Lifecell International Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 248/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4573 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 19-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HOMI RAJ VANSH IRS
• Keywords: Business income; Principle of natural justice; Revenue expenditure; TDS
• Section: 14A; 260A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./I.T.A. NOS.247 & 248/CHNY/2018 ! ' / ASSESSMENT YEARS :2013-14 & 2014-15. LIFECELL INTERNATIONAL PVT. LTD, NO.26, VANDALUR KELAMBAKKAM MAIN ROAD, KEELAKOTTAIYUR VILLAGE, CHENNAI 600 048. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1) CHENNAI. [PAN AAECA 7997B] ( / APPELLANT) ( /RESPONDENT) # $ % / APPELLANT BY : SHRI. T. BANUSEKAR, C.A. &' # $ % /RESPONDENT BY : SHRI. HOMI RAJ VANSH, IRS, CIT. ( ) $ * /DATE OF HEARING : 28-03-2019 +,'! $ * /DATE OF PRONOUNCEMENT : 28-05-2019 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER: THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE D IRECTED AGAINST COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI (HEREINAFTER CALLED AS CIT(A) ) DATED 08.12.2017 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15. ITA NO. 247 & 248/2018 :- 2 -: 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE OF THE SAME VIDE TH IS COMMON ORDER. 3. FOR THE SAKE OF CONVENIENCE AND CLARITY, THE FACTS RELEVANT IN ITA NO.247/CHNY/2018 FOR ASSESSMENT YEAR 2013-2014 ARE STATED HEREIN. 4. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF APPEA L:- 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT PREJUDICIAL TO THE INTEREST OF THE ASSESSEE AND IS OPPOSED TO THE PRINCIPLES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY . 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSIN G OFFICER IS WITHOUT JURISDICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING AN AMOUNT OF RS.1,22,98,333/- INCURRED TOWARDS DEVELOPMENT EXPENDITURE OF THE LAND. 4. FOR THAT THE COMMISSIONER OF INCOME TAX APPEALS)ERRED IN DISALLOWING DEFERRED RENT OF RS.12,87,618/- U/S.40(A)(IA) OF THE INCOME TAX ACT, 1961. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT FOLLOWING THE HON'BLE TRIBUNAL ORDER O F THE APPELLANT FOR EARLIER YEAR. 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING THE STORAGE FEES OF 47,26,08,294/- RECEIVED IN ADVANCE, AS THE INCOME OF THE ASSESSMENT YEAR 2013-14. 7. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONCLUDING THAT THE ENTIRE ONE TIME STORAG E FEES RECEIVED IN ADVANCE FOR A PERIOD OF 21 YEARS IS A REVENUE RECEIPT CHARGEABLE TO TAX IN THE YEAR OF RECEIPT. ITA NO. 247 & 248/2018 :- 3 -: 8. WITHOUT PREJUDICE TO THE ABOVE, THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN NOT GIVING DEDUCTION FOR RS.6,03,93,273/- BEING THE REVENUE OF EARLIER YEAR ENROLLMENTS RECOGNIZED DURING THE YEAR. 9. FOR THAT THE COMMISSIONER OF INCOME TAX ERRED IN DISALLOWING ADVANCES WRITTEN OFF OF RS.2,87 30,000/ - U/S.37 IN RESPECT OF RESEARCH AND COMMERCIAL LICENS E. 10. FOR THAT THE APPELLANT OBJECTS TO THE LEVY OF INTEREST U/S.234B. 5. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- THE APPELLANT NAMELY M/S. LIFE CELL INTERNATIONAL PRIVATE LIMITED IS A COMPANY INCORPORATED UNDER THE PROVIS IONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF PROCESSION, PRESERVATION AND STORAGE OF BLOOD STEM CELLS VIZ CE LLS FROM UMBICAL CORD, EMBRYONIC STEM CELLS AND AUDIT STEM CELLS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 WAS FILED ON 29.11. 2013 DISCLOSING NIL INCOME. AGAINST THE SAID RETURN OF INCOME ASSESSMEN T WAS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPOR ATE CIRCLE 4(1), CHENNAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 24.03.2016 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS.35,59,50,658/-. WHILE DOING SO, THE A SSESSING OFFICER BROUGHT TO TAX CAPITAL GAINS ARISING OUT OF SALE O F LAND AT ZAMIN PALLAVARAM, CHENNAI OF RS.57,72,906/-, THE ASSESSI NG OFFICER HAD NOT ITA NO. 247 & 248/2018 :- 4 -: ALLOWED COST OF IMPROVEMENT /DEVELOPMENT EXPENSES OF RS.1,22,98,333/-. THE ASSESSING OFFICER ALSO DISAL LOWED RENT EXPENSES OF RS.12,87,618/- ON THE GROUND THAT NO TDS WAS DE DUCTED. THE ASSESSING OFFICER BROUGHT TO TAX THE ENTIRE SUM O F MONEY RECEIVED TOWARDS STORAGE OF STEM CELLS FOR A PERIOD OF 21 Y EARS AGAINST THE CLAIM OF THE APPELLANT THAT INCOME SHOULD BE SPRE AD OVER OF 21 YEARS BY HOLDING THAT MAJOR EXPENSES WERE INCURRED DURING THE YEAR AND THE DEFERMENT OF INCOME ALONE OVER A PERIOD OF CONTRACT IS AGAINST THE VERY PRINCIPLE OF MATCHING. FURTHER, TAKING INTO C ONSIDERATION, THE TERMS OF AGREEMENT WITH CLIENTS THAT THE AMOUNT COL LECTED IS NOT REFUNDABLE, HE INFERRED THAT ENTIRE RECEIPT HAD AC CRUED TO THE ASSESSEE. THUS, HE BROUGHT TO TAX A SUM OF RS.47,2 6,08,294/- AS INCOME PERTAINING TO THIS ASSESSMENT YEAR. THE AS SESSING OFFICER ALSO NOT ALLOWED ADVANCE WRITTEN OFF OF RS.2,87,30,000/- AS BUSINESS LOSS. THE ASSESSING OFFICER ALSO MADE ADDITION OF RS.8,67 ,538/- INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 6. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD. COMMISSIONER OF INCOME (APPEALS), WHO VIDE IMPUGNE D ORDER CONFIRMED THE ACTION OF THE ASSESSING OFFICER (AO). ITA NO. 247 & 248/2018 :- 5 -: 7. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. GROUNDS NO.1, 2 & 10 ARE GENERA L IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 8. GROUNDS OF APPEAL NOS.3,4,5,8 & 9 ARE DISMISSED AS NOT PRESSED. 9. THE ONLY ISSUE THAT SURVIVES IN BOTH THE APPEALS RELATES TO RECOGNIZATION OF INCOME TOWARDS RECEIPTS ON ACCOU NT OF STORAGE OF STEM CELLS. 10. THE BRIEF FACTUAL BACKGROUND OF THE CLAIM AS EXPLAI NED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ARE AS UNDE R:- DURING THE COURSE OF PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE BREAKUP OF THE TOTAL INCOME WHICH RECEIVED IN ADVANCE AND WHICH IS REFLECTED IN THE VARIOUS SCHEDULES OF THE NOTES TO THE FINANCIAL STATEMENTS OF THE ASSESSEE. IN THIS CONNECTION, THE ASSESSEE HAS SUBMITTED AS FOLLOWS: SL.NO PARTICULARS AMOUNTS IN MILLIONS 1 STORAGE FEES RECEIVED IN ADVANCE AS AT 31.03.2014 1,472.20 2 PROCESSING FEES RECEIVED IN ADVANCE AS AT 31.03.2014 142.71 3 TOTAL 1616.91 3.2.IT HAS BEEN OBSERVED FROM THE AUDITED ITA NO. 247 & 248/2018 :- 6 -: FINANCIAL STATEMENTS THAT THE ASSESSEE HAS DEFERRED . INCOME OF RS.1,472.20 MILLION WHICH HAS BEEN RECEIVED FROM THE CLIENTS AS STORAGE FEE UNDER 21 YEARS PLAN. 3.3. STORAGE FEES RECEIVED IN ADVANCE REPRESENTS THE CURRENT PORTION OF ADVANCE FEE RECEIVED FROM CLIENTS TOWARDS STORING THE STEM CELLS FOR A PERIOD NOT EXCEEDING 21 YEARS, WHICH IS EXPECTED TO BE AMORTIZED TO INCOME OVER NEXT 21 YEARS. 3.4.THE ASSESSEE HAS NOT DEFERRED ANY EXPENDITURE IN RELATION TO SUCH STORAGE FEE RECEIVED. BUT THE ASSESSEE HAS DEFERRED ONLY INCOME AND THEREFORE SUCH ACCOUNTING TREATMENT OF THE ASSESSEE IS AGAINST THE BASIC ACCOUNTING PRINCIPLE. 3.5. AS PER THE TERM OF AGREEMENT WITH THE CLIENT, ALL FEE PAID BY THE CLIENT TO LIFE CELL ARE NON- REFUNDABLE. THE ISSUE OF REFUND ARISES ONLY 'IN THE EVENT OF THE SPECIMEN' BEING INS CLIENT OR UNFIT FO R PROCESSING'. ONLY IN SUCH A SITUATION, THE STORAGE COMPONENT OF THE FEE WOULD BE REFUNDED. 'STORAGE FEE' WILL ALSO BE REFUNDED WHEN THE COMPANY ITSELF TERMINATES THE AGREEMENT AND REFUND WILL NOT BE MADE IN ANY OTHER CASE. THE AMOUNT IN QUESTION IS NEITHER REFUNDABLE BY THE ASSESSEE NO CAN BE CLAIMED BY THE CLIENTS FROM THE ASSESSEE COMPANY UNDER ANY CIRCUMSTANCES. 3.6. THE FACTS OF THE CASE HAS BEEN EXPLAINED IN DETAIL AND DECIDED IN THE ASSESSMENT ORDERS ASSED FOR THE AY 2013-14 AND EARLIER ASSESSMENT YEARS SINCE THE INCEPTION OF THE ASSESSEE COMPANY. FURTHER, THE ASSESSEE'S CONTENTION THAT ON SIMILAR ISSUE IN THE ASSESSEE'S OWN CASE FOR THE A Y2006- 07,THE ITAT HAS D ECIDED THE CASE IN FAVOUR OF THE ASSESSEE CANNOT BE ACCEPTED AS THE DE PARTMENT HAS FILED APPEAL U/ S 260A OF THE IT ACT., 1961 BEFORE THE HON'BLE HIGH COURT AND THE SAME IS PENDING BEFORE THE HON'BLE HIGH COURT, MADRAS. 3.7.BASED ON THE ABOVE FACTS, THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED AND THEREBY ADD D AN AMOUNT OF RS.44,85,36,5301- TO THE BUSINESS INCOME O THE ASSESSEE THE DETAILS ARE AS F OLLOWS. PARTICULARS AMOUNTS IN TOTAL ADDITION DURING THE YEAR TO ADVANCE STORAGE FEES 45,73,06,540 LESS: REVENUE RECOGNISED IN THE P&L STATEMENT OF CURRENT 87,70,010 ITA NO. 247 & 248/2018 :- 7 -: YEAR OUT O F ENROLMENTS OF CURRENT YEAR ADDITION INCOME TO BE RECOGNISED 44,85,36,530 HENCE, AN AMOUNT OF 44,85,36,350/- IS ADDED TO THE TOTAL INCOME RETURNED. 11. THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE APPELLANT GIVING THE FOLLOWING REASONS. THE APPELLANT HAS BEEN CLAIMING ENTIRE EXPENDITUR E RELATING TO THE ONE TIME STORAGE FEE IN THE CURRENT YEAR AND THEREFORE THE ACCOUNTING TREATMENT OF THE APPELLANT IN DEFERRING THE INCOME TO FUTURE YEARS WAS NOT CORRECT. UPON TERMINATION OF THE AGREEMENT, THE APPELLANT HAS ALL RIGHTS OVER THE SPECIMEN THE APPELLANT IS UNDER NO OBLIGATION TO REFUND THE FEES COLLECTED INSURANCE COMPANIES, WHICH ARE IN A SIMILAR SITUATI ON, DO NOT DEFER THEIR INCOME BUT ACCOUNT THE SAME IN THE YEAR OF RECEIPT. RULE 6E HAS CLEARLY PRESCRIBED HOW INCOME OF INSURANCE COMPANIES HAS TO BE DEFERRED FOR THE PURPOSE OF FUTURE LIABILITIES. IN THE ABSENCE OF SU CH SPECIFIC RULES, DEFERMENT OF INCOME WAS NOT POSSIBLE THE ASSESSING OFFICER CO NSEQUENTLY HELD THAT THE DEFERMENT OF INCOME BY THE APPELLANT WAS ARBITRARY AND THEREFORE COULD NOT BE ALLOWED. ITA NO. 247 & 248/2018 :- 8 -: 12. THE CCONTENTIONS OF THE APPELLANT BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ARE AS UNDER:- IT IS MOST HUMBLY SUBMITTED THAT THE EXPENDITURE CLAIMED BY THE APPELLANT IS ONLY THE CURRENT EXPENDITURE WHEREAS THE MONIES RECEIVED RELATE TO FU TURE PERIODS. THE APPELLANT HAS ACCOUNTED FOR CURRENT PE RIOD INCOME AND CURRENT PERIOD EXPENDITURE AND DEFERRED THE INCO ME RELATING TO THE FUTURE. THE CONTENTION OF THE ASSESSING OFFI CER THAT THE ENTIRE EXPENDITURE RELATING TO THE ONE-TIME STORAGE FEE HAS BEEN CLAIMED IN THE CURRENT YEAR IS INCORRECT, AS THE AP PELLANT HAS NOT INCURRED THE ENTIRE EXPENDITURE IN THE IMPUGNED YEAR AND THEREFORE, THE QUESTION OF CLAIMING THE SAME DOES N OT ARISE. EXPENDITURE RELATING TO FUTURE PERIODS WILL BE INCUR RED IN THOSE YEARS AND CLAIMED AS A DEDUCTION AT THAT TIME WHICH IS WHY THE APPELLANT HAS DEFERRED THE PROPORTIONATE INCOME TO COMPLY WITH THE MATCHING CONCEPT. FURTHER IT IS MOST HUMBLY SUBMITTED THAT WHETHER SU CH ONETIME STORAGE FEES IS REFUNDABLE OR NOT ON TERMINATION OF CONTRACT IS OF NO RELEVANCE FOR DETERMINING THE ACCRUAL OF INCOME. THE FACT REMAINS THAT THE APPELLANT IS RESPONSIBLE FOR THE S TORAGE OF THE STEM CELLS DURING THE ENTIRE PERIOD OF CONTRACT AND WOULD BE INCURRING EXPENSES TOWARDS POWER, PERSONNEL, CONSUMA BLES, ETC. FOR EACH YEAR OVER THE PERIOD OF CONTRACT. THEREFOR E IN. ADHERENCE WITH THE MATCHING CONCEPT, STORAGE FEE IS TO BE DEFERRED OVER THE PERIOD OF THE CONTRACT SO THAT TH E CORRESPONDING EXPENSES CAN BE MATCHED WITH THE INCOM E. IT IS MOST HUMBLY SUBMITTED THAT THE ASSESSING OFFI CER HAS STATED THAT EVEN INSURANCE COMPANIES DO NOT DEFER T HEIR INCOME AND THEN IMMEDIATELY REFERRED TO RULE 6E RELATING TO PROVISION IN RESPECT OF RESERVE FOR UNEXPIRED RISKS, WHICH IS NOT HING BUT TRANSFERRING TO A LIABILITY ACCOUNT A PREDETERMINED PERCENTAGE OF ITA NO. 247 & 248/2018 :- 9 -: THE CURRENT RECEIPTS. THE ESTIMATE OF UNEXPIRED RISK S PRESCRIBED IN RULE 6E IS A PORTION OF THE PREMIUM COLLECTIONS WHICH IS TRANSFERRED TO A RESERVE INSTEAD OF BEING TREATED A S CURRENT INCOME. ATTENTION OF THIS RESPECTED AUTHORITY IS DRAWN TO T HE FACT THAT THE APPELLANT HAS INCLUDED IN INCOME, THE ENTIRE AM OUNT OF ENROLMENT AND PROCESSING FEES AS WELL AS THE ANNUAL STORAGE FEES RECEIVED. IT IS ONLY DEFERRING THE LUMP-SUM STORAGE FEES RECEIVED UPFRONT FOR 21 YEARS. AS REGARDS THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF STERLING HOLIDAY RESORTS (INDIA) LTD (S UPRAJ, IT IS MOST HUMBLY SUBMITTED THAT SUBSEQUENT TO THIS DECISION, THERE IS A DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX V MAHINDRA HOLIDAYS & RES ORTS (INDIA) LTD. [2010] 3 1TR 600, WHERE THE CHENNAI SPECIAL BE NCH HAS HELD THAT ENTIRE AMOUNT OF TIME-SHARE MEMBERSH IP FEE RECEIVABLE BY THE ASSESSEE UPFRONT AT THE TIME OF E NROLMENT OF A MEMBER CANNOT BE CHARGED TO TAX IN THE INITIAL YEAR ON ACCOUNT OF CONTRACTUAL OBLIGATION THAT IS FASTENED TO THE RECE IPT TO PROVIDE SERVICES IN FUTURE OVER THE TERM OF CONTRACT; IT HA S TO BE SPREAD OVER THE ENSUING YEARS. THEREAFTER IN THE CASE OF STERLING HOLIDAY RESORTS (INDIA) LTD I.R.A. NOS. 471, 472, 473 AND 160/MDS/2012 (COPY ENCLOSED) IN RESPECT OF ASSESSMENT YEAR: 2002- 03, 2006-07, 07-08 AND 08- 09, THE HONBLE CHENNAI TRIBUNAL PLACING RELIANCE ON THE DECISION IN THE CASE OF MAHIRTDRA HOLIDAYS & RESORTS (INDIA) CI TED SUPRA, HAS HELD AS FOLLOWS: 32. ACCORDINGLY, TO ANSWER THE QUESTION POSED TO THE SPECIAL BENCH, THE ENTIRE AMOUNT OF TIMESHARE MEMBERSHIP FEE RECEIVABLE BY THE ASSESSEE UP FRONT AT THE TIME OF ENROLMENT O F A MEMBER IS NOT THE INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR ON ACCOUNT OF CONTRACTUAL OBLIGATION THAT IS FASTENED TO THE RECE IPT TO PROVIDE SERVICES IN FUTURE OVER THE TERM OF CONTRACT. 7. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MAHINDRA HOLIDAYS AND RESORTS INDIA LTD IN. ITA NO. 1613/MDS/201 1 DATED ITA NO. 247 & 248/2018 :- 10 -: 25.05.20L2CONSIDERED THE DECISION IN THE CASE OF CALCUTTA STOCK EXCHANGE AND DELHI STOCK EXCHANGE ASSOCIATION (SUPRA) , TO WHICH THE COUNSEL FOR THE REVENUE WAS REFERRING TO AND BY FOLLOWING THE SPECIAL BENCH DECISION (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HENCE, RESPECTFULLY FOLLOWING THE DECISIO N OF THE CHENNAI SPECIAL BENCH IN THE CASE OF MAHINDRA HOLIDA YS AND RESORTS INDIA LTD (SUPRA), WE DECIDE THE ABOVE COMM ON ISSUE IN FAVOUR OF THE ASSESSEE FOR ALL THE RELEVANT ASSESSM ENT YEARS. THE CIRCUMSTANCES IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD (SUPRA) ARE SIMILAR TO THE CASE UNDER A PPEAL BEFORE THIS RESPECTED AUTHORITY. IN THE CASE OF TIME-SHARE RESORTS, THE MEMBERSHIP FEE IS PAYABLE UP-FRONT BUT THE SERVICES BY THE COMPANY ARE TO BE RENDERED / MADE AVAILABLE TO THE CUSTOMER OVER THE PRE-DETERMINED PERIOD OF TIME. RECOGNISING THAT THE ASSESSEE (MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD.) WAS UNDE R A CONTINUING LIABILITY TO PROVIDE THE SERVICE, THE SPECIAL BENCH HELD THAT #IT CANNOT BE SAID THAT THE ENTIRE FEE RECEIVED BY IT H AS ACCRAED AS INCOME, AND RECOGNIZING THE ENTIRE RECEIPT AS INCOM E IN THE YEAR OF RECEIPT WOULD LEAD TO DISTORTIONONLY WAY TO MINIMI ZE THE DISTORTION IS TO SPREAD OVER A PART OF THE INCOME O VER THE ENSUING YEARSTHEREFORE, THE ENTIRE AMOUNT OF TIME-SHARE ME MBERSHIP FEE RECEIVABLE BY THE ASSESSEE UPFRONT AT THE TIME OF ENROLMENT OF A MEMBER IS NOT INCOME CHARGEABLE TO TAX IN. THE INITIAL YEAR. IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR S 2005-06 TO 2011-12 (DETAILS GIVEN IN THE TABLE BELOW) (COPIES OF DECISIONS ENCLOSED), THE HONBLE BENCH OF THE INCOME TAX APPELL ATE TRIBUNAL IN RESPECT OF THE MATTER OF STORAGE FEE, HAS HELD T HAT THE ASSESSEE HAS GIVEN A PROPER TREATMENT TO THE ACCOUN TING OF STORAGE FEE COLLECTED IN ADVANCE. THE LUMP SUM PAYM ENT IS SPREAD OVER THE PERIOD OF SERVICE FOR WHICH THE ASSESSEE I S LIABLE. THIS IS THE CORRECT METHOD OF ACCOUNTING ASSESSMENT YEAR DETAILS OF DECISION 2005 - 06 ITA NO.2849/MDS/2014, DECISION RENDERED ON 08.04.2015 2006 - 07 ITA NO.851/MDS/2011, DECISION RENDERED ON 13.07.2011 2007 - 08 ITA NO.2850/MDS/2014, DECISION RENDERED ON 08.04.2015 ITA NO. 247 & 248/2018 :- 11 -: 2008 - 09 ITA NO.342/MDS/2012, DECISION RENDERED ON 03.05.2012 2009 - 10 ITA NO.2851/MDS/2014, DECISION RENDERED ON 08.04.2015 2010 - 11 ITA NO.2142/MDS/2014, DECISION RENDERED ON 11.03.2015 2011 - 12 ITA NO.527/MDS/2016, DECISION RENDERED ON 22.07.2016 IN THE APPELLANTS CASE FOR THE ASSESSMENT YEAR 2011- 12, THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER DA TED 22.12.2015 (COPY OF DECISION ENCLOSED) HAS FOLLOWED THE A BOVE DECISIONS OF THE HONBLE CHENNAI BENCH AND HAS DELET ED THE ADDITION MADE ON THIS SCORE. IN RESPECT OF APPELLANTS CASE FOR THE ASSESSMENT Y EAR 2008-09, COMMISSIONER OF INCOME TAX(APPEALS), FOLLOWING THE A BOVE DECISION OF THE HONBLE BENCH OF THE INCOME TAX APPELLATE TRIB UNAL HAD DELETED THE ADDITION MADE TOWARDS STORAGE FEE RECEI VED FOR THAT YEAR. THE REVENUE HAD GONE ON APPEAL AGAINST THE SA ID ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS). IN THIS CON NECTION THE HONBLE BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN ITS ORDER HAS HELD AS FOLLOWS THIS ISSUE WAS CONSIDERED BY T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA N O 852/MDS/201 1 THROUGH ITS ORDER DATED J3H JULY 2011. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER RE LIED ON THE ABOVE ORDER OF THE TRIBUNAL AND HELD THE MATTER IN FAVOUR OF THE ASSESSEE. IT IS AGAINST THE ABOVE THAT THE REVENUE HAS COME IN APPEAL BEFORE US. THE GROUND OF THE REVENUE IS THAT THE ORDER OF THE TRIBUNAL PASSED IN HAS PREFERRED AN APPEAL BEFO RE THE HONBLE HIGH COURT OF MADRAS. ANYHOW THE MATTER AS ON DATE STANDS COVERED BY THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 2006-07 THE COMMISSIONER OF INCOME TAX(APPEALS) HAS RIGHT LY FOLLOWED THE SAID ORDER AND ALLOWED THE CONTENTIONS RAISED BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVEN UE IS LIABLE TO BE DISMISSED. ITA NO. 247 & 248/2018 :- 12 -: APPLYING THE PRINCIPLES IN THE ABOVE DECISIONS, IT IS MOST HUMBLY SUBMITTED THAT THE ENTIRE LUMPSUM PAYMENTS RECEIVED IS NOT INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR, I.E. T HE YEAR OF RECEIPT AND THE SAME SHOULD BE SPREAD OVER THE ENSU ING YEARS, WHICH IS WHAT THE APPELLANT HAS DONE. FURTHER AS HELD BY THE HONBLE BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN ITS ORDER 1TA NO. 342/MD S/2012 IN THE APPELL ANTS CASE FOR ASSESSMENT YEAR 2008-09. THE ISSUE STANDS COVER ED BY THE ORDER OF THE HONBLE BENCH OF THE INCOME TAX APPE LLATE TRIBUNAL PASSED FOR THE ASSESSMENT YEAR 2006-07. IT IS THEREFORE MOST HUMBLY PRAYED THAT THIS RESPEC TED AUTHORITY MAY BE PLEASED TO HOLD THAT THE ADDITION MADE BY TH E ASSESSING OFFICER IS UNWARRANTED AND UNJUSTIFIED AND TO DELET E THE ADDITION MADE OF RS.47,26,08,294/- ON ACCOUNT OF STORAGE FEES. THIS RESPECTED AUTHORITY MAY KINDLY NOTE THAT THE A PPELLANT HAS RECOGNISED, IN THE CURRENT YEAR, ENROLMENT FEES OF RS.6,03,96,273.00, BEING THE ANNUAL PROPORTIONATE INCOME OF THE STORAGE FEES COLLECTED IN EARLIER YEARS. THE BREAK OF THE SAME IS AS FOLLOWS: PARTICULARS VALUE IN RS. FY 2004 - 04 34,468.00 FY 2005 - 06 11,45,272.00 FY 2006 - 07 32,12,533.00 FY 2007 - 08 40,87,421.00 FY 2008 - 09 56, 80,120.00 FY 2009 - 10 1,13,46,253.00 FY 2010 - 11 1,57,50,212.00 FY 2011 - 12 1,91,39,994.00 TOTAL 6,03,96,273.00 NOTWITHSTANDING ANYTHING MENTIONED IN THE ABOVE PAR AGRAPHS, AS PER THE OPINION OF THE DEPARTMENT, IF INCOME HAS TO BE RECOGNISED IN THE YEAR OF RECEIPT, THEN STORAGE FEES COLLECTED IN THE PREVIOUS YEARS BUT RECOGNISED IN THE CURRENT YEAR, BEING RS. 6,03,96,273/-, HAS TO BE DELETED AS THE SAME SHALL BE RECOGNISED O NLY IN EARLIER YEARS WHEN IT WAS COLLECTED. ITA NO. 247 & 248/2018 :- 13 -: SINCE THE DEPARTMENT HAS ALREADY ADDED IT WITH THE INCOME OF EARLIER YEARS, THIS AMOUNT OF RS.(5,03,96,273/- HAS TO BE DEDUCTED FROM THE INCOME OF THE IMPUGNED YEAR. IF T HIS AMOUNT IS NOT DEDUCTED FROM THE INCOME OF CURRENT YEAR. IT WI LL AMOUNT TO DOUBLE TAXATION OF SAME INCOME IN DIFFERENT ASSESSME NT YEARS. THEREFORE, THE APPELLANT HUMBLY REQUEST THIS RESPEC TED AUTHORITY TO CONSIDER THE SAME AND DEDUCT THIS AMOUNT, BEING RS.6,03,96,273/-, FROM THE ADDITION MADE BY THE ASSESSING OFFICER. CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE A ND AFTER ANALYZING THE PROFIT AND LOSS ACCOUNT, LD. COMMISSIONER OF IN COME TAX (APPEALS) HAD COME TO CONCLUSION THAT THE METHOD OF RECOGNI SATION OF INCOME ADOPTED BY THE APPELLANT GIVES DISTORTED FIGURE OF THE PROFIT OR LOSS FOR THE PERIOD AS THE CORRESPONDING EXPENDITURE HAD NOT BEEN DEFERRED WHILE DEFERRING THE INCOME OVER PERIOD OF CONTRACT. ACCORDINGLY, DISMISSED THE CLAIM OF THE APPELLANT. 13. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. IT IS CONTENTED BEFORE US THAT THE INCOME HAD NOT ACCRUED TO THE ASSESSEE UNLESS OTHERWISE THE SERVIC ES ARE RENDERED AND THE ASSESSEE IS UNDER OBLIGATION TO RENDER SER VICE FOR PERIOD OF 21 YEARS AND THEREFORE THE INCOME THOUGH RECEIVED IN ADVANCE CANNOT BE SAID TO BE ACCRUED AND THE INCOME RECEIVED IN A DVANCE SHOULD BE APPORTIONED FOR A PERIOD OF 21 YEARS. IN THIS CON NECTION, HE PLACED ITA NO. 247 & 248/2018 :- 14 -: RELIANCE ON THE DECISION OF SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF ACIT VS. MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD, ( 2010) 3 ITR 0600 AND ALSO CO-ORDINATE BENCH DECISIONS IN ASSESSEES OWN CASES IN ITA NO. 851/MDS/2011 FOR ASSESSMENT YEAR 2006-07, DAT ED 13.07.2011, ITA NO. 342/MDS/2012 FOR ASSESSMENT YEAR 2008-09, DATED 03.05.2012, ITA NO. 2142/MDS/2014 FOR ASSESSMENT YE AR 2010-11, DATED 11.03.2015, ITA NOS.2849, 2850 & 2851/MDS/201 4 FOR ASSESSMENT YEARS 2005-06, 2007-08 & 2009-10, DATED 08.04.2015, ITA NO. 527/MDS/2016 FOR ASSESSMENT YEAR 2011-12, DATED 22.07.2016 AND ITA NO. 3427/MDS/2016 FOR ASSESSMENT YEAR 2012- 13, DATED 12.06.2017 AND FINALLY SUBMITTED THAT THE RATIO OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF TVS FINANCE & SERVICES LTD VS. JCIT, 318 ITR 0435 CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE AS THERE IS CONTINUOUS OBLIGATI ON ON THE PART OF THE ASSESSEE TO DISCHARGE HIS PART OF THE DUTIES. 14. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 15. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL RELATES TO TAXABILITY OF INCOME DEFERRED IN THE BOOKS OF ACCOUNTS OVER PERIO D OF AGREEMENT. THE ISSUE WHETHER OR NOT PARTICULAR RECE IPT HAD ITA NO. 247 & 248/2018 :- 15 -: ACCRUED TO THE ASSESSEE IS TO BE DECIDED WITH REF ERENCE TO THE TERMS OF AGREEMENT ASSESSEE HAD WITH HIS CLIENTS. IT IS SETTLED PROPOSITION OF LAW THAT INCOME IS SAID TO BE ACC RUED TO THE ASSESSEE ONLY WHEN HE HAD CREATED A DEBT IN HIS FAV OUR, A DEBT COULD COME INTO EXISTENCE ONLY WHEN HE ACQUITTED A RIGHT TO RECEIVE THE PAYMENT. THIS CONCEPT WAS ACCEPTED BY THE HONBLE SUPREME COURT IN THE CASE OF E.D. SASSOON & COMPANY LTD AND OTHERS VS. CIT, 26 ITR 27, WHEREIN IT WAS HELD THAT THE WORD 'EARNED' EVEN THOUGH IT DOES NOT APPEAR IN SECTION 4 OF THE ACT HAS BEEN VERY OFTEN USED IN THE COURSE OF THE JUDGMENTS BV LEARNED JUDGES BOTH IN THE HIGH COURTS AS WELL AS THE SUPRE ME COURT, (VIDE CIT BOMBAY V. AHMEDBHAI UMARBHAI & CO., BOMBAY [195 0] 18 ITR 472, AND CIT MADRAS V. K.R.M.T.T. THIAGARAJA CHETTY & CO. [1953] 24 ITR 525AT 533). IT HAS ALSO BEEN USED BY THE JUD ICIAL COMMITTEE OF THE PRIVY COUNCIL IN COMMISSIONERS OF TAXATION V . KIRK [1900] A.C. 588 AT 592. THE CONCEPT, HOWEVER, CANNOT BE DI VORCED FROM THAT OF INCOME ACCRUING TO THE ASSESSEE. IF INCOME HAS ACCRUED TO THE ASSESSEE IT IS CERTAINLY EARNED BY HIM IN THE S ENSE THAT HE HAD CONTRIBUTED TO ITS PRODUCTION OR THE PARENTHOOD OF THE INCOME CAN BE TRACED TO HIM. BUT IN ORDER THAT THE INCOME CAN BE SAID TO HAVE ACCRUED TO OR EARNED BY THE ASSESSEE IT IS NOT ONLY NECESSARY THAT THE ASSESSEE MUST HAVE CONTRIBUTED TO ITS ACCRUING OR ARISING BY ITA NO. 247 & 248/2018 :- 16 -: RENDERING SERVICES OR OTHERWISE BUT HE MUST HAVE CR EATED A DEBT IN HIS FAVOUR. A DEBT MUST HAVE COME INTO EXISTENCE AN D HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE PAYMENT. UNLES S AND UNTIL HIS CONTRIBUTION OR PARENTHOOD IS EFFECTIVE IN BRINGING INTO EXISTENCE A DEBT OR A RIGHT TO RECEIVE THE PAYMENT OR IN OTHER WORDS A DEBITUM IN PRAESENTI, SOLVENDUM IN FUTURO IT CANNOT BE SAID THAT ANY INCOME HAS ACCRUED TO HIM. THE MERE EXPRESSION 'EARNED' IN THE SENSE OF RENDERING THE SERVICES ETC. BY ITSELF IS OF NO AVAI L.' 16. APPLYING THE ABOVE PRINCIPLES TO THE FACTS OF THE PRESENT CASE FROM THE PERUSAL OF THE TERMS OF AGREEMENT, IT IS CLEAR THAT THE AGREEMENT IS VALID FOR A PERIOD OF 21 YEARS AND THE PROCESSING FEES IS PAYABLE PRIOR TO THE BIRTH OF THE CHILD. THE FE ES PAID IS REFUNDABLE ONLY IN THE CASE, IF THE AGREEMENT IS T ERMINATED BY THE CLIENT AT ANY TIME PRIOR TO THE COLLECTION OF UMBIL ICAL CODE OR CHILD (ON ATTAINING MAJORITY) AT ANY TIME PRIOR TO THE R ETRIEVAL OF THE SPECIMEN WHERE AGREEMENT IS TERMINATED BY THE ASSES SEE OR BY OPERATION OF LAW. THESE WOULD GO TO SHOW THAT THER E IS NO UNCERTAINTY AS REGARDS TO THE VESTING OF RIGHT TO RECEIVE THE PAYMENTS. THESE CONDITIONS WOULD SUGGEST THAT THERE IS NO UNCERTAINTY ON THE RECEIPT OF THE INCOME. THUS, IT CAN BE SAFELY CONCLUDED THAT DEBT HAS BEEN CREATED IN FAVOUR OF THE ASSESSEE, ITA NO. 247 & 248/2018 :- 17 -: THE CONTINGENCIES UNDER WHICH INCOME HAS TO BE REFU NDED, HAS NO MUCH RELEVANCE SINCE THE REFUND HAS TO BE GIVEN IN A SHORT SPAN OF PERIOD AFTER ENTERING INTO AGREEMENT WITH THE CLIEN T. THEREFORE IT CAN BE SAFELY SAID THAT ASSESSEE HAS ACQUIRED THE R IGHT TO RECEIVE FEES, THE MOMENT THE ASSESSEE ENTERED INTO AGREEMEN T AND RECEIVED THE FEES, THE MOVEMENT THE ASSESSEE ENTERE D INTO AGREEMENT WITH THE CLIENT AND RECEIVED THE PAYMENT IN ORDER INCOME IS SAID TO HAVE ACCRUED, IT IS ALSO NECESSA RY THAT THE ASSESSEE HAD PERFORMED HIS PART OF THE SERVICE. BU T UNDOUBTEDLY, IN THE PRESENT CASE, THE ASSESSEE IS UNDER OBLIGATI ON TO STORE THE STEM CELLS OVER A PERIOD OF 21 YEARS. THEREFORE, TH E INCOME CAN BE APPORTIONED FOR A PERIOD OF 21 YEARS. THE JUDICIAL PRECEDENTS HAD RECOGNIZED THE PRINCIPLE OF MATCHING WHICH REQUIRES MATCHING OF EXPENDITURE AGAINST THE CORRESPONDING REVENUE. REF ERENCE IN THIS REGARD CAN BE MADE TO THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF J .K. INDUSTRIES LTD AND ANOTHER VS. UNION OF INDIA A ND OTHERS, 297 ITR 176 . THE PRINCIPLE ENUNCIATED THEREIN AS FOLLOWS:- 82. MATCHING CONCEPT IS BASED ON THE ACCOUNTING P ERIOD CONCEPT. THE PARAMOUNT OBJECT OF RUNNING A BUSINESS IS TO EA RN PROFIT. IN ORDER TO ASCERTAIN THE PROFIT MADE BY THE BUSINESS DURING A PERIOD, IT IS NECESSARY THAT 'REVENUES' OF THE PERIOD SHOUL D BE MATCHED WITH THE COSTS (EXPENSES) OF THAT PERIOD. IN OTHER WORDS, INCOME MADE BY THE BUSINESS DURING A PERIOD CAN BE MEASURE D ONLY WITH ITA NO. 247 & 248/2018 :- 18 -: THE REVENUE EARNED DURING A PERIOD IS COMPARED WITH THE EXPENDITURE INCURRED FOR EARNING THAT REVENUE. HOWE VER, IN CASES OF MERGERS AND ACQUISITIONS, COMPANIES SOMETIMES UN DERTAKE TO DEFER REVENUE EXPENDITURE OVER FUTURE YEARS WHICH B RINGS IN THE CONCEPT OF DEFERRED TAX ACCOUNTING. THEREFORE, TODA Y IT CANNOT BE SAID THAT THE CONCEPT OF ACCRUAL IS LIMITED TO ONE YEAR. 83. IT IS A PRINCIPLE OF RECOGNIZING COSTS (EXPENSE S) AGAINST REVENUES OR AGAINST THE RELEVANT TIME PERIOD IN ORD ER TO DETERMINE THE PERIODIC INCOME. THIS PRINCIPLE IS AN IMPORTANT COMPONENT OF ACCRUAL BASIS OF ACCOUNTING. AS STATED ABOVE, THE O BJECT OF AS 22 IS TO RECONCILE THE MATCHING PRINCIPLE WITH THE FAI R VALUATION PRINCIPLES. IT MAY BE NOTED THAT RECOGNITION, MEASU REMENT AND DISCLOSURE OF VARIOUS ITEMS OF INCOME, EXPENSES, AS SETS AND LIABILITIES IS DONE ONLY BY ACCOUNTING STANDARDS AN D NOT BY PROVISIONS OF THE COMPANIES ACT.' (P. 424). 17. SUBSEQUENTLY THE HONBLE SUPREME COURT REITERATED T HE SAME PRINCIPLE IN THE CASE OF CIT VS. BILAHARI INVE STMENT (P) LTD, 299 ITR 1. THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF TAPARIA TOOLS LTD VS. JCIT, 260 ITR 102 HAD EXPLAINED THE C ONCEPT OF MATCHING PRINCIPLE AS UNDER:- 'THE MERCANTILE SYSTEM OF ACCOUNTING IS BASED ON AC CRUAL. BASICALLY, IT IS A DOUBLE ENTRY SYSTEM OF ACCOUNTING. UNDER THE M ERCANTILE SYSTEM OF ACCOUNTING, PROFITS ARISING OR ACCRUING AT THE D ATE OF THE TRANSACTION ARE LIABLE TO BE TAXED NOTWITHSTANDING THE FACT THA T THEY ARE NOT ACTUALLY RECEIVED OR DEEMED TO BE RECEIVED UNDER TH E ACT. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, BOOK PR OFITS ARE LIABLE TO BE TAXED. THE PROFITS EARNED AND CREDITED IN THE BO OKS OF ACCOUNT CONSTITUTE THE BASIS OF COMPUTATION OF INCOME. THE SYSTEM POSTULATES THE EXISTENCE OF TAX INSOFAR AS MONIES DUE AND PAYA BLE BY THE PARTIES TO WHOM THEY ARE DEBITED [SEE KESHAV MILLS LTD. V. CIT [1953] 23 ITR 230 , 239 (SC)]. THEREFORE, UNDER THE MERCANTILE SY STEM OF ACCOUNTING, IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING YEAR, THE REVENUE AND OTHER INCOMES ARE MATCHED WIT H THE COST OF RESOURCES CONSUMED [EXPENSES]. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THIS MATCHING IS REQUIRED TO BE DONE ON ACCRUAL BASIS. UNDER THIS MATCHING CONCEPT, REVENUE AND INCOME EAR NED DURING AN ACCOUNTING PERIOD, IRRESPECTIVE OF ACTUAL CASH IN-F LOW, IS REQUIRED TO BE ITA NO. 247 & 248/2018 :- 19 -: COMPARED WITH EXPENSES INCURRED DURING THE SAME PER IOD, IRRESPECTIVE OF ACTUAL OUT-FLOW OF CASH. IN THIS CASE, THE ASSES SEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THIS MATCHING CONC EPT IS VERY RELEVANT TO COMPUTE TAXABLE INCOME PARTICULARLY IN CASES INVOLVING DRE. IT HAS BEEN RECOGNISED BY NUMEROUS JUDGMENTS. IN THE CASE OF CALCUTTA CO. LTD. V. CIT [1959] 37 ITR 1 (SC) TH E FACTS WERE AS FOLLOWS: THE ASSESSEE BOUGHT LANDS AND SOLD THEM IN PLOTS. WHEN THE PLOTS WERE SOLD, THE PURCHASERS PAID ONLY A PORTION OF THE PURCHASE PRICE AND UNDERTOOK TO PAY THE BALANCE IN INSTALMEN TS. THE ASSESSEE, IN TURN, AGREED TO DEVELOP THE PLOTS WITHIN SIX MON THS. IN THE RELEVANT ACCOUNTING YEAR, THE ASSESSEE ACTUALLY RECEIVED ONL Y RS. 29,392 TOWARDS SALE PRICE OF THE LANDS, BUT, IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, IT C REDITED IN ITS ACCOUNTS RS. 43,692 REPRESENTING THE FULL SALE PRIC E OF THE LANDS. AT THE SAME TIME, IT ALSO DEBITED RS. 24,809 AS EXPEND ITURE FOR THE DEVELOPMENT IT HAD UNDERTAKEN EVEN THOUGH, NO PART OF THAT AMOUNT WAS ACTUALLY SPENT. THE DEPARTMENT, THEREFORE, DISA LLOWED THE EXPENDITURE OF RS. 24,809 ON THE GROUND THAT THE AM OUNT WAS NOT ACTUALLY SPENT. THE ASSESSEE ULTIMATELY SUCCEEDED I N THE SUPREME COURT. IT WAS HELD BY THE SUPREME COURT THAT THE EX PRESSION 'PROFITS OR GAINS' IN SECTION 10(1) OF THE INCOME-TAX ACT, 1922 SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PROFITS AND GAINS UNTIL THE EXPENDITURE, WH ICH IS NECESSARY FOR THE PURPOSES OF EARNING THE RECEIPTS IS DEDUCTED TH EREFROM. ACCORDINGLY, THE SUPREME COURT TOOK THE VIEW, THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING AND SINCE THE ASSESSEE HAD CREDITED THE FULL SALE PRICE OF LA NDS IN ITS ACCOUNTS AMOUNTING TO RS. 43,692, THE ASSESSEE WAS ENTITLED TO ESTIMATE THE EXPENDITURE BECAUSE, WITHOUT SUCH ESTIMATION OF EXP ENDITURE, IT WAS NOT POSSIBLE TO COMPUTE PROFITS AND GAINS. THIS CON CEPT IS ALSO APPLIED BY THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRI AL INVESTMENT CORPORATION LTD. [1997] 225 ITR 802 UNDERFOLLOWING OBSERVATIONS (HEADNOTE): 'ORDINARILY, REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALL OWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE S PREAD 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 ENTI RE EXPENDITURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PRO FITS OF A PARTICULAR YEAR. ISSUING DEBENTURES IS AN INSTANCE WHERE, ALTH OUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN T HE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO THE BUSINES S OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOULD, THERE FORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES.' ITA NO. 247 & 248/2018 :- 20 -: THEREFORE, THE MATCHING CONCEPT, WHICH WE HAVE REFE RRED TO IS WELL- RECOGNISED BY VARIOUS JUDGMENTS OF THE SUPREME COUR T. IN THIS CASE, THE ISSUE IS WHETHER THE ENTIRE EXPENDITURE DISTORT S THE PROFITS OF A PARTICULAR YEAR. . . . .' (P. 116) THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF TAPARIA TOOLS LTD (SUPRA) WAS APPROVED BY THE HONBLE SUPRE ME COURT IN THE CASE OF RAKESH SHANTILAL MARDIA VS. DCIT, 210 T AXMAN 565 AND AFFIRMED BY SUPREME COURT IN THE CASE OF CIT VS. TA PARIA TOOLS LTD, 372 ITR 605 BY HOLDING AS UNDER:- 12. THE NEXT QUESTION WHICH ARISES FOR CONSIDERATION I S AS TO WHETHER THE ASSESSEE WAS ESTOPPED FROM CLAIMING DEDUCTION F OR THE ENTIRE INTEREST PAID IN THE YEAR IN WHICH IT WAS PAID MERE LY BECAUSE IT HAD SPREAD OVER THIS INTEREST IN ITS BOOKS OF ACCOUNT O VER A PERIOD OF FIVE YEARS. HERE, THE SUBMISSION OF LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THERE IS NO SUCH ESTOPPEL, INASMUCH AS, THE TR EATMENT OF A PARTICULAR ENTRY (OR FOR THAT MATTER INTEREST ENTER ED IN THE INSTANT CASE) IN THE BOOKS OF ACCOUNT IS ENTIRELY DIFFERENT FROM THE TREATMENT WHICH IS TO BE GIVEN TO SUCH ENTRY/EXPENDITURE UNDER THE ACT . HIS CONTENTION WAS THAT ASSESSMENT WAS TO BE MADE IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT AND NOT ON THE BASIS OF ENTRI ES IN THE BOOKS OF ACCOUNT. HIS FURTHER ARGUMENT WAS THAT HAD THE ASSE SSEE NOT CLAIMED THE PAYMENT OF ENTIRE INTEREST AMOUNT AS TAX IN THE INCOME TAX RETURNS AND HAD CLAIMED DEDUCTION OVER A PERIOD OF FIVE YEA RS TREATING IT AS DEFERRED INTEREST PAYMENT, PERHAPS THE AO WOULD HAV E BEEN RIGHT IN ACCEPTING THE SAME IN CONSONANCE WITH THE ACCOUNTIN G TREATMENT WHICH WAS GIVEN. HOWEVER, LEARNED COUNSEL POINTED O UT THAT IN THE INSTANT CASE THE ASSESSEE HAD FILED THE INCOME TAX RETURN CLAIMING THE ENTIRE DEDUCTION WHICH WAS ALLOWABLE TO IT UNDER TH E PROVISIONS OF SECTION 36(1)(III) OF THE ACT AS ALL THE CONDITIONS THEREOF WERE FULFILLED AND, THUS, IT WAS EXERCISING THE STATUTORY RIGHT WH ICH COULD NOT BE DENIED. 13. WE FIND THAT THE HIGH COURT HAS TAKEN INTO CONSIDE RATION THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT AND THE CONDITIONS WHICH ARE TO BE FULFILLED FOR ALLOWING THE DEDUCTION ON THIS ACCOUNT IN THE FOLLOWING WORDS: ITA NO. 247 & 248/2018 :- 21 -: ...THE TERM 'INTEREST' HAS BEEN DEFINED UNDER SECTI ON 2(28A) OF THE ACT. BRIEFLY, INTEREST PAYMENT IS AN EXPENSE UNDER SECTION 36(1)(III). INTEREST ON MONIES BORROWED FOR BUSINESS PURPOSES I S AN EXPENDITURE IN A BUSINESS [SEE 35 ITR 339 -MADRAS]. FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(III), THE FOLLOWING C ONDITIONS ARE REQUIRED TO BE SATISFIED VIZ. THE CAPITAL MUST HAVE BEEN BORROWED; IT MUST HAVE BEEN BORROWED FOR BUSINESS PURPOSE AND TH E INTEREST MUST BE PAID. THE WORD 'PAID' IS DEFINED IN SECTION 43(2). IT MEANS PAYMENT IN ACCORDANCE WITH THE METHOD FOLLOWED BY T HE ASSESSEE. IN THE PRESENT CASE, THEREFORE, THE WORD 'PAID' IN SECTION 36(1)(III) SHOULD BE CONSTRUED TO MEAN PAID IN ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE I.E. MERCANTILE SYSTEM OF ACCOUNTING...' NOTWITHSTANDING THE AFORESAID, THE HIGH COURT CHOSE TO DECLINE THE WHOLE DEDUCTION IN THE YEAR OF PAYMENT, THEREBY AFF IRMING THE ORDERS OF THE AUTHORITIES BELOW, BY INVOKING THE 'MATCHING CONCEPT'. IT IS OBSERVED BY THE HIGH COURT THAT UNDER THE MERCANTIL E SYSTEM OF ACCOUNTING, BOOK PROFITS ARE LIABLE TO BE TAXED AND IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING YEAR, THE REVENUE AND OTHER INCOMES ARE TO BE MATCHED WITH THE COST OF RE SOURCES CONSUMED (EXPENSES). FOR THIS REASON, IN THE OPINION OF THE HIGH COURT, THIS MATCHING CONCEPT IS REQUIRED TO BE DONE ON ACCRUAL BASIS. AS PER THE HIGH COURT, IN THIS CASE, PAYMENT OF RS. 55 PER DEB ENTURE TOWARDS INTEREST WAS MADE, WHICH PERTAINED TO FIVE YEARS, A ND, THUS, THIS INTEREST OF FIVE YEARS WAS PAID IN THE FIRST YEAR. WE ARE OF THE OPINION THAT IT IS HERE THE HIGH COURT HAS GONE WRONG AND T HIS APPROACH RESULTED IN WRONG APPLICATION OF MATCHING CONCEPT. IT IS EMPHASIZED ONCE AGAIN THAT AS PER THE TERMS OF ISSUE, THE INTE REST COULD BE PAID IN TWO MODES. AS PER ONE MODE, INTEREST WAS PAYABLE EV ERY YEAR AND IN THAT CASE IT WAS TO BE PAID ON SIX MONTHLY BASIS @ 18% PER ANNUM. IN SUCH CASES, THE INTEREST AS PAID WAS CLAIMED ON YEA RLY BASIS OVER A PERIOD OF FIVE YEARS AND ALLOWED AS WELL AND THERE IS NO DISPUTE ABOUT THE SAME. HOWEVER, IN THE SECOND MODE OF PAYMENT OF INTEREST, WHICH WAS AT THE OPTION OF THE DEBENTURE HOLDER, INTEREST WAS PAYABLE UPFRONT, WHICH MEANS INSOFAR AS INTEREST LIABILITY IS CONCERNED, THAT WAS DISCHARGED IN THE FIRST YEAR OF THE ISSUE ITSEL F. BY THIS, THE ASSESSEE HAD BENEFITED BY MAKING PAYMENT OF LESSER AMOUNT OF INTEREST IN COMPARISON WITH THE INTEREST WHICH WAS PAYABLE UNDER THE FIRST MODE OVER A PERIOD OF FIVE YEARS. WE ARE, THE REFORE, OF THE OPINION THAT IN ORDER TO BE ENTITLED TO HAVE DEDUCTION OF T HIS AMOUNT, THE ONLY ASPECT WHICH NEEDED EXAMINATION WAS AS TO WHETHER P ROVISIONS OF SECTION 36(1)(III) READ WITH SECTION 43(II) OF THE ACT WERE SATISFIED OR NOT. ONCE THESE ARE SATISFIED, THERE IS NO QUESTION OF DENYING THE BENEFIT OF ENTIRE DEDUCTION IN THE YEAR IN WHICH SU CH AN AMOUNT WAS ACTUALLY PAID OR INCURRED. 14. THE HIGH COURT HAS ALSO OBSERVED THAT IT WAS A CAS E OF DEFERRED INTEREST OPTION. HERE AGAIN, WE DO NOT AGREE WITH T HE HIGH COURT. IT HAS BEEN EXPLAINED IN VARIOUS JUDGMENTS THAT THERE IS NO CONCEPT OF ITA NO. 247 & 248/2018 :- 22 -: DEFERRED REVENUE EXPENDITURE IN THE ACT EXCEPT UNDE R SPECIFIED SECTIONS, I.E. WHERE AMORTIZATION IS SPECIFICALLY P ROVIDED, SUCH AS SECTION 35-D OF THE ACT. 15. WHAT IS TO BE BORNE IN MIND IS THAT THE MOMENT SEC OND OPTION WAS BY THE DEBENTURE HOLDER TO RECEIVE THE PAYMENT UPFR ONT, 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 TH E INTEREST @ RS. 55 PER DEBENTURE. IN BHARAT EARTH MOVERS V. CIT [2000] 245 ITR 428/112 TAXMAN 61 (SC), THIS COURT HAD CATEGORICALLY HELD T HAT IF A BUSINESS LIABILITY HAS ARISEN IN THE ACCOUNTING YEAR, THE DE DUCTION SHOULD BE ALLOWED EVEN IF SUCH A LIABILITY MAY HAVE TO BE QUA NTIFIED AND DISCHARGED AT A FUTURE DATE. FOLLOWING PASSAGE FROM THE AFORESAID JUDGMENT IS WO RTH A QUOTE: 'THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTUR E DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY . IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINT Y THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. TH E LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISHARGED IS NOT CERTAIN.' THE PRESENT CASE IS EVEN ON A STRONGER FOOTING INAS MUCH AS NOT ONLY THE HAD ARISEN IN THE ASSESSMENT YEAR IN QUESTION, IT WAS EVEN QUANTIFIED AND DISCHARGED AS WELL IN THAT VERY ACCO UNTING YEAR. 16. JUDGMENT IN MADRAS INDUSTRIAL INVESTMENT CORPN. LT D. V. CIT [1997] 225 ITR 802/91 TAXMAN 340 (SC) WAS CITED BY THE LEA RNED COUNSEL FOR THE REVENUE TO JUSTIFY THE DECISION TAKEN BY THE CO URTS BELOW. WE FIND THAT THE COURT CATEGORICALLY HELD EVEN IN THAT CASE THAT THE GENERAL PRINCIPLE IS THAT ORDINARILY REVENUE EXPENDITURE IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS TO BE AL LOWED IN THE YEAR IN WHICH IT IS INCURRED. HOWEVER, SOME EXCEPTIONAL CAS ES CAN JUSTIFY SPREADING THE EXPENDITURE AND CLAIMING IT OVER A PE RIOD OF ENSUING YEARS. IT IS IMPORTANT TO NOTE THAT IN THAT JUDGMENT, IT W AS THE ASSESSEE WHO WANTED SPREADING THE EXPENDITURE OVER A PERIOD OF T IME AND HAD JUSTIFIED THE SAME. IT WAS A CASE OF ISSUING DEBENTURES AT DI SCOUNT; 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 EXPENDITU RE OVER THE ENTIRE PERIOD OF FIVE YEARS, AT THE END OF WHICH THE DEBEN TURES WERE TO BE REDEEMED. BY RAISING THE MONEY COLLECTED UNDER THE SAID DEBENTURES, THE ASSESSEE COULD UTILISE THE SAID AMOUNT AND SECU RE THE BENEFIT OVER NUMBER OF YEARS. THIS IS DISCERNIBLE FROM THE FOLLO WING PASSAGE IN THAT JUDGMENT ON WHICH RELIANCE WAS PLACED BY THE LEARNE D COUNSEL FOR THE REVENUE HERSELF: ITA NO. 247 & 248/2018 :- 23 -: '15.. THE TRIBUNAL, HOWEVER, HELD THAT SINCE THE EN TIRE LIABILITY TO PAY THE DISCOUNT HAD BEEN INCURRED IN THE ACCOUNTING YE AR IN QUESTION, THE ASSESSEE WAS ENTITLED TO DEDUCT THE ENTIRE AMOUNT O F RS.3,00,000 IN THAT ACCOUNTING YEAR. THIS CONCLUSION DOES NOT APPE AR 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, T HEREFORE, A LIABILITY SPREAD OVER A PERIOD OF 12 YEARS. ORDINARILY, REVEN UE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHIC H 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 EXPENDITUR E IN A PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF ENSUIN G YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDITURE IN ONE YEAR MIGHT G IVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. THUS I N THE CASE OF HINDUSTAN ALUMINIUM CORPORATION LTD. VS. CIT, (1982) 30 CTR ( CAL) 363: (1983) 144 ITR 474 (CAL) THE CALCUTTA HIGH COURT UPHELD TH E 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 Q UESTION. 16. ISSUING DEBENTURES AT A DISCOUNT IS ANOTHER SUC H INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, THE PAYMENT IS TO SECU RE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINUING BENEFIT TO T HE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD. THE LIABILITY SHOUL D, THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES.' 17. THUS, THE FIRST THING WHICH IS TO BE NOTICED IS TH AT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, IT WAS THE A SSESSEE WHO WANTED THE SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRI NCIPLE THAT NORMALLY REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YE AR IN WHICH IT IS INCURRED, BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE COURT AGREED TO ALLOW THE ASSESSEE THAT B ENEFIT WHEN IT WAS FOUND THAT THERE WAS A CONTINUING BENEFIT TO THE BU SINESS OF THE COMPANY OVER THE ENTIRE PERIOD. 18. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY THE O RDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE CLAI MS THAT EXPENDITURE IN THAT YEAR, THE IT DEPARTMENT CANNOT DENY THE SAME. 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 I F 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 ASSESSE E DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FI VE YEARS AS IN THE ITA NO. 247 & 248/2018 :- 24 -: RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE INTER EST PAID UPFRONT AS DEDUCTIBLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION, WHEN THIS COURSE OF ACTION WAS PERMISSIBLE IN LAW TO THE ASSE SSEE AS IT WAS IN CONSONANCE WITH THE PROVISIONS OF THE ACT WHICH PER MIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WHICH IT WAS I NCURRED, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOK S OF ACCOUNT CANNOT BE A FACTOR WHICH WOULD DEPRIVE THE ASSESSEE FROM C LAIMING THE ENTIRE EXPENDITURE AS A DEDUCTION. IT HAS BEEN HELD REPEAT EDLY BY THIS COURT THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERM INATIVE OR CONCLUSIVE AND THE MATTER IS TO 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 & FERTILIZ ERS LTD. V. CIT [1997] 227 ITR 172/93 TAXMAN 502 (SC); SUTLEJ COTTON MILLS LTD. V. CIT [1979] 116 ITR 1 (SC) AND UNITED COMMERCIAL BANK V. CIT [1 999] 240 ITR 355/106 TAXMAN 601 (SC). 20. AT THE MOST, AN INFERENCE CAN BE DRAWN THAT BY SHO WING THIS EXPENDITURE IN A SPREAD OVER MANNER IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAD INITIALLY INTENDED TO MAKE SUCH AN OPT ION. HOWEVER, IT ABANDONED THE SAME BEFORE REACHING THE CRUCIAL STAG E, INASMUCH AS, IN THE INCOME TAX RETURN FILED BY THE ASSESSEE, IT CHO SE 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 ASSESS MENT BY APPLYING THE PROVISIONS OF THAT ACT AND NOT TO GO BEYOND THE SAI D RETURN. THERE IS NO ESTOPPEL AGAINST THE STATUTE AND THE ACT ENABLES AN D ENTITLES THE ASSESSEE TO CLAIM THE ENTIRE EXPENDITURE IN THE MAN NER IT IS CLAIMED . 18. FROM READING OF THE ABOVE JUDGMENTS, IT IS CLEAR T HAT THE PRINCIPLE OF MATCHING POSTULATES THAT THE EXPENDITU RE CORRESPONDING TO THE INCOME RECOGNIZED SHOULD ALSO BE ACCOUNTED F OR. BUT IN THE PRESENT CASE FROM THE ANALYSIS OF PROFIT AND LOSS A CCOUNT MADE BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) VIDE P ARA 7.4 OF THE IMPUGNED ORDER, IT IS CLEAR THAT THE APPELLANT HAD NOT FOLLOWED THIS MATCHING PRINCIPLE WHILE APPORTIONING THE INCOME OV ER THE PERIOD OF 21 YEARS BY NOT APPORTIONING THE EXPENDITURE OVER A PERIOD OF ITA NO. 247 & 248/2018 :- 25 -: 21 YEARS. UNDOUBTEDLY, THIS RESULTED IN THE DISTOR TION OF THE PROFIT OR LOSS FOR THE PERIOD AND THEREFORE THE ACCOUNTING POLICY OF RECOGNIZATION OF INCOME ADOPTED BY THE ASSESSEE DO ES NOT GIVE TRUE PICTURE OF PROFIT OR LOSS FOR THE PERIOD. TH E HONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD VS. CIT, 227 ITR 172 HAD HELD THAT ACCOUNTING POLICIES CANNOT OVERRIDE THE PROVISIONS OF INCOME TAX ACT. THEREFORE THE RAT IO OF THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF TVS FINANCE & SERVICES LTD (SUPRA) WHEREIN WHILE DEALING IN THE ISSUE, WHETHER OR NOT INCOME ACCRUED ON DISCOUNTING OF BILLS BY BANK , IT WAS HELD AS UNDER:- 15. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE TRANSACTION OF DISCOUNT IS COMPLETE AT THE MOMENT, THE CUSTOMER IS GIVEN 90 PER CENT. OF THE VALUE OF THE BILL. THE DISCOUNT IS EQUIVALENT TO THE INTEREST. WHAT CAN BE SEEN FROM THE EXTRACTS OF TANNAN' S BANKING IS THAT THE ACCRUAL OF THIS IS CERTAIN AND ARISES ON THE DATE OF DISCOU NT ITSELF. THE TRIBUNAL WAS RIGHT IN CONCLUDING THAT THE UNCER TAINTY REGARDING THE DISCHARGE OF THE BILL OR REDISCOUNTIN G HAS NO RELEVANCE AND ON THAT GROUND THE INCOME CANNOT BE POSTPONED OR SPREAD OVER THE PERIOD OF DISCOUNT, BE CAUSE THAT IS A SEPARATE TRANSACTION. CIT V. BANK OF TOKY O [1993] 71 TAXMAN 85 (CAL) CANNOT APPLY SINCE THERE THE PAYABILITY OF THE GUARANTEE COMMISSION WAS A TENTAT IVE RIGHT TO RECEIVE THE COMMISSION FOR THE UNEXPIRED P ERIOD AND THE RIGHT BECAME PERFECTED AND CRYSTALLIZE ONLY WITH THE EXPIRY OF THE UNEXPIRED PERIOD AND THE DATE FOR THE ENTIRE AMOUNT WOULD ARISE ONLY WHEN THE WHOLE GUARA NTEE PERIOD IS MADE IN THE COMPLETE ROUND. BUT HERE, WHI LE DISCUSSING THE ADVANTAGES OF BILLS DISCOUNTING IT I S SEEN FROM THE ABOVE THAT IN THE CASE OF BILLS DISCOUNTIN G THE YIELD IS AT THE TIME OF DISCOUNTING AND IT IS HIGHE R THAN LOANS OR ADVANCES. QUESTIONS NOS. (I), (III), (III) , (III) IN T. ITA NO. 247 & 248/2018 :- 26 -: C. NOS. 107 TO 110 OF 2002, RESPECTIVELY, ARE ANSWE RED AGAINST THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAD NOT CONTROVERT ED THE FINDINGS OF THE LD. CIT(APPEALS) THAT THE PROFITS FOR THE YE AR ARE DISTORTED BY NOT APPORTIONING THE EXPENDITURE OVER A PERIOD OF CONTRACT. THE METHOD ADOPTED BY THE ASSESSEE RUNS COUNTER TO THE VERY MATCHING PRINCIPLES EMANATED BY THE ABOVE JUDICIAL PRECEDENT S. THE ACCOUNTING POLICY ADORED BY THE ASSESSEE DOES NOT GIVE THE TRUE PICTURE OF PROFITS. THEREFORE THE CLAIM OF THE ASSE SSEE THAT THE INCOME CAN BE APPORTIONED OVER A PERIOD OF CONTRACT CANNOT BE ACCEPTED. THEREFORE WE DO NOT FIND ANY FALLACY IN T HE REASONING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE, THE ISSUE WHETHER THE CORRESPONDING EXPENDITURE HAD BEEN DEFE RRED OVER A PERIOD OF CONTRACT WAS NOT DISCUSSED NOR THE TRIBU NAL ANALYZED THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THEREFO RE THE DECISION OF THE CO-ORDINATE BENCH LOSES THE BINDING NATURE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL FILED BY THE ASSESSEE. ITA NO. 247 & 248/2018 :- 27 -: ITA NO.248/CHNY/2018 FOR ASSESSMENT YEAR 2014-15. 19. SINCE, THE FACTS IN THE PRESENT APPEAL IS IDE NTICAL TO THE FACTS IN ITA NO.247/CHNY/2018, FOR THE REASONS MENTIONED THEREIN, WE DISMISS THE APPEAL FILED BY THE ASSESSEE ON THE SA ME LINES INDICATED IN APPEAL ITA NO.247/CHNY/2018 SUPRA. HENCE, THE AB OVE CAPTIONED APPEAL FILED BY THE ASSESSEE IS DISMISSED. 20. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E DISMISSED. ORDER PRONOUNCED ON 28TH DAY OF MAY, 2019, AT CHEN NAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER -) / CHENNAI . / DATED: 28TH MAY, 2019. KV /0 $0& *12032'* / COPY TO: 0 1 . # / APPELLANT 3. 0 ( 4*056 / CIT(A) 5. 278 0& * 9 / DR 2. &' # / RESPONDENT 4. 0 ( 4* / CIT 6. 8:0;) / GF