2019 (8) TMI 1708 - AT - Income Tax

Nature of expenditure - stamp duty and service fees - revenue or capital expenditure - CIT(A) allowed the expenditure incurred on stamp duty paid for availing various loans and legal expenses/ services fee as business expenditure - AO s main contention for disallowance is that first this is a capital expenditure, reason being the loan is taken for the purpose of acquiring capital asset and hence, stamp duty paid, registration fee paid and lawyer s fee paid is capital expenditure - HELD THAT - Assessee is able to prove that these expenses were routine expenses incurred by the assessee during the course of business for the reason that on account of these loans no capital asset has been created by incurring such expenditure. We noted that even Hon ble Supreme Court in the case of India Cement Ltd. 1965 (12) TMI 22 - SUPREME COURT held that the stamp duty, registration fee, lawyers fee etc., paid for obtaining loan was eligible for business expenditure. We noted that the aforesaid amounts were reflected in the schedule 12 of the balance sheet in the Revenue s account as interest and finance charges. Also the assessee has suo moto capitalize the expenses which were to be capitalized as is evident from Schedule 13 of the balance sheet, which is in Revenue s account. We noted from the copies of the agreement that these expenses were incurred on stamp duty, service fee, lawyer s fee being legal expenses for filing various loan and services for trusteeship of MSE bonds. In view of the above, we are of the view that the CIT(A) has rightly allowed the claim of the assessee of these expenses as business expenditure under section 37(1) of the Act and hence, we do not want to interfere in the same. This issue of Revenue s appeal is dismissed.

Summary

Issues:
1. Interpretation of expenses incurred on stamp duty and legal charges.
2. Allowability of stamp duty and service charges as business expenditure under section 37(1) of the Income-tax Act, 1961.

Interpretation of Expenses Incurred on Stamp Duty and Legal Charges:
The appeal arose from the order of the Commissioner of Income Tax (Appeals) concerning the assessment framed by the Assistant Commissioner of Income Tax for the Assessment Year 2006-07. The sole issue for adjudication was Ground No. 8 related to the claim of stamp duty and service charges raised by the Revenue. The Assessing Officer (AO) had directed the assessee to capitalize the sum of stamp duty and legal charges as they were considered capital in nature and not deductible under section 37(1) of the Act. The Commissioner of Income Tax (Appeals) allowed the expenses as business expenditure, noting that the AO's contention of capital expenditure was unfounded. The CIT(A) highlighted that the expenses were routine in nature and not related to creating capital assets. The CIT(A) observed that the expenses were reflected in the Revenue account and the assessee had also capitalized them in the balance sheet. The CIT(A) concluded that the expenses were eligible for deduction under section 37(1) of the Act.

Allowability of Stamp Duty and Service Charges as Business Expenditure:
The expenses in question included stamp duty and service fees paid for availing loans and trusteeship services. The Tribunal noted that these expenses were incurred during the normal course of business and did not result in the creation of any capital asset. Citing a precedent set by the Hon'ble Supreme Court in a previous case, it was established that expenses such as stamp duty, registration fees, and legal fees paid for obtaining loans were eligible for business expenditure. The Tribunal found that the expenses were appropriately reflected in the balance sheet and were routine business expenses. The Tribunal upheld the CIT(A)'s decision to allow the claim of these expenses as business expenditure under section 37(1) of the Act. Consequently, the appeal of the Revenue was dismissed.

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