Nilgiri Cuultivation (P) Ltd, New Delhi V. DCIT, New Delhi

ITA 902/DEL/2009

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0253 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 12-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DAM KUNUNJNA
• Keywords: Business expenditure; Wholly owned subsidiary; Bad and doubtful debts; Corroborative evidences; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 244A; 234B; 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F, NEW DELHI) BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.902 /DEL/2009 ASSESSMENT YEAR : 2004-05 NILGIRI CULTIVATIONS PVT .LTD., VS. DCIT, CIRCLE 13(1), (NOW KNOWN AS DLF UTILITIES LTD.) NEW DELHI DLF CENTRE, 9 TH FLOOR, SANSAD MARG, NEW DELHI-110 001 GIR / PAN: (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRADEEP DINODIA, CA SHRI R. K. KAPOOR, CA RESPONDENT BY : SHRI DAM KUNUNJNA SR. DR DATE OF HEARING : 15.05.2015 DATE OF PRONOUNCEMENT : 10.06.2015 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE OR DER 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 GROU NDS 1 & 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION WHEREAS GROU ND NO.3 & 4 RELATE TO CHARGING OF INTEREST U/S 234B AND 234D AND WITHDRAW ING OF INTEREST ALLOWED U/S 244A WHICH THE LD. A.R. HAD NOT PRESSED DURING THE COURSE OF ITA NO.902/DEL/2009 2 PROCEEDINGS BEFORE US. THE ONLY EFFECTIVE GROUND R AISED BY ASSESSEE IS CONTAINED IN GROUND NO.2 WHICH IS REPRODUCED BELOW: 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND CONTRARY TO THE PROVISIONS OF LAW, THE LEARNED COMM ISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE AD DITION OF RS.2, 18,61 ,495/- MADE BY THE LEARNED ASSESSING OFFICER BY DISALLOWING THE LOSS 1 EXPENDITURE ON ACCOUNT OF STAMP PAPERS PURCH ASED FOR BUYING STOCK OF LANA BY COMPANIES AMALGAMATED WITH THE APP ELLANT 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 PAPE RS DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. 2.3 THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)'S ORDER IN CONFIRMING THE DISALLOWANCE OF CLAIM FOR S URRENDER OF STAMP PAPERS IS BASED ON SURMISES, CONJECTURES AND IMAGIN ATIVE CONSIDERATION AND THE SAME IS PRAYED TO BE QUASHED. 2.4 THAT THE ORDER PASSED BY LEARNED ASSESSING OFF ICER AND CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW. 2. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF M/ S. DLF UNIVERSAL LD. AND IS ENGAGE IN THE BUSINESS OF REAL ESTATE DEVELO PMENT. THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING A LOSS OF RS.1,06, 84,188/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING ASSESSM ENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.2,18,61,495/-BEING ITA NO.902/DEL/2009 3 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 SUBMITTED THAT THE ASSESS EE WAS ENGAGED IN THE REAL ESTATE DEVELOPMENT BUSINESS AND LAND PURCHASED FROM LAND OWNERS, IS REFLECTED IN THE BALANCE SHEET AS STOCK IN TRADE. IT WAS SUBMITTED THAT 19 GROUP COMPANIES WERE MERGED IN THE ASSESSEE COMPANY VIDE ORDER OF HON'BLE HIGH COURT AND THESE COMPANIES WERE ALSO EN GAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND THESE COMPANIES HAD PURCHASED STAMP PAPERS FOR EXECUTION OF VARIOUS LAND PURCHASES FROM VARIOU S FARMERS. HOWEVER, THE SALE DEEDS COULD NOT BE EXECUTED AS FARMERS HAD REF USED TO EXECUTE THE SAME AND, THEREFORE, AN APPLICATION FOR REFUND ON ACCOUN T OF THESE STAMP PAPERS WAS FILED BEFORE COLLECTOR, GURGAON ON 27.04.2001 A ND 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 AMOUN T INVOLVED ON ACCOUNT OF PURCHASE OF STAMP PAPERS WAS RS.2,42,90,550/- OUT O F WHICH RS.24,29,055/- WAS WRITTEN OFF IN ASSESSMENT YEAR 2002-03 ITSELF A S THE CLAIM OF REFUND WAS AVAILABLE FOR ONLY 90% OF VALUE STAMP PAPERS. THE ASSESSEE HAD CLAIMED BALANCE OF RS.2,18,61,495/- AS LOSS IN THE YEAR UND ER CONSIDERATION. THE A.O. HOWEVER, DID NOT ACCEPT THE ARGUMENT OF ASSESS EE AND MADE ADDITION OF RS.2,18,61,495/- BY HOLDING AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF ASSESSEE ON MERITS AND IN THE FACTS AND CIRCUMSTANCE OF THE CASE. THE SAME ARE NOT ACCEPTABLE DUE TO FOLLOWING REASONS :- (1) THE CLAIMED LOSS) EXPENDITURE CANNOT BE HELD T O BE ON REVENUE ACCOUNT THE CLAIMED LOSS/ EXPENDITURE IS NOT ALLOWA BLE EITHER IN THE AV. 2001-02 AND 2002-03 OR IN A.Y. 2004-05 AS IN T HE FACTS OF THE ITA NO.902/DEL/2009 4 CASE ASSESSEE CLEARLY FAILED TO PROVE THAT THIS LOS S/ EXPENDITURE WAS ON REVENUE ACCOUNT 'AND NOT RELATED TO INVESTMENT ACTI VITY THE ASSESSEE IN ITS ACCOUNTS FOR THE A. Y 2003-04 SHOWN THIS AMO UNT AS LOANS AND ADVANCES AND NOT THE PART OF CLOSING STOCK THE ERST WHILE 19 COMPANIES AS WELL AS THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN AGRICULTURAL LANDS IN PAST THEREFORE IT CANNOT BE H ELD AT THE STAGE OF PURCHASE OF STAMP PAPER THAT WHETHER THE 19 COMPANI ES AMALGAMATED IN ASSESSEE COMPANY HAS PURCHASED THESE STAMP PAPER S FOR PURCHASING AGRICULTURAL LAND FOR INVESTMENT PURPOSE S OR TRADING PURPOSES. THE ONUS OF PROVING NECESSARY FACTS IN ORDER TO AVA IL THE DEDUCTION UNDER SECTION 37(1) OF THE I. TAX ACT IS ON THE ASS ESSEE. IF, THEREFORE, THE ASSESSEE FAILS TO ESTABLISH THE FACTS NECESSARY TO SUPPORT HIS CLAIM FOR DEDUCTION U/S 37(1) OF I. TAX ACT, THE CLAIM FO R DEDUCTION OF EXPENDITURE IS NOT ADMISSIBLE AS HELD BY HON'BLE SU PREME 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 ALL EGES AND THE LOSS CANNOT BE SAID TO BE SATISFACTORY PROVED UNLESS ALL THE PARTICULARS WITH REGARD TO THIS ARE CLEARLY SHOWN - CIT VS. RADHA KR ISHNA RAMNATH AIR 1929NO. 153, CIT VS. CALCUTTA AGENCY LTD. AND M ANNALAL RATAN LAL VS. CIT (1965) 58 ITR 84 (CAL.). (IV THE CLAIM OF LOSS/ EXPENDITURE DO NOT PERTAINS TO THE ASSESSMENT YEAR UNDER CONSIDERATION WITHOUT PREJUDICE TO THE A BOVE, THESE STAMP PAPERS WERE PURCHASED ON 22.08.2000 AND 01.09.2000 AND BARRED BY TIME LIMIT AFTER 6 MONTHS AS EVIDENT FROM THE ORDER OF COLLECTOR, GURGAON DATED 08.02.2003. THUS, THIS CLAIM OF LOSS WAS CRYSTALLIZED IN F.Y. 2000-01 ITSELF AND THUS, PERTAINS TO A.Y. 2001 -02. ASSESSEE IS A INVESTOR AS WELL AS REAL ESTATE DEVELOPER AND IT CA NNOT 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 STRETC H 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 & 2000-01 200 1-02 ITA NO.902/DEL/2009 5 01.09.2000 2 EXECUTION OF STAMP PAPERS MARCH, 2001 2000-01 200 1-02 3 TIME BARRING LIMIT AS PER STAMP ACT MARCH, 2001 2 000-01 2001-02 4 ORDER OF COLLECTOR GURGAON 08.02.2003 2002-03 200 3-04 5 RECEIPT OF ORDER OF COLLECTOR GURGAON (AS PER CERTIFIED COPY FURNISHED BY THE A.R.) 12.07.2005 2004-05 2005-06 THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING, THEREFORE, ONLY THE INCOME OR EXPENDITURE THAT HAS BEEN ARISEN/ INCURRED DURING THE PREVIOUS YEAR IS TO BE ACCOUNTE D FOR. SINCE THE ASSESSEE HAS NOT ESTABLISHED THAT THE CLAIMED 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 (198 7) 165 ITR 623 (MAD.) AND YOUSUF SAGAR ABDULLA & SONS P. LTD VS. CIT (1990) 185 ITR 371 (KER.). THIS PRINCIPLE HAS DULY BEEN AFFIRM ED BY HON'BLE SUPREME COURT IN THE CASE OF INDERMANL JATIA VS. CI T (1959) 35 ITR 298. THEREFORE, THE CLAIM OF THE ASSESSEE FOR ALLOW ANCE OF EXPENDITURE/ LOSS OF RS. 2,18,61,495/- IS REJECTED. 9. FACTS OF THE CASE SUGGEST THAT ASSESSEE WAS PURC HASING THESE AGRICULTURAL LANDS FOR INVESTMENTS INSTEAD OF BUSIN ESS. THE ASSESSEE HAS ALREADY FAILED TO PROVE THAT THIS CLAIM OF EXPE NDITURE/ LOSS WAS ON ACCOUNT OF BUSINESS TRANSACTION. 10. IN VIEW OF THE ABOVE DISCUSSION, THE LOSS ON ST AMP PAPER OF RS.2,18,61,495/-, CLAIMED BY THE ASSESSEE COMPANY A S REVENUE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION IS DIS ALLOWED AND ADDED BACK TO IT TOTAL INCOME. I AM SATISFIED THAT THE A SSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND, HAS DELIB ERATELY CONCEALED ITS INCOME ON THIS ISSUE, THEREFORE, PENALTY PROCEE DINGS U/S 271 (1 )(E) HAVE BEEN INITIATED SEPARATELY. (ADDITION OF RS. 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 AG REE WITH THE CONTENTION OF ASSESSEE AND UPHELD THE ADDITION MADE BY A.O. BY HOLDING AS UNDER: ITA NO.902/DEL/2009 6 I HAVE EXAMINED THE SUBMISSION MADE BY THE APPELLA NT BEFORE ME AND ALSO THE REASONING GIVEN BY THE ASSESSING OFFIC ER IN DISALLOWING THE CLAIM OF APPELLANT OF TREATING THE STAMP PAPER PURCHASE AS REVENUE EXPENDITURE. IT IS SEEN THAT THESE STAMP PA PERS WERE PURCHASED DURING F. Y. 2000-0 I, RELEVANT TO A. Y. 2001-02 BY NINETEEN DIFFERENT COMPANIES OF RS. 2,42,90,550/-. THESE DIFFERENT COMPANIES WERE AMALGAMATED WITH NILGIRI CULTIVATION PVT. LTD., AS A RESULT OF THE ORDER OF THE HON'BLE DELHI HIGH COURT EFFECTIVE FROM 1.4.1999. IT IS SEEN THAT 10'% OF THESE STAMP PAPER VALUE I.E. RS.24,29,055/- HAS BEEN WRITTEN OFF IN A. Y. 2003-0 4 AND THE REMAINING AMOUNT I.E. RS.2,1 8,61,495/- HAS BEEN CL AIMED IN THE ASSESSMENT UNDER CONSIDERATION. ON GOING THROUGH TH E BALANCE SHEET OF 19 DIFFERENT COMPANIES, IT IS SEEN THAT THOSE CO MPANIES WERE ENGAGED IN INVESTMENTS AS WELL AS PURCHASE AND AFTE R DEVELOPMENT SALES OF THE LAND. IT IS NOT CLEAR FROM THE BALANCE SHEET OR DETAILS FILED BY THE APPELLANT WHETHER THE LAND WHICH WAS INTENDE D TO BE PURCHASED WAS PART OF INVESTMENT OR STOCK IN TRADE. HOWEVER, FROM THE FACT THAT EXPENSE WAS DEBITED UNDER THE HEAD LOAN AND ADVANC ES' AND NOT UNDER THE HEAD 'STOCK IN TRADE', IT IS AMPLE CLEAR THAT THE PURCHASE OF LAND WAS INTENDED FOR INVESTMENT PURPOSES. IT IS AL SO 'SEEN THAT THE APPELLANT HAS NOT FILED ANY DOCUMENTARY EVIDENCE OR ANY OTHER SUPPORTING EVIDENCES TO SUBSTANTIATE ITS CLAIM THAT THESE STAMP PAPERS WERE PURCHASED BY THE ERSTWHILE 19 COMPANIES FOR PU RCHASE OF LAND. IT IS SEEN THAT THE EXPENDITURE WAS NOT INCURRED BY THE APPELLANT DURING THE YEAR UNDER REFERENCE. THE VALIDITY OF TH E STAMP PAPERS HAS LAPSED IN THE FINANCIAL YEAR 2000-01 WHICH WAS RELE VANT 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 CLA IMED 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% OF THE STAMP PAP ER EXPENDITURE I.E. RS.24,29,055/- IN A Y 2003-04 WHICH ITSELF SHO WS THAT THE EXPENDITURE WAS A CAPITAL EXPENDITURE AND NOT A REV ENUE EXPENDITURE AS CLAIMED BY THE APPELLANT DURING THE COURSE OF AS SESSMENT AND APPELLANT PROCEEDINGS. FURTHER, THE CLAIM OF THE AP PELLANT THAT THE AGREEMENTS FOR PURCHASE OF LAND WITH THE PROSPECTIV E SELLERS WERE MADE BY THE ERSTWHILE 19 COMPANIES WAS FOR STOCK IN TRADE IS NOT SUPPORTED BY THE AGREEMENTS MADE WITH THE INTENDED SELLERS. ITA NO.902/DEL/2009 7 IT IS ALSO 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 SEL LERS ARE FILED BEFORE ME EVEN THOUGH THE APPELLANT WAS SPECIFICALL Y ASKED FOR THOSE COPIES OF AGREEMENT VIDE POINT NO.5 OF THIS OFFICE LETTER DATED 26.12.2008. IN THE ABSENCE OF THE COPIES OF AGREEME NT, IT CANNOT BE ACCEPTED THAT THE STAMP PAPERS WERE PURCHASED FOR T HE PURPOSE OF PURCHASE OF LAND BY THE REMAINING 15 COMPANIES. MOR EOVER THE AGREEMENTS FILED BY THE APPELLANT IN RESPECT OF 4 C OMPANIES ARE UNREGISTERED AGREEMENT, WRITTEN ON PLAIN PAPERS HAV ING NO LEGAL VALUE. IN VIEW OF THE FACTS DISCUSSED ABOVE, THE FOLLOWING FACT EMERGES: 1. THE APPELLANT FAILS TO ESTABLISH THAT THE STAMP PAP ERS WERE ACTUALLY PURCHASED BY THE ERSTWHILE 19 COMPANIES FO R ACQUIRING LAND FOR THE PURPOSE OF STOCK IN TRADE; 2. THE APPELLANT HIMSELF HAS SHOWN THE EXPENDITURE UND ER HEAD 'LOAN AND ADVANCE' AND NOT UNDER THE HEAD 'PURCHASE /STOCK IN TRADE' WHICH SHOWS THAT THE EXPENDITURE INCURRED, I F 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. ITA NO.902/DEL/2009 8 4. THE AGREEMENT FILED IN RESPECT OF FOUR COMPANIES IS UNREGISTERED DOCUMENTS ON PLAIN PAPERS WHICH HAVE N O LEGAL VALIDITY. 5. THE APPELLANT ITSELF HAS CLAIMED 10% OF THE EXPENDI TURE IN A Y 2003-04 WHICH SHOWS THAT THE EXPENDITURE WAS NOT RE VENUE EXPENDITURE. IN VIEW OF THE ABOVE OBSERVATIONS IT IS ABUNDANTLY CLEAR THAT THE EXPENDITURE ON ACCOUNT OF STAMP PAPER PURCHASED WAS NOT SUPPORTED BY VARIOUS DOCUMENTS AND WAS NOT AT ALL REVENUE EXP ENDITURE ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. THE RELIANCE IS PLACED ON THE JUDGEMENT OF HON'BLE KERALA HIGH COURT IN TH E CASE OF CIT VS. M/S MALABAR BUILDING PRODUCTS LTD. (2001) 251 ITR 4 87 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 TRU ST OF 1NDIAFROM PERSONS OTHER THAN UNIT TRUST OF INDIA. I T INCURRED EXPENDITURE ON PURCHASE OF STAMP PAPER FOR REGISTRA TION OF UNITS AS DEDUCTION IN COMPUTING INCOME FROM UNITS. IT WAS HE LD THAT THE SAID EXPENDITURE WAS NOT MERELY FOR PURPOSE OF GETTING D IVIDEND BUT FOR REGISTERING TRANSFER OF UNITS WITH UNIT TRUST OF IN DIA IN FAVOUR OF THE ASSESSEE. THEREFORE, SAID AMOUNT WAS SPENT IN CONNE CTION WITH ACQUISITION OF UNITS. HENCE, THE EXPENDITURE IN QUE STION WAS A CAPITAL EXPENDITURE. EXPENDITURE INCURRED BY THE ASSESSEE ON STAMP PAPER IN CONNECTION WITH REGISTRATION OF UNITS IN ITS NAME WOULD NOT BE ALLOWABLE AS DEDUCTION 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 JU STIFIED. 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 ITA NO.902/DEL/2009 9 THE FORM OF SYNOPSIS / FACTS. LD. A.R. SUBMITTED T HAT ASSESSEE WAS A COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE DEVE LOPMENT. HE SUBMITTED THAT OTHER GROUP COMPANIES OF ASSESSEE WERE ALSO EN GAGED IN SIMILAR BUSINESS AND WHICH GOT MERGED WITH THE ASSESSEE COM PANY W.E.F. 01.04.1999. LD.A.R. SUBMITTED THAT IT WAS UNDISPUT ED FACT THE MERGING COMPANIES OF THE ASSESSEE HAD PURCHASED STAMP PAPER S FOR REGISTRATION OF LAND IN ORDINARY COURSE OF BUSINESS FOR REGISTRATIO N OF LAND PURCHASES. HOWEVER, THE STAMP PAPERS COULD NOT BE UTILIZED AS SELLERS HAD BACKED OUT OF THE AGREEMENTS AND, THEREFORE, STAMP PAPERS REMAINE D UNUTILIZED. IT WAS SUBMITTED THAT ONLY 90% OF THE COST OF STAMP PAPERS COULD HAVE BEEN RECOVERED FROM REVENUE AUTHORITIES, THEREFORE, ASSE SSEE 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 O F STAMP PAPERS. THEREFORE, THE AMOUNT FOR 90% OF CLAIM WAS NOT WRIT TEN OFF IN THE YEAR OF PURCHASE AS ASSESSEE WAS HOPEFUL OF GETTING REFUND. LD.A.R. FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE REALIZED THIS FACT THAT THE AMOUNT IS NOT RECOVERABLE AND, THEREF ORE, IT DECIDED TO WRITE OFF THE SAME. LD.A.R. SUBMITTED THAT THE CASE OF THE A SSESSEE WAS SQUARELY COVERED BY THE ORDER OF HON'BLE SUPREME COURT IN TH E CASE OF KERALA STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. 2012 (TIOL) 83 S CIT, WHEREIN IT HAS BEEN HELD THAT THE COMMERCIAL TEST AND BUSINESS EXI GENCY TEST, NEED TO BE APPLIED FOR SUGGESTING AS TO WHETHER DEDUCTION U/S 36(1)(VII) IS ALLOWABLE OR NOT. IT WAS 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 SUPREM E COURT HAD HELD THAT THE SAID AMOUNT WAS ALLOWABLE AS DEDUCTION WHEN IT WAS WRITTEN OFF IN THE ITA NO.902/DEL/2009 10 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 BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS D B INDIA SECURITIES LTD. 187 TAXMAN 161. HE SUBMITTED THAT THE AMOUNT REPRESENTED RECOVERABLE DEBT FROM GOVT. AND AROSE OUT OF VALID TRANSACTION OF PURCHASE OF STAMP PAPERS WHICH WAS FOR BONA FIDE PURPOSES OF TH E ASSESSEES BUSINESS. HE SUBMITTED THAT BEFORE IT COULD BE UTILIZED THE S AME WERE REFLECTED IN THE BALANCE SHEETS AS BUSINESS ADVANCE RECOVERABLE AND WHEN THE ASSESSEE FAILED TO RECOVER THE AMOUNT, IT WAS WRITTEN OFF AND THERE FORE 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 WRITTE N 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 TAXMAN 93 (D EL.) 5. CONTINUING HIS ARGUMENTS, LD. A.R. SUBMITTED THA T DUE TO CONTINUOUS EFFORTS, THE ASSESSEE WAS ABLE TO RECOVER A PARTIAL AMOUNT OF RS.74,11,018/- IN ASSESSMENT YEAR 2008-09 WHICH THE ASSESSEE HAD I NCLUDED IN ITS INCOME IN THE SAID YEAR, THEREFORE HE SUBMITTED THAT THE A SSESSEE HAD INCURRED GENUINE BUSINESS EXPENDITURE THE DEDUCTION OF WHICH HAS BEEN DENIED WHEREAS IT HAS BEEN TAXED FOR AMOUNT WHICH WAS RECO VERED IN THE ASSESSMENT YEAR 2008-09. THE LD. A.R. FURTHER DIST INGUISHED THE CASE LAW RELIED UPON BY A.O. ITA NO.902/DEL/2009 11 6. LD. D.R. ON THE OTHER HAND ARGUED THAT THE EXPEN SES WERE NOT INCURRED IN THE YEAR UNDER CONSIDERATION AND THEREFORE, EXPE NSES CLAIMED BY ASSESSEE CANNOT BE SAID TO HAVE BEEN INCURRED IN THE YEAR UN DER CONSIDERATION. IT WAS SUBMITTED THAT THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND UNDER MERCANTILE SYSTEM OF ACCOUNTING, ONLY THO SE EXPENSES AND INCOME ARE INCLUDED FOR COMPUTATION OF BUSINESS PROFITS WH ICH ARE INCURRED OR ACCRUED DURING THE YEAR AND THEREFORE HE STRONGLY A RGUED THAT THE AUTHORITIES BELOW HAVE RIGHTLY DENIED DEDUCTION. LD. D.R. FURT HER ARGUED THAT ASSESSEE NEITHER INCURRED EXPENDITURE DURING THIS YEAR NOR I T CAN BE SAID THAT NON RECOVERY OF COST OF STAMP PAPERS HAD BECOME FINAL I N THIS YEAR AS THE COLLECTOR GURGAON HAD REJECTED THE APPLICATION OF A SSESSEE VIDE ORDER DATED 08.02.2003 WHICH FALLS IN ASSESSMENT YEAR 2003-04. 7. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. THIS CASE WAS EARLIER HEARD ON 12.03.20 15. DURING THE COURSE OF DICTATION IT WAS FELT THAT LD. A.R. HAD NOT CLARIFI ED 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 HEA RD ON 15.05.2015, WHERE, LD. A.R. FILED AN ADDITIONAL SYNOPSIS WHEREIN HE CL ARIFIED 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 DEVEL OPMENT OF REAL ESTATE AND 39 COMPANIES MERGED WITH THE ASSESSEE CO MPANY W.E.F. 01.04.1999 BY THE ORDER OF HON'BLE HIGH COURT. II) OUT OF 39 COMPANIES, 19 COMPANIES HAD PURCHASED STAMP PAPERS IN THE ASSESSMENT YEAR 2001-02 WHICH COULD N OT BE UTILIZED FOR EXECUTION OF SALE DEED, THEREFORE, 10% OF THE C OST OF STAMP PAPERS ITA NO.902/DEL/2009 12 WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT IN THE ASS ESSMENT YEAR 2002- 03. THE ASSESSEE APPLIED TO COLLECTOR GURGAON FOR REFUND OF 90% OF COST OF STAMP PAPERS DURING ASSESSMENT YEAR 2002-03 . 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. HA S CLAIMED TO HAVE RECEIVED REFUND OF RS.74,11,018/-, OUT OF CLAI M 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 AP PARENT THAT THE EXPENSES FOR PURCHASE OF STAMP PAPERS WERE NOT INCU RRED IN THE YEAR UNDER CONSIDERATION. NOW, THE QUESTION IS AS TO WHETHER THE EXPENSES INCURRED IN EARLIER YEAR CAN BE DEEMED BE RELATING TO THE YEAR UNDER CONSIDERATION ON THE BASIS OF CLAIM OF ASSESSEE THAT THE SAME WERE WRITT EN OFF IN THE BOOKS OF ACCOUNTS IN THE PRESENT YEAR. 9. LD. A.R. HAS ADVANCED AN ARGUMENT THAT THE CAS E OF ASSESSEE WAS DULY COVERED BY HON'BLE SUPREME COURT DECISION IN T HE CASE OF KERALA STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. 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 EQU ATE THE EXPENSES INCURRED IN EARLIER YEAR AS ADVANCES RECOVERABLE WHICH TO OU R MIND IS NOT A CORRECT PROPOSITION. WE FIND THAT THE CASE LAWS RELI ED UPON BY LD. A.R. RELATES TO BAD DEBTS WRITTEN OFF WHEREAS THE PRESENT CASE I S NOT THAT OF BAD DEBT WRITTEN OFF AND, THEREFORE, THE CASE LAWS RELIED UP ON BY LD. A.R. ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND EVE N THE RATIO OF THESE CASES ITA NO.902/DEL/2009 13 CANNOT BE APPLIED TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE PROVISIONS RELATING TO BAD DEBTS ARE CONTAINED IN S ECTION 36(2)(I) WHICH READS AS UNDER: S.362)(I): NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEB T OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTI NG THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOU NT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR, OR REPRESENT MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. 10. FROM THE ABOVE PROVISIONS IT IS APPARENT THAT T HE SECTION STATES THAT ONLY THOSE BAD DEBTS WILL BE ALLOWED AS DEDUCTION, WHICH HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF ASSESSEE I N THE SAME YEAR OR SOME EARLIER YEAR. WHEREAS IN THE PRESENT CASE, THE AMO UNT OF CLAIM OF WRITE OFF DOES NOT CONSTITUTE WRITING OFF IT AS BAD DEBT AND RATHER IT IS A CASE OF CLAIM OF EXPENSE WHICH WAS INCURRED IN THE COURSE OF BUSI NESS OF ASSESSEE AND WHICH HAD TO BE CLAIMED IN THE YEAR IN WHICH IT WAS INCURRED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IF T HE ASSESSEE HAD NOT CLAIMED THE SAME IN THE YEAR OF ITS INCURRENCE AS I T WAS HOPEFUL OF RECOVERING THE SAME THEN SUCH CLAIM CAN BE WRITTEN OFF IN THE YEAR IN WHICH ASSESSEE CAME TO KNOW THAT CLAIM CANNOT BE RECOVERED. THE O RDER OF COLLECTOR REJECTING THE APPLICATION FOR REFUND OF AMOUNTS IS DATED 08.02.2003 WHICH MEANS THAT ORDER WAS PRONOUNCED IN THE ASSESSMENT Y EAR 2003-04, THEREFORE, AT BEST, THE ASSESSEE COULD HAVE CLAIMED THE SAME IN ASSESSMENT YEAR 2003-04. THE FINAL ACCOUNTS ARE PREPARED AT L EAST 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 ITA NO.902/DEL/2009 14 SAID TO HAVE MATERIALIZED IN THE PRESENT YEAR SPECI FICALLY IN VIEW OF THE FACT THAT ASSESSEE RECEIVED PART OF CLAIM IN ASSESSMENT YEAR 2008-09, WHICH IMPLIES THAT FACT OF NON RECOVERY OF COST OF STAMP PAPERS BECAME FINAL IN ASSESSMENT YEAR 2008-09. 11. AS PER PROVISIONS OF THE INCOME TAX ACT, INCOME TAX IS CHARGEABLE ON THE INCOME OF AN ASSESSEE AND INCOME HAS TO BE CALC ULATED IN ACCORDANCE WITH PROVISIONS OF THIS ACT AND FURTHER EVERY YEAR IS A SEPARATE ASSESSMENT YEAR. 12. AS PER SECTION 145 OF THE I. T. ACT, 1961, THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSI ON IS TO BE COMPUTED IN ACCORDANCE WITH CASH OR MERCANTILE SYSTEM OF ACCOUN TING AS REGULARLY EMPLOYED BY THE ASSESSEE. UNDER MERCANTILE SYSTEM OF ACCOUNTING, ALL EXPENSES RELATING TO THE YEAR AND ALL INCOMES RELAT ING TO THE YEAR ARE CONSIDERED IN THE YEAR OF ITS INCURRENCE OR ACCRUAL . ADMITTEDLY, THE ASSESSEE W AS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AS I S NOTED ON THE FACE OF ASSESSMENT ORDER ITSELF AND, THEREFORE, THE CLAIM O F ASSESSEE IS NOT TENABLE IN THE YEAR UNDER CONSIDERATION AS THE EXPENSES WERE N EITHER INCURRED IN THE YEAR NOR EXPENSES GOT MATERIALIZED DURING THE YEAR. 13. THE HON'BLE SUPREME COURT IN THE CASE OF INDERM ANI JAITE VS CIT 35 ITR 298 COMMENTING UPON THE MERCANTILE SYSTEM OF AC COUNTING, HAS OBSERVED AS UNDER: IT IS WELL KNOWN THAT THE MERCANTILE SYSTEM OF ACC OUNTING DIFFERS SUBSTANTIALLY FROM THE CASH SYSTEM OF BOOK-KEEPING. UNDER THE CASH SYSTEM, IT IS ONLY ACTUAL CASH RECEIPTS AND ACTUAL CASH PAYMENTS THAT ARE RECORDED AS CREDITS AND DEBITS; WHEREAS, UNDER THE MERCANTILE SYSTEM, CREDIT ENTRIES ARE MADE IN RESPECT OF AMOUN TS DUE IMMEDIATELY THEY BECOME LEGALLY DUE AND BEFORE THEY ARE ACTUALL Y RECEIVED; SIMILARLY, THE EXPENDITURE ITEMS FOR WHICH LEGAL LI ABILITY HAS BEEN ITA NO.902/DEL/2009 15 INCURRED ARE IMMEDIATELY DEBITED EVEN BEFORE THE AM OUNTS IN QUESTION ARE ACTUALLY DISBURSED. WHERE ACCOUNTS ARE KEPT ON MERCANTILE BASIS, THE PROFITS OR GAINS ARE CREDITED THOUGH THEY ARE N OT ACTUALLY REALIZED, AND THE ENTRIES THUS MADE REALLY SHOW NOTHING MORE THAN AN ACCRUAL OR ARISING OF THE SAID PROFITS AT THE MATERIAL TIME . THE SAME IS THE POSITION WITH REGARD TO DEBITS MADE. 14. FROM THE ABOVE OBSERVATIONS, WE FIND THAT IN TH E MERCANTILE SYSTEM OF ACCOUNTING EXPENSES OR INCOME ARE ALLOWED ON THE BA SIS OF INCURRENCE OR ACCRUAL. THE EXPENDITURE WAS NOT INCURRED DURING T HE YEAR UNDER CONSIDERATION, NOR THE EXPENSES CAN BE SAID TO HAVE MATERIALIZED DURING THE YEAR AS DISCUSSED EARLIER IN THE ORDER, THEREFORE, WE HOLD THAT EXPENSES INCURRED ON COST OF STAMP PAPER HAS RIGHTLY BEEN DI SALLOWED BY AUTHORITIES BELOW. THE CASE LAW RELIED UPON BY LD. A.R. ARE DI STINGUISHABLE AS THE CASE LAWS RELATES TO WRITE OFF OF BOOK DEBTS WHEREAS THE PRESENT CASE RELATES TO ALLOW ABILITY OF EXPENSES. IN VIEW OF THE ABOVE GR OUND NO.2 IS DISMISSED. THE LD. A.R. DID NOT ARGUE ON GROUND NO.3 & 4, THER EFORE, THESE ARE DISMISSED AS NOT PRESSED. GROUND NO.1 IS GENERAL G ROUND AND DO NOT REQUIRE ANY ADJUDICATION. 15. HOWEVER, LD. A.R. HAS CLAIMED THAT IN ASSESSMEN T YEAR 2008-09, AN AMOUNT OF RS.74,11,018/- WAS RECEIVED AGAINST CLAIM AND WAS OFFERED TO TAX. THE TAXATION OF THIS AMOUNT IN ASSESSMENT YEAR 2008 -09 WILL AMOUNT TO DOUBLE TAXATION TO THIS EXTENT. THEREFORE, WE HOL D THAT HIS AMOUNT OF RS.74,11,018/- NEEDS TO BE REDUCED FROM THE DISALLO WANCE MADE DURING THE YEAR UNDER CONSIDERATION SUBJECT TO VERIFICATION BY A.O. THEREFORE, WE ARE OF THE OPINION THAT THE CASE OF ASSESSEE BE REMITTE D BACK TO THE OFFICE OF A.O. WHO ON THE BASIS OF DOCUMENTS AND RETURNS AND ACCOU NTS OF ASSESSEE FOR ASSESSMENT YEAR 2008-09 WILL EXAMINE THE CLAIM OF L D. A.R. REGARDING ITA NO.902/DEL/2009 16 OFFERING OF SUCH AMOUNT IN THE RETURN OF INCOME AND IF THE SAME IS FOUND TO HAVE BEEN OFFERED IN SUCH ASSESSMENT YEAR THEN HE W ILL REDUCE THIS AMOUNT FROM DISALLOWANCE MADE IN THE YEAR UNDER CONSIDERAT ION. 13. IN VIEW OF ABOVE, APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 14. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2015. SD./- SD./- ( G. C. GUPTA) (T.S. KAPOO R) VICE PRESIDENT ACCOUNTANT MEMBER DATE: 10 TH JUNE, 2015 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 22/5 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 26,27,8,9,9, SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 10/6/15 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 10/6 SR. PS/PS 7 FILE SENT TO BENCH CLERK 10/6 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER