DCIT, Faridabad V. M/s Achiever Builders Pvt. Ltd., Faridabad

ITA 5113/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6370 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: K C SINGHAL
• Keywords: Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5113/DEL/2013 ASSESSMENT YEAR : 2009-10 DCIT, M/S ACHIEVER BUILDERS (P) LTD., CIRCLE-1, KALINDI HILLS, NEAR SAINIK COLONY, FARIDABAD. V. SECTOR-49, FARIDABAD. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAFCA AAFCA AAFCA AAFCA- -- -1265 1265 1265 1265- -- -M MM M APPELLANT BY : MS. Y.KAKKAR, DR RESPONDENT BY : SHRI K.C. SINGHAL, C.A. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED 15.7.2013. THE ONLY GRIEVANCE INVOLVED IN THIS APPEAL IS THE ACTION OF LD CIT(A) BY WHICH HE HAD DELETED AN AMOUNT OF ` .16,95,250/- WHICH WAS DISALLOWED BY ASSESSING OFFICER BE ING AN AMOUNT IN THE NATURE OF PENALTY. THE FACTS OF THE CA SE ARE THAT ASSESSEE IS A BUILDER AND IT HAD PAID AN AMOUNT OF ` .16,.95,250/- AS COMPENSATION TO ITS CUSTOMERS FOR VIOLATION OF PROVISIO N OF AGREEMENT WHICH IT HAD ENTERED INTO WITH THEM. THE PAYMENTS WE RE MADE FOR DELAY IN HANDING OVER OF POSSESSION OF PROPERTIES PURCHA SED BY ITS CUSTOMERS. THE ASSESSING OFFICER HELD SUCH PAYMENTS TO REP RESENT PENALTY AND THEREFORE DISALLOWED THE AMOUNT HOLDING THE PAYMENTS WERE PENAL IN NATURE. THE ASSESSING OFFICER REJECTED TH E CONTENTION OF ASSESSEE THAT THE PAYMENT WAS NOT PENALTY BUT WAS IN THE FORM OF ITA NO513/DEL/2014 2 COMPENSATION WHICH WAS PAID TO PAYEE FOR BREACH OF TE RMS OF AGREEMENT ENTERED INTO WITH ITS CUSTOMERS. 2. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LD CIT(A ) AND LD CIT(A) RELYING UPON A NUMBER OF JUDGMENTS AND ON THE BASIS OF SUBMISSION OF ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE. THE APPELLANT HAD TO PAY A PENALTY OF ` .16,95,250/- TO THE CUSTOMERS SINCE IT HAD TO COMPLY WITH CLAUSE NO.10 OF T HE AGREEMENT WITH CUSTOMERS AS PER WHICH IT HAD TO PAY P ENALTY @ ` .53.80 PER SQ. METRE OR ` .5/- PER SQ.FT. PER MONTH OF THE SALEABLE AREA FOR THE PERIOD OF DELAY. THIS PENALTY WAS NOT LE VIED BY ANY STATUTORY AUTHORITY OR LAW IN FORCE. IT IS A COMMON P RACTICE IN CONSTRUCTION BUSINESS AND APPLIES TO BOTH BUYER OR AS WE LL AS SELLER. THE OBJECTIVE OF THIS PENALTY IS TO COMPENSATE THE OTHER PARTY FOR ANY BREACH OF THE AGREEMENT WITH REGARD T O TIMELY COMPLETION OF THE PROJECT. AS REGARDS PENALTY PAID F OR BREACH OF AN AGREEMENT, IT HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. INDO ASIAN SWITCH GEARS PVT. LTD. ( 1996) 222 ITR 757 (P&H) 1997 THAT THE PENALTY PAID BY ASSESSEE FO R LATE DELIVERY OF GOODS BEING BREACH OF AN AGREEMENT WAS INCIDENTAL TO BUSINESS AND THEREFORE ALLOWABLE U/S 37(1) OF THE I T ACT. WHILE ALLOWING THE CLAIM OF THE ASSESSEE, THE HON'BLE HIGH CO URT HELD AS UNDER:- THE TRUE TEST IS WHETHER THERE IS A BREACH OF LAW OR THE BREACH OF AN AGREEMENT. IF IT IS IN THE LATTER CATEG ORY, THEN DAMAGES PAID WOULD BE TREATED TO BE BUSINESS OR COMMERC IAL ITA NO513/DEL/2014 3 LOSS AND ADMISSIBLE AS DEDUCTION U/S 37(1). SINCE IT WAS INCIDENTAL TO BUSINESS, IT COULD NOT BE DISALLOWED. FURTHER MORE, IN THE CASE OF CIT-II LUDHIANA V. HERO CYCLES LTD(2009) 178 TAXMAN 484 (P&H), THE HON'BLE JURISDIC TIONAL HIGH COURT HELD THAT THE ASSESSEE COULD BE ALLOWED DEDUCTION ON ACCOUNT OF EXTRA CHARGES PAID BY IT TO ELECTRICITY B OARD FOR DRAWING EXTRA LOAD IN PEAK HOURS IN VIOLATION OF PO WER REGULATIONS. WHILE ALLOWING THE DEDUCTION THE HON'B LE HIGH COURT HELD AS UNDER:- THERE IS NO DOUBT THAT PAYMENTS MADE IN THE NATURE O F PENALTIES OR FINES FOR ANY WRONGFUL ACT CANNOT BE ALL OWED AS PERMISSIBLE DEDUCTIONS. BUT MERE LABEL OF THE PAYMENT IS NOT CONCLUSIVE. CERTAIN PAYMENTS MAY BE IDENTICAL TO THE BUSINESS AND HAVE TO BE ALLOWED ON THE TEST OF COMMERCI AL EXPEDIENCY, IF NO VIOLATION OF LAW THE AMOUNT MAY B E ALLOWED AS DEDUCTION. THE TEST HAS TO BE APPLIED FROM CASE TO CASE. IN ADDITION TO THESE TWO JUDICIAL PRONOUNCEMENTS THE FOLLOWING JUDGMENTS CORROBORATE THE STAND THAT PAYMENTS SATISFYIN G THE TEST OF COMMERCIAL EXPEDIENCY HAVE TO BE ALLOWED, IF NO VIOLATION OF LAW OR PUBLIC POLICY IS INVOLVED. HAJI AZIZ & ABDUL SHAKOOER BROTHERS V. CIT (1961) 4 1 ITR 350 (SC). MALWA VANASPATI CHEMICALS CO. V. CIT (1997) 142 ITR 1 37 (SC). PRAKASH COTTON MILLS PVT. LTD. V. CIT (1993) 111 CTR SC 389. CIT V. INDUSTRIAL CABLES (INDIA) LTD. (2007) 212 CTR (P&H) 513. ITA NO513/DEL/2014 4 HENCE, AFTER A CAREFUL CONSIDERATION OF THE FACTS OF THE CASE TOGETHER WITH VARIOUS JUDICIAL PRONOUNCEMENT AND SUB MISSIONS OF THE APPELLANT, I HOLD THAT THE APPELLANT RIGHTLY CL AIMED DEDUCTION OF ` .16,95,250/- ON ACCOUNT OF PENALTY FOR BREACH OF IT S CONTRACT WITH ALLOTTEES REGARDING TIMELY COMPLETION OF THE PR OJECT. THIS GROUND OF APPEAL IS THUS ALLOWED. 3. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, THE LD DR SUBMITTED THAT LD CIT(A) HAD WITHOUT GOING INTO FACTS HAD DELETED THE ADDITION AND SHE FUR THER READ PARA 5.3. OF LD CIT(A)S ORDER WITH THE PROPOSITION THAT LD CIT (A) HIMSELF HAD REFERRED THE AMOUNT AS PENALTY. SHE FURTHER SUBMITTED THAT LD CIT(A) DID NOT GIVE HIS FINDINGS AS TO WHETHER THE PAYMENT WA S COMPENSATORY IN NATURE OR NOT. THEREFORE, WITHOUT EXAMINING THE AGREEMENT, THE LD CIT(A) HAS FAILED TO DISCHARGE HIS DUTY. RELIANCE IN T HIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS: 1. 286 ITR 403 IN THE CASE OF CIT V. JAYA RAM METAL IND USTRIES. 5. THE LD AR, ON THE OTHER HAND, ARGUED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AS THE PAYMENT WAS NOT A STA TUTORILY LIABILITY BUT IT WAS A COMPENSATION PAID TO AGGRIEVE D PARTIES FOR VIOLATION OF PROVISION OF AGREEMENT AND IN THIS RESPEC T HE READ OUT THE ORDER OF LD CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE PAYMENT MADE TO ITS CUSTOMERS WAS IN THE FORM OF COMPE NSATION WHICH WAS PAID TO ITS CUSTOMERS FOR DELAY IN HANDING OV ER THE POSSESSION OF PROPERTIES AND THESE PAYMENTS WERE IN ACCORD ANCE WITH CLAUSE 10 OF AGREEMENT WITHITS CUSTOMERS. THE LIABILITY TO PAY SUCH ITA NO513/DEL/2014 5 COMPENSATION AROSE IN THE COURSE OF BUSINESS OF ASSESSEE. THI S TYPE OF COMPENSATION IS GENERALLY PREVALENT IN THE INDUSTRIE S AND BUILDERS GENERALLY OFFER SOME AMOUNT AS COMPENSATION AGAINST DEL AY IN HANDING OVER THE PROPERTIES. THE CASE LAWS RELIED UPON BY LD DR ARE DISTINGUISHABLE ON THE FACTS., IN THE CASE LAW OF JAYA RAM METAL INDUSTRIES, THE PENALTY WAS PAID AS A FINE TO CENTRAL E XCISE DEPARTMENT FOR RELEASE OF CONFISCATED GOODS AND IT WAS HELD IN T HAT CASE THAT IT WAS VIOLATION OF LAW. THE LD CIT(A) HAS VERY RIGHTLY HEL D THE NATURE OF PAYMENT AS COMPENSATORY AND NOT PENAL. THE CASE LAWS RELIED UPON BY LD CIT(A) ALSO SUPPORTS THE DECISION ARRIVED BY HIM. TH EREFORE, WE DO NOT SEE ANY INFIRMITY IN HIS ORDER. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD DAY O F MAY, 2014. SD/- SD/- (I.C.SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 23.05.2014. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 26.2.2014 DATE OF DICTATION 19.5.2014 ITA NO513/DEL/2014 6 DATE OF TYPING 20.5.2014 DATE OF ORDER SIGNED BY 23.5.2014 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.