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2015 (6) TMI 630 - AT - Income TaxDisallowance of the loss on expenditure on account of Stamp Papers purchased for buying Stock of Lana by Companies amalgamated with the Appellant Company but which could not be utilized. - Held that - In the mercantile system of accounting expenses or income are allowed on the basis of incurrence or accrual. The expenditure was not incurred during the year under consideration, nor the expenses can be said to have materialized during the year as discussed earlier in the order, therefore, we hold that expenses incurred on cost of stamp paper has rightly been disallowed by authorities below. The case law relied upon by Ld. A.R. are distinguishable as the case laws relates to write off of book debts whereas the present case relates to allow ability of expenses. However, Ld. A.R. has claimed that in Assessment Year 2008-09, an amount of ₹ 74,11,018/- was received against claim and was offered to tax. The taxation of this amount in Assessment Year 2008-09 will amount to double taxation to this extent. Therefore, we hold that his amount of ₹ 74,11,018/- needs to be reduced from the disallowance made during the year under consideration subject to verification by A.O. Therefore, we are of the opinion that the case of assessee be remitted back to the office of A.O. who on the basis of documents and returns and accounts of assessee for Assessment Year 2008-09 will examine the claim of Ld. A.R. regarding offering of such amount in the return of income and if the same is found to have been offered in such assessment year then he will reduce this amount from disallowance made in the year under consideration. - Decided partly in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance of loss/expenditure on account of stamp papers. 2. Determination of whether the expenditure was capital or revenue. 3. Timing of the expense recognition. 4. Validity of the claim as a bad debt. Issue-wise Detailed Analysis: 1. Disallowance of Loss/Expenditure on Account of Stamp Papers: The main issue is whether the expenditure of Rs. 2,18,61,495/- on stamp papers, which were purchased for land acquisition but remained unused, should be allowed as a deduction. The Assessing Officer (A.O.) disallowed the claim, stating that the expenditure was not on revenue account but related to investment activity. The A.O. noted that the assessee failed to prove that the expenditure was for business purposes and not for investment. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, emphasizing that the expenditure was shown under 'loans and advances' and not 'stock in trade', indicating an investment purpose. 2. Determination of Whether the Expenditure was Capital or Revenue: The CIT(A) held that the expenditure was capital in nature, as it was not incurred during the year under consideration and was related to the purchase of land, which was intended for investment. The CIT(A) also noted that the agreements for land purchase were unregistered and lacked legal validity, further supporting the view that the expenditure was not for business purposes. The CIT(A) relied on the judgment of the Hon'ble Kerala High Court in CIT Vs. M/s Malabar Building Products Ltd., which held that expenditure on stamp papers for registration of units was a capital expenditure. 3. Timing of the Expense Recognition: The A.O. and CIT(A) both concluded that the expenditure did not pertain to the year under consideration. The stamp papers were purchased in FY 2000-01, and the Collector Gurgaon's rejection of the refund application was dated 08.02.2003, falling in the assessment year 2003-04. The assessee argued that the expenditure should be allowed in the year it was written off (the year under consideration), but the authorities held that it should have been claimed in the year it was incurred or when the rejection order was received. 4. Validity of the Claim as a Bad Debt: The assessee argued that the expenditure should be allowed as a bad debt under Section 36(1)(vii) of the Income Tax Act, citing the Supreme Court's decisions in Kerala State Industrial Development Corpn. Ltd. and TRF Ltd. However, the Tribunal found this argument inapplicable, noting that the case was not about bad debts but about the allowability of an expenditure. The Tribunal emphasized that under the mercantile system of accounting, expenses must be claimed in the year they are incurred or accrued. Conclusion: The Tribunal dismissed the assessee's appeal on the main grounds, holding that the expenditure on stamp papers was not allowable in the year under consideration. The Tribunal noted that the expenditure was neither incurred nor materialized during the relevant year. However, the Tribunal allowed partial relief by remitting the case back to the A.O. to verify if an amount of Rs. 74,11,018/- received in AY 2008-09 was offered to tax, and if so, to reduce this amount from the disallowance made during the year under consideration. The appeal was partly allowed for statistical purposes.
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