ITAT Upholds Gujarat Gas Ltd.'s Deduction for Stamp Duty Provision u/s 35DD, citing Full Payment of Duty [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld Gujarat Gas Ltd.'s deduction for stamp duty provision under Section 35DD, ruling that the full payment of stamp duty in two installments, Rs. 42.86 crores, including a Rs. 25 crore provision, was not in dispute.

Gujarat Gas Ltd.,  appellant-assessee, was engaged in city gas distribution, including the sale, purchase, processing, and transportation of natural gas. The Principal Commissioner of Income Tax (PCIT) reviewed the case and found that the assessee had claimed additional depreciation on certain assets. The PCIT held that compressing natural gas did not qualify as a manufacturing activity, a requirement for such depreciation, but the Assessing Officer (AO) had allowed the claim without proper examination.

The PCIT also noted that the assessee had claimed a deduction of Rs.5.39 crores under Section 35DD of the Act, which included Rs.5 crores for stamp duty categorized as a "contingent liability." Since contingent liabilities are not allowable as per tax laws, the PCIT found the AO's decision to allow the claim incorrect.

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During the Section 263 proceedings, the PCIT held that compressing natural gas did not qualify as "manufacturing" under Section 2(29A) and found the assessee's claim of Rs.18.89 crores for additional depreciation unsubstantiated. The PCIT also noted that the Rs.25 crore deduction under Section 35DD for stamp duty was a contingent liability, and the AO failed to verify its payment. Thus, the assessment order was deemed erroneous and prejudicial to Revenue.

The assessee appealed before the tribunal.

The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Annapurna Gupta(Accountant Member) noted that the assessee had provided proof of payment of Rs. 42.86 crores towards Stamp Duty expenses in two installments, in December 2016 and March 2019. The payment, including the Rs. 25 crores provision, was not in dispute.

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The appellate tribunal also highlighted that a similar issue was addressed in the assessee's case for A.Y. 2017-18, where the AO had dropped the re-assessment proceedings after reviewing the submissions. The AO agreed that the assessee had both provided for and incurred the expenses, allowing the claim under Section 35DD.Based on these facts and the AO's previous decision to drop the re-assessment, the bench concluded that the AO. had not made an error in not adding this issue.

Therefore, the tribunal found that the PCIT had erred in holding the assessment order as erroneous and prejudicial to the Revenue regarding the deduction under Section 35DD of the Act.

In short, the appeal filed by the assessee was allowed.

To Read the full text of the Order CLICK HERE

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