KRUNAL INDUSTRIAL ESTATAE DEVELOPERS P.LTD, MUMBAI V. ITO 4(2)(4), MUMBAI

ITA 307/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9174 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 13-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMLATA
• Assessee Lawyers: R C MODI
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 37; 2

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, A.M. ./ I.T.A. NO. 307/MUM/2017 ( / ASSESSMENT YEAR: 2012 - 13 ) M/S. KRUNAL INDUSTRIAL ES TATE DEVELOPERS PVT. LTD. GANDHI BUILDING, 1 ST FLOOR, 2 ND FANASWADI, DADISETH AGIYARI LANE, MUMBAI - 400 002 / VS. ITO - 4(2)(4), AAYAKAR BHAVAN, M. K. MARG, MUMBAI ./ ./ PAN/GIR NO. AABCK 3933 C ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI R. C. MODI / RESPONDENT BY : MS. HEMLATA / DATE OF HEARING : 30.08.2017 / DATE OF PRONOUNCEMENT : 10.10. 2017 / O R D E R P ER SHAMIM YAHYA , A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI (CIT(A) FOR SHORT) DATED 18.10.2016 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2012 - 13. THE GROUNDS OF APPEAL READ AS UNDER: 1. A DDITION RS. 15,05,265 / - DISALLOWED U/S 37 (1) OF THE INCOME TAX ACT, 1961: A. PRO FESSIONAL FEES OF RS. 10,52,000/ - : 2 ITA NO. 307/MUM/2017 (A.Y. 2012 - 13) M/S. KRUNAL INDUSTRIAL ESTATE DEVELOPERS PVT. LTD. VS. ITO ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE HON. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN UPHOLDING THE DISALLOWANCE OF THE PRO FESSIONAL FEES OF RS.10,52,000/ - M ADE BY THE LEARNED ASSESSING OFFICER. THE APPELLANT SUBMITS THAT THE PROFESSIONAL FEE S OF RS. 10,52,000 / - BE ALLOWED. B. STAMP DUTY OF RS. 2,28,4007 - AND REGISTRATION CHARGES OF RS.1,28,4507 - : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE HON. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF THE STAMP DUTY OF RS. 2,28,400/ - AND REGISTRATION CHARGES OF RS. 1,28,450/ - MADE BY THE LEARNED ASSESSING OFFICER. THE APPELLANT SUBMITS THAT THE HON. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE SAID EXPENSES AS NOT REVENUE IN NATURE, IN CASE OF THE APPELLANT BEING IN THE BUSINESS OF BUILDER AN D DEVELOPERS. THE APPELLANT SUBMITS THAT THE STAMP DUTY OF RS. 2,28,400/ - AND REGISTRATION CHARGES OF RS.1,28,450/ - BE ALLOWED. C. I NTEREST ON DELAYED PAYMENTS TO PARTIES OF RS. 77,999/ - : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED UPHOLDING THE DISALLOWANCE OF RS. 77,999/ - MADE BY THE LEARNED ASSESSING OFFICER OF THE EXPENSES PAID BY THE APPELLANT BY WAY OF INTEREST ON LATE PAYMENT TO CREDITORS AS PENALTY . 2. B RIEF FACTS: IN THIS CASE, THE ASSESSING OFFICER (A.O.) MADE ENQUIRY WITH REGARD TO THE PROFESSIONAL FEE PAID, STAMP DUTY PAID, AND INTEREST ON DELAYED PAYMENTS TO PARTIES. THE A.O. NOTED THE ASSESSEES RESPONSE IN THIS REGARD AS UNDER: (I) PROFESSIONAL FE ES PAID - AUTHORIZED REPRESENTATIVE VIDE THEIR LETTER DATED 13.03.2015 STATED THAT PROFESSIONAL FEES PAID TO MANDVIWAIA QUTUB & ASSOCIATE ARE PAID FOR THE INTERIOR DESIGN AND DRAWING OF THE SET - LIP OF THE PROPERTY ALREADY SOLD. 3 ITA NO. 307/MUM/2017 (A.Y. 2012 - 13) M/S. KRUNAL INDUSTRIAL ESTATE DEVELOPERS PVT. LTD. VS. ITO (IT) STAMP DUTY PAID - TH ERE WAS A SCHEME DURING THE YEAR UNDER CONSIDERATION, WHERE THE COMPANY HAS BORNE THE STAMP DUTY & REGISTRATION CHARGES AND THE SAME WERE NOT REQUIRED TO BE RECOVERED FROM THE PURCHASE PARTIES. THE AGREEMENTS ON WHICH STAMP DUTY & REGISTRATION CHARGES WERE PAID WERE RECORDED. 3. THE A.O. WAS NOT SATISFIED AND MADE DISALLOWANCE OF THE IMPUGNED EXPENSES BY OBSERVING AS UNDER: THE CONTENTION/SUBMISSION OF THE ASSESSEE COMPANY IS CONSIDERED BUT NOT FOUND ACCEPTABLE FOR THE REASONS AS THE SAID EXPENDITURE ARE N OT REVENUE EXPENDITURE AND HENCE NOT ALLOWABLE U/S 37(1) OF THE I.T. ACT. ALSO, INTEREST ON DELAYED PAYMENTS TO THE PARTIES AND INTEREST ON TDS ARE IN PENAL NATURE CANNOT BE ALLOWED AS BUSINESS EXPENDITURE, THEREFORE, SAME ARE ALSO DISALLOWED. PENALTY PROC EEDINGS INITIATED U/S 271(L)(C) R.W.S. 274 OF THE I.T. ACT SEPARATELY. 4. AGAINS T THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A). 5. RE: PROFESSIONAL FEES : AS REGARDS THE PAYMENT OF PROFESSIONAL FEE IS CONCERNED, THE LD. CIT(A) NOTED THAT IT WAS ASSESSEES SUBMISSIONS THAT THE PROFESSIONAL FEES WERE INCURRED IN THE COURSE OF BUSINESS ACTIVITY FOR ISSUING WORK COMPLETION CERTIFICATE AT SITE CONDITIONS, ATTENDING COURT MATTERS, PREPARATION OF SCHEMATIC AND WORKING DRAWINGS PLAN, ETC. THE MAJ OR PROFESSIONAL FEES WERE PAID FOR THE INTERIOR DESIGNS AND DRAWINGS F OR THE SET UP OF THE PROPERTY NAMED INDIGO RESIDENCE PROJECT AT PALGHAR. 6 . HOWEVER, THE LD. C IT(A) WAS NOT CONVINCED. HE HELD THAT THE ASSESSEE HAS CLAIMED IT AS ONE OF THE EXPENSES I N THE GARB OF PROFESSIONAL FEES WHICH HAVE BEEN PAID TO MANDI WALA QUTUB AND ASSOCIATES FOR THE PURPOSE OF INTERIOR DESIGN AND DRAWING OF THE SET UP OF PROPERTY. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NOT DEMONSTRATED AN EXPLANATION AS TO HOW THESE EXPENSES CLAIMED IS NOT RELATED TO BENEFIT OF ENDURING NATURE. 7 . AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 4 ITA NO. 307/MUM/2017 (A.Y. 2012 - 13) M/S. KRUNAL INDUSTRIAL ESTATE DEVELOPERS PVT. LTD. VS. ITO 8 . I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. I FIND THAT THE PROFESSIONAL FEE WAS INCURRED FOR VARIOUS WO RKS INCLUDING COMPLETION CERTIFICATE AT SITE CONDITIONS, ATTENDING COURT MATTERS, AND PREPARATION OF DRAWINGS PLAN, ETC. THE LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS NOT EXPLAINED THAT THE EXPENDITURE IS NOT RELATING TO BENEFIT OF ENDURING IN NATURE. I FI ND THAT NO REASON WHATSOEVER FOR THIS ASSUMPTION OF THE LD. CIT(A) IS ON RECORD. IT IS CLEAR THAT THE FEE PAID INCLUDES EXPENDITURE FOR ATTENDING COURT MATTERS, ETC. THIS BY NO STRETCH OF IMAGINATION CAN BE CONSIDERED TO BE EXPENDITURE OF ENDURING BENEFIT. FURTHERMORE, IF THE EXPENDITURE IS RELATED TO SETTING UP OF ANY PROPERTY, THE EXPENDITURE NEEDS TO BE CAPITALIZED AND THE ASSESSEE BE ACCORDINGLY GIVEN THE DEPRECIATION THEREON OR IF THE PROPERTY IS UNDER DEVELOPMENT, THE EXPENDITURE NEEDS TO BE ADDED TO THE COST OF THE PROJECT. HENCE, I REMIT THIS ISSUE TO THE FILE OF THE A.O. TO EXAMINE THE ISSUE AND DECIDE AS PER THE DIRECTION GIVEN HEREINABOVE. 9 . STAMP DUTY AND REGISTRATION CHARGES ON THIS ISSUE, THE LD. CIT(A) NOTED THE ASSESSEES SUBMISSIONS AS UN DER: B . STAMP DUTY OF RS. 2.28,400 / - : DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT INCURRED STAMP DUTY OF RS.2,28,400 / - AND REGISTRATION CHARGES OF RS, 1,28,450 / - ON THE FLATS REGISTERED AND RECORDED AS SALES DURING THE YEAR. THE APPELLANT CAME UP WI TH THE SCHEME OF BEARING THE EXPENSES OF REGISTRATION AND STAMP DUTY TO ATTRACT THE BUYERS. THE EXPENDITURE INCURRED FOR STAMP DUTY AND REGISTRATION WERE BORNE THE APPELLANT COMPANY AS PER MONSOON OFFER ADVERTISED IN NEWSPAPER. THE COPIES OF RELEVANT EXTRA CT OF THE NEWSPAPER IN WHICH THE ADVERTISEMENT WAS MADE WERE SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER AND ALSO ENCLOSED IN THE PAPERBOOK FILED. THE LEARNED ASSESSING OFFICER DISALLOWED THE EXPENSES INCURRED U/S . 37(1) WITHOUT STATING THE GROUNDS OF R EASON FOR DISALLOWANCE. IT IS SUBMITTED YOUR HONOR THAT THE EXPENDITURE WAS INCURRED TOWARDS STAMP DUTY PAID OF RS. 2,28,000 / - AND REGISTRATION CHARGES OF RS. 1,28,450 / - AS PER THE MONSOON OFFER AND WERE NOT RECOVERED FROM THE PURCHASE PARTIES TO WHOM THE FIATS A RE SOLD. WE SUBMIT THAT THE ADDITION OF RS. 2,28,000 / - AND REGISTRATION CHARGES OF RS. 1/28,45Q/ - MADE BE DELETED.' 5 ITA NO. 307/MUM/2017 (A.Y. 2012 - 13) M/S. KRUNAL INDUSTRIAL ESTATE DEVELOPERS PVT. LTD. VS. ITO 10 . HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED. HE HELD THAT THE SAID EXPENDITURE CANNOT BE HELD AS REVENUE EXPENDITURE FOR THE REASON S GIVEN IN PRECEDING GROUND OF APPEAL. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 1 1 . UPON HEARING BOTH THE COUNSELS AND PERUSING THE RECORDS, I FIND THAT NO MENTION WHATSOEVER HAS BEEN GIVEN BY THE LD. C IT(A) FOR DISALLOWING THE EXPENDITURE EXCEPT MENTIONING THAT IT IS NOT THE REVENUE EXPENDITURE. WHEN THE ASSESSEE HAD MADE THE EXPENDITURE ON ACCOUNT OF STAMP DUTY AND REGISTRATION CHARGES, AS THE INCENTIVE SCHEME BY DULY ADVERTISING THE SAME, I DO NOT SEE ANY REASON AS TO HOW THE SAME CANNOT BE TREATED AS REVENUE EXPENDITURE. THIS EXPENDITURE IS IN RELATION WITH THE FLAT WHICH THE ASSESSEE DEALS IN AND THE SAME IS ITS STOCK - IN - TRADE. HENCE, THE EXPENDITURE RELATED TO THE SALE OF THE ITEM IN WHICH THE ASSESSEE DEALS IN, CAN BY NO ST RETCH OF IMAGINATION BE DEEMED TO BE CAPITAL EXPENDITURE. ACCORDINGLY , I SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 1 2 . RE: INTEREST FOR DELAYED PAYMENT AS REGAR D S THE ISSUE ON INTEREST OF DELAYED PAYMENTS TO PARTIES AMOUNTING TO RS.17,999/ - IS CONCERNED, IT WAS SUBMITTED BY THE ASSESSEE THAT THIS IS CHARGED ON ACCOUNT OF DELAYED PAYMENT TO CREDITORS FOR DELAYING THE PAYMENT BEYOND CREDIT PERIOD ALLOWED. 1 3 . THE LD. CIT(A) HAS HELD THAT THI S INTEREST PAYMENT ON DELAYED PAYMENT CANNOT BE TREATED AS COMPENSATORY IN NATURE. HENCE, HE UPHOLD THE DISALLOWANCE MADE BY THE A.O. 1 4 . UPON CAREFUL CONSIDERATION, I FIND THAT THE A.O. HAS MADE THE DISALLOWANCE BY HOLDING THAT THIS INTEREST IS OF PENAL IN NATURE AND CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. THERE IS NO D ISCUSSION WHATSOEVER AS TO HOW THIS IS PENAL PAYMENT , NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE BY 6 ITA NO. 307/MUM/2017 (A.Y. 2012 - 13) M/S. KRUNAL INDUSTRIAL ESTATE DEVELOPERS PVT. LTD. VS. ITO OBSERVING THAT THIS CANNOT BE TREATED AS COMPEN SATORY IN NATURE. THIS OBSERVATION BY THE LD. CIT(A) IS ABSOLUTELY MECHANIC AND DOES NOT SPEAK ANYTHING. WHEN THE ASSESSEE IS PAYING THE CREDITORS INTEREST FOR PAYMENT MADE BEYOND THE CREDIT PERIOD ALLOWED, THE EXPENDITURE IS UNDOUBTEDLY IN RELATIONSHIP T O THE BUSINESS CONDUCTED BY THE ASSESSEE. HENCE, THE SAME IS DULY ALLOWABLE. HENCE, I SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 15 . IN THE RESULT, THIS APPEAL BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.10.2017 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 10.10.2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORD ER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI