Asst.C.I.T., Bangalore V. M/s Shriram Chits (Karnataka) Pvt. Ltd., Bangalore

ITA 1074/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1538 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 14-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NOS.1074 TO 1076(BNG)/2015 (ASSESSMENT YEARS : 2010-11 TO 2012-13) THE ASST. COMMISSIONER INCOME-TAX, CIRCLE-6(1)(1) BANGALORE APPELLANT VS M/S SHRIRAM CHITS (KAR.) PVT.LTD. NO.259/31, AKSHODAYA, 1 ST FLOOR, 10 TH CROSS, WILSON GARDEN, BANGALORE -5600 027 PAN NO.AACCS2078R RESPONDENT REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT ASSESSEE BY : SMT. LALITHA RAMESWARAN, CA DATE OF HEARING : 18-11-201 5 DATE OF PRONOUNCEMENT : 04-12-2015 O R D E R PER SHRI INTURI RAMA RAO, AM : THESE ARE APPEALS BY THE REVENUE DIRECTED AGAINST T HE COMMON ORDER OF THE CIT(A)-6, BANGALORE DATED 21-04-2015 F OR THE ASSESSMENT YEARS : 2010-11 TO 2012-13. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPE AL. 1. THE ORDER OF LD. CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2 ITA NOS.1074TO 1076(B)/2015 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEAR NED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BID LO SS CLAIMED IN THE COMPUTATION OF TOTAL INCOME IN ADDITION TO B ID LOSS CLAIMED IN THE P&L ACCOUNT WITHOUT APPRECIATING THE FACT THAT THE AMOUNT OF BID LOSS CLAIMED IS INCORRECT AS PER THE PROVISIONS OF SEC.145(1) OF THE IT ACT AND IS NOT IN CONSONANCE WITH BOARD NOTIFICATION NO.SO 69(E) DATE D 25-01- 1996 AND ACCOUNTING STANDARD AS 22 OF ICAI. FURTHE R, REVENUES APPEALS IN THE SAME CASE FOR AYS 2003-04 & 2008- 09 ARE PENDING BEFORE THE HONBLE HIGH COURT. 3 FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT TH E ORDER OF THE CIT(A) IN SOFAR AS IT RELATES TO THE ABOVE GROU NDS MAY BE REVERSED AND THAT OF THE AO BE RESTORED. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE RESP ONDENT-ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ORGANIZING AND CONDUC TING CHIT FUNDS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO MADE ADDIT ION OF DIVIDEND EARNED IN THE CAPACITY OF FOREMAN AND ALSO DISALLOWED THE LOS S INCURRED ON BIDDING CHIT IN THE CAPACITY OF SUBSCRIBER TO THE CHIT. 3 ITA NOS.1074TO 1076(B)/2015 4. BEING AGGRIEVED BY THIS ADDITION AN APPEAL WAS FILED BEFORE THE LEARNED CIT(A)-6, BANGALORE, WHO VIDE HIS ORDER DISMISSED T HE GROUNDS OF APPEAL RELATING TO TAXABILITY OF DIVIDEND INCOME EARNED IN THE CAPACITY OF FOREMAN, FOLLOWING THE ORDER OF THE HONBLE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS IN ITA NOS.1314 & 1315(BANG)/2012 & I TA NOS.1281 & 1282(BANG)/2012 DATED 14-08-2013 FOR ASSESSMENT YEA RS 2003-04 & 2008-09. HOWEVER, THE LEARNED CIT(A) ALLOWED THE CLAIM OF TH E RESPONDENT ASSESSEE- COMPANY OF LOSS INCURRED ON ACCOUNT OF BIDDING THE CHITS IN THE CAPACITY OF SUBSCRIBER TO THE CHITS FOLLOWING THE DECISION OF T HE HONBLE TRIBUNAL IN ASSESSEES OWN CASE, CITED SUPRA. 5. BEING AGGRIEVED BY THIS DIRECTION, THE REVENUE IS IN APPEAL BEFORE US, IN THE PRESENT APPEAL. 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 O F BIDDING THE CHIT. THE LOSS REPRESENTS DIFFERENT BETWEEN THE FACE VALUE OF THE CHIT AND THE BID VALUE. THIS DIFFERENCE WAS CLAIMED AS LOSS IN THE COMPUTATION O F THE TOTAL INCOME, WHEREAS THE AO WAS OF THE OPINION, THAT THIS LOSS SHOULD BE APPORTIONED OVER THE PERIOD 4 ITA NOS.1074TO 1076(B)/2015 OF THE CHIT. THE IDENTICAL ISSUE HAD COME UP BEFOR E THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S BILAHARI INVESTMENTS PVT.L TD. VS CIT, REPORTED 288 ITR 39, WHEREIN THE HONBLE MADRAS HIGH COURT AFTER DIS TINGUISHING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS IND USTRIAL INVESTMENT CORPORATION LTD VS CIT (197) 225 ITR 802 ALSO FOLLO WING THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS KOVUR TEXTILES & CO. REPORTED IN 136 ITR 61, HELD AS UNDER; THE ANDHRA PRADESH HIGH COURT IN CIT VS. KOVUR TEXTILES & CO. (1982) 136 ITR 61 (AP) FOUND THAT TH E ASSESSEE COMPANY SUBSCRIBED TO A CHIT FUND BY JOINI NG IN A CHIT GROUP AND AFTER PAYING FEW INSTALMENTS, T HE ASSESSEE BID THE CHIT AND CLAIMED THE DIFFERENCE BETWEEN THE CHIT AMOUNT AND THE PRICE FOR WHICH IT WAS BID AS A BUSINESS LOSS. ON THE FACTUAL BACKDROP, TH E ANDHRA PRADESH HIGH COURT HELD THAT THE LOSS INCURR ED BY THE 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 58 8 (P&H) TOOK A CONTRA VIEW THAT WHERE THE ASSESSEE SECURED A CHIT ON DISCOUNT AND CLAIMED DEDUCTION OF 5 ITA NOS.1074TO 1076(B)/2015 DISCOUNT AMOUNT WHILE COMPUTING ITS ASSESSABLE INCOME, THE LOSS INCURRED THEREON WAS NOT INCIDENTA L TO THE BUSINESS AND THEREFORE, DISALLOWED THE ASSESSEE S CLAIM DURING THE YEAR IN QUESTION. WE ARE UNABLE TO AGREE WITH THE DECISION OF THE DIVISION BENCH OF THE PUNJAB & HARYANA HIGH COURT I N SODA SILICATE & CHEMICAL WORKS VS. CIT CITED SUPRA. THE PUNJAB & HARYANA HIGH COURT HELD THAT THE DISCOUNT AMOUNT IS NOT ALLOWABLE AS BUSINESS LOSS O N THE GROUND THAT THE TRANSACTION INVOLVED DID NOT GI VE RISE TO ANY INCOME ASSESSABLE TO INCOME-TAX, NOR AN Y 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 PRE SENT CASE, AS, IN THIS CASE, BUSINESS LOSS OCCURRED DURI NG THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR AND THE DISCOUNT IS FOUND TO BE CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEES, WHEREAS IN TH E CASE BEFORE THE PUNJAB & HARYANA HIGH COURT, ON FACTS, IT WAS FOUND THAT THE DISCOUNT IS NOT CONNEC TED WITH THE BUSINESS OF THE ASSESSEE. ON THE OTHER HAN D, THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT O F THE CASE BEFORE THE ANDHRA PRADESH HIGH COURT, VIZ., CI T VS. KOVUR TEXTILES & CO. (SUPRA) AND HENCE, WE AGRE E 6 ITA NOS.1074TO 1076(B)/2015 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 L TD. VS. CIT (SUPRA) AND HELD THAT THE DIVIDEND IS TAXAB LE AND DISCOUNT IS ALLOWABLE BOTH DURING THE ACCOUNTIN G YEAR PROPORTIONATELY. IN MADRAS INDUSTRIAL INVESTME NT CORPORATIONS CASE CITED SUPRA, THE ASSESSEE COMPAN Y ISSUED DEBENTURES AT A DISCOUNT AND IT INCURRED A LIABILITY TO PAY A LARGER AMOUNT THAN WHAT IT HAD BORROWED. THE LIABILITY TO PAY THE DISCOUNTED AMOUN T OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTUR ES IS A LIABILITY WHICH HAS BEEN INCURRED BY THE COMPA NY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERA TE FUNDS FOR ITS BUSINESS ACTIVITIES. THEN, WHILE DECI DING THE QUESTION WHETHER SUCH A LIABILITY IS AN EXPENDI TURE OR NOT, THE APEX COURT HELD THAT THE LIABILITY TO P AY DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTURES IS A LIABILITY INCURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER T O 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 DURI NG THE PERIOD OF ASSESSMENT YEARS. 7 ITA NOS.1074TO 1076(B)/2015 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 SCH EME, A SPECIFIC NUMBER OF INDIVIDUALS COME TOGETHER TO P OOL A SPECIFIC AMOUNT AT PERIODIC INTERVALS. USUALLY, T HE NUMBER OF INDIVIDUALS AND THE NUMBER OF PERIODS WIL L BE THE SAME. AT THE END OF EACH PERIOD, THERE WILL BE AN AUCTION OF THE MONEY. THE MEMBERS OF THE CHIT WILL PARTICIPATE IN THIS AUCTION FOR THE POOLED MONEY DU RING THAT INTERVAL. THE BID AMOUNT WILL BE DIVIDED BY TH E NUMBER OF MEMBERS AND THUS DETERMINING PER HEAD CONTRIBUTION DURING THAT PERIOD. USUALLY THE DISCOU NT, NAMELY, THE SUM OF MONEY WHICH THE PRIZED SUBSCRIBE R IS REQUIRED TO FORGO, WILL CONTINUE TO DECREASE OVE R PERIODS. THE PERSON GETTING MONEY IN THE LAST PERIO D 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 A LSO 8 ITA NOS.1074TO 1076(B)/2015 CARRYING INTEREST. IT IS IN SUM AND SUBSTANCE A CERTIFICATE OF LOAN OR A BOND EVIDENCING THE FACT T HAT THE COMPANY IS LIABLE TO PAY A SPECIFIED AMOUNT WITH INTEREST. A DEBENTURE IS UNSECURED IN THE SENSE THA T THERE ARE NO LIENS OR PLEDGES ON SPECIFIC ASSETS. I T IS, HOWEVER, SECURED BY ALL PROPERTIES NOT OTHERWISE PLEDGED. IN THE CASE OF BANKRUPTCY, THE DEBENTURE- HOLDERS ARE CONSIDERED GENERAL CREDITORS. WHEN A COMPANY ISSUES DEBENTURES AT A DISCOUNT, THE DEBENTURE-HOLDERS ARE REQUIRED TO PAY A LESSER SUM THAN THE FACE VALUE AND THE COMPANY INCURS A LIABIL ITY TO PAY A LARGER AMOUNT THAN WHAT IT HAS BORROWED, A T A FUTURE 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 ORD ER 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 CONTIN UING 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 9 ITA NOS.1074TO 1076(B)/2015 CONNECTION OR RELEVANCE TO THE LIABILITY TO PAY FUT URE INSTALMENTS. IN OTHER WORDS, IN CHIT TRANSACTION TH E DISCOUNT IS BASED ON THE BID AND THE BID LOSS HAS N O RELEVANCE TO THE LIABILITY 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 PERI OD OF LIFE OF THE DEBENTURES. IN THE CASE OF DEBENTURES, IT IS A CASE OF RECEIPT, WHILE IN THE CASE OF CHIT TRANSACT ION, IT IS AN AMOUNT PAID FOLLOWED BY THE ENCASHMENT OF THE CHIT AMOUNT AT AN EARLY DATE WITH THE PROMISE TO PA Y THE REMAINING INSTALMENTS. IN THIS VIEW OF THE MATT ER, THE DECISION OF THE APEX COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT (SUPRA) IS NOT APPLICABLE AS IN THE INSTANT CASE THE DISCOUNT ARIS ES OUT OF A CHIT TRANSACTION, WHEREAS THE APEX COURT D EALT WITH THE DISCOUNT ON THE ISSUE OF DEBENTURE. A FIVE-JUDGE BENCH OF THE KERALA HIGH COURT IN JANARDHANA MALLAN VS. GANGADHARAN AIR 1983 KER 178 (FB) : (1985) 58 COMP CAS 390 (KER)(FB) HELD TH AT ON ENTERING INTO THE CHITTY AGREEMENT A DEBT IS NOT INCURRED BY THE SUBSCRIBER FOR THE AMOUNT OF ALL TH E FUTURE INSTALMENTS, BUT IT IS A PROMISE TO DISCHARG E THE CONTRACTUAL OBLIGATION, WHETHER THE PRIZE IS DRAWN OR NOT OR THE PRIZE AMOUNT IS RECEIVED OR NOT. IT IS A LSO 10 ITA NOS.1074TO 1076(B)/2015 HELD THAT BUT FOR SUCH OBLIGATION THERE WILL BE NO DIFFERENCE BETWEEN THE LIABILITY OF THE PRIZED SUBS CRIBER AND THE NON-PRIZED SUBSCRIBER AND BOTH ARISE OUT OF THE SAME CONTRACT AND THAT SINCE BOTH PROFIT AND LOSS A RISE SIMULTANEOUSLY ON THE DATE OF PRIZE DRAWN ITSELF, T HE QUESTION OF INCURRING FRESH OBLIGATION TO PAY FUTUR E SUBSCRIPTION DOES NOT ARISE. THEREFORE, THE SUBSCRI BER IS ENTITLED TO DEDUCTION OF DISCOUNT AS BUSINESS LO SS 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 ACCOUNTING AND NOT OTHERWISE. IN OTHER WORDS, THE INCOME OR LOSS OF TH E ASSESSEES ACCRUING DURING THE RELEVANT ACCOUNTING YEAR HAS TO BE CONSIDERED FOR THE PURPOSE OF INCOME - TAX ASSESSMENT. WHEN THE ASSESSEES ARE IN THE BUSINESS OF SUBSCRIBING TO CHITS AND DERIVING INCOM E OUT OF IT DURING A PARTICULAR YEAR, IT IS NOT POSSI BLE OR PERMISSIBLE TO DEFER ITS ASSESSABILITY TILL THE COM PLETION OF THE ENTIRE CYCLE OF THE CHIT. 11 ITA NOS.1074TO 1076(B)/2015 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 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; 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 I NDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN IN DIA. (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 WH ICH 12 ITA NOS.1074TO 1076(B)/2015 (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 OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN I NDIA. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HAVE ACCRUED OR ARISEN TO HI M 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 PROFESSI ON OR 'INCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE P ROVISIONS OF SUB-S. (2), BE COMPUTED IN ACCORDANCE WITH EITHE R CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOY ED BY THE ASSESSEE. 13 ITA NOS.1074TO 1076(B)/2015 (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO B E FOLLOWED BY ANY CLASS 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 WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-S. (1) OR ACCO UNTING STANDARDS AS NOTIFIED UNDER SUB-S. (2), HAVE NOT BE EN 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 RECE IVED OR ACCRUES OR ARISES DURING THE PREVIOUS YEAR SHALL FO RM PART OF THE TOTAL INCOME OF THE ASSESSEE AND SUCH INCOME SHALL BE COMPUTED IN ACCORDANCE WITH THE ACCOUNTING SYSTE M WHICH THE ASSESSEE IS REGULARLY FOLLOWING. HERE, ON THE FACTS OF THE CASE, THE AUTHORITIES HAVE FOUND THAT THE ASSESSEES ARE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE MERCANTILE SYSTEM OF ACCOUNTING MEA NS, AS DISCUSSED IN SHIVA PRASAD GUPTA VS. CIT AIR 1929 ALL 823, THE AMOUNTS THAT HAVE BECOME RECOVERABLE ARE SHOWN AS THE INCOME ACTUALLY RECEIVED AND THE LIABI LITIES INCURRED ARE SHOWN AS AMOUNTS ACTUALLY DISBURSED IN ANY 14 ITA NOS.1074TO 1076(B)/2015 PARTICULAR YEAR. THEREFORE, WHEN THE ASSESSEES ARE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IN W HICH ENTRIES ARE POSTED IN THE BOOKS OF ACCOUNT ON THE D ATE OF THE TRANSACTION, THAT IS, ON THE DATE ON WHICH RIGH TS ACCRUE OR LIABILITIES ARE INCURRED IRRESPECTIVE OF THE DAT E OF PAYMENT, THEY HAVE TO ACCOUNT FOR THEIR INCOME OR L OSS AS PER THE MERCANTILE SYSTEM OF ACCOUNTING AND NOT OTHERWISE. THEREFORE, AS RIGHTLY FOUND BY THE 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 FOLLOWING THE PRINCIPLES OF MERCANTILE/ACCRUAL SYSTEM OF ACCOUNTING, PARTICULAR LY WHEN THE ASSESSEES ARE COMPANIES FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 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 THE CHIT FUNDS ACT, 1982, NAMELY, '3. ACT TO OVERRIDE OTHER LAWS, MEMORANDUM, ARTICLE S, ETC.SAVE AS OTHERWISE EXPRESSLY PROVIDED IN THIS A CT, (A) THE PROVISIONS OF THIS ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR IN THE 15 ITA NOS.1074TO 1076(B)/2015 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 ACT; AND (B) ANY PROVISION CONTAINED IN THE MEMORANDUM, ARTI CLES, BYE-LAWS, AGREEMENT OR RESOLUTION AFORESAID, SHALL, TO THE EXTENT TO WHICH IT IS REPUGNANT TO THE PROVISIONS O F 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 DEFINITIONS AS FOUND IN THE IT ACT, BECAUSE A NON OBSTANTE CLAUSE IS GENERALLY APPENDED TO A SECTION WITH A VIEW TO GIVE THE ENACTING PART OF THE SECTION IN CA SE OF CONFLICT, AN OVERRIDING EFFECT OVER THE PROVISION I N THE SAME OR OTHER ACT MENTIONED IN THE NON OBSTANTE CLAUSE [ VIDE : STATE OF BIHAR VS. BIHAR RAJYA M.S.E.S.K.K. MAHASAN GH (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 FUT URE INSTALMENTS. FURTHER, THE MEASURE OF FUTURE INSTALM ENTS DOES NOT DEPEND UPON THE PRIZED AMOUNT OR THE DISCO UNT, 16 ITA NOS.1074TO 1076(B)/2015 NOR THE DISCOUNT IS AN EXPENDITURE TO BE INCURRED I N FUTURE. THE DISCOUNT IS NOT A DEFERRED EXPENDITURE FOR WHIC H PAYMENT HAS BEEN MADE, OR A LIABILITY INCURRED, BUT THE DISCOUNT IS CARRIED FORWARD ON THE 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 BENEFIT DEFERRED TO A YEAR SUBSEQUENT TO THE ACCOUN TING YEAR AND HENCE, THE QUESTION OF DEFERRED EXPENDITUR E DOES NOT ARISE. THAT APART, THE PROVISIONS OF THE CHIT FUNDS ACT RE QUIRE THE PRIZED SUBSCRIBER TO FURNISH SECURITY FOR FUTURE IN STALMENTS. 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 YEAR 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 B E ALLOWED IN FULL IN THE YEAR OF ACCRUAL ITSELF. THE TRIBUNAL IS RIGHT IN REJECTING THE COMPLETED CONTRACT METHOD OF ACCOUNTI NG ADOPTED BY THE ASSESSEES AND AT THE SAME TIME, IT I S NOT CORRECT IN HOLDING THAT THE DISCOUNT SHOULD BE ALLO WED SPREADING IT OVER THE REMAINING PERIOD OF THE CHIT ON A PROPORTIONATE BASIS. 17 ITA NOS.1074TO 1076(B)/2015 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. 7. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH DECEMBER, 2015. SD/- (ASHA VIJAYARAGHAVAN SD/- (INTURI RAMARAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE D A T E D : 04-12-2015 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR,ITAT, BANGALORE