1991 (10) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of registration charges as deductible expenditure.
2. Accrual of liability for registration charges.
3. Applicability of the Supreme Court's decision in Calcutta Co. Ltd. v. CIT.

Issue-Wise Detailed Analysis:

1. Allowance of Registration Charges as Deductible Expenditure:

The primary issue in this appeal is whether the registration charges amounting to Rs. 2,40,160 and Rs. 1,04,720, which were not incurred during the accounting period, can be allowed as deductible expenditure. The assessee, a builder, acquired plots from the Delhi Development Authority (DDA) and started constructing buildings on them. The buildings were sold, but the lease deeds were not executed or registered until after the accounting period. The assessee debited the registration charges in its profit and loss account, which the Assessing Officer disallowed, noting the uncertainty of when the liability would actually arise.

2. Accrual of Liability for Registration Charges:

The CIT(A) allowed the deduction, reasoning that the compulsory payment of registration charges at 8% of the cost of the land was inevitable and that the profits should be determined in a commercial sense. However, the Tribunal noted that the expenditure had not been actually incurred and that the liability to get the lease deed executed and registered had not accrued in the year under consideration. The Tribunal emphasized that the method of accounting adopted by the assessee was not clear, and if the liability had arisen when the land was acquired, it should have been debited then.

3. Applicability of the Supreme Court's Decision in Calcutta Co. Ltd. v. CIT:

The assessee relied on the Supreme Court's decision in Calcutta Co. Ltd. v. CIT, where the Court allowed the deduction of estimated expenditure for development work that the assessee had undertaken to carry out. The Tribunal distinguished this case by noting that in Calcutta Co. Ltd., the liability was an accrued liability towards the buyers of plots, whereas in the present case, there was no such liability towards any third party. The Tribunal concluded that there was neither a contractual nor a statutory liability regarding the payment of stamp duty and registration charges in respect of documents that were yet to come into existence.

Conclusion:

The Tribunal held that the estimated expenditure on registration charges was not allowable as an expenditure in computing the income of the assessee for the year under consideration. The Tribunal set aside the order passed by the CIT(A) and restored the addition made by the Assessing Officer, thereby allowing the appeal filed by the revenue.