DCIT CEN CIR 8(3), MUMBAI V. LOKHANDWALA SHELTERS (I) P.LTD, MUMBAI

ITA 5000/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0137 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 07-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V VIDYADHAR
• Keywords: Business expenditure
• Section: 143(3); 142(1); 37(1); 37

Judgement Text

1 ITA 5000/MUM/2015 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5000/MUM/2015 (ASSESSMENT YEAR: 2010-11) DY.CIT, CENT.CIR.8(3), MUMBAI VS M/S LOKHANDWALA SHELTERS (I) PVT LTD, 72, GANDHI NAGAR, DAINIK SHIVNER ROAD, WORLI, MUMBAI-18 PAN : AAACM9952E APPELLANT BY SHRI V VIDYADHAR REVENUE BY SHRI MANI JAIN DATE OF HEARING 07-02-2018 DATE OF PRONOUNCEMENT 09-03-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVNUE IS DIRECTED AGAINST ORDER OF THE CIT(A)- 50, MUMBAI DATED 08-06-2015 AND IT PERTAINS TO AY 2 010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CITFA) ERRED IN HOLDING THAT THE PENALTY OF RS. 1,0 5,19,900/~ IS BUSINESS EXPENDITURE ALLOWABLE U/S. 37 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS VIOLATED THE LAW LAID DOWN BY THE SLUM REHABILI TATION AUTHORITY, A STATE GOVERNMENT BODY AND AS SUCH THE PENALTY PAID IS ON ACCOUNT OF INFRINGMENT OF LAW AND NOT ALLOWBLE U/S. 37 OF THE INCOME TAX ACT, 1961.' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT, FI LED ITS RETURN OF INCOME FOR AY 2010-11 ON 14-10-2010 DECLARING TOTAL INCOME OF 2 ITA 5000/MUM/2015 RS.22,66,264. THE CASE HAS BEEN SELECTED FOR SCRUT INY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT, WERE ISSUED. IN RESP ONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS, AS CALLED FOR. THE ASSE SSMENT HAS BEEN COMPLETED U/S 143(3) ON 22-03-2013 DETERMINING THE TOTAL INCOME AT RS.2,08,41,572 INTERALIA MAKING ADDITIONS TOWARDS D ISALLOWANCE OF PENALTY PAID TO SLUM REHABILITATION AUTHORITY (SRA) , MUMBAI OF RS.1,05,19,900, DISALLOWANCE OF SUNDRY EXPENSES OF RS.4,76,813 AND DISALLOWANCE OF RS.6,56,625 TOWARDS TRANSACTIONS WI TH WESTERN OUTDOOR STRUCTURES PVT LTD. AGGRIEVED BY THE ASSESSMENT O RDER, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT (A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS IN RESPECT OF A DDITION MADE BY THE AO TOWARDS DISALLOWANCE OF PENALTY PAID TO SRA WHIC H HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER ON PAGES 5 T O 12. THE ASSESSEE ALSO CHALLENGED THE ADDITION MADE BY THE AO TOWARDS SUNDRY EXPENSES AND TRANSACTIONS WITH WESTERN OUTDOOR STRUCTURES PV T LTD. THE CIT(A), VIDE HIS ORDER DATED 08-06-2016 PARTLY ALLOWED APPE AL FILED BY THE ASSESSEE WHEREIN HE DELETED ADDITION MADE TOWARDS P ENALTY PAID TO SRA U/S 37(1); HOWEVER, CONFIRMED ADDITION MADE TOW ARDS DISALLOWANCE OF SUNDRY EXPENSES AND TRANSACTIONS WITH WESTERN OU TDOOR STRUCTURES PVT LTD. AGGRIEVED BY THE ORDER OF CIT(A), REVENU E IS IN APPEAL BEFORE US. 3 ITA 5000/MUM/2015 3. THE LD.DR SUBMITTED THAT THE LD.CIT(A) ERRED IN HOLDING THAT THE PENALTY OF RS.1,05,19,900 IS BUSINESS EXPENDITURE A LLOWABLE U/S 37 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS VIOLATED THE LAW LAID DOWN BY THE SRA, A STATE GOVERNMENT BODY AND AS SUC H, THE PENALTY PAID ON ACCOUNT OF INFRINGEMENT OF LAW IS NOT ALLOW ABLE U/S 37 OF THE INCOME-TAX ACT, 1961. 4. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, S TRONGLY SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THERE IS A D IFFERENCE BETWEEN PENALTY PAID FOR REGULARIZATION WITHIN THE ALLOWABL E LIMITS AND PENALTY FOR INFRINGEMENT OF LAW. IF THE PENALTY IS PAID TO REG ULARIZE THE CONSTRUCTION WITHIN THE PERMISSIBLE LIMITS OF BYE-LAWS OF SRA, T HEN THE SAME CANNOT BE CONSIDERED AS PENALTY FOR INFRINGEMENT OR VIOLAT ION OF ANY LAW. THE LD.AR FURTHER SUBMITTED THAT ONCE THE CONCERNED AUT HORITY HAS REGULARIZED THE CONSTRUCTION BY ISSUE OF COMMENCEME NT CERTIFICATE, IT IS OBVIOUS THAT THE SAID VIOLATION IS WITHIN THE PERMI SSIBLE LIMITS OF THE CONCERNED LAWS, THEREFORE, CANNOT BE CONSIDERED AS AN ACTIVITY WHICH IS PROHIBITED UNDER THE LAW. THE LD.AR FURTHER SUBMIT TED THAT IT HAS PAID PENALTY TO SRA FOR DELAYED ISSUE OF COMMENCEMENT CE RTIFICATE FOR CERTAIN CONSTRUCTION WHICH WAS DELAYED DUE TO AMBIG UITY IN DEMARCATION OF THE COASTAL REGULATION ZONE. TO CLARIFY THE SAM E, THE NATIONAL INSTITUTE OF OCEANOGRAPHY WAS APPROACHED BY THE MAHARASHTRA C OASTAL ZONE MANAGEMENT AUTHORITY FOR PROPER DEMARCATION OF THE COASTAL REGULATION 4 ITA 5000/MUM/2015 BOUNDARIES. AFTER DUE SURVEY AND DEMARCATION WAS M ADE, FURTHER COMMENCEMENT CERTIFICATE WAS GRANTED. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS CARRIED OUT CERTAIN WORK WHIC H IS AS PER THE APPROVED PLAN, BUT BEFORE OBTAINING THE COMMENCEMEN T CERTIFICATE WHICH WAS BEYOND THEIR CONTROL DUE TO COASTAL REGULATION ZONE AMBIGUITY. THEREFORE, THE SAID PAYMENT CANNOT BE CONSIDERED AS PENALTY PAID WHICH IS IN THE NATURE OF AN OFFENCE OR WHICH IS PROHIBIT ED BY LAW. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE AO DISALLOWED PENALTY PAID TO SRA, MUMBAI U/S 37(1) ON THE GROUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF PENALTY FOR VIOLATION OR PROHIBITION OF A NY LAW, THEREFORE, CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. ACCO RDING TO THE AO, THE EXPLANATIONS OFFERED BY THE ASSESSEE ITSELF WAS AN ADMISSION THAT THE ASSESSEE COMPANY HAS VIOLATED SRA REGULATIONS. THE FACT THAT THE PAYMENT IS MADE FOR REGULARIZATION OF SITE IS WITHI N THE APPROVED PLAN AND HENCE NOT FOR ANY OFFENCE OR ACTIVITY WHICH IS PROHIBITED BY LAW DO NOT FIND SUPPORT FROM SRA ITSELF, AS THE SRA HAS LE VIED PENALTY FOR VIOLATION OF ITS RULES AND REGULATIONS. THE MAIN P URPOSE OF LEVY OF PENALTY IS TO DISCOURAGE THE DEVELOPER FROM CARRYIN G OUT WORK WITHOUT / BEYOND APPROVAL. THE FACT THAT THE IRREGULARITY CO MMITTED WAS WITHIN THE APPROVED PLAN IS NOWHERE REDUCES THE OFFENCE OF THE ASSESSEE. THE PROVISIONS OF SECTION 37 OF THE ACT IS CLEAR AND UN AMBIGUOUS AS PER 5 ITA 5000/MUM/2015 WHICH THE ASSESSEE HAS INCURRED ANY EXPENDITURE WHI CH IS IN THE NATURE OF AN OFFENCE OR WHICH IS PROHIBITED BY THE LAW IS NOT ALLOWABLE AS DEDUCTION. IT IS THE CONTENTION OF THE ASSESSEE TH AT PENALTY PAID TO SRA, MUMBAI IS FOR REGULARIZATION OF CERTAIN CONSTRUCTIO NS WHICH WAS COMMENCED BEFORE ISSUE OF COMMENCEMENT CERTIFICATE, BUT NOT FOR VIOLATION OR INFRINGEMENT OF ANY LAW. THE ASSESSEE FURTHER CONTENDED THAT IT HAS PAID AMOUNT TO SRA FOR OBTAINING COMMEN CEMENT CERTIFICATE BEYOND CERTAIN SPECIFIED PERIOD WHICH WAS DELAYED D UE TO AMBIGUITY IN DEMARCATION OF THE COASTAL REGULATION ZONE. THE AS SESSEE FURTHER CONTENDED THAT THE NATIONAL INSTITUTE OF OCEANOGRAP HY WAS APPROACHED BY THE MAHARASHTRA COASTAL ZONE MANAGEMENT AUTHORIT Y FOR PROPER DEMARCATION OF THE COASTAL REGULATION BOUNDARIES AN D AFTER DULY SURVEYED AND DEMARCATION WAS MADE, FURTHER COMMENCE MENT CERTIFICATE FOR THE PROJECT WAS OBTAINED BELATEDLY DUE THE REAS ONS BEYOND ITS CONTROL. THE FACT REMAINS THAT SRA HAS ISSUED COMM ENCEMENT CERTIFICATE BY COLLECTING APPLICABLE FEES. THIS IT SELF SHOWS THAT THE SAID VIOLATION IS NOT AN OFFENCE UNDER THE ACT. 6. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND FORCE IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT THERE IS A DIFFERENCE BETWEEN PENALTY FOR INFRINGEMENT OR VIOL ATION OF ANY LAW AND PENALTY FOR REGULARIZATION WITHIN THE PERMISSIBLE L IMITS OF BYE-LAWS OF CONCERNED AUTHORITY. IF THE PENALTY IS PAID FOR RE GULARIZATION OF CERTAIN 6 ITA 5000/MUM/2015 CONSTRUCTIONS WITHIN THE PERMISSIBLE BYE-LAWS OF CO NCERNED AUTHORITY, THEN IT CANNOT BE CONSIDERED THAT INFRINGEMENT OR V IOLATION OF ANY LAW. IN THIS CASE, ON PERUSAL OF THE NOTICE AVAILABLE ON RE CORD, WE FIND THAT THE ASSESSEE HAS PAID PENALTY TO SRA, MUMBAI FOR REGULA RIZATION OF CERTAIN CONSTRUCTION WORK WHICH HAD BEEN COMMENCED BEFORE O BTAINING COMMENCEMENT CERTIFICATE FROM THE SRA WHICH IS DUE TO REASONS BEYOND ITS CONTROL AS THERE WAS AN AMBIGUITY IN DEM ARCATION OF THE COASTAL REGULATION ZONE WHICH BEEN LATER CLARIFIED BY THE MAHARASHTRA COASTAL ZONE MANAGEMENT AUTHORITY FROM THE NATIONAL INSTITUTE OF OCEANOGRAPHY AND AFTER DULY SURVEYED AND DEMARCATIO N WAS MADE GRANTED COMMENCEMENT CERTIFICATE FOR WHICH ASSESSEE HAS PAID NECESSARY FEES. THEREFORE, WE ARE OF THE VIEW THAT THE AO HAS ERRED IN TREATING AMOUNT PAID TO SRA, MUMBAI AS PENALTY PAID FOR THE PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW W HICH SHALL NOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. THE CIT (A), AFTER CONSIDERING RELEVANT FACTS AND ALSO DISTINGUISHING THE CASE LAW S RELIED UPON BY THE LD.AO IN THE CASE OF MAMTA ENTERPRISES VS CIT (2004 ) 135 TAXMAN 353 RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE AR E INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. 7 ITA 5000/MUM/2015 ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH MARCH, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 09 TH MARCH, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI