WELLWORTH DEVELOPERS, MUMBAI V. ASST CIT CEN CIR 23, MUMBAI

ITA 903/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84507 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 24-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2013
• Court: TRIBUNAL
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.903/MUM/2013 ASSESSMENT YEAR: -2009-10 WELLWORTH DEVELOPERS COMMERZ, 3 RD FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI 400 063. VS.` ASSISTANT COMMISSIONER OF INCOME TAX, CENRAL CIR-23, ROOM NO. 409, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 2.11.2012 OF CIT(A) FOR THE A.Y. 2009-10. THE ASSESSEE HAS RAISE D FOLLOWING GROUND:- THE LEARNED A.O HAS ERRED IN LAW AND FACTS IN DISA LLOWING PAYMENT OF BMC CHARGES OF RS. 34,39,800/- BY TREATING IT AS PENAL IN NATURE A PER EXPLANATION TO SECTION 37(1) OF THE ACT AND NOT ALLOWING THE SAME U/S 37(1) OF THE ACT BY IGNORING THE FACT THAT THE SAME WERE COMPENSATORY I N NATURE AND LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW AND THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE AB OVE ACTIONS OF THE LEARNED A.O. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE PAYMENT OF RS. 34.39 LAKHS TO THE MUMBAI MUNICIPAL CORPORATION TOWARDS REGULARIZATION OF OCCUPATION CE RTIFICATE. THE ASSESSEE EXPLAINED ASSESSEE SHRI R. MURALIDHAR REVENUE BY SHRI R.N. DSOUZA DATE OF HEARING 15.12.2014 DATE OF PRONOUNCEMENT 15.12.2014 WELLWORTH DEVELOPERS 2 | P A G E BEFORE THE ASSESSING OFFICER THAT THE BUILDING COMP LETION CERTIFICATE WAS ISSUED ON 30.03.2000 AND ON THE STRENGTH OF THE SAME, THE ASS ESSEE PROCEEDED WITH HANDING OVER OF POSSESSION OF THE OFFICE PREMISES TO THE RE SPECTIVE PURCHASERS. SUBSEQUENTLY, THE LOCAL AUTHORITY OBSERVED CERTAIN TECHNICAL/LEGA L ISSUES AND IT RECALLED THE SAME. THE LOCAL AUTHORITY, THEREAFTER, RESTORED THE REVOK ED CERTIFICATE ON PAYMENT OF RS. 34.39 LAKH. THE ASSESSEE CLAIMED THAT THERE WAS NO BREACH OF ANY STATUTORY PROVISIONS OF THE ACT. THE ASSESSING OFFICER DID NO T ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT THE AMOUNT PAID BY THE ASSES SEE IS HIT BY THE EXPLANATION TO SECTION 37(1) BEING PENALTY FOR VIOLATION OF LAW. 3. ASSESSEE CHALLENGED THE ACTION OF ASSESSING OFFI CER BEFORE CIT(A) AND CONTENDED THAT THE PAYMENT WAS NOT PENALTY FOR REGU LARIZATION OF OCCUPANCY CERTIFICATE. THE CIT(A) DID NOT AGREE WITH THE SUBM ISSIONS OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICE R VIDE IMPUGNED ORDER. 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE MUNICIPAL AUTHORITIES HAVE GRANTED PERMISS ION FOR REDEVELOPMENT OF THE PROPERTY IN QUESTION VIDE ORDER DATED 1.4.1993. THE IOD WAS ISSUED ON 23 RD SEPTEMBER 1993. THE COMMENCEMENT CERTIFICATE WAS AL SO ISSUED ON 28 TH SEPTEMBER 1993 BY THE BMC. THEREAFTER, THE MUNICIPAL CORPORAT ION ISSUED FULL OCCUPANCY CERTIFICATE OF THE BUILDING IN QUESTION ON 30.03.20 00. HE HAS POINTED OUT THAT SUBSEQUENTLY AS PER THE DIRECTIONS OF HON'BLE HIGH COURT IN A WRIT PETITION FILED BY THE LEGAL HEIRS OF THE OWNER OF THE PROPERTY, THE O CCUPANCY CERTIFICATE GRANTED BY THE AUTHORITY, WAS REVOKED VIDE ORDER DATED 30.5.2005. THE LD. AUTHORIZED REPRESENTATIVE HAS THEN SUBMITTED THAT THE FULL OCC UPANCY WAS SUBSEQUENTLY RESTORED BY THE MUNICIPAL CORPORATION VIDE ORDER DA TED 17.12.2008, THEREFORE, THERE IS NO VIOLATION OF THE ASSESSEE IN OBTAINING THE OC CUPANCY CERTIFICATE WHICH WAS SUBSEQUENTLY RESTORED. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON A NUMBER OF DECISIONS INCLUDING FOLLOWING DECISIONS:- WELLWORTH DEVELOPERS 3 | P A G E (I) AHMEDABAD COTTON MFG. CO. LTD. & ORS. (1194) 205 I TR 163(SC) (II) LOKENATH & CO. (CONSTRUCTION) (1984) 147 ITR 624 (D ELHI HIGH COURT) (III) DARSHAN PROPERTIES (ITA NO. 3098/MUM/2010)(MUMBAI I TAT) (IV) SHREE SHYAM CORPORATION (ITA NO. 553/AHD/2009) (AHM EDABAD ITAT) (V) VRM SHARE BROKING (P) LTD. (2009) 27 SOT 469 (MUMBA I ITAT) (VI) THE STOCK & BOND TRADING (APPEAL NO. 4117 OF 2010 B OM H.C. (14.10.2011) (VII) REGALIA APPARELS P. LTD. (ITAL NO. 88 OF 2013) (BOM H.C) 5. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDER OF CIT(A) AND SUBMITTED THAT THE CIT(A) HAS FOLLOWED THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF MILLENIA DEVELOPERS P. LTD. VS. DCIT (322 ITR 401), WHEREIN, IT WAS HELD THAT REGULARIZATION FEE IS AN AMOUNT PAID FOR COMPOUNDING AN OFFENCE WHICH IS INEVITABLY A PENALTY AND HENCE NOT AN ALLOWABLE DEDUCTION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND REL EVANT MATERIAL ON RECORD. IN THE CASE IN HAND, THE OCCUPANCY CERTIFICATE WAS INI TIALLY ISSUED BY THE MUNICIPAL CORPORATION OF GREATER MUMBAI ON 30.03.2000. IT IS PERTINENT TO NOTE THAT THE FULL OCCUPANCY CERTIFICATE WAS ISSUED IN ACCORDANCE WITH THE APPROVED PLAN. THE REASON FOR WITHDRAWAL OF THE OCCUPANCY CERTIFICATE ISSUED BY THE MUNICIPAL CORPORATION WAS DUE TO THE WRIT PETITION FILED BY THE LEGAL HEIRS O F THE ORIGINAL OWNER OF THE LAND BEFORE THE HON'BLE HIGH COURT IN WP NO. 34/2002, WH EREIN, THE ASSESSEE AS WELL AS THE MUNICIPAL CORPORATION AND GOVERNMENT OF MAHARASH TRA WERE MADE PARTIES AS RESPONDENTS. THE HON'BLE HIGH COURT DIRECTED THE GOV ERNMENT OF MAHARASHTRA TO GIVE THE HEARING WITHIN ONE MONTH TO BOTH THE PARTI ES AND ACCORDINGLY DISPOSED OFF THE WRIT PETITION. IT IS ONLY TO FACILITATE THE HEA RING TO THE LEGAL HEIRS OF THE OWNER OF THE LAND, THE MUNICIPAL CORPORATION WITHDRAWN THE O CCUPANCY CERTIFICATE. IN THE PROCEEDINGS, AS DIRECTED BY THE HON'BLE HIGH COURT, THE MUNICPAL CORPORATION HAS FOUND THAT THERE WAS NO OBJECTION TO DEVELOP AND GR ANT OF OCCUPATION CERTIFICATE FOR THE BUILDING IN QUESTION VIDE ORDER DATED 6.10.2008 AS UNDER:- WELLWORTH DEVELOPERS 4 | P A G E OFFICE OF THE ADDL. COLLECTOR AND C.A. U.L.C HAS ISSUED LETTER U. NO. C/ULC/D-XV/WS- 139/08 DATED 16.06.2008 VIDE PAGE C-171 STATING THA T THE STATE OF MAHARASHTRA HAS REPEALED THE URBAN LAND CEILING AND REGULATION ACT 1976 ON 29-11-2007. THE LAND UNDER REF. IS NOT UNDER ACQUISITION U/S. 10(3) & 1 0(5) OF ULC ACT, 1976, THEREFORE, SAVING PROVISIONS OF REPEALED ACT 1999 IS NOT APPLI CABLE TO THE LAND UNDER REF. THEREFORE THERE OFFICE HAS NOT OBJECTION TO DEVELOP AND GRANT OCCUPATION CERTIFICATE FOR THE BLDG. CONSTRUCTED ON LAND UNDER REF. 7. AFTER COMPLETING THE HEARING, THE MUNICIPAL CORP ORATION RESTORED THE FULL OCCUPATION OF BUILDING IN QUESTION VIDE ORDER DATED 17.12.2008. THUS IT IS CLEAR THAT IT WAS NOT A CASE OF UNAUTHORIZED CONSTRUCTION BEYOND THE PERMISSION UNDER BUILDING BY-LAWS OR SANCTIONED PLAN AND, THEREFORE, THE PAYM ENT IN QUESTION IS NOT FOR REGULARIZATION OF UNAUTHORIZED CONSTRUCTION WHICH CAN BE TERMED AS A COMPOUNDING FEE FOR AN OFFENCE. THE FULL OCCUPANCY CERTIFICATE GRANTED BY THE MUNICIPAL CORPORATION VIDE ORDER DATED 30.03.2000 WAS REVOKED ONLY TO GIVE THE HEARING TO THE LEGAL HEIRS OF THE ORIGINAL LAND OWNERS, THEREFORE, IT APPEARS THAT THERE WAS A DISPUTE BETWEEN THE OWNERS OF THE PROPERTY AND NOT AGAINST THE VIOLATION OF ANY BUILDING BY LAWS IN CONSTRUCTION AND DEVELOPMENT OF THE PROPERT Y. THE PAYMENT IN QUESTION WAS MADE BY THE ASSESSEE FOR THE PERIOD W.E.F 30.05.200 5 WHEN THE OCCUPANCY CERTIFICATE WAS REVOKED TILL 17 TH DECEMBER 2008 WHEN IT WAS RESTORED. IT IS PERTINEN T TO NOTE THAT IT IS NOT A FRESH OCCUPANCY CERTIFICATE ISSUED BY T HE MUNICIPAL CORPORATION BUT THE ORIGINAL CERTIFICATE WAS RESTORED. THIS IS NOT A PA YMENT FOR COMPOUNDING/REGULARIZING THE CONSTRUCTION BUT ONLY TO MEET THE TECHNICALITIES OF GAP BETWEEN THE OCCUPANCY CERTIFICATE REVOKED AND RE STORED. IN THE CASE OF CIT VS. AHMEDABAD COTTON MFG. CO. LTD. & ORS. (SUPRA), THE HON'BLE SUPREME COURT OBSERVED IN PARA 12 AS UNDER:- 21. THEREFORE, WHAT NEEDS TO BE DONE BY AN ASSESSING A UTHORITY UNDER THE ACT, IN EXAMINING THE CLAIM OF AN ASSESSEE THAT THE PAYMENT MADE BY SUCH ASSESSEE WAS A DEDUCTIBLE EXPENDITURE UNDER SECTION 37 ALTHOUGH CA LLED PENALTY IS, TO SEE WHETHER THE LAW OR SCHEME UNDER WHICH THE AMOUNT WAS PAID REQUI RED SUCH PAYMENT TO BE MADE, AS PENALTY OR AS SOMETHING AKIN TO PENALTY, THAT IS IM POSED BY WAY OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW OR THE STATUTORY SC HEME. IF THE AMOUNT SO PAID IS FOUND TO BE NOT A PENALTY OR SOMETHING AKIN TO PENALTY DU E TO THE FACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN EXERCISE OF THE OPTION CONFERRE D UPON HIM UNDER THE VERY LAW OR SCHEME CONCERNED, THEN ONE HAS TO REGARD SUCH PAYME NT AS BUSINESS EXPENDITURE OF THE WELLWORTH DEVELOPERS 5 | P A G E ASSESSEE, ALLOWABLE UNDER SECTION 37, AS AN INCIDEN T OF BUSINESS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS. HOWEVER, IF SUCH PAYMENT BY THE ASSESSEE IS THAT WHICH IS MADE IN EXERCISE OF THE O PTION GIVEN TO SUCH ASSESSEE BY THE LAW OR THE STATUTORY SCHEME, THERE ARISES NO NEED FOR A SSESSING AUTHORITY TO GO INTO THE QUESTION WHETHER THE PAYMENT COULD BE REGARDED AS T HAT MADE AS A MEASURE OF BUSINESS EXPEDIENCY, FOR, IT CANNOT IGNORE THE FACT THAT THE LAW OR THE STATUTORY SCHEME ENABLES INCURRING OF SUCH EXPENDITURE IN THE COURSE OF ASSE SSEE'S BUSINESS. 8. SIMILARLY IN THE CASE OF CIT VS. LOKENATH & CO. (CONSTRUCTION)(SUPRA), THE QUESTION FELL FOR CONSIDERATION OF HONBLE DELHI HI GH COURT WAS THAT THE CLAIM OF DEDUCTION OF RS. 4 LAKH HAVING BEEN PAID FOR RECTIF ICATION OF THE DEFECTS IN THE CONSTRUCTION OF THE BUILDING BEFORE THE ISSUANCE OF OCCUPANCY CERTIFICATE BY THE MUNICIPAL CORPORATION. THE HON'BLE HIGH COURT HAS O BSERVED IN PARA 26 AS UNDER;- 26. THE QUESTION WHETHER THE AMOUNT OF RS. 4 LAKHS PAID BY THE ASSESSEE WAS OR WAS NOT IN THE NATURE OF PENALTY FOR INFRACTION OF MUNI CIPAL LAWS AND BYE-LAWS HAS TO BE ANSWERED IN FAVOUR OF THE ASSESSEES. EXPENSES WHICH ARE PERMITTED AS DEDUCTIONS ARE SUCH AS ARE MADE FOR THE PURPOSE OF CARRYING ON BUS INESS. THEY ARE FOR THE PURPOSE OF KEEPING THE BUSINESS GOING AND OF MAKING IT PAY. TH EY ARE TO ENABLE A PERSON TO CARRY ON AND EARN PROFIT IN THAT BUSINESS. ANY EXPENDITUR E LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS IS AN ALLOWABLE DEDUCT ION IN COMPUTING THE INCOME. WHAT IS MONEY WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPO SE OF TRADE IS A QUESTION WHICH HAS TO BE DETERMINED UPON THE PRINCIPLES OF ORDINARY CO MMERCIAL TRADING OR ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. THE PAYMENT OF RS. 4 LAKH S WAS MADE IN THE COURSE OF THE ASSESSEES' BUSINESS OF THE CONSTRUCTION OF THE BUIL DING WHICH WAS ULTIMATELY TO BE SOLD AS A BUSINESS OF THE ASSESSEE, INASMUCH AS WITHOUT PAY ING THIS AMOUNT THE ASSESSEE COULD NOT HAVE COMPLETED THE BUILDING ACCORDING TO THE PL ANS LAW FULLY. THE PAYMENT WAS VITAL FOR THE ASSESSEES' BUSINESS WHICH CONSISTED IN THE CONSTRUCTION OF THE BUILDING AND ITS SALE FLAT-WISE. THE EXPENDITURE WAS FOR SAVING OF T HE LOSS OF THE ALTERATION OF THE CLOSING STOCK OF THE ASSESSEES. THE EXPENSES INCURRED WERE TO PRESERVE OR IN OTHER WORDS TO SAVE IT FROM EXTINCTION. 9. THERE ARE SERIES OF DECISIONS ON THE POINT WHERE IN DISTINCTION HAS BEEN CARVED OUT BETWEEN THE PENALTY PAID FOR INFRACTION AND FOR IRR EGULARITIES. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE PAYMENT IN QUESTION DOES NOT FALL UNDER THE CATEGORY OF A PENALTY FOR AN OFFENCE WHICH IS PROHI BITED BY LAW. HENCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. WELLWORTH DEVELOPERS 6 | P A G E 10. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF DECEMBER 2014. SD/- SD/- (D. KARUNAKARA RAO) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 15-12-2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI