7 Section 37 – Expenditure incurred on stamp duty and registration charges on sale of flats, to attract buyers, as an incentive scheme by duly advertising the same, is allowable as a revenue expenditure.

[2017] 87 taxmann.com 70 (Mum.)

Kunal
Industrial Estate Developers (P.) Ltd. vs. ITO

ITA No. :
307/MUM/2017

A.Y.: 2012-13

Date of
Order:  10^th October, 2017

Section 37 –
Expenditure incurred on stamp duty and registration charges on sale of flats,
to attract buyers, as an incentive scheme by duly advertising the same, is
allowable as a revenue expenditure.

Interest on
delayed payment to creditors for payment beyond credit period is allowable
expenditure, since it is in relation to business carried on by the assessee.

FACTS-I 

During the
previous year under consideration, the assessee, a builder, with a view to
attract buyers came up with a scheme of bearing expenses on stamp duty and
registration charges. This offer was known as Monsoon Offer and was advertised
in the newspapers as such.  The assessee
incurred a sum of Rs. 2,28,400 as Stamp Duty and Rs. 1,28,450 as registration
charges in respect of flats registered and recorded as sales during the
year.   This amount was claimed as a
deduction. In the course of assessment proceedings, the assessee filed copies
of relevant extracts of the newspaper in which the scheme was advertised. The
Assessing Officer (AO) disallowed this expenditure without stating the ground
or reason for disallowance. 

Aggrieved, the
assessee preferred an appeal to CIT(A) who upheld the action of the AO without
mentioning any specific reason except mentioning that it is not a revenue
expenditure.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD-I  

The Tribunal
noted that the CIT(A) had not given any reasons for upholding the disallowance
except stating that it is not a revenue expenditure. It held that when the
assessee had made the expenditure on stamp duty and registration charges, as
the incentive scheme by duly advertising the same, it did not give any reason
as to how it could not be treated as a revenue expenditure. It observed that
this expenditure is in relation to the sale of the item in which the assessee
deals in and the same is stock-in-trade. 

Expenditure
related to the sale of the item in which the assessee deals in, can by no
stretch of imagination be deemed to be capital expenditure. The Tribunal set
aside the orders of the authorities below on this issue and decided this ground
in favour of the assessee.

FACTS-II 

During the
previous year under consideration, the assessee,  a 
builder,   incurred  and  
claimed  a  sum  
of Rs. 17,999 as
interest on delayed payments to parties. This interest, it was submitted, was
charged by the parties since their payments were delayed beyond the credit
period.  The AO disallowed this amount
claimed by the assessee.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the action of the AO on
the ground that this interest payment on delayed payment to creditors is not
compensatory in nature and therefore, not allowable.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD-II  

The Tribunal
noted that the AO made the disallowance by holding that this interest is penal
in nature and cannot be allowed as a business expenditure. However, there is no
discussion in the assessment order as to how this is penal payment, not
allowable as a business expenditure. The action of the CIT(A) was held to be
absolutely mechanical. The Tribunal held that when the assessee is paying the
creditors interest for payment made beyond the credit period allowed, the
expenditure is undoubtedly in relationship (sic relation) to the
business conducted by the assessee and is therefore allowable. The Tribunal set
aside the orders of the AO and CIT(A) on this issue and decided this ground in
favour of the assessee.