M/S. Sormistha Builders & Construction Pvt. Ltd., Asansol V. ACIT, Circle-1, Asansol, Asansol

ITA 144/KOL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4085 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 15-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2015
• Court: TRIBUNAL
• Department Lawyers: PRABAL C HOUDHURY
• Assessee Lawyers: R N RAM
• Keywords: Business income; Business expenditure
• Section: 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENC H KOLKATA BEFORE SHRI S.S.VISWANETHRA RAVI, JM & DR. A.L.SAI NI, AM ./ ITA NO.144/KOL/2015 ( / ASSESSMENT YEAR:2009-2010) M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LIMITED, SENRELEIGH ROAD, WEST APCAR GARDENS, ASANSOL-4, DIST-BURDWAN-713304 VS. ACIT/CIRCLE-1/ASANSOL-713304 ./ ./PAN/GIR NO. : AAICS 8345 K ( /APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI R.N.RAM, AR REVENUE BY : SHRI PRABAL CHOUDHURY, JCIT / DATE OF HEARING : 15/12/2016 /DATE OF PRONOUNCEMENT 21/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO THE ASSESSMENT YEAR 2009-2010, IS DIRECTED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS), ASANSOL, IN A PPEAL NO.234/CIT(A)/ASL/CIR-1/ASL/11-12, DATED 01.12.2014 , WHICH IN TURN ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER (AO ) UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE A CT), DATED 11.03.2014. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSME NT YEAR 2009-10 ON 12.01.2011 DECLARING TOTAL INCOME OF RS.18,63,098/- . ASSESSEES CASE WAS SELECTED FOR SCRUTINY U/S.143(3) OF THE ACT AND THE AO HAS COMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS. ITA NO.144/15 M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LTD. 2 3. AGGRIEVED FROM THE ORDER OF LD. AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS ALSO CONFIRMED THE A DDITIONS MADE BY THE AO, BY OBSERVING THE FOLLOWINGS :- 5. IN SECTION 23 THE PROVISO READS AS UNDER :- PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHOR ITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMP LOYED BY HIM) IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF THE PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. CLEARLY THE ELEMENTS IN THE DEMAND NOTICE VIZ.(A) 1 00% PENALTY OF SANCTION FEES & DEVELOPMENT FEES (B) FINE FOR DEVIA TED AREA @RS.70/- PER SQ.FT.AND (C) DEVELOPMENT AND SANCTION ED FEE ARE NOT 'TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY'. THE MUNICIPAL TAX HERE IS THE TAX DETERMINED PAYABLE ON ANNUAL BASIS POST COMPLETION DETERMINED IN A PRE SPECIFIED MANNE R, GENERALLY ON BASIS OF NATIONAL RENTAL VALUE. 6. THE APPELLANT ARGUED THAT RS.12,66,076/- AND RS. 5,20,759/- ARE FINE AND NOT PENALTY AND FINE IS AKIN TO TAXES HERE . HENCE HE PLEADED THAT THIS SUM BE ALLOWED SINCE THE SAME GOE S IN AUGMENTING PROFIT. 7. THE MATTER IS CONSIDERED. THE EXPLANATION OFFERE D BY THE APPELLANT DOES NOT MEET THE CONDITION STIPULATED IN LAW. HERE WE ARE COMPUTING INCOME FROM HOUSE PROPERTY WHICH IS DETER MINED ON BASIS OF SPECIFIC NON DISCRETIONARY DEDUCTION AND N OT PROFITS AND GAINS OF BUSINESS AND PROFESSION. THE SUMS IN THE T WO DEMAND NOTICES OF ASANSOL MUNICIPAL CORPORATION ARE NOT 'T AXES LEVIED ON THE PROPERTY BY LOCAL AUTHORITY' AS SPECIFIED IN PR OVISO TO SECTION 23(1). THEY ARE SUMS THAT WERE TO BE PAID AT PRE CO MMENCEMENT OF CONSTRUCTION STAGE AND PENALTY FOR VIOLATION OF MUN ICIPAL LAWS. THIS IS NOT DEDUCTIBLE IN ACCORDANCE WITH PROVISO TO SEC TION 23(1) IN COMPUTING ANNUAL VALUE. HENCE DECLINE TO ACCEPT THE PLEA OF APPELLANT. 8. THE DISALLOWANCE OF RS.19,00,772/- MADE BY ASSES SING OFFICER IS UPHELD. THE GROUNDS 1 TO 4 STANDS DISMISSED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWIN G GROUNDS OF APPEAL :- 01. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE ID. CIT(A), ASANSOL ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1900772/- PAID ITA NO.144/15 M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LTD. 3 TO ASANSOL MUNICIPAL CORPORATION ON ACCOUNT OF FEES FOR DEVIATION OF BUILDING PLAN WHEREAS SUCH PAYMENT IS PART AND PARC EL OF BUSINESS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS OF THE APPELLANT. 02. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE ID. CIT(A), ASANSOL ERRED IN NOT APPRECIATING THE FACT THAT APP ELLANT DERIVES INCOME FROM HOUSE PROPERTY AND ALSO FROM BUSINESS O N ACCOUNT OF PURCHASE AND SALE OF COMMERCIAL AND RESIDENTIAL FLA TS AFTER PROMOTING AND CONSTRUCTING THE SAME AND CONSOLIDATE D PROFIT/LOSS ACCOUNT IS PREPARED DEBITING THE ABOVE SUM OF RS.19 00772/- WHEREIN BOTH THE INCOME FROM THE HOUSE PROPERTY AND INCOME FROM SALE OF COMMERCIAL AND RESIDENTIAL COMPLEXES WERE C REDITED IN THE PROFIT/LOSS ACCOUNT. 03. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE ID. CIT(A), ASANSOL ERRED IN NOT APPRECIATING THE FACT THAT THE DETAILS WERE FILED BEFORE THE A.O. AND CIT(A) AND EXPLAINED THAT FEES PAID TO THE MUNICIPAL CORPORATION IS A PART AND PARCEL OF THE E XPENDITURE ALLOWABLE U/S 28 THOUGH NOT ALLOWABLE U/S 22. 04. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND AND SUBSTITUTE AND GROUND OR GROUNDS BEFORE OR AT THE TIME OF HEARING. 5.ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVAN CE OF THE ASSESSEE HAS BEEN CONFINED TO THE ISSUE THAT LD. CIT(A) DID NOT ALLOW THE PENALTY PAID BY THE ASSESSEE TO MUNICIPAL CORPORATI ON ON ACCOUNT OF DEVIATION OF BUILDING PLAN. 5.1. LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DERIVES INCOME FROM HOUSE PROPERTY AND ALSO INCOME FROM BUS INESS. INCOME FROM BUSINESS IS MAINLY ON ACCOUNT OF PURCHASES AND SALE S OF COMMERCIAL AND RESIDENTIAL FLATS. THE ASSESSEE PREPARED A CONSOLID ATED PROFIT AND LOSS ACCOUNT, WHERE HE HAS DEBITED THE PENALTY PAID TO M UNICIPAL CORPORATION AT RS.19,00,772/-. IN THE PROFIT AND LOSS ACCOUNT B OTH THE INCOME OF THE ASSESSEE ARE GETTING REFLECTED I.E. INCOME FROM HOU SE PROPERTY AND ITA NO.144/15 M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LTD. 4 INCOME FROM SALE OF COMMERCIAL AND RESIDENTIAL COMP LEX. LD. AR ARGUED THAT PENALTY PAID TO THE MUNICIPAL CORPORATION IS A PART AND PARCEL OF THE EXPENDITURE ALLOWABLE U/S.28. SINCE THE ASSESSEE HA S TWO TYPES OF INCOME I.E. INCOME FROM HOUSE PROPERTY AND INCOME F ROM BUSINESS. THE ASSESSEE CANNOT CLAIM THE PENALTY EXPENDITURE UNDER THE HEAD INCOME FROM HOUSE PROPERTY BECAUSE THERE IS NO ANY PROVISI ON TO ALLOW PENALTY EXPENDITURE, THEREFORE, THE OPTION AVAILABLE BEFORE THE ASSESSEE IS TO CLAIM THE PENALTY PAID TO MUNICIPAL CORPORATION IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS PAID THIS PENALTY BECAUSE OF DEVIATION OF BUILDING PLAN. LD. AR ARGUED THAT BECAUSE OF DEVIAT ION OF BUILDING PLAN, THE ASSESSEE WOULD BE ABLE TO GET MORE REVENUE AND MORE CARPET AREA AND, THEREFORE, THIS WAY THE BUSINESS INCOME OF THE ASSESSEE IS INCREASING AND, THEREFORE, IT IS FOR THE PURPOSE OF THE BUSINESS. BECAUSE OF DEVIATION OF BUILDING PLAN THE ASSESSEE WOULD BE AB LE TO GET MORE REVENUE FROM THE SALE OF RESIDENTIAL FLATS AND COMM ERCIAL FLATS, THEREFORE, THE PENALTY PAID TO THE MUNICIPAL CORPORATION ON AC COUNT OF DEVIATION OF BUILDING PLAN IS BUSINESS EXPENDITURE AND SHOULD BE ALLOWABLE U/S.37(1) OF THE ACT. 5.2 ON THE OTHER HAND, LD. DR FOR THE REVENUE HAS P RIMARILY REITERATED THE STAND TAKEN BY THE CIT(A) AND AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. THE LD. DR POINTED OUT THAT PENALTY PAID FOR VIOLATION OF ANY ACT OR LAW IS NOT ALLOWABLE U/S 37(1). IF THE PENALTY A ND FINES ARE ALLOWED AS A BUSINESS EXPENDITURE THEN THERE WOULD BE MORE CRIM E AND UNLAWFUL ITA NO.144/15 M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LTD. 5 ACTIVITIES IN THE COUNTRY. LD. DR HAS EXPLAINED BE FORE US THAT THE PENALTY OR THE FINE PAID BY THE ASSESSEE WHICH IS PROHIBITE D BY LAW SHOULD NOT BE ALLOWED AS A BUSINESS EXPENDITURE AND SECTION 37(1) PROHIBITS THE SAME. EXPLANATION 1 TO SECTION 37(1) READS AS FOLLOWS :- EXPLANATION 1- FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR AN Y PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW S HALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE M ADE IN RESPECT OF SUCH EXPENDITURE. 5.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF LD. DR FOR THE REVENUE. LD. DR OF THE REVENUE HAS EXPLA INED BEFORE US THAT PENALTY EXPENDITURE IS NOT A BUSINESS EXPENDITURE A ND HE HAS RIGHTLY POINTED OUT THAT EXPLANATION 1 TO SECTION 37(1) OF THE ACT PROHIBITS THE SAME, THEREFORE, ANY EXPENDITURE INCURRED BY AN ASS ESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUS INESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE ALLOWED IN R ESPECT OF SUCH EXPENDITURE. IN THE CASE UNDER CONSIDERATION THE AS SESSEE HAS VIOLATED THE MUNICIPAL LAW. THEREFORE, THE PENALTY FEE PAID TO THE MUNICIPAL CORPORATION ON ACCOUNT OF DEVIATION OF BUILDING PLA N IS NOT ALLOWABLE EXPENDITURE. THIS EXPENDITURE IS NEITHER ALLOWABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY NOR UNDER THE HEAD BUSINESS INC OME. CONSIDERING THE FACTUAL POSITION AND THE PROVISIONS OF SECTION 37(1) OF THE ACT, WE DO ITA NO.144/15 M/S SORMISTHA BUILDERS & CONSTRUCTION (P) LTD. 6 NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. C IT(A). THEREFORE, WE CONFIRM THE ORDER OF LD. CIT(A). 5.4. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21/1 2/2016. SD/ - (S.S.VISWANETHRA RAVI) S D/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 21/12/2016 ' $%& /PRAKASH MISHRA , 0 . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) % & , / ITAT, 1. / THE APPELLANT-M/S SORM ISTHA BUILDERS & CONST.(P)LTD 2. / THE RESPONDENT.-ACIT/CIR-1/ASANSOL 3. 1 ( ) / THE CIT(A), KOLKATA. 4. 1 / CIT 5. 23 4 0056 , 56 , / DR, ITAT, KOLKATA 6. 4 78 / GUARD FILE. 2 0 //TRUE COPY//