M/S. HOUSE OF PLASTICS,CHENNAI vs. DCIT, NON CORPORATE CIRCLE-11(1), CHENNAI

The brief facts of the case emanating from the records are that the assessee is a partnership firm engaged in the business of wholesale dealing in plastic and plastic resin in Tamil Nadu and Kerala. The assessee filed its return of income on 07.10.2014 declaring total income of Rs.1,75,01,414/-. However, the assessee revised its return of income u/s.139(5) of the Act on 06.12.2014, declaring the same total income. The return was processed u/s.143(1) of the Act and subsequently selected for complete scrutiny, pursuant to which statutory notices were issued to the assessee. In response thereto, the assessee submitted the details and documents as and when called for. During the course of assessment proceedings, the AO noticed that the assessee had not deducted tax at source (TDS) on a payment of Rs.23,33,880/- made to M/s.Vijay Bhaskar Roadways. In response, the assessee submitted that M/s. Vijay Bhaskar Roadways, the transport service provider, neither owned nor operated more than ten goods carriages during the relevant period and, accordingly, no tax was required to be deducted at source, based on the declaration furnished by the said transporter. However, on perusal of the documents furnished by the assessee, the AO observed that the transporter had raised invoices on the assessee mentioning at least 25 different vehicle numbers. The AO further noted that the transportation invoices were not supported by corresponding invoices evidencing the supply/purchase of goods purportedly transported through the said vehicles. It was also observed that, in several instances, the invoices for supply of goods were raised subsequent to the dates of the corresponding transportation invoices, thereby raising doubts regarding the genuineness and chronological sequence of the transportation transactions.

In view of the above, the AO disallowed the claim of carriage inwards expenses amounting to Rs.23,33,880/-, holding that the genuineness of the transaction had not been established. Further, the AO observed that the said payment was liable to be disallowed u/s.40(a)(ia) of the Act, as the assessee had failed to deduct tax at source on such payment.

Further, the AO also found that the assessee had debited stamp duty and registration charges relating to the land purchased during the year as revenue expenditure, instead of capitalising the same along with the cost of the land to the tune of Rs.5,26,000/-. Accordingly, the AO disallowed the said expenditure, holding that stamp duty and registration charges were not allowable as revenue expenditure u/s.37(1) of the Act. Accordingly, the AO passed an order u/s.143(3) of the Act dated 26.03.2025, making the aforesaid two disallowances. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A) on 12.04.2025. However, the Ld.CIT(A), on perusal of the submissions and documents furnished by the assessee, confirmed the order of the AO and dismissed the appeal of the assessee by holding as under: -

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. AR Shri.Cheeran Varghese, CA, on behalf of the assessee, assailing the action of the Ld.CIT(A), submitted that both the authorities below have erred in disallowing the expenditure towards stamp duty and registration charges as well as freight/carriage inward charges. In respect of the disallowance of stamp duty and registration charges paid on the purchase of land, the Ld.AR relied upon the decision of the Hon’ble Gujarat High Court in the case of Prithvi Associates v. ACIT [2016] 71 taxmann.com 163 and submitted that the Hon’ble High Court has held that the payment of stamp duty is allowable as revenue expenditure. Accordingly, the Ld. AR prayed for deletion of the disallowance made by the authorities below.

In respect of the carriage inward charges incurred towards transportation of goods, the Ld.AR submitted that the transporter had furnished a declaration u/s.194C(6) of the Act stating that he did not own more than 10 goods carriages. Accordingly, the Ld. AR prayed that the disallowance made by the authorities below be deleted.

Per contra, the Ld. DR, Ms. Anshu Sharawat, Addl. CIT, appearing for the Revenue, submitted that the decision of the Hon’ble Gujarat High Court relied upon by the assessee is distinguishable on facts and is not applicable to the present case. It was contended that, in the said case, the stamp duty expenditure was incurred in connection with the execution of a business contract with the Maharashtra State Road Transport Corporation and was not related to the acquisition or registration of any capital asset. In contrast, in the present case, the stamp duty expenditure was incurred in connection with the registration of land acquired by the assessee, and therefore, the expenditure is directly attributable to the acquisition of a capital asset and cannot be treated as revenue expenditure. Therefore, the stamp duty expenditure claimed by the assessee is not allowable as revenue expenditure u/s.37(1) of the Act.

Similarly, with regard to the expenditure claimed towards carriage inwards charges, the Ld.DR submitted that the assessee had failed to establish the genuineness of the expenditure, as the invoices issued by the transporter did not match with the corresponding invoices for the supply of goods. It was submitted that there were multiple discrepancies in the transport invoices vis-à- vis the invoices issued by the vendors towards supply of goods and, therefore, the expenditure was not allowable. Further, the Ld.DR submitted that the AO had clearly noted that the assessee had merely relied upon the declaration furnished by the transporter for non-deduction of TDS, whereas the transporter had raised invoices mentioning not less than 25 different vehicles bearing different registration numbers. Thus, the assessee had failed to comply with the applicable TDS provisions also and, consequently, the expenditure was liable to be disallowed u/s.40(a)(ia) of the Act. In view of the above submissions, the ld.DR prayed for dismissal of the appeal of the assessee.

We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below and the judicial precedents relied upon by the parties. The assessee has challenged the disallowance of carriage inward charges of Rs.23,33,880/- and the disallowance of stamp duty and registration charges of Rs.5,26,000/-.

In respect of the carriage inward expenses of Rs.23,33,880/-, the assessee has contended that the payment was made to M/s.Vijay Bhaskar Roadways towards transportation of goods and that the said transporter had furnished a declaration u/s.194C(6) of the Act stating that it did not own more than ten goods carriages. Accordingly, it was submitted that no tax was liable to be deducted at source. We are unable to accept the contention of the assessee. As rightly observed by the Ld.CIT(A), the primary issue in the present case is not merely the applicability of the TDS provisions, but whether the expenditure claimed by the assessee is a genuine and verifiable business expenditure allowable u/s.37(1) of the Act.

The Ld. CIT(A), after examining the assessment order, the submissions of the assessee and the material available on record, has recorded specific findings with regard to the genuineness of the transportation expenditure. It was noticed that the transporter had raised invoices dated 07.04.2022 and 22.04.2022, including multiple invoices on the same dates, which preceded the first purchase invoice from Ratan Impex dated 09.04.2022. The transportation invoices also did not contain specific references to the corresponding supplier invoice numbers, quantity of goods or consignment particulars. Further, the assessee's own correlation statement furnished before the appellate authority revealed discrepancies in the dates of receipt and transportation of goods, without corresponding lorry receipts or e-way bills establishing the movement of the specific consignments.

The Ld.CIT(A) further noted that the assessee had not furnished transporter-specific ledger details, payment evidence or other satisfactory proof establishing the actual rendering of transportation services. More importantly, the transportation invoices referred to more than 25 different vehicle numbers, whereas the assessee relied upon the declaration of the transporter that it did not own more than ten goods carriages. The assessee's explanation that the transporter might have hired vehicles was not supported by any corroborative material such as subcontract arrangements or other independent evidence.

We find that the aforesaid discrepancies, when considered cumulatively, materially affect the genuineness and verifiability of the expenditure claimed. The mere recording of the expenditure in the books of account or the availability of GST-related documents cannot, by itself, establish that the transportation services were actually rendered and that the expenditure was incurred wholly and exclusively for the purposes of the assessee's business. The assessee was required to establish the expenditure with cogent and contemporaneous evidence, particularly when the genuineness of the claim had been specifically questioned by the AO.

In view of the above factual findings, we concur with the Ld.CIT(A) that the assessee has failed to discharge the onus of establishing the genuineness and business nexus of the carriage inward expenditure. Consequently, the expenditure of Rs.23,33,880/- is not allowable as a deduction u/s.37(1) of the Act. We, therefore, find no infirmity in the action of the authorities below in disallowing the said expenditure u/s.37(1) of the Act.

Without prejudice to the above finding, we also note that the assessee's claim for non-deduction of tax is based upon the declaration furnished by the transporter u/s.194C(6) of the Act. However, the material on record, particularly the reference to more than 25 different vehicle numbers in the transport invoices, casts doubt on the correctness and applicability of the declaration relied upon by the assessee. The assessee has not satisfactorily demonstrated that the statutory conditions prescribed u/s.194C(6) of the Act were fulfilled. Therefore, the assessee has also failed to establish that the payment was outside the scope of the applicable TDS provisions.

Accordingly, the disallowance of Rs.23,33,880/- is independently sustainable u/s.37(1) of the Act for failure to establish the genuineness and verifiability of the expenditure. The issue of non-deduction of tax u/s.194C of the Act and the consequential applicability of section 40(a)(ia) further supports the action of the AO, subject to the statutory conditions being satisfied.

The next issue relates to the disallowance of Rs.5,26,000/- towards stamp duty and registration charges incurred in connection with the purchase and registration of land. The assessee has relied upon the decision of the Hon'ble Gujarat High Court in Prithvi Associates v. ACIT, [2016] 71 taxmann.com 163 (Guj.), in support of its claim that stamp duty is allowable as revenue expenditure. We have carefully considered the said decision. However, the facts of the said case are clearly distinguishable from the facts of the present case.

In Prithvi Associates (supra), the stamp duty expenditure was incurred in connection with the execution of a business contract and was not incurred for acquisition or registration of a capital asset. In the present case, admittedly, the stamp duty and registration charges of Rs.5,26,000/- were incurred in connection with the acquisition and registration of land as per the audited financial statements referred by the ld.AR. The expenditure is, therefore, directly and intrinsically connected with the acquisition of a capital asset. The stamp duty and registration charges incurred for acquiring and registering the land form part of the cost of acquisition of the capital asset and cannot be treated as expenditure incurred wholly and exclusively for the purpose of carrying on the business so as to qualify for deduction u/s.37(1) of the Act. The expenditure results in bringing the capital asset into existence and in perfecting the assessee's title thereto. It is, therefore, capital in nature.

The contention of the assessee that the decision in Prithvi Associates mandates allowance of stamp duty as revenue expenditure is, therefore, misplaced. The nature and purpose of the expenditure have to be examined in the factual context in which the expenditure was incurred. In the present case, the expenditure is directly relatable to the acquisition of land and hence cannot be allowed as revenue expenditure u/s.37(1) of the Act. We, therefore, find no infirmity in the findings of the AO, as confirmed by the Ld.CIT(A), in disallowing

In view of the foregoing discussion, we find no reason to interfere with the order of the Ld.CIT(A). The assessee has failed to establish the genuineness of the carriage inward expenditure of Rs.23,33,880/- and has also failed to demonstrate that the statutory conditions for non-deduction of tax u/s.194C(6) of the Act were satisfied. Further, the stamp duty and registration charges of Rs.5,26,000/- incurred in connection with the acquisition and registration of land are capital in nature and are not allowable as revenue expenditure u/s.37(1) of the Act. Accordingly, both the issues raised by the assessee are decided against the assessee and in favour of the Revenue.

In the result, the appeal filed by the assessee is dismissed.