Keerthi Estates Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 271/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2708 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: S RAMA RAO
• Keywords: Revision of order; Retrospective amendment; Assessment record
• Section: 143(3); 115JB; 37(1); 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 271/HYD/2016 ASSESSMENT YEAR: 2011-12 KEERTHI ESTATES (P) LTD., HYDERABAD. PAN AFUPV0344P VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI P. CHANDRASEKHAR DATE OF HEARING : 04-07-2017 DATE OF PRONOUNCEMENT : 09-08-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX - 2, HYDERAB AD, DATED 8.01.2016 FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2011- 12 ON 30.09.2011 ADMITTING TOTAL INCOME OF RS.1,10,70,224/- AFTER CL AIMING DEDUCTION U/S. 80IB(10) AMOUNTING TO RS. 5,38,55,695/-. ASSES SMENT WAS COMPLETED U/S.143(3) ON 13.03.2014 ON A TOTAL INCOM E OF RS. 1,19,55,644/-. THE TAX PAYABLE WAS DETERMINED ON TH E BASIS OF MAT PROVISIONS U/S. 115JB. 3. ON A PERUSAL OF THE ASSESSMENT RECORD UNDER THE POWERS VESTED U/S 263 OF THE ACT, THE CIT OBSERVED THAT PRIMA-F ACIE IT APPEARED 2 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. THAT THE ASSESSMENT ORDER PASSED U/S.143(3) DT. 13. 03.2014 IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVE NUE AS THE AO WHILE PASSING THE IMPUGNED ORDER HAS NOT DISALLOWED THE A MOUNT OF RS. 86.60 LAKHS WHICH WAS PAID BY THE ASSESSEE TOWARDS 'COMPOUNDING FINE' AND PENALTY TO THE BANGALORE MAHANAGAR PALIKE AND CLAIMED IT AS AN ALLOWABLE EXPENDITURE IN ITS PROFIT & LOSS AC COUNT UNDER THE NAME 'BUILDING APPROVAL FEES'. THE CIT, THEREFORE, WAS OF THE VIEW THAT AS THIS AMOUNT REPRESENTED THE COMPOUNDING FIN E AND PENALTY, IT IS NOT ALLOWABLE FOR A DEDUCTION AS PER EXPLANATION BELOW SEC. 37(1) OF THE I.T. ACT, 1961. ACCORDINGLY, A SHOW CAUSE NO TICE DT. 16.02.2015 WAS ISSUED PROPOSING TO REVISE THE ASSESSMENT. 3. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED, THE LD. AR OF THE ASSESSEE ATTENDED ON 17.03.2015 & 20.11.2015 AND FI LED WRITTEN SUBMISSIONS SEEKING TO DROP THE PROPOSED ACTION. IN THE WRITTEN SUBMISSIONS, THE A.R. HAS GIVEN THE FOLLOWING REASO NS AGAINST THE PROPOSED ACTION: (A) THE SAID PAYMENT WAS MADE FOR REGULARIZATION O F A DEVIATION IN THE BUILDING PLAN WHICH WAS WITHIN THE PERMISSIBLE LIMITS AND IT WAS NOT IN RESPECT OF AN OFFENCE. HEN CE, EXPLANATION (1) TO SEC. 37(1) HAS NO APPLICATION TO THE FACTS OF ITS CASE. (B) FOR THE A.Y UNDER CONSIDERATION THE INCOME WAS DETERMINED U/S.115JB AT RS. 6,37,27,397/- AND THE TAX PAYABLE WAS ACCORDINGLY DETERMINED AT RS. 1,27,01,189/-. EVEN I F THE SAID AMOUNT OF RS. 86,60,482/- WERE TO BE ADDED TO THE T OTAL INCOME DETERMINED UNDER THE NORMAL PROVISIONS, THE TAX PAY ABLE WOULD WORK OUT TO RS. 65,54,047/- WHICH IS MUCH BELOW THE TAX DETERMINED U/S.115JB. AS SUCH THE ORDER PASSED BY T HE AO WITHOUT MAKING THE SAID DISALLOWANCE WAS NOT PREJU DICIAL TO THE INTERESTS OF REVENUE. IN SUPPORT OF HIS CONTENTIONS, THE LD. A.R. HAS CIT ED THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LOKNATH & CO., REPORTED IN 147 ITR 624, WHEREIN IT WAS HELD THAT THE FEE PAID AGAINST THE DEVIATIONS IN THE APP ROVED BUILDING PLAN IS AN ALLOWABLE DEDUCTION U/S.37 OF THE I.T. A CT. IT WAS FURTHER STATED BY HIM THAT THE DECISION TAKEN BY TH E AO WAS 3 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. BASED ON THE DECISION OF THE DELHI HIGH COURT WHICH WAS IN FAVOUR OF THE ASSESSEE AND WHICH SHOULD BE FOLLOWED AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF CIT VS. VE GETABLE PRODUCTS LTD., REPORTED IN 88 ITR 192. 4. AFTER CONSIDERING THE CONTENTIONS RAISED BY THE COUNSEL WITH REFERENCE TO THE FACTS OF THE CASE AND THE RELEVANT PROVISIONS OF THE ACT, THE CIT OBSERVED THAT THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LOKNATH & CO. (CONSTRU CTION) WAS RENDERED PRIOR TO THE INTRODUCTION OF THE EXPLANATI ON BELOW SEC. 37(1) IN THE INCOME TAX ACT. THE EXPLANATION BELOW SEC. 3 7(1) WHICH WAS INCORPORATED IN THE I.T. ACT BY FINANCE ACT NO.2/19 98 WITH RETROSPECTIVE EFFECT W.E.F. 01.04.1962 STIPULATES' FOR THE REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT ANY EXPENDITURE I NCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FO R THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANC E SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE'. HE OBSERVED THAT W HEN THE DECISION IN THE CASE OF LOKNATH & CO. WAS RENDERED BY THE HO N'BLE HIGH COURT ON 13.01.1984 THIS EXPLANATION WAS NOT THERE IN THE STATUTE AND HENCE THE DECISION OF THE HON'BLE DELHI HIGH COURT DOES N OT APPLY TO THE FACTS OF THE ASSESSEE'S CASE. HE OBSERVED THAT THE ASSESSEE'S CASE IS CLEARLY COVERED BY THE DECISION OF THE HON'BLE KARN ATAKA HIGH COURT IN THE CASE OF CIT VS. MAMTA ENTERPRISES, REPORTED IN 266 ITR 356 WHICH WAS RENDERED ON 30TH OCTOBER, 2003 I.E. AFTER THE INCORPORATION OF THE EXPLANATION BELOW SEC. 37(1) OF THE I.T. ACT . IN FACT THE DECISION IN THE CASE OF LOKNATH & CO. WAS REFERRED IN THE JU DGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MAMTA E NTERPRISES AND WAS DISTINGUISHED. FURTHER THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD., QUO TED BY THE A.R. IS APPLICABLE WHEN TWO DIFFERENT HIGH COURTS TAKE TOTA LLY DIVERGENT VIEWS ON THE SAME ISSUE AND IN THE SAME FACTS. HOWEVER, I N THE PRESENT CASE, THE HON'BLE HIGH COURTS AT DELHI & KARNATAKA HAVE DECIDED THE ISSUE UNDER DIFFERENT STATUTORY PROVISIONS NAMELY O NE BEFORE THE 4 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. INCORPORATION OF THE EXPLANATION BELOW SEC. 37(1) A ND THE OTHER AFTER THE INCORPORATION OF THE SAID EXPLANATION. THEREFOR E, THE CIT OPINED THAT THE APPLICABLE LAW IN THE FACTS OF THE ASSESSE E'S CASE IS THAT OF THE DECISION RENDERED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MAMTA ENTERPRISES, WHICH IS AGAINST THE ASS ESSEE. THEREFORE, HE HELD THAT THE ASSESSMENT ORDER PASSED BY THE DCI T, CIRCLE-2(1), HYDERABAD, UNDER SEC. 143(3) DT. 13.03.2014 IS ERRO NEOUS. 4.1 FURTHER, THE CIT OBSERVED THAT THOUGH THE CONTE NTION RAISED BY THE A.R. THAT THE TAX DETERMINED U/S.115JB OF THE A CT IN THE IMPUGNED ASSESSMENT ORDER WAS MUCH MORE THAN THE TAX THAT WO ULD BE PAYABLE UNDER THE NORMAL PROVISIONS EVEN AFTER DISALLOWANCE AND ADDING OF THE SAID AMOUNT OF RS. 86,60,482/- IS CORRECT BUT STILL THE IMPUGNED ORDER IS PREJUDICIAL TO THE INTERESTS OF REVENUE SI NCE THE CORRECT ASSESSMENT OF THE TOTAL INCOME UNDER THE NORMAL PRO VISIONS BY DISALLOWING THE SAID AMOUNT OF COMPOUNDING FINE WIL L HAVE AN EFFECT OF ALTERING THE TAX CREDIT UNDER MAT PROVISIONS IN THE SUBSEQUENT YEARS. 4.2 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT HELD THAT THE IMPUGNED ORDER PASSED BY THE AO IS NOT ONLY ERRONEO US BUT ALSO PREJUDICIAL TO THE INTERESTS OF REVENUE AND ACCORDI NGLY, THE IMPUGNED ASSESSMENT ORDER WAS REVISED U/S.263 AND THE AO IS DIRECTED TO DISALLOW AND ADD THE AMOUNT OF COMPOUNDING FINE OF RS. 86,60,482/- TO THE INCOME DETERMINED AND ISSUE A REVISED COMPUT ATION ACCORDINGLY. 5. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THERE IS AN ERROR IN THE ORDER PASSED U/S 143( 3) OF THE I.T. ACT ON 13.3.2014 WHICH IS PREJUDICIAL TO THE INTERE STS OF REVENUE. 5 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. 3. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THE PAYMENT OF RS.86,60,482/- ATTRACTS THE PRO VISIONS OF SEC.37(1) OF THE I.T. ACT. THE LEARNED COMMISSIONER OF INCOME- TAX OUGHT TO HAVE OBSERVED THAT THE SAID PAYMENT WA S MADE TO BRUHATH BANGALORE MAHANAGAR PALIKA FOR REGULARIZATI ON OF DEVIATION IN THE FLOOR AREA RATIO WHICH IS WITHIN T HE PERMISSIBLE LIMIT AND IS NOT PROHIBITED BY LAW. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMM ISSIONER OF INCOME TAX OUGHT TO HAVE OBSERVED EVEN IF THE SAID DISALLOWANCE WERE TO BE MADE, THE TAX PAYABLE WOULD BE LESS THAN THE TAX U/S 115JB AND AS SUCH NO PREJUDICE IS CAUSED TO REVENUE. 6. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT EXPLANATION (1) TO SECTION 37(1) HAS NO APPLICATION TO THE FACTS OF THE CASE AND THE AO HAS RIGHTLY ALLOWED THE EXPENDITURE AND, THEREFORE, THERE IS NO ERROR IN THE ASSESSMENT MADE BY THE AO, WHICH MAY BE RESTORED BACK AND THE ORDER OF THE CIT MAY BE SET A SIDE. LD. AR HAS RELIED ON THE FOLLOWING CASE LAW: 1. EON HADAPSAR INFRASTRUCTURE (P) LTD., [2016] 71 TAXMANN.COM 115 (PUNE). IN THIS CASE IT HAS BEEN OB SERVED AS UNDER: NOW, COMING TO THE STAND OF AUTHORITIES BELOW THAT SUCH PAYMENT IS COVERED BY EXPLANATION TO SECTION 37(1). THE SAID STAND OF COMMISSIONER (APPEALS) HAS NO MERIT. THE E XPLANATION TO SECTION 37(1) WAS INSERTED IN RESPECT OF ANY EXP ENDITURE INCURRED FOR ANY PURPOSE WHICH WAS AN OFFENCE OR WH ICH WAS PROHIBITED BY LAW. THE CIRCULAR OF RESERVE BANK OF INDIA ITSELF PROVIDED THAT WHERE THE ASSESSEE HAD COMMITTED AN I RREGULARITY WHILE DEALING IN FOREIGN EARNINGS OR EXPENDITURE OU TGOES, THEN SUCH AN ACTION OF APPLICANT COULD BE COMPOUNDED AS PER RULES AND REGULATIONS PROVIDED IN THE SAID CIRCULAR. IT I S NOT A CASE WHERE THE ASSESSEE HAS BEEN HELD TO HAVE COMMITTED AN OFFENCE OR THE AMOUNT HAS BEEN PAID FOR PURPOSE, WH ICH WAS PROHIBITED IN LAW, HENCE THE PROVISIONS OF EXPLANAT ION TO SECTION 37(1) ARE NOT ATTRACTED. IN VIEW THEREOF, THE ASSES SEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 37(1). 2. DCIT VS. BHARAT C. GANDHI, [2011 10 TAXMANN.COM 256 (MUM.). THE BENCH HAS HELD IN THIS CASE AS UNDER: 6 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. 9. IN VIEW OF THE LEGAL PRINCIPLES ESTABLISHED ABO VE AND ALSO NOTICING THAT THE ASSESSEE HAS MADE ABOUT 230 TRIPS BY PAYING COMPOUNDING FEES, AS PER THE RULES IN THE MOTOR VEHICLE ACT , IT CANNOT BE STATED THAT ASSESSEE'S PAYMENTS OF COMPOUNDING FEES IS IN VIOLATION OF LAW. SINCE ASSE SSEE IS ENGAGED IN TRANSPORTING OF OVER DIMENSIONAL CAPACIT IES IN ITS TRANSPORT BUSINESS, IT IS NECESSARY BUSINESS EXPENS E WHOLLY FOR THE PURPOSE OF SHRI BHARAT C. GANDHI BUSINESS. THEREFORE, THE SAME IS ALLOWABLE UNDER SECTION 37(1) . CIT(A)'S ORDER ON THIS IS CONFIRMED. 7. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND ALSO RELIED ON THE FOLLOWING CASE L AW: 1. MODI BUILDERS VS. JCIT, [2015] 60 TAXMANN.COM 54 (PUNE TRIB.). THE TRIBUNAL HELD THAT COMPOUNDING FEE PAID BY THE ASSESSEE, A LAND DEVELOPER TO THE MUNICIPAL CORPORA TION ON ACCOUNT OF DEVIATIONS FROM ORIGINAL SANCTIONED PLAN WAS IN THE NATURE OF PENALTY AND THEREFORE WOULD NOT BE ALLOWA BLE AS DEDUCTION IN VIEW OF PROVISIONS OF EXPLANATION TO S ECTION 37(1). 2. CIT VS. MAMTA ENTERPRISES, [2004] 266 ITR 356 (K AR.). THE HIGH COURT HAS OBSERVED AS UNDER: THE FINANCE (NO.2) ACT OF 1998HAS INSERTED AN EXPL ANATION TO SECTION 37 OF THE INCOME-TAX ACT, 1961, WITH RETROS PECTIVE EFFECT FROM APRIL 1, 1962. THE EXPLANATION MAKES IT CLEAR THAT THE ASSESSEE WHO INCURS EXPENDITURE FOR ANY PURPOSE WHI CH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IS NOT ENTITL ED FOR DEDUCTION OF SUCH EXPENDITURE INCURRED BY HIM. THE EXPLANATION DECLARES THAT SUCH AN EXPENDITURE 'SHALL NOT BE DEE MED TO HAVE BEEN INCURRED' FOR THE PURPOSE OF BUSINESS OR PROFE SSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. WHEN THE PROVISION IS CLEAR AND USE UN AMBIGUOUS, IT IS NOT PERMISSIBLE FOR THE COURTS TO STRETCH THE MEANING ATTACHED TO THE PROVISION OF LAW TO EXTEND THE BENE FIT TO A PERSON WHO VIOLATES THE LAW OR THE REGULATIONS/RULE S MADE BY THE CORPORATION OR THE MUNICIPAL AUTHORITIES WITH I MPUNITY. THE CLAIM FOR DEDUCTION HAS TO BE CONSIDERED IN THE LIG HT OF THE EXPLANATION GIVEN TO SECTION 37 OF THE ACT AND NOT WITH REFERENCE TO THE PROVISION IN THE CORPORATION OR TH E MUNICIPAL LAW WHICH PERMITS THE VIOLATOR OF THE PROVISIONS OF THE CORPORATION OR THE MUNICIPAL LAW TO COMPOUND THE OF FENCE EITHER TO SAVE THE UNAUTHORISED OR ILLEGAL CONSTRUC TION PUT UP OR TO RELIEVE SUCH VIOLATOR OF LAW FROM THE CONSEQUENC ES PROVIDED IN SUCH CORPORATION OR MUNICIPAL LAW. COMPOUNDING FEES PAID TO THE MUNICIPAL CORPORATION IS A PENALTY AND IS NO T DEDUCTIBLE U/S 37. 7 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. 3. MILLENNIA DEVLEOPERS (P) LTD., VS. DCIT, [2010] 188 TAXMANN 38 (KAR.) IN THIS CASE, THE HONBLE HIGH COURT HELD THAT THE SO CALLED REGULARISATION FEE IN TERMS OF THE BYE-LAW 6.0 OF T HE BANGALORE MAHANAGARA PALIKE BYE-LAWS IS A PROVISION MADE FOR REGULARIZING THE DEVIATIONS/VIOLATIONS AS ENABLED U NDER SECTION 483(B) OF THE KARNATAKA MUNICIPAL CORPORATION ACT, 1976. THE LANGUAGE OF SECTION 483(B) LEAVES ONE WITH NO D OUBT AS TO THE NATURE OF THE EXPENDITURE, AS IT IS ONLY AN AMO UNT PAID FOR COMPOUNDING AN OFFENCE. THE AMOUNT PAID FOR COMPOUN DING AN OFFENCE IS INEVITABLY A PENALTY IN TERMS OF SECTION 483 ITSELF AND THE MERE FACT THAT IT HAS BEEN DESCRIBED AS COMPOUN DING FEE CANNOT, IN ANY WAY, ALTER THE CHARACTER OF THE PAYM ENT WHICH PAYMENT IS IN THE NATURE OF PENALTY. AS IT WAS IN T HE NATURE OF PENALTY, THE LAW TOO IS WELL-SETTLED TO HOLD THAT I T COULD NEVER BE AN AMOUNT IN THE NATURE OF AN EXPENDITURE WHICH WOU LD QUALIFY FOR DEDUCTION U/S 37 AND, THEREFORE, THE APPEAL WAS TO BE DISMISSED. 3. NAHAR SPINNING MILLS LTD., VS. CIT, [2014] 49 TA XMANN.COM 565 (P&H). IN THIS CASE, THE HONBLE HIGH COURT HAS HELD AS UNDER: IN SUBSTANCE, THE PAYMENT WAS IN THE NATURE OF THE AMOUNT PAID ON ACCOUNT OF INFRACTION OF LAW AS THERE WAS V IOLATION IN THE BUILDING PLAN OF THE ASSESSEE. FURTHER, FINANCE (NO.2) ACT, 1998 HAS INCORPORATED EXPLANATION TO SECTION 37(12) WHICH WAS MADE RETROSPECTIVELY WI TH EFFECT FROM 01/04/1962. ACCORDING TO THE EXPLANATION, EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW, IS NOT ENTITLED FOR DEDUCTION. THUS, THE AMOUNT PAID BY AS SESSEE TO MUNICIPAL CORPORATION ON ACCOUNT OF COMPOUNDING FEE AS COMPENSATION FOR CONDONING DEVIATIONS FROM ORIGINAL SANCTIONED PLAN IN VIEW OF THE EXPLANATION TO SECTION 37(1) WO ULD NOT BE ADMISSIBLE. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS GONE THROUGH THE DECISIONS CI TED AT BAR. THE ASSESSEE HAS PAID COMPOUNDING FINE TO REGULARISE T HE BUILDING PLAN. THE PAYMENT OF SUCH COMPOUNDING FINE IS PENALTY IN THE NATURE OF AN OFFENCE OR WHICH IS PROHIBITED BY LAW. WE HAVE NOTI CED THAT THE 8 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. DECISION ON THIS COUNT IS DIVIDED AMONG THE VARIOUS COURTS. THE HONBLE HIGH COURTS KARNATAKA AND P&H HAVE HELD THE SAME AS PENALTY IN THE NATURE OF AN OFFENCE. THE OTHER ITAT BENCHES HAVE GIVEN DIVERGENT VIEWS. IN OUR CONSIDERED VIEW, THE BUILDERS SUBMIT BUILDING PLAN FOR APPROVAL AND BASED ON THE PROPOSE D PLAN, THE CORPORATION/MUNICIPALITIES GIVES APPROVAL. IT IS FA CT THAT AT THE TIME OF APPROVAL, THE CORPORATION AND THE BUILDERS AWARE TH AT IT IS NOT POSSIBLE TO COMPLETE THE PROJECT AS PER THE PROPOSED PLAN AS THERE ARE CERTAIN ADJUSTMENTS NEED TO BE MADE AT THE TIME OF ACTUAL E XECUTION. AS LONG THE ACTUAL COMPLETION OF THE PROJECTS ARE WITHIN TH E PARAMETERS OF APPROVAL, THE CORPORATION/APPROVING AUTHORITIES PER MIT THE PROJECTS AS APPROVED WITH THE NOMINAL FINE OR COMPOUNDING FEE. THIS IS THE REASON, THE CORPORATION HAS THE CLAUSE INTACT IN TH E RULES BOOKS. IF THE PROJECTS ARE ILLEGAL, WHICH IS AN OFFENCE AND CANNO T BE CURED, THE WHOLE PROJECT CANNOT BE APPROVED BY THE APPROVING AUTHORITIES, AS THE SAME IS SUBJECT MATTER OF PUBLIC SAFETY. THE PE NALTY CAN BE CLASSIFIED AS TWO TYPES; ONE CHARGED FOR VIOLATION OF LAW IN THE NATURE OF OFFENCE, WHICH CANNOT BE PARDONED BY COMPOUNDING AND THE SECOND IS CHARGED FOR VIOLATION OF CERTAIN RULES WH ICH ARE NOT IN THE NATURE OF OFFENCES AND CAN BE CURED BY COMPOUNDING. IN THE CASE OF HOUSING/COMMERCIAL PROJECTS, THE CORPORATION AWARE THAT THERE WILL BE CERTAIN DEVIATIONS AT THE TIME OF APPROVAL AND NO P ROJECT CAN BE COMPLETED WITHOUT ANY DEVIATION. THE QUESTION IS, T HE EXTENT OF DEVIATION. IN CASE IT IS WITHIN THE PERMISSIBLE LIM ITS, THE APPROVING AUTHORITIES, ALLOW WITH COMPOUNDING THE DEVIATION B Y LEVYING COMPOUNDING FEES. IN THE GIVEN CASE, THE PROJECT WA S COMPLETED AND THE DEVIATIONS ARE WITHIN THE LIMITS, FOR WHICH THE BANGALORE MAHANAGAR PALIKE HAS APPROVED THE PROJECT BY COMPOU NDING FEES, WHICH IS NOT IN THE NATURE OF OFFENCE NOR PROHIBITI ON OF ANY LAW. HENCE, IT IS ALLOWABLE U/S 37(1) OF THE ACT. 9. WITH REGARD TO GROUND NO. 4, THE ADJUSTMENT PROP OSED BY THE CIT WILL HAVE IMPACT ON THE TAX CREDIT AVAILABLE TO THE ASSESSEE IN THE SUBSEQUENT AY. HENCE, THIS GROUND IS DISMISSED. 9 ITA NO. 271/H/16 KEERTHI ESTATES (P) LTD. 10. SINCE THERE IS NO IMPACT ON THE ORIGINAL ASSESS MENT, THE PROCEEDINGS U/S 263 IS QUASHED. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 9 TH AUGUST, 2017. KV COPY TO:- 1) SHRI KEERTHI ESTATES (P) LTD., C/O SHRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029. 2) DCIT, CIRCLE 2(1), INCOME-TAX TOWERS, AC GUAR DS, HYDERABAD. 3) CIT - 2, HYDERABAD 4 ADDL. CIT, RANGE 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE