ACIT, CHENNAI V. M/s. Sterling Estates & Properties Limited, CHENNAI

ITA 724/CHNY/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8156 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: V SRINIVASAN
• Keywords: Business expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER] I.T.A.NO.724/MDS/2010 ASSESSMENT YEAR : 2006-07 THE ACIT COMPANY CIRCLE VI(4) CHENNAI VS M/S STERLING ESTATES & PROPERTIES LTD 124, GNT ROAD T. NAGAR CHENNAI 600 017 [PAN AAFCS3024E] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.B SEKARAN RESPONDENT BY : SHRI V.SRINIVASAN O R D E R PER HARI OM MARATHA, JM: THIS APPEAL OF THE REVENUE, FOR ASSESSM ENT YEAR 2006-07, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), DATED 15.2.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A LIMITED COMPANY CARRYING ON THE BUSINESS OF PROPERT Y DEVELOPMENT. FOR THE ASSESSMENT YEAR 2006-07, RETURN OF INCOME W AS FILED ON 30.11.2006 DECLARING TOTAL INCOME OF ` 3,18,018/- AFTER CLAIMING DEDUCTION U/S 80IB(10) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ITA 724/10 :- 2 -: REFERRED TO AS 'THE ACT' FOR SHORT) OF ` . 3,25,38,309/-, BUT THE ASSESSMENT WAS COMPLETED ON 19.12.2008 IN WHICH VA RIOUS ADDITIONS INCLUDING OF ` 7,23,275/- REPRESENTING THE REGULARIZATION CHARGES IN RESPECT OF A PROPERTY SITUATED AT T. NAGAR, WHICH WAS CLAIMED AND DISALLOWED BY THE ASSESSING OFFICER, WERE MADE. TH IS ADDITION OF ` 7,23,275/- WAS, HOWEVER, DELETED BY THE LD. CIT(A). AGAINST THIS DELETION, THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE RECORD. AS PER ASSESSMENT ORDER, THIS AMOUN T WAS NOT ALLOWED AS A BUSINESS EXPENDITURE ONLY BECAUSE ACCORDING TO THE ASSESSING OFFICER THIS DID NOT RELATE TO ASSESSMENT YEAR 2006 -07 WHICH IS UNDER CONSIDERATION. THE LD. CIT(A) HAS ALLOWED THIS EXP ENDITURE TREATING IT AS BUSINESS EXPENDITURE U/S 37(1) IN THE LIGHT OF P ROVISIONS OF SECTION 43B(1) OF THE ACT WHERE UNDER ANY STATUTORY LIABILI TY IS ALLOWED IN THE YEAR OF PAYMENT. THE DEPARTMENT DISPUTES THIS FIND ING OF THE LD. CIT(A) ON TWO COUNTS (I) THAT THIS IS NOT AT ALL A BUSINESS EXPENDITURE BECAUSE IT IS IN THE NATURE OF PENALTY/COMPOUNDING FEES PAID ON ACCOUNT OF INFRACTION OF A PROVISION OF LAW; AND(II ) THAT SUCH COMPOUNDING FEES CANNOT BE TREATED AS A STATUTORY L IABILITY AND ANYTHING PAID ON ACCOUNT OF INFRACTION OF LAW FOR GETTING IRREGULARITIES REGULARIZED WOULD NOT BE COVERED U/S 43B(A) OF THE ACT. IN THIS ITA 724/10 :- 3 -: REGARD, IN GROUND NOS. 2.4 AND 2.5, THE REVENUE HAS RELIED ON TWO DECISIONS CIT VS VARAS INTERNATIONAL P. LTD, 225 ITR 831 (CAL) AND RADHABALLABH SILK MILLS P. LTD VS DY. CIT (12 SOT 4 23) MUM. THE LD. CIT(A) HAS GIVEN HIS FINDING IN PARA 6 OF HIS ORDER WHICH IS BEING EXTRACTED HERE BELOW: COMING TO THE OTHER DISALLOWANCES, IT IS CONTENDED BY THE AR THAT THE REGULARIZATION CHARGES HAVE CRYSTAL LIZED DURING THE YEAR AND IRRESPECTIVE OF THE PERIOD TO W HICH IT RELATES, IT HAS TO BE ALLOWED. HE DREW MY ATTENTI ON IN THIS CONNECTION TO THE PROVISIONS OF SECTION 43B(1) TO BE READ TOGETHER WITH EXPLANATION 2 THEREOF. IT CAN B E SEEN FROM THE SAID PROVISION THAT ANY FEE, CESS OR LEVY PAID DURING THE YEAR HAS TO BE ALLOWED AS A DEDUCTION IRRESPECTIVE OF THE FACT THAT IT RELATES TO A DIFFE RENT YEAR. THE ONLY CONDITION IS THAT IT SHOULD HAVE CRYSTALLI ZED DURING THE YEAR AND PAID NO MATTER TO WHICH PERIOD IT RELATES. THIS ARGUMENT OF THE APPELLANT BEING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43B(1) RE AD WITH EXPLANATION THERETO, NO DISALLOWANCE IS PERMIS SIBLE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. 4. FROM THE ABOVE REASONING, WE ARE UNABLE TO UNDERST AND AS TO HOW THIS REGULARIZATION FEES IS TO BE TREATED AS A BUSINESS EXPENDITURE U/S 37(1) AND AS TO HOW IT IS ALLOWABLE U/S 43B(1) OF THE ACT AND IN VIEW OF THE EXPLANATIONS THEREOF. IN OUR CONSIDERE D OPINION, THE FINDING OF THE LD. CIT(A) ON THIS ISSUE IS DEFINITE LY NOT A WELL REASONED ONE AND FALLS IN THE CATEGORY OF A NON-SPEAKING ORD ER. HENCE, WE ARE CONSTRAINED TO RESTORE THIS ISSUE TO THE FILE OF TH E LD. CIT(A) WITH A ITA 724/10 :- 4 -: DIRECTION THAT HE SHALL DECIDE THE ISSUE, WHICH IS A VERY IMPORTANT ISSUE OF THIS APPEAL, AFTER, EVEN IF NEED BE, CALLING FOR A REMAND REPORT FROM THE ASSESSING OFFICER. NEEDLESS TO MENTION THAT HE SHALL GIVE OPPORTUNITY OF HEARING TO THE ASSESSEE AS PER LAW. CONSEQUENTLY, WE ALLOW THIS APPEAL OF THE REVENUE FOR STATISTICAL PU RPOSES. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.9.2 010. SD/- SD/- ( ABRAHAM P GEORGE ) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 24 TH SEPTEMBER, 10 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR