DCIT, Sambalpur V. Subash Chandra Panda Builders Pvt., Ltd, Kalahandi

ITA 74/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4389 (ITAT-CUTTACK)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 14-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Court: TRIBUNAL
• Department Lawyers: AGITATES
• Keywords: Business expenditure

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 074/CTK/2011 AND C.O.NO.10/CTK/2011 (FILED BY ASSESSEE) (ASSESSMENT YEAR 2005 - 06) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), SAMBALPUR. VERSUS SUBASH CHANDRA PANDA BUILDERS PVT. LTD., DHARAMGARH, BHAWANIPATNA, KALAHANDI. PAN: AAFCS 1535 E (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SMT. PARAMITA TRIPATHY, AR FOR THE RESPON DENT SHRI K.C.JENA, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE AGITATES THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) AS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.26,88,618 MADE BY THE ASSESSING OFFICER U/S .143(3). CROSS OBJECTION HAS BEEN FILED BY THE ASSESSEE RESPONDENT POINTING TO THE LEGALLY JUSTIFIED THE ACTION OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.26,88,618. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME DISC LOSING TOTAL INCOME OF RS.18,66,510 BEING ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S.143(3)/147 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD BEEN SUBJECTED TO LEVY OF PENALTY TOTALLING RS.26,88,618 D EDUCTED BY THE CONTRACTEE DEPARTMENT FROM THE GROSS BILLS FOR THE ASSESSEE NOT HAVING COMPLETED THE CONTRACTED CIVIL CONSTRUCTION ON TIME. THE ASSESSING OFFICER HELD THAT THE EXPENSES INCURRED FOR THE PAYMENT OF PENALTY WAS NOT BUSINESS EXPENDITURE AND DIS ALLOWED THE SAME. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE APPELLANT BEFORE HIM WHEN ON THE BASIS OF THE CONTRACT AGREEMENTS, THE LEARNED CIT(A) HELD THAT THE PENALTIES WERE NOT CL AIMED AS DEDUCTION BUT WERE SHORT DEDUCTION RESULTING IN LOWER RECEIPTS OF INCOME AGAINST THE CONTRACTS WHICH PENALTIES WERE COMPENSATORY IN NATURE. HE HELD THAT NO SEPARATE CLAIM FOR DEDUCTION U/S.37(1) WAS MADE AND IF AT ALL THE SAME WAS MADE AFTER INCO RPORATING ITA NO.074/CTK/2011 2 THE CORRESPONDING INCOME ONLY RESULTED IN LOWER RETURNS FOR THE SAME CONTRACT. BEING COMPENSATORY IN NATURE THEREFORE HE HELD THAT THE SAME WAS ALLOWABLE U/S.37(1). 3. THE LEARNED DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER BY POINTING OUT T HAT THE PENALTIES CANNOT BE CONSIDERED FOR DEDUCTION U/S.37(1) INSOFAR AS THE ASSESSING OFFICER HAD HELD THAT THE NOMENCLATURE WAS PENALTY WHICH WAS RECOVERED FROM THE ASSESSEE AGAINST THE CONTRACT RECEIPTS THEREFORE DID NOT INDICATE THE AMOUNT DEDUCTED AS PENALTY WAS OUT OF THE TOTAL CONTRACT RECEIPTS RENDERED FOR TAXATION. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) RELIED ON CERTAIN DECISIONS OF HONBLE HIGH COURTS BUT DISTINGUISHING THE FACTS OF THE ASSESSEES CASE IN THE L INE OF THE FINDING BY THE ASSESSING OFFICER, HE POINTED OUT THAT IT WAS NOT A PENALTY BUT WAS A BUSINESS LOSS TO THE ASSESSEE FOR HAVING RENDERED THE CONTRACT WORK NOT IN ACCORDANCE WITH THE CONTRACTED AGREEMENTS WAS SUBJECTED TO SHORT DEDUCTION BY THE CON TRACTEES ON THE GROSS PAYMENTS. THE LEARNED CIT(A) THEREFORE ON THESE FACTS CONSIDERED THAT SUCH SHORT DEDUCTION WAS ALLOWABLE U/S.37(1) INSOFAR AS IT BECOMES COMPENSATORY TO THE EXTENT THAT THE AMOUNT OF GROSS RECEIPTS ALSO INCLUDE THE AMOUNT AS PER THE C ONTRACTS. THE SHORT DEDUCTION THEREFORE CANNOT BE HELD AS PENALTY IN THE NATURE OF PAYMENTS FOR ILLEGAL ACT ON THE PART OF THE ASSESSEE. HE FULLY SUPPORTED THE ORDER OF THE LEARNED CIT(A) FOR HIS PART OF SUBMISSIONS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE INCLINED TO UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THE FACTS AND CIRCUMSTANCES AS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER AND AS NOW SUBMITTED BY THE LEARNED DR. THE CONTRACT AGREEMENT PROVIDED FOR SUCH PENALTIES WHICH WERE INVOKED ON THE BASIS OF NON - PERFORMANCE OF THE CONTRACT ON TIME WAS THEREFORE DEDUCTED AS A MATTER OF BUSINESS AGREEMENT AND NOT FOR ANY ILLEGAL ACT ON THE PART OF THE ASSESSEE. THE DEDUCTION HAS BEEN CLAIMED ONLY WHE N THE TOTAL INCOME HAS BEEN RENDERED TO TAX WAS APPROPRIATELY CONSIDERED BY THE LEARNED CIT(A) AS ALLOWABLE DEDUCTION U/S.37(1). NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD EITHER BY THE ASSESSING OFFICER OR BY THE LEARNED DR AS OF ITA NO.074/CTK/2011 3 NOW FOR OUR CON SIDERATION. FINDING NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A), THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE CROSS OBJECTION FILED BY THE ASSESSEE SUPPORTING THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 17 TH JUNE, 2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 17 TH JUNE, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 2(1), SAMBALPUR. 2. THE RESPONDENT: SUBASH CHANDRA PANDA BUILDERS PVT. LTD., DHARAMGARH, BHAWANIPATNA, KALAHANDI. 3. THE CI T, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.