DCIT, CC-2(2), CHENNAI V. M/S. HINDUJA LEYLAND FINANCE LTD., CHENNAI

ITA 3003/CHNY/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2244 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 23-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 145; 37(1); 13; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO,JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.3003/CHNY/2019 ( / ASSESSMENT YEAR: 2016-17) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(2) R.NO.512, WANAPARTHY BLOCK, 121, M.G.ROAD,CHENNAI-600 034. VS M/S. HINDUJA LEYLAND FINANCE LTD. DEVELOPED PLOT 27A, SOUTH PHASE, SIPCOT INDUSTRIAL ESTATE, GUINDY, CHENNAI-32. PAN:AACCH 1807P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.SURESH PERIASAMY, JCIT /RESPONDENT BY : MR.R.SATHYANARAYANAN, C.A /DATE OF HEARING : 11.02.2021 /DATE OF PRONOUNCEMENT : 01.03.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE LEARNED CIT(A)-6, CHENNAI DATED 02.08.2019 AND PERTAINS TO ASSESSMENT YEAR 2016-17. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TA X APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 1. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF PREPAID EXPENSES OF ` 43,99,74,573/- BY HOLDING THAT DIFFERENT TREATMENT GIVEN IN THE BOOKS OF ACCOUNT COULD NOT BE A FACTOR TO DEPRIVE ASSESSEE FROM CLAIMING ENTIRE EXPENDITURE AS A DEDU CTION IN THE YEAR OF INCURRENCE ITSELF. 2 ITA NO. 3003/CHNY/2019 1.2. CIT(A) ERRED IN RELYING THE DECISION OF HONBL E SUPREME COURT DECISION IN THE CASE OF TAPARIA TOURS LTD. V. JCIT,(2015) 372 ITR 605(SC) WHICH PERTAINS TO ISSUE OF DEBENTUR ES. 1.3 CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT WHEN THE DEBENTURES WERE ISSUED, THE INCOME FROM THEM WAS RE ALIZED IN THE SAME YEAR OF ISSUANCE, THUS THE ENTIRE INTEREST PAYMENT CLAIMED AS DEDUCTION IS ALLOWABLE. WHEREAS IN THE I NSTANT CASE, THE INCOME FROM THE LOANS WAS NOT RECEIVED DURING T HE FINANCIAL YEAR ITSELF. HENCE, THIS CASE IS FACTUALLY DISTINGU ISHABLE FROM THE CASE OF TAPARIA TOOLS LTD. V. JCIT(2015) 372 ITR 60 5(SC). 1.4. CIT(A) OMITTED TO CONSIDER THE FACT THAT LOANS ADVANCED WHICH RESULTS IN ENDURING BENEFIT IN THE FORM OF IN TEREST INCOME TO THE ASSESSEE. THUS, THE EXPENSES INCURRED SHOULD BE PROPORTIONATELY AMORTIZED ACROSS THE YEARS AND DEDU CTION BE ALLOWED ACCORDINGLY. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF NON-BANKING FINANCIAL SERVICES AND ASSET FINANCING FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2016-17 ON 28.11.2016 DECLARING TOTAL INCOME OF ` 2,52,54,10,110/-.THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS INTEREST INCOME FROM FINANCING ACTIVITIES FOR W HICH THE ASSESSEE HAS INCURRED CERTAIN EXPENSES INCLUDING L OAN PROCESSING FEE ON TERM LOAN, STAMP CHARGES, MARKETI NG FEES, SOURCING EXPENSES, C.V. BUSINESS SOURCING EXPENSES, SHARE ISSUE EXPENSES AND OTHER EXPENSES ETC. WHILE LEN DING LONG 3 ITA NO. 3003/CHNY/2019 TERM FINANCE. THE ASSESSEE, IN ITS BOOKS OF ACCOU NT HAS CLASSIFIED THESE EXPENSES AS PREPAID EXPENSES AND AMORTIZED OVER THE PERIOD OF LOANS UPTO ASSESSMENT YEAR 2015- 16. HOWEVER, FOR THE FIRST TIME, THE ASSESSEE HAS FILED REVISED RETURN FOR ASSESSMENT YEAR 2016-17 AND CHANGED ITS METHOD OF ACCOUNTING FOR TREATMENT OF EXPENSES INCURRED FOR LONG TERM FINANCE BUSINESS AND CLAIMED THAT ENTIRE EXPENSES W AS DEDUCTIBLE IN THE YEAR OF PAYMENT. THE CASE WAS TA KEN FOR SCRUTINY ASSESSMENT AND DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER WAS OF THE OPIN ION THAT THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING FOR A CCOUNTING OF VARIOUS EXPENSES INCURRED IN RELATION TO LOAN PR OCESSING AND TREATED AS REVENUE EXPENDITURE DEDUCTIBLE IN THE YE AR OF PAYMENT . HOWEVER, SUCH EXPENDITURE HAS BEEN TREATE D AS PREPAID EXPENSES UPTO ASSESSMENT YEAR 2015-16 AND AMORTIZED OVER THE PERIOD OF LOAN BY FOLLOWING MATC HING CONCEPT PRINCIPLES OF ACCOUNTING. THE ASSESSING OFFICER FU RTHER WAS OF THE OPINION THAT ALTHOUGH ASSESSEE HAS ACCOUNTED SA ID EXPENSES IN THE BOOKS OF ACCOUNT AS PREPAID EXPEN SES UPTO A.Y.2015-16 BUT FOR THE ASSESSMENT YEAR 2016-17 F ULL 4 ITA NO. 3003/CHNY/2019 DEDUCTION HAS BEEN CLAIMED ON THE GROUND THAT ALL E XPENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE AND SAME NEEDS TO BE ALLOWED IN THE YEAR OF PAYMENT. BUT, NO EXPLANATION HAS BEEN FURNISHED TO JUSTIFY CHANGE OF METHOD OF ACCOUNTING FOR SAID EXPENSES. THEREFORE, HE WAS OF THE OPINION THAT PRE PAID EXPENSES INCURRED WHILE LENDING LONG TERM FINANCE S HOULD HAVE SPREAD OVER PERIOD OF TERM LOAN AND ACCORDINGLY, RE JECTED THE CLAIM OF ASSESSEE TOWARDS DEDUCTION OF PREPAID EXPE NSES AMOUNTING TO ` 43,99,74,573/- AND ADDED BACK TO TOTAL INCOME. THE RELEVANT FINDINGS OF THE ASSESSING OFFICER ARE AS UNDER:- THE SUBMISSION OF ASSESSEE WAS CONSIDERED. THE ASS ESSEE HAS NOT CLAIMED THE SAID PREPAID EXPENSES OF RS. 43,99,74,573/-. IN THE ORIGINAL RETURN AND SUBSEQU ENTLY CLAIMED THE PREPAID EXPENSES IN THE REVISED RETURN. THE PRE -PAID EXPENSES PERTAINS TO STAMP CHARGES , PROCESSING FEES OR TERM LOANS, MARKETING FEES, SOURCING EXPENSES, C.V. BUSI NESS, SOURCING EXPENSES LAP, SHARE ISSUE EXPENSES AND OTH ER EXPENSES ETC. THE ASSESSEE HAS INCURRED THESE EXPENSES WHILE LENDING LONG TERM FINANCE. . THE ASSESSEE HAS FOLL OWED THE PRINCIPLE OF MATCHING CONCEPT FOR THE PREPAID EXPEN SES TILL AY 205-16. THE ASSESSEE HAS AMORTIZED THESE PRE EXPEN SESTO THE YEARS EQUIVALENT TO THE REPAYMENT PERIOD TERM LO AN IN THE BOOKS OF ACCOUNTS AND ACCORDINGLY CLAIMED THE AMO RTIZED PORTION OF EXPENDITURE PERTAINS TO THE PARTICULAR FINANCIAL YEAR 5 ITA NO. 3003/CHNY/2019 IN RETURN OF INCOME . THIS METHOD WAS FOLLOWED BY T HE ASSESSEE CONSISTENTLY UP TO A.Y 2015-16. IN THE A.Y 2016-17 ALSO ASSESSEE HAS AMORTIZED THE SAID EXPENSES IN BOOKS OF ACCOUNT AND THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING OF REPAID EXPENSES. THE SAME THE METHOD OF ACCOUNTING FOR PR EPAID EXPENSES ADOPTED BY THE ASSESSEE WHILE FILING THE ORIGINAL RETURN OR INCOME BUT HAVE CHANGED METHOD OF ACCOUNT ING FOR THE PREPAID EXPENSES AND FILED THE REVISED RETURN O N THE BASIS OF NOT FOLLOWING MATCHING CONCEPT. THE ASSESSEE INCURRED THOSE PREPAID EXPENSES WHILE LENDING THE LONG TERM LOAN. NATURALLY THE EXPENSES SHOULD HAVE SPREAD OVER THE PERIOD OF TERM LOAN. THE ASSESSEE C ANNOT CLAIM ALL THE PREPAID EXPENSES IN THE YEAR IN WHICH IT WA S INCURRED BECAUSE THE ASSESSEE HAS NOT OFFERED THE ENTIRE INT EREST INCOME OF THE TERM LOAN IN THE YEAR IN WHICH IT WAS SANCTIONED ON ACCRUAL BASIS. THE ASSESSEE OFFERING THE INTERES T INCOME IN THE YEAR IN WHICH IT WAS ACCRUED. SO THE ASSESSEE S HOULD FOLLOW THE SAME PRINCIPLE FOR THE PREPAID EXPENSES ALSO. FOR EXAMPLE, THE ASSESSEE GIVING LONG TER, LOAN DURING THE YEAR AND REPAYMENT IS FIVE YEARS. THE ASSESSEE HAS NOT OFFERING THE ENTIRE FIVE YEARS PERIOD INTEREST INCO ME ALTOGETHER AT A TIME IN THE YEAR TO WHICH LOAN SANCTIONED. HE IS OFFERING THE INTEREST INCOME IN PARTICULAR YEAR IN WHICH IT IS A CCRUED I.E. OFFERING OF INCOME OVER THE PERIOD OF FIVE YEARS. SO WHATEVER THE PREPAID EXPENSES INCURRED BY THE ASSESSEE ALSO SHOULD SPREAD OVER FOR THE PERIOD OF FIVE YEARS. SO THE PREPAID EXPENSES ALSO SHOULD SPREAD OVE R THE PERIOD OF TERM LOAN AS HAT OF INTEREST INCOME OFFER ED. SO. THE ASSESSEE CLAIM IS REJECTED. THE ASSESSEE HAS QUOTED THE HON'BLE SUPREME COURT DECISION IN THE CASE OF M/S. TAPARIA TOOLS LTD . VS. JCIT SPECIAL 6 ITA NO. 3003/CHNY/2019 RANGE-I, IN SUPPORT OF HIS CLAIM. THE ISSUE INVOLVE D IN THE SAID CASE IS AMORTIZATION OF INTEREST EXPENDITURE PERTAI NS TO THE DEBENTURES, WHICH IS TOTALLY DIFFERENT FROM THE A SSESSEE CASE. IN VIEW OF THIS, THE ASSESSEE CLAIM IS REJECTED. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). BEFO RE THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT EXPENSE S INCURRED WHILE GRANTING LONG TERM FINANCE LIKE STAMP CHARGES , LOAN PROCESSING FEE ON TERM LOAN, MARKETING FEES, SOURC ING EXPENSES, SHARE ISSUE EXPENSES ETC. WAS TREATED AS PREPAID EXPENSES AND AMORTIZED OVER THE PERIOD OF LOAN UPT O ASSESSMENT YEAR 2015-16, BUT FROM ASSESSMENT YEAR 2 016-17, THE SAME HAS BEEN CLAIMED AS DEDUCTIBLE IN THE YEA R OF PAYMENT, BECAUSE EXPENDITURE INCURRED IS IN THE NAT URE OF REVENUE EXPENDITURE WHICH ARE DEDUCTIBLE U/S. 37( 1) OF THE ACT. THE ASSESSEE HAS ALSO FILED DETAILED WRITTEN S UBMISSIONS WHICH HAS BEEN PRODUCED AT PARA 4.1.1 ON PAGES 3 TO 8 OF LEARNED CIT(A) ORDER. THE SUM AND SUBSTANCE OF ARGU MENTS OF THE ASSESSEE BEFORE LEARNED CIT(A) ARE THAT ENTRIES IN BOOKS OF ACCOUNT IS NOT A RELEVANT CRITERIA TO CONSIDER ALLO WABLITY OR 7 ITA NO. 3003/CHNY/2019 OTHERWISE OF EXPENDITURE UNDER THE INCOME TAX ACT, AND WHAT IS RELEVANT IS WHETHER EXPENDITURE IS REVENUE IN NATUR E OR CAPITAL IN NATURE, WHICH GIVES ENDURING BENEFIT TO THE ASSE SSEE. UNLESS THE ASSESSING OFFICER MAKES A POINT THAT EXPENDITU RE INCURRED IS NOT ALLOWABLE UNDER THE ACT, THEN HE CANNOT DISA LLOW CLAIM OF THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS CHANGE D ITS METHOD OF ACCOUNTING TO GIVE DIFFERENTIAL TREATMEN T TO THE EXPENDITURE FOR IMPUGNED ASSESSMENT YEAR. THE ASSES SEE HAS ALSO TAKEN SUPPORT FROM DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF M/S. TAPARIA TOOLS LTD. VS JCIT (201 5) 372 ITR 605 AND ARGUED THAT ONCE AN EXPENDITURE IS INCURRED AND MADE PAYMENT, THE SAME NEEDS TO BE ALLOWED IRRESPECTIVE OF TREATMENT GIVEN IN BOOKS OF ACCOUNT. 5. THE LEARNED CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. TAPARIA TOOLS LTD. (SUPRA) OBSERVED THAT TREATMENT OF EXPE NSES IN THE BOOKS IS NOT A BAR FOR THE PURPOSE OF CLAIMING EX PENSES IN THE RETURN AS DEDUCTION, IF THE EXPENSES ARE ALLOWABLE AS DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, IRRE SPECTIVE OF THE 8 ITA NO. 3003/CHNY/2019 TREATMENT OF EXPENSES IN THE BOOKS. THE LEARNED CIT (A) FURTHER OBSERVED THAT IT IS NOT A CASE OF THE ASSESSING OF FICER THAT VARIOUS EXPENDITURE INCURRED IN CONNECTION WITH BUS INESS OF THE ASSESSEE ARE CAPITAL IN NATURE WHICH GIVES ENDURIN G BENEFIT TO THE ASSESSEE. IN FACT, THE ASSESSING OFFICER HAS A CCEPTED THE FACT THAT ALL EXPENDITURE ARE IN THE NATURE OF REVE NUE, BUT HE HAS DENIED DEDUCTION ONLY FOR THE REASON THAT ASSESSEE HAS CHANGED ITS CONSISTENT METHOD OF ACCOUNTING FROM TH E CURRENT FINANCIAL YEAR WITHOUT ASSIGNING ANY REASONS, IGNOR ING THE FACT THAT THERE IS NO BAR UNDER THE PROVISIONS OF SECTIO N 145 OF THE ACT, TO CHANGE THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE . IT IS WELL SETTLED PRINCIPLE OF LAW THA T ASSESSEE CAN CHANGE METHOD OF ACCOUNTING FOLLOWED FOR ACCOUNTING ITS INCOME AND EXPENDITURE, BUT SUCH METHOD SHOULD BE F OLLOWED CONSISTENTLY IN THE SUBSEQUENT YEARS AND FURTHER, ASSESSEE HAS TO DISCLOSE EFFECTS ON THE FINANCIAL STATEMENTS ON ACCOUNT OF CHANGES IN METHOD OF ACCOUNTING. THE LEARNED CIT(A) HAS DISCUSSED THE ISSUE AT LENGTH IN LIGHT OF THE DECI SION OF HON'BLE SUPREME COURT AND CAME TO THE CONCLUSION THAT EXP ENSES ARE ESSENTIALLY REVENUE EXPENSES AND THE ASSESSEE HAS INCURRED 9 ITA NO. 3003/CHNY/2019 THOSE EXPENSES WHILE GRANTING LOANS THEREFORE, EVE N IF THOSE EXPENSES ARE CLASSIFIED AS PREPAID EXPENSES, BECAUS E THOSE EXPENSES ARE ALREADY INCURRED FOR IMPUGNED FINANC IAL YEAR, THEY ARE REQUIRED TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS OR PROFESSION. THE RELEVANT FI NDINGS OF THE LEARNED CIT(A) ARE AS UNDER:- 4.1.2 THE ABOVE SUBMISSIONS OF THE ASSESSEE ARE CON SIDERED CAREFULLY. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY ENGAGED IN ASSET FINANCING. ITS INCOME IF PREDOMIN ANTLY INTEREST INCOME RECEIVED FROM ITS FINANCING ACTIVITIES. SIMI LARLY, ITS EXPENSES CLAIMED ARE ALSO INTEREST PAYMENTS AND REL ATED EXPENSES OF FINANCING. APART FROM THE INTEREST EXPE NSES PAID BY ASSESSEE THE COMPANY HAS ALSO BEEN INCURRING CER TAIN EXPENSES WHILE PROCESSING THE LOANS. THESE EXPENSES ARE IN THE FORM OF STAMP CHARGES, PROCESSING FEES OR TERM LOANS, MARKETING FEES SOURCING EXPENSES C .V. BUSINESS. SOURCING EXPENSES LAP, SHARE ISSUE EXPENSES AND OTHER EXPENS ES ETC., INCURRED WHILE LENDING THE LONG TERM FINANCE. THE A SSESSEE COMPANY, IN ITS BOOKS OF ACCOUNT HAS BEEN CLASSIF YING THESE EXPENSES AS PREPAID EXPENSES AND CLAIMING PROPORTI ONATELY OVER THE PERIOD OF THE LOANS. THIS IS THE PRACTICE OF THE ASSESSEE CONSISTENTLY FOLLOWED UP TO FINANCIAL YEAR 2014-15 (A.Y.2015-16) IN FACT IN THE FINANCIAL YEAR 2015-16 RELEVANT TO T HE PRESENT AY 2016- I7 THE ASESSEE HAS FOLLOWED THE SAME METHOD I N ITS BOOKS OF ACCOUNT AND ALSO FILED ITS RETURN OF INCO ME . HOWEVER, IT WAS ONLY IN ITS REVISED RETURN OF A.Y.2016-17 TH E ASSESSEE FOR THE FIRST TIME, CHANGED ITS STAND AND CLAIMED THE E NTIRE AMOUNT 10 ITA NO. 3003/CHNY/2019 OF SUCH PREPAID EXPENSES AS REVENUE EXPENDITURE AND CLAIMED AS A DEDUCTION ACCORDINGLY. THE CONTENTIONS OF THE ASSESSEE FOR CHANGING ITS METHOD OF CLAIMING THE EXPENSES ARE TH AT THOUGH THESE EXPENSES ARE CLASSIFIED AS PRE-PAID EXPENSES IN ITS BOOKS, THEY ARE ESSENTIALLY REVENUE EXPENSES IN ITS NATURE AND HENCE ALLOWABLE AS EXPENDITURE IN THE YEAR OF INCU RRENCE OF EXPENDITURE ITSELF, ESPECIALLY IN VIEW OF THE LATE ST DECISION OF THE APEX COURT IN THE CASE OF TAPARIA TOOLS LTD. VS. J CIT [2015] 372 ITR 605 RENDERED IN THE YEAR 2015. ON THE OTHER HAND THE CONTENTION OF THE ASSESSING OFFICER, WHILE REJECTIN G THE ASSESSEE CLAIM, IS THAT THERE WAS NO JUSTIFICATION FOR CHANGING THE CONSISTENTLY FOLLOWED METHOD BY THE ASSESSEE; A ND THE ABOVE EXPENSES WE TO BE SPREAD OVER THE PERIOD OF T HE TENURE OF THE LOAN. 4.1.3 GENERALLY. THE EXPENSES INCURRED BY AN ASSESS ED DURING THE COURSE OF CONDUCTING BUSINESS , COULD BE OF TWO TYPES. NAMELY, (I) REVENUE EXPENSES AND (II )CAPITAL EXPEN SES. THE REVENUE EXPENSES ARE TO BE ALLOWED AS DEDUCTIONS WH ILE COMPUTING THE PROFITS OF THE YEAR, WHILE THE CAPITA ! EXPENSES CANNOT BE ALLOWED. THESE CAPITAL EXPENSES ERE TO B E CAPITALIZED IN THE ASSESSEES BOOKS AND APPROPRIATE DEPRECIATION IS TO BE ALLOWED WHILE COMPUTING THE P ROFITS OF THE YEAR. ALL EXPENSES INCURRED FOR THE BUSINESS, NECE SSARILY HAVE TO FELL IN ONE OF THESE TWO CATEGORIES. BEFORE DECI DING WHETHER A PARTICULAR EXPENDITURE IS A CAPITAL OR REVENUE EXPE NDITURE. ONE HAS TO SEE ITS USE AND BENEFITS. IF THE EXPENDITURE IS RESUITING IN A CREATION OF AN ASSET, EITHER TANGIBLE OR INTANG IBLE, AND THE BENEFITS ARE ENDURING SUCH EXPENSES ARE TO BE CLAS SIFIED AS CAPITOL EXPENSES AND ONLY APPROPRIATE DEPRECIATION IS TO BE ALLOWED WHILE COMPUTING THE PROFITS. ON THE OTHER H AND, WHERE THE EXPENSES INCURRED ARE NOT RESULTING IN CREATION OF ANY ASSET 11 ITA NO. 3003/CHNY/2019 AND THE BENEFITS ARE ROT ENDURING, THE SAME ARE TO BE CONSIDERED AS REVENUE EXPENSES AND NEEDS TO BE ALLO WED AS DEDUCTIONS WHILE COMPUTING THE PROFITS OF THE YEAR. 4.1.4 IN THE PRESENT CASE, THE EXPENSES CATEGORIZED AS PRE- PAID EXPENSES ARE ON ACCOUNT OF STAMP CHARGES, PRO CESSING FEES OR TERM LOANS, MARKETING FEES, SOURCING EXPENS ES, C.V. BUSINESS, SOURCING EXPENSES LAP, SHARE ISSUE EXPENS ES AND OTHER ETC. INCURRED WHILE LENDING THE LONG TERM FIN ANCE. ALL THESE EXPENSES ARE NOT RESULTING IN CREATION OF ANY ASSET , NOR RESULTING IN ANY ENDURING BENEFITS FOR THE ASSESSEE. THEREFOR E, THESE EXPENSES ARE ESSENTIALLY REVENUE EXPENSES IN NATURE AND NEEDS TO BE ALLOWED AS DEDUCTION IN THE YEAR OF INC URRENCE ITSELF. 4.1.5 FURTHER, THE WORD PRE-PAID FOR THE EXPENSE S INCURRED BY ASSESSEE IS A MISNOMER. PREPAID MEANS PAYMENTS MADE BEFORE INCURRENCE OF EXPENDITURE OR PAID BEFORE IT WAS DUE FOR PAYMENT. IN THE PRESENT CASE THE EXPENDITURE HAS ALREADY BE EN INCURRED. HENCE THE WORD PREPAID WILL BE INAPPROPRIATE . SOME TIMES THESE EXPENSES ALSO REFERRED AS DEFERRED REVENUE EXPENSES IN ACCOUNTANCY MEANING THEREBY THAT THE EXPENSES CAN BE ATTRIBUTABLE FOR THE PERIOD OF TRANSACTION. HOWEVE R, UNDER THE PROVISIONS OF IT ACT EITHER DEFERRED REVENUE EXPEND ITURE OR PREPAID EXPENSES ARE NOT GIVEN ANY SPECIAL TREATME NT. HENCE, ONE HAS TO SEE WHETHER THESE EXPENSES ARE CAPITAL O R REVENUE IN NATURE; AND WHETHER THESE EXPENSES ARE INCURRED FOR THE BUSINESS PURPOSES. THEREFORE, ANY EXPENDITURE, WHIC H IS REVENUE IN NATURE AND HAS ACTUALLY BEEN INCURRED FO R THE BUSINESS DURING THE YEAR, THE SAME NEEDS TO BE ALLO WED AS DEDUCTION, WHILE COMPUTING THE INCOME OF THE YEAR. 12 ITA NO. 3003/CHNY/2019 4,L.6 FOR THIS PURPOSE, RELIANCE IS PLACED ON T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TO OLS LTD. VS. JCIT. [2015) 372 ITR 605 (SC) WHERE THE COURT H ELD THAT ONCE AN EXPENDITURE IS INCURRED AND MADE THE PAYMEN TS AND THE CLAIM OF THE ASSESSEE IS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, THE SAME NEEDS TO BE ALLOWED TO THE ASS ESSEE, IRRESPECTIVE OF THE TREATMENT GIVEN IN BOOKS OF ACC OUNT. SIMILARLY A SALES TAX IIABILITY DETERMINED BY SALES TAX AUTH ORITIES TO BE PAYABLE ON SALES MADE BY ASSESSEE DURING RELEVANT ACCOUNTING YEAR IS TO BE ALLOWED AS DEDUCTION IN T HE RELEVANT ASSESSMENT YEAR ASSESSEE DURING RELEVANT ACCOUNTIN G YEAR, EVEN IF THE ASSESSEE HAS DISPUTED THE DEMAND AND A LSO HAS NOT MADE ANY SUCH PROVISION IN THE BOOKS OF ACCOUN T MAINTAINED ON MERCANTILE BASIS, AS HELD BY THE APE X COURT IN THE CASE OF KEDARNATH JUTE MFG. CO, LTD. V. CIT (19 71) (82 ITR 363 (SC). THE HEAD-NOTES OF THE DECISIONS ARE AS U NDER: TAPARIA TOOLS LTD. VS.JCIT (2015) 372 ITR 605(SC) : SECTION 36(1)(III) OF INCOME TAX ACT, 1961 INTER EST ON BORROWED CAPITAL (UPFRONT INTEREST CHARGES) ASSESSMENT YEAR 1996-97 ASSESSEE COMPANY ISSUED DEBENTURES F OR A PERIOD OF 5 EARS APART FROM OPTION OF HALF YEARLY PERIODICAL INTEREST, DEBENTURE HOLDERS WERE GIVEN ANOTHER OPT ION TO ACCEPT ONE TIME UPFRONT DISCOUNTED INTEREST PAYMENT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING IT FILED ITS RETURN CLAIMING DEDUCTION OF UPFRONT INTE REST CHARGES PAID DURING RELEVANT YEAR HOWEVER, SAID AMOUNT W AS SHOWN AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF AC COUNT TO BE WRITTEN OFF OVER A PERIOD OF FIVE YEARS ASSE SSING OFFICER THUS ALLOWED ONLY 1/5 TH OF PAYMENT AS DEDUCTION. WHETHER 13 ITA NO. 3003/CHNY/2019 SINCE ASSESSEE MADE ACTUAL PAYMENT AND COURSE OF A CTION ADOPTED BY ASSESSEE WAS IN CONSONANCE WITH PROVISI ONS OF ACT, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN BOOKS OF ACCOUNT COULD NOT BE A FACTOR WHICH WOULD DEPRIV E ASSESSEE FROM CLAIMING ENTIRE EXPENDITURE AS A DEDUCTION - HELD YES [PARA 19][ IN FAVOUR OF ASSESSEE ]. KEDARNATH JUTE MFG. CO, LTD. V. CIT (1971) (82 ITR 363 (SC) S. 37(1) OF THE INCOME TAX ACT, 1961: BUSINESS EXP ENDITURE ALLOWABLITY OF - ASSESSMENT YEAR 1955-56 ASSESSE E COMPANY CLAIMED DEDUCTION ON ACCOUNT OF SALES TAX DETERMINED BY SALES TAX AUTHORITIES TO BE PAYABLE ON SALES MADE BY ASSESSEE DURING RELEVANT ASSESSMENT YEAR ITO DISALLOWED CLAIM ON THE GROUND THAT ASSESSEE HAD DE NIED ITS LIABILITY TO PAY THAT AMOUNT AND HAD MADE NO PROVIS ION IN ITS BOOKS WITH REGARD TO PAYMENT OF THAT AMOUNT. WHET HER WHEN LIABILITY HAD EVEN BEEN QUANTIFIED AND A DEMAND CRE ATED BY NOTICE OF NOTICE DURING PENDENCY OF ASSESSMENT PRO CEEDINGS BEFORE ITO AND BEFORE FINALIZATION OF ASSESSMENT SA ID LIABILITY REMAINED INTACT EVEN AFTER ASSESSEE HAD TAKEN APPEA LS TO HIGHER AUTHORITIES OR COURTS WHICH FAILED HELD, YES WHETHER THEREFORE ASSESSEE MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM WAS FULLY JUSTIFIED IN CLAIMING DEDUCTION OF SALES TAX AMOUNT WHICH IT WAS LIABLE UNDER LAW TO PAY DURING RELEVANT ASSESSMENT YEAR HELD YES. 4.1.7 IN THE PRESENT CASE ALSO, THE ENTIRE EXPENDIT URE HAS BEEN INCURRED AT THE BEGINNING OF THE SANCTIONING OF THE LONG TERM FINANCE AND ALSO QUALIFIES TO BE REVENUE EXPENSES. THEREFORE, THE ABOVE DECISION OF LIE SUPREME COURT OF TAPARIA TOOLS LTD - V. JCIT, [2015) 372 ITR 605 SC] IS SQUARELY APPLICA BLE TO THE 14 ITA NO. 3003/CHNY/2019 FACTS OF THE PRESENT CASE ALSO. THEREFORE THE SAME NEEDS TO BE ALLOWED AS A DEDUCTION, IRRESPECTIVE OF THE TREATME NT GIVEN IN THE BOOKS. THEREFORE, THE CLASSIFICATION OF THE EXP ENSES, AS PREPAID EXPENSES IN THE BOOKS OF THE ASSESSEE, CANN OT BE A BAR FOR CLAIMING THESE EXPENSES AS DEDUCTION IN I TS TOTALITY WHILE COMPUTING THE TAXABLE INCOME OF THE YEAR. 4.1.8 THE NEXT ASPECT TO BE EXAMINED IS REGARDING THE JUSTIFICATION FOR CHANGING THE METHOD OF CLAIMING T HE DEDUCTION. THE ASSESSEE HAS BEEN CONSISTENTLY PRACTICING AND F OLLOWING THE ABOVE METHOD OF CLAIMING THE ABOVE PREPAID EX PENSES OVER THE PERIOD OF LOAN PERIOD ALL ALONG AND UPTO F INANCIAL YEAR 2014-15 (AY 2015-16) . IT WAS ONLY WHILE FILING RE VISED RETURN OF A,.Y 2016-17, THE ASSESSEE FOR FIRST TIME CHANGED I TS STAND AND CLAIMED ENTIRE AMOUNT OF SUCH PRE-PAID EXPENSES AS REVENUE EXPENDITURE AND CLAIMED AS DEDUCTION, THUS. THERE I S A CHANGE IN THE METHOD OF CLAIMING THE EXPENDITURE. IT IS NO T IN THE METHOD OF ACCOUNTING EXPENDITURE IN ITS BOOKS. HENC E, FIRST OF ALL, THIS CANNOT BE REGARDED AS A CHANGE IN THE MET HOD OF ACCOUNTANCY FOLLOWED BY THE ASSESSEE. THE METHOD OF ACCOUNTANCY FOLLOWED BY THE ISSESSEE CONTINUES TO B E THE SAME AS IT WAS BEFORE, IT WAS ONLY WITH RESPECT TO THE N ATURE AND EXTENT OF EXPENDITURE CLAIMED WHILE FILING THE RETU RN OF INCOME. 4.1.9 AS MENTIONED IN THE FOREGOING PARAGRAPHS TRE ATMENT OF EXPENSES IN THE BOOKS IS NOT A BAR FOR THE PURPO SE OF CLAIMING THE EXPENSES IN THE RETURN AS DEDUCTIONS. IF THE EX PENSES ARE ALLOWABLE AS DEDUCTIONS IN ACCORDANCE WITH THE PROV ISIONS OF THE ACT THE SAME NEEDS TO BE ALLOWED AS DEDUCTION, IRRESPECTIVE OF THE TREATMENT OF THE EXPENSES IN THE BOOKS, AS H ELD BY THE HONBLE SUPREME COURT IN THE CASE OF TAPARIA TOOLS LTD. V. 15 ITA NO. 3003/CHNY/2019 JCLT, (2015] 372 ITR 605 SC) THE COURT HELD THAT A DIFFERENT TREATMENT GIVEN IN BOOKS OF ACCOUNT COULD NOT BE A FACTOR TO DEPRIVE ASSESSEE FROM CLAIMING ENTIRE EXPENDITURE AS A DEDUCTION . THIS JUDGEMENT WAS RENDERED BY APEX COU RT IN THE YEAR 2015 BY REVERSING DECISION OF BOMBAY HIGH COU RT . THIS JUDGEMENT OF THE APEX COURT AS EXPLAINED BY THE ASS ESEE HAS BECOME A SOURCE OF INSPIRATION AND SUPPORT FOR THE ASSESSEE TO CLAIM THE ENTIRE PREPAID EXPENSES, AS A DEDUCTION I N THE YEAR OF INCURRENCE ITSELF. THUS, THERE IS A REASON AND J USTIFICATION, FOR THE ASSESSEE TO CHANGE ITS METHOD OF CLAIMING THE E NTIRE PRE- PAID EXPENDITURE IN THE RETURN. THIS IS A REASONAB LE AND JUSTIFIED REASON AND NEEDS TO BE PERMITTED. 4.1.10 IN VIEW OF THE ABOVE REASONS, I AM OF THE CO NSIDERED OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE ASSESSEES CLAIM OF DEDUCTION ON THE AMOUNTS SHOWN AS PRE- PAID EXPENSES IN ITS BOOKS. THE ASSESSING OFFICER I S DIRECTED TO ALLOW THE ASSESSES CLAIM OF DEDUCTION OF PREPAID EX PENSES OF RS.43,99,74,573/-. THE ASSESSEE SUCCEEDS IN ITS APP EAL IN THIS REGARD. 6. THE LEARNED DR SUBMITTED THAT LEARNED CIT(A) HAS ER RED IN DELETING ADDITIONS ON ACCOUNT OF PREPAID EXPENS ES BY HOLDING THAT DIFFERENT TREATMENT GIVEN IN BOOKS O F ACCOUNT COULD NOT BE A FACTOR TO DEPRIVE ASSESSEE FROM CLAI MING ENTIRE EXPENDITURE AS A DEDUCTION IN THE YEAR OF INCURRENC E. THE LEARNED DR FURTHER SUBMITTED THAT LEARNED CIT(A) H AS ERRED IN RELYING ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF 16 ITA NO. 3003/CHNY/2019 TAPARIA TOOLS LTD. V. JCIT,(SUPRA) WITHOUT UNDERSTA NDING THE FACTS OF THOSE CASES THAT THE HON'BLE SUPREME COUR T HAS RENDERED THE DECISION IN THE CONTEXT OF ISSUE OF DE BENTURES AND INTEREST PAYMENT ON SAID DEBENTURES. THE LEARNED DR FURTHER SUBMITTED THAT WHENEVER DEBENTURES WERE ISSUED INCO ME FROM THEM WAS UTILIZED IN THE SAME YEAR OF ISSUE AND TH US, ENTIRE INTEREST PAYMENT CLAIMED AS DEDUCTION IS ALLOWABLE. IN THIS CASE, ASSESSEE HAS RECOGNIZED INTEREST INCOME OVER THE PERIOD OF LOAN AND CONSEQUENTLY, EXPENSES INCURRED IN CON NECTION WITH SAID LOANS NEEDS TO BE AMORTIZED OVER THE PERI OD OF LOAN. THE LEARNED CIT(A) WITHOUT APPRECIATING THESE FACTS HAS DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER . 7. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER HA ND, STRONGLY SUPPORTING THE ORDER OF LEARNED CIT(A) SUB MITTED THAT LEARNED CIT(A) HAS APPRISED THE FACTS IN RIGHT PERS PECTIVE OF LAW AND ALLOWED DEDUCTION TOWARDS EXPENDITURE BY HOLDIN G THAT EXPENDITURE ARE IN THE NATURE OF REVENUE AND SAME A RE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LEARNED AR FURTHER SUBMITTED THAT I T IS WELL SETTLED PRINCIPLE OF LAW BY THE DECISION OF HON'BL E SUPREME 17 ITA NO. 3003/CHNY/2019 COURT IN THE CASE OF M/S. KEDARNATH JUTE MANUFACTU RING COMPANY LTD. VS CIT (1972) 3 SCC 252, WHERE IT WAS CATEGORICALLY HELD THAT ENTRIES IN BOOKS OF ACCOUNT IS NOT DETERMINATIVE TO DECIDE ALLOWABLITY OF EXPENSES OR RECOGNITION OF INCOME AND WHAT IS RELEVANT IS NATURE OF EXPENS ES AND RELEVANCE OF SUCH EXPENSES IN THE BUSINESS OF THE ASSESSEE . IN THIS CASE, ASSESSEE HAS INCURRED VARIOUS EXPENDI TURE IN CONNECTION WITH BUSINESS ACTIVITY OF LONG TERM FINA NCE AND THE SAME HAS BEEN TREATED AS PREPAID EXPENSES UPTO ASSE SSMENT YEAR 2015-16 AND AMORTIZED OVER THE PERIOD OF LOAN, BUT SAME HAS BEEN CHANGED FROM CURRENT ASSESSMENT YEAR 2016- 17 AND CLAIMED AS DEDUCTION IN THE YEAR OF PAYMENT AND SA ID TREATMENT WAS SUPPORTED BY DECISION OF HON'BLE SUP REME COURT IN THE CASE OF M/S.TAPARIA TOOLS LTD. V. JCI T (SUPRA), WHERE IT WAS CATEGORICALLY HELD THAT ONCE EXPENDITU RE IS INCURRED AND MADE PAYMENT AND CLAIM OF THE ASSESSEE IS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, THE SAME NEEDS TO BE ALLOWED, IRRESPECTIVE OF TREATMENT GIVEN IN BOOK S OF ACCOUNT. THE LEARNED CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY 18 ITA NO. 3003/CHNY/2019 DELETED ADDITIONS MADE BY THE ASSESSING OFFICER AND HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW ALONG WITH VARIOUS CASE LAWS CITED BY THE LE ARNED COUNSEL FOR THE ASSESSEE. THE FACTS WITH REGARD TO IMPUGNED DISPUTE ARE THAT ASSESSEE HAS INCURRED VARIOUS EXPE NDITURE WHICH ARE IN THE NATURE OF REVENUE EXPENDITURE IN T HE COURSE OF ITS BUSINESS OF LONG TERM FINANCE. IT IS ALSO AN U NDISPUTED FACT THAT THOSE EXPENDITURE HAS BEEN TREATED AS PREPAID EXPENSES IN BOOKS OF ACCOUNT UPTO THE ASSESSMENT YEAR 2015-16 A ND AMORTIZED OVER THE PERIOD OF LOAN BY FOLLOWING MATC HING CONCEPT PRINCIPLES OF ACCOUNTING, BECAUSE INTEREST FROM LOA NS HAS BEEN RECOGNIZED FOR THE PERIOD OF LOAN . HOWEVER, FROM I MPUGNED ASSESSMENT YEAR, ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING AND CLAIMED DEDUCTION TOWARDS VARIOUS EX PENDITURE IN THE YEAR OF PAYMENT ON THE GROUND THAT THOSE EXP ENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE AND FURTHER TH E SAME ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 19 ITA NO. 3003/CHNY/2019 9. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO TH E FACTS AND VARIOUS REASONS GIVEN BY THE ASSESSING OFFICER TO DISALLOW DEDUCTION CLAIMED BY THE ASSESSEE TOWARDS PREPAID E XPENSES AND FIND THAT EXPENDITURE INCURRED BY THE ASSESSEE LIKE STAMP CHARGES, LOAN PROCESSING FEE ON TERM LOAN, MARKETI NG FEES, SOURCING EXPENSES, SHARE ISSUE EXPENSES ETC. ARE I N THE NATURE OF REVENUE EXPENDITURE, WHICH DOES NOT GIVE ANY EN DURING BENEFIT TO THE ASSESSEE. IN FACT, THE ASSESSING OFF ICER HAS CATEGORICALLY ADMITTED THAT EXPENDITURE INCURRED IN CONNECTION WITH BUSINESS WAS REVENUE IN NATURE AND ARE DEDUCTI BLE UNDER THE ACT, BUT HE HAS DISALLOWED THE EXPENDITURE ONLY ON THE SOLE BASIS OF METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE IN THE BOOKS OF ACCOUNT. ACCORDING TO THE ASSESSING OFFICE R, THE ASSESSEE HAS FOLLOWED MATCHING CONCEPT PRINCIPLES OF ACCOUNTING TO ACCOUNT THOSE EXPENDITURE AND ACCORDI NGLY, AMORTIZED THE EXPENDITURE OVER THE PERIOD OF LOANS AND FURTHER EXCESS EXPENDITURE HAS BEEN TREATED AS PREPAID EXPE NSES IN BOOKS OF ACCOUNT UPTO ASSESSMENT YEAR 2015-16 . FUR THER, FOR THE FIRST TIME FROM THE ASSESSMENT YEAR 2016-17, TH E ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING TO ACCOUNT THO SE 20 ITA NO. 3003/CHNY/2019 EXPENDITURE AND CLAIMED DEDUCTION IN THE YEAR OF IN CURRENCE, WITHOUT ASSIGNING ANY REASON OR JUSTIFICATION FOR C HANGE IN METHOD OF ACCOUNTING. WE DO NOT OURSELVES SUBSCRI BE TO THE REASONS GIVEN BY THE ASSESSING OFFICER TO DISALLOW EXPENDITURE INCURRED BY ASSESSEE FOR THE REASON THAT INCOME CHA RGEABLE UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PR OFESSION OR INCOME FROM OTHER SOURCES SHALL BE COMPUTED IN ACCO RDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSE. FURTHER, AS PER SECTION 14 5(1) OF THE ACT, WHATEVER METHOD OF ACCOUNTING FOLLOWED BY ASSE SSE, THE SAME SHOULD BE CONSISTENTLY FOLLOWED WITHOUT ANY CH ANGES. IN CASE ASSESSEE CHANGED ITS METHOD OF ACCOUNTING TO G IVE DIFFERENTIAL TREATMENT TO INCOME OR EXPENDITURE WH ICH IS BENEFICIAL TO THE ASSESSE, THEN THE SAME NEEDS TO B E CONSISTENTLY FOLLOWED IN SUBSEQUENT YEARS AND FURTH ER, A DISCLOSURE NEEDS TO BE GIVEN IN NOTES TO ACCOUNT TH E EFFECTS IN CHANGE IN METHOD OF ACCOUNTING ON THE FINANCIAL STA TEMENT OF THE RELEVANT FINANCIAL YEAR. THEREFORE, IN OUR CON SIDERED VIEW, THE ASSESSING OFFICER CANNOT DENY DEDUCTIONS FOR LE GITIMATE EXPENSES INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSE,IF 21 ITA NO. 3003/CHNY/2019 SUCH EXPENSES ARE OTHERWISE ALLOWABLE UNDER THE ACT , FOR THE SIMPLE REASON THAT ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING, MORE PARTICULARLY WHEN THE ASSESSEE HAS EXPLAINED REASONS FOR CHANGE IN METHOD OF ACCOUNTING AND SUCH CHANGE IS SUPPORTED BY THE DECISION OF HON'BLE SUPREME COU RT IN THE CASE OF M/S. TAPARIA TOOLS LTD. (SUPRA). IF THE AS SESSING OFFICER IS NOT SATISFIED ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHETHER THE METHOD OF A CCOUNTING PROVIDED UNDER SECTION 145 OF THE ACT HAS NOT BEEN REGULARLY FOLLOWED, THEN THE ASSESSING OFFICER CAN MAKE AN AS SESSMENT IN THE MANNER PROVIDED U/S.144 OF THE ACT, BUT HE C ANNOT DENY DEDUCTIONS FOR ANY EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE ACT. 10. WE FURTHER NOTED THAT IT IS WELL SETTLED PRINCI PLE OF LAW BY DECISIONS OF VARIOUS COURTS THAT ANY CHANGE IN METH OD OF ACCOUNTING IS TO BOUND TO MAKE SOME CHANGE IN THE TAXABLE INCOME MORE PARTICULARLY IN THE YEAR OF CHANGE . HO WEVER, MERELY BECAUSE BY VIRTUE OF CHANGE IN METHOD OF ACC OUNTING EMPLOYED BY ASSESSEE ITS TAXABLE INCOME STANDS RED UCED IN A PARTICULAR YEAR CAN BY NO STRETCH OF IMAGINATION BE TREATED AS A 22 ITA NO. 3003/CHNY/2019 FACTOR THAT SAID ACTION WAS UNDERTAKEN BY WITH AN INTENT TO DELIBERATELY REDUCE THE TAX BURDEN. IN OUR CONSIDE RED VIEW, THE ASSESSEE IS ENTITLED TO CHANGE ITS METHOD OF ACCOUN TING AS LONG AS SAID CHANGE IN METHOD OF ACCOUNTING IS BONAFIDE. SECTION 145 OF THE ACT, NOWHERE PROVIDES IF ASSESSEE FOLLO WS ONE METHOD OF ACCOUNTING FOR MANY YEARS, IT CANNOT CHAN GE THE SAME IN SUBSEQUENT YEAR. THE ASSESSEE CAN VERY WELL CHANGE METHOD OF ACCOUNTING TO GIVE BETTER TREATMENT TO V ARIOUS INCOME AND EXPENSES IN BOOKS OF ACCOUNT TO GIVE TRU E AND CORRECT INCOME, BUT SUCH CHANGE SHOULD BE DISCLOSED IN NOTES TO ACCOUNT AND EFFECTS ON TAXABLE INCOME FOR THE Y EAR ON ACCOUNT OF CHANGE OF METHOD OF ACCOUNTING. IN THIS CASE, THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING TO GI VE BETTER TREATMENT TO PREPAID EXPENSES SHOWN IN THE FINANCI AL STATEMENT UPTO ASSESSMENT YEAR 2015-16 AND SUCH CHANGE IS SUP PORTED BY THE DECISION OF THE HON'BLE SUPREME COURT, WHERE IT WAS CATEGORICALLY HELD THAT ONCE AN EXPENDITURE IS INCU RRED AND MADE PAYMENT AND CLAIM OF THE ASSESSEE IS IN ACCORD ANCE WITH THE PROVISIONS OF THE ACT, THE SAME NEEDS TO BE ALL OWED TO THE ASSESSE, IRRESPECTIVE OF TREATMENT GIVEN IN BOOKS O F ACCOUNT . 23 ITA NO. 3003/CHNY/2019 THE HON'BLE SUPREME COURT IN THE CASE OF M/S.KEDARN ATH JUTE MANUFACTURING CO.LTD. (SUPRA) HELD THAT ENTRIES IN BOOKS OF ACCOUNT ARE NOT DETERMINATIVE AND OR CONCLUSIVE AN D THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF PROVISIONS CONTAINED IN THE INCOME TAX ACT. THE RELEVANT FINDINGS OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. TAPARIA TOOLS LT D. (SUPRA) AND THE DECISION IN THE CASE OF M/S.KEDARNATH JUTE MANUFACTURING CO.LTD (SUPRA) ARE AS UNDER:- TAPARIA TOOLS LTD. VS.JCIT (2015) 372 ITR 605(SC): SECTION 36(1)(III) OF INCOME TAX ACT, 1961 INTER EST ON BORROWED CAPITAL (UPFRONT INTEREST CHARGES) ASSESSMENT YEAR 1996-97 ASSESSEE COMPANY ISSUED DEBENTURES F OR A PERIOD OF 5 EARS APART FROM OPTION OF HALF YEARLY PERIODICAL INTEREST, DEBENTURE HOLDERS WERE GIVEN ANOTHER OPT ION TO ACCEPT ONE TIME UPFRONT DISCOUNTED INTEREST PAYMENT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING IT FILED ITS RETURN CLAIMING DEDUCTION OF UPFRONT INTE REST CHARGES PAID DURING RELEVANT YEAR HOWEVER, SAID AMOUNT W AS SHOWN AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF AC COUNT TO BE WRITTEN OFF OVER A PERIOD OF FIVE YEARS ASSE SSING OFFICER THUS ALLOWED ONLY 1/5 TH OF PAYMENT AS DEDUCTION. WHETHER SINCE ASSESSEE MADE ACTUAL PAYMENT AND COURSE OF A CTION ADOPTED BY ASSESSEE WAS IN CONSONANCE WITH PROVISI ONS OF ACT, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN BOOKS OF ACCOUNT COULD NOT BE A FACTOR WHICH WOULD DEPRIV E ASSESSEE FROM CLAIMING ENTIRE EXPENDITURE AS A DEDUCTION - HELD YES [PARA 19][ IN FAVOUR OF ASSESSEE ]. 24 ITA NO. 3003/CHNY/2019 KEDARNATH JUTE MFG. CO, LTD. V. CIT (1971) (82 ITR 363 (SC) S. 37(1) OF THE INCOME TAX ACT, 1961: BUSINESS EXP ENDITURE ALLOWABLITY OF - ASSESSMENT YEAR 1955-56 ASSESSE E COMPANY CLAIMED DEDUCTION ON ACCOUNT OF SALES TAX DETERMINED BY SALES TAX AUTHORITIES TO BE PAYABLE ON SALES MADE BY ASSESSEE DURING RELEVANT ASSESSMENT YEAR ITO DISALLOWED CLAIM ON THE GROUND THAT ASSESSEE HAD DE NIED ITS LIABILITY TO PAY THAT AMOUNT AND HAD MADE NO PROVIS ION IN ITS BOOKS WITH REGARD TO PAYMENT OF THAT AMOUNT. WHET HER WHEN LIABILITY HAD EVEN BEEN QUANTIFIED AND A DEMAND CRE ATED BY NOTICE OF NOTICE DURING PENDENCY OF ASSESSMENT PRO CEEDINGS BEFORE ITO AND BEFORE FINALIZATION OF ASSESSMENT SA ID LIABILITY REMAINED INTACT EVEN AFTER ASSESSEE HAD TAKEN APPEA LS TO HIGHER AUTHORITIES OR COURTS WHICH FAILED HELD, YES WHETHER THEREFORE ASSESSEE MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM WAS FULLY JUSTIFIED IN CLAIMING DEDUCTION OF SALES TAX AMOUNT WHICH IT WAS LIABLE UNDER LAW TO PAY DURING RELEVANT ASSESSMENT YEAR HELD YES. 11. IN THE PRESENT CASE, ENTIRE EXPENDITURE HAS BEE N INCURRED AT THE BEGINNING OF THE SANCTIONING OF TERM LOAN AN D ALSO QUALIFIES TO BE REVENUE EXPENDITURE. THEREFORE, IN OUR CONSIDERED VIEW THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. TAPARIA TOOLS LTD. (SUPRA) IS SQ UARELY APPLICABLE TO THE FACTS OF PRESENT CASE AND HENCE, WE ARE OF THE 25 ITA NO. 3003/CHNY/2019 CONSIDERED VIEW THAT LEARNED CIT(A) WAS RIGHT ON AL LOWING DEDUCTION TOWARDS VARIOUS EXPENSES AS REVENUE EXPEN DITURE. 12. HAVING SAID SO, LET US EXAMINE THE ISSUE IN ANO THER PERSPECTIVE OF WHETHER EXPENDITURE INCURRED BY THE ASSESSEE LIKE STAMP CHARGES, LOAN PROCESSING FEE ON TERM LOA N, MARKETING FEES, SOURCING EXPENSES, SHARE ISSUE EXPE NSES ETC. ARE REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, WHI CH GIVES ENDURING BENEFIT TO THE ASSESSEE . IF YOU SEE NATUR E OF EXPENDITURE INCURRED BY THE ASSESSE, ALL EXPENSES A RE IN THE NATURE OF REVENUE EXPENDITURE . IN FACT, THE ASSESS ING OFFICER NEVER DISPUTED THE FACT THAT THOSE EXPENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE. IF EXPENSES INCURRED BY ASS ESSEE ARE REVENUE IN NATURE WHICH DOES NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE, THEN THOSE EXPENDITURE SHOULD BE ALLO WED AS DEDUCTION IN THE YEAR OF INCURRENCE, IRRESPECTIVE O F THE FACT THAT THOSE EXPENDITURE ARE TREATED AS PREPAID EXPENSES O R DEFERRED REVENUE EXPENDITURE IN BOOKS OF ACCOUNT OF THE ASSE SSEE. IF THE EXPENDITURE INCURRED IS CAPITAL IN NATURE, THEN SAM E NEEDS TO BE CAPITALIZED IN THE BOOKS OF ACCOUNT AND DEPRECIATI ON SHOULD BE ALLOWED WHILE COMPUTING PROFITS OF THE YEAR. IN THI S CASE, IF YOU 26 ITA NO. 3003/CHNY/2019 SEE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE THERE IS NO DOUBT OF WHATSOEVER THAT SAID EXPENDITURE ARE PUREL Y REVENUE EXPENDITURE, WHICH DOES NOT GIVE ANY ENDURING BENE FIT OR RESULTING IN CREATION OF ASSET EITHER TANGIBLE OR I NTANGIBLE . THEREFORE, THESE EXPENSES ARE ESSENTIALLY REVENUE E XPENSES AND NEEDS TO BE ALLOWED WHEN SUCH EXPENDITURE HAS B EEN INCURRED, BUT ONLY REQUIREMENT IS WHETHER SAID EXP ENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS OR NOT. IN THI S CASE, IT IS NOT A CASE OF ASSESSING OFFICER THAT THOSE EXPENDIT URE ARE NOT REVENUE IN NATURE AND FURTHER, THOSE EXPENDITURE AR E NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ONCE ASSESSING OFFICER COME TO THE CONCLUSION THAT EXPENDITURE INC URRED BY ASSESSEE ARE REVENUE IN NATURE AND FURTHER THE SAME ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEN THE SAME NEEDS TO BE ALLOWED IN THE YEAR OF IN CURRENCE, IRRESPECTIVE OF LENGTH OF PERIOD FOR WHICH FINANCE IS SANCTIONED. THE LEARNED CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE ARE REVENUE IN NATURE WHICH DOES NOT GIVE ANY ENDURING BENEFIT TO THE 27 ITA NO. 3003/CHNY/2019 ASSESSEE OR RESULTING IN CREATION OF ASSET AS TANGI BLE OR INTANGIBLE WHICH NEEDS TO BE ALLOWED AS DEDUCTION, WHEN SUCH EXPENDITURE HAS BEEN INCURRED. 13. IN THIS VIEW OF THE MATTER AND BY RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S. TAPARIA TOOLS LTD. (SUPRA), WE ARE OF THE CONSIDERE D VIEW THAT LEARNED CIT(A) WAS RIGHT IN DELETING ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF PREPAID EXPENSES AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS O F THE LEARNED CIT(A) AND DISMISS APPEAL FILED BY REVENUE. 14. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) (G.MANJUNATHA ) ' % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER ' /CHENNAI, ( / DATED 1 ST MARCH, 2021 DS *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .