R.R. CHATURVEDI & ORS., MUMBAI V. ADDL. CIT RG 16(2), MUMBAI

ITA 1955/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62584 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 31-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.1955/MUM/2009 (ASSESSMENT YEAR: 2001-02) M/S. R.R. CHATURVEDI AND ORS., 1025-A, SHIVAJI NAGAR, GOKHALE ROAD, PUNE -411 016 MUMBAI ..... APPELLANT VS ADDL. COMMISSIONER OF INCOME-TAX, RANGE -16(2), MUMBAI .... RESPONDENT PAN : AAAAR 1234 L APPELLANT BY: SHRI ARVIND SONDE RESPONDENT BY: SHRI SANDEEP GOEL DATE OF HEARING: 26.04.2012 DATE OF PRONOUNCEMENT: 13.06.2012 O R D E R PER P.M. JAGTAP, AM: THIS APPEAL IS FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT (A), CENTRAL VII, MUMBAI DATED 27.01.20 09. 2. THE ISSUE INVOLVED IN GROUND NO.1 RELATES TO THE ADDITION OF ` 46,62,000/- MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT (A) BY WAY OF DISALLOWANCE OF COMPENSATION PAID BY THE ASSESSE E. 3. THE ASSESSEE IN THE PRESENT CASE IS AN ASSOCIATI ON OF PERSON WHICH IS ENGAGED IN THE BUSINESS AS A DEVELOPER OF REAL ESTATE. THE RETURN OF THE INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 31.10.2001 DECLARING LOSS OF ` 3,95,55,230/-. IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN A SUM OF ` 46,62,000/- WAS ITA NO.1955/MUM/2009 M/S. R.R. CHATURVEDI AND ORS. 2 DEBITED BY THE ASSESSEE ON ACCOUNT OF COMPENSATION PAID TO FLAT PURCHASERS. IT WAS EXPLAINED BY THE ASSESSEE THAT THESE AMOUNTS WERE PAID TO THOSE PARTIES WHO HAD CANCELLED THEIR BOOKI NGS DUE TO CERTAIN DELAY IN COMPLETING THE PROJECT. IT WAS SUBMITTED THAT AS THE SAID DELAY WAS ON ASSESSEES PART, AMOUNTS PAID ON ACCOUNT OF FLAT BOOKINGS WERE REFUNDED TOGETHER WITH COMPENSATION AS PER THE UNDE RSTANDING ARRIVED AT WITH THE CONCERNED PARTIES. THE STAND OF THE AS SESSEE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, COMPENSATION ON CANCELLATION OF FLATS WAS NOT PAID BY THE ASSESS EE TO ALL THE PARTIES WHO HAD CANCELLED THE FLATS AND EVEN THE BASIS OF C ALCULATION OF COMPENSATION WAS NOT SATISFACTORILY EXPLAINED BY TH E ASSESSEE. HE, THEREFORE, HELD THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO ESTABLISH THAT THE PAYMENT OF COMPENSATION WAS AN E XPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. THE EXPENDITURE INCURRED BY THE ASSESSEE ON PAYMENT OF COMPENSATION THEREFORE WAS DISALLOWED BY THE A.O. ON APPEAL, TH E LD. CIT (A) CONFIRMED THE SAID DISALLOWANCE FOR THE SAME REASON S AS GIVEN BY THE A.O. 4. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, COMPENSATION AGGREGATING TO ` 46,62,000/- WAS PAID BY THE ASSESSEE TO FIVE PARTIES WHO HAD CANCELLED THE FLAT BOOKGS DUE TO DELAY IN THE COMPLETION OF PROJECT, WHICH WAS ATTRIBUTABL E TO THE ASSESSEE AND NONE OF THE SAID PARTIES WAS RELATED TO THE ASSESSE E. AS FURTHER SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE SIMIL AR COMPENSATION WAS PAID BY THE ASSESSEE ON CANCELLATION OF FLATS I N THE EARLIER YEARS I.E. A.Y. 1999-2000 AND 2000-01 AS WELL AS IN THE SUBSEQ UENT YEARS I.E. A.Y. 2002-03 AND 2003-04 AND THE SAME WAS ALLOWED B Y THE A.O. THE DETAILS OF THE COMPENSATION PAID ARE FURNISHED BY T HE LD. COUNSEL FOR THE ASSESSEE AT PAGE NO.40 OF HIS PAPER BOOK AND PE RUSAL OF THE SAME SHOWS THAT IN NONE OF THE CASES, THE COMPENSATION P AID BY THE ASSESSEE WAS EXCESSIVE OR UNREASONABLE. A MAJOR COMPENSATIO N OF ` 25,22,000/- WAS PAID BY THE ASSESSEE TO M/S. KUNAL PUROHIT OVER SEAS WHO HAD PAID ITA NO.1955/MUM/2009 M/S. R.R. CHATURVEDI AND ORS. 3 A SUM OF ` 1 CRORE AGAINST FLAT BOOKINGS IN THE PREVIOUS YEAR S RELEVANT TO A.Y. 1999-2000 AND 2000-01. SIMILARLY, COMPENSATIO N OF ` 10 LAKHS EACH WAS PAID TO M/S. MANAVAN PROPERTY PVT. LTD. AN D M/S. VAMAN REALITY PVT. LTD. WHO HAD PAID SUM OF ` 70 LAKHS EACH AS ADVANCE AGAINST FLAT BOOKINGS IN THE PREVIOUS YEAR RELEVANT TO A.Y. 1996-97. GOING BY THESE FIGURES, IT BECOMES CLEAR THAT THE C OMPENSATION PAID BY THE ASSESSEE ON CANCELLATION OF FLATS WAS AT THE RA TE LOWER THAN THE PREVAILING INTEREST RATE AND IT THEREFORE CANNOT BE SAID THAT COMPENSATION SO PAID WAS EXCESSIVE OR UNREASONABLE. ON THE OTHER HAND, THE SAME WAS QUITE FAIR AND REASONABLE AND AS RIGHTLY EXPLAINED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WEL L AS BEFORE US, IT WAS PAID TO MAINTAIN THE GOODWILL AND REPUTATION OF THE ASSESSEE AS A BUILDER IN THE MARKET. THE EXPENDITURE INCURRED ON PAYMENT OF SUCH COMPENSATION, IN OUR OPINION, THEREFORE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS AND THE SAME WAS ALLOWABLE AS DEDUCTIBLE BUSINESS EXPENDITURE AS RIG HTLY CLAIMED BY THE ASSESSEE. IN THAT VIEW OF THE MATTER, WE DELETE TH E DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) ON THI S ISSUE AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 5. THE ISSUE RAISED IN GROUND NO.2 RELATES TO THE D ISALLOWANCE OF ` 5 LAKH MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) OUT OF INTEREST EXPENDITURE. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD PAID A SUM OF ` 41,35,470/- ON ACCOUNT OF INTEREST ON LOANS TAKEN AND THE SAME WAS CLAIMED AS EXPENDITURE. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS G IVEN LOANS OF ` 1,15,40,000/- TO ITS SISTER CONCERNS FREE OF INTER EST. SINCE THE SAID LOANS WERE NOT GIVEN FOR THE BUSINESS PURPOSE, INTE REST ATTRIBUTABLE TO THE SAID LOANS ESTIMATED AT ` 5 LAKH WAS DISALLOWED BY THE A.O., WHICH THE LD. CIT (A) CONFIRMED. ITA NO.1955/MUM/2009 M/S. R.R. CHATURVEDI AND ORS. 4 7. WE HAVE HEARD THE ARGUMENT OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. COUNSEL F OR THE ASSESSEE HAS PLACED BEFORE US A COPY OF BALANCE-SHEET OF THE ASS ESSEE AS ON 31ST MARCH, 2001 AND PERUSAL OF THE SAME SHOWS THAT ASSE SSEES OWN CAPITAL TO THE EXTENT OF ` 5,61,08,817/- WAS AVAILABLE AT THE RELEVANT TIME T O GIVE INTEREST FREE LOANS TO THE SISTER CONCERNS. T HE INTEREST BEARING LOANS, ON THE OTHER HAND, WERE ENTIRELY USED FOR TH E PURPOSE OF ASSESSEES BUSINESS IN THE FORM OF WORK-IN-PROGRESS AND OTHER CURRENT ASSETS, SUCH AS, SUNDRY DEBTORS ETC. IT THUS BECOM ES ABUNDANTLY CLEAR THAT THE INTEREST BEARING LOANS WERE USED BY THE AS SESSEE FOR THE PURPOSE OF ITS BUSINESS AND INTEREST FREE LOANS TO THE SISTER CONCERNS WERE GIVEN BY THE ASSESSEE OUT OF ITS FUNDS AVAILAB LE IN THE FORM OF CAPITAL. THE DISALLOWANCE MADE BY THE A.O. OUT O F INTEREST TO THE EXTENT OF ` 5 LAKH IN OUR OPINION, THEREFORE, WAS TOTALLY UNJU STIFIED AND THE LD. CIT (A) WAS NOT RIGHT IN CONFIRMING THE SAM E. THE SAID DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) IS, THEREFORE, DELETED AND GROUND NO.2 OF THE ASSESSEE S APPEAL IS ALLOWED. 8. THE ISSUE RAISED IN GROUND NO.3 RELATES TO THE D ISALLOWANCE OF ` 1 LAKH MADE BY THE A.O. U/S.40A(3) AND CONFIRMED BY T HE LD. CIT (A). 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT A SUM OF ` 5 LAKH WAS PAID BY THE ASSESSEE TO CERTAIN BMC TEN ANTS IN CASH AND THE SAME WAS CLAIMED AS BUSINESS EXPENDIT URE. THE STAND TAKEN BY THE ASSESSEE IN THIS REGARD THAT THE SAID TENANTS HAVING BEEN PAID AS PER DIRECTION OF THE COURT, THE PROVISIONS OF SEC.40(A)3 ARE NOT APPLICABLE, WAS NOT FOUND ACCEPTABLE BY THE A.O. AS SEC.40A(3) DID NOT MAKE ANY SUCH EXCEPTION IN RESPECT OF CASH PAYMENT. HE, THEREFORE, MADE A DISALLOWANCE OF ` 1 LAKH U/S.40A(3) BEING 20% OF THE TOTAL PAYMENT OF ` 5 LAKH, WHICH LD. CIT (A) CONFIRMED. 10. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RECORDS. THE PROVISION OF SEC.40A(3) IS ATTRACTED TO THE PAYMENT OF EXPENDITURE EXCEEDING ` 20,000/- MADE BY THE ASSESSEE IN CASH AND THE ITA NO.1955/MUM/2009 M/S. R.R. CHATURVEDI AND ORS. 5 EXCEPTIONS TO SUCH PAYMENTS ARE SPECIFICALLY PROVID ED IN THE STATUTE. AS RIGHTLY HELD BY THE A.O. AS WELL AS BY THE LD. C IT (A), THE REASONING GIVEN BY THE ASSESSEE OF HAVING MADE THE CASH PAYME NTS AS PER THE DIRECTION OF THE COURT IS NOT COVERED BY SUCH EXCEP TIONS AND THIS BEING THE UNDISPUTED POSITION, WE ARE OF THE VIEW THAT TH E DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT (A) BY INV OKING THE PROVISIONS OF SEC.40A(3) IS FULLY SUSTAINABLE. WE, THEREFORE, CONFIRM THE SAID DISALLOWANCE AND DISMISS GROUND NO.3 OF THE ASSESSE ES APPEAL. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3TH JUNE 2012. SD/- ( AMIT SHUKLA ) JUDICIAL MEMBER SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER MUMBAI, DATE: 13TH JUNE 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CENTRAL-VII, MUMBAI. 4) THE CIT-CENTRAL-I, MUMBAI. 5) THE D.R. D BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN