OBEROI CONSTRUCTIONS LTD ( FORMERLY KNOWN AS OBEROI CONSRUCTIONS P. LTD ), MUMBAI V. ASST CIT CEN CIR 23, MUMBAI

ITA 1010/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2688 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: R MURLIDHAR
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.1010/MUM/2013 ASSESSMENT YEAR: 2009-10 OBEROI CONSTRUCTIONS LTD. (FORMERLY KNOWN AS OBEROI CONSTRUCTIONS PVT. LTD.) COMMERZ, 3 RD FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF ESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI- 400063. PAN: AAACO1805E VS. ACIT, CC-23, R. NO. 409, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R. MURLIDHAR REVENUE BY : SHRI B.S.BIST (DR) DATE OF HEARING : 12.08.2015 DATE OF PRONOUNCEMENT : 04.11.2015 O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-40, MUMBAI DATED 02.11.2012 IN RESPECT OF ASSESSMENT YEAR (AY) 2009- 10 ON THE FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED A.O HAS ERRED IN LAW AND FACTS IN MAK ING ADDITION OF RS.33, 78,666/- TO THE TOTAL INCOME OF THE APPELLAN T BY DISALLOWING EXPENDITURE U/S. 14A OF THE ACT READ WITH RULE 8D O F THE INCOME-TAX RULES, 1962 WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE EXPENDITURE 2 ITA NO. 1010/M/2013 OBEROI CONSTRUCTIONS LTD. INCURRED AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THE HON'BLE COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN CONFIRMING THE ABOVE ACTION OF THE LEARNED A.O. 2. THE ASSESSING OFFICER (A.O) HAS ERRED IN LAW AND FACTS IN DISALLOWING PAYMENT OF BMC CHARGES OF RS.3,29,000/- BY TREATING IT AS PENAL IN NATURE AS PER EXPLANATION TO SECTION 37(1) OF THE I NCOME-TAX ACT 1961 (THE ACT) AND NOT ALLOWING THE SAME U/S 37( 1) OF T HE ACT BY IGNORING THE FACT THAT THE SAME WERE COMPENSATORY IN NATURE AND LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW AND THE HO N'BLE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ABOVE ACTIONS OF THE LEARNED A.O. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED HIS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL INCOME OF RS. 8,03,28,37 4/-. THE RETURN WAS SELECTED FOR SCRUTINY AND ASSESSING OFFICER (AO) WHILE MAKING AS SESSMENT U/S 143(3) OF THE ACT MADE AN ADDITION OF RS. 33,78,666/- U/S 14A AND DIS ALLOWED RS. 3,32,978/- U/S 37(1) ON ACCOUNT OF PENALTY IMPOSED BY THE BMC AND FURTHE R DISALLOWED A SUM OF RS. 1,17,210/- ON ACCOUNT OF CLUB MEMBERSHIP IN ITS ORD ER DATED 29.12.2011. 3. AGAINST THE ORDER OF AO, THE ASSESSEE FILED AN APPE AL BEFORE THE CIT(A). THE LD. CIT(A) WHILE DISPOSING OF THE APPEAL UPHOLD THE ADD ITION MADE U/S 14A AND 37(1) OF THE ACT AND ALLOWED/DELETED THE ADDITION MADE ON AC COUNT OF CLUB MEMBERSHIP IN THE IMPUGNED ORDER DATED 02.11.2012 AGAINST WHICH PRESE NT APPEAL WAS FILED BEFORE THIS TRIBUNAL. 4. THE FIRST GROUND FOR OUR CONSIDERATION IS THE DISAL LOWANCE MADE U/S 14A OF IT ACT. THE AO MADE THE DISALLOWANCE U/S 14 A,READ WITH RUL E 8D, ON AN AMOUNT EQUAL TO ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVES TMENT, WHICH WERE APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY OF T HE PREVIOUS YEAR , WHICH IS SHOWN AT RS.67,57,33,160/- AND THUS CALCULATING THE DISALLOW ANCE @ 0.5% THE AMOUNT WAS CALCULATED RS. 33,78,666/-. 5. THE LD. CIT(A) WHILE DEALING WITH THIS GROUND OBSER VED AS UNDER 4.4 I HAVE GONE THROUGH THE ASSESSMENT ORDER, PER USED THE SUBMISSIONS AND ALSO DISCUSSED THE CASE WITH THE ARS OF THE APPELLANT. T HE AO HAS DISALLOWED RS.33,78,666/- BEING 0.5% OF THE AVERAGE VALUE OF I NVESTMENT AS PER BALANCE SHEET UNDER RULE 8D(2)(III) OF THE I.T. RULES. THE APPELL ANT HAS CLAIMED THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME. HOWEVER, THE APPELLANT ADMITTED THAT AN INDIRECT EXPENDITURE OF RS.93,12,971/- HAS BEEN CHA RGED TO THE PROFIT & LOSS ACCOUNT. FURTHER, THE APPELLANT HAS ADMITTED THAT AN ESTIMAT ED AMOUNT OF RS.10,000/- COULD 3 ITA NO. 1010/M/2013 OBEROI CONSTRUCTIONS LTD. HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. ONCE APPELLANT ADMITS THAT EXPENDITURE IS ATTRIBUTABLE TO EXEMPT INCOME, AO'S SATISFACTION IS CONFIRMED BY IT. ONCE THESE TWO CONDITIONS ARE SATISFIED, APPLICATIO N OF RULE 8D IS TRIGGERED REQUIRING QUANTIFICATION WHERE AO HAS NO OPTION BUT TO WORK O UT THE AMOUNT DISALLOWABLE. FOR SUCH A SITUATION ONLY, THE FORMULA UNDER RULE 8D HA S BEEN PROVIDED, WHICH, IN MY OPINION, HAS RIGHTLY BEEN APPLIED BY THE AO. THIS V IEW IS ALSO UPHELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT [328 ITR 81]. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO U /S.14A IS UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE AO MADE THE DISALLOWANCE U/S 14A ON THE BASIS OF .5% O F TOTAL INVESTMENT OF THE ASSESSEE I.E. RS. 67,57,33,160/- ON WHICH RS. 33,78,666/- WA S CALCULATED BEING .5%. 7. THE ASSESSEE HAS NOT SATISFIED THE AO AS TO WHY TH E DISALLOWANCE U/S 14 A READ WITH RULE 8D, BE NOT MADE, HOWEVER BEFORE THE CIT(A) THE ASSESSEE HAD ADMITTED THAT AND INDIRECT EXPENDITURE OF RS. 93,12,971/- HAS BEEN CH ARGED TO THE P/L ACCOUNT AN ESTIMATED AMOUNT OF RS. 10,000/- COULD HAVE BEEN IN CURRED IN EARNING THE EXEMPT INCOME. THUS BOTH THE CONDITION FOR INVOKING RULE D WAS SATISFIED. THE LD AR FOR THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL BEFORE US AS TO WHY THE DISALLOWANCE MADE U/S 14 A READ WITH RULE D IS WRONG, THUS THE ADDITION U/S 14A, MADE BY AO , WHICH WAS SUSTAINED BY CIT(A) DOES NOT REQUIRE ANY INTERFEREN CE. 8. NEXT GROUND FOR OUR CONSIDERATION IS ADDITION MADE U/S 37(1) OF THE ACT FOR PAYMENT FOR BMC BY TREATING IT AS PENAL IN NATURE. 9. THE AR OF THE ASSESSEE HAS RELIED UPON THE JUDGMENT DATED 31.10.2014 IN ITA NO. 4239/MUM/2011 TITLED AS M/S M.P.GUPTA VS. ITO, WHER EIN THE COORDINATE BENCH OF MUMBAI TRIBUNAL WHILE RELYING UPON THE JUDGEMENTS OF HONBLE SUPREME COURT IN THE CASE OF PRAKASH COTTON MILLS P. LTD. VS. CIT[19 93] 201 ITR 684 (SC) AND CIT VS. AHMEDABAD COTTON MFG. CO. LTD. [1994] 205 ITR 163 ( SC) , HELD THAT STATUTORY IMPOST PAID AS DAMAGES, PENALTY OR INTEREST, IF COM PENSATORY IN NATURE, IT IS ALLOWABLE AS BUSINESS EXPENDITURE. THE ID SR. COUNSEL FOR THE ASSESSEE ALSO DRAW ATTENTION TO THE ORDER OF THE LD. CIT(A) WHEREIN REFERENCE WAS MADE TO CASES OF T. KHEMCHAND TEJOOMAL, 161 ITR 492 AND AGRA LEATHERS LTD. ITR 79 2. THE ID. SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE CASES PERTAINED TO PE NALTIES LEVIED BY THE CUSTOMS AUTHORITIES FOR THE UNLAWFUL ACT OF THE ASSESSEE, H OWEVER, IN THE PRESENT CASE THE ASSESSEE HAS NOT COMMITTED ANY UNLAWFUL ACT, THEREF ORE, AND THESE CASES ARE NOT APPLICABLE TO THE ASSESSEE. THE LD. SR. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR 4 ITA NO. 1010/M/2013 OBEROI CONSTRUCTIONS LTD. ATTENTION TO THE RELEVANT OBSERVATION IN THE CASE O F AGRA LEATHERIES WHEREIN THE COURT HAS SAID THAT THE HON'BLE BOMBAY HIGH COURT HAD COR RECTLY ALLOWED THE EXPENDITURE AS A BUSINESS EXPENDITURE AS WELL AS ALLOWED TO BE ADD ED TOWARDS THE COST OF GOODS. 10. FURTHER, RELIANCE WAS ALSO PLACED ON THE DECISION O F HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD., 17 C TR 281 AND IN THE CASE OF CIT VS. INDUSTRIAL CABLES (I) LTD. 212 CTR 513 WHEREIN 'PEN ALTY' LEVIED FOR DRAWING EXTRA LOADING FROM THE GRID, IN VIOLATION OF POWER RULES AND REGULATIONS WAS HELD TO BE ALLOWABLE AS IT WAS NOT LEVIED FOR DELIBERATE VIOLA TION OF LAW. ATTENTION WAS ALSO INVITED TO THE MEMORANDUM TO THE FINANCE BILL 1998 TO SHOW THAT THE PURPOSE OF INTRODUCING EXPLANATION TO SECTION 37(1) OF THE ACT WAS TO APPLY THE SAME IN THE CASE OF UNLAWFUL EXPENDITURE SUCH AS ON ACCOUNT OF PROTE CTION MONEY, EXTORTION, HUFTA, BRIBES ETC. AND NOT TO THE NORMAL BUSINESS EXPENSES . 11. LD. DR FOR REVENUE HAS FURTHER RELIED UPON THE JUD GMENT OF KARNATAKA HIGH COURT IN CASE TITLED AS CIT VS. MAMTA ENTERPRISES REPORTED I N 2004(1) 266 ITR 356 (KAR), WHEREIN IT WAS HELD THAT PUTTING UP CONSTRUCTION WI THOUT THERE BEING A SANCTION PLAN AS AN OFFENCE UNDER KARNATAKA MUNICIPAL CORPORATION AC T, 1976 AND IT IS TREATED AS AND PROHIBITED BY LAW. IN OUR OPINION, THE FACT OF THE CASE RELIED BY LD. DR ARE AT VARIANCE. IN THE PRESENT CASE, THE ASSESSEE HAS PAID THE CHAR GES ON ACCOUNT OF REGULARIZATION CHARGES TO THE BMC AND DR HAS NOT BROUGHT IN OUR NO TICE THAT ANY DEVIATION IS AN OFFENCE UNDER THE STATUTORY PROVISION OR BY-LAWS OF BMC. 12. RESPECTFULLY FOLLOWING THE ORDER OF CO-ORDINATE BEN CH, WE HOLD THAT THE ADDITION MADE BY AO AND SUSTAINED BY CIT(A) U/S 37(1) OF THE ACT IS LIABLE TO BE DELETED. 13. IN THE ABOVE, THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH NOVEMBER 2015. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 04/11/2015 S.K.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 5 ITA NO. 1010/M/2013 OBEROI CONSTRUCTIONS LTD. / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/