF A PERSON NOT ORDINARI LY RESIDENT IN INDIA WITHIN THE MEANING OF SUB-S. (6) OF S. 6 THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT THE TOTA L INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDI A IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARI SE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1.INCOME ACCRUING OR ARISING OUTSIDE I NDIA SHALL NOT BE DEEMED TO BE RECEIVED IN INDIA WITHIN THE MEANING O F THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN INDIA. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS IT IS HER EBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PE RSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HAVE ACCRUED OR ARISEN TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RE CEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA.' '145. METHOD OF ACCOUNTING.(1) INCOME CHARGEABLE U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION OR 'I NCOME FROM OTHER SOURCES SHALL SUBJECT TO THE PROVISIONS OF SUB-S. (2) BE COMPUTED IN ACCORDANCE ITA NO. 543/BANG/2017 PAGE 6 OF 8 WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLA SS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE AO IS NOT SATISFIED ABOUT THE CORRECT NESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD O F ACCOUNTING PROVIDED IN SUB-S. (1) OR ACCOUNTING STANDARDS AS NOTIFIED U NDER SUB-S. (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE THE AO MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN S. 144.' A CONJOINT READING OF THE ABOVE PROVISIONS OF LAW M AKES IT CLEAR THAT ALL INCOME RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUES OR ARISES DURING THE PREVIOUS YEAR SHALL FORM PART OF THE TOTAL INCOME O F THE ASSESSEE AND SUCH INCOME SHALL BE COMPUTED IN ACCORDANCE WITH THE ACC OUNTING SYSTEM WHICH THE ASSESSEE IS REGULARLY FOLLOWING. HERE ON THE F ACTS OF THE CASE THE AUTHORITIES HAVE FOUND THAT THE ASSESSEES ARE FOLLO WING THE MERCANTILE SYSTEM OF ACCOUNTING. THE MERCANTILE SYSTEM OF ACCO UNTING MEANS AS DISCUSSED IN SHIVA PRASAD GUPTA VS. CIT AIR 1929 AL L 823 THE AMOUNTS THAT HAVE BECOME RECOVERABLE ARE SHOWN AS THE INCOM E ACTUALLY RECEIVED AND THE LIABILITIES INCURRED ARE SHOWN AS AMOUNTS A CTUALLY DISBURSED IN ANY PARTICULAR YEAR. THEREFORE WHEN THE ASSESSEES ARE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING IN WHICH ENTRIES ARE POSTED I N THE BOOKS OF ACCOUNT ON THE DATE OF THE TRANSACTION THAT IS ON THE DAT E ON WHICH RIGHTS ACCRUE OR LIABILITIES ARE INCURRED IRRESPECTIVE OF THE DATE O F PAYMENT THEY HAVE TO ACCOUNT FOR THEIR INCOME OR LOSS AS PER THE MERCANT ILE SYSTEM OF ACCOUNTING AND NOT OTHERWISE. THEREFORE AS RIGHTLY FOUND BY T HE CIT(A) THE INCOME DERIVED DURING A PARTICULAR PREVIOUS YEAR BY WAY OF CHIT DIVIDEND HAS TO BE RECKONED AND ASSESSED AS INCOME OF THAT YEAR FOLLOW ING THE PRINCIPLES OF MERCANTILE/ACCRUAL SYSTEM OF ACCOUNTING PARTICULAR LY WHEN THE ASSESSEES ARE COMPANIES FOLLOWING THE MERCANTILE SYSTEM OF AC COUNTING. THE CHIT TRANSACTION IS GOVERNED BY THE PROVISIONS OF THE CHIT FUNDS ACT. IN VIEW OF THE NON OBSTANTE CLAUSE FOUND IN S. 3 OF TH E CHIT FUNDS ACT 1982 NAMELY '3. ACT TO OVERRIDE OTHER LAWS MEMORANDUM ARTICLE S ETC.SAVE AS OTHERWISE EXPRESSLY PROVIDED IN THIS ACT (A) THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NO TWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER LAW FOR THE TIM E BEING IN FORCE OR IN THE MEMORANDUM OR ARTICLES OF ASSOCIATION OR BYE-LAWS O R IN ANY AGREEMENT OR RESOLUTION WHETHER THE SAME BE REGISTERED EXECUTED OR PASSED AS THE CASE MAY BE BEFORE OR AFTER THE COMMENCEMENT OF THIS AC T; AND (B) ANY PROVISION CONTAINED IN THE MEMORANDUM ARTI CLES BYE-LAWS AGREEMENT OR RESOLUTION AFORESAID SHALL TO THE EX TENT TO WHICH IT IS REPUGNANT TO THE PROVISIONS OF THIS ACT BECOME OR BE VOID AS THE CASE MAY BE ' THE DEFINITIONS OF THE EXPRESSIONS DISCOUNT DIVID END PRIZE AMOUNT AS EXTRACTED ABOVE WILL PREVAIL OVER THE SIMILAR DEFI NITIONS AS FOUND IN THE IT ACT BECAUSE A NON OBSTANTE CLAUSE IS GENERALLY APP ENDED TO A SECTION WITH A VIEW TO GIVE THE ENACTING PART OF THE SECTION IN CASE OF CONFLICT AN ITA NO. 543/BANG/2017 PAGE 7 OF 8 OVERRIDING EFFECT OVER THE PROVISION IN THE SAME OR OTHER ACT MENTIONED IN THE NON OBSTANTE CLAUSE [VIDE : STATE OF BIHAR VS. BIHAR RAJYA M.S.E.S.K.K. MAHASANGH (2005) 9 SCC 129]. THEREFORE THE DISCOUNT IS NOT AN INTEREST PAYABLE ON THE PRIZED AMOUNT BUT IT IS A LOSS. AS ALREADY OBSERVED IN CHIT TRANSACTION THERE IS N O CORRELATION BETWEEN THE DISCOUNT AMOUNT AND THE FUTURE INSTALMENTS. FURTHER THE MEASURE OF FUTURE INSTALMENTS DOES NOT DEPEND UPON THE PRIZED AMOUNT OR THE DISCOUNT NOR THE DISCOUNT IS AN EXPENDITURE TO BE INCURRED IN FU TURE. THE DISCOUNT IS NOT A DEFERRED EXPENDITURE FOR WHICH PAYMENT HAS BEEN MAD E OR A LIABILITY INCURRED BUT THE DISCOUNT IS CARRIED FORWARD ON TH E PRESUMPTION THAT IT WILL BE OF BENEFIT OVER A SPECIFIC PERIOD. IN THE CHIT T RANSACTION THERE IS NO DEFERRED BENEFIT WHICH IS CONSTRUED TO MEAN THE BE NEFIT DEFERRED TO A YEAR SUBSEQUENT TO THE ACCOUNTING YEAR AND HENCE THE QU ESTION OF DEFERRED EXPENDITURE DOES NOT ARISE. THAT APART THE PROVISIONS OF THE CHIT FUNDS ACT RE QUIRE THE PRIZED SUBSCRIBER TO FURNISH SECURITY FOR FUTURE INSTALMEN TS. THEREFORE NEITHER THE ENFORCEABILITY OF THE RIGHT TO RECEIVE THE DIVIDEND NOR THAT OF THE OBLIGATION TO PAY THE DISCOUNT COULD BE DEFERRED AND BOTH ACCRUE INSTANTANEOUSLY. HENCE THE DISCOUNT IS ALLOWABLE IN THE VERY SAME Y EAR OF ACCRUAL. IN THIS VIEW OF THE MATTER THE DIVIDEND HAS TO BE TAXED IN THE YEAR OF ACCRUAL; SO ALSO THE DISCOUNT HAS TO BE ALLOWED IN FULL IN THE YEAR OF ACCRUAL ITSELF. THE TRIBUNAL IS RIGHT IN REJECTING THE COMPLETED CONTRA CT METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEES AND AT THE SAME TIME IT I S NOT CORRECT IN HOLDING THAT THE DISCOUNT SHOULD BE ALLOWED SPREADING IT OV ER THE REMAINING PERIOD OF THE CHIT ON A PROPORTIONATE BASIS. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE H ONBLE MADRAS HIGH COURT AND THE CO-ORDINATE BENCH DECISION IN THE ASS ESSEES OWN CASE CITED SUPRA WE HOLD THAT THE BID LOSS INCURRED ON ACCOUN T OF LIFTING THE CHIT IN TH CAPACITY OF SUBSCRIBER TO CHIT IS ALLOWABLE IN FULL IN THE YEAR IN WHICH THE CHIT WAS AUCTIONED. THEREFORE WE DISMISS THE APPEALS FILED BY THE REVENUE. 5. THE IDENTICAL ISSUE WAS ALSO EXAMINED BY THE APE X COURT IN THE CASE OF TAPARIA TOOLS LTD. VS. JCIT (SUPRA) IN WHICH THEIR LORDSHI P HAS EXAMINED THE ISSUE AND HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE ENTIRE EXPENDITURE. THE RELEVANT OBSERVATION OF THE HONBLE SUPREME COURT IS EXTRACT ED HEREUNDER: 17. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY T HE 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 CLA IMS THAT EXPENDITURE IN THAT YEAR THE INCOME-TAX DEPARTMENT CANNOT DENY THE SAM E. HOWEVER IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD TH E EXPENDITURE OVER A PERIOD OF ENSUING YEARS IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF MATCHING CONCEPT IS SATISFIED WHICH UP TO NOW HAS BEEN RES TRICTED TO THE CASES OF DEBENTURES. ITA NO. 543/BANG/2017 PAGE 8 OF 8 18. IN THE INSTANT CASE AS NOTICED ABOVE THE AS SESSEE DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FI VE YEARS AS IN THE RETURN FILED BY IT IT HAD CLAIMED THE ENTIRE INTEREST PAID UPFR ONT AS DEDUCTIBLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION WHEN THIS COUR SE 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 ACCOUNT THAT 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 ACCOUNT ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF THE PROVISIONS CONTAINED IN THE ACT (SEE KEDARNATH JUTE MANUFACTURING CO. LTD. V. CIT*; TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LT D. V. CIT**; SUTLEJ COTTON MILLS LTD. V. CIT*** AND UNITED COMMERCIAL BANK V. CIT#. 6. WE HAVE ALSO CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT HAS ADJUDICATED THE ISSUE IN CONSONANCE WITH THE OR DER OF THE JUDGMENTS OF THE HIGH COURT AND APEX COURT AND ACCORDINGLY WE CONFIRM THE SAME. 7. IN THE RESULT APPEAL OF THE REVENUE STAND DISMI SSED. PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER 2017. SD/- SD/- ( JASON P BOAZ ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BANGALORE DATED : 28/11/2017 /NSHYLU/* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR ITAT BANGALORE. 6 GUARD FILE BY ORDER SR. PRIVATE SECRETARY ITAT BANGALORE.