Kamdhenu Real Estate's Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1471/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0959 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 22-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: VIPIN GUJRATHI
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1471/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 KAMDHENU REAL ESTATES PVT. LTD., 320, MUTHAS COMMERCE HOUSE, SHANKERSETH ROAD, PUNE-411037 PAN : AAACK6835G ....... / APPELLANT ' / V/S. ACIT, CIRCLE 11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI VIPIN GUJRATHI REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 15-09-2016 / DATE OF PRONOUNCEMENT : 16-09-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 31-01- 2014 FOR THE ASSESSMENT YEAR 2009-10. 2 ITA NO. 1471/PN/2014, A.Y. 2009-10 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PROMOTER, BUILDER AND DEVELOPER. THE ASSES SEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 3 0-10-2009 DECLARING TOTAL INCOME OF ` 54,75,530/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY FIRST NOTICE U/S. 143 (2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS ISS UED TO THE ASSESSEE ON 28-09-2010. THE ASSESSEE DEVELOPED H OUSING PROJECT KAMDHENU SIDDHI. AS PER THE TERMS AND CONDITIONS OF TH E AGREEMENT WITH THE ALLOTTEES OF THE FLATS, THE ASSESSEE WAS TO HANDO VER POSSESSION OF THE FLATS ON OR BEFORE 31-05-2008. HOWEVER, THE ASSES SEE COULD NOT COMPLETE THE PROJECT BY 31-05-2008. THE FLATS WERE HA NDED OVER TO THE ALLOTTEES IN FEBRUARY-MARCH, 2010. THE ASSESSEE PAID COM PENSATION OF ` 8,80,000/- I.E. ` 40,000/- TO EACH FLAT OWNER FOR DELAY IN HANDING OVER OF POSSESSION. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER INTER ALIA MADE DISALLOWANCE OF COMPENSATION PAID TO FLAT OWNERS FOR DELAYED POSSESSION OF FLATS. AGGRIEVED BY THE ASSESSMENT ORDER DATED 29-07-2011, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD TH E FINDING OF COMMISSIONER OF INCOME TAX (APPEALS) QUA DISALLOWANC E OF PAYMENT OF COMPENSATION TO THE FLAT OWNERS. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN SEC OND APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE IN APPEAL HAS ASSAILED THE FINDINGS OF COMM ISSIONER OF INCOME TAX (APPEALS) ON TWO GROUNDS : I. DISALLOWANCE OF SALARY PAID TO PAYAL K. MUTHA ` 84,000/-. 3 ITA NO. 1471/PN/2014, A.Y. 2009-10 II. DISALLOWANCE OF PAYMENT OF COMPENSATION TO FLAT OWNERS ` 8,80,000/-. 4. SHRI VIPIN GUJRATHI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THE FIRST GROUND RAISED IN THE APPEAL RELATING TO DISALLOWANCE OF SALARY PAID TO PAYAL K. MUTHA. 4.1 IN RESPECT OF GROUND NO. 2 RELATING TO PAYMENT OF COM PENSATION FOR DELAYED HANDING OVER OF POSSESSION TO FLAT OWNERS THE LD. AR OF THE ASSESSEE CONTENDED, THAT THE COMPENSATION WAS PAID TO FLAT OWNERS IN ACCORDANCE WITH THE MEETING BETWEEN THE PROPRIETOR OF P ROJECT KAMDHENU SIDDHI AND FLAT OWNERS HELD IN JANUARY, 2009. T HE COMPENSATION WAS PAID TO 22 FLAT OWNERS BY ACCOUNT PAYE E CHEQUES. THE ASSESSEE PRODUCED CONFIRMATIONS FROM ALL THE FLAT OWNER S TO WHOM COMPENSATION WAS PAID. THE LD. AR SUBMITTED THAT THE AUT HORITIES BELOW HAVE ERRED IN NOT APPRECIATING THE FACT THAT THE C OMPENSATION FOR DELAYED HANDING OVER OF POSSESSION OF FLAT WAS PAID BY THE ASSESSEE OUT OF COMMERCIAL EXPEDIENCY. THE DEPARTMENT HAS NOT DISPUTE D THE PAYMENT OF COMPENSATION TO THE FLAT OWNERS. THE LD. AR CO NTENDED THAT AS PER THE AGREEMENT WITH THE PURCHASERS OF THE FLATS, T HE ASSESSEE WAS TO HANDOVER OF THE POSSESSION OF FLATS ON OR BEFORE 31-05 -2008. HOWEVER, THE ASSESSEE COULD NOT COMPLETE THE CONSTRUCT ION UP TO 2009. A MEETING WAS CALLED WITH THE FLAT HOLDERS ON 04-01-2009 W HEREIN THE ASSESSEE HAD AGREED TO PAY COMPENSATION TO THE FLAT OW NERS FOR DELAYED POSSESSION IF THE FLATS WERE NOT DELIVERED BY 31-03-2009. THEREAFTER, ON 17-01-2009 SECOND MEETING OF FLAT OWNERS WAS CALLED WHERE IN IT WAS REVIEWED THAT THE ASSESSEE BY ANY MEANS COULD NOT COM PLETE THE CONSTRUCTION OF FLATS BY 31-03-2009. IT WAS MUTUALLY AGR EED THAT THE 4 ITA NO. 1471/PN/2014, A.Y. 2009-10 ASSESSEE WOULD PAY INTERIM COMPENSATION OF ` 40,000/- TO EACH FLAT HOLDER. THE LD. AR REFERRED TO PAGE 28 OF THE PAPER BOOK TO SHOW THE LIST OF FLAT HOLDERS AND THE AMOUNT RECEIVED FROM THE RESPE CTIVE FLATS HOLDERS AS ON 31-03-2009. THE LD. AR CONTENDED THAT T HE AMOUNT PAID BY THE ASSESSEE TO THE FLAT HOLDERS WAS COMPENSATORY IN NATURE AND NOT IN THE NATURE OF PENALTY. THE AUTHORITIES BELOW HAVE ERRE D IN OBSERVING THAT THE COMPENSATION PAID BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF AGREEMENT ENTERED INTO WITH THE FLAT HOLDERS. ALTHOUGH THERE WAS NO COVENANT IN THE AGREEM ENT FOR PAYMENT OF COMPENSATION FOR DELAY IN HANDING OVER OF POSSESSION OF FLATS BUT THE ASSESSEE IS GOVERNED BY THE PROVISIONS OF MAHARASHTRA OWNERSHIP FLATS ACT, 1963. AS PER THE PROVISIONS OF SECTION 8 OF THE SAID ACT, IF THE ASSESSEE FAILS TO HANDOVER THE POSSESSION OF THE FLATS BY DUE DATE SUBJECT TO REASONABLE DELAY (MAXIMUM 6 MONTHS FOR THE RE ASONS BEYOND THE CONTROL OF ASSESSEE), THE ASSESSEE WAS LIABLE T O REFUND THE ENTIRE AMOUNT RECEIVED FROM FLATS OWNERS ALONG WITH INTEREST @ 9%. T HE ASSESSEE HAD RECEIVED A TOTAL SUM OF ` 4,27,11,207/- AS ON 31-03-2009 FROM VARIOUS FLAT OWNERS. IF THE ASSESSEE WOULD HAVE TO P AY INTEREST TO THE FLAT OWNERS THE SAME WOULD BE APPROXIMATELY ` 38.44 LAKHS. IN ADDITION TO THAT THE ASSESSEE WOULD ALSO BE LIABLE TO REFUN D STAMP DUTY AND REGISTRATION CHARGES WHICH APPROXIMATELY AMOUNTS T O ` 20 LAKHS. WHEREAS, THE ASSESSEE ESCAPED SUCH LIABILITIES BY COMPENSA TING THE FLAT OWNERS BY MAKING THE PAYMENT OF ` 8,80,000/- ONLY. THE ASSESSEE HAS PAID COMPENSATION TO MAINTAIN HIS GOODWILL. THE LD. AR FURTHE R SUBMITTED THAT THE ASSESSING OFFICER HAS MISCONSTRUED THE DATE OF COMPLETION AS 31-03-2009. IN THE AGREEMENT THE DATE O F COMPLETION OF THE PROJECT HAS BEEN CLEARLY MENTIONED AS 31-05-2008. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED IN OBSE RVING THAT 5 ITA NO. 1471/PN/2014, A.Y. 2009-10 THERE WAS MINOR DELAY OF FEW DAYS, THEREFORE, THE ASSESSEE WAS NOT LIABLE TO PAY ANY COMPENSATION FOR REASONABLE DELAY. IN FA CT, THERE WAS DELAY OF 20 MONTHS FROM 31-05-2008 TO FEBRUARY, 2010 IN HANDING OVER OF POSSESSION. THE PROVISIONS OF MAHARASHTRA OWNERSHIP FLA T ACT, 1963 GIVES LEVERAGE OF ONLY 3 MONTHS FOR DELAY IN COMPLETIO N OF PROJECT AND A FURTHER PERIOD OF 3 MONTHS IF THE DELAY IS CAUSED FO R THE REASONS BEYOND THE CONTROL OF DEVELOPER. THUS, THE TOTAL PERIOD OF DELAY WHICH ACCORDING TO THE SAID ACT CAN BE CONSIDERED AS REASO NABLE IS ONLY 6 MONTHS. THE LD. AR CONTENDED THAT THE AUTHORITIES BELOW HAVE ERRED IN HOLDING THAT THE COMPENSATION PAID BY THE ASSESSEE IS A SELF ASSUMED LIABILITIES AND IF AT ALL THE ASSESSEE WAS LIABLE TO PAY ANY AMO UNT TO THE FLAT HOLDERS IT WAS IN THE NATURE OF PENALTY FOR BREACH O F CONTRACT. THE LD. AR IN ORDER TO COUNTER THE OBSERVATIONS OF THE AUTHO RITIES BELOW HAVE PLACED RELIANCE ON THE DECISION OF DELHI BENCH OF THE T RIBUNAL IN THE CASE OF DCIT VS. M/S. ACHIEVER BUILDERS (P) LTD. IN ITA N O. 5113/DEL/2013 DECIDED ON 23-05-2014 (REPORTED AS 2014 (6) TMI 251 ITAT DELHI). THE LD. AR FURTHER PLACED RELIANCE ON THE DE CISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MALABAR IN DUSTRIES PVT. LTD. VS. ITO IN ITA NO. 3568/MUM/2006 DECIDED ON 18- 12-2009 (REPORTED AS 2009 (12) TMI 937 ITAT MUMBAI) TO BUTTRE SS HIS ARGUMENT THAT THE COMPENSATION PAID WAS ON ACCOUNT OF BUSINESS EXPEDIENCY. 5. AU CONTRAIRE SHRI P.L. KUREEL REPRESENTING THE DEPARTMENT STRONGLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TA X (APPEALS). THE LD. DR CONTENDED THAT THE ASSESSEE HAS PAID THE AMOUN T TO FLAT HOLDERS NOT OUT OF ANY CONTINGENT LIABILITY BUT OUT OF SELF ASSUME D LIABILITY WHICH IS NOT ALLOWABLE AS PER THE PROVISIONS OF INCOME TAX ACT. 6 ITA NO. 1471/PN/2014, A.Y. 2009-10 THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW COMMERCIAL EXPEDIENCY FOR THE PAYMENT OF COMPENSATIO N AND THERE IS NO COVENANT IN THE AGREEMENT EXECUTED BETWEE N THE FLAT HOLDERS AND THE ASSESSEE WITH RESPECT TO THE PAYMENT OF COMPE NSATION FOR DELAY IN HANDING OVER OF POSSESSION OF FLATS. THE LD. DR CONTEND ED THAT ANOTHER FACET OF THE AMOUNT PAID BY THE ASSESSEE TO TH E FLAT OWNERS IS THAT IF IT IS PAID UNDER THE PROVISIONS OF MAHARASHTRA OWNE RSHIP FLAT ACT, 1963 THE AMOUNT PAID IS IN NATURE OF PENALTY, AND TH E PAYMENT OF PENALTY IS NOT AN ALLOWABLE EXPENDITURE. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 6. THE LD. AR CONTROVERTING THE SUBMISSIONS MADE ON BEHALF OF THE DEPARTMENT SUBMITTED THAT THE COMMERCIAL EXPEDIENCY HAS TO BE SEEN FROM THE POINT OF VIEW OF THE ASSESSEE AND NOT THE DEPARTMENT. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE VARIOUS DOCUMENTS FURNISHED BY THE ASSESSEE IN THE FORM OF PAPER BOOK AND REFERRED DURING THE COURSE OF MAKING SUBMISSIONS. IN APPEAL, THE ASSESSEE HAS RAISED TWO GROU NDS IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THE FIRST GROUND OF APPEAL RELATES TO DISALLOWANCE OF SALARY PAID TO PAYAL K MUTHA. THE LD. AR OF THE ASSESSEE STATED AT THE BAR TH AT HE IS NOT PRESSING GROUND NO. 1. ACCORDINGLY, GROUND NO. 1 RAISED IN APPEAL IS DISMISSED AS NOT PRESSED. 8. THE SECOND GROUND OF APPEAL RELATES TO DISALLOWANCE OF P AYMENT OF COMPENSATION TO FLAT OWNERS FOR DELAY IN HANDING OVER O F POSSESSION 7 ITA NO. 1471/PN/2014, A.Y. 2009-10 TO THE FLAT OWNERS. THE AUTHORITIES BELOW HAVE DISALLOWED T HE CLAIM OF ASSESSEE FOR THE FOLLOWING REASONS : I. THE ORIGINAL AGREEMENT EXECUTED BETWEEN THE ASSESSEE A ND THE FLAT OWNERS DOES NOT CONTAIN ANY COVENANT WITH RESPECT TO PAYMENT OF COMPENSATION FOR DELAY IN HANDING OVER OF POSSE SSION OF FLATS. II. THE ASSESSEE HAS SELF ASSUMED THE LIABILITY OF PAYMENT OF COMPENSATION. THE DELAY IN POSSESSION OF FLAT WAS FOR FEW DA YS AND FOR REASONABLE DELAY IN HANDING OVER OF POSSESSION OF FLA TS NO COMPENSATION WAS REQUIRED TO BE PAID. III. THE ASSESSEE COULD NOT SHOW COMMERCIAL EXPEDIENCY FOR PA YMENT OF COMPENSATION. IV. IF AT ALL THERE WAS LIABILITY TO PAY IT WAS ON ACCOUNT OF BR EACH OF CONTRACT FOR WHICH THE PAYMENT IS IN THE NATURE OF PENA LTY AND NOT COMPENSATION. 9. IN SO FAR AS THE OBJECTION RAISED BY THE DEPARTMENT THAT THERE WAS NO COVENANT IN THE AGREEMENT FOR PAYMENT OF COMPE NSATION IS CONCERNED, WE OBSERVE THAT THE ASSESSEE BEING A DEVELO PER AND BUILDER OF FLATS WAS GOVERNED BY THE PROVISIONS OF MAHARASHTRA OW NERSHIP FLAT ACT, 1963. AS PER THE PROVISIONS OF SECTION 8 OF THE SAID ACT THE ASSESSEE WAS LIABLE TO REFUND THE AMOUNT PAID BY THE ALLOT TEE OF THE FLAT WITH INTEREST IN CASE OF FAILURE TO GIVE POSSESSION WITHIN TH E SPECIFIED TIME. THE RELEVANT PROVISIONS OF SECTION 8 OF THE MAHARAS HTRA OWNERSHIP FLATS ACT ARE REPRODUCED HERE-IN-UNDER : 8. REFUND OF AMOUNT PAID WITH INTEREST FOR FAILURE TO GIVE POSSESSION WITHIN SPECIFIED TIME OR FURTHER TIME AL LOWED . IF 8 ITA NO. 1471/PN/2014, A.Y. 2009-10 (A) THE PROMOTER FAILS TO GIVE POSSESSION IN ACCORD ANCE WITH THE TERMS OF HIS AGREEMENT OF A FLAT DULY COMP LETED BY THE DATE SPECIFIED, OR ANY FURTHER DATE OR DATES AGREED TO BY THE PARTIES, OR (B) THE PROMOTER FOR REASONS BEYOND HIS CONTROL AND OF HIS AGENTS, IS UNABLE TO GIVE POSSESSION OF THE FLA T BY THE DATE SPECIFIED, OR THE FURTHER AGREED DATE AND A PERIOD OF THREE MONTHS THEREAFTER, OR A FURTHER PERIOD OF THREE MONTHS IF THOSE REASONS STILL EXIST, THEN, IN ANY SUCH CASE, THE PROMOTER SHALL BE LIABL E ON DEMAND (BUT WITHOUT PREJUDICE TO ANY OTHER REMEDIES TO WHICH HE MAY BE LIABLE) TO REFUND THE AMOUNTS ALREADY RECEIVED BY HIM IN RESPE CT OF THE FLAT (WITH SIMPLE INTEREST AT NINE PER CENT PER ANNUM FROM THE DATE HE RECEIVED THE SUMS TILL THE DATE THE AMOUNTS AND INTEREST THEREON IS REFUNDED), AND THE AMOUNTS AND THE INTEREST SHALL BE A CHARGE ON THE L AND AND THE CONSTRUCTION IF ANY THEREON IN WHICH THE FLAT IS OR WAS TO BE CONSTRUCTED, TO THE EXTENT OF THE AMOUNT DUE, BUT SUBJECT TO ANY PRIOR ENCUMBRANCES. THUS, A PERUSAL OF THE ABOVE PROVISIONS OF THE SAID ACT CLE ARLY SHOW THAT WHETHER THE COVENANT FOR PAYMENT OF COMPENS ATION FOR DELAY IN HANDING OVER OF POSSESSION OF FLAT IS CONTAINED IN THE AG REEMENT OR NOT, THE ASSESSEE WAS BOUND TO COMPENSATE THE FLAT OWN ERS IN THE CASE OF DELAY IN HANDING OVER OF POSSESSION OF THE FLATS BEYOND A REASONABLE TIME. 10. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MA LABAR INDUSTRIES PVT. LTD. VS. ITO (SUPRA) HAS UPHELD THE OBSERV ATIONS MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) THAT EVEN IF TH ERE WAS NO CLAUSE PERMITTING PAYMENTS OF COMPENSATION TO THE ORIGINAL ALLOTTEES IN CASE OF CANCELLATION OF BOOKINGS, THE PAYMENT OF COMPENSATI ON SHOULD BE ALLOWED AS DEDUCTION ON THE PRINCIPLE OF BUSINESS EXPEDIE NCY. IT IS A WELL SETTLED PROPOSITION THAT BUSINESS EXPEDIENCY HAS TO B E DECIDED BY THE ASSESSEE AND NOT THE DEPARTMENT. THE LD. AR OF THE ASSESSEE HAS 9 ITA NO. 1471/PN/2014, A.Y. 2009-10 SHOWN THAT UNDER THE PROVISIONS OF MAHARASHTRA OWNERSH IP FLAT ACT, 1963 THE ASSESSEE WOULD HAVE BEEN LIABLE TO REFUND THE A MOUNT DEPOSITED BY THE ALLOTTEES OF THE FLATS ALONG WITH INTEREST @ 9% FROM THE DATE OF DEPOSIT FOR DELAY IN HANDING OVER OF POSSESSION OF FLA TS, ON THE DEMAND OF FLAT OWNERS. IN THAT EVENTUALITY THE LIABILITY OF TH E ASSESSEE WOULD HAVE BEEN MUCH MORE THAN WHAT HAS BEEN PAID BY THE ASSESSEE AS COMPENSATION. THE ASSESSEE WAS JUSTIFIED IN COMPENSAT ING THE FLAT OWNERS AS THERE WAS DELAY OF MORE THAN 20 MONTHS IN HA NDING OVER OF POSSESSION OF FLATS FROM THE DATE SPECIFIED IN THE AGREEMENT BETWEEN THE ASSESSEE AND THE FLAT HOLDERS. AS PER THE AGREEMENT TH E DUE DATE FOR HANDING OVER OF POSSESSION WAS ON OR BEFORE 31-05-2008, WHEREAS, THE ASSESSEE COULD GIVE POSSESSION OF THE FLATS TO THE FLAT HOLD ERS IN FEBRUARY-MARCH, 2010. 11. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT COMPENSATION PAID BY THE ASSESSEE COULD HAVE BEEN AVOID ED AS THE ASSESSEE COULD HAVE GOT REASONABLE EXTENSION FOR COMPLET ING THE PROJECT. THE AFORESAID OBSERVATIONS MADE BY THE COMMISS IONER OF INCOME TAX (APPEALS) ARE AGAINST THE FACTS OF THE CASE A ND DOCUMENTS ON RECORD. THE REASONABLE EXTENDED PERIOD FOR HANDING O VER OF POSSESSION COULD HAVE BEEN 3 MONTHS TO 6 MONTHS. HOWE VER, IN THE PRESENT CASE THE DELAY IN HANDING OVER OF FLATS WAS ALMOST 2 YEARS. THE COURTS ARE NOW TAKING A VERY SERIOUS VIEW AGAINST T HE DELAY IN HANDING OVER OF POSSESSION OF FLATS BY THE BUILDERS. THE CONSUMER COURTS AS WELL AS CIVIL COURTS ARE DIRECTING THE BUILDERS, PR OMOTERS TO PAY HEAVY COMPENSATION TO THE FLAT HOLDERS FOR DELAY IN HA NDING OVER OF POSSESSION OF FLATS. RECENTLY, THE PARLIAMENT HAS ENACTED THE REAL 10 ITA NO. 1471/PN/2014, A.Y. 2009-10 ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 TO LEASH THE BUILDERS AND PUT ON HOLD THE UNETHICAL PRACTICES FOLLOWED BY DEVELO PERS TO HARASS THE CONSUMERS. THE REAL ESTATE ACT ALSO AIM TO CURB THE PRACTICE OF DELAY IN HANDING OVER OF POSSESSION OF FLATS TO T HE FLAT HOLDERS. SECTION 18 OF THE REAL ESTATE (REGULATION AND DEV ELOPMENT) ACT, 2016 PROVIDES FOR THE PAYMENT OF COMPENSATION BY THE DEVELOPER TO THE ALLOTTEES OF THE FLATS IN CASE THE DEVELOPER FAILS TO COM PLETE OR IS UNABLE TO GIVE POSSESSION OF THE APARTMENT/FLAT, IN ACCORDA NCE WITH THE TERMS OF THE AGREEMENT ON OR BEFORE THE SPECIFIED DATE. THE RELEVANT EXTRACT OF THE PROVISIONS OF SECTION 18 ARE REPRODUCED HERE-IN-UND ER : 18. (1) IF THE PROMOTER FAILS TO COMPLETE OR IS UN ABLE TO GIVE POSSESSION OF AN APARTMENT, PLOT OR BUILDING, (A) IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT F OR SALE OR, AS THE CASE MAY BE, DULY COMPLETED BY THE DATE SPECIFI ED THEREIN; OR (B) DUE TO DISCONTINUANCE OF HIS BUSINESS AS A DEVE LOPER ON ACCOUNT OF SUSPENSION OR REVOCATION OF THE REGISTRA TION UNDER THIS ACT OR FOR ANY OTHER REASON, HE SHALL BE LIABLE ON DEMAND TO THE ALLOTTEES, IN C ASE THE ALLOTTEE WISHES TO WITHDRAW FROM THE PROJECT, WITHOUT PREJUD ICE TO ANY OTHER REMEDY AVAILABLE, TO RETURN THE AMOUNT RECEIV ED BY HIM IN RESPECT OF THAT APARTMENT, PLOT, BUILDING, AS THE CA SE MAY BE, WITH INTEREST AT SUCH RATE AS MAY BE PRESCRIBED IN THIS BEHALF INCLUDING COMPENSATION IN THE MANNER AS PROVIDED UNDER THIS A CT: PROVIDED THAT WHERE AN ALLOTTEE DOES NOT INTEND TO WITHDRAW FROM THE PROJECT, HE SHALL BE PAID, BY THE PROMOTER, INT EREST FOR EVERY MONTH OF DELAY, TILL THE HANDING OVER OF THE POSSESSION, AT SUCH RATE AS MAY BE PRESCRIBED. (2) THE PROMOTER SHALL COMPENSATE THE ALLOTTEES IN CASE OF ANY LOSS CAUSED TO HIM DUE TO DEFECTIVE TITLE OF THE LAND, O N WHICH THE PROJECT IS BEING DEVELOPED OR HAS BEEN DEVELOPED, IN THE MANNE R AS PROVIDED UNDER THIS ACT, AND THE CLAIM FOR COMPENSATION UNDER THIS SUBSECTION SHALL NOT BE BARRED BY LIMITATION PROVIDED UNDER ANY LAW FOR T HE TIME BEING IN FORCE. 11 ITA NO. 1471/PN/2014, A.Y. 2009-10 (3) IF THE PROMOTER FAILS TO DISCHARGE ANY OTHER OB LIGATIONS IMPOSED ON HIM UNDER THIS ACT OR THE RULES OR REGULATIONS MADE THEREUNDER OR IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AGR EEMENT FOR SALE, HE SHALL BE LIABLE TO PAY SUCH COMPENSATION TO THE ALL OTTEES, IN THE MANNER AS PROVIDED UNDER THIS ACT. THUS, THE ASSESSEE WAS JUSTIFIED IN COMPENSATING THE ALLOTT EES OF THE FLATS FOR DELAY IN HANDING OVER OF POSSESSION. THE AMOU NT PAID BY THE ASSESSEE WAS CERTAINLY ON ACCOUNT OF BUSINESS EXPEDIENCY . 12. ANOTHER REASON FOR DISALLOWING THE PAYMENT OF COMPENSA TION WAS THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN THE NATU RE OF PENALTY FOR BREACH OF CONTRACT. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. ACHIEVER BUILDERS (P) LTD. (SUPRA) WHERE THE D EPARTMENT DISALLOWED THE AMOUNT PAID BY THE ASSESSEE TO THE CUSTO MERS FOR DELAY IN HANDING OVER OF POSSESSION OF PROPERTIES HOLDING IT TO BE PENAL IN NATURE HELD, THAT THE AMOUNT PAID BY THE ASSESSEE TO C USTOMERS IS COMPENSATORY IN NATURE AND NOT PENAL. THE COMPENSATIO N WAS PAID FOR DELAY IN HANDING OVER OF POSSESSION OF THE PROPERTY, THE LIABILITY TO PAY SUCH COMPENSATION AROSE IN THE COURSE OF BUSINESS OF ASS ESSEE. IN THE PRESENT CASE THE ASSESSEE PAID COMPENSATION TO THE AS SESSEE UNDER SIMILAR CIRCUMSTANCES AND NOT OUT OF ANY LIABILITY ARISING FROM INVOKING OF PENAL PROVISIONS OF ANY STATUTE. THUS, THE COMPENSATIO N PAID BY THE ASSESSEE CANNOT BE HELD TO BE PENAL IN NATURE. 13. IN VIEW OF OUR ABOVE FINDINGS WE HOLD THE EXPENDITURE INCURRED BY THE ASSESSEE ON PAYMENT OF COMPENSATION TO THE FLAT OWN ERS FOR DELAY IN 12 ITA NO. 1471/PN/2014, A.Y. 2009-10 POSSESSION AS ALLOWABLE. ACCORDINGLY, THE GROUND NO. 2 RAI SED IN THE APPEAL IS ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON FRIDAY, THE 16 TH DAY OF SEPTEMBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 16 TH SEPTEMBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE