DCIT, Central Circle- 28, New Delhi V. Maximal Infrastructure Pvt. Ltd., New Delhi

ITA 7238/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7573 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure
• Section: 43B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: E NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.7238/DEL/2017 ASSESSMENT YEAR: 2014-15 DCIT, CENTRAL CIRCLE-28, NEW DELHI VS. M/S. MAXIMAL INFRASTRUCTURE PVT. LTD., R-13, IIND FLOOR, GREATER KAILASH-1, NEW DELHI PAN :AACCT3615R (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORD ER DATED 13/09/2017 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-29, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2014-15, RAISING FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS RIGHT IN DELETING THE ADDITION OF RS.8,17 ,42,528/- BEING AMOUNT DEBITED AS INTEREST EXPENSES TOWARDS DELAYED PAYMENT OF EDC EXTERNAL DEVELOPMENT CHARGES TO HUDA, AS THE SA ME IS APPELLANT BY SH. VIPUL KASHYAP, SR.DR RESPONDENT BY SH. VED JAIN, ADV. DATE OF HEARING 11.08.2021 DATE OF PRONOUNCEMENT 27.08.2021 2 ITA NO.7238/DEL/2017 TREATING IT ERRONEOUSLY AS FULLY ALLOWABLE EXPENDIT URE U/S 37, IS PENAL IN NATURE AS INTEREST HAS BEEN CHARGED BY CON CERNED AUTHORITY FOR DELAY. 2. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUND(S) OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT IN THE S CRUTINY ASSESSMENT ORDER DATED 01/07/2016 IN TERMS OF SECTI ON 143 (3) OF INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WITH REFE RENCE TO THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSI NG OFFICER DISALLOWED INTEREST PAID TO HARYANA URBAN DEVELOPME NT AUTHORITY(HUDA) FOR DELAYED PAYMENT OF EXTERNAL DEV ELOPMENT CHARGES (EDC), WHICH WAS CLAIMED AS REVENUE EXPENDI TURE, OBSERVING AS UNDER: 3.3 THE CONTENTION OF THE AR HAS BEEN CONSIDERED B UT IS FOUND TO BE NOT MAINTAINABLE DUE TO THE FOLLOWING REASONS:- I) FIRSTLY, THE INTEREST PAID BY THE ASSESSEE COMPA NY IS ON ACCOUNT OF DELAYED PAYMENT OF EDC CHARGES TO HUDA. THEREFORE, IT IS AN EXPENSE OF PENAL NATURE ON WHIC H INTEREST HAS BEEN LEVIED @ 18% BY THE CONCERNED AUTHORITY FO R DELAY IN DEPOSITING THE INSTALLMENTS. THEREFORE, THE SAME IS NOT ALLOWABLE AS A BUSINESS EXPENSE. II) SECONDLY, THE EXTERNAL DEVELOPMENT CHARGES (EDC ) IS PAYABLE BY THE DEVELOPER TO THE CONCERNED GOVERNMENT AUTHOR ITY, WHICH IN THIS CASE IS HUDA, FOR WORKS RELATED TO WA TER SUPPLY, SEWERAGE, DRAINS, ROADS, STREET LIGHTS ETC WHICH AR E INTEGRAL PART OF A RESIDENTIAL HOUSING PROJECT AND WOULD THE REFORE DEFINITELY CONSTITUTE PART OF THE COST OF SUCH PROJ ECTS. THEREFORE, THE CONTENTION OF THE AR THAT EDC PAYABL E IS NOT RECOVERABLE FROM BUYERS AND FURTHER THAT IT DOES NO T ADD ANYTHING TO THE PHYSICAL DEVELOPMENT OF THE PROJECT IS NOT ACCEPTABLE. III) FURTHER, THE INTEREST ON EDC, IN THE CASE OF T HE ASSESSEE COMPANY HAS BEEN PAID IN RESPECT OF HOUSING PROJECT WHICH IS PART OF COST OF MATERIALS CONSUMED/WORK IN PROGR ESS WHICH WOULD CONSTITUTE STOCK OF THE ASSESSEE COMPANY AND NOT A 3 ITA NO.7238/DEL/2017 FIXED ASSET AS PER THE ANALOGY OF CAR AS GIVEN BY T HE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, THE AMOUNT OF RS. 8,17,42,528/-, PAID BY THE ASSESSEE COMPANY AS INTEREST TO HUDA FO R DELAYED PAYMENT OF THE EXTERNA! DEVELOPMENT CHARGES (EDC) A ND CLAIMED AS REVENUE EXPENDITURE, IS DISALLOWED AS BEING PENAL A ND CAPITAL IN NATURE, (ADDITION : 8,17,42,528/-) 3. THE ABOVE DISALLOWANCE HAS BEEN DELETED BY THE LEA RNED CIT(A) OBSERVING AS UNDER: 6.1 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANC ES OF THE CASE, SUBMISSION OF THE APPELLANT AND PERUSED THE ASSESSM ENT ORDER. I FIND THAT ON THE IDENTICAL FACTS THE THEN CIT(A)-29 IN THE CASE OF TRIVENI FERROUS INFRASTRUCTURE P. LTD. FOR THE AY 2 012-13 HAS HELD '6.3 IN THE FACTS OF THE PRESENT CASE, THE INTEREST PAYMENT MADE TO THE HUDA ON ACCOUNT OF DELAYED PAYMENT OF E DC CHARGES IS ON ACCOUNT OF AGREEMENT BETWEEN TWO PART IES (APPELLANT AND HUDA) AND SINCE IT DOES NOT FALL WIT HIN THE DEFINITION OF 43B PAYMENT, HENCE IN MY HUMBLE VIEW, SUCH INTEREST PAYMENT FOR THE YEAR UNDER CONSIDERATION I S DEFINITELY A REVENUE EXPENDITURE AND THERE IS NO REASON WHY TH E SAME SHOULD NOT BE ALLOWED FOR THE YEAR UNDER CONSIDERAT ION WHEN ON ALL PREVIOUS YEARS SUCH EXPENDITURE HAS BEEN CLA IMED AND ALLOWED BY THE REVENUE AS A 'REVENUE EXPENDITURE. IN VIEW OF THE ABOVE DISCUSSION, THE PAYMENT OF RS.2,46,24,237/- MADE BY THE APPELLANT ON THE DELAY ED PAYMENT OF EDC CHARGES IS HELD TO BE A REVENUE AND AN ALLOWABLE BUSINESS EXPENDITURE AS HAS BEEN CLAIMED AND ALLOWED IN THEIR YEARS TOO.' I AGREE WITH THE ABOVE DECISION, THEREFORE, ON IDEN TICAL FACTS THE SAME IS FOLLOWED. 4. AGGRIEVED, THE REVENUE IS IN APPEAL RAISING THE GRO UNDS AS REPRODUCED ABOVE. 5. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONF ERENCING FACILITY AND FILED DOCUMENTS AND SYNOPSIS THROUGH E MAIL. 4 ITA NO.7238/DEL/2017 6. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE LEARNED COUNSEL OF THE ASSESSEE BROUGHT TO OUR ATTE NTION THAT IDENTICAL ISSUE IN ASSESSMENT YEAR 2012-13, THE TRI BUNAL IN ITA NO. 5342/DEL/2015, HAS UPHELD THE ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE. THE RELEVANT PART OF THE DECISION OF THE TRIBUNAL (SUPRA) IS REPRODUCED AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PER USED THE ORDER PASSED BY THE AUTHORITIES BELOW. ON GOING THR OUGH THE ORDERS AND MATERIAL REFERRED TO BEFORE US, WE NOTE THAT AS SESSEE DURING THE YEAR HAS INCURRED AN EXPENDITURE OF RS.2,46,24,237/ - ON ACCOUNT OF INTEREST IN RESPECT OF THE EDC CHARGES OUTSTANDING AND PAYABLE TO HUDA. THE AO HAS DISALLOWED THE SAME CONSIDERING IT PENAL IN NATURE AND ALSO ON THE REASONING THAT SUCH EXPENDIT URE SHOULD FORM PART OF THE WORK-IN-PROGRESS AS ASSESSEE IS A DEVEL OPER AND DEDUCTION OF SAME WILL BE AVAILABLE AGAINST THE SAL E OF THE PROJECT. THE CIT (A) HAS HELD THAT SUCH EXPENDITURE IS NOT P ENAL IN NATURE AND THE INTEREST EXPENDITURE PERTAINS TO THE CURREN T YEAR AND IS REVENUE IN NATURE. AS REGARDS THE FIRST ISSUE WHETH ER SUCH EXPENDITURE IS PENAL IN NATURE, THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF M/S FERROUS TOWNSHIP PVT. LTD. VS. DCIT ITA NO. 5812/DEL/2015 DATED 06.09.2017, WHEREBY IT WAS HELD THAT INTEREST PAYABLE ON EDC CHARGES IS NOT PENAL IN NAT URE. THE RELEVANT FINDING OF THE ORDER READS AS UNDER:- 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE IMPUGNED ORDER AS WELL AS THE CASE L AW CITED BY THE LD. COUNSEL OF THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, THE OBSERVATION OF THE HON'BLE HIGH CO URT IN THE CASE OF CIT VS. ENCHANTE JEWELLERY LTD. PASSED IN I T APPEAL NO. 1006 OF 2001 DATED 20.11.2012 REPORTED IN [2013 ] 40 TAXMANN.COM 216 (DELHI) [HEADS NOTES ONLY] ARE REPRODUCED AS UNDER:- 'SECTION 37(1) OF THE INCOME TAX ACT, 1961 BUSINESS EXPENDITURE - ALLOWABILITY OF [PENALTY/ILL EGAL PAYMENTS] - ASSESSEE WAS ENGAGED IN MANUFACTURE AND TRADE OF GOLD JEWELLERY - ASSESSEE CLAIMED THAT IT USED TO I MPORT JEWELLERY MANUFACTURING MACHINERY UNDER EXPORT PROMOTION COUNCIL GOODS SCHEME (EPCG SCHEME) AT A 5 ITA NO.7238/DEL/2017 CONCESSIONAL RATE WITH AN EXPORT OBLIGATION WHICH I T COULD NOT FULFILL AND, THUS, WAS REQUIRED TO PAY IN TEREST TO DGFT - ASSESSEE'S CLAIM FOR DEDUCTION OF INTERES T WAS REJECTED ON GROUND THAT SAID PAYMENT WAS PENAL IN NATURE COMMISSIONER (APPEALS) AS WELL AS TRIBUNAL HELD THA T AMOUNT PAID WAS NOT PENAL IN NATURE AS MUCH AS IT W AS AS PER DECLARED POLICY OF GOVERNMENT AND OCCASIONED BY FAILURE OF ASSESSEE 'S CONDUCT WAS AN OFFENCE OR THAT IT DID ANYTHING THAT WAS PROHIBITED BY LAW, PAYMENT IN QUESTION DID NOT FALL WITHIN MISCHIEF OF EXPLANATIO N BELOW SECTION 38(12) - HELD, YES - WHETHER, THEREFORE, ASSESSEE'S CLAIM WAS TO BE ALLOWED - HELD, YES [PARA 5] [IN FAVOUR OF ASSES SEE] 8. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND RESPECTFULLY FOLLOWING THE PRECEDENT, AS AFORES AID, WE ARE OF THE CONSIDERED VIEW THAT THE FACTS AND CIRCUMSTA NCES OF THE CASE OF THE ASSESSEE'S CASE IS EXACTLY THE SIMILAR AND IDENTICAL TO THE DECISION OF THE HON'BLE HIGH COURT IN THE CA SE OF CIT VS. ENCHANTE JEWELLERY LTD. (SUPRA). THEREFORE, RESPECT FULLY FOLLOWING THE AFORESAID DECISION OF THE HON'BLE DEL HI HIGH COURT IN THE CASE OF CIT VS. ENCHANTE JEWELLERY LTD . (SUPRA), THE ADDITION OF RS. 4,26,000/- CONFIRMED BY THE LD. CIT(A) OUT OF INTEREST PAYABLE IN EDC CHARGES TERMING THE SAME AS PENAL IN NATURE IS HEREBY DELETED AND THE GROUND OF APPEA L RAISED BY THE ASSESSEE IS ALLOWED. 7. AS REGARDS THE SECOND CONTENTION THAT SUCH EXPEN DITURE SHOULD FORM PART OF THE WORK-IN-PROGRESS, IT IS SEEN THAT, THIS INTEREST IS IN RESPECT OF OUTSTANDING EDC CHARGES PAYABLE FOR A PR OJECT THE REALIZATION OF WHICH HAS ALREADY TAKEN PLACE IN EAR LIER YEARS. THUS, INTEREST IS ON AN AMOUNT OUTSTANDING AND PAYABLE FO R THE SERVICES AVAILED IN RESPECT OF THE PROJECT WHICH STANDS ALRE ADY COMPLETED AND SOLD IN EARLIER YEARS. HENCE, SUCH AN INTEREST CANNOT FORM PART OF THE WORK-IN-PROGRESS. THE INTEREST PAYMENT ON TH E OUTSTANDING BALANCE IN RESPECT OF THE TRADE CREDITORS IS REVENU E IN NATURE AND ALLOWABLE EXPENDITURE WHILE COMPUTING BUSINESS INCO ME. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT (A) DEL ETING THE ABOVE ADDITION. 6.1 AS THE TRIBUNAL (SUPRA) HAS HELD THAT THE INTEREST PAYMENT AS REVENUE EXPENDITURE AND NOT PENAL IN NATURE, THE REFORE RESPECTFULLY FOLLOWING THE SAME, THE INTEREST EXPEN DITURE ON 6 ITA NO.7238/DEL/2017 DELAYED PAYMENT FOR EDC CHARGES PAID TO HUDA IN THE YEAR UNDER CONSIDERATION IS ALLOWABLE TO THE ASSESSEE. W E DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) AND ACCORD INGLY, WE UPHOLD THE SAME. THE GROUNDS OF THE APPEAL OF THE R EVENUE ARE ACCORDINGLY DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2021. SD/- SD/- (K.N. CHARY) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH AUGUST, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI