M/S. SILVERWOODS,,MUMBAI vs. ADDITIONAL COMMISSIONER OF INCOME-TAX,,

आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee arises out of the order dated 07-08-2015 passed by the CIT(A)-12, Pune in relation to the assessment year 2006-07.

2 ITA No.1588/PUN/2015 M/s. Ssilverwoods

a Developer and Builder. During the course of assessment

proceedings for the year under consideration, the assessee filed

a revised claim of incurring of further expenses of Rs.78.30

lakh towards the Project completed in the instant year. Such

expenses were actually incurred in a later year in which these

were shown as prepaid expenses as relating to the instant year.

The Assessing Officer (AO) did not accept the revised claim

made before him during the course of assessment proceedings.

Out of total expenses of Rs.59,43,452/- paid to Pune Municipal

Corporation (PMC), the assessee claimed that a sum of

Rs.27,77,074/- was paid to Pune Municipal Corporation as

Premium charges for extra FSI in lieu of stairs case, balcony

and terrace for the project completed in the year under

consideration; a sum of Rs.27,51,578/- were charges paid to

Pune Municipal Corporation to compound the offence of excess

construction in violation of the plan approved by the PMC; and

the remaining sum was towards Development charges etc. The

AO observed that such expenses claimed to have been incurred

by the assessee were not in relation to the projects which were

completed during the year under consideration. He, therefore,

3 ITA No.1588/PUN/2015 M/s. Ssilverwoods

made disallowance, inter alia, of Rs.59,43,452/-. The ld.

CIT(A) found that the expenditure of Rs.27,54,578/-, being,

compounding charges was not allowable in terms of

Explanation (1) to section 37. The other expenses were also

held to be not allowable because the assessee could not co-

relate such expenses with the project completed during the year

under consideration and shown as prepaid in a later Assessment

year 2009-10. Aggrieved by such an order of the ld. CIT(A),

the assessee has come up in appeal before the Tribunal.

relevant material on record. In sofaras the first payment of

Rs.27,51,578/- is concerned, the ld. CIT(A) has invoked the

provisions of Explanation (1) to section 37(1). Such charges

were paid to Pune Municipal Corporation as compounding fee

for offence of excess construction in violation of the plan

approved by the PMC. The Pune Bench of the Tribunal in the

case of Modi Builders (ITA No.1728/PUN/2013), a copy of

which has been placed on record, has held that compounding

charges paid under similar circumstances are hit by the Expl. to

section 37(1) of the Act. The Tribunal while sustaining the

disallowance, has relied on a direct judgment of the Hon’ble

4 ITA No.1588/PUN/2015 M/s. Ssilverwoods

Karnataka High Court in CIT Vs. Mamta Enterprises (2004)

264 ITR 356 (Kar.), in which it has been held that

compounding fine for offence of unauthorized construction is

not allowable in terms of Explanation (1) to section 37. In view

of the direct judgment of the Hon’ble Karnataka High Court in

CIT Vs. Mamta Enterprises (supra), we are inclined to follow

the view canvassed by the Pune Bench of the Tribunal in

preference to another order passed by the Hyderabad Benches

of the Tribunal in which the issue has been decided in favour of

the assessee. On a specific query, the ld. AR could not point

out any direct judgment of any High Court in favour of the

assessee. In view of the above position and respectfully

following the judgment of Hon’ble Karnataka High Court in the

case of CIT Vs. Mamta Enterprises (supra), we hold that the ld.

CIT(A) was justified in sustaining the addition to this extent.

been paid by the assessee to PMC on 06-05-2008, being,

Premium charges for extra FSI in lieu of stairs case, balcony

and terrace relating to project which was completed in the year

under consideration. The AO has categorically recorded in para

no.7 of his order that the plots for the project completed by the

5 ITA No.1588/PUN/2015 M/s. Ssilverwoods

assessee during the year were different from those given in

respect of which the assessee had claimed to have paid such

amount. The AO has given plot Nos. and the name of the

owner for the project completed during the year and the plot

No. and name of the owner for which such payment was made

and found the same to be different. On a specific query, the ld.

AR could not place on record any notice of demand issued by

the PMC to co-relate this payment with the project completed

two years ago. It is a known fact that municipal charges

relatable to a particular building are to be paid before the

obtaining a Possession certificate. Without clearing all the

municipal charges in respect of any building, no NOC is issued.

Obviously the amount paid to PMC in Financial year 2008-09

cannot ordinarily relate to a building where the Possession

certificate was given in the Financial year 2005-06, unless an

evidence to this extent is adduced. In view of the foregoing

discussion, we are satisfied that the assessee could not correlate

this expenditure with the project completed during the year

under consideration. As such, no deduction can be allowed for

this expenditure.

6 ITA No.1588/PUN/2015 M/s. Ssilverwoods

being the amount paid to PMC has been disallowed by the AO

by specifically observing that the plots on which project was

completed during the year was different from those in respect

of which such expenses were paid. No material has been

brought on record to controvert such a view. We, therefore,

uphold the disallowance of Rs.59,43,452/-.

sum of Rs.2,36,780/-, being, the amount of Prepaid expenses

towards purchase of furniture. The facts of this disallowance

and its confirmation by the ld. CIT(A) are similar to those of

the earlier expense. Here again, the assessee could not show

that the purchase of furniture after two years pertained to the

project completed by the assessee during the year. We,

therefore, uphold the disallowance.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 07th May, 2019. सतीश

7 ITA No.1588/PUN/2015 M/s. Ssilverwoods

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. आयकर आयु�(अपील) / The CIT (Appeals)-12, Pune 4. The CIT Central, Pune िवभागीय �ितिनिध, आयकर अपीलीय 5. अिधकरण, पुणे “ए” / DR ‘A’, ITAT, Pune; 6. गाड� फाईल / Guard file. // True copy //

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 06-05-2019 Sr.PS 2. Draft placed before author 06-05-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *