JUDGMENT judgment of court was delivered by A. K. Sikri J.-The appellant-Taparia Tools Ltd. (hereinafter referred to as "the assessee") is before us, having lost in courts below. In these six appeals, issue involved is identical, that too between same parties. Necessity of six appeals is because of reason that same dispute pertains to three assessment years, namely, assessment years 199697, 1997-98 and 1998-99. assessee had claimed deduction of revenue expenditure on account of interest payment in sum of Rs. 2,72,25,000 paid to one M/s. Maliram Makharia Stock Brokers Pvt. Ltd. and Rs. 55,00,000 on account of interest payment given to M/s. Sharp Knife Co. Pvt. Ltd. This was on account of upfront payments of interest given to aforesaid two debenture holders in assessment years 1996-97 and 1997-98, respectively. Assessing Officer (for short, "the AO"), however, treated it as "deferred revenue expenditure", to be written off over period of five years and, therefore, in these assessment years he allowed only one-fifth of payment made, though entire payment was made in assessment year 1996-97. question of law, in given circumstances, which has arisen for consideration is as to whether liability of assessee to pay interest upfront to debenture holder is allowable as deduction in first year itself or it is to be spread over period of five years, being life of debentures? This substantial question of law has arisen in following circumstances: In debenture issue of assessee two options as regards payment of interest thereupon were given to subscribers/debenture holders. They could either receive interest periodically, that is, every half yearly at 18 per cent. per annum over period of five years, or else, debenture holders could opt for one time upfront payment of Rs. 55 per debenture. In second alternative, Rs. 55 per debenture was to be immediately paid as upfront on account of interest. At end of five year period, debentures were to be redeemed at face value of Rs. 100. debentures were allotted to following parties as below: Sl. Amount Party No. (in lakhs) Maliram Makharia Stock Brokers Pvt. Ltd., 1. 495.00 dated 29-3-1996 2. Orient Corporation, dated 19-6-1996 1.25 3. Shree Suyog Agencies, dated 19-6-1996 1.25 4. Shree Kyamsap Enterprises, dated 19-6-1996 1.25 5. Shree Suraj Agencies, dated 19-6-1996 1.25 6. Sharp Knife Co. Pvt. Ltd, dated 19-6-1996 100.00 Total 600.00 On February 14, 1996, M/s. Maliram Makharia Stock Brokers Pvt. Ltd. gave their letter of acceptance opting for upfront payment of interest. Likewise, vide letter of acceptance dated May 24, 1996, M/s. Sharp Knife Co. Pvt. Ltd. exercised similar option. As these parties, mentioned at Sl. Nos. 1 and 6, had opted for one time upfront payment towards interest, they were paid interest in sum of Rs. 2,72,25,000 and Rs. 55,00,000, respectively. assessee follows mercantile system of accounting. Further, one-time upfront interest of amount mentioned above was actually paid as well in accounting years 1995-96 and 1996-97, respectively. However, it so happened that said upfront payment of interest on debentures were shown by assessee as deferred revenue expenditure in accounts to be written off over period of five years. Notwithstanding this accounting treatment given to payment qua interest, in returns filed by assessee for assessment years 1996-97 and 1997-98, it claimed entire upfront interest payment in sum of Rs. 2,72,25,000 and Rs. 55,00,000, respectively, as fully deductible expenditure. It may be clarified that in so far as assessee's claim for deduction of premium payable on redemption is concerned, same was claimed in return on spread over basis covering period of five years. In assessment orders passed by Assessing Officer, assessee's claim for deduction of upfront interest payment was denied. Instead, Assessing Officer chose to spread it over period of five years thereby giving deduction only to extent of one-fifth each in respective assessment years. order of Assessing Officer was challenged by assessee in appeals preferred before Commissioner of Income-tax (Appeals). Commissioner, however, dismissed appeals thereby sustaining orders passed by Assessing Officer. assessee then approached Income- tax Appellate Tribunal and, thereafter, High Court of Bombay but was unsuccessful as appeals preferred by him before two fora have been dismissed maintaining method of deduction adopted by Assessing Officer. To put it otherwise, instead of entire amount paid by assessee in particular assessment year, full deduction is not given and this deduction is spread over period of five years. Thus, question is as to whether deduction of entire amount of interest paid should be allowed or stance of Revenue needs to be affirmed. As pointed out above, assessee maintains its accounts on mercantile basis. Further, entire amount for which deduction was claimed was, in fact, actually paid to debenture holder as upfront interest payment. It is also matter of record that this amount became payable to debenture holder in accordance with terms and conditions of nonconvertible debenture issue floated by assessee, on exercise of option by aforesaid debenture holders, which occurred in respective assessment years in which deduction of this expenditure was claimed. Section 36 of Income-tax Act, 1961 (hereinafter referred to as "the Act") is residual section in respect of certain deductions which are to be made from income of assessee while arriving at taxable income. It is nomenclatured as "other deductions", as some of preceding sections provide for certain deductions of specific nature, with which we are not concerned in present case. One of deductions, apart from many other kinds of deductions stipulated in section, relates to amount of interest paid in respect of capital borrowed for purpose of business or profession. This is provided in clause (iii) of sub-section (1) of section 36 and reads as under: "36. (1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in section 28-... (iii) amount of interest paid in respect of capital borrowed for purposes of business or profession: Provided that any amount of interest paid, in respect of capital borrowed for acquisition of asset for extension of existing business or profession (whether capitalised in books of account or not); for any period beginning from date on which capital was borrowed for acquisition of asset till date on which such asset was first put to use, shall not be allowed as deduction. Explanation.-Recurring subscriptions paid periodically by shareholders or subscribers in mutual benefit societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within meaning of this clause;..." Ignoring proviso and Explanation in clause (iii) above, with which we are admittedly not concerned in this case, it is clear that as per aforesaid provision any amount on account of interest paid becomes admissible deduction under section 36 if interest was paid on capital borrowed by assessee and this borrowing was for purpose of business or profession. There is no quarrel, in present case, that money raised on account of issuance of debentures would be capital borrowed and debentures were issued for purpose of business of assessee. In such scenario when interest was actually incurred by assessee, which follows mercantile system of accounting, on application of this statutory provision, on incurring of such interest, assessee would be entitled to deduction of full amount in assessment year in which it is paid. While examining allowability of deduction of this nature, Assessing Officer is to consider genuineness of business borrowing and that borrowing was for purpose of business and not illusionary and colourable transaction. Once genuineness is proved and interest is paid on borrowing, it is not within powers of Assessing Officer to disallow deduction either on ground that rate of interest is unreasonably high or that assessee had himself charged lower rate of interest on monies which he lent. In instant case, Assessing Officer did not dispute that non-convertible debentures were issued and money raised for business purposes. Assessing Officer did not even dispute genuineness of clause relating to upfront payment of interest in first year itself as per option to be exercised by debenture holder. In nut-shell, Assessing Officer did not dispute that expenditure on account of interest was genuinely incurred. Therefore, there is no dispute that interest has, in fact, been "paid" during year of accounting. definition of "paid" is contained in section 43(2) of Act to mean actually paid or incurred according to method of accounting. To be precise, this definition is couched in following language: "43. In sections 28 to 41 and in this section, unless context otherwise requires-... (2)'paid' means actually paid or incurred according to method of accounting upon basis of which profits or gains are computed under head'Profits and gains of business or profession';" As per aforesaid definition, even if amount is not actually paid but "incurred", according to method of accounting, same would be treated as "paid". Since assessee was following mercantile system of accounting, amount of interest could be claimed as deduction even if it was not actually paid but simply "incurred". However, in instant case, it is not in dispute that amount of interest was actually paid as well in assessment year in which it was claimed. only reason which persuaded Assessing Officer to stagger and spread interest over period of five years was that term of debentures was five years and that assessee had itself given this very treatment in books of account, viz., spreading it over period of five years in its final accounts by not debiting entire amount in first year to profit and loss account and it has, in fact, debited one-fifth of interest paid to profit and loss account from second year onwards. High Court, in its impugned judgment, has based its reasoning on second aspect and applied principle of "matching concept" to support this conclusion. In so far as first reason, namely, non-convertible debentures were issued for period of five years is concerned, that is clearly not tenable. While taking this view, Assessing Officer clearly erred as he ignored by ignoring terms on which debentures were issued. As noted above, there were two methods of payment of interest stipulated in debenture issued. debenture holder was entitled to receive periodical interest after every half year at 18 per cent. per annum for five years, or else, debenture holder could opt for upfront payment of 55 per debenture towards interest as one time payment. By allowing only one-fifth of upfront payment actually incurred, though entire amount of interest is actually incurred in very first year, Assessing Officer, in fact, treated both methods of payment at par, which was clearly unsustainable. By doing so, Assessing Officer, in fact, tampered with terms of issue, which was beyond his domain. It is obvious that on exercise of option of upfront payment of interest by subscriber in very first year, assessee paid that amount in terms of debenture issue and by doing so he was simply discharging interest liability in that year thereby saving recurring liability of interest for remaining life of debentures because for remaining period assessee was not required to pay interest on borrowed amount. next question which arises for consideration is as to whether assessee was estopped from claiming deduction for entire interest paid in year in which it was paid merely because it had spread over this interest in its books of account over period of five years. Here, submission of learned counsel for assessee was that there is no such estoppel, inasmuch as, treatment of particular entry (or for that matter interest entered in instant case) in books of account is entirely different from treatment which is to be given to such entry/expenditure under Act. His contention was that assessment was to be made in accordance with provisions of Act and not on basis of entries in books of account. His further argument was that had assessee not claimed payment of entire interest amount as tax in income-tax returns and had claimed deduction over period of five years treating it as deferred interest payment, perhaps Assessing Officer would have been right in accepting same in consonance with accounting treatment which was given. However, learned counsel pointed out that in instant case assessee had filed income-tax return claiming entire deduction which was allowable to it under provisions of section 36(1)(iii) of Act as all conditions thereof were fulfilled and, thus, it was exercising statutory right which could not be denied. We find that High Court has taken into consideration provisions of section 36(1)(iii) of Act and conditions which are to be fulfilled for allowing deduction on this account in following words: "The term'interest' has been defined under section 2(28A) of Act. Briefly, interest payment is expense under section 36(1)(iii). Page 117 of 260 ITR. Interest on monies borrowed for business purposes is expenditure in business (see M. L. M. Muthiah Chettiar v. CIT [1959] 35 ITR 339 (Mad)). For claiming deduction under section 36(1)(iii), following conditions are required to be satisfied, viz., capital must have been borrowed; it must have been borrowed for business purpose and interest must be paid. word'paid' is defined in section 43(2). It means payment in accordance with method followed by assessee. In present case, therefore, word'paid' in section 36(1)(iii) should be construed to mean paid in accordance with method of accounting followed by assessee, i.e., mercantile system of accounting." Notwithstanding aforesaid, High Court chose to decline whole deduction in year of payment, thereby affirming orders of authorities below, by invoking "matching concept". It is observed by High Court that under mercantile system of accounting, book profits are liable to be taxed and in order to determine net income of accounting year, revenue and other incomes are to be matched with cost of resources consumed (expenses). For this reason, in opinion of High Court, this matching concept is required to be done on accrual basis. As per High Court, in this case, payment of Rs. 55 per debenture towards interest was made, which pertained to five years, and, thus, this interest of five years was paid in first year. We are of opinion that it is here High Court has gone wrong and this approach resulted in wrong application of matching concept. It is emphasised once again that as per terms of issue, interest could be paid in two modes. As per one mode, interest was payable every year and in that case it was to be paid on six monthly basis at 18 per cent. per annum. In such cases, interest as paid was claimed on yearly basis over period of five years and allowed as well and there is no dispute about same. However, in second mode of payment of interest, which was at option of debenture holder, interest was payable upfront, which means in so far as interest liability is concerned, that was discharged in first year of issue itself. By this, assessee had benefited by making payment of lesser amount of interest in comparison with interest which was payable under first mode over period of five years. We are, therefore, of opinion that in order to be entitled to have deduction of this amount, only aspect which needed examination was as to whether provisions of section 36(1)(iii) read with section 43(2) of Act were satisfied or not. Once these are satisfied, there is no question of denying benefit of entire deduction in year in which such amount was actually paid or incurred. High Court has also observed that it was case of deferred interest option. Here again, we do not agree with High Court. It has been explained in various judgments that there is no concept of deferred revenue expenditure in Act except under specified sections, i.e., where amortisation is Act except under specified sections, i.e., where amortisation is specifically provided, such as section 35D of Act. What is to be borne in mind is that moment second option was exercised by debenture holder to receive payment upfront, liability of assessee to make payment in that very year, on exercising of this option, has arisen and this liability was to pay interest at Rs. 55 per debenture. In Bharat Earth Movers v. CIT, this court had categorically held that if business liability has arisen in accounting year, deduction should be allowed even if such liability may have to be quantified and discharged at future date. Following passage from aforesaid judgment is worth quote: "The law is settled: if business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at future date. What should be certain is incurring of liability. It should also be capable of being estimated with reasonable certainty though actual quantification may not be possible. If these requirements are satisfied liability is not contingent one. liability is in praesenti though it will be discharged at future date. It does not make any difference if future date on which liability shall have to be discharged is not certain." present case is even on stronger footing inasmuch as not only liability had arisen in assessment year in question, it was even quantified and discharged as well in that very accounting year. judgment in Madras Industrial Investment Corporation Ltd. v. CIT was cited by learned counsel for Revenue to justify decision taken by courts below. We find that court categorically held even in that case that general principle is that ordinarily revenue expenditure incurred wholly and exclusively for purpose of business is to be allowed in year in which it is incurred. However, some exceptional cases can justify spreading expenditure and claiming it over period of ensuing years. It is important to note that in that judgment, it was assessee who [2000] 245 ITR 428 (SC); [2000] 6 SCC 645. Page 431 of 245 ITR. [1997] 225 ITR 802 (SC); [1997] 4 SCC 666. wanted spreading expenditure over period of time and had justified same. It was case of issuing debentures at discount; whereas assessee had actually incurred liability to pay discount in year of issue of debentures itself. court found that assessee could still be allowed to spread said expenditure over entire period of five years, at end of which debentures were to be redeemed. By raising money collected under said debentures, assessee could utilise said amount and secure benefit over number of years. This is discernible from following passage in that judgment on which reliance was placed by learned counsel for Revenue herself: "The Tribunal, however, held that since entire liability to pay discount had been incurred in accounting year in question, assessee was entitled to deduct entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to nature of liability. It is true that liability has been incurred in accounting year. But liability is continuing liability which stretches over period of 12 years. It is, therefore, liability spread over period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for purpose of business must be allowed in its entirety in year in which it is incurred. It cannot be spread over number of years even if assessee has written it off in his books over period of years. However, facts may justify assessee who has incurred expenditure in particular year to spread and claim it over period of ensuing years. In fact, allowing entire expenditure in one year might give very distorted picture of profits of particular year. Thus in case of Hindustan Aluminium Corporation Ltd. v. CIT [1982] 30 CTR (Cal) 363; [1983] 144 ITR 474 (Cal), Calcutta High Court upheld claim of assessee to spread out lump sum payment to secure technical assistance and training over number of years and allowed proportionate deduction in accounting year in question. Issuing debentures at discount is another such instance where, although assessee has incurred liability to pay discount in year of issue of debentures, payment is to secure benefit over number of years. There is continuing benefit to business of company over entire period. liability should, therefore, be spread over period of debentures." Thus, first thing which is to be noticed is that though entire expenditure was incurred in that year, it was assessee who wanted Page 812 of 225 ITR. spread over. court was conscious of principle that normally revenue expenditure is to be allowed in same year in which it is incurred, but at instance of assessee, who wanted spreading over, court agreed to allow assessee that benefit when it was found that there was continuing benefit to business of company over entire period. What follows from above is that normally ordinary rule is to be applied, namely, revenue expenditure incurred in particular year is to be allowed in that year. Thus, if assessee claims that expenditure in that year, Income-tax Department cannot deny same. However, in those cases where assessee himself wants to spread expenditure over period of ensuing years, it can be allowed only if principle of "matching concept" is satisfied, which up to now has been restricted to cases of debentures. In instant case, as noticed above, assessee did not want spread over of this expenditure over period of five years as in return filed by it, it had claimed entire interest paid upfront as deductible expenditure in same year. In such situation, when this course of action was permissible in law to assessee as it was in consonance with provisions of Act which permit assessee to claim expenditure in year in which it was incurred, merely because different treatment was given in books of account that cannot be factor which would deprive assessee from claiming entire expenditure as deduction. It has been held repeatedly by this court that entries in books of account are not determinative or conclusive and matter is to be examined on touchstone of provisions contained in Act (See Kedarnath Jute Manufacturing Co. Ltd. v. CIT; Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT; Sutlej Cotton Mills Ltd. v. CIT and United Commercial Bank v. CIT#. At most, inference can be drawn that by showing this expenditure in spread over manner in books of account, assessee had initially intended to make such option. However, it abandoned same before reaching crucial stage inasmuch as in income-tax return filed by assessee, it chose to claim entire expenditure in year in which it was spent/paid by invoking provisions of section 36(1)(iii) of Act. Once return in that manner was filed, Assessing Officer was [1971] 82 ITR 363 SC); [1972] 3 SCC 252. [1997] 227 ITR 172 (SC); [1997] 6 SCC 117. [1978] 4 SCC 358; [1979] 116 ITR 1 (SC). # [1999] 240 ITR 355 (SC); [1999] 8 SCC 338. bound to carry out assessment by applying provisions of that Act and not to go beyond said return. There is no estoppel against statute and Act enables and entitles assessee to claim entire expenditure in manner it is claimed. In view of aforesaid discussion, we are of opinion that judgment and orders of High Court and authorities below do not lay down correct position in law. assessee would be entitled to deduction of entire expenditure of Rs. 2,72,25,000 and Rs. 55,00,000, respectively, in year in which amount was actually paid. appeals are allowed in aforesaid terms with no orders as to costs. *** Taparia Tools Ltd. v. Joint Commissioner of Income-tax