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2016 (6) TMI 1007 - GUJARAT HIGH COURT

2016 (6) TMI 1007 - GUJARAT HIGH COURT - TMI - 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 y .....

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h 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 .....

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BHATT, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant-assessee has challenged the judgment and order dated 8.9.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'C', Ahmedabad (for short, the Tribunal ) in Income Tax Appeal No.1662/AHD/2006 for the assessment year 2003-04. By the impugned order, the Tribunal reversed the decision of Commissioner of Income Tax (Appeals)-XVI, Ahmedabad [for short, CIT (A) ] and restor .....

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ting contract with Maharashtra State Road Transport Corporation? 3. Mr.Karia, learned advocate appearing with Mr.Darshan Patel for the appellant has submitted that the Tribunal has committed an error while setting aside the order of CIT (A). He has taken us through the order of CIT (A), wherein it is observed that the appellant is duty bound to pay stamp duty as per the provisions of Section 34 of the Bombay Stamp Act, 1958. It is observed that the payment of stamp duty is not for business exped .....

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y in the year in which it is incurred and it cannot be spread over a number of years. 4. He has also taken us through the material on record and submitted that the view taken by the Tribunal is contrary to the decision of the Supreme Court in the case of India Cements Ltd. v. Commissioner of Income Tax reported in (1966) 60 ITR 52, wherein it is observed as under:- To summarize this part of the case, we are of the opinion that: (a) the loan obtained is not an asset or advantage of an enduring na .....

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ry 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. 6. Mr.Bhatt, learned counsel for the respondent has supported the impugned or .....

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egard it shall be relevant to peruse the Notification No. S.O. 69(E) dated 25.01.1996 wherein the Central Government has notified Accounting Standard-1, more particularly, the expression accrual which has been defined as under: (b) Actual refers to the assumption that revenues and costs are accrued, that is, recognized and they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate; 5.2 The assessee has according .....

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he number of years for which the card is issued because the assessee has to provide the accidental insurance for the entire period of the card. Such expenditure is also spread over to the period for which the card is issued. The Revenue has claimed that the receipt of membership fee as well as the expenditure on the commission and the insurance premium is to be recorded in the year in which they are received and paid. The stand of the Revenue is contrary to the definition of accrual as provided .....

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provide the services on continuous basis for the period for which the card is issued. The assessee has spread over the receipt as well as expenditure as per Accounting Standard 9 and the same is disclosed by the assessee by way of Note in the audited accounts. If the contention of the Revenue is accepted and the entire membership fee collected is taxed in the year of receipt then in the subsequent year when the assessee will incur the expenditure there will be loss. That would give distorted pi .....

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ools Ltd. vs. Jt. CIT, [2003] 260 ITR 102 has observed that in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed. Under the Mercantile System of Accounting, this Matching is required to be done on accrual basis. Under this Matching concept, revenue and income earned during an Accounting Period, irrespective of actual cash in-flow, is required to be compared with expenses incurred during the same period, irrespec .....

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see does not result in ascertainment of proper profits then, it is the duty of the assessing officer to make appropriate adjustments and deduce true profits. 6.1 The Apex Court in the case of Rakesh Shantilal Mardia vs. Deputy Commissioner of Income-tax reported in [2012] 210 Taxman 565 (SC) considering the decision of the Bombay High Court in the case of Taparia Tools Ltd. (supra) has held that matching principle is required to be followed in order to arrive at the real income of the assessee. .....

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rual or arisal for the purpose of its taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. If income has accrued or arisen, even if actual receipt of the amount is not there, it would be chargeable to tax in the said year. Though the amount may be received later in the succeeding year, the income would be said to accrue or arise if there is a debt owed to the assessee by somebody at that moment. From this, it follows that there mu .....

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ame view in a recent decision in the case of Snesh Resort Pvt. Ltd vs. Dy. CIT rendered in Tax Appeal No. 113 of 2004 on 18.11.2014. This Court has observed as under: 6.2 Similarly in the case of Bilahari Investment P. Ltd (supra) the Apex Court has held that since from the various statements produced, the entire exercise arising out of the change of method from the completed contract method to deferred revenue expenditure was revenue neutral, the completed contract method was not required to be .....

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red to be considered as an advance and thereafter as and when the business commenced the amount of liability was required to be taxed over a period of time proportionately. The amount of membership fees would be considered as income from the year the business of the assessee commenced. We therefore answer the questions raised in the negative i.e. against the revenue and in favour of the assessee. 7. In view of the aforesaid discussion, we do not find any infirmity in the order passed by the Trib .....

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e service and therefore the assessee was justified in spreading over the amount of membership fee and expenses. 8. Therefore, the Tribunal is justified in setting aside the order of the CIT passed under Section 263 of the Act. We, accordingly, answer the question of law raised in the present appeals in the affirmative i.e in favour of the assessee and against the revenue. The impugned order passed by the Tribunal is hereby confirmed. Appeals are dismissed accordingly. 7. In view of above, he pra .....

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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 (supra), such expense is required to be allowed in the same year. The Apex Court in the case of Ta .....

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