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2015 (6) TMI 630 - ITAT DELHI

2015 (6) TMI 630 - ITAT DELHI - TMI - Disallowance of the loss on expenditure on account of Stamp Papers purchased for buying Stock of Lana by Companies amalgamated with the Appellant Company but which could not be utilized. - Held that:- In the mercantile system of accounting expenses or income are allowed on the basis of incurrence or accrual. The expenditure was not incurred during the year under consideration, nor the expenses can be said to have materialized during the year as discussed ear .....

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sment Year 2008-09 will amount to double taxation to this extent. Therefore, we hold that his amount of ₹ 74,11,018/- needs to be reduced from the disallowance made during the year under consideration subject to verification by A.O. Therefore, we are of the opinion that the case of assessee be remitted back to the office of A.O. who on the basis of documents and returns and accounts of assessee for Assessment Year 2008-09 will examine the claim of Ld. A.R. regarding offering of such amount .....

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iled by assessee against the order of Ld. CIT(A) dated 09.01.2009. This appeal was earlier heard on 12.03.2015. However, the appeal was refixed and finally was heard on 15.05.2015. The assessee has taken five grounds of appeal, out of which grounds 1 & 5 are general in nature and do not require adjudication whereas ground No.3 & 4 relate to charging of interest u/s 234B and 234D and withdrawing of interest allowed u/s 244A which the Ld. A.R. had not pressed during the course of proceedin .....

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lant Company but which could not be utilized. 2.1 That the learned Commissioner of Income Tax ( Appeals) has grossly erred in law and on facts of the appellant's case in holding that the expenditure incurred by appellant were on capital account. 2.2 That the learned Commissioner of Income Tax ( Appeals) has grossly erred in law and on facts of the appellant's case in holding that the expenses 1 loss on surrender of stamp papers did not pertain to the year under consideration. 2.3 That th .....

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F Universal Ld. and is engage in the business of real estate development. The assessee had filed return of income declaring a loss of ₹ 1,06,84,188/-. The case of the assessee was selected for scrutiny. During assessment proceedings, the A.O. observed that the assessee had debited an amount of ₹ 2,18,61,495/-being loss on account of expenditure on stamp papers and therefore, the assessee was show caused as to why the loss of stamp papers should not be disallowed. The assessee submitt .....

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be executed as farmers had refused to execute the same and, therefore, an application for refund on account of these stamp papers was filed before Collector, Gurgaon on 27.04.2001 and Collector Gurgaon vide order dated 08.02.2003 had rejected the claim of these companies on the ground that the claim wass barred by limitation u/s 50 of Indian Stamp Act. It was further submitted that the total amount involved on account of purchase of stamp papers was ₹ 2,42,90,550/- out of which ₹ 24 .....

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e to following reasons :- (1) The claimed loss) expenditure cannot be held to be on Revenue account The claimed loss/ expenditure is not allowable either in the AV. 2001·-02 and 2002-03 or in A.Y. 2004-05 as in the facts of the case assessee clearly failed to prove that this loss/ expenditure was on revenue account 'and not related to investment activity The assessee in its accounts for the A. Y 2003-04 shown this amount as loans and advances and not the part of closing stock The erst .....

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ls to establish the facts necessary to support his claim for deduction u/s 37(1) of I. Tax Act, the claim for deduction of expenditure is not admissible as held by Hon'ble Supreme Court in the case of CIT Vs. Calcutta Agency Ltd. (1951) 19 ITR 191. Further, the burden to prove the loss is on the assessee who alleges and the loss cannot be said to be satisfactory proved unless all the particulars with regard to this are clearly shown - CIT Vs. Radha Krishna Ramnath AIR 1929No. 153, CIT Vs. Ca .....

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l as real estate developer and it cannot be presumed that it was not aware about the Stamp Act. Moreover, the order of Collector, Gurgaon is also dated 08.02.2003, which was received by the assessee on 20.07.2005. Therefore, by no stretch of logic this claim of loss/expenditure is related to assessment year 2004-05. The following table made it clear :- S.N. Description Date Fin. Year Assessment Year 1 Purchase of stamp papers 22.08.2000 & 01.09.2000 2000-01 2001-02 2 Execution of stamp paper .....

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ed loss/ expenditure has accrued during the accounting year, therefore, the same is not allowable expenditure/ loss as held in the case of North Arcot District Co-op. Supply & Marketing Society Ltd. Vs. CIT (1987) 165 ITR 623 (Mad.) and Yousuf Sagar Abdulla & Sons P. Ltd Vs. CIT (1990) 185 ITR 371 (Ker.). This principle has duly been affirmed by Hon'ble Supreme Court in the case of Indermanl Jatia Vs. CIT (1959) 35 ITR 298. Therefore, the claim of the assessee for allowance of expend .....

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tal income. I am satisfied that the assessee has furnished inaccurate particulars of its income and, has deliberately concealed its Income on this issue, therefore, penalty proceedings u/s 271 (1 )(e) have been initiated separately. (Addition of ₹ 2,18,61,495) 3. Aggrieved, the assessee filed appeal before Ld. CIT(A) and reiterated its arguments. However, Ld. CIT(A) also did not agree with the contention of assessee and upheld the addition made by A.O. by holding as under: I have examined .....

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ective from 1.4.1999. It is seen that 10'% of these stamp paper value i.e. ₹ 24,29,055/- has been written off in A. Y. 2003-04 and the remaining amount i.e. ₹ 2,1 8,61,495/- has been claimed in the assessment under consideration. On going through the balance sheet of 19 different companies, it is seen that those companies were engaged in investments as well as purchase and after development sales of the land. It is not clear from the balance sheet or details filed by the appellan .....

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stwhile 19 companies for purchase of land. It is seen that the expenditure was not incurred by the appellant during the year under reference. The validity of the stamp papers has lapsed in the financial year 2000-01 which was relevant to A Y 2001- 02. If the appellant's contention is to be believed that this expenditure is revenue expenditure then it should have been claimed in the same A.Y. i.e. A.Y. 2001-02 and not in the instant year. Further, it is seen that the appellant has claimed 10% .....

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o seen that the appellant has filed copies of agreement made with the proposed sellers of land with reference to following companies:- S. No Name of company Value of stamp papers purchased (Rs.) 1. Swastha Builders Pvt. Ltd. 4,87,500 2. Vidhur Cultivations Ltd. I 27,38,645 3. Madhur Cultivation Ltd. 43,04,580 4. Aravali Cultivations Ltd. 42,72,710 For other companies, no agreement with proposed sellers are filed before me even though the appellant was specifically asked for those copies of agree .....

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s were actually purchased by the erstwhile 19 companies for acquiring land for the purpose of stock in trade; 2. The appellant himself has shown the expenditure under head 'loan and advance' and not under the head 'purchase/stock in trade' which shows that the expenditure incurred, if any, was not a revenue expenditure. 3. The appellant has not filed copies of agreement in respect of 15 companies entered into with proposed sellers. 4. The agreement filed in respect of four compan .....

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9;ble Kerala High Court in the case of CIT Vs. M/s Malabar Building Products Ltd. (2001) 251 ITR 487 wherein it is held that "expenditure incurred by the assessee on stamp paper in connection with registration of units in its names would not be allowable as deduction U!5 37(1) or u/s 57(iii) of the I. T Act". "The assessee purchased units of units of Unit Trust of 1ndiafrom persons other than Unit Trust of India. It incurred expenditure on purchase of stamp paper for registration .....

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ction u/s 37(1) or u/s 57(iii) a/the Income-tax Act, 1961. " In view of the aforesaid discussions, I do not find any infirmity in the Order of the A.O. and disallowance made is fully justified. Therefore, this appellant is dismissed. 4. Aggrieved, the assessee has filed appeal before us. At the outset, Ld. A.R. invited our attention to the facts of the case which were contained in the form of synopsis / facts. Ld. A.R. submitted that assessee was a company engaged in the business of real es .....

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mained unutilized. It was submitted that only 90% of the cost of stamp papers could have been recovered from revenue authorities, therefore, assessee itself had written off 10% of the cost of stamp papers in the year itself and had made claim with revenue authorities for refund of 90% of the cost of stamp papers. Therefore, the amount for 90% of claim was not written off in the year of purchase as assessee was hopeful of getting refund. Ld.A.R. further submitted that during the year under consid .....

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submitted that in that case, assessee had given advance to a joint venture company which was declared sick by BIFR and advance had become bad. Ld. A.R. submitted that Hon'ble Supreme Court had held that the said amount was allowable as deduction when it was written off in the books of account. Ld. A.R. further submitted that the case of assessee is also supported by Hon'ble Supreme Court decision in the case of TRF Ltd. vs CIT 323 ITR 397. He submitted this principle of law has been held .....

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ore he argued that the amount actually represented bad debt and, therefore, the ratio of Hon'ble Supreme Court in the case of TRF Ltd. was squarely applicable. Ld. A.R. further relied upon the following case law for the proposition that loss of bad debt is allowable in the year in which it is written off.:- i) Harshad J. Choksi Vs CIT 349 ITR 250 (Bom.) ii) CIT vs New Delhi Hotels Ltd. 208 Taxman 280 iii) Mohan Meakin Ltd. Vs CIT 348 ITR 109 (Del.) iv) CIT Vs Samara India Pvt. Ltd. 216 Taxma .....

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d the case law relied upon by A.O. 6. Ld. D.R. on the other hand argued that the expenses were not incurred in the year under consideration and therefore, expenses claimed by assessee cannot be said to have been incurred in the year under consideration. It was submitted that the assessee was following mercantile system of accounting and under mercantile system of accounting, only those expenses and income are included for computation of business profits which are incurred or accrued during the y .....

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s earlier heard on 12.03.2015. During the course of dictation it was felt that Ld. A.R. had not clarified certain objections raised by Ld. CIT(A) as contained in Sl. N.1-5 at page 03 of his order and therefore the case was refixed and was finally heard on 15.05.2015, where, Ld. A.R. filed an additional synopsis wherein he clarified the objections raised by Ld. CIT(A). From the facts of the case, following undisputed facts emerged:- i) The assessee is engaged in the business of development of rea .....

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. iii) The Collector Gurgaon rejected the application of assessee vide order dated 08.02.2003, the copy of such order has been claimed to have been received by assessee on 20.07.2005. iv) During Assessment Year 2008-09, the Ld. A.R. has claimed to have received refund of ₹ 74,11,018/-, out of claim of the cost of stamp papers which the Ld. A.R. had claimed to have been offered as income in the said Assessment Year. 8. From the above facts and circumstances, it is apparent that the expenses .....

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td. and TRF Ltd. as the claim of assessee was allowable in the year in which the amounts were written off. In relying upon these decisions, the Ld. A.R. has tried to equate the expenses incurred in earlier year as advances recoverable which to our mind is not a correct proposition. We find that the case laws relied upon by Ld. A.R. relates to bad debts written off whereas the present case is not that of bad debt written off and, therefore, the case laws relied upon by Ld. A.R. are not applicable .....

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present money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. 10. From the above provisions it is apparent that the section states that only those bad debts will be allowed as deduction, which have been taken into account in computation of income of assessee in the same year or some earlier year. Whereas in the present case, the amount of claim of write off does not constitute writing off it as bad debt and rather it is a case of claim .....

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8.02.2003 which means that order was pronounced in the Assessment Year 2003-04, therefore, at best, the assessee could have claimed the same in Assessment Year 2003-04. The final accounts are prepared at least after three-four months from the date of closing. Therefore, there was sufficient time period available to assessee for writing off the claim in Assessment Year 2003-04. Therefore, the deduction claimed in the year under consideration cannot be said to have materialized in the present year .....

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under the head profits and gains of business and profession is to be computed in accordance with cash or mercantile system of accounting as regularly employed by the assessee. Under mercantile system of accounting, all expenses relating to the year and all incomes relating to the year are considered in the year of its incurrence or accrual. Admittedly, the assessee w as following mercantile system of accounting as is noted on the face of assessment order itself and, therefore, the claim of asses .....

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ents that are recorded as credits and debits; whereas, under the mercantile system, credit entries are made in respect of amounts due immediately they become legally due and before they are actually received; similarly, the expenditure items for which legal liability has been incurred are immediately debited even before the amounts in question are actually disbursed. Where accounts are kept on mercantile basis, the profits or gains are credited though they are not actually realized, and the entr .....

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