2016 (6) TMI 1007 - HC - Income Tax

Court overturns disallowance of stamp duty expenses, emphasizing expenses are revenue in nature

M/s. PRITHVI ASSOCIATES Versus ASSTT. COMMISSIONER OF INCOME TAX

The court overturned the Tribunal's decision confirming the disallowance of stamp duty expenses amounting to Rs. 12,28,560 incurred by the appellant for a ... Disallowance of stamp duty expenses - expenses actually incurred by the appellant for executing contract with Maharashtra State Road Transport Corporation - Held that:- The payment of stamp duty is not for business expediency but it is in the nature of a compulsory levy under the Bombay Stamp Act. It is legally settled that accounting practice cannot over rider the provisions of the Income Tax Act, 1961. Stamp duty paid by the appellant during the year under consideration is a compulsory statutory levy and would not restrict the profits of the future years and ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred and it cannot be spread over a number of years. If any statutory expense is required to be paid, in view of decision of the Apex Court in India Cements Ltd. v. Commissioner of Income Tax (1965 (12) TMI 22 - SUPREME Court ), such expense is required to be allowed in the same year. The Apex Court in the case of Taparia Tools Ltd. v. Joint Commissioner of Income-Tax (2015 (3) TMI 853 - SUPREME COURT ) also observed that as per the ordinary rule revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the Department cannot deny it. However, in a case where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of “matching concept” is satisfied, which upto now has been restricted to cases of debentures. Therefore, it is rightly observed by the CIT (A) that the expense is required to be allowed in the same year. - Decided in favour of assessee Issues Involved:1. Whether the Tribunal was right in confirming the disallowance of Rs. 12,28,560/- towards stamp duty expenses incurred by the appellant for executing a contract with Maharashtra State Road Transport Corporation.Issue-Wise Detailed Analysis:Issue 1: Disallowance of Stamp Duty ExpensesBackground:The appellant-assessee challenged the judgment of the Income Tax Appellate Tribunal (the Tribunal), which reversed the decision of the Commissioner of Income Tax (Appeals) [CIT (A)] and restored the disallowance of Rs. 12,28,560/- made by the Assessing Officer towards stamp duty expenses incurred by the assessee in relation to a contract executed with Maharashtra State Road Transport Corporation.Arguments by Appellant:- The appellant's counsel argued that the Tribunal erred in setting aside the order of CIT (A), which had allowed the stamp duty expenses.- The CIT (A) had observed that the appellant was legally obligated to pay stamp duty under Section 34 of the Bombay Stamp Act, 1958, and that such payment was a compulsory statutory levy, not for business expediency.- The counsel cited the Supreme Court's decision in India Cements Ltd. v. Commissioner of Income Tax (1966) 60 ITR 52, asserting that the expenditure was revenue in nature and should be allowed in the year it was incurred.- Additionally, the counsel referenced Taparia Tools Ltd. v. Joint Commissioner of Income-Tax [2015] 372 ITR 605, which upheld that revenue expenditure incurred in a particular year should be allowed in that year unless the principle of 'matching concept' applies.Arguments by Respondent:- The respondent's counsel supported the Tribunal's decision, relying on the observations of the Assessing Officer and the Tribunal.- The counsel cited the Supreme Court's decision in Madras Industrial Investment Corporation v. Commissioner of Income Tax 225 ITR 802, which supported spreading expenditure over several years under certain conditions.- The respondent also referred to a decision of the Gujarat High Court in Tax Appeal No.1471 of 2005, emphasizing the accrual concept as per Accounting Standard-1 notified by the Central Government.Court's Analysis:- The court reviewed the CIT (A)'s observations and agreed that the payment of stamp duty was a compulsory statutory levy under the Bombay Stamp Act, not for business expediency.- The court reiterated that accounting practices cannot override the provisions of the Income Tax Act, 1961, and that revenue expenditure incurred wholly and exclusively for business purposes must be allowed in the year it is incurred.- The court found that the Tribunal had erred in applying the principles from Madras Industrial Investment Corporation and Tax Appeal No.1471 of 2005, as those cases involved different contexts (further payment as per contract and capital fee collection, respectively).Conclusion:- The court concluded that the Tribunal committed an error in confirming the disallowance of Rs. 12,28,560/- towards stamp duty expenses.- The appeal was allowed, and the question of law was answered in favor of the assessee and against the revenue, affirming that the stamp duty expenses should be allowed in the year they were incurred.Final Judgment:The appeal was allowed, and the Tribunal's decision was overturned. The disallowance of Rs. 12,28,560/- towards stamp duty expenses was reversed, and the expenses were allowed in the year they were incurred.