DARSHAN PROPERTIES, MUMBAI V. DCIT CEN CIR 3, MUMBAI

ITA 3098/MUM/2010

• Counselvise Citation: 309819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBAEHAN RAM
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO.3098/MUM/2010 ASSESSMENT YEAR- 2007-08 M/S. DARSHAN PROPERTIES, KRISHNA BHAVAN, 2 ND FLOOR, 67, NEHRU ROAD, VILE PARLE (E), MUMBAI-400 057 PAN-AADFD 9369C VS. THE DCIT CENTRAL CIR 3, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIJAY KOTHARI RESPONDENT BY: SHRI SUBAEHAN RAM O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 22.3.2010 PASSED BY THE LD. CIT(A)-36 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE HAS FILED E-RETURN OF INCOME ON 26 TH MARCH, 2009 DECLARING LOSS OF RS. 23,11,275/-. THE ASSESSMENT ORDER DT. 14 TH DECEMBER, 2009 HAS TAKEN THE INCOME AS PER RETURN A S NIL AND HAS MADE ADDITIONS REGARDING THE ADDITIONAL DEVELOPMENT COST PAID TO THE MUNICIPAL CORPORATION AND ALSO REGARDING SITE DEVEL OPMENT EXPENSES, BMC EXPENSES AND BROKERAGE CHARGES. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A) AND RAISED THE FOLLOWING GROUND: THE LD. DCIT ERRED IN IGNORING THE LOSS AS PER RET URN OF INCOME OF RS. 23,11,275/- WHILE COMPUTING THE TOTAL TAXABLE INCOME FOR A.Y. 2007-08. ITA NO. 3098/M/2010 2 4. THE LD. CIT(A) HELD AS FOLLOWS: THE A.O. IN ITS COMPUTATION OF INCOME HAS TAKEN TH E INCOME AS PER RETURN OF INCOME AT NIL AND THEN MADE VARIOU S ADDITIONS. THE APPELLANT HAS STATED THAT IT HAS FILED A LOSS RETUR N SHOWING LOSS AS PER RETURN OF INCOME OF RS.23,11,275/-. I HAVE PERU SED THE ABOVE SUBMISSIONS AND HAD ASKED THE APPELLANT TO FILE THE COPY OF THE INCOME-TAX RETURN AND THE ACKNOWLEDGEMENT THEREIN. THE APPELLANT FILED THE SAME ON 19 TH MARCH, 2010 AND THE PERUSAL OF IT REVEALS THAT THE RETURN HAS BEEN FILED IN FORM ITR V. THE ACKNOW LEDGEMENT OF THE RETURN OF INCOME BEING FILED IS MENTIONED IN THE CO LUMN E-FILING ACKNOWLEDGEMENT NUMBER 62171021260309 DATED 26 TH MARCH, 2009 WHICH SHOW THAT THE GROSS TOTAL INCOME IS RS.N IL AND THE TOTAL INCOME IS ALSO TAKEN AS NIL. THE FIGURE OF LOSS OF RS.23,11,275/- IS APPEARING ONLY IN THE COLUMN NO.43 OF THE RETURN AN D THE COLUMNS NO.43, 47 AND 51 OF THE RETURN. THESE COLUMNS PERTA IN TO PROFIT BEFORE TAX, PROFIT AFTER TAX AND BALANCE CARRIED TO BALANCE SHEET IN PROPRIETORS ACCOUNT RESPECTIVELY. NONE OF THESE REP RESENT THE TOTAL INCOME. IN FACT IN PART B RELATING TO THE COMPUTATI ON OF TOTAL INCOME, THE TOTAL INCOME CALCULATED AS PER COLUMN 11 IS NIL . FURTHER, IN COLUMN 14 PERTAINING TO LOSS OF CURRENT YEAR TO BE CARRIED FORWARD THE APPELLANT HAS SHOWN NIL. THEREFORE, THERE IS NO DOUBT ABOUT THE COMPUTATION OF INCOME MADE BY THE A.O. IS CORRECT A ND THE GROUNDS OF APPEAL IS DISMISSED. 5. THE LD. COUNSEL FOR THE ASSESSEE SHRI VIJAY KOTH ARI SUBMITTED BEFORE US THAT THE LD. CIT(A) WAS NOT CORRECT IN HO LDING THAT E-FILING ACKNOWLEDGEMENT NO. 62171021260309 DT. 26 TH MARCH, 2009 WHICH SHOWS THAT THE GROSS TOTAL INCOME IS RS NIL AND THE TOTAL INCOME IS ALSO TAKEN AS NIL. THE LD. COUNSEL POINTED OUT AT PAGE 2 OF THE PAPER BOOK WHERE UNDER THE STATEMENT OF INCOME FORMING PART OF THE INCOME TAX RETURN ACKNOWLEDGEMENT AGAINST THE COLUMN TOTAL LO SS THE AMOUNT OF RS. 23,11,275/- APPEARS CLEARLY. THEREFORE, WE ARE CONVINCED THAT THE LD. CIT(A) HAS INADVERTENTLY OMITTED TO SEE THE INC OME TAX RETURN ACKNOWLEDGEMENT WHERE THE TOTAL LOSS IS MADE OUT OF RS. 23,11,275/-. THEREFORE WE ALLOW THE LOSS OF RS. 23,11,275/- FROM THE TAXABLE INCOME FOR A.Y. 2007-08. ITA NO. 3098/M/2010 3 6. THE SECOND GROUND RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) IS AS FOLLOWS: THE LEARNED DY. COMMISSION OF INCOME-TAX ERRED IN DISALLOWING RS.24,24,200/- BEING THE ADDITIONAL DEVELOPMENT COS T CHARGED BY BMC. 7. BEFORE THE LD. CIT(A) THE AR OF THE ASSESSEE STA TED THAT THE SAID EXPENSES WAS PAID TO THE MUNICIPAL CORPORATION OF G REATER MUMBAI AS PER ORDER DT. 21.4.2007. THE AR ALSO SUBMITTED THE ORDER OF THE MUNICIPAL CORPORATION AND POINTED OUT TO PARA 3 TO 5 OF THE SAME AND PEADED BEFORE THE LD. CIT(A) THAT THE EXPENDITURE W AS REVENUE IN NATURE AND SHOULD BE ALLOWED. 8. THE LD. CIT(A) HELD AS FOLLOWS: THE A.O. HAS IN PARA 3 DEALT WITH THE ISSUE RELATIN G TO THE BMC EXPENSES, DEVELOPMENT COST ETC. FROM THE PERUSAL OF THE DETAILS FILED BY THE APPELLANT, THE A.O. FOUND THAT IT HAS CLAIMED RS.24 ,24,200/- AS BMC EXPENSES REDEVELOPMENT COST. VIDE ITS LETTER DATED 11.12.09, THE APPELLANT STATED THAT IT HAD PAID ADDITIONAL DEVELOPMENT COST TO THE CORPORATION TO REGULARIZE THE CONSIDERATION. THE ASSESSING OFFICER HELD IT IS CAPITAL IN NATURE AND DISALLOWED THE SAME ON THE FOLLOWING GRO UNDS: 1. THE PAYMENT ON ADDITIONAL DEVELOPMENT COST IS A ONE TIME AFFAIR. 2. THE CONDONATION OF UNAUTHORIZED DEVELOPMENT WHICH W AS IN VIOLATION OF THE DIMENSIONS SANCTIONED, HAS ENTITLE D THE APPELLANT TO REGULARIZE THE EXTRA FSI WHICH WAS A BENEFIT OF ENDURING NATURE. THEREFORE, IT WAS DISALLOWED. I HAVE PERUSED THE SUBMISSIONS OF THE APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. THE ORDER DATED 17/4/07 O F THE MUNICIPAL COMMISSIONER PRODUCED BY THE APPELLANT IN CONNECTIO N WITH THE AFORESAID ADDITION CLEARLY MENTIONS IN PARA 4 THAT THE SAID AMOUNT IS A PENALTY AND IN PARA 5(III) STATES IS AN ENHAN CED FINE FOR CARRYING OUT WORK BEYOND APPROVAL. THE EXPENDITURE INCURRED BY THE APPELLANT IS CERTAINLY A ONE TIME EXPENDITURE A ND HAS ALSO GIVEN HIM BENEFIT OF ENDURING NATURE. THE HON'BLE ITAT, M UMBAI E BENCH ITA NO. 3098/M/2010 4 IN THE CASE OF RADHABALLABH SILK MILLS PVT. LTD. VS . DY. CIT, CIRCLE 4(1), MUMBAI (2007) 12 SOT 423 MUM HAS HELD THAT TH E PAYMENT MADE TO BMC AS PENALTY TO REGULARIZE UNAUTHORIZED C ONSIDERATION CARRIED OUT WITHOUT OBJECTION APPROVAL FROM BMC CAN NOT BE TREATED AS REVENUE EXPENDITURE. FURTHER, THE HON'BLE ITAT, MUMBAI I BENCH IN THE CASE OF NATIONAL PLASTIC LTD. VS. ITO, WD 1( 2)-1 (2007) 11 SOT 415 MUM HAS HELD THAT THE AMOUNT PAID AS PENALTY FO R CONSIDERATION OF BUILDING WITHOUT TAKING PERMISSION FROM THE CONCERNED ADMINISTRATIVE/REGULATORY AUTHORITY CANNO T BE ALLOWED U/S. 37(1) AS IT WAS PENAL IN NATURE. IT CAN THEREF ORE, SEEN THAT ON BOTH THE GROUNDS, THE STAND OF THE A.O. IS UPHELD A ND THE GROUND OF THE APPEAL OF THE APPELLANT FILED BY THE APPELLANT IS DISMISSED. 9. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER OF THE MUNICIPAL CORPORATION WHICH STATES IN PARA 3 TO 5 IS AS UNDER: 3. I APPROVE THE REQUEST TO GRANT AREA COVERED BY STAIRCASE, LIFT, LIFT LOBBY AREA FREE OF FSI BY CHARGING PREMIUM OF RS.3,07,800/- AND THAT OF LIFT MACHINE ROOM, STAIRCASE ROOM, TOP MOST STAIRCASE, ELEVATED WATER TANK FREE OF FSI WITHOUT CHARGING PR EMIUM AS PER PROVISIONS OF CLAUSE 35(2) (C) OF D.C. REGULATIONS, 1991 AND AS PER POLICY IN FORCE. 4. UNDER THE PROVISIONS OF SECTIONS 53(3) READ WITH SE CTION 44 OF M. R. AND T.P. ACT, 1966 AND HAVING BEEN CONVINCED THAT THERE IS NO VIOLATION OF FSI IN THIS CASE, I PASS THE ORDERS FO R REGULARIZATION OF THE WORK CARRIED OUT BEYOND CC OF 2 ND TO 4 TH PART FLOORS AND BEYOND APPROVAL 4 TH PART TO 7 UPPER FLOORS AND THAT OF ELEVATION FEATU RES IN THIS CASE BY RECOVERING THE PENALTY AS PER DETAILS IN PARAGRAPH 5(III) BELOW. 5. IN VIEW OF ABOVE, AS PER THE PARAGRAPH 19(H) OF HON 'BLE HIGH COURT ORDER, THE THREE INGREDIENTS OF THE PREMIUM A RE WORKED OUT AND I PASS THE FOLLOWING ORDER : I) THE LOSS OF FACILITY AS A RESULT OF CONDONATION/CON CESSION IS ASSESSED AT MARKET VALUE AND WORKED OUT AS RS.3,29, 700/- TO BE PAID TO THE OCCUPANTS OF THE BUILDING AFTER FORM ATION OF SOCIETY. TILL SUCH TIME SAID AMOUNT TO BE KEPT WITH MCGM AS A DISBURSEMENT AMOUNT TOWARDS COMPENSATION FOR LOSS O F FACILITY/AMENITY IN THE SAID NEIGHBOURHOOD OF THE B UILDING UNDER REFERENCE. II) I PASS THE ORDER THAT AN AMOUNT OF RS.59,900/- SHAL L BE PAID TO MCGM TOWARDS INFRASTRUCTURE DEVELOPMENT. ITA NO. 3098/M/2010 5 III) AN AMOUNT OF RS.20,34,600/- WHICH IS AN ENHANCED FI NE FOR CARRYING OUT WORK BEYOND APPROVAL THE DEVELOPER SHALL PAY AFORESAID AMOUNT STATED AT SR. NO.2, 3 AND 5 WITHIN 30 DAYS FROM RECEIPT OF THIS ORDER FAILING WHICH I DIRECT E.E.B.P (H&K/E) TO PURSUE THE ACTION BY FOLLOWING D UE PROCESS OF LAW. 10. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS LOKE NATH & CO. (CONSTRUCTION) 147 ITR 0624 AND STATED THAT THE LD. CIT(A) ERRED I N INTERPRETING THE ORDER DT. 17.4.2007 OF THE MUNICIPAL COMMISSIONER P RODUCED BY THE ASSESSEE WHERE IT IS MENTIONED IN PARA 4 THAT THE A MOUNT PAID IS A PENALTY AND IN PARA 5(III) STATES THAT IT IS AN ENH ANCED FINE FOR CARRYING OUT WORK BEYOND APPROVAL. 11. THE LD. COUNSEL FURTHER SUBMITTED THAT THE DELH I HIGH COURT HAS HELD THAT THE AMOUNT PAID TO MUNICIPALITY AS COMPEN SATION FOR CONDONING DEVIATIONS FROM ORIGINAL SANCTION AND ACC EPTING REVISED PLAN OF CONSTRUCTION IS DEDUCTIBLE AS BUSINESSMAN EXPEND ITURE AND NOT PENALTY FOR INFRACTION OF LAW. THIS IS EXACTLY THE CASE OF THE ASSESSEE WHICH IS THE LD. CIT(A) HAS MISCONSTRUED. 12. HE FURTHER SUBMITTED THAT THIS CASE DOES NOT CO ME UNDER CLAUSE 52 OF THE MAHARASHTRA REGIONAL AND TOWN PLANNING AC T 1956 WHICH IS UNDER THE HEAD PENALTY FOR UNAUTHORIZED DEVELOPMENT OR FOR USE OTHERWISE THAN IN CONFORMITY WITH DEVELOPMENT PLAN. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 14. IN THIS CASE THE ASSESSEE GOT THE ORIGINAL BUIL DING PLANS SANCTIONED AND COMMENCED THE CONSTRUCTIONS. THE ASSESSEE HAD N O RIGHT TO MAKE ITA NO. 3098/M/2010 6 DEVIATIONS FROM THE SANCTIONED PLAN OR TO CONTINUE THE CONSTRUCTION AFTER THE SANCTION HAD LAPSED. ANY CONSTRUCTIONS THUS MAD E WOULD BE DEEMED TO HAVE BEEN ERECTED WITHOUT A PROPER SANCTION. THE COMMITTEE, HOWEVER, HAS THE POWER TO SANCTION REVISED PLANS SO AS TO RE GULARISE THE DEVIATIONS OR GIVE EX POST FACTO SANCTION FOR THE CONSTRUCTION S MADE AFTER THE SANCTION HAD LAPSED BY ACCEPTING BY WAY OF COMPENSA TION SUCH SUM AS IT MAY DEEM REASONABLE. IT IS AT THAT STAGE THAT THE A SSESSEES HAD TO CONSIDER THE QUESTION OF PAYMENT ON THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING OR ON GROUNDS OF COMMERCIAL EXPE DIENCY. SEEN IN THE LIGHT OF THE LAW NOTICED ABOVE, THE ASSESSEES HAD T HE DESIRE TO PRESERVE THE BUILDING AND TO SAVE A PART OF IT FROM DEMOLITI ON. THE EXPENDITURE WAS FOR SAVING OF THE LOSS ON THE ALTERATION OF THE CLOSING STOCK OF THE ASSESSEES. SUCH AN EXPENDITURE HAS TO BE PERMITTED AS A DEDUCTION MADE FOR THE PURPOSE OF CARRYING ON OF BUSINESS. THE QUE STION WHETHER A PARTICULAR EXPENDITURE IS A REVENUE EXPENDITURE INC URRED FOR THE PURPOSE OF BUSINESS MUST BE VIEWED IN THE LARGER CONTEXT OF THE ASSESSEES' BUSINESS, NECESSITY OR EXPEDIENCY. THE EXPENDITURE OF PAYMENT OF COMPENSATION INCURRED BY THE ASSESSEES HAS TO BE RE GARDED AS AN INTEGRAL PART OF THE PROFIT-EARNING PROCESS OF THE ASSESSEES. THE PORTION OF THE BUILDINGS THUS SAVED FROM ALTERATION OR DEMOLIT ION REMAINED AS A BUSINESS STOCK AVAILABLE FOR SALE FLAT-WISE. THE AS SESSEES BY THIS OUTGOING OF RS. 4 LAKHS PROCURED THE PORTION OF THE BUILDING BY WHICH THE ASSESSEES MADE PROFIT. THE PAYMENT IS NOT IN THE NA TURE OF PENALTY FOR INFRACTION OF LAW AND IS A PERMISSIBLE DEDUCTION IN ARRIVING AT THE BUSINESS PROFIT. THEREFORE WE ALLOW THIS GROUND RAI SED BY THE ASSESSEE. 15. THE GROUND NOS. 3, 4 AND 5 ARE AGAINST THE DISA LLOWANCE OF CLAIM OF SITE DEVELOPMENT EXPENSES OF RS. 2,17,554/-, RS. 69,048/- BEING BMC EXPENSES AND RS. 60,101/- BEING THE BROKERAGE EXPEN SES. 16. THE LD. CIT(A) HELD AS FOLLOWS: ITA NO. 3098/M/2010 7 BEFORE ME, THE APPELLANT RELIED ON THE SUBMISSIONS MADE BEFORE THE AO THAT SINCE THE EXPENSES WERE INCURRED EVEN THOUGH PROJECT WAS COMPLETED EARLIER AND THE SAME SHOULD H AVE BEEN ALLOWED. HE ALSO PRODUCED THE LEDGER ACCOUNTS RELA TING TO SITE DEVELOPMENT EXPENSES. I HAVE PERUSED THE ABOVE SUBMISSIONS. THE SAME IS NOT ACCOMPANIED WITH ANY DETAILS AS TO HOW THE SITE DEV ELOPMENT EXPENSES HAVE BEEN INCURRED ALMOST 3 YEARS AFTER TH E CONSTRUCTION WORK HAD BEEN COMPLETED. NO VOUCHERS REGARDING THE SAME WERE PRODUCED. THEREFORE, IN THE ABSENCE OF THE SAME, T HE ADDITIONS MADE BY THE AO IS SUSTAINED AND THESE GROUNDS OF TH E APPEAL OF THE APPELLANT ARE DISMISSED. 17. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TO US THAT PAGE 4 OF THE PAPER BOOK THESE HAVE BEEN SHOWN IN THE STATEME NT OF WIP STOCK A/C AS ON 31 ST MARCH, 2007. 18. WE HEARD BOTH THE PARTIES. WE FIND THAT EVERY THING HAS BEEN SHOWN IN WORK IN PROGRESS AND THEREFORE THERE IS NO QUESTION OF DISALLOWANCE WITH RESPECT TO THE SAME. THEREFORE WE ALLOW THESE GROUNDS OF THE ASSESSEE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE, 2011 SD/- SD/- (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH JUNE, 2011 RJ ITA NO. 3098/M/2010 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3098/M/2010 9 DATE INITIALS 1 DRAFT DICTATED ON: 20 . 0 6 . 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 21 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______