Stamp duty expense and collection treatment: supported business records defeated disallowance, while customer collections were trading receipts.

Expenditure on stamp duty for cash purchases of stamps was held allowable because the assessee maintained a stamp duty ledger, recorded purchases settlement-wise, and the survey revealed no defect or adverse material showing bogus purchases or inflated consumption; the absence of vendor particulars alone was insufficient to disallow a statutory business expense. By contrast, stamp duty collected from customers was treated as a trading receipt because it was received in connection with the trading activity to meet the obligation of affixing stamps on contract notes, and its character was not changed by being credited to a liability account. The appeal succeeded on the expenditure issue and failed on the receipt-character issue.

---

---

Issues: (i) Whether the disallowance of stamp duty expenditure claimed by the assessee on cash purchases of stamps was sustainable; (ii) Whether the stamp duty collected from customers was to be treated as a revenue receipt in the assessee's hands.

Issue (i): Whether the disallowance of stamp duty expenditure claimed by the assessee on cash purchases of stamps was sustainable.

Analysis: The assessee maintained a stamp duty ledger and accounted stamp purchases settlement-wise. The survey did not reveal any defect in the account, and no positive material was brought to establish that the purchases were bogus or that the stamp consumption was inflated. The absence of vendor particulars, by itself, was held insufficient to disallow the claim when the business required affixation of stamps on every contract note and the ledger entries were not shown to be false.

Conclusion: The disallowance was unsustainable and was deleted in favour of the assessee.

Issue (ii): Whether the stamp duty collected from customers was to be treated as a revenue receipt in the assessee's hands.

Analysis: The collection was made to meet the statutory obligation of affixing stamps on contract notes, and the assessee itself treated the amount as part of its liability account. The amount was received in connection with the trading activity and the character of the receipt was not altered by the manner in which the assessee accounted for it. The Tribunal therefore held that the collection partook of the nature of trading receipt and could not be excluded on the plea of fiduciary holding.

Conclusion: The stamp duty collection was rightly treated as a revenue receipt, against the assessee.

Final Conclusion: The appeal succeeded on the disallowance of expenditure, while the treatment of stamp duty collections as revenue receipt was upheld.

Ratio Decidendi: Where expenditure on a statutory business requirement is supported by account records and no adverse evidence establishes falsity or inflation, disallowance cannot rest on conjecture; amounts collected in the course of trading for discharge of such obligation retain the character of trading receipt.

---