ACIT, Cirlce-2(2), Hyd, Hyderabad V. Gowri Gopal Hospitals Pvt.Ltd., Hyd, Hyderabad

ITA 334/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6338 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SITHARAMA RAO
• Keywords: Competent authority
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL HYDERABAD BENCHES A (SMC) : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO.334/HYD/2016 ASSESSMENT YEAR 2010-2011 THE ACIT, CIRCLE-2(2), HYDERABAD. VS. M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. PAN AACCS9035Q (APPELLANT) (RESPONDENT) FOR REVENUE : MR. A. SITHARAMA RAO FOR ASSESSEE : -NONE- DATE OF HEARING : 20.07.2016 DATE OF PRONOUNCEMENT : 10 .0 8 .2016 ORDER THIS APPEAL IS FILED AT THE INSTANCE OF THE REVENU E AND IT PERTAINS TO THE A.Y. 2010-2011. THE FOLLOWING GR OUNDS ARE URGED BEFORE THE TRIBUNAL : 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (ASSESSEE) IS CORRECT IN ALLOWING THE APPEAL BY SOL ELY RELYING ON THE DECISION OF THE AHMEDABAD TRIBUNAL'S DECISIO N IN THE CASE OF M/S. V. YADUNANDAN CORPORATION WHEREIN THE EXPENDITURE WAS INCURRED TO CHANGE THE USAGE OF TH E PROPERTY WHEREAS IN THE PRESENT CASE THE EXPENDITU RE WAS INCURRED TOWARDS 'BUILDING PENALIZATION CHARGES' ? 2 ITA.NO.334/HYD/2016 M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS CORRECT BY DIRECTING THE AO TO ALLOW THE EXPENDITURE INCURRED TOWARDS 'BUILDING PENALIZATION CHARGES' WHICH IS NOT AN ALLOWABLE EXPENDITURE U/S. 37(1) OF THE ACT ? 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REND ERING MEDICAL AND DIAGNOSTIC SERVICES. FOR THE YEAR UNDER CONSIDERATION, IT DECLARED TOTAL LOSS OF RS.33,68,182. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE A.O. NOTICED THAT THE ASS ESSEE DEBITED AN AMOUNT OF RS.39,58,945 TOWARDS FEES AND CHARGES UND ER THE HEAD ADMINISTRATIVE CHARGES. ASSESSEE WAS ASKED TO FUR NISH DETAILS OF EXPENDITURE INCURRED UNDER THIS HEAD. IN RESPONSE T HERETO, ASSESSEE FURNISHED A COPY OF THE LEDGER ACCOUNT WHI CH SHOWS THAT THE ASSESSEE PAID AN AMOUNT OF RS.36,31,469 TOWARDS BUILDING PENAL CHARGES AND DEBITED THE SAME UNDER THE SUB-HE AD FEES AND CHARGES. IT IS ADMITTED THAT THE BUILDING PENAL CH ARGES WERE PAID TOWARDS REGULARIZATION OF UNAUTHORIZED CONSTRUCTION OF HOSPITAL BUILDING. THE A.O. OBSERVED THAT THE CHARGES BEING PAID DUE TO VIOLATION OF LAWS IT CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF EXPLANATION TO SECTION 37(1) OF THE ACT. IN OTHERWO RDS, THE PAYMENT IS FOR INFRACTION OF LAW. THEREFORE, THE SAME IS NO T ALLOWABLE AS DEDUCTION. A.O. ACCORDINGLY MADE THE IMPUGNED ADDIT ION. 2.1. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THA T THE AMOUNT PAID TO MUNICIPALITY CANNOT BE TREATED AS PE NALTY BUT IT IS AN ADDITIONAL FEES FOR REGULARIZATION OF CONSTRUCTI ON AND THEREFORE, 3 ITA.NO.334/HYD/2016 M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. NOT COVERED BY EXPLANATION TO SECTION 37 OF THE ACT . LD. CIT(A) RELIED UPON THE DECISION OF THE ITAT AHMEDABAD BENC H IN THE CASE OF ITO VS., M/S. V. YADUNANDAN CORPORATION (COPY NO T AVAILABLE ON RECORD) WHEREIN THE BENCH RELIED UPON THE COORDINAT E BENCH DECISION OF BOMBAY ITAT IN THE CASE OF KAIRA CAN CO ., LTD., VS. DCIT 32 DTR 485 (MUM.) (TRIBU.) AND OBSERVED THAT IF AN EXPENDITURE IS INCURRED WHICH IS AN OFFENCE PROHIBI TED BY THE LAW, THEN IT SHOULD NOT BE ALLOWED WHEREAS IN THE CASE BEFORE THE BOMBAY BENCH THE IMPACT FEES DOES NOT APPEAR TO BE LEVIED IN RESPECT OF ANY BREACH OR VIOLATION OF LAW AND THERE FORE, IT WAS TREATED AS A FEES AND NOT A PENALTY. FOLLOWING THE SAID DECISION, THE LD. CIT(A) SET ASIDE THE ADDITION MADE BY THE A .O. 3. AGGRIEVED, THE REVENUE CONTENDED BEFORE THE TR IBUNAL THAT THE DECISION OF THE HONBLE TRIBUNAL IN THE CA SE OF M/S. V. YADUNANDAN CORPORATION (SUPRA) IS DISTINGUISHABLE O N FACTS INASMUCH AS THE ISSUE IN DISPUTE BEFORE THEM WAS TH E ALLOWABILITY OF EXPENDITURE INCURRED TO CHANGE THE USAGE OF THE PROPERTY. 4. NONE APPEARED ON BEHALF OF THE ASSESSEE THOUGH THE CASE WAS ADJOURNED AT THE BEHEST OF THE COUNSEL FOR THE ASSESSEE. UNDER THESE CIRCUMSTANCES, I PROCEED TO DISPOSE OF THE APPEAL EX- PARTE, QUA THE ASSESSEE. 5. THE MOOT QUESTION BEFORE ME IS, WHETHER THE CHA RGES LEVIED BY THE MUNICIPAL AUTHORITIES WAS TOWARDS FEE S OR IN THE FORM OF PENALTY ?. THE ASSESSEE HAS NOT PLACED ANY MATER IAL ON RECORD TO 4 ITA.NO.334/HYD/2016 M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. INDICATE THAT THE PAYMENT WAS MADE TOWARDS REGULARI SATION AND IT WAS NOT TO COMPOUND AN OFFENCE. EXPLANATION (1) TO SECTION 37 OF THE I.T. ACT SPEAKS OF DISALLOWANCE OF CLAIM OF EXP ENDITURE WHICH IS IN THE FORM OF PAYMENT FOR INFRACTION OF LAW. 6. THE CASE LAW RELIED UPON BY THE CIT(A) APPEARS TO BE NOT ON THE ISSUE WITH WHICH WE ARE CONCERNED HEREIN . THE ITAT, CHENNAI BENCH IN THE CASE OF SHRI C. SHANKAR (ITA.NO.1223/MDS/2008 DATED 17.04.2013) OBSERVED TH AT THE PAYMENT OF THIS NATURE HAS TO BE MADE WHEN ASSESSEE CONTRAVENES THE PLAN APPROVED BY THE COMPETENT AUTHORITY AND MA KES UNAUTHORISED CONSTRUCTION. THE OPTION AVAILABLE BEF ORE SUCH ASSESSEE IS EITHER TO DEMOLISH THE UNAUTHORISED POR TION OR PERMIT THE CIVIC AUTHORITIES TO DEMOLISH THE UNAUTHORISED PORTION AND THEREAFTER, FACE THE PENAL CONSEQUENCE. IN LIEU OF THE ABOVE SAID CONSEQUENCE, IT IS POSSIBLE FOR AN ASSESSEE TO MAKE PAYMENT TO THE APPROPRIATE LOCAL AUTHORITY AND GET THE UNAUTHORISE D CONSTRUCTION APPROVED. THUS, IT IS THE OPTION OF THE CIVIL AUTHO RITY AND NOT THE OPTION OF THE ASSESSEE. THE ITAT, CHENNAI BENCH INT URN, RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COU RT IN THE CASE OF CIT VS. MAMTA ENTERPRISES 266 ITR 356 WHEREIN UN DER SIMILAR CIRCUMSTANCES THE COURT OBSERVED THAT A COMPOUNDING FEE PAID TO THE MUNICIPAL CORPORATION IS A PENALTY WHICH IS NOT DEDUCTIBLE UNDER SECTION 37 OF THE ACT. AGAIN IN THE CASE OF M ILLENNIA DEVELOPERS P. LTD., 322 ITR 401 THE HONBLE KARNATA KA HIGH COURT REITERATED ITS VIEW. THE ITAT B BENCH, PUNE IN TH E CASE OF M/S. 5 ITA.NO.334/HYD/2016 M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. MODY DEVELOPERS VS. JCIT ITA.NOS.1693 & 1672/PUNE/2 013 DATED 26.06.2015 CONSIDERED THIS ISSUE ELABORATELY AND PR EFERRED TO FOLLOW THE DECISION OF THE HONBLE KARNATAKA HIGH C OURT BY OBSERVING THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF AHMEDABAD COTTON MANUFACTURING CO., AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOKNATH & CO., WERE RENDERED PRIOR TO INSERTION OF EXPLANATION TO SECTI ON 37(1) OF THE ACT AND THEREFORE, THEY ARE NOT APPLICABLE TO THE F ACTS OF THE CASE AND ALSO OBSERVED THAT THE HONBLE KARNATAKA HIGH C OURT HAVING DISTINGUISHED THE DECISION OF HONBLE DELHI HIGH CO URT AND FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF HAJI AZIA & ABDUL SHAKOOR BROTHERS VS. CIT 41 ITR 350 (SC) THE VIEW TAKEN THEREIN DESERVES TO BE FOLLOWED AND ACCORDINGLY VIE WED THAT COMPOUNDING FEE PAID BY THE ASSESSEE TO THE MUNICIP AL CORPORATION, ON ACCOUNT OF DEVIATION FROM ORIGINAL SANCTIONED PLAN, DESERVES TO BE TREATED AS A PAYMENT IN THE NATURE O F PENALTY AND THUS, THE SAME IS ATTRACTED BY EXPLANATION TO SECTI ON 37(1) OF THE ACT. 7. THE LD. CIT(A) HAS NOT EXTRACTED THE RELEVANT P ROVISIONS OF MUNICIPAL CORPORATION TO APPRECIATE AS TO THE NA TURE OF PAYMENT. BUT SINCE IT IS A COMMON PHENOMENA IN ALL THE CASES IT CANNOT STAND ON A DIFFERENT FOOTING. HOWEVER, SINCE NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS VERIFIED THE P ROVISIONS BEFORE RECORDING A FINDING AS TO WHETHER IT WAS IN THE FOR M OF FEES OR PENALTY, IN THE LIGHT OF DECISIONS (CITED SUPRA), I DEEM IT FAIR AND 6 ITA.NO.334/HYD/2016 M/S. GOWRI GOPAL HOSPITALS P. LTD., HYDERABAD. REASONABLE TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO IS DIRECTED TO RECONSIDER THE MATTER IN ACCORDA NCE WITH LAW, BEARING IN MIND THE PRINCIPLES SET OUT IN THE AFORE CITED CASE LAW. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS T REATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10.08.2016. SD/- (D. MANMOHAN) VICE PRESIDENT HYDERABAD DATED 10 TH AUGUST, 2016 VBP/- COPY TO 1. ACIT, CIRCLE-2(2), 8 TH FLOOR, B BLOCK, ROOM NO.824, I.T. TOWERS, A.C. GUARDS, HYDERABAD 500 004. 2. M/S. GOWRI GOPAL HOSPITALS P. LTD., C-4, INDUSTR IAL ESTATE, SANATH NAGAR, HYDERABAD 500 018. 3. CIT(A) - 2 , HYDERABAD. 4. PR. CIT-2, HYDERABAD. 5. D.R. ITAT A (SMC) BENCH, HYDERABAD. 6. GUARD FILE