The ACIT, Circle-3, Surat V. M/s. Shree Khodiyar Corporation, Surat

ITA 2162/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8943 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 09-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND A.N. PAHUJA, ACCOUNTANT MEMBER) ITA NO.1901/AHD/2009 [ASSTT.YEAR : 2006-2007] SHREE KHODIYAR CORPORATION 3004, ASCON PLAZA ANAND MAHAL ROAD, SURAT. PAN : ABAFS 2905 F VS. ACIT, CIR.3 SURAT. ITA NO.2162 /AHD/2009 [ASSTT.YEAR : 2006-2007] ACIT, CIR.3 SURAT. VS. SHREE KHODIYAR CORPORATION 3004, ASCON PLAZA ANAND MAHAL ROAD, SURAT. PAN : ABAFS 2905 F ASSESSEE BY : SHRI HARDIK VORA REVENUE BY : SHRI C.K.MISHRA O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THESE ARE CROSS APPEALS RELATE TO THE AY 2006-07. THE ASSESSEE IS A PARTNERSHIP FI RM ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND CONSTRUCTION OF BU ILDINGS. 2. IN THE APPEAL BY THE ASSESSEE, THE ONLY ISSUE IS ABOUT THE DISALLOWANCE OF THE REMUNERATION PAID TO THE PARTNE RS IN THE AMOUNT OF RS.27,00,000. THE ASSESSING OFFICER REGULATED THE S AME U/S.40A(2)(B) OF THE IT ACT WHICH IS OBJECTED TO BY THE ASSESSEE. IT WAS THE STAND OF THE ASSESSING OFFICER THAT THE REMUNERATION PAID WAS UN REASONABLE AND EXCESSIVE, ESPECIALLY CONSIDERING THAT IN THE IMMED IATELY EARLIER PREVIOUS YEAR THE PARTNERS WERE PAID ONLY RS.36,000 AS REMUN ERATION. THE ASSESSEES CONTENTION THAT THE REMUNERATION WAS PAI D IN THE INTERESTS OF PAGE - 2 ITA NO.1901AND 2162/AHD/2009 -2- THE BUSINESS AND FOR LEGITIMATE NEEDS OF THE BUSINE SS WAS OVER-RULED. THE OTHER CONTENTION OF THE ASSESSEE, TO THE EFFECT THA T SECTION 40A(2)(B) CANNOT APPLY AT ALL TO PARTNERS REMUNERATION PAID U/S.40(B) WAS ALSO REJECTED BY THE DEPARTMENTAL AUTHORITIES. 3. IN THE FURTHER APPEAL BEFORE US, THE ASSESSEE HA S PLACED RELIANCE ON THE ORDER OF THE AHMEDABAD D BENCH IN ITA NO.556/ AHD/2008 (AY 2004-05), DATED 5-6-2009 IN THE CASE OF M/S. ARIHAN T ENTERPRISE, SURAT V DCIT TO CONTEND THAT THE VIEW TAKEN BY THE INCOME-T AX AUTHORITIES IS WRONG. FROM THE COPY OF THE ORDER PLACED BEFORE US, WE FIND THAT IN PARAGRAPH 7.2 OF THE ORDER THE TRIBUNAL HAS CONSIDE RED THE ISSUE. THE TRIBUNAL HAS REFERRED TO THE JUDGMENT OF THE HONBL E GUJARAT HIGH COURT IN YOGANAND TEXTILES (202 ITR 869) AND THE EARLIER ORDER OF THE AHMEDABAD BENCH IN THE CASE OF CHHAJED STEEL CORPOR ATION (69 TTJ 232) AND HELD THAT WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSIN G OFFICER DOES NOT HAVE ANY POWER TO GO INTO THE QUES TION OF REASONABLENESS OF REMUNERATION PAID TO A WORKING PA RTNER WHILE EXAMINING AS TO WHETHER OR NOT THE REMUNERATION PAI D EXCEEDS THE LIMITS PRESCRIBED IN SEC.40(B) OF THE ACT. THIS VIE W OF OURS IS SUPPORTED BY THE DECISION OF A CO-ORDINATE BENCH IN THE CASE OF CHHAJED STEEL CORPORATION (SUPRA). IN THIS VIEW OF THE MATTER, THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSEE, WHICH IS THE SAME A S IN THE PRESENT CASE, AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 4. AS THE CONTROVERSY AND THE ARGUMENTS ARE THE SAM E IN THE PRESENT CASE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HO NBLE GUJARAT HIGH COURT AND THE ORDERS OF THE AHMEDABAD BENCHES OF TH E TRIBUNAL CITED PAGE - 3 ITA NO.1901AND 2162/AHD/2009 -3- SUPRA, WE DELETE THE DISALLOWANCE OF RS.27,00,000 A ND ALLOW THE APPEAL OF THE ASSESSEE WITH NO ORDER AS TO COSTS. 5. IN THE APPEAL BY THE DEPARTMENT, THE ONLY ISSUE IS WHETHER THE AMOUNT OF RS.7,00,000 PAID BY THE ASSESSEE TO SMC ( SURAT MUNICIPAL CORPORATION) IS ALLOWABLE AS A DEDUCTION IN COMPUTI NG THE PROFITS OF THE BUSINESS OF THE ASSESSEE. THE AMOUNT WAS PAID AS P REMIUM FEE FOR COVERING THE BALCONIES AND NOT AS PENALTY. IN THE A PPROVED PLAN, THE BALCONIES WERE TO BE LEFT UNCOVERED. ACCORDING TO T HE ASSESSEE, DEVIATION FROM THE APPROVED PLAN WAS ALLOWED ON PAYMENT OF PR EMIUM FEE AS PER THE CIRCULAR ISSUED BY THE CORPORATION. THESE ARGUM ENTS WERE REJECTED BY THE ASSESSING OFFICER, RELYING ON THE EXPLANATION B ELOW SEC.37(1) INSERTED RETROSPECTIVELY. THE CIT(A) HOWEVER HELD T HAT THE PAYMENT OF THE IMPACT FEE, AS IT WAS CALLED, WAS NOT FOR INFRA CTION OF ANY LAW, BUT ONLY FOR CHANGING THE APPROVED PLAN AND HENCE CANNOT BE CALLED A PENALTY. HE REFERRED TO THE JUDGMENT OF THE DELHI HIGH COURT IN CIT V LOKNATH AND CO (CONSTRUCTION) (1984) 147 ITR 624). 6. WE HAVE CONSIDERED THE MATTER IN THE LIGHT OF TH E ARGUMENTS ADVANCED BEFORE US. THE AHMEDABAD BENCH OF THE TRIB UNAL WAS CONCERNED WITH THE IDENTICAL CONTROVERSY IN ITA NOS . 1681 & 1682/AHD/2006 AND CO NOS.210 & 211/AHD/2006 IN THE CASE OF ACIT V ENVIRO CONTROL ASSOCIATES (I) PVT. LTD., SURAT AN D BY ORDER DATED 20-3- 2009 HAS HELD, FOLLOWING THE DELHI HIGH COURTS JUD GMENT CITED SUPRA THAT THE PAYMENT MADE TO SURAT MUNICIPAL CORPORATIO N WAS NOT IN THE NATURE OF PENALTY FOR INFRACTION OF LAW AND WAS ALL OWABLE AS A DEDUCTION IN COMPUTING THE BUSINESS PROFITS. SINCE THE FACTS RELATING TO THE CONTROVERSY ARE THE SAME IN THE CASE BEFORE US, RES PECTFULLY FOLLOWING THE PAGE - 4 ITA NO.1901AND 2162/AHD/2009 -4- AFORESAID ORDER OF THE TRIBUNAL, WE CONFIRM THE DEC ISION OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AND THAT OF THE DEPARTMENT IS DISMISSED WITH ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT 25 TH SEPTEMBER, 2009. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 25-09-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD