ITO, WD-30(3), KOLKATA, Kolkata V. M/s Vardant Projects, Kolkata

ITA 1136/KOL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4405 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 28-08-2015
• Court: TRIBUNAL
• Department Lawyers: MRS SARBARI MUKHOPADHYAY
• Assessee Lawyers: K M ROY
• Keywords: Business expenditure
• Section: 69C; 133(6); 37

Judgement Text

I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1136/KOL/ 2015 ASSESSMENT YEAR: 2012-2013 INCOME TAX OFFICER,................................ ........................................APPELLANT WARD-30(3), KOLKATA, AAYAKAR BHAWAN DAKSHIN, 2, GARIAHAT ROAD SOUTH, 5 TH FLOOR, KOLKATA-700 068 -VS.- M/S. VARDANT PROJECTS,............................. .....................................RESPONDENT 36/1A, 4 TH FLOOR, GARCHA ROAD, KOLKATA-700 019 [PAN:AAFFV 1602 A] & C.O. NO.51/KOL/2015 (IN I.T.A. NO. 1136/KOL/ 2015) ASSESSMENT YEAR: 2012-2013 M/S. VARDANT PROJECTS,............................. ..................................CROSS OBJECTOR 36/1A, 4 TH FLOOR, GARCHA ROAD, KOLKATA-700 019 [PAN:AAFFV 1602 A] -VS.- INCOME TAX OFFICER,................................ ......................................RESPONDENT WARD-30(3), KOLKATA, AAYAKAR BHAWAN DAKSHIN, 2, GARIAHAT ROAD SOUTH, 5 TH FLOOR, KOLKATA-700 068 APPEARANCES BY: MRS. SARBARI MUKHOPADHYAY, ADDL. CIT, D.R., FOR THE DEPARTMENT SHRI K.M. ROY, FCA, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : AUGUST 01, 2016 DATE OF PRONOUNCING THE ORDER : OCTOBER 04, 2016 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-8, KOLKATA DAT ED 15.06.2015 AND THE SAME IS BEING DISPOSED OF ALONG WITH CROSS OBJE CTION FILED BY THE ASSESSEE BEING C.O. NO. 51/KOL/2015. I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 2 OF 7 2. IN GROUND NO. 1 OF ITS APPEAL, THE REVENUE HAS C HALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.36,39,053/- MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OF CHA RGES PAID BY THE ASSESSEE FOR REGULARISATION OF UNAUTHORIZED CONSTRU CTION. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM (TREATED AS ASSOCIATION OF PERSON BY THE ASSESSING OFFICER), WH ICH IS ENGAGED IN THE BUSINESS OF BUILDERS AND PROMOTERS OF REAL ESTATE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28.09.2012 DECLARING TOTAL INCOME OF RS.9,55,472/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.36,39,053/- WAS D EBITED BY THE ASSESSEE ON ACCOUNT OF CHARGES PAID FOR REGULARISATION OF UN AUTHORIZED CONSTRUCTION TO THE MUNICIPAL CORPORATION. SINCE TH E SAID AMOUNT WAS PAID BY THE ASSESSEE FOR DEVIATION OF NORMAL RULES, THE ASSESSING OFFICER TREATED THE SAME TO BE PENAL IN NATURE AND MADE THE DISALLOWANCE. 4. THE MATTER WAS CARRIED BEFORE THE LD. CIT(APPEAL S) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CHARGES PAID TO KOLKATA MUNICIPAL CORPORATION FOR UNAUTHORIZED CONSTRUCTION FOR THE F OLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.5 OF HIS IMPUGNED ORDER:- 4.5. I FIND MERIT IN THE SUBMISSIONS OF THE APPELL ANT. I NOTE THAT THE RELIANCE PLACED BY THE AO IN SECTION 400(1 ) OF KMC ACT AND RULE 25 IS MISPLACED. SECTION 400(1) ONLY PROVI DES FOR DEMOLITION OF UNAUTHORIZED CONSTRUCTION WHICH IS NO T PRESENT IN THE APPELLANT'S CASE. INSTEAD RULE 25 PROVIDES THAT IF THE DEVIATION IN THE SANCTIONED PLAN IS WITHIN THE PRES CRIBED LIMITS THEN THE PERSON MAY GET IT REGULARIZED BY PAYMENT O F PRESCRIBED FEES. I THEREFORE NOTE THAT THE KMC ACT DOES NOT PR OVIDE FOR PAYMENT OF ANY 'PENALTY'. ON PERUSAL OF THE KMC ACT , 1980, I ALSO CAME ACROSS SCHEDULE-VI WHICH LAYS DOWN PENALT IES FOR VIOLATION OF THE PROVISIONS OF THE KMC ACT. ON GOIN G THROUGH THE SAID SCHEDULE, I FIND THAT NO PENALTY HAS BEEN PRES CRIBED FOR DEVIATION IN SANCTIONED PLAN OF BUILDING. SECTION 4 00(1) OR RULE 25 DOES NOT FIND ANY MENTION IN THE SAID SCHEDULE O F PENALTIES. I I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 3 OF 7 THEREFORE AGREE WITH THE APPELLANT THAT THE FEES PA ID TO KMC FOR DEVIATION IN SANCTIONED PLAN WAS NOT IN THE NATURE OF PENALTY. I FIND THAT KMC HAS BIFURCATED THE PENALTIES AND FEES . THE PENALTIES ARE PRESCRIBED IN THE SCHEDULE VI OF THE KMC ACT WHEREAS THE FEES ARE MENTIONED IN THE RULES. IN THE CIRCUMSTANCES I DO NOT AGREE WITH THE AO'S OBSERVAT ION THAT THE FEES PAID BY THE APPELLANT WERE PENAL IN NATURE. IN THE FACTS OF THE PRESENT CASE AND TAKING INTO CONSIDERATION THE SPECIFIC PROVISIONS OF KMC ACT AND ITS RULES & REGULATIONS I CONCUR WITH THE APPELLANT THAT THE FEES PAID TO KMC WAS IN THE COURSE OF BUSINESS. THE FEES WERE PAID AS PRESCRIBED IN THE R ULES. FURTHERMORE THE AO'S ARGUMENT THAT THE PAYMENT OF T HE FEES DECREASED THE PROFITS FROM THE SALE OF BUILDING IS ALSO IRRELEVANT IN THE PRESENT FACTUAL MATRIX. HAD THE FEES NOT BEE N PAID THE APPELLANT WOULD HAVE TO DEMOLISH THE TRANSFORMER WH ICH WOULD HAVE RENDERED THE BUILDING UNSALEABLE IN THE CIRCUM STANCES EVEN THE BUSINESS EXPEDIENCY INVOLVED IN THE PAYMENT CAN NOT BE DOUBTED. I, THEREFORE, HOLD THAT THE PAYMENT OF FEE S TO KMC FOR REGULARIZING THE DEVIATION FROM THE SANCTIONED PLAN WAS NOT PENAL BUT COMPENSATORY IN NATURE AND THEREFORE REGU LAR BUSINESS EXPENDITURE. I, ACCORDINGLY, DIRECT THE AO TO DELET E THE DISALLOWANCE OF RS.36,39,053/- IN FULL. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 5. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THOUGH THE LD. D.R. HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER IN SUP PORT OF THE REVENUES CASE THAT THE AMOUNT IN QUESTION PAID BY THE ASSESS EE FOR REGULARIZING UNAUTHORIZED CONSTRUCTION IS NOT ALLOWABLE AS DEDUC TION BEING PENAL IN NATURE, IT IS OBSERVED THAT THE AMOUNT IN QUESTION WAS PAID BY THE ASSESSEE TO KMC NOT FOR REGULARISATION OF THE UNAUT HORIZED CONSTRUCTION BUT FOR DEVIATION IN SANCTIONED PLAN, AS RIGHTLY HE LD BY THE LD. CIT(APPEALS) AFTER TAKING INTO CONSIDERATION THE RE LEVANT RULES OF KMC ACT, 1980. THE SAID AMOUNT THUS WAS NOT PAID AS PEN ALTY BY THE ASSESSEE FOR INFRACTION OF ANY LAW SO AS TO ATTRACT THE DISA LLOWANCE AS PER THE EXPLANATION TO SECTION 37 OF THE ACT AND THE LD. CI T(APPEALS), IN MY OPINION, WAS FULLY JUSTIFIED IN DELETING THE DISALL OWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. I, THEREFORE, UPHO LD HIS IMPUGNED ORDER ON THIS ISSUE AND DISMISS GROUND NO. 1 OF THE REVENUE S APPEAL. I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 4 OF 7 6. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.20,000/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ARCHITECT FEES. 7. THE CLAIM OF THE ASSESSEE OF HAVING PAID THE ARC HITECT FEES OF RS.1,00,000/- TO M/S. ARCHISON WORK, WAS EXAMINED B Y THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS . IN THIS REGARD, HE ISSUED A NOTICE UNDER SECTION 133(6) TO M/S. ARCHIS ON WORK, WHO IN THEIR REPLY CONFIRMED OF HAVING RECEIVED A SUM OF RS.80,0 00/- FROM THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE D IFFERENCE OF RS.20,000/-, THEREFORE, WAS DISALLOWED BY THE ASSES SING OFFICER. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE SAID DISAL LOWANCE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5.3 OF HIS IMPUGNED ORDER:- 5.3. I HAVE GONE THROUGH THE FACTS OF THE CASE, SU BMISSIONS OF THE APPELLANT AND FINDINGS OF THE AO. I FIND THAT T HE AMOUNT OF RS.1,00,000/- DEBITED IN THE P&L A/C COMPRISED OF A DVANCE OF RS.20,000/- PAID TO THE ARCHITECT IN EARLIER FY 201 0-11 AND FURTHER PAYMENT OF RS.80,000/- MADE IN THE RELEVANT YEAR IN QUESTION. THE ARCHITECT IN HIS REPLY HIS REPLY U/S 133(6) HAD ONLY CONFIRMED THE TRANSACTION OF THE RELEVANT YEAR WHEREIN THE APPELLANT HAD PAID RS.80,000/- AND DEDUCTED TDS OF RS.8,000/- THE AO NEVER CONFRONTED THE APPELLANT TO EXPLAIN IT S CASE AND THE ALLEGED DIFFERENCE OF RS.20,000/-. I, HOWEVER, FIND THAT THE SUM MENTIONED IN THE REPLY OF ARCHITECT U/S 133(6) FULLY RECONCILED WITH THE AMOUNT DEBITED IN THE APPELLANT S P&L A/C. THE DIFFERENCE WAS ON ACCOUNT OF THE ADVANCE OF RS. 20,000/- PAID BY THE APPELLANT IN THE IMMEDIATE PRECEDING YE AR WHICH DID NOT FIND MENTION IN THE ARCHITECTS REPLY. I, T HEREFORE, HOLD THAT THE ADDITION OF RS.20,000/- U/S. 69C WAS UNCAL LED FOR AND THE AO ACCORDINGLY DIRECTED TO DELETE THE SAME. GRO UND NO. 2 IS THEREFORE ALLOWED. 8. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY HELD BY THE LD. CIT(APPEALS), THE DISALLOWANCE OF RS.20,000/- O N ACCOUNT OF ARCHITECT FEES WAS MADE BY THE ASSESSING OFFICER MAINLY RELYI NG ON THE CONFIRMATION ISSUED BY THE CONCERNED PARTY WITHOUT GIVING ANY I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 5 OF 7 OPPORTUNITY TO THE ASSESSEE TO OFFER HIS EXPLANATIO N IN THIS MATTER. AS CLARIFIED BY THE ASSESSEE BEFORE THE LD. CIT(APPEAL S), A SUM OF RS.20,000/- WAS PAID TO THE CONCERNED PARTY ON ACCOUNT OF ARCHI TECT FEES IN THE EARLIER YEAR AS ADVANCE AND THE SAME, THEREFORE, WAS NOT RE FLECTED IN THE CONFIRMATION RECEIVED FROM THE SAID PARTY. THE TOTA L PAYMENT MADE TO THE SAID PARTY ON ACCOUNT OF ARCHITECT FEES THUS WAS RS .1,00,000/- AND THE SAME WAS RIGHTLY CLAIMED BY THE ASSESSEE AS DEDUCTI ON IN THE YEAR UNDER CONSIDERATION. I, THEREFORE, FIND NO INFIRMITY IN T HE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON T HIS ISSUE AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 9. IN THE SOLITARY GROUND RAISED IN ITS CROSS OBJEC TION, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN UP HOLDING THE ORDER OF THE ASSESSING OFFICER TAKING ITS STATUS AS ASSOCIATION OF PERSON INSTEAD OF PARTNERSHIP FIRM. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE-FIRM WAS CONSTI TUTED BY TWO PARTNERS WHO ARE HINDU UNDIVIDED FAMILY. HE HELD THAT ALTHOU GH HUF IS A PERSON FOR THE PURPOSE OF INCOME TAX ACT, IT IS NOT A JURI STIC PERSON FOR OTHER PURPOSES INCLUDING THE PARTNERSHIP ACT. HE HELD THA T THE HUF, THEREFORE, CANNOT ENTER INTO A VALID PARTNERSHIP AND ACCORDING LY THE STATUS OF THE ASSESSEE-FIRM WAS TAKEN BY HIM AS ASSOCIATION OF PE RSON FOR THE PURPOSE OF COMPLETING THE ASSESSMENT FOR THE YEAR UNDER CON SIDERATION. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE ORDER OF TH E ASSESSING OFFICER ON THIS ISSUE BY RELYING, INTER ALIA, ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF AGARWAL & COMPANY VS.- CIT RE PORTED IN 77 ITR 10, WHEREIN IT WAS HELD THAT HUF CANNOT BE A PARTNER IN A FIRM UNDER THE INDIAN PARTNERSHIP ACT, 1932. I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 6 OF 7 11. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS RAISED A NEW CONTENTION IN SUPPORT OF THE ASSESSEE S CASE ON THIS ISSUE THAT THE PARTNERS IN THE ASSESESE-FIRM ARE NOT HUF, BUT KARTAS OF HUF IN THEIR INDIVIDUAL CAPACITIES. HE HAS CONTENDED THAT NO HUF THUS IS A PARTNER IN THE ASSESSEE-FIRM AND SINCE THE KARTAS O F HUF ARE PARTNERS IN THEIR INDIVIDUAL CAPACITIES, IT IS A VALID PARTNERS HIP FIRM UNDER THE PARTNERSHIP LAW. SINCE THIS STAND IS TAKEN BY THE A SSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL, I CONSIDER IT FAIR AND PR OPER AND IN THE INTEREST OF JUSTICE TO GIVE AN OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME. I, ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN ACCORDANCE WITH LAW AFT ER TAKING INTO CONSIDERATION THE NEW PLEA TAKEN BY THE ASSESSEE FO R THE FIRST TIME BEFORE THE TRIBUNAL. THE CROSS OBJECTION OF THE ASSESSEE I S ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED, WHILE THE CROSS OBJECTION OF THE ASSESSEE IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 04, 2 016. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 4 TH DAY OF OCTOBER, 2016 COPIES TO : (1) INCOME TAX OFFICER, WARD-30(3), KOLKATA, AAYAKAR BHAWAN DAKSHIN, 2, GARIAHAT ROAD SOUTH, 5 TH FLOOR, KOLKATA-700 068 (2) M/S. VARDANT PROJECTS, 36/1A, 4 TH FLOOR, GARCHA ROAD, KOLKATA-700 019 I.T.A. NO. 1136/KOL./2015 ASSESSMENT YEAR: 2012-2013 & C.O. NO. 51/KOL/2015 (IN ITA NO. 1136/KOL/2015) ASSESSMENT TEAR: 2012-2013 PAGE 7 OF 7 (3) COMMISSIONER OF INCOME TAX(APPEALS)-8, KOLKAT A; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.