Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax, ... vs Anand Rathi Global Finance Limited, ... on 22 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "A" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)
ITA No. 6255/MUM/2025
Assessment Year: 2023-24
Deputy Commissioner of Anand Rathi Global Finance
Income Tax, Central Circle - Limited, A-Wing, 10th Floor,
5(1), Room No.429, 4th Floor, Vs. Express Zone, Goregaon East
kautilya Bhawan, BKC, S.O. Mumbai - 400063,
Mumbai - 400051, Mumbai. Maharashtra.
PAN NO. AABCR 1136 N
Appellant Respondent
Assessee by : Shri Dharmesh Shah & Ms Mitali
Parekh
Revenue by : Shri Rajesh Kumar Yadav, (CIT. DR)
Date of He aring : 13/04/2026
Date of pronouncement : 22/05/2026
ORDER
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against the order dated 31.07.2025 passed by the learned Commissioner of Income-Tax (Appeals)-53, Mumbai ["the Ld. CIT(A)"] for Assessment Year 2023-
24. The Revenue has assailed the relief granted by the Ld. CIT(A) in respect of (i) allowability of discount on issue of debentures, and (ii) restriction of disallowance under section 14A of the Income-tax Act, Anand Rathi Global Finance Limited 2 ITA No. 6255/MUM/2025 1961 ("the Act"). The relevant grounds of Revenue are extracted as under:
"1.
1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in deleting the disallowance of ₹33,23,90,083/ 33,23,90,083/-on account of discount on issue of debentures, by treating the entire discount as revenue expenditure allowable in the year of issue, ignoring that the said expenditure secures enduring benefit over the tenure of debentures and is required to be amortized over the debenture period as laid down by the Hon'ble Supreme Court in Madras Industrial Investment Corp. Ltd. v. CIT (1997) 225 ITR 802 (SC)?
2. (2015) 372 ITR 605 (SC), overlooking that the facts of of the present case are distinguishable Whether the Hon'ble CIT(A) erred in law in applying the ratio of Taparia Tools Ltd. v. JCIT inasmuch as the assessee itself had accounted the discount as deferred expenditure in its books of account, thereby attracting attractin the principle of consistency and matching concept?
3. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was correct in law in restricting disallowance u/s 14A to 1% of only those investments which yielded exempt income (251.25 lakh), ignoring that Rule 8D(2)(iii) requires disallowance at 1% of the average value of all investments, income from which does not or shall not form part of total income, irrespective of whether such investments have actually yielded exempt income in th the relevant year?
4. Whether the Hon'ble CIT(A) was correct in law in directing reduction of 51,250/-,, overlooking CBDT Circular No. 5/2014 dated disallowance to 51,250/ 11.02.2014 which clarifies that expenditure relatable to income not includible in total income is to be disallowed even if no exempt Income has been earned in that year?"
2. Briefly stated, the assessee filed its return of income on 26.10.2023 declaring total income at Rs.51,05,82,070/-.
Rs.51,05,82,070 The assessment under section 143(3) of the Act was completed on 26.03.2025 at an assessed income of Rs.84,59,20,553/-, Rs.84,59,20,553/ inter alia, by making disallowance of discount on issue of debentures and by invoking section 14A read with Rule 8D of the Income-tax Income Rules, 1962 ("the Rules"). In appeal, the Ld. CIT(A) deleted the disallowance relating to discount on debentures and restricted the Anand Rathi Global Finance Limited 3 ITA No. 6255/MUM/2025 disallowance under section 14A. Aggrieved, the Revenue is in appeal before us by way of raising the grounds as reproduced above.
3. Before us, the assessee has filed a paper book containing pages 1 to 92 and compilation of the case laws.
4. The Ground Nos. 1 and 2 of the appeal of the Revenue relate to 33,23,90,083/- made by the Assessing Officer on disallowance of Rs.33,23,90,083 account of discount on issue of debentures, which was claimed by the assessee as a revenue expenditure allowable in the year of issue.
4.1 The facts relevant to the controversy are that during the year under consideration the assessee, a non-banking non banking financial company engaged in financing and lending activities, issued non-convertible non debentures aggregating to Rs.495 crores at a discount. The assessee claimed the entire discount amounting to Rs.40,01,48,500/- as revenue expenditure in the year of issue itself. The he assessee relied upon the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT,, [225 ITR 802], Taparia Tools Ltd. vs. JCIT [2015] 372 ITR 605 (SC) and also the decision of the Hon'ble Bombay High Courtt in the case of Pr. Commissioner of Income Tax [PCIT] vs. TATA Industries Limited in [ITA No.661 of 2018]. Further the assessee submitted that such deduction on discount for Anand Rathi Global Finance Limited 4 ITA No. 6255/MUM/2025 debenture had been consistently allowed by the AO in earlier scrutiny assessments and, hence, any attempt to alter the position without any change in fact, or legal provision would be arbitrary and legally untenable.
4.2 The Assessing Officer, however, was of the opinion that firstly,, discount on debentures represent an amount paid to the issue of the debenture at a price lower than the nominal value and hence of the discount did not represent any payment made to expenditure secondly anyone so as to constitute expenditure, econdly, the benefit arising from the debentures extended over the tenure of the debentures entures and, therefore, the expenditure ought to be amortized over the life of the instrument. The Assessing Officer principally relied upon the judgment of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT (supra) for the roposition that discount on debentures represents a continuing proposition liability and, therefore, deduction should be spread over the period of debentures. The ld AO observed that assessee's contention of discount on debentures being allowable in the first year and cannot be amortized, was incorrect interpretation of the decision of the Hon'ble Supreme Court. The ld AO also distinguished the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd. vs. JCIT (Supra) relied upon by the assessee. Regarding the th rule of the consistency, the AO was of the view that every financial year was a separate year and tax liability are determined independently for Anand Rathi Global Finance Limited 5 ITA No. 6255/MUM/2025 each year. The AO accordingly adjusted discount over the debenture life and has allowed 1/6th part of the discount in this year and accordingly restricted discount claimed to Rs.6,77,58,417/- and the excess claim of Rs.33,23,90,083 (i.e., Rs.40,10,14,850 - Rs.6,77,58,417), Rs.6,77,58,417), was disallowed by the AO and added to the income of the assessee.
4.3 e the learned CIT(A), the assessee, inter alia, submitted Before Banking Financial Company engaged in the that it is a Non-Banking business of lending and financing activities, including loans against securities, loans against property and other structured credit products.
s. It was contended that the core business model of the assessee is founded upon deployment of borrowed funds into income-generating generating financial assets and that the interest income arising therefrom constitutes its principal source of revenue. In the y course of its business operations, the assessee raises ordinary funds through issuance of non-convertible non convertible debentures ("NCDs"), the proceeds whereof are directly utilized for extending credit facilities to customers. It was further submitted that during the year under u consideration the assessee issued NCDs aggregating to a face value of Rs.495 crores at a discount, resulting in a discount expenditure of Rs.40,01,48,500/--.. According to the assessee, the said discount represented the cost incurred for raising business funds and the business liability in respect thereof crystallized in the very year of issuance of the debentures. Since the assessee follows the mercantile system of Anand Rathi Global Finance Limited 6 ITA No. 6255/MUM/2025 accounting, the liability having arisen during the relevant previous year, the entire amount was claimed claimed as deduction in that year itself.
It was emphasized that the funds raised through the debenture issue were not utilized for acquisition of capital assets or for any enduring capital project, but were deployed entirely in the regular ions of the assessee. Accordingly, the expenditure financing operations was claimed to be revenue in nature and allowable under section tax Act, 1961 ("the Act"). The assessee further 37(1) of the Income-tax contended that the Assessing Officer had erred in seeking to amortize the discount expenditure over the tenure of the debentures by placing reliance upon the judgment of the Hon'ble Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT (supra).. Reliance was placed upon the subsequent judgment of the Hon'ble Supreme eme Court in Taparia Tools Ltd. v. JCIT (supra), wherein the Hon'ble Apex Court clarified that in Madras Industrial Investment Corporation Ltd. (supra), spreading over of expenditure was permitted only because the assessee itself had opted for such nt and not because the law mandated amortization. The treatment assessee submitted that where an assessee claims a revenue expenditure wholly in the year of incurrence, the Revenue cannot compel deferment of such deduction over future years. The assessee also relied upon the judgment of the Hon'ble Bombay High Court in Tata Industries Ltd. v. CIT(supra) CIT and various other judicial precedents to contend that there exists no provision under the Act authorising deferment of a revenue expenditure, except in cases Anand Rathi Global Finance Limited 7 ITA No. 6255/MUM/2025 ally contemplated by statute, such as section 35D of the Act. specifically It was submitted that in the absence of any statutory provision mandating amortization, the action of the Assessing Officer amounted to rewriting the law, which is impermissible. The assessee also so pointed out that in Note No. 26 to its financial statements, the entire discount on issue of debentures amounting to Rs.40.01 crores had been recognised in Assessment Year 2023- 2023 24 itself and no deferment had been claimed.
4.4 submissions of the assessee and After considering the submissions examining the assessment order, the learned CIT(A) deleted the disallowance. The learned CIT(A) observed that the Assessing Officer had principally relied upon the decision of the Hon'ble Supreme Court in Madras Industrial Investment Investment Corporation Ltd. v.
CIT(supra) for holding that the discount on issue of debentures could not be allowed fully in the year of issuance. However, the learned CIT(A) found that the subsequent judgment of the Hon'ble Supreme Court in Taparia Tools Ltd. v. JCIT(supra) (supra) had expressly distinguished the earlier decision and clarified the legal position. The Hon'ble Apex Court held therein that the normal rule is that revenue expenditure incurred wholly and exclusively for the purpose of business must be allowed in the year in which it is must incurred and that spreading over of such expenditure can be permitted only at the option of the assessee. The learned CIT(A) further observed that the Hon'ble Supreme Court in Taparia Tools Anand Rathi Global Finance Limited 8 ITA No. 6255/MUM/2025 Ltd. (supra) categorically held that where an assessee claims the categorically entire expenditure in the year of incurrence, the Department cannot compel the assessee to defer the deduction over subsequent years merely because a different treatment may have been adopted in the books of account.
t. The learned CIT(A), therefore, concluded that the reliance placed by the Assessing Officer on Madras Industrial Investment Corporation Ltd. (supra) was wholly misconceived, inasmuch as the assessee in the present case had never opted for spreading over of the expenditure and had consistently claimed the entire amount in the year of incurrence itself. The learned CIT(A) also placed reliance upon the judgment of the Hon'ble Bombay High Court in Tata Industries Ltd. v. CIT (supra),, wherein, following the ratio laid down in Taparia Tools Ltd. v. JCIT(supra), JCIT , it was held that the Revenue cannot compel an assessee to amortize revenue expenditure over the tenure of debentures where the assessee has chosen to claim the entire expenditure in the year of incurrence incurrence.
Upon consideration of the aforesaid judicial precedents and the factual position emerging from the financial statements, the learned CIT(A) held that the discount on issue of debentures constituted allowable revenue expenditure deductible in the year of issuance of the debentures itself. Consequently, the disallowance of Rs.33,23,90,083/- made by the Assessing Officer was deleted. The relevant extract of decision of ld CIT(A) is reproduced as under:-
6.2 Facts of the case and submission of the assessee have been examined. The "6.2 assessee has claimed discount on debenture of Rs.40,01,48,500/ Rs.40,01,48,500/- in the Anand Rathi Global Finance Limited 9 ITA No. 6255/MUM/2025 computation of income filed in the ITR. The AO in the assessment order has mainly relied on the decision of Hon'ble Supreme Court in the case of Madras Industriall Investment Corporation vs. CIT and has held that the assessee cannot claim the entire discount on the issue of debenture during the year and has restricted the discount claimed to Rs.6,77,58,417/- for the year under exces claim of Rs.33,23,90,083/-.
consideration and has disallowed excess Rs.33,23,90,083/ I found that the Hon'ble Supreme Court in the case of Taparia Tours Ltd. vs. JCIT (2015) 372 ITR 605 (SC) has distinguished the judgment given in Madras Industrial Corporation and observed that in Madras Industrial Investment Corporation, the proportionate deduction was allowed solely because it was the assessee's chosen method, not because the law mandates such amortization. The Apex Court further held that where an assessee claims a revenue expenditure in full in the year of incurrence, as the appellant has done in the present case, the Department cannot defer the deduction over future years. Therefore, the Assessing Officer's reliance on Madras Industrial Investment Corporation is both factually and legally inapplicable to the the appellant's case. The relevant portion of judgment in the case of Taparia Tours Ltd. is reproduced as under:
"15. "What is to be borne in mind is that the moment second option was exercised by the debenture holder to receive the payment upfront, liability of the assessee to make the payment in that very year, on exercising of this option, has arisen and this liability was to pay the interest @ Rs. 55 per debenture. In Bharat Earth Movers v. CIT [(2000) 245 ITR 428 (SC)], this Court had categorically ly held that if a business liability has arisen in the accounting year, the deduction should be allowed even if such a liability may have to be quantified and discharged at a future date.
Following passage from the aforesaid judgment is worth a quote:
"The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should liability. It should also be capable of being be certain is the incurring of the liability.
estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged disch at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain."
The present case is even on a stronger footing inasmuch as not only the liability had arisen in the assessment year ear in question, it was even quantified and discharged as well in that very accounting year."
"16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC) was cited by the learned counsel for the Revenue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly Anand Rathi Global Finance Limited 10 ITA No. 6255/MUM/2025 and exclusively for the purpose of business is to be allowed in the year in which it is incurred.
incurred However, some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period pe of time and had justified the same. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilise the said amount and secure the bene benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself:
"15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred lly and exclusively for the purpose of business must be allowed in its wholly entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus T in the case of Hindustan Aluminium Corporation Ltd. v. CIT, (1982) 30 CTR (Cal) 363 : (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question.
16. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, deb the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures."
17. Thus, the first thing thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over.
over The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is Anand Rathi Global Finance Limited 11 ITA No. 6255/MUM/2025 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.
follows from the above is that normally the ordinary rule
18. What follows 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 IT Department cannot deny the same.
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 up to now has been restricted to the cases of debentures.
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 reatment was given in the books of account cannot be a factor different treatment 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 conc and the matter is to be examined on the touchstone of provisions contained in the Act. At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of account, the assessee had initially intended to make make such an option. However, it abandoned the same before reaching the crucial stage, inasmuch as, in the income-tax income tax return filed by the assessee, it chose to claim the entire expenditure in the year in which it was spent/paid by invoking the provisions of Section 36(1)(iii) of the Act. Once a return in that manner was filed, the AO was bound to carry out the assessment by applying the provisions of that Act and not to go beyond the said return. There is no estoppel against the Statute and the Act enables and d entitles the assessee to claim the entire expenditure in the manner it is claimed claimed.
20. The High Court has also observed that it was a case of deferred interest option. Here again, we do not agree with the High Court. It has been explained in various judgments that there is no concept of deferred revenue expenditure in the Act except under specified sections, i.e., where amortization is specifically provided, such as Section 35-D D of the Act.
Anand Rathi Global Finance Limited 12 ITA No. 6255/MUM/2025
21. In view of the aforesaid discussion, we are of the opinion opinio that the judgment and the orders of the High Court and the authorities below do not lay down correct position in law. The assessee would be entitled to deduction of the entire expenditure of Rs. 2,72,25,000 and Rs. 55,00,000 respectively in the year in which which the amount was actually paid. The appeals are allowed in the aforesaid terms with no orders as to costs."
6.2.1 Thus, assessee's claim of the deduction of the entire discount on the issue of debenture in the year of incurrence is fully supported by th the decision of Hon'ble Supreme Court in the case of Taparia Tools Ltd. v. JCIT [(2015) 372 ITR 605 (SC)]. The Court has clearly held that revenue expenditure, once incurred, must be allowed in full in the same year if the assessee opts to claim it, and the Department cannot enforce deferment. In contrast, the decision in Madras Industrial Investment Corporation Ltd. [(1997) 225 ITR 802 (SC)] applied only because the assessee in that case had voluntarily chosen to defer the expense. The present case stands on a different footing, as the assessee never opted for such deferment and instead consistently claimed the full amount in the year of issue. Therefore, the reliance placed by the AO on the Madras Industrial ruling is wholly misplaced and the assessee's case squarely covered by the later and binding decision in Taparia Tools Ltd.
6.2.2 Further, the Hon'ble Bombay High Court in the case of Tata Industries Limited v. CIT (ITA No. 661 of 2018), vide its order dated 08.01.2025, has down by the Hon'ble Supreme Court in Taparia Tools reaffirmed the principle laid down Ltd. v. JCIT wherein it is held that when an assessee incurs a revenue expenditure, such as debenture issue expenses, and opts to claim the entire amount in the year of incurrence, the Revenue cannot compel the assessee to spread the expenditure over the tenure of the debentures. The relevant portion of decision of the Hon'ble Bombay High Court in the case of Tata Industries Limited vs. CIT (ITA No.661 of 2018) is reproduces as under:
"7. With respect to question 8, it deals with whether the upfront fees and non convertible debentures should be allowed brokerage fees for issuing non-convertible 2004 05 or should be spread over two years fully in the assessment year 2004-05 for which non-
non convertible debentures were issued. There is no dispute between the parties that expenses have to be allowed as a deduction, but the only issue is whether it should be allowed fully in one year or it should be spread over a period of two years. The rate of tax for the assessment years 2004-05 05 and 2005-06 is same. This Court in the case of CIT Vs. Nagri Mils Co. Ltd. 6 (1958) 33 ITR 681 (Bom) has observed that if the tax rate is uniform for two years then, the deduction whether claimed by the assessee in the year one or two is of no consequence to the revenue. This decision has been subsequently followed by various Courts and the last of the decision following the decision of Nagri Mills Co. Ltd. (supra) is in the case of Principal Commissioner of Income Tax, Panaji Goa Vs. Rajesh (2019) 106 taxmann.com 255 (Bom). This view also finds Prakash Timblo (2019) support from the decision of the Supreme Court in the case of CIT vs. Excel Industries (2013) 358 ITR 295. In our view, respectfully following the Anand Rathi Global Finance Limited 13 ITA No. 6255/MUM/2025 decision of the Supreme Court and the Co-ordinates Co ordinates Bench of o this Court, no substantial question of law arises on this issue.
8. In any case, the decision of the Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT [(1997) 225 ITR 802 (SC)] has been Supreme Court in Taparia subsequently considered and explained by the Supreme Tools Ltd. v. JCIT [(2015) 372 ITR 605 (SC)], and the Hon'ble Supreme Court has held that revenue expenditure is to be allowed in the year in which it is incurred, but it could be spread over only at the instance of an assessee. In theth present case, since there is no dispute that the expenditure incurred is revenue in nature and the respondent-assessee respondent has opted to claim it in assessment year 20042004-05 itself, the appellant- revenue cannot compel the respondent-assessee respondent assessee to claim it over a period of two years. Therefore, even on this count, no substantial question of law arises.
9. In view of the above, no case is made out by the appellant-revenue appellant for admission of the present appeal and, therefore, the same is dismissed with no order as to costs."
6.2.3 Further, I found that the assessee in Note no.26 of the financial statement no.26 has accounted entire discount on issue of debenture of Rs.40.01 crore in the A.Y.2023-24 and no deferment was claimed by the assessee. In view of the above facts and decisions of Hon'ble Supreme Court in the case of Taparia Tours Ltd. and Hon'ble Bombay High Court in the case of Tata Industries Ltd. as referred above, it is held that discount on issue of debenture is a revenue expenditure and is therefore allowable in the year in which the debentures were issued. Accordingly, disallowance of Rs.33,23,90,083/- made by the AO on account of discount on debenture is deleted. "
5. We have heard the rival submissions and carefully examined the material available on record. The The short issue arising for adjudication is whether the assessee, having incurred liability towards discount on issue of debentures during the year under consideration, is entitled to claim the entire amount as deduction in deduction is required to be spread the same year, or whether such deduction over the tenure of the debentures.
5.1 According to the assessee entire discount is allowable in the year of issue of the debentures, whereas, according to the AO whereas, Anand Rathi Global Finance Limited 14 ITA No. 6255/MUM/2025 proportionate deduction should be allowed over the life of the debentures. The AO has relied on the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT CIT, [supra], wherein Hon'ble Supreme Court observed as under:
"6. The said assessee had issued debentures debentures of Rs.1.50 Cr at a discount of 2% redeemable after 12 years. Thus, the total discount on issue of debentures was 68 69, the said assessee had filed return of income and Rs.3,00,000/-.. For A.Y. 68-69, claimed deduction on account of discount of debenture at Rs.12,500/-
Rs.12,500/ out of the total discount of Rs.3,00,000/ Rs.3,00,000/- being the proportionate amount of discount based on the life of the debentures. The discount claimed by the assessee was disallowed by the Ld. A.O. in the assessment order. The dispute was later challenged before the Hon'ble ITAT wherein, for the first time, the assessee claimed deduction of the entire amount of discount on debenture of Rs.3,00,000/ Rs.3,00,000/-
. The Hon'ble ITAT adjudicated the claim of the assessee of Rs. 3,00,000/ 3,00,000/- and allowed the same as deduction. The order of the Hon'ble ITAT granting deduction of the entire amount of discount was then challenged before the Hon'ble Madras High Court."
7. The Hon'ble High Court held that the discount of Rs.3,00,000/-did Rs.3,00,000/ not represent expenditure as no payment pay was made to anyone so as to constitute an expenditure. The disallowance was therefore confirmed by the Hon'ble High Court.
8. In an appeal against the said judgement, the Hon'ble Supreme Court reversed the finding of the Hon'ble High Court thereby holding holding that the discount on debenture constitutes an expenditure in the year of issue of debentures. However, the deduction was allowed to the assessee only to the extent of Rs. 12,500/- as the assessee had claimed only proportionate amount in the return. It would be relevant to reproduce the findings of the Hon'ble Supreme Court herein below:-
"14. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3 lakhs in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a ing liability which stretches over a period of 12 years. It is, therefore, a continuing liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee had written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a Anand Rathi Global Finance Limited 15 ITA No. 6255/MUM/2025 spread and claim it over a period of ensuing years. In fact, particular year to spread allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus, in the case of Hindustan Aluminium Corpn. Ltd. v. CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question."
the Hon'ble Supreme Court clearly show that revenue
9. The above findings of the expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It could not be assessee has shown in return and in its spread over a number of years if the assessee books over a period of years. The Hon'ble Supreme Court also declared the legal position that discount on debentures constitutes a liability incurred in the year of in the said case was rejected issue of debentures. It is submitted that the claim in on the ground that the assessee itself wanted the expenditure to be allowed over a period of years."
5.2 On perusal of the above decision, it is evident that the claim of entire deduction of the discount was rejected on the ground gro that assessee itself wanted the expenditure to be allowed over a period of the years.
5.3 Whereas the assessee has relied on the decision of the Hon'ble Supreme Court in the case of Taparia Tools Ltd. vs. JCIT (Supra). In the said case the assessee had claimed deduction on had account of interest payment to two parties. The relevant part is reproduced as under:
"11. In the said case, the assessee has claimed deduction on account of interest payment to two parties in respect of the debentures issued by the company during the year. As per the terms of the debenture, the debenture holders were interest periodically @18% p.a. or upfront payment of given option of payment of interest interest at a certain amount per debenture The debenture holder would only receive the face value of the debenture at the time of redemption. Since interest was paid to two debenture holders on upfront basis, basis, the same was entirely claimed as deduction during the year. The Ld. A.O. disallowed the said deduction on the ground that the same constitutes deferred revenue expenditure to be written offover the period. The Ld. A.O, therefore allowed proportionate amount, Anand Rathi Global Finance Limited 16 ITA No. 6255/MUM/2025 i.e. 1/5th of the amount as deduction during the year and disallowed the balance portion."
5.4 In the said case the Hon'ble Bombay High Court upheld the disallowance made by the AO on the ground that assessee itself had expenditure in its books over the period of five spread the interest expenditure years and therefore applying the principle of matching concept the deduction was allowable to the assessee on the proportionate basis over the period of years. On further appeal Hon'ble Supreme Court held that interest est was payable upfront and therefore the interest discharge in the year of issue itself.
liability in such case of stands discharged Accordingly, the Hon'ble Supreme Court held that assessee was entitled to deduction of the entire amount in the year of incurrence off the liability. The Hon'ble Supreme Court also noted that in the case of Taparia Tools Ltd. vs. JCIT (Supra), the assessee did not want spread over of this expenditure, and therefore, it had deduction in the year of incurrence of the liability. Accordingly Accordingl the said expenditure was entirely allowable in the year of the appeal. The Hon'ble Supreme Court, referring to its decision in case of Madras Industrial Investment Corporation Ltd. (supra), observed that even in the said decision the Hon'ble Court had held that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. Distinguishing the facts in that case, the Hon'ble Court held that in case of Madras case Ltd.(supra), it was the Industrial Investment Corporation Ltd.(supra) Anand Rathi Global Finance Limited 17 ITA No. 6255/MUM/2025 assessee who wanted spreading of the expenditure over the period of time. It was on those facts, the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra)had had held that the deduction be allowed over the life of debenture issued.
5.5 Thus, the case of Madras Industrial Investment Corporation Ltd v. CIT (supra) was clearly distinguished on the ground that the principle of proportionate allowance of deduction can be considered only if the assessee choose to claim it. The proportionate allowance a of an expenditure cannot be thrust upon the assessee.
5.6 As already explained above, the issue before the Hon'ble Supreme Court in case of Taparia Tools Ltd v. JCIT [supra] [ was with respect to availability of interest paid in the first year of issue is of debentures. The following findings of the Hon'ble Supreme Court are reproduced for ready reference:
"16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC) was cited by the learned counsel for the Revenue ue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. However, some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the ure over a period of time and had justified the same. It was a case expenditure of issuing debentures at discount, whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected Anand Rathi Global Finance Limited 18 ITA No. 6255/MUM/2025 under the said debentures, the assessee could utilise the said amount and cure the benefit over number of years. This is discernible from the secure following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself:
"15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred inc wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular particula year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, [1982] 30 CTR (Cal) 363; (1983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training training over a number of years and allowed a proportionate deduction in the accounting year in question. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures."
17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in wh 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.
llows from the above is that normally the ordinary rule is to be
18. What follows 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 IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period Anand Rathi Global Finance Limited 19 ITA No. 6255/MUM/2025 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.
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 differentt treatment was given in the books of account 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 conclusive and the matter is to books of account are not determinative or conclusive be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 utlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United (SC); Sutlej Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC)."
5.7 The controversy, in our considered view, is no longer res integra. The Hon'ble Supreme Court in Taparia Tools Ltd. v. JCIT has authoritatively explained the ratio of the earlier decision rendered in Madras Industrial Investment Corporation Ltd. v. CIT. The Apex Court categorically held that the ordinary rule is that exclusively for the revenue expenditure incurred wholly and exclusively purposes of business is allowable in the year in which the liability is incurred. Spreading over of such expenditure can be permitted only where the assessee itself seeks such treatment and where the matching concept so justifies. The Revenue Revenue cannot compel an assessee to defer a revenue expenditure over future years contrary to the claim made by the assessee in accordance with law.
Anand Rathi Global Finance Limited 20 ITA No. 6255/MUM/2025 5.8 The distinction drawn by the Hon'ble Supreme Court between the two decisions is of considerable signifi significance.
cance. In Madras Industrial Investment Corporation Ltd. v. CIT, the assessee itself had opted to spread the expenditure over the life of the debentures and sought proportionate deduction. It was in those peculiar circumstances that the Court approved amortization amort of the expenditure. Conversely, in Taparia Tools Ltd. v. JCIT, the assessee claimed the entire expenditure in the year of incurrence and the Hon'ble Supreme Court held that such claim could not be denied merely because the benefit may incidentally endure over a future period.
In the present case, the assessee has consistently claimed the entire discount on issue of debentures in the year in which the liability crystallized. The expenditure is admittedly revenue in nature and has been incurred wholly wholly and exclusively for the purpose of the assessee's financing business. There exists no statutory provision under the Act mandating amortization of such expenditure. In absence of any express statutory embargo, the Assessing Officer could not have forced deferment deferment of the deduction merely on the basis of perceived enduring benefit.
5.9 We also find that the issue stands further fortified by the judgment of the Hon'ble Bombay High Court in PCIT v. Tata Industries Ltd.(supra) (supra),, wherein, following the ratio of Taparia Tools Ltd. v. JCIT,, it was held that where an assessee claims the entire Anand Rathi Global Finance Limited 21 ITA No. 6255/MUM/2025 expenditure in the year of incurrence, the Revenue cannot compel spreading over of the same across subsequent years.
5.10 The assessee further relies upon the decision of the Tribunal in the case of DCIT vs. Axis Assistant Management Co. Ltd [190 ITD 131 of PB2]. In the said case, the issue before the 682] [Page 124-131 Hon'ble ITAT was with respect to liability of the expenditure incurred for issue of expenditure towards brokerage claimed in the year itself. The claim of the assessee was upheld by the Hon'ble ITAT following Taparia Tools Ltd v. JCIT [[supra)] )] on the ground that the expenditure incurred by the assessee was already accrued in the said year and that the assessee had already alr claimed deduction of the entire expenditure in that year. While following the aforesaid decision of the Hon'ble Supreme Court, the Hon'ble Tribunal also referred to the decision in the case of Madras Industrial Investment Corporation Ltd. (supra) and observed that the said decision had a distinguishing feature that it was assessee who would choose to spread the expenditure. The Coordinate Bench of Tribunal also observed that only advantage in capital field would not be fully allowable.
5.11 Further, r, reliance was also placed by the assessee on the following decisions wherein the claim of the Ld. A.O. to allow only proportionate expenditure did not succeed:
i. Amar Raja Batteries Ltd. ACIT [91 ITD 280 (Hyd)] Anand Rathi Global Finance Limited 22 ITA No. 6255/MUM/2025 ii. Gruh Finance Ltd. v. JCIT [ITA No.1295/Ahd/2009] dated No.1295/Ahd/2009] 17.08.2016 5.12. Equally untenable is the contention of the Revenue that the accounting treatment adopted in the books of account should govern the allowability under the Act. It is a settled principle of law that entries in the books of account are not determinative of tax ta liability. The allowability of deduction must be tested on the touchstone of the statutory provisions and not on the basis of accounting presentation.
5.13 In view of the foregoing discussion and respectfully following the ratio laid down by the Hon'ble Supreme Court in Taparia Tools Ltd. v. JCIT(supra) as well as the decision of the Hon'ble Bombay High Court in PCIT v. Tata Industries Ltd.
Ltd.(supra) (supra), we find no infirmity in the order of the Ld. CIT(A) deleting the disallowance of Rs.33,23,90,083/- made on account of discount on issue of debentures. Accordingly, Ground Nos. 1 and 2 raised by the Revenue are dismissed
6. Ground Nos. 3 and 4 relate to the disallowance made under disallowance section 14A read with Rule 8D of the Rules. The Assessing Officer observed that the assessee tendered shares of Anand Rathi Housing Finance Limited under the buyback scheme floated by the said company. The buyback consideration received was Rs.1,85,48,400/- as against the original cost of acquisition of Anand Rathi Global Finance Limited 23 ITA No. 6255/MUM/2025 Rs.1,56,00,000/-,, resulting in gains of Rs.29,48,400. The assessee contended that Anand Rathi Housing Finance Limited had already discharged tax liability under section 115QA of the Act in respect res of the buyback transaction and, consequently, in view of section 10(34A) of the Act, the income arising therefrom was exempt in the hands of the assessee. The aforesaid explanation of the assessee was, however, not accepted by the Assessing Officer. According A to the Assessing Officer, investments in shares are inherently capable of yielding exempt income and decisions relating to such investments necessarily require continuous monitoring, managerial oversight and deployment of administrative resources. Therefore, it could not be accepted that no expenditure had been incurred in relation to earning the exempt income. The Assessing Officer further placed reliance upon CBDT Circular No. 5/2014 dated 11.02.2014, wherein it has been clarified that expenditure expenditure incurred in relation to income not forming part of the total income is liable to be disallowed under section 14A of the Act irrespective of the fact whether such income has actually arisen during the year. Proceeding on the aforesaid premise, the Assessi Assessing ng Officer invoked Rule 8D and computed disallowance under section 14A at 1% of the annual average value of investments amounting to Rs.5,308.19 crores. However, the disallowance was ultimately restricted to the extent of exempt income earned during the year, ye namely Rs.29,48,400/-
Anand Rathi Global Finance Limited 24 ITA No. 6255/MUM/2025 6.1 Before the learned CIT(A), the assessee submitted that during the year under consideration it had earned exempt income Rs.29,48,400/ arising from buyback of shares by amounting to Rs.29,48,400/-
M/s. Anand Rathi Housing Finance Ltd., and that th the said company had already discharged tax liability under section 115QA of the Act. It was contended that no expenditure whatsoever had been incurred by the assessee in relation to earning of the said exempt income. Without prejudice to the aforesaid contention, the assessee further submitted that the Assessing Officer had erred in invoking Rule 8D by considering the entire investment portfolio of the assessee for the purpose of computing disallowance under section 14A of the Act, instead of restricti restricting ng the computation only to those investments which had actually yielded exempt income during the relevant previous year. The assessee drew attention to Note No. 8 of the audited financial statements to demonstrate that, Rathi Housing Finance Ltd., except for the investment in Anand Rathi none of the other investments had generated any exempt income during the year. It was specifically pointed out that no dividend income, tax-free free interest or any other exempt income had arisen from the remaining investments. According According to the assessee, the average value of investments yielding exempt income worked out only to Rs.51.25 lakhs as against Rs.5,308.19 crores considered by the Assessing Officer. Accordingly, it was pleaded that the disallowance, if any, ought to be restricted restricted to Rs.51,250/ Rs.51,250/-, being 1% of the average value of investments which had actually yielded Anand Rathi Global Finance Limited 25 ITA No. 6255/MUM/2025 exempt income. In support of the aforesaid submissions, reliance was placed upon the judgments of the Hon'ble Calcutta High Court in REI Agro Ltd. vs. PCIT (ITAT No.416 of 2017) and PCIT vs. Shalimar Pellet Feeds Ltd. [(2022) 138 taxmann.com 124 (Cal)/(2022) 287 taxmann 134 (Cal)/(2023) 453 ITR 547 (Cal)], (Cal)] as well as the decisions of the Hon'ble Delhi High Court in PCIT vs. Times Internet Ltd. [(2023) 156 taxmann.com 577 (Delhi)/(2024) 296 taxmann 547 (Delhi)] and Cargo Motors (P.) Ltd. vs. DCIT [(2022) 145 taxmann.com 641 (Delhi)/(2023) 291 taxmann 208 (Delhi)/(2023) 453 ITR 554 (Delhi)].
(Delhi)] submissions of the assessee and 6.2 After considering the submissions examining the material available on record, the learned CIT(A) partly accepted the contention of the assessee and restricted the disallowance under section 14A read with Rule 8D to 1% of the average value of investments which had actually yielded exempt income. The learned CIT(A) observed that although the assessee had earned exempt income of Rs.29,48,400/-
Rs.29,4 during the year, no suo-motu disallowance under section 14A had been offered.
not be accepted that no According to the learned CIT(A), it could not expenditure at all had been incurred in relation to investments capable of yielding exempt income. Reference was made to the provisions of sections 14A(2) and 14A(3) of the Act, which empower the Assessing Officer to determine such e xpenditure in accordance expenditure Anand Rathi Global Finance Limited 26 ITA No. 6255/MUM/2025 with the prescribed method where he is not satisfied with the correctness of the claim of the assessee.
6.3 The learned CIT(A), however, found merit in the alternate contention of the assessee that while computing disallowance under und Rule 8D(2), the Assessing Officer had erroneously considered the entire average value of investments amounting to Rs.5,308.19 crores. On examination of Note No. 8 to the financial statements, the learned CIT(A) recorded a categorical finding that exempt income during the relevant year had arisen only from investment in Anand Rathi Housing Finance Ltd., and that the average value of such investment yielding exempt income was Rs.51,25,000/-.
Rs.51,25,000/ Consequently, the Assessing Officer was directed to restrict the Rs.51,250/ , being 1% of the disallowance under section 14A to Rs.51,250/-, aforesaid average investment value.
6.4 We have heard the rival submissions advanced by the parties and carefully perused the material available on record. The Nos. 3 and 4 pertains to the scope controversy arising in Ground Nos.
and manner of computation of disallowance under section 14A read with Rule 8D of the Income-tax Income Rules, 1962.
6.5 The CIT(A), upon examination of the financial learned CIT(A), statements and the nature of exempt income earned during the year, recorded a categorical finding that the exempt income had arisen solely from the investment held in Anand Rathi Housing Anand Rathi Global Finance Limited 27 ITA No. 6255/MUM/2025 Finance Ltd. and that no other investment in the assessee's portfolio had yielded any exempt income during the relevant previous year. On the basis of such factual finding, the learned CIT(A) restricted the computation of disallowance under Rule 8D only to the investments which had actu actually ally generated exempt income.
6.6 In our considered opinion, the aforesaid approach adopted by the learned CIT(A) is in consonance with the settled legal position. The Hon'ble Special Bench of the Tribunal in ACIT v. Vireet Investment Pvt. Ltd.(supra) Ltd. has authoritatively held that for the purpose of computing disallowance under Rule 8D, only those investments which have yielded exempt income during the relevant assessment year are liable to be considered. The ratio laid down therein has consistently been ffollowed ollowed in subsequent judicial pronouncements.
6.7 In the present case, the Revenue has not brought on record any material to controvert the factual finding recorded by the learned CIT(A) that exempt income during the year was derived only from investment in Anand Rathi Housing Finance Ltd. Once that factual position stands accepted, inclusion of the entire investment portfolio for the purposes of Rule 8D would be wholly unsustainable in law.
6.7 We, therefore, find no infirmity, either factual or legal, in the conclusion arrived at by the learned CIT(A) restricting the disallowance under section 14A to Rs.51,250/-, Rs.51,250/ , being 1% of the Anand Rathi Global Finance Limited 28 ITA No. 6255/MUM/2025 average value of investments which had actually yielded exempt income during the year under consideration. The order of the arned CIT(A) on this issue is accordingly affirmed and Ground learned Nos. 3 and 4 raised by the Revenue stand dismissed.
7. In the result, the appeal of the Revenue is dismissed.
Order pronounced /05/2026.
ounced in the open Court on 22/05/2026.
Sd/- Sd/-
(ANIKESH
ANIKESH BANERJEE)
BANERJEE (OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 22/05/2026
M. Ranganath Vittal , Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai