M/s G.V.Properties Pvt Ltd, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2324/BANG/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2428 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 28-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S PALANI KUMAR
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Assessment record; Commercial expediency; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B, BANGALORE BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDIC I AL MEMBER ITA NO. 2324 (BANG)/201 6 (ASSESSM E NT YEAR : 20 09 - 10 ) M/S G.V. PROPERTIES PVT. LTD. 1 ST FLOOR, EMBASSY POINT , 150 INFANTRY ROAD, BANGALORE - 560 0 01 . PAN NO.AACCG7594E APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX CICLE - 11(3), BANGALORE RESPONDENT APPELLANT BY : SHRI G. S EETHARAMAN, C A REVENUE BY : DR. S. PALANI KUMAR, ADDL.CIT DATE OF HEARING : 15 - 1 0 - 2019 DATE OF PRONOUNCEMENT : O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 31/10/16 PASSED BY LD.CIT (A) - 3, BANGALORE FOR ASSESSMENT YEAR 2009 - 10 ON FOLLOWING GROUNDS OF APPEAL: 1 . CIT(A) ERRED IN BOTH IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ADDITION OF RS.10,811,3537/ - BEING THE POWER AND WAT ER CHARGES INCURRED FOR JOINT DEVELOPMENT PROJECT. ITA NO. 2 32 4 (B)/201 6 PAGE 2 OF 6 2. HE ERRED IN HOLDING THAT THE APPELLANT COULD HAVE RECOVERED THE AMOUNT FROM THE LAND OWNERS. 3. HE FAILED TO APPRECIATE THAT THE PAYMENTS HAVE BEEN MADE DURING THIS YEAR AND THE EXPENSES HAVE BEEN RIGH TLY CLAIMED AS DEDUCTION. 4. THE APPELLANT SUBMITS THAT IN ANY CASE THE ADDITION MADE I EXCESSIVE AND UNREASONABLE. 5.THE APPELLANT THEREFORE, PRAYS THAT THE ADDITION OF RS.10,811,537/ - MAY BE DELETED. 2. BRIEF FACTS OF THE CASE ARE AS UNDER A SSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN BUSINESS OF REAL ESTATE DEVELOPMENT. IT FILED ITS ORIGINAL RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 30 /09/09 DECLARING LOSS OF RS. 3,88,58, 335/ - WHICH WAS SUBSEQUENTLY REVISED V IDE RETURN FILED ON 23/09/10 DE CLARING LOSS OF RS.3,80,22, 159/ - . THE RETURN WAS PROCESSED UNDER SECTION 143 (1) AND THE CASE WAS SELECTED FOR SCRUTINY. REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD. AO A ND FILED VARIOUS DETAILS AS CALLED FOR. UPON VERIFICATION OF DETAILS FILED BY ASSESSEE, LD.AO COMPLETED ASSESSMENT BY MAKING ADDITION ON ACCOUNT OF DISALLOWANCE OF LIQUIDATED DAMAGES AND DISALLOWANCE OF PENAL INTEREST THEREBY COMPUTING TOTAL INCOME IN THE HANDS OF ASSESSEE AT RS.2,71,26,622/ - . 3. AGGRIEV ED BY DISALLOWANCES MADE BY L D. AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO UPHELD THE ADDITIONS SO MADE. 4. A GGRIEVED BY ORDER PASSED BY LD.CIT (A) ASSESSEE IS IN APPEAL BEFORE US NO W. ITA NO. 2 32 4 (B)/201 6 PAGE 3 OF 6 4.1 THE ONLY ISSUE ALLEGED BY ASSESSEE IS IN RESPECT OF DISALLOWANCE OF LIQUIDATED DAMAGES CLAIMED BY ASSESSEE AMOUNTING TO RS . 1,08, 11, 537/ - . 5. LD.AR SUBMITTED THAT ASSESSEE ENTERED INTO JOINT DEVELOPMENT AGREEMENT WITH M/S.CENTURY GOLFLINKS WHO WERE LANDOWNERS. IN THIS REGARD IT HAS BEEN SUB MITTED THAT ASSESSEE FURNISHED BREAKUP OF EXPENDITURE WHICH INCLUDES POWER CHARGES AND WATER CHARGES TOTALLING TO RS.1,08,11,537/ - , WHICH M/S.CENTURY GOLFLINK REFUSED TO PAY. LD.AR SUBMITTED THAT , AS THESE PAYMENTS WERE NECESSARY IN REGARDS TO ONGOING DEVELOPMENT , ASS ESSEE MADE THE SAID PAYMENT AND CLAIMED IT IN I T S PROFIT AND LOSS ACCOUNT UNDER THE HEAD LIQUIDATED DAMAGES. LD.AR SUBMITTED THAT SAID SUM WAS INCURRED BY ASSESSEE KEEPING IN VIEW COMMERCIAL EXPEDIENCY AND AS IT WAS INCURRED FOR ASSESSEES OWN BUSINESS, AU THORITIES BELOW WERE NOT CORRECT IN CONFIRMING THE DISALLOWANCE . 6. ON THE CONTRARY, LD.SR.DR SUBMITTED THAT LIABILITY TO MAKE THE SAID SUM WAS NOT ON ASSESSEE AS PER THE AGREEMENT , AND THEREFORE , THE SAID SUM CANNOT BE SAID TO BE AN EXPENDITURE INCURRED FOR PURPOSES OF ASSESSEES BUSINESS. HE ALSO SUBMITTED THAT IT IS UNCLEAR AS TO SUBSEQUENTLY , IF ASSESSEE RECOVERED THE SAID SUM FROM M/S CENTURY GOLFLINKS. LD.SR.DR PLACED ON RECORD LETTER DATED 15/10/19 EXTRACTS OF ORDER SHEET ENTRY FROM ASSESSMENT RECORDS , WHEREIN ON 28/12/11 ASSESSEE HAS AGREED FOR DISALLOWANCE OF RS.1,08,11,537/ - . THUS , SUPPORTING ORDERS OF AUTHORITIES BELOW , HE SUBMITTED THAT DISALLOWANCE DESERVES TO BE UPHELD. 7. WE HAVE PER USED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. ITA NO. 2 32 4 (B)/201 6 PAGE 4 OF 6 7.1 ADMI TTEDLY, LD.AO AS WELL AS LD.CIT (A) ADMITS THAT SAID SUM WAS PAYABLE BY M/S CENTURY GOLFLINKS TO ASSESSEE , AS PER JOINT DEVELOPMENT AGREEMENT DATED 31/01/07 PLACED AT PAGE S 6 - 39 OF PAPER BOOK. UPON PERUSAL OF THE AGREEMENT, IT IS CLEA R THAT CLAUSE 13.3 REQUIRES M/S CENTU RY GOLFLINKS TO SHARE 45% OF EXPENSES IN RESPECT OF VAT AND SERVICE TAX, DEPOSIT AS PER ACTUAL IS TO THE TOTAL COST FOR OBTAINING POWER, WATER AND S EWERAGE CONNECTIONS FROM RESPECTIVE AUTHORITIES INCLUDING COST OF TRA NSFORMERS AND ALLIED EQUIPMENTS, COST OF EXTERNAL ELECTRIFICATION , AS ESTIMATED BY THE ARCHITECT , ANY EXTRA COST OR FACILITY TO THE SUPER BUILT UP AREA AT THE RATES MUTUALLY AGREED UPON B Y PRIOR CONSULTATION , MAINTENANCE EXPENSES/MAINTENANCE DEPOSIT/CONTINGENCY FUND PAYABLE TO THE ASSOCIATION TO BE FORMED FOR THE PURPOSE OF MAINTENANCE OF COMMERCIAL COMPLEX AND GENERATOR SPACE IN THE PROJECT AND ANY OTHER LEVIES OF TAX IMPOSED DEMANDED AND RECOVERED BY GOVERNMENT OR ANY OTHER AUTHORITIES FROM TIME TO TIME EITHER ON EXISTING PROVISIONS OR DUE TO CHANGE OF LAW IN FUTURE. 7.2 ON PERUSAL OF AGREEMENT, IT IS OBSERVED THAT 45% OF OWNER S SHARE WERE TO BE DISTRIBUTED BETWEEN OWNER NO.1 BEING S.SHIV A SHANKARAPPA AND OWNER NO. 2 BEING M/S CENTURY GOLFLINKS. IN WRITTEN SUBMISSION PLACED AT PAGE 1 - 5 OF PAPER BOOK, ASSESSEE AT PAGE 2 OF WRITTEN SUBMISSION GAVE DETAILS OF EXPENDITURE INCURRED FOR POWER AND WATER CHARGES WHICH IN TOTAL AMOUNTED TO RS.10,96 ,33,163/ - . IT HAS BEEN SUBMITTED THAT PROPORTIONATE COST FROM MR. SHIV AS HANKARAPPA HAS BEEN RECEIVED WHEREAS, M/S CENTURY GOLFLINKS REFUSED TO PAY THEIR SHARE AMOUNTING TO RS.1,08,11,537/ - , WHICH WAS CLAIMED BY ASSESSEE AS LIQUIDATED DAMAGES IN ITS P&L AC COUNT. 7. 3 IN OUR CONSIDERED OPINION , LIQUIDATED DAMAGES ARE COMPENSATION PAID FOR BREACH OF CONTRACT. WE ARE THEREFORE , UNABLE TO UNDERSTAND ITA NO. 2 32 4 (B)/201 6 PAGE 5 OF 6 HOW THE SUM PAID BY ASSESSEE ON BEHALF OF M/S CENTURY GOLFLINKS BEING ITS PROPORTIONATE SHARE TOWARDS INCURRING OF EXPENSES WOULD AMOUNT TO LIQUIDATED DAMAGES. ASSESSEE HAS ALSO NOT BROUGHT ON RECORD TO SHOW THAT AMOUNT PAYABLE BY M/S CENTURY GOLFLINKS IS BY WAY OF COMPENSATION. FURTHER, ALL DECISIONS RELIED UPON BY LD.AR IN PAPER BOOK FILED BEFORE US EMPHA SIS ES CIRCUMSTANCES AND TESTS THAT HAS BEEN LAID DOWN BY VARIOUS COURTS TO CONSIDER ANY AMOUNT RECEIVED, TO BE IN THE NATURE OF COMPENSATION, AND THEREFORE AN ALLOWABLE DEDUCTION. ON ONE BREATH ASSESSEE IS ARGUING COMMERCIAL EXPEDIENCY TO SPEND SUCH AMOUNT ON BEHALF OF M/S CENTURY GOLFLINKS, ON THE OTHER HAND, ASSESSEE IS CLAIMING IT AS LIQUIDATED DAMAGES. ASSESSEE RELIED UPON CERTAIN DECISIONS WHEREIN REASONABLENESS OF CERTAIN PAYMENTS MADE HAS TO BE E STABLISHED BY ASSESSEE. ALSO THAT ASSESSEE ADMITTED FOR T HE SAID DISALLOWANCE BEFORE LD. AO DURING ASSESSMENT PROCEEDINGS , AS PER THE ORDER SHEET ENTRY DATED 28/12/11 PRODUCED BY LD.SR.DR BEFORE US. LD.AR COULD NOT REBUT AFORESTATED NOTING, WHICH IS PART OF ASSESSMENT RECORDS. UNDER SUCH CIRCUMSTANCES , WE ARE UNABLE TO APPR ECIATE ARGUMENT ADVANCED BY LD.AR. ACCORDINGLY GROUND RAISED BY ASSESSEE STANDS DISMISSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N ( B.R.BASKARAN ) (BEENA PILLAI) ACCOUNTANT M EMBER JUDICIAL MEMBER DATED: *AM ITA NO. 2 32 4 (B)/201 6 PAGE 6 OF 6 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASSTT.REGISTRAR