Brief about Case
The assessee company was engaged in the business of real estate development. Vide order of Hon’ble High Court, 19 Group companies engaged in similar business were merged in the assessee company w.e.f 01.04.1999. These companies had purchased stamp papers worth Rs.24290550/- for execution of various land purchased from various farmers. However, sale deeds could not be executed as farmers had refused to execute the same and therefore, in view of Stamp Act, an application for refund of 90% of stamp paper value was filed on 27.04.2001 before Collector Gurgaon after writing of Rs.2429055/- in A.Y. 2002-03 being 10% amount not refundable. Collector Gurgaon vide order dated 08.02.2003, rejected the claim of these companies on the ground of claim being time-barred by limitation u/s 50 of Indian Stamp Act. Hence, balance Rs.21861495/- was claimed by the assessee company as loss in the year under consideration. AO however did not accept the argument of assessee and disallowed the claim of Rs.21861495/- on the ground of claim being capital in nature and related to earlier years. On an appeal before CIT(A), order of A.O. was upheld. Aggrieved assessee, filed appeal before ITAT.
Contention of Assessee
Ld. A.R. submitted that it was undisputed fact that the merging companies of the assessee had purchased stamp papers for registration of land in ordinary course of business for registration of land purchased. However, the stamp papers could not be utilized as sellers had backed out of the agreements and, therefore, stamp papers remained 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 consideration, the assessee realized this fact that the amount is not recoverable and, therefore, it decided to write off the same. Ld. A.R. relied on the order of Hon’ble Supreme Court in the case of Kerala State Industrial Development Corpn. Ltd. 2012 (TIOL) 83 SCIT wherein it was held that the amount was allowable as deduction when it was written off in the books of account. Continuing his arguments, Ld. A.R. submitted that 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 included in its income in the said year, therefore he submitted that the assessee had incurred genuine business expenditure the deduction of which has been denied whereas it has been taxed for amount which was recovered in the Assessment Year 2008-09.
Contention of Revenue
Ld. DR submitted that the assessee was following mercantile system of accounting. The loss/expenditure do not pertains to the assessment year under consideration as 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 being investor as well as real estate developer 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 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% of the stamp paper expenditure i.e. Rs.24,29,055/- in A.Y. 2003-04 which itself shows that the expenditure was a capital expenditure and not a revenue expenditure as claimed by the appellant during the course of assessment and appellant proceedings.
Held by ITAT
It was held by Hon’ble ITAT that from the facts and circumstances of the present case, it is apparent that the expenses for purchase of stamp papers were not incurred 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 written off in the books of accounts in the present year. Ld. A.R. has advanced an argument that the case of assessee was duly covered by Hon’ble Supreme Court decision in the 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 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 to the facts of the present case. Section 36(2)(i) 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 of expense which was incurred in the course of business 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 the assessee had not claimed the same in the year of its incurrence as it 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 order of collector rejecting the application for refund of amounts is dated 08.02.2003 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 specifically 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. In view of the above ground of the appeal dismissed.