RACHANA CONSTRUCTIONS, MUMBAI V. ITO 19(3)(2), MUMBAI

ITA 968/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9277 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-01-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Charitable institution; Procedural lapse
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI VIJAY PAL RA O, JM ./ I.T.A. NO. 968/MUM/2011 ( / ASSESSMENT YEAR: 2004-05) RACHNA CONSTRUCTIONS G-1, SEA PEBBLES PERRY CROSS ROAD, BANDRA (W), MUMBAI-400 050 / VS. CIT(A)-30, MUMBAI ./! ./PAN/GIR NO. AAEFR 1112 N ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : NONE #$ ' % & / RESPONDENT BY : SHRI MANJUNATHA SWAMY ' ( ) % * + / DATE OF HEARING : 20.01.2015 , -. % * + / DATE OF PRONOUNCEMENT : 13.03.2015 / / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-30, MUMBAI (CIT(A) FOR SH ORT) DATED 29.11.2010, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) R/W S. 263 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2004-05 VIDE ORDER DATED 29.12.2009. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE- APPELLANT WHEN THE APPEAL WAS CALLED OUT FOR HEARING, NOR IS THERE ANY ADJOURNMEN T APPLICATION STANDS RECEIVED. THIS, DESPITE SERVICE OF NOTICE OF HEARING BY CONVEYING T HE SAME TO THE ASSESSEE THROUGH RPAD. IN FACT, WE OBSERVE NON REPRESENTATION BY THE ASSESSEE THROUGH OUT, I.E., ON EACH OF THE SEVERAL OCCASIONS ON WHICH ITS APPEAL WAS PO STED FOR HEARING DESPITE ISSUE OF 2 ITA NO. 968/MUM/2011 (A.Y.2004-05) RACHNA CONSTRUCTIONS VS. CIT(A) NOTICES OF HEARING THROUGH REGISTERED POST, WHICH H AVE NOT BEEN RETURNED. UNDER THE CIRCUMSTANCES, IT WAS ONLY CONSIDERED FIT AND PROPE R TO PROCEED WITH THE MATTER, DECIDING THE APPEAL AFTER HEARING THE PARTY BEFORE US. 3. THE APPEAL RAISES TWO ISSUES, PER GROUNDS 1 & 2 RESPECTIVELY, AS UNDER, AND WHICH WE SHALL TAKE UP IN SERIATIM: 1. THE HON. COMMISSIONER OF INCOME TAX (APPEALS) D ISREGARDED THE FACTS THAT AREA OF FLAT IN OLD CONSTRUCTION HELD BY THE TENANT DIVIDEND AMONGST THE FAMILY MEMBERS OF THE TENANTS EQUIVALEN T TO THE SAME AREA HELD BY THEM EARLIER AND WITHOUT ANY CHANGE IN SUCH TOTA L AREA WHICH WAS UNJUSTIFIABLE AND INCORRECT. 2. THE HON. COMMISSIONER OF INCOME TAX (APPEALS) DI SREGARDED THE VERY NATURE OF PAYMENT OF TAXES (PENALTY) TO MUMBAI MAHANAGAR PALIKA AND DISALLOWED SUCH PAYMENTS ADDING THE SAME TO THE TOT AL INCOME OF THE APPELLANT WHICH IS UNJUSTIFIABLE AND WRONG. 4. THE FIRST ISSUE CONCERNS THE EXCESS ALLOTMENT BY THE ASSESSEE, A DEVELOPER, TO THE OLD TENANTS IN THE DEVELOPMENT PROJECT UNDERTAKEN B Y IT. THE BACKGROUND FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS DURING THE RELEV ANT YEAR ENGAGED IN THE EXECUTION OF A CONSTRUCTION PROJECT ROYAL CREST, WHICH INVOLVED THE RAISING DOWN OF AN OLD BUILDING SHRAMIK, OWNED BY CHARITABLE TRUST BY THE NAME OF SCIENTIFIC SOCIALIST EDUCATION TRUST, OCCUPYING THE GROUND FLOOR OF THE SAID BUILDING. TH E UPPER THREE FLOORS HAD SIX TENANTMENTS, OF WHICH FIVE WERE OCCUPIED (CLAUSE 4( A) OF THE PURCHASE-CUM-DEVELOPMENT AGREEMENT DATED 14.10.1999). VIDE CLAUSE 4(B) OF TH E SAID AGREEMENT, THE BUILDER- ASSIGNEE HAD THE OPTION TO SETTLE WITH THE TENANTS THE COMPENSATION TO BE GIVEN TO THEM, EITHER AS ACCOMMODATION OR OTHERWISE, AT HIS OWN RI SK AND COST. AS STATED, IT WAS AGREED TO ALLOT TO THE TENANTS, WITHIN A PERIOD OF 24 MONT HS OF THE COMMENCEMENT CERTIFICATE, IN THE NEW PREMISES, FULLY FURNISHED, I.E., WITH THE S AME AMENITIES AS BEING PROVIDED BY THE DEVELOPER TO THE OTHER BUYERS OF THE NEW PROPERTY, THE SAME AREA THEREIN. THE OWNERS WERE ALSO TO, LIKEWISE, BE PROVIDED THE SAME AREA I N ADDITION TO A CASH COMPENSATION OF RS.50 LACS. THE ASSESSING OFFICER (A.O.) COMPARED T HE AREA OCCUPIED BY THE TENANTS IN THE OLD BUILDING WITH THAT PROVIDED IN THE NEW BUIL DING TO FIND THAT 10 UNITS HAD BEEN 3 ITA NO. 968/MUM/2011 (A.Y.2004-05) RACHNA CONSTRUCTIONS VS. CIT(A) ALLOTTED TO THESE TENANTS. THERE WAS, THUS, AN EXCE SS ALLOTMENT OF FOUR RESIDENTIAL UNITS. THE SAME, REPRESENTING A FREE OF COST ALLOTMENT, WA S NEITHER IN TERMS OF THE AGREEMENT NOR ANY BUSINESS PURPOSE FOR THE SAME WAS SPECIFIED, ID ENTIFIED BY THE A.O. THUS, AND THEREFORE CONSIDERED BY HIM AS THE ASSESSEES DEEME D INCOME U/S. 69A OF THE ACT: 1. SMT. LAXMI PRAKASH RANE, FLAT NO. 202 672 SQ. FT . 2. SMT. NINA RANE, FLAT NO. 204 576 SQ. FT. 3. SMT. LEKHA S. SHAH, FLAT NO. 401 570 SQ. FT. 4. SMT. SHRADDHA SHAH, FLAT NO. 404 570 SQ. FT. 2388 SQ. FT. RELIANCE WAS PLACED BY HIM ON THE DECISION IN THE C ASE OF SUMATI DAYAL VS. CIT [1995] 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE [1971] 82 ITR 540 (SC), BESIDES ON CHUHARMAL VS. CIT [1988] 172 ITR 250 (SC), EXPLAINING THE SCOPE OF T HE WORD/EXPRESSION INCOME. THE SAME FOUND CONFIRMATI ON IN APPEAL FOR ESSENTIALLY THE SAME REASONS (REFER: 2.7 OF THE IMPUGNED ORDER), SO THAT THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED T HE MATERIAL ON RECORD. THE PRIMARY FACTS OF THE CASE, BEING FURNISHED BY T HE ASSESSEE ITSELF, ARE NOT IN DISPUTE. AS IT WOULD APPEAR TO US, THE REVENUE DOES NOT SERIOUSLY DISPUTE OR QUESTIONS, AS MADE OUT BY THE LD. CIT(A), THE ALLOTMENT TO THE OL D TENANTS IN-AS-MUCH AS THE ASSESSEE WAS BOUND TO, PER THE COMPENSATION SCHEME AGREED UP ON WITH THEM, ALLOT THEM THE SAME AREA IN THE NEW BUILDING, BUT THE FACT THAT THE ARE A STANDS ALLOTTED FREE OF COST TO OTHER THAN THE OLD TENANTS. THE ASSESSEE EXPLAINS THAT THE SAM E IS ONLY TO THE FAMILY MEMBERS OF THE OLD TENANTS; LAXMI PRAKASH RANE AND NINA RANE, BEIN G THE DAUGHTERS OF NISHA RANE A BONA FIDE TENANT AND LEKHA SHAH AND SHRADDHA SHAH BEING THE WIVES RESPE CTIVELY OF SATISH S. SHAH AND SANAT S. SHAH, AGAIN ADMITTEDLY TENANTS. WHAT THEN IS THE CONTROVERSY ABOUT ? AS FAR AS THE ASSESSEE-BUILDER IS CONCERNED, ALLO TMENT TO A TENANT OR TO HIS NOMINEE HAS THE SAME LEGAL EFFECT, AS WELL AS, ECONOMIC IMP ACT. THAT THE NOMINEES OR THE NEW ALLOTTEES ARE THE FAMILY MEMBERS OF THE OLD TENANTS AND, IN ALL PROBABILITY, AS STATED, RESIDING ALONG WITH, AND THAT THE BUILT-UP AREA TO AN OLD TENANT COULD NOT EXCEED 840 SQ. FT. AS PER THE GUIDELINES PRESCRIBED BY MHADA, THE REGU LATOR, LENDS CREDENCE TO THE 4 ITA NO. 968/MUM/2011 (A.Y.2004-05) RACHNA CONSTRUCTIONS VS. CIT(A) ASSESSEES CLAIM. WHAT, RATHER, WE WONDER IS THERE TO DOUBT THE GENUI NENESS OF THE ARRANGEMENT ? WE ARE HERE NOT CONCERNED WITH THE TAX IMPLICATIO N OF THE ARRANGEMENT, IF ANY, IN THE HANDS OF THE TENANTS, BUT THE DEDUCTIBI LITY OF THE COST OF THE FREE OF COST ALLOTMENT BY THE ASSESSEE IN THE SETTLEMENT OF THE CLAIM/S OF THE OLD TENANTS IN THE NEW PREMISES ROYAL CREST. WE FIND NO BASIS OR SUBSTAN CE IN THE REVENUES CASE AS THERE IS NOTHING ON RECORD OR EVEN AN IOTA OF EVIDENCE AND, IN FACT, NO CASE MADE OUT TO DOUBT THE GENUINENESS OF THE ALLOTMENTS. IF THE BUILDER CITES THE REGULATIONS RESTRICTING THE ALLOTMENT OF AN AREA BEYOND A PARTICULAR LIMIT, I.E., IN THE NEW PREMISES, IT IS BUT NORMAL TO EXPECT THE TENANT TO SUGGEST THE NAME/S OF CLOSE FAMILY ME MBERS FOR ALLOTMENT OF THE BALANCE AREA, I.E., TO WHICH HE IS ENTITLED BEYOND THAT THE BUILDER COULD ALLOT UNDER THE GUIDELINES ISSUED BY MHADA. WE ARE CONSCIOUS AND ONLY AWARE TH AT THERE COULD BE NO AGREEMENT IN CONFLICT OR VIOLATION OF THE LAW. HOWEVER, THE A GREEMENT TO THAT EXTENT CANNOT BE TERMED AS ILLEGAL BUT ONLY IN BREACH OF THE REGULAT ORY GUIDELINES. WHY, THE TENANT COULD WELL DEMAND CASH CONSIDERATION FOR THE BALANCE AREA . WE DECIDE ACCORDINGLY, SO THAT NO CASE FOR ADDITION IS MADE OUT, AND THE ASSESSEE SUC CEEDS ON ITS GROUND # 1. 6. THE SECOND GROUND CONCERNS THE ISSUE OF DISALLOW ANCE IN THE SUM OF RS.4,33,400/- PAID BY THE ASSESSEE-COMPANY TO MUMBAI MAHANAGAR PA LIKA. THE SAME STANDS DISALLOWED FOR BEING IN THE NATURE OF PENALTY, I.E., CONSTITUT ING AN INFRACTION OF LAW, SO THAT IT WAS NOT ALLOWABLE, MAKING REFERENCE TO THE DECISION BY THE APEX COURT IN MADDI VENKATARAMAN & CO. (P.) LTD. VS. CIT [1998] 229 ITR 534 (SC). THE ASSESSEES CASE, ON T HE OTHER HAND, IS THAT THE SAID CHARGES ARE ONLY FOR PENALIZING AN IR REGULARITY, AND NOT FOR ANY BREACH OF LAW. SANCTIONS ARE TO BE TAKEN BY THE BUILDER FROM BMC A T VARIOUS STAGES OF CONSTRUCTION, WHICH CANNOT BE STOPPED OR PUT IN ABEYANCE, EVEN AS THE APPLICATION FOR THE SAME, I.E., THE SANCTION/S, STANDS DULY MADE, WITH THE ASSESSEE IN FACT RELYING ON VERBAL SANCTIONS BY BMC AUTHORITIES. THE LEVY OF PENALTY IS THUS ONLY T OWARD REGULARIZING THE DELAY, I.E., THE DELAYED SANCTION OR THE CONSTRUCTION CARRIED OUT IN THE INTERREGNUM. 7. WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED T HE MATERIAL ON RECORD. WE DO NOT THINK THAT THE PENALTY LEVIED BY BMC COULD BE DENIE D DEDUCTION AS BUSINESS EXPENDITURE 5 ITA NO. 968/MUM/2011 (A.Y.2004-05) RACHNA CONSTRUCTIONS VS. CIT(A) IF WHAT THE ASSESSEE STATES IS CORRECT. CONSTRUCTIO N COULD NOT BE PUT ON HOLD, WITH THE ASSESSEE ONLY CARRYING OUT THE WORK AS PER THE APPR OVED PLAN AND WITHOUT VIOLATION OF ANY BUILDING GUIDELINES. PROCEDURAL LAPSES WOULD NOT AT TRACT PENALTY. IF, ON THE OTHER HAND, IT IS TOWARD CONSTRUCTION IN BREACH OF ANY SUBSTANTIVE PROVISION, IT IS ONLY A VIOLATION OF LAW. THE REVENUE CLAIMS IT TO BE TOWARD CONSTRUCTION BEY OND THE SCOPE OF COMPLETION CERTIFICATE. THERE IS THOUGH NO MENTION OF ANY SPEC IFIC PROVISION, FOR CONTRAVENING WHICH PENALTY STANDS LEVIED, AS WELL AS THE CORRESPONDING PENAL PROVISION, AND WHICH IS RELEVANT AND NECESSARY. THE ONUS TO ESTABLISH ITS CASE IS ON THE ASSESSEE. THE MATTER IS, ACCORDINGLY, RESTORED BACK TO THE FILE OF THE LD. C IT(A) TO ADJUDICATE AFRESH IN ACCORDANCE WITH THE LAW, WHICH IS WELL SETTLED, AFTER HEARING THE PARTIES BEFORE HIM. WE DECIDE ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 13, 201 5 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' 0) MUMBAI; 1( DATED : 13.03.2015 .(../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 2* ( ) / THE CIT(A) 4. ' 2* / CIT - CONCERNED 5. 5 6 #*(78 , + 78. , ' 0) / DR, ITAT, MUMBAI 6. 6 9 : ) / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' 0) / ITAT, MUMBAI