2018 (11) TMI 1324 - AT - Income Tax

Disallowance of stamp duty charges collected by the assessee and incurred as expenditure - survey under section 133A - AO recorded the statements of some employees and the directors at the time of survey and found some inconsistencies in the statements recorded from the concerned persons under section 131 & 133A - Held that - The assessee has purchased the stamps in cash from the stamp vendors and liasioning agents and through the Government. The said sum was paid by cheque for purchases from Government and whatever stamps purchased from the vendors across the country, the same is paid in cash. Assessee also accounted the stamps in detail settlement-wise in the ledger account. AO did not find any defect in the account of the stamp duty having conducted the survey in the business premises of the assessee. Though the details are available settlement wise, no enquiry was conducted to verify whether the assessee has affixed the requisite stamps or not? The Assessing Officer also did not have any evidence to establish that the purchase of stamps was bogus Merely on the basis of non-furnishing of the details of the vendors, the addition cannot be made especially in the case of purchase of stamps. The consumption of stamps required to be considered on the basis of volume of business and the consumption account. AO did not dispute the fact that there is requirement of affixing the stamps on every contract note, there was no evidence brought on record to show that affixing of stamps in settlement wise as accounted in the ledger account copy is false or overstated. In the earlier years also, the assessee has followed the same practice but the department has not brought on record any evidence to show that department has suspected the payment. Once the department accepts the settlements and mandatory requirement of affixing the stamps there is no reason to suspect the expenses incurred by the assessee towards stamp duty merely on the basis of surmises and conjunctures of the Assessing Officer without bringing any evidence to show that the stamps account is incorrect. The Assessing Officer should have verified the daily transactions on simple basis settlement-wise and given a finding whether assessee is really incurred such expenditure for affixing of stamps. This exercise was not done by the Assessing Officer. Therefore, we hold that disallowance of expenditure claimed by the assessee on account of stamp duty is unsustainable and the same is deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of stamp duty charges collected by the assessee and incurred as expenditure.
2. Classification of stamp duty collected as revenue receipt or fiduciary capacity.

Issue-wise Detailed Analysis:

1. Disallowance of Stamp Duty Charges Collected by the Assessee and Incurred as Expenditure:

The appeal concerns the disallowance of stamp duty charges collected by the assessee and incurred as expenditure. A survey under section 133A of the Income Tax Act, 1961, revealed that the assessee collected stamp duty from clients against the purchase/sale of shares and securities but did not remit it to the Government account. The assessee explained that during the Financial Year 2011-12, they collected ?72,06,514 towards stamp duty, out of which ?67,06,906 was paid for purchasing stamps, including ?39,05,000 paid in cash. The remaining amount was parked under the Stamp Duty account and grouped under current liabilities in the balance sheet.

The Assessing Officer (AO) found inconsistencies in the statements recorded from employees and directors. The AO noted that the stamps were allegedly purchased in cash, supported by self-made vouchers, and concluded that the claim of purchasing brokerage stamps in cash was bogus. Consequently, the AO made an addition of ?40,23,346, representing the amount paid for stamps in cash.

The assessee argued that the stamp duty charges were collected in a fiduciary capacity and accounted under current liabilities without claiming it as an expenditure in the profit & loss account. The AO, relying on decisions from the Gujarat High Court and Bombay High Court, treated the charges for collection towards stamp duties as revenue receipts.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting the lack of evidence for the purchase of stamps in cash and the failure to establish non-availability of stamps in Andhra Pradesh. The CIT(A) also referenced the Supreme Court case of M/s. Chowringhee Sales Bureau (P) Ltd. vs. C.I.T., concluding that the stamp duty collected by the assessee is a revenue receipt and should be assessed to tax.

During the tribunal hearing, the assessee's counsel reiterated that the stamps were purchased as per statutory requirements and the mode of payment was immaterial. The counsel also argued that the amount collected for stamp duty was not treated as income or expenditure, thus disallowance was incorrect. The Departmental Representative contended that collections for stamp duty constituted income and the disallowed expenditure was unsupported by evidence.

The tribunal observed that the assessee, as a stock broker, was required to affix stamps on contract notes for share transactions. The tribunal noted that the AO did not find any irregularity in the stamp duty ledger account and that there was no evidence to prove the purchase of stamps was bogus. The tribunal concluded that the disallowance of expenditure on stamp duty was unsustainable and deleted the addition.

2. Classification of Stamp Duty Collected as Revenue Receipt or Fiduciary Capacity:

The tribunal addressed the argument that stamp duty collected from customers was in a fiduciary capacity. Since the tribunal deleted the addition on merits, this issue was deemed academic. The tribunal held that the assessee collected stamp duty for the purpose of affixing stamps, which is a statutory obligation, and thus it constitutes revenue receipt. The expenditure incurred towards stamp duty is considered revenue expenditure, and the amount collected is a revenue receipt.

Conclusion:

The tribunal allowed the appeal filed by the assessee, deleting the addition made by the AO and upholding the classification of stamp duty collected as revenue receipt. The order was pronounced in open court on November 14, 2018.